[Federal Register Volume 65, Number 209 (Friday, October 27, 2000)]
[Notices]
[Pages 64463-64465]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27649]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43471; File No. SR-CSE-00-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by The Cincinnati Stock Exchange, Incorporated To Add CSE Rule 
11.9(u) and Interpretation .01 Under the Rule to the Minor Rule 
Violation Program

October 20, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 there under,\2\ notice is hereby given 
that on October 13, 2000, The Cincinnati Stock

[[Page 64464]]

Exchange, Incorporated (``CSE'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') 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 CSE proposes to amend Exchange Rule 8.15, Imposition of Fines 
for Minor Violation(s) of Rules, to include CSE Rule 11.9(u) and 
Interpretation .01 thereunder, requiring CSE members to display certain 
market orders (``Market Order Display Rule''). The text of the proposed 
rule change is below. Additions are in italics.

Rule 8.15  Imposition of Fines for Minor Violation(s) of Rules.

    No Change.

Interpretations and Policies

.01  List of Exchange Rule Violations and Fines Applicable thereto 
Pursuant to Rule 8.15

    (a)-(g) No Change.
    (h) Rule 11.9(u) and Interpretation .01 related to the 
requirement to immediately execute market orders at an improved 
price or expose the market order on the Exchange for a minimum of 
fifteen seconds in an attempt to improve the price.

Recommended Fine Amount
    $1,000 first violation of the 2% quarterly threshold
    $2,500 second violation
    Third violation Business Conduct Committee Hearing
* * * * *

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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
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 CSE proposed to amend Exchange Rule 8.15, Imposition of Fines 
for Minor Violation(s) of Rules, which provides for an alternative 
disciplinary regimen involving violations of Exchange rules that the 
Exchange determines are minor in nature. In lieu of commencing a 
disciplinary proceeding pursuant to Rules 8.1 through 8.14, the Minor 
Rule Violation Program (``Program'') permits the Exchange to impose a 
fine, not to exceed $2,500, on any member, member organization, or 
registered or non-registered employee of a member or member 
organization (``Member'') that the Exchange determines has violated a 
rule included in the Program. Adding a particular rule violation to the 
Program in no way circumscribes the Exchange's ability to address 
violations of those rules through more formal disciplinary rules. The 
Program simply provides the Exchange with greater flexibility in 
addressing rule violations that warrant a stronger regulatory response 
after the issuance of cautionary letters and yet, given the nature of 
the violations, do not rise to the level of requiring formal 
disciplinary proceedings.
    The Exchange proposes to add the failure to properly expose on the 
Exchange or immediately price improve certain customer market orders, 
as provided in Interpretation .01 to Exchange Rule 11.9(u), to the list 
of Exchange rule violations and fines included in the Program. \3\ The 
Exchange believes that market order exposure violations often are 
inadvertent and, in most cases, are best addressed in a summary 
fashion. However, because Interpretation .01 is predicated on the 
Exchange's commitment to promote customer price improvement 
opportunities, violations of this Interpretation require sanctions more 
rigorous than a series of cautionary letters prior to formal 
proceedings.
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    \3\ For further discussion of the CSE's Market Order Display 
Rule, see CSE Regulatory Circular to Exchange Members 97-07 (June 
17, 1997).
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    Under the proposal, Exchange regulatory staff will review a 
sampling of Exchange members' market orders, based on appropriate 
market conditions, to determine if a threshold of market order exposure 
violations has been exceeded. Violations of Interpretation .01 to 
Exchange Rule 11.9(u) that exceed 2% of all eligible market orders of 
any Member for any calendar quarter will result in a $1,000 fine for 
that quarter. The second quarterly violation within a rolling 12-month 
period will result in a $2,500 fine. A third quarterly violation within 
a rolling 12-month period will result in a BSE Business Conduct 
Committee hearing with a staff recommendation of a $10,000 fine.
    The Exchange notes that the minor rule violation fine schedule is 
merely a recommended schedule, and that fines of more or less than the 
recommended amount can be imposed (up to a $2,500 maximum) in 
appropriate situations. Also, the Exchange reserves the right to 
proceed with formal disciplinary action when, in the Exchange's 
opinion, circumstances warrant a more severe level of sanction or 
remedial action.
2. Statutory Basis
    The CSE believes that the proposed rule change is consistent with 
Section 6(b) of the Act \4\ in general and furthers the objectives of 
Sections 6(b)(5),\5\ 6(b)(6), \6\ 6(b)(7),\7\ and 6(d)(1) \8\ in 
particular. The proposed rule change is consistent with Section 6(b)(5) 
\9\ in that it is designed to promote just and equitable principles of 
trade and to remove impediments to and perfect the mechanism of a free 
and open market and a national market system, and, in general, to 
protect investors and the public interest. Specifically, the proposed 
rule change will augment the Exchange's ability to police its market 
and will increase the Exchange's flexibility in responding to minor 
violations of Exchange rules.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78f(b)(6).
    \7\ 15 U.S.C. 78f(b)(7).
    \8\ 15 U.S.C. 78f(d)(1).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Exchange also believes the proposal is consistent with the 
Section 6(b)(6) \10\ requirement that the rules of an exchange provide 
appropriate discipline for violations of Commission and Exchange rules. 
The Exchange believes the proposed rule change will provide a procedure 
to appropriately discipline those Members whose violations are minor in 
nature. In addition, because Rule 8.15 provides procedural safeguards 
to the person fined and permits a person disciplined to request a full 
hearing on the matter, the CSE believes the proposal provides a fair 
procedure for the disciplining of Members consistent with Sections 
6(b)(7) \11\ and 6(d)(1) \12\ of the Act.
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    \10\ 15 U.S.C. 78f(b)(6).
    \11\ 15 U.S.C. 78f(b)(7).
    \12\ 15 U.S.C. 78f(d)(1).

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[[Page 64465]]

B. Self-Regulatory Organization's Statement on Burden on Competition

    The CSE does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No comments were solicited or received in connection with 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 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. Persons making written submissions 
should file six copies thereof with the Secretary, Securities, and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549-
0609. 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 at the 
Commission's Public Reference Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
CSE. All submissions should refer to file No. SR-CSE-00-08 and should 
be submitted by November 12, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-27649 Filed 10-26-00; 8:45 am]
BILLING CODE 8010-01-M