[Federal Register Volume 70, Number 161 (Monday, August 22, 2005)]
[Notices]
[Pages 49000-49003]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-16558]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52243; File No. SR-PCX-2005-91]


Self-Regulatory Organizations; Pacific Exchange, Inc; Notice of 
Filing and Immediate Effectiveness of a Proposed Rule Change and 
Amendment No. 1 Thereto Relating to the Continuing Education Regulatory 
Element Requirement

August 11, 2005.
    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 July 29, 2005, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') through its wholly its wholly owned subsidiary PCX 
Equities, Inc. (``PCX'') 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 August 9, 2005, the Exchange filed Amendment No. 1 to the 
proposed rule change.\3\ The PCX has filed the proposal as a ``non-
controversial'' rule change pursuant to Section 19(b)(3)(A) of the Act 
\4\ and Rule 19b-4(f)(6) thereunder,\5\ which renders the proposal 
effective upon filing with the Commission. 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\ In Amendment No. 1, the Exchange made minor edits to PCX 
Rule 9.27(c).
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 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 PCX proposes to amend PCXE Rule 9.27 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.
Rules PCX Equities, Inc.
Rule 9

    Rule 9.27(a)-(b)--No Change.
    Rule 9.27(c)--No ETP Holder 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 this Rule 9.27(c).
    Each registered person shall complete the Regulatory Element of the 
continuing education program beginning with the occurrence of their 
second registration anniversary date, and every three years thereafter, 
[on three occasions, after the occurrence of their second, fifth and 
tenth registration anniversary dates,] or as otherwise prescribed by 
the Corporation. On each [of these three] occasion[s], 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 
anniversary dates for purposes of this Rule. The content of the 
Regulatory Element of the program shall be [prescribed] determined by 
the Corporation for each registration category of persons subject to 
the Rule.
    (1) Reserved. [Registered person who have been continuously 
registered for more than ten years as of the effective date of this 
Rule shall be exempt from participation in the Regulatory Element of 
the continuing education program, provided such persons have not been 
subject to any disciplinary action within the last ten (10) years as 
enumerated in subsection (c)(3)(A)-(B) of this Rule. Persons who have 
been currently registered for ten (10) years or less as of the 
effective date of this Rule shall initially participate in the 
Regulatory Element of the continuing education program within one 
hundred twenty days (120) after the occurrence of the second, fifth or 
tenth registration anniversary date, whichever anniversary date first 
applies, and on the applicable registered anniversary date(s) 
thereafter. Such persons will have satisfied the requirements of the 
Regulatory Element

[[Page 49001]]

