Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Notices 15555

8 15 U.S.C. 78(f)(b)(5).

9 In approving this rule, the Commission notes

that it has considered the proposed rule’s impact on

efficiency, competition, and capital formation. 15

U.S.C. 78c(f).

10Amendment No. 1 specifically changes the text

of CBOE’s proposed rule to state that ‘‘[a] decision

by the Business Conduct Committee accepting an

offer of settlement hereunder shall be reported on

a current basis pursuant to Rule 19d–1 under the

Securities Exchange Act of 1934.’’

11See discussion earlier regarding the content

and operation of Rules 19d–1(c)(1) and 19d–1(c)(2)

of the Act and of CBOE’s Rule 17.50.

12Form BD requires broker-dealers to report

violations of Commission and Exchange rules, as

well as certain criminal, civil and administrative

penalties, and this information is then made

available to the public and investors.

13 15 U.S.C. 78s(b)(2).

14 17 CFR 200.30–3(a)(12).

1The Exchange filed Amendment No. 1 with the

Commission on February 18, 1997, the substance of

Continued

III. Discussion

The proposed rule change is

consistent with and furthers the

objectives of Section 6(b)(5) of the Act 8

in that it is designed to refine and

enhance the Exchange’s minor rule

violation procedure as applied to

position limit violations, while retaining

adequate enforcement measures for

violations of such rules, thereby

removing impediments to a free and

open market and protecting investors

and the public interest.9

The Commission finds that by

adopting formal procedures for the

settlement of certain position limit

summary fines that are separate from a

full disciplinary hearing, the proposed

rule change should increase the

efficiency of the Exchange’s disciplinary

process by saving the time and expense

of both members and Exchange staff in

preparing for hearings, while continuing

to ensure that position limit rules are

effectively enforced. Under the CBOE’s

proposed rule, violations settled using

new procedures, irrespective of whether

the settlement amount is under $2,500,

will be subject to immediate, rather than

quarterly, reporting to the

Commission.10 The Commission

believes this result is appropriate and

makes CBOE’s new rule consistent with

the CBOE’s minor rule reporting plan

and Rule 19d–1(c)(2),11 due to the fact

that the members are contesting the fine

amounts and have sought an

adjudication on the violation which

includes the opportunity to have a

hearing.

For the same reasons, the CBOE has

also amended their new rule to state

that the acceptance of settlement offers

under this new procedure must be

reported on the Form BD 12 and Form

U–4. Both Form BD and Form U–4

require broker-dealers to report

violations of an SRO’s rules, except for

violations designated as ‘‘minor rule

violation[s],’’ under a plan approved by

the Commission. However, the

definition of a ‘‘minor rule violation’’ on

Form BD and Form U–4 states that rule

violations may be designated as

‘‘minor’’ under a plan if the sanction

imposed consists of a fine of $2,500 or

less, and if the sanctioned person does

not contest the fine. The Commission

believes that because under the

proposed rule change, the person

submitting the settlement offer is

contesting the fine amount, the

acceptance of a settlement offer under

the new procedures being adopted

herein must be reported on Form BD

and Form U–4 just like any decision in

a contested Exchange disciplinary

proceeding, even if the settlement

amount does not exceed $2,500.

Amendments Nos. 2 and 3 adequately

address this concern by requiring the

acceptance of a settlement offer to be

reported on Form BD and Form U–4 as

a contested Exchange disciplinary

proceeding.

In summary, the Commission believes

that the development of the interim step

of a settlement procedure for contesting

the fine amount for position limit minor

rule violations should help to make the

CBOE’s entire disciplinary process more

efficient by avoiding unnecessarily

burdening the formal disciplinary

process with such actions, while still

retaining adequate enforcement

measures for violations of the position

limit rules contained in the minor rule

plan. In addition, the fact that

acceptance of settlement offers under

the new settlement process will be

reported currently, rather than on a

quarterly basis, ensures that the

Commission receives adequate notice of

these contested fines.

The Commission finds good cause to

approve Amendment Nos. 1, 2, and 3 to

the proposed rule change prior to the

thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. Specifically, as

stated above in greater detail, by

requiring current reporting of the

acceptance of settlement offers under

the new settlement procedure for

position limit violations, Amendment

No. 1 will ensure that the Commission

receives adequate notice of contested

fines which have been settled, while

still providing a mechanism for

effectively enforcing position limit

violations. Similarly, Amendment Nos.

