[Federal Register Volume 69, Number 221 (Wednesday, November 17, 2004)]
[Notices]
[Pages 67374-67377]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3194]



[[Page 67374]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50651; File No. SR-Amex-2004-89]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change 
To Amend Exchange Rule 341A Relating to Continuing Education for 
Registered Persons

November 10, 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 November 3, 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 and 
II below, which Items have been prepared by the Exchange. The Amex has 
filed the proposal as a ``non-controversial'' rule change pursuant to 
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\ 
which renders the proposal effective upon filing with the Commission. 
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\ 15 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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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 Rule 341A to eliminate the 
``Grandfather'' exemption to the regulatory element of the Continuing 
Education (``CE'') Program. Below is the text of the proposed rule 
change. Proposed new language is in italics. Deletions are in 
[brackets].

Rule 341A. 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.
    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 Exempted From the Rule--Persons who have been 
continuously registered for more than ten years on July 1, 1998 shall 
be exempt from participation in the Regulatory Element programs for 
registered representatives, provided such persons have not been subject 
to any disciplinary action within the last ten years as enumerated in 
subsection (a)(3) of this Rule. A person who has been continuously 
registered as a principal for more than ten years on July 1, 1998 shall 
be exempt from participation in the Regulatory Element programs for 
registered principals, provided such person has not been subject within 
the last 10 years to any disciplinary action as enumerated in paragraph 
(a)(3). In the event that a registered representative or principal, who 
was exempt from participation in Regulatory Element programs 
subsequently becomes the subject of a disciplinary action as enumerated 
in paragraph (a)(3), such person shall be required to satisfy the 
requirements of the Regulatory Element as if the date of such 
disciplinary action is such persons initial registration date.]
    [(2)](1) Failure to Complete--Unless otherwise determined by the 
Exchange, any registered persons who have not completed the Regulatory 
Element of the program within the prescribed time frames will have 
their registration deemed inactive until such time as the requirements 
of the program have been satisfied. Any person whose registration has 
been deemed inactive under this Rule shall cease all activities as a 
registered person and is prohibited from performing any duties and 
functioning in any capacity requiring registration. The Exchange may, 
upon application and a showing of good cause, allow for additional time 
for a registered person to satisfy the program requirements.
    [(3)](2) [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 all of its requirements 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,
    (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 as a sanction in a disciplinary action to [re-
enter] re-take the Regulatory Element [continuing education program] by 
any securities governmental agency or securities self-regulatory 
organization.
    [Re-entry] The re-taking of the Regulatory Element shall commence 
with [initial] participation within one hundred and twenty days of the 
registered person becoming subject to the statutory disqualification, 
in the case of (i) above, or the disciplinary action becoming final, in 
the case of (ii) or (iii) above. The date the disciplinary action 
becomes final shall be treated as such person's [initial registration] 
new base date.
    [(4)](3) In-Firm Delivery of the Regulatory Element--Members and 
member organizations will be permitted to administer the continuing 
education Regulatory Element program to their registered persons by 
instituting an in-firm program acceptable to the Exchange.
    The following procedures are required:
    (A) through (F) No change.
    (b) No change.
Commentary
    .01 to .02 No change.
    .03 Any registered person who has terminated association with a 
registered broker or dealer and who has, within two years of the date 
of termination, become reassociated in a registered capacity with a 
registered broker or dealer shall participate in the Regulatory Element 
of the continuing education program at such intervals that may apply 
(second registration anniversary and every three years thereafter) 
based on the initial registration, also known as the ``base date'', 
anniversary date, rather than based on the date of reassociation in a 
registered capacity.

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

[[Page 67375]]

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 Amex has prepared summaries, set forth in sections 
A, B, and C below, of the most significant parts of such statements.