of the program after participation on the tenth registration 
anniversary.
    All registered persons who have satisfied the requirements of the 
Regulatory Element shall be exempt from further participation in the 
Regulatory Element of the program, subject to re-entry into the program 
as set forth in subsection (c)(3) of this Rule.]
    (2) Failure to Complete--Unless otherwise determined by the 
Corporation, 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 shall be prohibited from 
performing any duties and functioning in any capacity requiring 
registration.
    The Corporation may, upon application and a showing of good cause, 
allow for additional time for a registered person to satisfy the 
program requirements.
    (3) Disciplinary Actions [Re-entry into Program]--Unless otherwise 
determined by the SRO, a registered person will be required to [re-
enter] re-take the Regulatory Element and satisfy all of its 
requirements in the event such person:
    (A) becomes subject to any statutory disqualification as defined in 
Section (3)(a)(39) of the Securities Exchange Act of 1934;
    (B) 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 of 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
    (C) is ordered as a sanction in a disciplinary action to [re-enter] 
re-take the [continuing education program] Regulatory Element by any 
securities governmental agency or securities self-regulatory 
organization.
    [Re-entry] A re-taking of the Regulatory Element shall commence 
with [the initial] participation within 120 days of the registered 
person becoming subject to the statutory disqualification, in the case 
of (A) above, or the disciplinary action becoming final, in the case of 
(B) or (C) above[, and on three additional occasions thereafter, at 
intervals of two, five and ten years after reentry, notwithstanding 
that such person has completed all or part of the program requirements 
based on length of time as a registered person or completion of ten 
years of participation in the program]. The date that the disciplinary 
action becomes final will be deemed the person's new base date for 
purposes of this Rule.
    Rule 9.27(d)--Commentary .02--No Change.
    Rule 9.27 Commentary .03--Revised. [A registered person who has 
been continuously registered for more than ten (10) years as of the 
date of implementation of this Rule who has been subject to a 
disciplinary action as enumerated in subsections (c)(3)(A)-(B) of the 
Rule within the last ten years, will be required to satisfy the 
requirements of the Regulatory Element of the continuing education 
program by participation for the period from the date of implementation 
of this Rule to ten years after the occurrence of the disciplinary 
action.]
    Rule 9.27 Commentary .04--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 apply (second registration anniversary and every three 
years thereafter) based on the new base date, rather than based on the 
date of reassociation in registered capacity. [on three occasions, 
after the occurrence of their second, fifth and tenth anniversary date, 
rather than based on the date of reassociation in a registered 
capacity]. Any former registered person who becomes reassociated in a 
registered capacity with a registered broker or dealer more than two 
years after termination as such will be required to satisfy the 
program's requirements in their entirety [on three occasions,] based on 
the most recent registration date.
    Rule 9.27 Commentary .05--No Change.
    Rule 9.27 Commentary .06--Any registered member who is an ETP 
Holder who is also a member of another self-regulatory organization 
(``SRO'') shall be subject to the other SRO's implementation date for 
the elimination of the exceptions to the Regulatory Element section of 
the continuing education program, if that date is earlier than 
September 30, 2005.

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 PCS 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
    The Exchange proposes to amend PCXE Rule 9.27 to eliminate all 
exemptions from the Exchange Continuing Education Regulatory Element 
Program for registered representatives to conform its PCXE Rule 9.27 
with applicable rules of other SROs.
    Currently, PCXE Rule 9.27 sets for the rules governing the 
requirements for registered representatives to participate in the 
Continuing Education Regulatory Element Program (the ``Regulatory 
Element'').\6\ The Regulatory Element is a computer-based education 
program administered by the National Association of Securities Dealers 
(``NASD'') to help ensure that registered persons are kept up-to-date 
on regulatory, compliance and sales practices in the industry. PCXE 
Rule 9.27 specifies the CE requirements for registered persons 
subsequent to their initial qualification and registration with the 
PCXE. Unless exempt, each registered person is required to complete the 
Regulatory Element within 120 days after the person's second 
anniversary date and, thereafter within 120 days after every third 
registration

[[Page 49002]]

