[Federal Register Volume 69, Number 135 (Thursday, July 15, 2004)]
[Notices]
[Pages 42472-42473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16046]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49991; File No. SR-Amex-2004-49]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Allow Amex Hearing Officers 
to Preside Over Default and Settlement Proceedings Without Empanelling 
Members of the Hearing Board To Serve on an Amex Disciplinary Panel

July 9, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 28, 2004, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to amend Section 1(b) of Article V of the Amex 
Constitution, and Rule 2(b) of the Amex Rules of Procedure in 
Disciplinary Matters, to allow Amex hearing officers to preside over 
default and settlement proceedings without empanelling members of the 
Hearing Board to serve on an Amex Disciplinary Panel. The text of the 
proposed rule change is available at the Amex and at the Commission.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for its proposal and discussed any 
comments it received regarding the proposal. The text of these 
statements may be examined at the places specified in Item IV below. 
The Exchange has prepared summaries, set forth in Sections A, B and C 
below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Article V, Section 1(b) of the Amex 
Constitution, and Rule 2(b) of the Amex Rules of Procedure in 
Disciplinary Matters, to allow Amex hearing officers to preside over 
default and settlement proceedings without empanelling members of the 
Hearing Board to serve on an Amex Disciplinary Panel (``Disciplinary 
Panel'' or ``Panel''). Article V, Section 1(b) of the Amex Constitution 
currently requires disciplinary proceedings to be held before a Panel, 
which consists of a hearing officer who serves as Panel Chairman, and 
two to four persons selected from the Hearing Board.\3\ Consistent with 
the Amex Constitution, Rule 2(b) of the Rules of Procedure in 
Disciplinary Matters states that the Panel Chairman must review the 
Statement of Charges initiating a disciplinary proceeding or the 
Stipulation of Facts and Consent to Penalty (``Stipulation''), and 
select members of the Hearing Board to serve on a Disciplinary Panel. 
The Amex believes that the requirement to appoint panelists from the 
Hearing Board, which includes vetting each panelist's background for 
experience and conflicts of interest, can cause unnecessary delays in 
resolving default and settlement proceedings. There are no exceptions 
to the Panel selection process in default and settlement hearings, and 
the Exchange believes that the uncontested nature of such proceedings 
warrants a more efficient and cost-effective approach.\4\
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    \3\ Exchange Officials and other persons are appointed to the 
Hearing Board in accordance with Article V, Section 1(b)(2) of the 
Amex Constitution and Rule 1 of the Amex Rules of Procedure in 
Disciplinary Matters. Members of the Hearing Board are not 
compensated by the Exchange, but rather volunteer their time to 
adjudicate Amex disciplinary matters.
    \4\ The Exchange does not propose to alter the panel selection 
process in contested hearings.
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    A default hearing arises when a member, member organization or an 
employee thereof fails to respond to a Statement of Charges. In 
accordance with Article V, Section 1 of the Amex Constitution, failure 
to respond to a Statement of Charges results in an admission of the 
charge or charges.
    A settlement hearing arises when the Exchange and a respondent 
successfully negotiate a resolution to an Enforcement investigation, 
which includes sanctions. The settlement may be negotiated before the 
issuance of a Statement of Charges, or in connection with a Statement 
of Charges before a hearing on the merits has begun. The result of a 
settlement negotiation is memorialized in a Stipulation.\5\ When 
presented with a Stipulation for review, a Disciplinary Panel has three 
alternatives: (1) Accept the Stipulation; (2) reject the Stipulation 
based on a belief that the penalty agreed upon by the parties is too 
low or that the proposed settlement is otherwise inappropriate; or (3) 
if the panel finds mitigating factors, lower the penalty in the 
Stipulation.\6\ If the parties cannot negotiate a Stipulation that is 
acceptable to the Disciplinary Panel, the matter proceeds to a 
contested hearing.
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    \5\ In settlement proceedings, the respondent neither admits nor 
denies the allegations set forth in the Statement of Charges or the 
Stipulation.
    \6\ See Article V, Section 2 of the Amex Constitution and Amex 
Rule 345(k).
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    Given the limited number of alternatives that can be taken by the 
Disciplinary Panel in default and settlement proceedings and, as 
described below, the use of sanction guidelines, precedent memoranda 
and the procedures for review by the Amex Adjudicatory Council 
(``AAC'')\7\ and the Amex Board, the Exchange believes that it is 
appropriate for the hearing officer to preside over such proceedings 
without convening a full disciplinary panel.
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    \7\ The AAC, which is comprised of Floor and Public Governors, 
has the authority to act on behalf of the Board with respect to any 
appeal or review of a disciplinary proceeding or any review of a 
Stipulation. See Article II, Section 6(a) of the Amex Constitution. 
Upon the request of any four of its members, the Board may review 
any determination of the AAC. See Article V, Section 1(d) of the 
Amex Constitution and Amex Rule 345(g).
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    All disciplinary actions are subject to Amex Sanction Guidelines. 
When a particular violation is not addressed by Amex Sanction 
Guidelines, it is the policy of the Exchange to use NASD Sanction 
Guidelines, to the extent applicable and absent sufficient reason to 
depart from those guidelines. In addition, for each disciplinary 
action, the Exchange will prepare a ``precedent memorandum'' 
highlighting factually similar cases and the penalty or penalties 
associated therewith.\8\ The Amex believes that the use of sanction 
guidelines and precedent memoranda ensures the fair and consistent 
assessment of penalties.
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    \8\ Precedent memoranda are provided to both respondents and 
members of the Disciplinary Panel.
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    Pursuant to Article V, Section 1(c) of the Amex Constitution and 
Amex Rule 345(f), any determination or penalty imposed by a 
Disciplinary Panel may be appealed to, or called for review by, the 
AAC. The AAC has authority to affirm, modify or remand any 
determination or

