[Federal Register Volume 70, Number 5 (Friday, January 7, 2005)]
[Notices]
[Pages 1487-1489]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-21]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50942; File No. SR-NYSE-2004-63]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto by the New York Stock 
Exchange, Inc. To Amend Exchange Rules Relating to the Return of 
Membership Certificates, Notice and Return of Exchange-Issued 
Identification Cards, and Minor Violations of Rules

December 29, 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 November 1, 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 Exchange. On 
December 15, 2004, the Exchange filed Amendment No. 1 to the proposed 
rule change.\3\ On December 23, 2004, the Exchange filed Amendment No. 
2 to the proposed rule change.\4\ 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\ See Form 19b-4 dated December 15, 2004 (``Amendment No. 
1''). In Amendment No 1, the Exchange included current rule text 
that was omitted from the original rule filing and made technical 
changes to the rule text. Amendment No. 1 replaced the original 
filing in its entirety.
    \4\ See Partial Amendment dated December 23, 2004 (``Amendment 
No. 2''). In Amendment No. 2, the Exchange: (i) Submitted the 
proposed rule text changes in an Exhibit 4, which was inadvertently 
omitted from Amendment No. 1; (ii) changed ``reassignment'' to ``re-
assignment'' in proposed NYSE Rule 35.80(3); and (iii) corrected 
typographical errors made in the original rule filing and Amendment 
No. 1 with respect to current rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to: (1) Delete the requirement in NYSE Rule 
343(d) to return certificates of membership upon termination of 
customer offices or status as a member organization; (2) add NYSE Rule 
35.80 to require members and member organizations to notify the 
Exchange's Security Office and surrender Exchange-issued identification 
cards within 24 hours of all employee terminations, re-assignments to 
non-Floor duties, or cancellations of such identification cards; (3) 
rescind NYSE Rule 412(g), which currently allows the Exchange to impose 
fees of up to $100 per securities account per day for violations of 
NYSE Rule 412; and (4) enable violations of proposed new NYSE Rule 
35.80 to be administered through the Exchange's minor rule violation 
plan (NYSE Rule 476A).
    The text of the proposed amendments is set forth below. Brackets 
indicate deletions; italics indicate additions.
* * * * *

Rule 343

Offices--Sole Tenancy, Hours, Display of Membership Certificates
    (a) to (c) unchanged
    (d) Members and member organizations maintaining customers' offices 
are required to display in each such office a certificate of membership 
provided by the Exchange. Such certificate shall be at all times the 
property of the Exchange[, and every such certificate shall be returned 
upon termination of the office or of the status as a member 
organization].
* * * * *

Rule 35

Floor Employees To Be Registered
    No employee of a member or member organization shall be admitted to 
the Floor unless he is registered with, qualified by and approved by 
the Exchange, and upon compliance of both the employer and employee 
with such requirements as the Exchange may determine.
Supplementary Material
    (Rule 35.10 through 35.70 unchanged)

.80 Notifications to Security Office and Return of Exchange-Issued 
Identification Cards

    In the event of:
    (1) A Floor member's or employee's termination, or
    (2) Cancellation of a member's or employee's Exchange-issued 
identification card prior to expiration, or
    (3) A member or member organization's re-assignment of a Floor 
member or employee to non-Floor functions
    Members and member organizations must notify the Exchange's 
Security Office of the termination, cancellation, or re-assignment, and 
must surrender the member's or employee's Exchange-issued 
identification card to the Exchange's Security Office, within 24 hours 
of the termination, cancellation, or re-assignment.
* * * * *

Rule 412

Customer Account Transfer Contracts
    (a) to (f) unchanged
    [(g) Unless an exemption has been granted pursuant to paragraph (f) 
of this rule, the Exchange may impose upon a member organization a fee 
of up to $100 per securities account for each day such member 
organization fails to adhere to the time frames or procedures required 
by this rule and related published interpretations.]
* * * * *

Rule 476A

Imposition of Fines for Minor Violation(s) of Rules
    (a) to (e) unchanged.

