[Federal Register Volume 73, Number 250 (Tuesday, December 30, 2008)]
[Notices]
[Pages 79964-79967]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-30938]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59117; File No. SR-NYSEArca-2008-134]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by NYSE Arca, Inc. To Amend the Sanctioning Guidelines

December 18, 2008.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on December 11, 2008, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 proposes to amend Rule 10.16 (``Sanctioning 
Guidelines''). A copy of this filing is available on the Exchange's Web 
site at http://www.nyse.com, at the Exchange's principal office and at 
the Commission's Public Reference Room.

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 self-regulatory organization 
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 those 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 parts of such statements.

[[Page 79965]]

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

1. Purpose
    NYSE Arca Rule 10.16--NYSE Arca Sanctioning Guidelines, is used by 
various Exchange bodies that adjudicate disciplinary actions, including 
the Ethics and Business Conduct Committee (``EBCC''), the NYSE Arca 
Board of Governors, the Exchange's Surveillance and Enforcement 
Departments (collectively, ``Adjudicatory Bodies''), in determining 
appropriate remedial sanctions. The purpose of this proposal is to 
amend Rule 10.16 in order to (i) replace the existing three tiered 
monetary sanctioning guidelines with a new single range of suggested 
monetary penalties, (ii) establish new guidelines applicable to certain 
violations that are not presently included in the rule, (iii) increase 
the suggested ranges of monetary and other sanctioning guidelines, (iv) 
expand the jurisdiction of the guidelines to include Associated Persons 
of an OTP Firm, and (v) make minor non-substantive changes to Rule 
10.16. An explanation of each of the proposed changes is shown below.
Associated Persons
    The Rules of NYSE Arca are applicable not only to OTP Holders and 
OTP Firms but may also apply to Allied Persons, Affiliated Persons, 
Approved Persons and other employees, (collectively known as 
``Associated Persons'') \4\ of OTP Firms. Accordingly, to clarify that 
the sanctioning guidelines in Rule 10.16 are intended to apply to all 
persons using the facilities of the Exchange, the Exchange proposes 
adding the term ``Associated Person'' in addition to OTP Holder and OTP 
Firm, where applicable throughout Rule 10.16.
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    \4\ NYSE Arca Rule 1.1(d) defines an ``Associated Person'' as a 
person who is a partner, officer, director, member of a limited 
liability company, trustee of a business trust, employee of an OTP 
Firm or any person directly or indirectly controlling, controlled by 
or under common control with an OTP Firm.
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Suggested Monetary Sanctions
    NYSE Arca Sanctioning Guidelines currently features a three tiered 
monetary penalty structure, where the applicable tier depends on the 
number of disciplinary actions, involving similar violative conduct by 
the same party, which occurred within the two years prior to the 
misconduct at issue. The suggested monetary sanctions increase with 
each occurrence, creating a range of penalties from a low of $1,000 for 
the first disciplinary action to a high of $50,000 in some cases, for 
the third and subsequent actions. While continued misconduct on the 
part of an OTP Holder, OTP Firm or Associated Person may warrant an 
increased sanction, the Exchange feels that these guidelines do not 
offer the flexibility needed to always make the best effort of applying 
an appropriate sanction when needed.
    There may be situations where a first disciplinary action against 
an OTP Firm, OTP Holder or Associated Person is considered extremely 
egregious, especially in situations where willful intent and/or gross 
negligence are involved, or where investor protection and the integrity 
of the markets has been compromised. On the other hand, a second or 
subsequent disciplinary action against an OTP Firm for violations of 
