[Federal Register Volume 69, Number 242 (Friday, December 17, 2004)]
[Notices]
[Pages 75581-75582]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3705]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50830; File No. SR-PCX-2004-58]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Exchange, Inc. Relating to the Exchange's Rules 
Under the Minor Rule Plan and Recommended Fine Schedule

December 9, 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 December 2, 2004, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), through its wholly owned subsidiary PCX Equities, Inc. 
(``PCXE''), filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') 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 Exchange is proposing to amend the PCX Minor Rule Plan 
(``MRP'') and Recommended Fine Schedule (``RFS''). The text of the 
proposed rule change is below. Proposed new language is in italics; 
proposed deletions are in brackets.\3\
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    \3\ PCX noted that there was a typographical error appearing in 
the proposed rule change. Note 1 should tie to PCX Rule 10.12(i) 
instead of Rule 10.12(k). PCX agrees to correct this error in an 
amendment to the rule filing to be filed prior to the expiration of 
the public comment period. Telephone conversation between Tania J.C. 
Blanford, Staff Attorney, PCX, and Jennifer C. Dodd, Attorney, 
Division of Market Regulation, Commission, on December 9, 2004.
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* * * * *
Rules of the Pacific Exchange, Inc.
Rule 10
Disciplinary Proceedings and Appeals
* * * * *
Minor Rule Plan
    Rule 10.12(a)-(g)--No change.
    (h) Minor Rule Plan: Options Floor Decorum and Minor Trading Rule 
Violations.
    (1)-(44)--No change.
    (45) Failure to maintain adequate procedures and controls to 
monitor and supervise the entry of electronic orders by Users to 
prevent the prohibited practices set forth in Rules 6.87(d) and 
6.90(e). (Rules 6.87(c)(4) and 6.90(d)(3)).
    (i) No change.
    (j) No change.
    Rule 10.12(k) Minor Rule Plan: Recommended Fine Schedule \1\
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    \1\ Fines for multiple violations of Options Floor Decorum and 
Minor Trading Rules are calculated on a running two-year basis.
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    (i) Options Floor Decorum and Minor Trading Rule Violations.
    1.-44.--No change.
    45. Failure to maintain adequate procedures and controls to monitor 
and supervise the entry of electronic orders by Users to prevent the 
prohibited practices set forth in Rules 6.87(d) and 6.90(e). (Rules 
6.87(c)(4) and 6.90(d)(3)).

------------------------------------------------------------------------
          1st Violation              2nd Violation       3rd Violation
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$1,000.00.......................  Full Disciplinary   Full Disciplinary
                                   Proceeding.         Proceeding.
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* * * * *

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 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 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 PCX's MRP and RFS to add provisions 
for violations by an Order Entry Firm \4\ of PCX Rules 6.87(c)(4) and 
6.90(d)(3), which require Order Entry Firms to maintain adequate 
procedures and controls to monitor and supervise the entry of 
electronic orders.\5\ Currently, the MRP sets forth penalties and 
sanctions for improperly dividing up an order to make its parts 
eligible for execution on Auto-Ex or PCX Plus.\6\ The Exchange believes 
that the proposed amendments to its MRP and RFS are appropriate to 
include as part of the MRP and RFS since failure to monitor Users \7\ 
regarding the entry of electronic orders corresponds to the violation 
of improperly dividing up an order to make its parts eligible for 
execution on Auto-Ex or PCX Plus.
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    \4\ See PCX Rule 6.87(a)(3).
    \5\ PCX Rule 6.87(c)(4) requires Order Entry Firms to maintain 
adequate procedures and controls that will permit the Order Entry 
Firm to effectively monitor and supervise the entry of electronic 
orders by all Users. Order Entry Firms must monitor and supervise 
the entry of orders by Users to prevent prohibited practices set 
forth in PCX Rule 6.87(d). PCX Rule 6.90(d)(3) sets forth the 
equivalent requirement for Order Entry Firms with respect to PCX 
Plus.
    \6\ See PCX Rules 10.12(h)(33) and 10.12(i)(33).
    \7\ See PCX Rule 6.87(a)(2).
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    The Exchange proposes a fine of $1,000 for the first violation for 
failure to maintain adequate procedures and controls to monitor and 
supervise the entry of electronic orders pursuant to PCX Rules 
6.87(c)(4) and 6.90(d)(3). In lieu of proposing fines for a second and 
third violation, the Exchange proposes to treat subsequent violations 
as a formal disciplinary matter. A formal disciplinary proceeding would 
be appropriate to the extent that it addresses an Order Entry Firm's 
repeated failure to maintain proper procedures given that the Order 
Entry Firm has already been charged with an MRP violation. Thus, the 
Exchange believes that an Order Entry Firm's repeated failure to have 
proper procedures in place, which are essential for the monitoring and 
supervising of the entry of electronic orders, warrants a formal 
disciplinary proceeding.
    The Exchange believes that the proposed rule change will strengthen 
the ability of the Exchange to carry out its oversight responsibilities 
as a self-regulatory organization (``SRO''). The proposed rule change 
should also aid the Exchange in carrying out its surveillance and 
enforcement functions. The Exchange does not minimize the importance of 
compliance with these rules, and all other rules subject to the 
imposition of fines under the Exchange's MRP. The Exchange relies on 
its MRP as a tool to address enumerated violations to provide the 
Exchange with greater flexibility to

[[Page 75582]]

address violations that may not require formal disciplinary 
proceedings. Under the proposed rules, the Enforcement Department would 
continue to exercise its discretion under Rule 10.12(f) and pursue 
certain cases as a formal disciplinary matter, and not within the MRP 
process, to the extent that the facts or circumstances warrant such 
action.
2. Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act,\8\ in general, and Section 6(b)(5) of the Act,\9\ in 
particular, in that it will promote just and equitable principles of 
trade; facilitate transactions in securities, remove impediments to and 
perfect the mechanisms of a free and open market and a national market 
system; and protect investors and the public interest. The proposal is 
also consistent with Sections 6(b)(6) \10\ and 6(b)(7),\11\ which 
require that members and persons associated with members are 
appropriately disciplined for violations of Exchange rules and are 
provided a fair procedure for disciplinary procedures.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(6).
    \11\ 15 U.S.C. 78f(b)(7).
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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 self-regulatory organization 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 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 
Filed No. SR-PCX-2004-58 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathon G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File No. SR-PCX-2004-58. 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, 450 Fifth Street, 
NW., Washington, DC 20549. Copies of such filing will also 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 No. SR-PCX-2004-58 and should be 
submitted on or before January 7, 2005.

    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. E4-3705 Filed 12-16-04; 8:45 am]
BILLING CODE 8010-01-P