[Federal Register Volume 68, Number 33 (Wednesday, February 19, 2003)]
[Proposed Rules]
[Pages 8138-8140]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-3915]



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Part III





Securities and Exchange Commission





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17 CFR Part 201



Rules of Practice; Proposed Rule

  Federal Register / Vol. 68, No. 33 / Wednesday, February 19, 2003 / 
Proposed Rules  

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 201

[Release Nos. 33-8190; 34-47355; 35-27650; 39-2405; IA-2109; IC-25933; 
File No. S7-04-03]


Rules of Practice

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing for 
comment amendments to its Rules of Practice to formalize new policies 
designed to improve the timeliness of its administrative proceedings. 
The proposed changes include specifying in all orders instituting 
proceedings a maximum time period for completion by an administrative 
law judge of the initial decision in the proceeding, establishing 
policies disfavoring requests that would delay proceedings once 
instituted, and creating time limits for the negotiation and submission 
of offers of settlement to the Commission. If these proposed changes 
are adopted, the Commission intends to take additional steps to reduce 
delay in its internal deliberations on appeals from hearing officers' 
initial decisions and from final determinations of self-regulatory 
organizations and, accordingly, proposes to amend current guidelines 
for issuance of Commission opinions.

DATES: Comments should be received on or before March 21, 2003.

ADDRESSES: To help us process and review your comments efficiently, 
comments should be sent by hard copy or by e-mail, but not by both 
methods.
    Comments sent by hard copy should be submitted in triplicate to 
Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549-0609. Alternatively, comments 
may be submitted electronically at the following e-mail address: [email protected]. All comment letters should refer to File No. S7-04-
03; this file number should be included on the subject line if e-mail 
is used. All comment letters received will be available for public 
inspection and copying in the Commission's Public Reference Room at the 
same address. Electronically submitted comments will be posted on the 
Commission's Internet Web site (http://www.sec.gov). The Commission 
does not edit personal identifying information, such as names or 
electronic mail addresses, from electronic submissions. Interested 
persons submitting comments should only submit information that they 
wish to make publicly available.

FOR FURTHER INFORMATION CONTACT: Margaret H. McFarland, Deputy 
Secretary, or J. Lynn Taylor, Assistant Secretary, at (202) 942-7070, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609.

SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to 
Rules 161, 360, 450, and 900 of its Rules of Practice [17 CFR 201.161, 
201.360, 201.450, and 201.900].

I. Discussion

    The Commission adopted, after notice and comment, comprehensive 
revisions to its Rules of Practice that became effective on July 24, 
1995. These revisions were the result of an approximately two-and-a-
half year study by the Commission's Task Force on Administrative 
Proceedings that culminated in a comprehensive report. The Task Force 
found that the fundamental structure of the Commission's administrative 
process was sound and successfully protected the essential interests of 
respondents, investors, and the public, but that some changes were 
necessary. The Task Force recommended changes to the Rules of Practice 
in an effort to set forth applicable procedural requirements more 
completely, in a format easier to use, and to streamline procedures 
that had become burdensome.
    Promoting the timely adjudication and disposition of administrative 
proceedings was one of the principal goals of this project. While many 
of the rule amendments were designed to improve efficiency and 
timeliness, the Commission as part of this project did not impose firm 
deadlines for completion of the proceedings. Instead it included, as 
Rule 900, a series of non-binding goals for the completion of each step 
in the administrative process. Rule 900 included a ten month guideline 
for completion of the hearing and issuance of the initial decision by 
the administrative law judge and it contained an eleven month target 
for completion of deliberations by the Commission when it reviews 
appeals of administrative law judges' initial decisions and appeals of 
determinations of the securities self-regulatory organizations. In the 
seven years since the adoption of these non-binding targets, the 
Commission and its administrative law judges have generally failed to 
meet these goals.
    Based upon this experience with non-binding completion dates, the 
Commission has determined that timely completion of proceedings can be 
achieved only through the adoption of mandatory deadlines and 
procedures designed to meet these deadlines. Because there is a wide 
variation in the subject matter, complexity and urgency of 
administrative proceedings, the Commission believes that a ``one-size-
fits-all'' approach to timely disposition is not feasible. Instead the 
Commission is considering adoption of a procedure in which it would 
specify, in the order instituting proceedings, a deadline for 
completion of the hearings process and the issuance of an initial 
decision. In every non-settled administrative proceeding, the 
Commission's Order Instituting Proceedings would specify the maximum 
time for completion of the hearing and issuance of the initial 
decision. This deadline would be either 90, 180, or 270 days, in the 
Commission's discretion, after consideration of the type of proceeding, 
the complexity of the matter, and its urgency.
    As provided in amended Rule 360, if during the proceeding the 
presiding hearing officer were to decide that the proceeding could not 
be concluded in the time specified, the hearing officer could request 
an extension of the stated deadline. To obtain an extension, the 
hearing officer would first consult with the Chief Administrative Law 
Judge. If the Chief ALJ concurs in the need for an extension, the Chief 
ALJ would file a motion with the Commission on behalf of the hearing 
officer explaining why circumstances require an extension and 
specifying the length of the extension. An extension could be granted 
by the Commission, in its discretion, on the basis of the motion filed 
by the Chief ALJ. Parties to the proceeding would be provided copies of 
the motion and could separately or jointly file in support of or in 
opposition to the request. Any such motion by the Chief ALJ would have 
to be filed no later than thirty days prior to the expiration of the 
time period specified in the Order Instituting Proceedings.
    To complement this new procedure, the Commission is also proposing 
to amend Rule 161 to make explicit a policy of strongly disfavoring 
extensions, postponements or adjournments except in circumstances where 
the requesting party makes a strong showing that the denial of the 
request or motion would substantially prejudice their case. This 
proposed amendment to Rule 161 would effect a significant change in 
administrative cease and desist proceedings. Section 21C(b) of the 
Securities Exchange Act of 1934 (and parallel provisions in the