[[Page 1488]]

Supplementary Material: List of Exchange Rule Violations and Fines 
Applicable Thereto Pursuant to Rule 476A
     Rule 15 (ITS and Pre-Opening Applications) and Rule 15A 
(ITS ``Trade-Throughs'' and ``Locked-Markets'' and ITS Block Trade 
Policy)
     Rule 35 requirement that employees of members and member 
organizations be registered with, qualified by, and approved by the 
Exchange before being admitted to the Trading Floor.
     Failure to notify the Exchange's Security Office and 
surrender Exchange-issued identification cards within 24 hours of Floor 
members' or employees' termination or re-assignment, or cancellation of 
such identification cards, as required by Rule 35.80
* * * * *

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

Proposed Amendment to NYSE Rule 343(d)

    NYSE Rule 343 lists certain procedures that must be followed to, 
among other things, avoid confusion regarding the Membership 
affiliation of persons conducting a securities or commodities business 
with the public. NYSE Rule 343(d) requires a member or member 
organization that maintains a customer office to display in such office 
a certificate of membership provided by the Exchange, and requires such 
certificate to be returned to the Exchange upon termination of the 
office or the organization's membership status. In practice, these 
certificates are frequently not returned, and the Exchange believes 
that the consequences of disregarding this provision of the rule have 
been negligible. The Exchange believes that rules that are widely 
violated and not enforced detract from the integrity of all Exchange 
rules, and the difficulty of enforcing the requirement that 
certificates be returned outweighs any minimal benefit of its 
enforcement. Therefore, the Exchange proposes to eliminate in NYSE Rule 
343(d) the requirement to return a certificate of membership upon 
termination of the customer office or the organization's membership 
status.

Proposed Amendment to NYSE Rule 35 (Adding NYSE Rule 35.80)

    The Exchange's Floor Official Manual requires the membership to 
notify the Security Office of the Exchange within 24 hours of a Floor 
member's or employee's termination, and to surrender such member's or 
employee's Exchange-issued identification card to the Security Office 
within five business days of termination, or upon the cancellation of 
the member's or employee's card prior to expiration. A member's or 
member organization's reassignment of a Floor member or employee to 
non-Floor functions is also subject to these requirements.\5\
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    \5\ Telephone conversation between Ronald Rubin, Senior Special 
Counsel, NYSE, and Kim Allen, Attorney, Division of Market 
Regulation (``Division''), Commission, on December 28, 2004.
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    The Exchange believes that the increase in potential security risks 
since September 11, 2001, necessitates shortening the time allowed for 
surrendering Exchange-issued identification cards from five days to one 
day. Codifying the aforementioned requirements in the Exchange's rules 
would enable the Exchange to enforce those requirements. Thus, the 
Exchange proposes in proposed NYSE Rule 35.80 to require a member or 
member organization to notify the Exchange's Security Office, and 
surrender any Exchange-issued identification card, within 24 hours of a 
Floor member or employee termination or re-assignment to non-Floor 
functions, or cancellation of a member's or employee's Exchange-issued 
identification card prior to expiration.

Proposed Amendment to NYSE Rule 476A

    NYSE Rule 476A provides that the Exchange, subject to specified 
requirements, may impose a fine, not to exceed $5,000, on any member, 
member organization, allied member, approved person, or registered or 
non-registered employee of a member or member organization for a minor 
violation of specified Exchange rules. The purpose of the NYSE Rule 
476A procedure is to provide a meaningful sanction for a rule violation 
when the initiation of full disciplinary proceedings under NYSE Rule 
476 is not warranted by the minor nature of the violation, or when the 
violation calls for a stronger regulatory response than an admonition 
letter would convey. NYSE Rule 476A preserves due process rights, 
identifies those rule violations that may be the subject of summary 
fines, and includes a schedule of fines.
    In SR-NYSE-84-27,\6\ which initially set forth the provisions and 
procedures of NYSE Rule 476A, the Exchange indicated that it would 
amend the list of rules from time to time, as it considered 
appropriate, in order to phase-in the implementation of Rule 476A as 
experience with it was gained. Because of the possible range of 
severity of a member's or member organization's failure to notify the 
Exchange's Security Office and surrender an Exchange-issued 
identification card within 24 hours of a Floor member's or employee's 
termination or re-assignment to non-Floor functions or cancellation of 
such identification card, as required by proposed NYSE Rule 35.80, an 
amendment to NYSE Rule 476A would allow the Exchange to sanction the 
members' and member organizations' less serious instances of 
delinquency pursuant to the minor violation fine provisions of NYSE 
Rule 476A. The Exchange believes that the addition of proposed NYSE 
Rule 35.80 to the list of rule violations in NYSE Rule 476A would not 
compromise the Exchange's ability to bring appropriate formal 
disciplinary actions for more serious violations of NYSE Rule 35.80.
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    \6\ See Securities Exchange Act Release No. 21688 (January 25, 
1985), 50 FR 5025 (February 5, 1985) (SR-NYSE-84-27).
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Proposed Amendment to NYSE Rule 412 (Rescinding NYSE Rule 412(g))

