Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices 6673

12 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3The substance of Amendment No. 1 is

incorporated into this notice.

4See Exchange Act Release No. 41706 (August 4,

1999), 64 FR 44069 (August 12, 1999) (File No. SR–

NYSE–98–25) relating to proposed adoption by the

NYSE of new provisions for recording the details

of an order in an electronic system prior to

representing or executing an order on the Floor. The

two rule changes proposed in this filing replace the

equivalent proposals that were deleted by

amendment from SR–NYSE–98–25. See note 4, id. 5 15 U.S.C. 78o(b).

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 will also be

available for inspection and copying at

the principal offices of the Board. All

submissions should refer to File No.

SR–MSRB–00–01 and should be

submitted by March 2, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. 12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–3038 Filed 2–9–00; 8:45am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42381; File No. SR–NYSE–

99–25]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the New York Stock Exchange, Inc.

Relating to Amendments to Exchange

Rule 134, Governing Error Accounts,

and New Rule 407A, Concerning Floor

Member Account Disclosure

February 3, 2000.

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 June 15,

1999, 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, III below, which Items have

been prepared by the Exchange. On

December 13, 1999, the NYSE filed

Amendment No. 1 to the proposed rule

change with the Commission.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change as amended from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change consists of

amendments to existing rules governing

error accounts (Rule 134) and a new rule

regarding Floor member account

disclosure (Rule 407A).

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 is proposing a series of

initiatives to strengthen the regulation

of activities of members on the Floor.

The initiatives proposed herein consist

of amendments to existing rules

governing error accounts and a new rule

regarding Floor member account

disclosure.4

Error Accounts. The Exchange is

proposing to revise NYSE Rule 134(d) to

require that each member maintain an

error account. Under the proposed rule

change, if a member does not maintain

an error account, he or she will not be

permitted to transact business on the

Floor. Only one error account will be

permitted for each member. The error

account may be maintained in the

member’s name or in the name of his or

her member organization, or the

member may participate in an error

account established for a group of

members.

At present there is no requirement

that a member maintain an error

account. The Exchange believes that the

amendment to Rule 134 will enhance its

ability to monitor and detect potential

abuses such as on-Floor trading by

members. Error account transaction

information will be localized to one

place for each member, and not

scattered among several accounts

which, at present, could be held in the

name of another member or member

organization.

Housing Error Accounts. The

proposed rule change, as amended,

would require that a member’s error

account be maintained at a broker or

dealer registered in accordance with

Section 15(b) 5 of the Act. The Exchange

believes that this provision would

enable it to use its oversight authority to

review error records for the brokers or

dealers which are members or member

organizations of the Exchange. If the

error account is maintained at a nonmember broker or dealer, the Exchange

represents that it will work through the

Intermarket Surveillance Group (‘‘ISG’’)

to obtain information on errors. The

Exchange believes this requirement is

necessary to enable review of situations

involving errors in an expedited

fashion.

Error Transaction Procedures. The

proposed rule change would require

that if a member or member

organization acquires or assumes a

security position resulting from an error

transaction, or initiates a transaction to

offset an error transaction, such

transaction must be recorded and

cleared in the member’s or his or her

member organization’s error account, or

in an error account established for a

group of members.

This would include situations where

the execution was wrong (e.g., wrong

side of the market, wrong stock) and

where the member ‘‘missed the market’’

by failing to execute the order in the

prevailing market. If the error can be

corrected at a better price at the time the

error is discovered, the better price must

be offered to the customer. If the

customer refuses the superior execution,

a record of this must be maintained by

the member.

Alternatively, a customer could

accept the error, in which case the

transaction would be placed in the

customer’s account. An error transaction

could also be accepted by the specialist

in the security into his or her

organization’s account as a trade ‘‘on

account of error.’’

When a customer accepts an error

transaction, a monetary settlement (a

‘‘difference check’’) may be made by the

member or member organization. If the

difference check is for more than $500,

the member or member organization

involved would be required under the

proposal to maintain records detailing

the transaction. In some instances, a

customer may accept an error, but not

wish to receive a difference check for

bookkeeping or other reasons. The

member or member organization

involved would be required to maintain

records in these situations, as well.

The proposal further prescribes the

way a member would be required to

6674 Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices

6An example of such an order is a ‘‘held’’ order

to buy with a limit of 20, which cannot be executed

pursuant to its terms if the member missed the

market and the stock is now trading above 20. 7 15 U.S.C. 78f(b)(5).

handle an error that is not accepted by

a customer. Where the member is

representing an order that cannot be

executed pursuant to its term,6 the

member would be required to issue an

execution report covering the

customer’s order at the missed market

price from his or her error account, the

member organization’s error account or

the specialist’s account if the specialist

agreed to take in the error. The member

would be permitted to confirm such

report as an Exchange transaction as

long as the position in the error account

or specialist’s account is liquidated.

