[Federal Register Volume 67, Number 56 (Friday, March 22, 2002)]
[Notices]
[Pages 13379-13380]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6899]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45566; File No. SR-Amex-2001-68]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change by the American Stock Exchange LLC to Adopt Sanctioning 
Guidelines for Violations of the Exchange's Order Handling Rules

March 15, 2002.

I. Introduction

    On September 4, 2001, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),1 and Rule 19b-4 
thereunder,2 a proposed rule change to adopt sanctioning 
guidelines for violations of its options order handling 
rules.3 The proposed rule change was published for comment 
in the Federal Register on February 13, 2002.4 No comments 
were received on the proposed rule change. This order approves the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange filed this proposed rule change pursuant to the 
provisions of Section IV.B.i of the Commission's September 11, 2000 
Order Instituting Public Administrative Proceedings Pursuant to 
Section 19(h)(1) of the Act, which required the Exchange to adopt 
rules establishing, or modifying existing, sanctioning guidelines 
such that they are reasonably designed to effectively enforce 
compliance with options order handling rules. See Securities 
Exchange Act Release No. 43268 (September 11, 2000), Administrative 
Proceeding File No. 3-10282 (``Order'').
    \4\ See Securities Exchange Act Release No. 45412 (February 7, 
2002), 67 FR 6777.
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II. Description of the Proposal

    The Exchange proposes to adopt sanctioning guidelines for 
violations of its options rules related to firm quotes (Exchange Rule 
958A), limit order display (Exchange Rule 958A),\5\ priority, parity, 
and precedence (Exchange Rules 111, 126, 155, 950, and 958),\6\ and 
trade reporting (Exchange Rule 992). The Exchange also proposes to 
adopt sanction guidelines for its rule regarding anti-competitive 
behavior and harassment (Exchange Rule 16).
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    \5\ The Exchange has an option limit order display rule filing 
pending with the Commission. See SR-Amex-00-27.
    \6\ According to the Exchange, it does not have an explicit 
definition of its members' obligation of ``best execution'' owed to 
its customer. The Exchange states that its rules regarding firm 
quotes, limit order display, priority, parity and precedence, 
however, collectively define the obligations of members with respect 
to orders and, therefore, embody the concept of best execution.
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    The Exchange has developed the proposed sanction guidelines for use 
by the various bodies adjudicating disciplinary matters in determining 
appropriate sanctions.\7\ These bodies include Disciplinary Panels, the 
Amex Adjudicatory Council and the Amex Board of Governors 
(``Adjudicators''). The proposed guidelines provide both a range of 
fines as well as non-monetary sanctions that could be assessed against 
offending members. Fine amounts would differ depending on the number of 
disciplinary actions that have been brought by the Exchange against the 
particular member or member organization.\8\ The proposed guidelines 
would also allow for non-monetary sanctions such as suspension, 
expulsion, or other sanctions in egregious cases. The guidelines may 
also be used by parties to a disciplinary action in entering into a 
stipulation of facts and consent to penalty.
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    \7\ The Exchange submitted to the Commission a letter, for which 
it requested confidential treatment, proposing how its regulatory 
staff would aggregate violations of the order handling rules, where 
the violations are identified through the Exchange's automated 
surveillance system. See letter from Richard T. Chase, Executive 
Vice President, Amex, to John McCarthy, Associate Director, Office 
of Compliance, Inspections and Examinations, Commission, dated 
December 24, 2001.
    \8\ When determining whether an action is the first disciplinary 
action, the Adjudicators would consider disciplinary actions with 
respect to violative conduct that occurred within the two years 
prior to the misconduct at issue. Recent acts of similar misconduct 
may be considered to be aggravating factors. For purposes of the 
proposed rule change, this two year look back provision would apply 
on a rolling basis.
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    The proposed sanction guidelines contain an introductory section 
that explains the overall purpose of the guidelines and sets forth 
general principles that apply to all sanctions determinations. The 
proposed introductory section also includes principal considerations 
for determining sanctions that may be considered as aggravating or 
mitigating factors. The proposed sanctioning guidelines contain 
individual guidelines that provide specific monetary and non-monetary 
sanctions generally applicable to the violations at issue and list 
additional principal considerations for the specific violations.

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.9 In particular, the Commission believes that the 
proposed rule change is consistent with Section 6(b)(5) of the 
Act,10 which requires, among other things, that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to remove impediments to and perfect the mechanism of a free and 
open market, and to protect investors and the public interest. The 
Commission also finds that the proposed rule change is consistent with 
Section 6(b)(6) of the Act,11 which requires that the rules 
of an exchange provide that its members be appropriately disciplined 
for violations of exchange rules, the Act, and rules and regulations 
thereunder, by expulsion, suspension, limitation of activities, 
functions, and operations, fine, censure, being suspended or barred 
from being associated with a member, or any other fitting sanction.
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    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    10 15 U.S.C. 78f(b)(5).
    11 15 U.S.C. 78f(b)(6).
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    Moreover, the Commission notes that the Exchange submitted a 
letter, for which it requested confidential treatment, proposing how 
its regulatory staff would aggregate violations of the order handling 
rules, where such violations are identified through the Exchange's 
automated surveillance systems.12 The Commission believes 
that the compliance thresholds proposed in this letter provide a 
reasonable first step and should assist the Exchange in disciplining 
its members for violations of the Exchange's order handling rules. The 
Commission expects, however, that as compliance rates improve, the 
Exchange will adjust the compliance thresholds accordingly. 
Consequently, the Commission's approval of the proposed rule change is 
contingent on the Exchange providing notice to the Commission's Office 
of Compliance Inspections and Examinations of any future changes to 
this letter, and to any other sanctioning guidelines not codified in 
the Exchange's rules.
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    \12\ See supra note 7.
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    At this time, the Commission believes the proposed sanctioning 
guidelines are reasonably designed to effectively enforce compliance 
with the options order handling rules. Nevertheless, the Commission 
expects the Exchange to

[[Page 13380]]

continue to evaluate the adequacy of the proposed sanctioning 
guidelines to determine whether they do, in fact, effectively enforce 
compliance with the options order handling rules.13
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    \13\ The Commission's examination staff will also monitor the 
application of these guidelines to determine whether they do, in 
fact, improve member compliance with the options order handling 
rules.
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IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and rules 
and regulations thereunder.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-Amex-2001-68) is approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-6899 Filed 3-21-02; 8:45 am]
BILLING CODE 8010-01-P