anniversary date. There are three Regulatory Element programs: the S201 
Supervisor Program for registered principals and supervisors, the S106 
Series 6 Program for Series 6 representatives, and the S101 General 
Program for Series 7 and all other registrations.
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    \6\ The continuing Education Program also has a ``Firm 
Element.'' See PCXE Rule 9.27(d). The Exchange Firm Element of the 
Continuing Education Program applies to any person registered with 
an NASD member firm who has direct contact with customers in the 
conduct of the member's securities sales, trading and investment 
banking activities, any person registered as a research analyst 
pursuant to NASD Rule 1050, and to the immediate supervisors of such 
persons (collectively called ``covered registered persons''). The 
requirement stipulates that each member firm must maintain a 
continuing and current 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.
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    According to the NASD, approximately 135,000 registered persons 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 \7\ in the CRD record for the previous ten years (so-called 
``grandfathered'' persons). These also include those persons who had 
``graduated'' from the Regulatory Element by satisfying their tenth 
anniversary requirement before July 1998, when PCXE Rule 9.27 was 
amended and the graduation provision eliminated, and who did not have a 
significant disciplinary action in their CRD record for the previous 
ten years.\8\
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    \7\ For purposes of PCXE Rule 9.27(c), a significant 
disciplinary action generally means a statutory disqualification, a 
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 PCXE Rule 9.27(c)(3).
    \8\ When PCXE Rule 9.27 was first adopted in 1995, the 
Regulatory Element 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 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'') 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.
    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, as amended, would eliminate the current Regulatory Element 
exemptions. The other SRO members of the Council also support 
eliminating the exemptions and either have already or are pursuing 
amendments to their respective rules.
    The effective date of the proposed rule change, as amended, will be 
September 30, 2005.\9\ PCXE will announce the effective date of the 
proposed rule change in the PCXE Weekly Bulletin following the 
effective date of the proposed rule change.
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    \9\ To eliminate any confusion, the Exchange has confirmed in 
the proposed rule change, as amended, that an Exchange participant 
who is also a member of another SRO must comply with the rules of 
the other SRO which eliminated these exceptions as of an earlier 
date. See Securities Exchange Act Release Nos. 50404 (September 16, 
2004), 69 FR 57126 (September 23, 2004); 50456 (September 27, 2004), 
69 FR 59285 (October 4, 2004); 50630 (November 3, 2004), 69 FR 65232 
(November 10, 2004); and 50651 (November 10, 2004), 69 FR 67374 
(November 17, 2004).
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    Moreover, following the effective date of the proposed rule change, 
implementation will be based on the application of the existing 
requirements of the Regulatory Element to all registered persons. The 
way in which the Web Central Registration Depository (``Web CRD''), 
which is administered by the NASD, applies these requirements is as 
follows. Web 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 PCXE Rule 9.27 or the date on which a 
formerly registered person re-qualifies for association with a PCXE ETP 
Holder by qualification exam. Using the base date, Web CRD creates a 
Regulatory Element requirement on the second anniversary of the base 
date and then every three years thereafter. Registered persons formerly 
exempt from the Regulatory Element requirement must satisfy this 
requirement that occurs on an anniversary or after the effective date 
of the proposed rule change.
    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 
PCXE Rule 9.27. The Exchange proposes to amend PCXE Rule 9.27 to 
clarify that a person subject to a significant disciplinary action 
would be required to ``re-take'' rather than ``re-enter'' the 
Regulatory Element.\10\ A person's base date may also be revised to be 
the date on which a formerly registered person re-qualifies for 
association with an ETP Holder.
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    \10\ This requirement would apply to all registered persons that 
are subject of a significant disciplinary action, and not only to 
currently exempt persons.
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2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) \11\ of the Act, in general, and furthers 
the objectives of Section 6(b)(5),\12\ in particular, in that it is 
designed to facilitate transactions in securities, to promote just and 
equitable principles of trade, to foster competition, and to protect 
investors and the public interest. The Exchange believes that the 
proposed rule change is designed to accomplish these ends by ensuring 
that all registered persons are kept up-to-date on industry rules, 
regulations, and practices.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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    Additionally, under Section 6(c)(3)(B) of the Act,\13\ 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 prescribed by the rules of the 
Exchange. Pursuant to this statutory obligation, the Exchange is 
rescinding all exemptions from the requirement to complete the 
Regulatory Element of the Continuing Education Program as prescribed by 
PCXE Rule 9.27.
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    \13\ 15 U.S.C. 78f(c)(3)(B).
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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 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

    Because the foregoing proposed rule change: (1) Does not 
significantly affect

[[Page 49003]]

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 from the date on which it was filed, 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 
\14\ and Rule 19b-4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19-4(f)(6). Rule 19b-4(f)(6) also requires that 
the exchange give the Commission written notice of its intent to 
file the proposed rule change along with a brief description and 
text of the proposed rule change, at least five business days prior 
to the date of filing the proposed rule change. The Exchange 
satisfied this requirement.
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    At any time within 60 days of the filing of such proposed rule 
change, as amended, 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.\16\
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    \16\ For purposes of calculating the 60-day abrogation period, 
the commission considers the proposal to have been filed on August 
9, 2005, the date the Exchange filed Amendment No. 1.
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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, 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-PCX-2005-91 on the subject line.

Paper Comments:

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street NE., Washington, DC 20549-9303.
    All submissions should refer to File Number SR-PCX-2005-91. 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 offices 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-2005-91 and should be submitted on or before 
September 12, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 05-16558 Filed 8-19-05; 8:45 am]
BILLING CODE 8010-01-M