[[Page 42473]]

penalty imposed by a Disciplinary Panel. Similarly, pursuant to Article 
V, Section 2 of the Amex Constitution and Amex Rule 345(k), any 
Disciplinary Panel determination in connection with a Stipulation may 
be called for review by the AAC. If called for review, the AAC has 
authority to affirm or lower the penalty associated with the 
Stipulation or to reject the Stipulation.
    In view of the foregoing, the Exchange believes that a three to 
five member Disciplinary Panel is not necessary in default and 
settlement hearings, as such proceedings are uncontested. In default 
proceedings, the facts are undisputed, as the respondent is deemed to 
have admitted each allegation in the Statement of Charges. In 
settlement proceedings, the Exchange and the respondent have negotiated 
and agreed to the terms of a settlement as evidenced by the 
Stipulation. With respect to the appropriateness of penalties assessed 
in default and settlement proceedings, the hearing officer will be 
informed by sanction guidelines and precedent memoranda. Moreover, in 
light of the AAC and the Board's authority to review the outcome of any 
disciplinary action, the Amex believes sufficient safeguards exist to 
ensure the fairness of the Exchange's disciplinary process. As an added 
safeguard, this proposed rule change preserves a hearing officer's 
authority to select members of the Hearing Board to serve on a 
Disciplinary Panel in default and settlement proceedings when the 
hearing officer believes that their judgment or expertise is required.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act \9\ in general, and furthers the 
objectives of Section 6(b)(7) of the Act \10\ in particular in that it 
is designed to provide a fair and efficient procedure for the 
disciplining of members and persons associated with members. Moreover, 
the Amex believes the proposed rule change furthers the objectives of 
Section 6(b)(5) of the Act \11\ in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, to protect investors and the 
public interest, and is not designed to permit unfair discrimination 
between customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78(f)(b).
    \10\ 15 U.S.C. 78(f)(b)(7).
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Amex consents, the Commission will:
    (A) By order approve the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-Amex-2004-49 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-Amex-2004-49. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
Amex. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-
Amex-2004-49 and should be submitted on or before August 5, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16046 Filed 7-14-04; 8:45 am]
BILLING CODE 8010-01-P