administrative guidelines or minor actions involving different 
Associated Person of the same OTP Firm may not warrant an increased 
penalty. Therefore, the Exchange feels that a suggested monetary 
sanction, specifically targeted to the first or a subsequent violation, 
does not necessarily serve as an adequate deterrent, nor an appropriate 
penalty to the violative conduct. The Exchange agrees that violations 
that constitute a second or a subsequent disciplinary action with 
respect to similar volatile [sic] conduct by the same party may still 
be relevant and could still be taken into consideration when 
determining sanctions. Accordingly, the Exchange proposes to include a 
provision in each of the Specific Sanctioning Guidelines contained in 
Rule 10.16(e), stating that recent acts of similar misconduct may be 
considered to be aggravating factors.
    In lieu of the three tiered monetary penalty schedule, the Exchange 
now proposes a single suggested range of monetary penalties of which an 
Adjudicatory Body may use to determine an appropriate sanction. The 
Principal Considerations in Determining Sanctions, as contained in Rule 
10.16(d) already suggests that the sanctioning guidelines are not 
intended to necessarily prescribe fixed sanctions for particular 
violations, but rather provide direction for Adjudicatory Bodies to 
assist them in imposing sanctions consistently and fairly. The Exchange 
feels that the broader range of suggested penalties will afford 
Adjudicatory Bodies a greater latitude than they presently have, when 
it comes to applying sanctions in a fair and consistent manner.
    In conjunction with the move to a single range of suggested 
monetary sanctions, the Exchange proposes to increase both the minimum 
and maximum suggested monetary penalty levels. The Exchange notes that 
the NYSE Arca Minor Rule Plan,\5\ which is applied in lieu of formal 
disciplinary proceedings for violations that have been determined to be 
minor in nature, already authorizes monetary sanctions of up to $5,000.
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    \5\ See NYSE Arca Rule 10.12.
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    The Exchange feels the current minimum monetary penalty levels 
contained in Rule 10.16, which range from between $1,000 and $5,000 are 
therefore too low, given the serious nature of the violations covered 
by these sanction guidelines, verses [sic] less serious minor rule 
violations. In order to act as an effective deterrent against future 
violations, while also serving as a just penalty for those who commit 
these violations, the Exchange feels a minimum suggested sanction of 
$10,000 is appropriate. Present guidelines contained in Rules 10.16(e)-
(f) call for a maximum suggested sanctions of $25,000 to $50,000, 
depending on the violation. Once again, given the serious nature of the 
violations covered by these sanction guidelines, the Exchange feels 
these maximum suggested penalty levels are too restrictive. The 
Exchange now proposes to raise the maximum suggested penalty level to 
$100,000, for violations covered by Rule 10.16(e)-(f). As a result, the 
new minimum penalty is $10,000 and the new maximum penalty $100,000.
Proposed Sanctioning Guidelines for Certain Violations Not Previously 
Covered
    NYSE Arca proposes adopting new sanctioning guidelines for two 
additional categories of rule violations. New Rule 10.16(g) will offer 
guidelines for sanctions related to violations of NYSE Arca for Rule 
9--Conducting Business with the Public, while new Rule 10.16(h) will 
offer guidelines for sanctions related to violations of NYSE Arca Rule 
11--Business Conduct. Rule 9 generally consists of rules specifically 
intended to provide protection to public customers and their accounts. 
Rule 11 generally consists of rules that are intended to prevent 
actions that could be deemed detrimental to the welfare and protection 
of investors, or conduct or proceedings inconsistent with just and 
equitable principals [sic] of trade. While these proposed guidelines 
are substantially similar to those contained in Rules 10.16(e)-(f), the 
Exchange is proposing a modified range of suggested monetary sanctions.
    NYSE Arca feels that the two proposed rules described above, which