2 and 3 ensure that the accepted

settlement offers will be reported on

Form BD and Form U–4, leading to

greater protection of the investors and

the public interest, by clarifying that the

acceptance of a settlement offer is a

decision in a contested Exchange

disciplinary proceeding for purposes of

the Form BD and Form U–4.

Accordingly, the Commission believes

that it is consistent with Section 6(b)(5)

of the Act to approve Amendment Nos.

1, 2, and 3 to the proposal on an

accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning Amendment Nos.

1, 2, and 3 to the proposed rule change.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rules

change that are filed with the

Commission, and all written

communications relating to Amendment

Nos. 1, 2, and 3 between the

Commission and any persons, 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 such filing will also be

available at the principal office of the

Exchange. All submissions should refer

to File No. SR–CBOE–96–57 and should

be submitted by April 22, 1997.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR–CBOE–96–

57), including Amendment Nos. 1, 2,

and 3, is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8230 Filed 3–31–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38439; File No. SR–CHX–

96–31]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange, Inc., To

Amend Articles IV, VII, and XII of the

Exchange’s Rules To Modify the

Exchange’s Disciplinary Procedures

March 25, 1997.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on December 9, 1996,1
15556 Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Notices

which is incorporated into this notice. See letter

from David Rusoff, Attorney, Foley & Lardner, to

Katherine England, Assistant Director, Market

Regulation, Commission, dated February 17, 1997. 2See SR–CHX–96–30.

the Chicago Stock Exchange, Inc.

(‘‘CHX’’ 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 self-regulatory

organization. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend

Articles IV, VII, and XII of the

Exchange’s Rules to modify the

Exchange’s disciplinary procedures.

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 purpose of the proposed rule

change, which makes substantive

changes to some portions of the

disciplinary procedures, is to provide a

balanced process for managing

disciplinary matters by bringing peer

review into the disciplinary process

while at the same time including

independent review and participation

by public members of the Board of

Governors or other individuals not

connected to the Exchange during each

stage of the disciplinary process. The

proposed rule change is also meant to

harmonize Exchange practice with that

of other exchanges by separating key

management personnel who have

overall responsibility for the ‘‘business’’

areas of the Exchange from the

disciplinary process. To accomplish this

goal, the proposed rule change

eliminates the active role the President

has played in the disciplinary process.

The Exchange feels that it is more

appropriate for the President, who runs

the daily business of the Exchange, to be

separated from the disciplinary process.

The Exchange notes that no other

exchange has its chief executive officer

involved in the disciplinary process.

Additionally, as described more fully

below, the proposed rule change

eliminates one level of internal appeal

after a hearing. Rather than permitting

respondents to appeal to the Judiciary

Committee and then the Executive

Committee, the decision of a

reconstituted Judiciary Committee will

be final. The Exchange believes that the

prior system of double review was an

inefficient use of CHX resources.

The Exchange believes that the

proposal is timely. The Governance

Committee of the CHX has, for some

time, been examining several

governance issues affecting the

Exchange. For example, the Governance

Committee was instrumental in

developing the recent proposal to create

a class of ‘‘approved lessors’’ on the

Exchange.2 Another area that the

Governance Committee focused on is

disciplinary procedures and the

proposal contained herein is, in large

part, the completion of the Governance

Committee’s efforts.

The proposal extensively amends

Article XII, dealing with discipline and

hearing procedures, and the rules

thereunder. Proposed Rule 1(a) provides

that Exchange staff will investigate

potential disciplinary matters brought to

their attention and make a report to an

Initial Determination Panel, rather than

to the President, if the staff decides to

recommend changes. Proposed Rule 1(b)

provides for a new Hearing Pool, a

standing body of individuals appointed

jointly by the Chairman and the Vice

Chairman, with the approval of the

Executive Committee or the Board of

Governors. The Hearing Pool will

consist of not less than twelve and not

more than twenty-five members. The

Exchange feels that this range is

appropriate, based on its analysis of the

historical number of disciplinary

procedures brought before the

Exchange, together with the complexity

of those proceedings. At least four

Hearing Pool members must be public

governors of the Exchange or other

individuals not affiliated with the

Exchange or with any broker or dealer.

These Hearing Pool members are

referred to as ‘‘Unaffiliated Panelists.’’

These unaffiliated panelist members of

the Hearing Pool may be individuals

other than public governors, in part,

because of the limited number of public

governors on the CHX. Moreover, the

use of such ‘‘outside’’ Hearing Pool

members will permit the Exchange to

take advantage of outside expertise that

is often useful in conducting

disciplinary proceedings. Continued use

of such expertise would assist in

assuring efficient and fair disciplinary

procedures. The remaining members of

the Hearing Pool shall be chosen from

among members of the Exchange and

partners, officers, and directors of

member firms.