    NYSE Rule 412 mandates several time frames and procedures that must 
be followed when transferring customer accounts between member 
organizations. NYSE Rule 412(g) currently allows the Exchange to impose 
upon a member organization a fee of up to $100 per securities account 
for each day the organization fails to adhere to the requirements of 
NYSE Rule 412. NYSE Rule 476A also provides for the imposition of minor 
fines for such violations.
    The Exchange's Special Review of the Consistency of Informal 
Disciplinary Actions recommended the establishment of guidelines to 
clearly indicate which NYSE Rule 412 violations should be penalized 
pursuant to NYSE Rule 412(g) and which should be sanctioned by the 
imposition of

[[Page 1489]]

minor fines pursuant to NYSE Rule 476A.\7\
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    \7\ Rule 476A provides for individuals to be fined $1,000 for 
first-time offenses, $2,500 for second-time offenses, and $5,000 for 
subsequent offenses, and for member organizations to be fined $2,500 
for first-time offenses and $5,000 for subsequent offenses.
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    NYSE Rule 412(g) was proposed in 1984, prior to the adoption of 
NYSE Rule 476A in March 1985.\8\ Once NYSE Rule 476A became operative, 
the Exchange had another effective method of enforcing NYSE Rule 412, 
and the sanctions of NYSE Rule 412(g) became superfluous. Historically, 
the Exchange's practice in most, if not all, cases of minor violations 
of NYSE Rule 412 has been to assess summary fines under NYSE Rule 476A 
rather than fees under NYSE Rule 412(g). Therefore, rather than 
establish guidelines for choosing between NYSE Rule 476A and NYSE Rule 
412(g), the Exchange believes it would be more appropriate to simply 
rescind NYSE Rule 412(g) and continue to sanction violations of NYSE 
Rule 412 through the assessment of fines pursuant to NYSE Rule 476A.
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    \8\ The amendment adding NYSE Rule 412(g) was adopted in 
November 1985. Telephone conversation between Ronald Rubin, Senior 
Special Counsel, NYSE, and Kim Allen, Attorney, Division, 
Commission, on December 28, 2004.
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2. Statutory Basis
    The Exchange believes that the proposal, as amended, is consistent 
with Section 6(b) of the Act \9\ in general, and Section 6(b)(5) of the 
Act \10\ in particular, in that it is designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade and, in general, to protect investors and the 
public interest by making the Exchange's rules more consistent with 
membership and Exchange practices and strengthening the Exchange's 
security procedures. The Exchange also believes that the proposed rule 
change is consistent with Section 6(b)(6) \11\ of the Act, which 
requires the rules of the Exchange to provide for its members and 
persons associated with its members to be appropriately disciplined for 
violations of those rules through fitting sanctions, including the 
imposition of fines.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(b)(6).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposal would not 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

    Written comments 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 Exchange 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 e-mail to [email protected]. Please include File 
Number SR-NYSE-2004-63 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-NYSE-2004-63. 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 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-2004-63 and should be submitted by January 28, 
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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-21 Filed 1-6-05; 8:45 am]
BILLING CODE 8010-01-P