[Federal Register Volume 69, Number 150 (Thursday, August 5, 2004)]
[Notices]
[Pages 47477-47479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17872]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50126; File No. SR-PCX-2004-45]


Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of 
Filing of Proposed Rule Change and Amendment No. 1 To Amend the PCX 
Sanctioning Guidelines To Enforce Compliance With the Exchange's FOCUS 
Reports Filing Requirements

July 30, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 17, 2004, the Pacific Exchange, Inc. (``PCX'' 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 PCX. The Exchange filed an amendment to 
the proposed rule change on July 1, 2004.\3\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The July 1, 2004 amendment (``Amendment No. 1'') replaced 
the original filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The PCX proposes to amend the PCX sanctioning guidelines in order 
to effectively enforce compliance with the Exchange's Financial and 
Operational Combined Uniform Single (``FOCUS'') Reports filing 
requirements. The text of the proposed rule change is below. Proposed 
new language is in italics.
Rule 10.16
Pacific Exchange Sanctioning Guidelines
    (a)-(e)--No change.
    (f) Specific Sanctioning Guidelines for Recordkeeping and Financial 
Requirements Rules.
    (1) Financial Reports `` PCX Rule 4.11(b)(1).
    (A) Principal Considerations in Determining Sanctions.
    (i) See list of Principal Considerations applicable to all 
violations as set forth in PCX Rule 10.16(d).
    (B) Monetary Sanctions.
    (i) First Disciplinary Action Fine of $1,000 to $5,000.
    (ii) Second Disciplinary Action Fine of $2,000 to $10,000.
    (iii) Subsequent Disciplinary Action Fine of $3,000 to $50,000.
    (iv) To determine if an action is the first disciplinary action, 
consider disciplinary actions with respect to violative conduct that 
occurred within the two years prior to the misconduct at issue. As 
indicated in the General Principles, as set forth in PCX Rule 10.16(b), 
recent acts of similar misconduct may be considered to be aggravating 
factors.
    (C) Suspension, Expulsion, or Other Sanctions. For the first 
disciplinary action, consider a letter of caution to the named party. 
In egregious cases, consider suspending the named party with respect to 
any or all activities or functions for up to two years. In particularly 
egregious cases involving a pattern of misconduct, consider expelling 
the OTP Holder or OTP Firm, withdrawing approval of the responsible 
approved person, and/or permanently barring a named party from 
employment or association with any OTP Holder or OTP Firm.
* * * * *

[[Page 47478]]

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 the PCX sanctioning guidelines in 
order to effectively enforce compliance with the Exchange's FOCUS 
Reports filing requirements.\4\
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    \4\ See PCX Rule 4.11(b)(1). OTP Holders who fail to file such 
FOCUS Reports in a timely manner are subject to late filing charges. 
For a first occurrence, an OTP Holder who is 1-30 days late in 
filing the FOCUS Reports will be charged $100 per day (capped at 
$500); for 31-60 days, the charge is $750; and for 61-90 days, the 
charge is $1000. For a second occurrence, an OTP Holder who is 1-30 
days late will be charged $100 per day (capped at $1000); for 31-60 
days, the charge is $1500; and for 61-90 days, the charge is $2000. 
For a third occurrence, an OTP Holder who is 1-30 days late will be 
charged $2000; for 31-60 days, the charge is $2500; and for 61-90 
days, the charge is $3000. The PCX recently increased the late 
charges for late filings of FOCUS Reports. See Securities Exchange 
Act Release No. 49756 (May 21, 2004), 69 FR 30972 (June 1, 2004) 
(SR-PCX-2004-27).
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    Currently, PCX Rule 10.16 sets forth the general principles 
applicable to all sanction determinations, principal considerations in 
determining sanctions, and specific sanctioning guidelines for options 
order handling rules. The sanctioning guidelines are used by various 
PCX bodies that adjudicate disciplinary actions, including the Ethics 
and Business Conduct Committee (``EBCC''), the PCX Board of Directors, 
and the PCX Surveillance and Enforcement Departments, to determine 
appropriate remedial sanctions.
    With the instant proposed rule change, the PCX proposes to 
establish specific sanctioning guidelines relating to disciplinary 
actions initiated as a result of late filings of FOCUS Reports. 
Currently, late filings of FOCUS Reports are handled by the assessment 
of late charges. While a specific late charge schedule is provided, 
Exchange staff also has the flexibility to refer repeated or aggravated 
failure to file such reports, or failure to file such reports, to the 
Enforcement Department. For example, Exchange staff may refer a failure 
to file FOCUS Reports after the first, second, or third occurrence, 
depending on the circumstances. Exchange staff has the responsibility 
to determine whether the circumstances involved are aggravated or 
repeated enough to warrant such failure to file FOCUS Reports to be 
taken out of the late charge schedule for disciplinary action. In other 
words, Exchange staff may refer such failures to the Enforcement 
Department without exhausting the late charge schedule set forth in PCX 
Rule 4.11(b)(1), if the circumstances warrant such action.\5\
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    \5\ The late charge schedule set forth in PCX Rule 4.11(b)(1) is 
independent of the monetary sanctions set forth in proposed PCX Rule 
10.16(f)(1)(B). Thus, whether an OTP Holder is subject to a first, 
second or subsequent disciplinary action, is independent of how many 
occurrences of late filings the OTP Holder incurred pursuant to PCX 
Rule 4.11(b)(1).
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    The PCX believes the proposed guidelines will assist the Exchange 
in determining appropriate remedial sanctions for violation(s) of FOCUS 
Report filing rules. The PCX also believes the guidelines will work to 
promote consistency and uniformity as each Exchange Department will use 
the same form and parameters set forth in the guidelines with respect 
to violation(s) of FOCUS Report filing. The fine amounts will differ 
depending on the number of disciplinary actions that have been brought 
by the PCX against the particular OTP Holder or OTP Firm and the 
Exchange will have a range of fines as well as non-monetary sanctions 
that could be assessed against offending OTP Holders or OTP Firms.
    The PCX proposes the following monetary sanctions for disciplinary 
actions brought for violations of PCX Rule 4.11(b)(1): \6\
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    \6\ The recommended range of fines is intended to correspond to 
the late filing charges set forth in PCX Rule 4.11(b)(1) yet be 
diverse so as to provide Exchange staff with the discretion to fine 
an OTP Holder at either end of the range depending on the 
circumstances.
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    1st Disciplinary Action--$1,000.00 to $5,000.00;
    2nd Disciplinary Action--$2,000.00 to $10,000.00; and
    Subsequent Disciplinary Actions-$3,000.00 to $50,000.00.
    The proposed guidelines would also allow for non-monetary sanctions 
such as suspension, expulsion, or other sanctions in egregious cases. 
The Exchange believes that the proposed fine levels will help to deter 
violations of its FOCUS Report filing rules. These guidelines are not 
intended to be absolute, and sanctions may be imposed that fall outside 
the ranges recommended.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \7\ of the Act, in general, and furthers the 
objectives of Section 6(b)(5),\8\ in particular, because it is designed 
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 to protect investors and the 
public interest.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 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 that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    Written comments on the proposed rule change were neither solicited 
nor received.

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 PCX 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-PCX-2004-45 on the subject line.
    Paper comments:

[[Page 47479]]

     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-PCX-2004-45. 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 
PCX. 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-PCX-
2004-45 and should be submitted on or before August 26, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-17872 Filed 8-4-04; 8:45 am]
BILLING CODE 8010-01-P