The Exchange intends to require each

member of the Hearing Pool to complete

a questionnaire upon such member’s

appointment to either an Initial

Determination Panel or a Hearing Panel.

The purpose of such questionnaire will

be to assist in identifying any potential

conflicts of interest. In addition, under

the proposed rule change, each Hearing

Pool member has an affirmative

obligation to bring actual and potential

conflicts of interest to the attention of

the Chairman and the Vice Chairman.

Under proposed Rule 1(c), reports of

staff investigations of possible

disciplinary violations will be made to

an Initial Determination Panel selected

for that disciplinary matter, consisting

of three disinterested individuals,

chosen from the Hearing Pool,

appointed jointly by the Chairman and

the Vice Chairman with the approval of

the Executive Committee or the Board.

For purposes of proposed Rule 1(c) and

related proposed Rule 1(g),

‘‘disinterested’’ means that the

individual cannot have any direct or

indirect interest in the disciplinary

matter, or any other conflict of interest,

which might preclude the individual

from rendering an objective and

impartial determination. the Exchange

will determine if an individual is

disinterested using the questionnaire

described above and the provisions in

proposed Rule 1(c) and proposed Rule

1(g) that put an affirmative obligation on

the individual to report any actual or

potential conflicts of interest to the

Chairman or Vice Chairman. Each Initial

Determination Panel will include at

least one Hearing Pool member who is

an Unaffiliated Panelist.

All decisions of the Initial

Determination Panel will be made by

majority vote. Each Initial

Determination Panel will have the

authority to determine the manner in

which it will proceed, consistent with

the other disciplinary rules. An Initial

Determination Panel will be

automatically dissolved once it

completes all of its duties, either

immediately if no charges are brought

by the Initial Determination Panel (or by
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Notices 15557

3See supra discussion relating to the definition

of ‘‘disinterested.’’

4Proposed Rule 7(a), current Rule 5, deals with

the conduct of the disciplinary hearing.

the Executive Committee on appeal of

the Initial Determination) or, if the

disciplinary matter proceeds, after the

Hearing Panel has issued a decision or

has otherwise completed its work. If a

member of the Initial Determination

Panel is unable to continue serving on

the Panel without causing undue delay,

or is not qualified to continue serving

on the panel, a new member of the

Hearing Pool will be selected to replace

him or her and will be given adequate

opportunity to review the proceedings

of the Initial Determination Panel and

familiarize him or herself with the

evidence and documents. The Exchange

has determined that a period of two

weeks or less will not constitute ‘‘undue

delay.’’

Under proposed Rule 1(d), the Initial

Determination Panel, rather than the

President, as is the case under the

current rules, determines whether or not

to bring charges. The Exchange staff

may appeal the decision of the Initial

Determination Panel not to bring

charges to the Executive Committee or

the Board, not including Executive

Committee members, if any, who have

been involved in that particular

disciplinary proceeding up to that time.

Review by the Executive Committee or

Board will be de novo review and that

decision will be final. Proposed Rule

1(e) provides that if either the Initial

Determination Panel (or the Executive

Committee or Board on appeal) decides

that it appears that the accused has

committed a default or other offense in

violation of the Exchange’s Constitution

or rules, the Initial Determination Panel

(or Executive Committee or Board on

appeal) shall direct the Exchange staff to

bring charges, a copy of which shall be

served in writing on the accused. The

proposed rule change modifies the title

of proposed Rule 1(f) from ‘‘Serving

Instruments on the Accused’’ to

‘‘Serving Charges.’’

Proposed Rule 1(g) provides for the

appointment of a Hearing Panel by the

Chairman and Vice-Chairman, with the

approval of the Board. The Hearing

Panel will consist of three persons

chosen from the Hearing Pool and one

member of the Hearing Panel must be an

Unaffiliated Panelist. The Hearing Panel

may not include any Hearing Pool

members who were members of the

Initial Determination Panel for that

particular matter. Hearing Panel

members must be disinterested 3 and

will be required to report any actual or

potential conflicts of interest to the

Chairman or Vice Chairman.

Under proposed Rule 1(g), the

Hearing Panel will consider the charges,

will conduct a hearing if requested, and

will decide whether the accused has

committed the violations alleged and, if

so, what sanction should be imposed.