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other Federal securities laws) requires that the notice instituting 
proceedings ``shall fix a hearing date not earlier than 30 days nor 
later than 60 days after service of the notice unless an earlier or a 
later date is set by the Commission with the consent of any respondent 
so served.'' Under current practice, parties routinely request 
extensions of the 60-day deadline, and the hearing officers routinely 
grant such requests. The proposed amendment would exempt these requests 
from the policy of strongly disfavoring such requests, absent a strong 
showing of substantial prejudice. Comment is requested on the impact of 
the proposed change on the scheduling of cease and desist proceeding 
hearings, in particular whether respondents will have adequate time to 
prepare for a hearing 60 days after service of the notice for the 
proceeding.
    If these or substantially similar rules are adopted, the Commission 
intends to provide guidance to its staff that they should not seek or 
support extensions or stays not consistent with this standard. 
Similarly, staff would be instructed to adopt new procedures to ensure 
that settlement negotiations do not delay the hearing process. These 
proposed procedures are described in proposed Rule 161(d)(2).
    Finally, the Commission recognizes that it too must shoulder 
responsibility for delays in its appellate review process. During the 
past year, the Commission has changed certain internal processes in an 
effort to reduce delay in its deliberations. Building upon these 
changes, if these rule proposals are adopted, Commission staff involved 
in the adjudicative process will be provided instructions designed to 
substantially reduce the time taken to complete its appellate review 
duties. Accordingly, the Commission is proposing an amendment to Rule 
900 reducing the guideline for issuance of Commission opinions from 
eleven months to seven months from the date of an appeal.
    As part of this initiative to expedite appellate review, the 
Commission is proposing to amend Rule 450 to provide that opening 
briefs must be filed within 30 days of the date of a briefing schedule 
order rather than the current 40 days.

II. Administrative Procedure Act and Regulatory Flexibility Act

    The Commission finds, in accordance with the Administrative 
Procedure Act, 5 U.S.C. 553(b)(3)(A), that this revision relates solely 
to agency organization, procedures, or practice. It is therefore not 
subject to the provisions of the Administrative Procedure Act requiring 
notice, opportunity for public comment, and publication. The Regulatory 
Flexibility Act, 5 U.S.C. 601 et seq., also does not apply. 
Nonetheless, the Commission has determined that it would be useful to 
publish these proposed rule changes for notice and comment, before 
adoption.
    Following the expiration of the comment period, after consideration 
of all comments received, the Commission intends to take prompt action 
on this proposal.

III. Statutory Basis and Text of Proposed Amendment

    These rule amendments are proposed pursuant to section 19 of the 
Securities Act, 15 U.S.C. 77s; section 23 of the Securities Exchange 
Act, 15 U.S.C. 78w; section 20 of the Public Utility Holding Company 
Act, 15 U.S.C. 79t; section 319 of the Trust Indenture Act, 15 U.S.C. 
77sss; sections 38 and 40 of the Investment Company Act, 15 U.S.C. 80a-
37 and 80a-39; and section 211 of the Investment Advisers Act, 15 
U.S.C. 80b-11.

