[Federal Register Volume 69, Number 158 (Tuesday, August 17, 2004)]
[Notices]
[Pages 51134-51137]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-18759]


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SECURITIES AND EXCHANGE COMMISSION

(Release No. 34-50177; File No. SR-NYSE-2004-33)


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto 
To Amend Exchange Rule 345A (``Continuing Education for Registered 
Persons'')

August 10, 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 June 28, 2004, the New York Stock Exchange, Inc. (``NYSE'' 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 NYSE. On August 4, 
2004, the NYSE filed Amendment No. 1 to the proposed rule change.\3\ 
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.
    \3\ See letter from Darla Stuckey, Corporate Secretary, NYSE, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated August 3, 2004 (``Amendment No. 1''). In Amendment 
No. 1, the NYSE made technical corrections and clarifications to the 
filing.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Rule 345A (``Continuing 
Education for Registered Persons'' or the ``Rule'') to rescind all 
currently effective exemptions from required participation in the 
Regulatory Element programs. The text of the proposed rule change is 
set forth below. Proposed new language is in italics; proposed 
deletions are in [brackets].
Rule 345A.
Continuing Education for Registered Persons
    (a) Regulatory Element--No member or member organization shall 
permit any registered person to continue to, and no registered person 
shall continue to, perform duties as a registered person, unless such 
person has complied with the continuing education requirements of 
Section (a) of this Rule.
    (1) Each registered person shall complete the Regulatory Element of 
the continuing education program on the occurrence of their second 
registration anniversary date and every three years thereafter or as 
otherwise prescribed by the Exchange. On each occasion, the Regulatory 
Element must be completed within one hundred twenty days after the 
person's registration anniversary date. A person's initial registration 
date, also known as the ``base date'', shall establish the cycle of 
anniversary dates for purposes of this Rule. The content of the 
Regulatory Element of the program shall be determined by the Exchange 
for each registration category of persons subject to the rule.
    [(1) Persons who have been continuously registered for more than 
ten years as of the effective date of this Rule are exempt from the 
requirements of this rule relative to participation in the Regulatory 
Element of the continuing education program, provided such persons have 
not been subject to

[[Page 51135]]

any disciplinary action within the last ten years as enumerated in 
subsection (a)(3)(i)-(ii) of this Rule. However, persons delegated 
supervisory responsibility or authority pursuant to Rule 342 and 
registered in such supervisory capacity are exempt from participation 
in the Regulatory Element under this provision only if they have been 
continuously registered in a supervisory capacity for more than ten 
years as of the effective date of this rule and provided that such 
supervisory person has not been subject to any disciplinary action 
under subsection (a)(3)(i)-(ii) of this Rule.
    In the event that a registered person who is exempt from 
participation in the Regulatory Element subsequently becomes the 
subject of a disciplinary action as enumerated in subsection (a)(3)(i)-
(ii), such person shall be required to satisfy the requirements of the 
Regulatory Element as of the date the disciplinary action becomes final 
is the person's initial registration anniversary date.]
    (2)--No Change
    (3) [Re-entry into program] Disciplinary Actions--Unless otherwise 
determined by the Exchange, a registered person will be required to 
[re-enter] re-take the Regulatory Element of the program and satisfy 
the program's requirements in their entirety in the event such person:
    (i) becomes subject to any statutory disqualification as defined in 
Section 3(a)(39) of the Securities Exchange Act of 1934 (see also Rule 
346(f));
    (ii) becomes subject to suspension or to the imposition of a fine 
of $5,000 or more for violation of any provision of any securities law 
or regulation, or any agreement with or rule or standard of conduct of 
any securities governmental agency, securities self-regulatory 
organization, or as imposed by any such regulatory or self-regulatory 
organization in connection with a disciplinary proceeding; or
    (iii) is ordered pursuant to a disciplinary proceeding to [re-
enter] re-take the Regulatory Element [continuing education program] by 
any securities governmental agency or securities self-regulatory 
organization.
    [Re-entry] A re-taking of the Regulatory Element shall commence 
with [initial] participation within one hundred twenty days of the 
registered person becoming subject to the statutory disqualification, 
in the case of (i) above, or the completion of the sanction or the 
disciplinary action becoming final, in the case of (ii) and (iii) 
above. The date that the disciplinary action becomes final will be 
deemed the person's [initial registration anniversary] new base date 
for purposes of this Rule.
    (b)(1)--.50--No Change