As with the Initial Determination Panel,

all decisions of the Hearing Panel will

be made by majority vote; the Hearing

Panel will automatically dissolve after

completing its duties and notifying the

Secretary in writing of its decision. Each

Hearing Panel will have the authority to

determine the manner in which it

proceeds consistent with these Rules. If

a member of the Hearing Panel is unable

to continue serving on the Panel

without causing an undue delay, or is

not qualified to continue serving on the

Panel because of the existence of a

relationship between him or her and the

person or persons involved in the

matter, a new member of the Hearing

Pool will be selected to replace him or

her and will be given adequate

opportunity to review the proceedings

of the panel and familiarize himself or

herself with the evidence and

documents so far presented to the

Hearing Panel.

As mentioned above, all Initial

Determination Panels and Hearing

Panels will have the authority under the

proposed rule change to determine their

own procedures. The Exchange believes

that this is appropriate, given the

limited number of disciplinary cases

brought by the CHX. The Exchange

believes that this is appropriate, given

the limited number of disciplinary cases

brought by the CHX. The Exchange

believes that flexibility in procedures is

necessary because each case differs in

the complexity of issues and the need

for particular procedures. For example,

a very complex case may require a

lengthy briefing schedule to adequately

address all issues raised. On the other

hand, a simple case with few contested

issues may be conducted much more

efficiently on an expedited basis.

Therefore, the Exchange does not

believe that it would be appropriate to

establish one set of procedures that

would necessarily apply to all

disciplinary procedures.

The Exchange proposed to modify

current Rules 2(a) (Minor Infractions)

and 2(b) (Summary Hearing and

Sanction) to make those parts of these

summary proceedings that were

formerly the responsibility of the

President the responsibility of an Initial

Determination Panel. Summary

proceedings for minor infractions under

Rule 2(a) and for summary hearings and

sanctions under Rule 2(b) will be used

only if the investigation and report

provided for in Rule 1(a) expressly

recommend that the Initial

Determination Panel proceed according

to Rule 2(a) or Rule 2(b). Appeals of

summary proceedings under Rule 2(a)

will now be made to a Judiciary

Committee, rather than the Executive

Committee, in order to harmonize the

minor infraction proceedings appeals

process with the regular disciplinary

proceedings appeals process. The

Exchange believes that because the

maximum fine that can be imposed

pursuant to Rule 2(a) has not been

changed in many years, and inflation

has eroded the desired impact of the

fine, the maximum fine amount should

be increased. As a result, the proposed

rule change will increase the fine

amount that the Initial Determination

Panel may impose pursuant to Rule 2(a)

will be increased from $500 to $5,000.

The Exchange also proposes to amend

Rule 2(b) to remove all references to

Midwest Clearing Corporation and

Midwest Securities Trust Company, and

replace the term ‘‘penalty’’ with

‘‘sanction’’ whenever it occurs. The

proposed changes to Rule 2(b) also make

clear that Rule 2(b) may only be used

upon the agreement by the accused to

have his proceeding heard by an Initial

Determination Panel, rather than the

President, as the rule currently states.

The proposed rule change renumbers

current Rule 2(c), relating to settlement

procedure, as Rule 3. Under proposed

Rule 3, the Initial Determination Panel

will assume the role the President

previously held under this section.

Proposed Rule 3 will explicitly permit

the accused to propose an offer of

settlement to the Initial Determination

Panel at any time before a judgment is

rendered by a Hearing Panel. In

addition, the Initial Determination Panel

may accept an offer of settlement up

until a judgment is rendered by the

Hearing Panel hearing the case as long

as the offer is not otherwise withdrawn.

The accused cannot withdraw an offer

of settlement once the Initial

Determination Panel has accepted it. An

offer of settlement must contain a

proposed sanction and a waiver of

appeal rights. If the offer of settlement

is submitted within fifteen days from

the date of service of the charges, the

accused will receive an additional tenday period from the time of the receipt

of the Initial Determination Panel’s nonacceptance of the offer of settlement to

file any response required by proposed

Rule 7(a).4

The proposed rule change renumbers

current Rule 2(d), relating to actions by

other self regulatory organizations, as
15558 Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Notices

5The Commission notes that the Exchange has

stated that the Exchange staff prosecuting the

charges are different from Exchange counsel that is

counsel to the Hearing Panel. Phone conversation

between David Rusoff, Foley & Lardner, Craig Long,

Foley & Lardner, Katherine England, Assistant

Director, Market Regulation, Commission, and

Heather Seidel, Attorney, Market Regulation,

Commission, on January 22, 1997.