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

1. Purpose
    Amex Rule 341A specifies the CE requirements for registered persons 
subsequent to their initial qualification and registration with the 
Central Registration Depository (``CRD''). The CE requirements consist 
of a Regulatory Element and a Firm Element.\5\ The Regulatory Element 
is a computer-based education program administered by National 
Association of Securities Dealers, Inc. (``NASD'') to help ensure that 
registered persons are kept up to date on regulatory, compliance and 
sales practice matters in the industry.\6\ Unless exempt, each 
registered person is required to complete the Regulatory Element 
initially within 120 days after the person's second anniversary date 
and, thereafter, within 120 days after every third registration 
anniversary date.\7\ There are three Regulatory Element programs: the 
S201 Supervisor Program for registered principals and supervisors; the 
S106 Series 6 Program for Series 6 registered persons; and the S101 
General Program for Series 7 and all other registrations.
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    \5\ The Firm Element of the CE Program applies to any registered 
person who has direct contact with customers in the conduct of the 
member's securities sales, trading and investment banking 
activities, and to the immediate supervisors of such persons 
(collectively called ``covered registered persons''). The 
requirement stipulates that each member firm must maintain a 
continuing education program for its covered registered persons to 
enhance their securities knowledge, skill and professionalism. Each 
firm has the requirement to annually conduct a training needs 
analysis, develop a written training plan, and implement the plan.
    \6\ Amex Rule 341A(a)(4), which is proposed to be renumbered 
Amex Rule 341A(a)(3), permits a member firm to deliver the 
Regulatory Element to registered persons on firm premises (``In-Firm 
Delivery'') as an alternative to having persons take the training at 
a designated center provided that firms comply with specific 
requirements relating to supervision, delivery site(s), technology, 
administration, and proctoring. In addition, Amex Rule 
341A(a)(3)(E)(iii) requires that persons serving as proctors for the 
purposes of In-Firm Delivery must be registered.
    \7\ This is the current Regulatory Element schedule, as amended 
in 1998.
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    Approximately 135,000 registered persons currently are exempt from 
the Regulatory Element. These include registered persons who, when the 
CE Program was adopted in 1995, had been registered for at least ten 
years and who did not have a significant disciplinary action \8\ in 
their CRD record for the previous ten years (``grandfathered'' 
persons). These also include those persons who had ``graduated'' from 
the Regulatory Element by satisfying their tenth anniversary 
requirement before July 1998, when Amex Rule 341A was amended and the 
graduation provision eliminated, and did not have a significant 
disciplinary action in their CRD record for the previous ten years.\9\
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    \8\ Generally, for purposes of Amex Rule 341A, a significant 
``disciplinary action'' includes a statutory disqualification as 
defined in Section 3(a)(39) of the Securities Exchange Act of 1934; 
suspension or imposition of a fine of $5,000 or more, or being 
subject to an order from a securities regulator to re-take the 
Regulatory Element. See Amex Rule 341A(a)(3)(i)-(iii), which is 
proposed to be renumbered Amex Rule 341A(a)(2)(i)-(iii).
    \9\ When Amex Rule 341A was first adopted in 1995, the 
Regulatory Element schedule required registered persons to satisfy 
the Regulatory Element on the second, fifth, and tenth anniversary 
of their initial securities registration. After satisfying the tenth 
anniversary requirement, a person was ``graduated'' from the 
Regulatory Element. A graduated principal re-entered the Regulatory 
Element if he or she incurred a significant disciplinary action. A 
graduated person who was not a principal re-entered if he or she 
acquired a principal registration or incurred a significant 
disciplinary action.
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    At its December 2003 meeting, the Securities Industry/Regulatory 
Council on Continuing Education (``Council'') \10\ discussed the 
current exemptions from the Regulatory Element and agreed unanimously 
to recommend that the SROs repeal the exemptions and require all 
registered persons to participate in the Regulatory Element. In 
reaching this conclusion, the Council was of the view that there is 
great value in exposing all industry participants to the benefits of 
the Regulatory Element, in part because of the significant regulatory 
issues that have emerged over the past few years. The Regulatory 
Element programs include teaching and training content that is 
continuously updated to address current regulatory concerns as well as 
new products and trading strategies. Exempt persons presently do not 
have the benefit of this material.
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    \10\ According to the Council's Charter, the Council is composed 
of at least nine, but not more than fifteen representatives from 
securities firms and representatives from six self-regulatory 
organizations (``SROs'') including: the Amex; the Chicago Board 
Options Exchange (``CBOE''); the Municipal Securities Rulemaking 
Board (``MSRB''); the NASD, the New York Stock Exchange, Inc. 
(``NYSE''), and the Philadelphia Stock Exchange (``Phlx''). The SEC 
and the North American Securities Administrators Associations have 
liaisons to the Council.
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    In addition, the Council will introduce a new content module to the 
Regulatory Element programs that will specifically address ethics and 
will require participants to recognize ethical issues in given 
situations. 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 guidelines from existing rules or regulations. 
The Council strongly believes that all registered persons, regardless 
of their years of experience in the industry, should have the benefit 
of this training.
    Consistent with the Council's recommendation, the proposed rule 
change would eliminate the current Regulatory Element exemptions. The 
other SRO members of the Council also support eliminating the 
exemptions and are pursuing amendments to their respective rules.
    Amex will announce the effective date of the proposed rule change 
in a Notice to Members to be published no later than 30 days following 
the proposed rule becoming operative. The effective date will be (1) 
not more than 30 days following the implementation of necessary changes 
to Web CRD administered by the NASD, or (2) April 4, 2005, whichever 
date is the latest to occur.
    Following the effective date of the proposed rule change, 
implementation will be based on the application of the existing 
requirements of the Regulatory Element (Amex Rule 341A(a)) to all 
registered persons. The way in which CRD applies these requirements is 
as follows. CRD establishes a ``base date'' for each registered person 
and calculates anniversaries from that date. Usually, the base date is 
the person's initial securities registration. However, the base date 
may be revised to be the effective date of a significant disciplinary 
action in accordance with Amex Rule 341A(a)(3) (which is proposed to be 
renumbered as Amex Rule 341A(a)(2)) or the date on which a formerly 
registered person re-qualifies for association with an Amex member by 
qualification exam. Using the base date, CRD creates a Regulatory 
Element requirement on the second anniversary of the base date and then 
every three years thereafter. Beginning on or after the effective date 
of the proposed rule change, registered persons formerly exempt from 
the Regulatory Element requirement must satisfy this requirement on the 
occurrence of a Regulatory Element base date anniversary (i.e. the 
second anniversary of the base date and every three years thereafter) 
(see examples in the Table below).