List of Subjects in 17 CFR Part 201

    Administrative practice and procedure.
    For the reasons set forth in the preamble, Title 17, Chapter II of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 201--RULES OF PRACTICE

    1. The authority citation for part 201, Subpart D, is revised to 
read as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77h-1, 77j, 77s, 77u, 
78c(b), 78d-1, 78d-2, 78l, 78m, 78n, 78o(d), 78o-3, 78s, 78u-2, 78u-
3, 78v, 78w, 79c, 79s, 79t, 79z-5a, 77sss, 77ttt, 80a-8, 80a-9, 80a-
37, 80a-38, 80a-39, 80a-40, 80a-41, 80a-44, 80b-3, 80b-9, 80b-11, 
and 80b-12.
    2. Section 201.161 is amended by:
    a. Removing paragraph (b)(1);
    b. Redesignating paragraph (b)(2) as paragraph (d)(1); and
    c. Adding paragraphs (c) and (d)(2).
    The additions read as follows:


Sec.  201.161  Extensions of time, postponements and adjournments.

* * * * *
    (c)(1) Considerations in determining whether to extend time limits 
or grant postponements, adjournments, and extensions. In considering 
all motions or requests pursuant to paragraph (a) or (b) of this 
section, the Commission or the hearing officer should adhere to a 
policy of strongly disfavoring such requests, except in circumstances 
where the requesting party makes a strong showing that the denial of 
the request or motion would substantially prejudice their case. In 
determining whether to grant any requests, the Commission or hearing 
officer shall consider, in addition to any other relevant factors:
    (i) The length of the proceeding to date;
    (ii) The number of postponements, adjournments or extensions 
already granted;
    (iii) The stage of the proceedings at the time of the request;
    (iv) The impact of the request on the hearing officer's ability to 
complete the proceeding in the time specified by the Commission; and
    (v) Any other such matters as justice may require.
    (2) This policy of strongly disfavoring requests for postponement 
will not apply to any request by a respondent to postpone commencement 
of a cease and desist proceeding hearing beyond the statutory 60 day 
period.
    (d)(1) Time limit. * * *
    (2) Stay pending Commission consideration of offers of settlement. 
If the Commission staff and one or more respondents in the proceeding 
file a joint motion notifying the hearing officer that they have agreed 
in principle to a settlement on all major terms, then the hearing 
officer shall stay the proceeding as to the settling respondent(s), or 
in the discretion of the hearing officer as to all respondents, pending 
completion of Commission consideration of the settlement offer. Any 
such stay will be contingent upon the settling respondent(s) submitting 
to the Commission staff, within fifteen business days of the stay, a 
signed offer of settlement in conformance with Sec.  201.240, and 
within twenty business days of receipt of the signed offer, the staff 
submitting the settlement offer and accompanying recommendation to the 
Commission for consideration. If the parties fail to meet either of 
these deadlines or if the Commission rejects the offer of settlement, 
the hearing officer must be promptly notified and, upon notification of 
the hearing officer, the stay shall lapse and the proceeding will 
continue.
    3. Section 201.360 is amended by:
    a. Redesignating paragraph (a) as paragraph (a)(1); and
    b. Adding paragraph (a)(2).
    The addition reads as follows:


Sec.  201.360  Initial decision of hearing officer.

    (a)(1) * * *
    (2) Time period for filing initial decision. In the Order 
Instituting Proceedings, the Commission will specify a time period in 
which the hearing officer's initial decision must be filed with the 
Secretary. In the

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Commission's discretion, after consideration of the nature, complexity, 
and urgency of the subject matter, and, with due regard for the public 
interest and the protection of investors, this time period will be 
either 90, 180 or 270 days from the date of the Order. In the event 
that the hearing officer presiding over the proceeding determines that 
it will not be possible to issue the initial decision within the 
specified period of time, the hearing officer should consult with the 
Chief Administrative Law Judge. Following such consultation, the Chief 
Administrative Law Judge may determine, in his or her discretion, to 
submit a motion to the Commission requesting an extension of the time 
period for filing the initial decision. This motion must be filed no 
later than 30 days prior to the expiration of the time specified in the 
Order for issuance of an initial decision. The motion will be served 
upon all parties in the proceeding, who may file with the Commission 
statements in support of or in opposition to the motion. If the 
Commission determines that additional time is necessary or appropriate 
in the public interest, the Commission shall issue an order extending 
the time period for filing the initial decision.
* * * * *


Sec.  201.450  [Amended]

    4. Section 201.450 is amended by revising the phrase ``within 40 
days'' to read ``within 30 days'' in the second sentence of paragraph 
(a).


Sec.  201.900  [Amended]

    5. Section 201.900 is amended by:
    a. Removing paragraph (a)(1)(i);
    b. Redesignating paragraphs (a)(1)(ii) through (a)(1)(iv) as 
paragraphs (a)(1)(i) through (a)(1)(iii); and
    c. In newly redesignated paragraph (a)(1)(iii), revise the phrase 
``within 11 months'' to read ``within seven months''.

    By the Commission.

    Dated: February 12, 2003.
Jonathan G. Katz,
Secretary.
[FR Doc. 03-3915 Filed 2-18-03; 8:45 am]
BILLING CODE 8010-01-P