The Exchange stipulates that if the

order can be executed on its original

terms or on better terms, the member or

member organization is expected to

execute the order pursuant to its terms,

as would typically be the case with a

‘‘not held’’ order. A member

representing a ‘‘not held’’ order is not

permitted to ‘‘miss the market.’’ and

must execute the order pursuant to its

terms. The member would not be

permitted to simply issue a report out of

his or her error account.

Recordkeeping. The proposed rule

change would require the member of his

or her member organization to maintain

records with respect to all errors. These

records would include the audit trail

data elements prescribed in NYSE Rule

132, as well as the nature and amount

of error, how the member resolved the

error with the member or member

organization, including a specialist,

which cleared the error trade on the

member’s behalf, and the aggregate

amount of liability that the member has

incurred and has outstanding as of the

time the error is recorded. The Exchange

could also require that additional data

elements be recorded in circumstances

where the Exchange believe that such

additional information is necessary for

all error transactions, or in particular

situations. The Exchange believes that

the recordkeeping requirement would

enable the Exchange to review and

analyze error transactions on a current

and consistent basis.

Profitable Errors. The Proposal would

also establish reporting requirements

with respect to certain ‘‘profitable’’

errors. These are errors which can be

liquidated at a price that is favorable to

the position acquired in the member or

member organization’s error account.

Under the proposal, every member not

associated with a member organization

and every member associated with a

member organization that derives at

least 75% of its revenue from floor

brokerage would be required to report to

the Exchange error transactions that

result in a profit of more than $500 for

any transaction or more than $3,000 in

any calendar week. The Exchange

believes this will enable it to quickly

review these situations for possible

violations of Floor Trading rules or

procedures.

The Exchange notes that all members

and member organizations would be

required under the proposal to maintain

details of all errors, profitable or not.

For members and member organizations

that do not act primarily as a Floor

broker, these records would be reviewed

in connection with the normal oversight

activities of the Exchange.

Reports of Closed Error Accounts. The

proposed rule change would also

require each clearing member

organization to report to the Exchange

whenever it ceases to carry an error

account. The notice would be requried

in writing immediately, but no later

than the opening of the Exchange on the

following business day.

Member Account Disclosure.

Proposed new Rule 407A would provide

the Exchange with information on

accounts of members. The provision

would require a member to report to the

Exchange any securities account in

which the member has a direct or

indirect financial interest or over which

the member has discretionary authority.

This would include any account at a

non-member broker-dealer, investment

adviser, bank or other financial

institution. In addition, the member

would be required to notify the financial

institution that carries or services his or

her account or an account over which

the member has discretionary authority

that he or she is a member of the

Exchange.

Purchases of securities of a publiclytraded registered investment company

directly from the issuer or principal

underwriter would not be considered a

reportable securities account. However,

interests in a non-publicly-traded

investment vehicle, including hedge

funds, would be reportable.

The Exchange believes that these

reporting requirements would provide it

with current information on where

members carry securities accounts and

enhance its ability to investigate quickly

the trading of securities by members of

the Exchange.

2. Statutory Basis

The Exchange bases the proposed rule

change on Section 6(b)(5) 7 of the Act,

which requires that an exchange have

rules that are designed to promote just

and equitable principles of trade, 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. The Exchange believes

that the proposed rule change will help

accomplish these ends by strengthening

the Exchange’s ability to surveil the

Floor activities of members.

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

The Exchange has neither solicited

nor received written comments on 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 in

Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices 6675

8 17 CFR 200.3–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3See letter from Michael D. Pierson, Director,

Regulatory Policy, PCX, to Michael A. Walinskas,

Associate Director, Division of Market Regulation,

Commission, dated June 24, 1999 (‘‘Amendment

No. 1’’). In Amendment No. 1, the Exchange

withdrew proposed PCX Rule 10.8, Hearing Panels,

and renumbered two of the proposed rules.

4See letter from Michael D. Pierson, Director,

Regulatory Policy, PCX, to Jennifer Colihan,

Attorney, Division of Market Regulation,

Commission, dated January 7, 2000 (‘‘Amendment

No. 2’’). In Amendment No. 2, the Exchange

proposed to delete PCX Rule 10.4(f) among other

things.

5See letter from Michael D. Pierson, Director,

Regulatory Policy, PCX, to Kelly Riley, Attorney,

Division of Market Regulation, Commission, dated

January 14, 2000 (‘‘Amendment No. 3’’). In

Amendment No. 3, the Exchange proposed to make

minor word change and change the heading for

proposed Rule 10.4(c) from ‘‘Summary

Proceedings’’ to ‘‘Summary Determinations’’ among

other things.