[[Page 79966]]

encompass some extremely serious violations, appropriately set forth 
increased ranges of monetary penalties. Therefore, the Exchange 
proposes sanctioning guidelines that include a suggested minimum fine 
level of $15,000 and a maximum suggested fine level of $150,000. The 
Exchange feels that these monetary levels are appropriate given the 
serious nature of these offenses. This proposed range will act not only 
as an effective deterrent against future violations, but will also 
provide an appropriate penalty.
Suspension
    Each of the sanctioning guidelines provided for in Rule 10.16, 
along with the new guidelines outlined in this proposal, contain [sic] 
a provision that allows for the suspension or expulsion of a named 
party in a disciplinary action. Under existing guidelines, the Exchange 
has no option other than the expulsion of a named party if it is 
determined that a two year suspension is not adequate. The Exchange 
feels that there are certain violations where a suspension of more then 
two years is appropriate, but does [sic] go as far as to warrant an 
expulsion or permanent bar. In particularly egregious cases involving a 
pattern of misconduct, the guidelines allow for an expulsion or 
permanent bar of the named party. The Exchange now proposes to expand 
the allowable suspension to up to five years. The Exchange feels that 
by expanding the time frame of which a named party may be subject to a 
suspension, Adjudicatory Bodies will be afforded greater flexibility in 
determining appropriate sanctions.
Miscellaneous and Minor Revisions
    Rule 10.16(b)(2)--This provision presently states that there are 
certain regulatory incidents that are not relevant to the determination 
of disciplinary sanctions, and goes on to list examples. The Exchange 
proposes to revise the language of this provision by saying that any 
regulatory incident, which is not relevant to the determination of a 
disciplinary sanction, should not be considered. Since all non-relevant 
incidents should not be considered, the Exchange proposes removing the 
existing examples in the provision.
    Rule 10.16(b)(5)--This provision deals with restitution when an 
identifiable party has suffered a quantifiable loss as a result of a 
named party's misconduct. Since it is not always possible to determine 
an exact loss in every instance, the Exchange proposes changing the 
criteria for calculating orders of restitution from the actual loss 
sustained by the injured party, to a reasonable calculation of any loss 
sustained. It will be the responsibility of the Adjudicatory Body to 
calculate what is considered a reasonable loss, based on the evidence. 
Adjudicatory Bodies will continue to be required to include a 
description of the method used to calculate any restitution as part of 
any decisions rendered.
    The Exchange also proposes at this time to correct a minor 
typographical error, which appears in the first sentence of this 
subsection of the existing rule text. The correction is marked on the 
attached on the Exhibit 5.\6\
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    \6\ The Commission notes that Exhibit 5 is attached to the rule 
filing filed with the Commission but not to this release.
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    Rule 10.16(b)(7)--The Adjudicatory Bodies may require OTP Holders 
to obtain additional training before continuing as a floor official. 
NYSE Arca does not utilize OTP Holders as floor officials. Therefore 
the Exchange proposes removing any reference to floor official training 
contained in this provision. The Exchange also proposes making minor, 
non-substantive, changes to this provision.
    Rule 10.16(d)(2)--The Exchange proposes adding ``affiliated OTP 
Holder or OTP Firm'' as an acceptable entity that an individual may 
acknowledged their misconduct to. This will serve to include 
individuals that may be affiliated with an OTP Holder OTP Firm, such as 
officers, partners or other Associated persons, but who are not 
technically employed by that firm.
    Rule 10.16(d)(3)--The Exchange proposes replacing the word 
``employer'' with the phrase OTP Holder or OTP Firm.
    Rule 10.16(d)(8)--The Exchange proposes replacing the word 
``employer'' with the phrase OTP Holder or OTP Firm or other relevant 
party.
    Rule 10.16(d)(12)--The Exchange proposes replacing the word 
``supervisor'' with the phrase employer or associated OTP Holder or OTP 
Firm.
    Rule 10.16(e)--The Exchange proposes adding Rule 6.37A in addition 
to the list of covered rules contained in this provision, as it too, is 
applicable to Market Maker Obligations.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \7\ of the 
Securities Exchange Act of 1934 (the ``Act''), in general, and furthers 
the objectives of Section 6(b)(5) \8\ in particular in that it is 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, and to remove impediments to and perfect the mechanism of a 
free and open market and a national market system.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
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    The proposal is also consistent with Section 6(b)(6) \9\ and 
6(b)(7),\10\ which requires 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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    \9\ 15 U.S.C. 78f(b)(6).
    \10\ 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

    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

    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 the 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

[[Page 79967]]

     Send an e-mail to [email protected]. Please include 
File Number SR-NYSEArca-2008-134 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2008-134. 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, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. 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-NYSEArca-2008-134 and should 
be submitted on or before January 20, 2009.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-30938 Filed 12-29-08; 8:45 am]
BILLING CODE 8011-01-P