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 NYSE included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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
    NYSE Rule 345A provides, in part, that no member or member 
organization shall permit any registered person to continue to, and no 
registered person shall continue to, perform duties as a registered 
person, unless such person has complied with the Regulatory Element of 
the continuing education requirement set forth in this Rule. As 
described in more detail below, the Regulatory Element component of 
NYSE Rule 345A \4\ requires registered persons to complete a 
standardized compliance-based program at prescribed intervals. NYSE 
Rule 345A also provides for the Firm Element component of continuing 
education,\5\ requiring ``covered registered persons'' to regularly 
participate in specialized programs designed to enhance their 
professional skills.
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    \4\ See NYSE Rule 345A(a).
    \5\ See NYSE Rule 345A(b). The Firm Element applies to any 
registered person who has direct contact with customers in the 
conduct of a member's or member organization's securities sales, 
trading or investment banking activities, and to the immediate 
supervisors of such persons, and to registered persons who function 
as supervisory analysts, and research analysts as defined in NYSE 
Rule 344 (collectively ``covered registered persons'').
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    NYSE proposes to rescind all currently effective exemptions from 
required participation in Regulatory Element programs.
Background
    The Regulatory Element currently requires each subject registered 
person to complete a standardized, computer-based, interactive 
continuing education program within 120 days of their second 
registration anniversary date and every three years thereafter, or as 
otherwise prescribed by the Exchange. The purpose is to help ensure 
that registered persons are kept up-to-date on regulatory, compliance, 
and sales practice-related industry issues. There are three Regulatory 
Element programs: The S201 Supervisor Program, the S106 Series 6 
Program, and the S101 General Program for Series 7 and all other 
registrations. Persons who fail to complete the Regulatory Element are 
deemed inactive and may not perform in any capacity or be compensated 
in any way requiring registration.
``Grandfathered'' Exemptions
    Persons who were continuously registered, without a serious 
disciplinary action,\6\ for more than ten years as of the Rule's 
effective date (i.e., July 1, 1995) were initially, and continue to be, 
exempt from Regulatory Element requirements.
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    \6\ For purposes of NYSE Rule 345A, a ``disciplinary action'' 
includes statutory disqualification as defined in Section 3(a)(39) 
of the Act; suspension or imposition of a fine of $5,000 or more; or 
being subject to an order from a securities regulator to re-enter 
the Regulatory Element program. See Rule 345A(a)(3)(i)-(iii).
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``Graduated'' Exemptions
    The Rule initially required that subject registered persons 
complete a Regulatory Element program on their second, fifth, and tenth 
registration anniversary dates. Once the tenth anniversary program 
requirement was satisfied, the registered person became exempt from 
Regulatory Element requirements going forward (absent a serious 
disciplinary event). For instance, a person who became registered July 
2, 1985 could ``graduate'' from future Regulatory Element obligations 
by completing a single program in July 1995, thereby satisfying their 
tenth anniversary requirement.
    Amendments to NYSE Rule 345A discontinued this ``graduation'' 
exemption as of July 1998,\7\ but registered persons who were 
``graduated'' prior to these amendments continue to be exempt from 
Regulatory Element requirements. Of approximately 685,000 actively 
registered persons, about 135,000 are currently exempted from ongoing 
Regulatory Element obligations.
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    \7\ See Securities Exchange Act Release No. 39712 (March 3, 
1998), 63 FR 11939 (March 11, 1998)(File No. SR-NYSE-97-33).
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Discussion and Proposal
    Initially, the rationale for the Regulatory Element exemptions was 
that, because the material to be covered would involve regulatory 
subject matter, individuals registered for more than ten

[[Page 51136]]