6The Commission notes that the Exchange has

proposed a similar disciplinary structure and

procedures for the Pacific Equities, Inc. See

Exchange Act Release No. 42178 (Nov. 24, 1999) 64

FR 68136 (Dec. 6, 1999) (File No. SR–PCX–99–39).

the Commission’s Public Reference

Room. Copies of the filing will also be

available for inspection and copying at

the principal offices of the Exchange.

All submissions should refer to File No.

SR–NYSE–99–25 and should be

submitted by March 2, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–3035 Filed 2–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42384; File No. SR–PCX–

99–10]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Exchange, Inc. Amending

Its Disciplinary Procedures

February 3, 2000.

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 April 2,

1999, the Pacific Exchange, Inc. (‘‘PCX’’

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 PCX. On June 25, 1999,

the PCX filed with the Commission

Amendment No. 1 to the proposed rule

change.3 On January 18, 2000, the PCX

filed with the Commission Amendment

No. 2 to the proposed rule change.4 On

January 19, 2000, the PCX filed with the

Commission Amendment No. 3 to the

proposed rule change.5 The Commission

is publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

1. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PCX is proposing to amend its

rules on disciplinary proceedings at the

Exchange,6 and in particular, to add

new rules to codify the independent

function of PCX Regulatory Staff; to

clarify what communications are

improper in the context of pending

investigations or disciplinary

proceedings; to provide PCX Regulatory

Staff with the ability to issue formal

complaints for the alleged violation of

Exchange rules; to permit qualified

persons who are not members to serve

on hearing panels; and otherwise to

codify procedures relating to hearing

panelists’ conflicts of interest. Below is

the text of the proposed rule change.

Proposed new language is in italics;

proposed deletions are in [brackets].

* * * * *

Rule 10

Disciplinary Jurisdiction and Appeals

¶6061 Disciplinary Jurisidiction

Rule 10.1—No change.

¶6067 Investigations and Regulatory

Cooperation

Rule 10.2(a). The Exchange

Regulatory Staff will function

independently of the commercial

interests of the Exchange members and

will have the sole discretion to

investigate, and will [shall] investigate,

possible violations within the

disciplinary jurisdiction of the

Exchange. [upon order of the Board of

Governors, the Executive Committee,

the Ethics and Business Conduct

Committee, or the Floor Trading

Committees or upon receipt of a

complaint alleging such violations filed

by a member or by any other person.]

No member of the Board of Governors

or the Executive Committee or nonRegulatory Staff may interfere with or

attempt to influence the process or

resolution of any pending investigation

or disciplinary proceeding. [All such

complaints should specify in reasonable

detail the facts constituting the

violation, including the specific

statutes, Exchange Constitutional

provisions, Rules, commentaries,

resolutions, policies or procedures

allegedly violated. A member or person

associated with a member is entitled to

be represented by counsel during any

Exchange investigation.

(b) No member or person associated

with a member shall impede or delay an

Exchange investigation with respect to

possible violations within the

disciplinary jurisdiction of the

Exchange nor refuse to furnish

testimony, documentary materials or

other information requested by the

Exchange during the course of its

investigation. Failure to furnish such

testimony, documentary materials or

other information requested by the

Exchange pursuant to this Rule on the

date or within the time period required

by the Exchange shall be considered

obstructive of an Exchange inquiry or

investigation and subject to formal

disciplinary action.]

(b) Any person, any Exchange

committee, the Board of Governors or

the Executive Committee may submit for

investigation a complaint alleging

possible violations. Each complaint

must specify in reasonable detail the

facts constituting the violation and any

specific federal statute, rule, regulation

or Exchange constitutional provision,

rule, commentary, resolution, policy or

procedure allegedly violated.

[(c) A member or member

organization shall submit such trade

data elements specified in Commentary

.01 below in such automated format as

may be prescribed by the Exchange from

time to time, in regard to such

transaction or transactions as may be the

subject of a particular request for

information made by the Exchange.

Failure to submit such data in the

required format shall be considered

obstructive of an Exchange inquiry or

investigation and subject to formal

disciplinary action.]

(c) A member, member organization

or associated person is entitled to be

represented by counsel during any

Exchange investigation.

[(b)] (d) No member, member

organization, [or person associated with

a member] associated person or other

person or entity over whom the

Exchange has jurisdiction pursuant to

Rule 10.1(b) may [shall] impede or delay

an Exchange investigation with respect

to possible violations within the

disciplinary jurisdiction of the

Exchange nor refuse to furnish

testimony, documentary materials or

other information requested by the

Exchange during the course of its

investigation. Failure to furnish such

testimony, documentary materials or

other information requested by the

Exchange pursuant to this Rule on the

date or within the time period required

by the Exchange [shall] will be