6See infra amendments to Article IV, Rule 5,

relating to the manner or appointment of the

Judiciary Committee.

7The language of current Rule 6 states that ‘‘[t]he

Judiciary Committee may not reverse, or modify, in

whole or in part, the decision of the Hearing

Examiner and Final Judgment of the President

under paragraph (b) of Rule 4 or under Rule 5 if

the factual conclusions in the decision are

supported by substantial evidence and such

decision is not arbitrary, capricious or an abuse of

discretion.’’

Rule 4. The proposed rule change

modifies proposed Rule 4 to harmonize

the language in proposed Rule 4 with

the definition of statutory

disqualification contained in the Act by

adding ‘‘person associated with a

member’’ to the list of those entities

affected by proposed Rule 4 and by

replacing the phrase ‘‘exchange or

association’’ with the phrase ‘‘selfregulatory organization.’’ The proposed

rule change to proposed Rule 4 also

adjusts internal cross-references to the

Rule.

The proposed rule change renumbers

current Rule 2(d)(1) as Rule 4(a) and

amends proposed Rule 4(a) to provide

that if an entity is the subject of an

action by another self-regulatory

organization and as a result falls within

proposed Rule 4(a), the staff may so

advise an Initial Determination Panel,

instead of the President. The Initial

Determination Panel may then proceed

under proposed Rule 4(b) (current Rule

2(d)(2)). If the staff recommends to the

Initial Determination Panel that it

proceed under Rule 4(b) but the Initial

Determination Panel elects not to

proceed, the staff will have the right to

appeal the Initial Determination Panel’s

decision to the Board; provided,

however, that the Chairman, the Vice

Chairman, the President, and any other

member of the Initial Determination

Panel that denied the staff’s request who

is also on the Board shall not hear any

such appeal. The Board will review de

novo the decision of the Initial

Determination Panel; the decision of the

Board as to whether to proceed under

proposed Rule 4(b) will be final.

The existing language in current Rule

2(d)(1) regarding commencement of

sanctions being concurrent with and no

greater than the sanctions of other

sanctioning bodies upon whose action

the Exchange’s action is based has been

moved to new Rule 4(b). The proposed

rule change also modifies proposed Rule

4(a) to clarify that nothing in Rule 4(a)

precludes the taking of any action

against any person against whom action

may be taken under any other Section

of this Article or Rule of the Exchange.

The current rule language states that

nothing in the Rule (prior to Rule

2(d)(1), proposed Rule 4(a)) precludes

the Exchange from proceeding against

any person, as opposed to the taking of

any action against any person. Proposed

Rule 4(b) will state that the Initial

Determination Panel will occupy the

role previously occupied by the

President. Additionally, the proposed

rule change renumbers current rule

2(d)(3) as proposed Rule 4(c) and

amends it to replace the word ‘‘penalty’’

with the word ‘‘sanction’’ and the word

‘‘President’’ with the phrase ‘‘Initial

Determination Panel.’’

The proposed rule change renumbers

current Rule 3 as Rule 5 and adjusts

internal cross-reference to the Rule

accordingly. The proposed rule change

renumbers current Rule 4 as Rule 6 and

replaces the phrase ‘‘the President’’ with

the phrase ‘‘the Initial Determination

Panel’’ and the word ‘‘penalty’’ with the

word ‘‘sanction.’’

The proposed rule change renumbers

current Rule 5, relating to the conduct

of hearing, as Rule 7 and replaces the

term ‘‘trial’’ with the word ‘‘hearing’’

whenever it occurs. Proposed Rule 7(a)

states that hearings will be conducted

by a Hearing Panel appointed in

accordance with Rule 1 instead of by a

Hearing Examiner appointed by the

President. Under proposed Rule 7(a),

the Initial Determination Panel, rather

than the President, will have the

authority to grant extensions of time for

answering charges. In addition, the

proposed rule change replaces the word

‘‘should’’ with the word ‘‘shall’’ when

describing what is required in an

answer to the charges.

Proposed Rule 7(b) eliminates the role

of the Hearing Examiner and the

President in determining guilt and

sanctions. Under proposed Rule 7(b),

the Hearing Panel will render its

judgment, and may find that the

accused has committed all or some of

the violations as charged, or that the

accused has committed none of the

violations charged. Under proposed

Rule 7(b), the Hearing Panel will have

the authority to impose appropriate

sanctions. The decision of the Hearing

Panel will be in writing, three copies of

which will be signed by the Chairman

of the Hearing Panel.