[[Page 67376]]



------------------------------------------------------------------------
                                                        First regulatory
                                                            element
                                                        requirement of a
                                                       registered person
                                         Initial        formerly exempt
         Registered person          registration date       from the
                                                           regulatory
                                                       element (assuming
                                                       an effective date
                                                       of April 4, 2005)
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A.................................        \11\ 4/4/85             4/4/05
B.................................             7/1/83             7/1/06
C.................................             8/1/84             8/1/07
D.................................             4/3/85             4/3/08
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    In addition, the proposed rule change would replace references in 
Amex Rule 341A(a)(2) to ``re-entry'' into the Regulatory Element with a 
requirement to ``re-take'' the Regulatory Element to clarify that the 
significant disciplinary action provisions apply to all registered 
persons and not only to currently exempt persons. 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 firm.
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    \11\ A registered person with an initial registration date of 
April 4, 1985 will have a Regulatory Element anniversary date on 
April 4 of 1987, 1990, 1993, 1996, 1999, 2002 and 2005.
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2. Statutory Basis
    The Amex believes the proposed rule change is consistent with the 
provisions of Section 6(c) of the Act,\12\ in general and furthers the 
objectives of Section 6(c)(3)(B) of the Act,\13\ in particular, since 
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.
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    \12\ 15 U.S.C. 78f(c).
    \13\ 15 U.S.C. 78f(c)(3)(B).
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    Additionally, under Section 6(c)(3)(B) of the Act,\14\ the Exchange 
may bar a natural person from becoming a member or person associated 
with a member, if such natural person does not meet such standards of 
training, experience and competence as are prescribed by the rules of 
the Exchange. Pursuant to this statutory obligation, the Exchange is 
rescinding all currently effective exemptions from required 
participation in the Regulatory Element programs, as prescribed by Amex 
Rule 341A.
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    \14\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    Amex does not believe that the proposed rule change will impose any 
burden on competition 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

    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

    The Amex has filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \15\ and subparagraph (f)(6) of Rule 19b-4 
thereunder.\16\ Because the foregoing rule change: (1) Does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative for 30 days after the date of filing, 
or such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\17\ and Rule 19b-4(f)(6) thereunder.\18\ This proposed rule change 
will not become operative until 30 days after the date of filing with 
the Commission. Furthermore, the Commission notes that Amex designates 
the effective date of the proposed rule change to be the latest to 
occur of: (1) Not more than 30 days following the implementation of 
necessary changes to Web CRD administered by the NASD, or (2) April 4, 
2005. At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.\19\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6). The Commission notes that the 
Exchange had satisfied the pre-filing five-day notice requirement.
    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ See Section 19b(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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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-2004-89 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-2004-89. 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

[[Page 67377]]

the principal offices 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-2004-89 and should be submitted on or before 
December 8, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-3194 Filed 11-16-04; 8:45 am]
BILLING CODE 8010-01-P