years without a significant disciplinary action were, by virtue of 
their business tenure, sufficiently familiar with applicable regulatory 
requirements. Currently, if an exempted person becomes subject to a 
significant disciplinary action, the Rule requires ``re-entry'' into 
the Regulatory Element program.\8\
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    \8\ See Rule 345A(a)(3).
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    As part of its ongoing commitment to communicate and reinforce the 
importance of compliance with just and equitable principles of trade, 
the Exchange, on behalf of the Securities Industry/Regulatory Council 
on Continuing Education (the ``Council''),\9\ is in the process of 
developing a Regulatory Element module that focuses specifically on 
ethics. Although Regulatory Element programs have consistently included 
ethical considerations in a variety of business scenarios, it has been 
determined that the importance of ethical conduct should be more 
prominently featured and more emphatically stressed in the Regulatory 
Element. Accordingly, participants will be required to make decisions 
in the context of, for example, peer pressure, the temptation to 
rationalize, or a lack of clear-cut guidance from existing rules or 
regulations. In addition, there have been significant new Exchange and 
industry rules, growth in the types of products and services offered by 
firms, and areas of regulatory emphasis which the Regulatory Element 
covers in its curriculum. Subjecting persons who have been exempt from 
this requirement will be beneficial to them and their firms, as it will 
help keep them current and knowledgeable on such changes.
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    \9\ As of the date of this filing, the Council consisted of 
eleven representatives from securities firms and representatives 
from six self-regulatory organizations (``SROs'') including: The 
NYSE, the American Stock Exchange, the Chicago Board Options 
Exchange, the Municipal Securities Rulemaking Board, the National 
Association of Securities Dealers (``NASD''), and the Philadelphia 
Stock Exchange. The SEC and The North American Securities 
Administrators Association have liaisons to the Council. See 
Amendment No. 1, supra note 3.
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    Consistent with this new emphasis, the Council believes that there 
is great value in exposing all registered industry participants to the 
full benefit of Regulatory Element programs. Accordingly, the Council 
recommended at its December 2003 meeting that SRO Rules (e.g., NYSE 
Rule 345A) be amended to eliminate existing exemptions from the 
Regulatory Element and to require all ``grandfathered'' and 
``graduated'' persons to fully participate in future standardized 
continuing education programs, according to the Rule's prescribed 
schedule.\10\
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    \10\ See proposed NYSE Rule 345A(a)(1). Note that the proposed 
amendments renumber existing paragraphs of the Rule; the Rule's 
prescribed schedule is currently found in NYSE Rule 345A(a).
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    The NYSE believes that NASD and other SRO Council members are 
likewise pursuing amendments to their respective rules. The Exchange 
will coordinate with the staffs of these SROs so that all such 
amendments are harmonized.
    Due to changes that would have to be made to the CRD System, the 
proposed amendments are expected to become effective on April 4, 2005. 
Application of the proposed amendments would be based on existing 
requirements of NYSE Rule 345A(a). As noted above, subject registered 
persons must complete their Regulatory Element requirement within 120 
days of the second anniversary of their initial registration or ``base 
date,'' and every three years thereafter. Accordingly, those registered 
persons who were eligible for ``grandfathered'' or ``graduated'' 
exemptions would be required to complete the Regulatory Element as 
their prescribed anniversaries occur on or after April 4, 2005. For 
example, a person whose initial registration date is April 4, 1985 
would have to complete their Regulatory Element requirements within 120 
days of April 4, 2005. A person whose initial registration date is July 
1, 1983 would have to complete their Regulatory Element requirements 
within 120 days of July 1, 2006. Within 120 days of April 4, 2008, all 
currently exempt registered persons will have been brought back into 
the Regulatory Element cycle. Should the necessary CRD System changes 
be delayed, the effective date would be within 30 days of the 
implementation of such changes. In any case, NYSE membership will be 
notified via an Information Memo.
    It is noted that a person's base date may be revised to be the 
effective date of a significant disciplinary action in accordance with 
NYSE Rule 345A(a)(3). NYSE Rule 345A(a)(3) has been amended to clarify 
that a person subject to a significant disciplinary action would be 
required to ``re-take'' rather than ``re-enter'' the Regulatory 
Element. A person's base date may also be revised to be the date on 
which a formerly registered person re-qualifies for association with a 
member or member organization by qualification exam.
2. Statutory Basis
    The statutory basis for this proposed rule change is Section 
6(c)(3)(B) \11\ of the Exchange Act.\12\ Under that section, it is the 
Exchange's responsibility to prescribe standards of training, 
experience and competence for persons associated with Exchange members 
and member organizations. Pursuant to this statutory obligation, the 
Exchange is rescinding all currently effective exemptions from required 
participation in the Regulatory Element programs provided by NYSE Rule 
345A.
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    \11\ 15 U.S.C. 78f(c)(3)(B).
    \12\ 15 U.S.C. 78(a).
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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

    The Exchange has neither solicited nor received written comments on 
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 NYSE consents, the Commission will:
    (A) By order approve such 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, as amended, 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-NYSE-2004-33 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary,

[[Page 51137]]

Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549-0609.
    All submissions should refer to File Number SR-NYSE-2004-33. 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 Room. Copies of the 
filing also will be available for inspection and copying at the 
principal office of the NYSE. 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-NYSE-2004-33 and should be submitted on or before 
September 7, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-18759 Filed 8-16-04; 8:45 am]
BILLING CODE 8010-01-P