Proposed Rule 7(c) provides that

prosecution of charges will be the

responsibility of senior Exchange staff

members who will no longer necessarily

be appointed by the President. Proposed

Rule 7(c) also states that Exchange

counsel shall be present as counsel to

the Hearing Panel. Proposed Rule 7(d)

provides all members of a Hearing Panel

must be impartial and independent of

the staff members who prepared and

prosecuted the charges. Proposed rule

7(d) also provides that Exchange

counsel may assist the Hearing Panel in

preparing its judgment.5

The proposed rule change renumbers

current Rule 6, the review section, as

Rule 8. Under proposed Rule 8 the

accused and the Exchange staff will

have fifteen days from the date of

service of any judgment imposed under

Rules 4(b), 6(b), or Rule 7, rather than

from the date of notice of a penalty

imposed, to demand review of the

judgment. Appeals under these sections

will be made to a reconstituted Judiciary

Committee.6 The standard of review on

appeal will be similar to what it

currently is; the Judiciary Committee

may not reverse or modify the judgment

under review unless the majority of the

Judiciary Committee finds that the

applicable panel’s decision (either the

Initial Determination Panel or the

Hearing Panel) is not supported by

substantial evidence or that the decision

is arbitrary, capricious or an abuse of

discretion.7 Proposed Rule 8 provides

that the Judiciary Committee’s decision

will be final and deletes current Rules

6(b) and 6(c), which provide for appeal

to the Executive Committee and the

Board of Governors. The Exchange notes

that this change will eliminate the

system of double review. Proposed Rule

8 also make clear that all final

determinations by the Judiciary

Committee are appealable to the

commission in accordance with

applicable Commission Rules.

The proposed rule change renumbers

current Rule 7 as Rule 9 and deletes

references to appeals to the Executive

Committee or the Board of Governors.

The proposed rule change also

renumbers current Rule 8 as Rule 10,

current Rule 9 as Rule 11, and current

Rule 10 as Rule 12. Proposed Rule 11,

Minor Rule Violations, corrects internal

cross-references to the rules amended by

this rule filing and provides that reports

of a Minor Rule Violation Panel

recommending that disciplinary charges

be brought will now be made to an

Initial Determination Panel, rather than

the President.

The proposed rule change amends

Article IV, Rule 5 to modify the manner

of appointment of a Judiciary

Committee. The Chairman, rather than

the President, will appoint five

members of the Board of Governors,

excluding the Chairman, Vice
Federal Register / Vol. 62, No. 62 / Tuesday, April 1, 1997 / Notices 15559

8 15 U.S.C. 78f(b)(5).

9 15 U.S.C. 78f(b)(7).

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

2The Commission has modified the text of the

summaries prepared by OCC.

Chairman, President, and all governors

who have already served on the Initial

Determination Panel or Hearing Panel

convened in connection with a

disciplinary matter to be reviewed. Two

of the five members of the Judiciary

Committee will be non-member (public)

governors. The proposed rule change

also amends Article VII, Rule 5(a) in

order to clarify that the President’s

power of emergency suspension extends

to persons associated with members, in

addition to members and member

organizations. The Exchange believes

that this change codifies the Exchange’s

authority, as set forth in Section 6(b)(6)

of the Act, in CHX rules.

The Exchange proposes that the

proposed rule change become effective

sixty days after approval by the

Commission. This time period will give

the Exchange adequate time to

implement the new procedures and

appoint a Hearing Pool. The Exchange

proposes that, in general, if a

disciplinary action has commenced and

is pending as of the date of effectiveness

of the proposed rule change, all of the

new rules and procedures should apply.

However, if a Hearing Officer has

already been appointed pursuant to the

old rules then the old hearing rules

should apply. In any event, so long as

no appeal has been filed by the date of

effectiveness of the proposal, the new

appellate rules and procedures shall

apply except that, if a Hearing Officer

presided at the hearing, references in

the appeal rules to decisions of the

Initial Determination panel or Hearing

Panel, as the case may be, should be

changed to ‘‘hearing officer and final

judgment of the President.’’

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6(b)(5) of the Act 8 in that it is

designed to promote just and equitable

principles of trade, to foster cooperation

and coordination with persons engaged

in regulating securities transactions, 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 proposed rule

change is also consistent with Section

6(b)(7) of the Act 9 in that it provides a

fair procedure for the disciplining of

members and persons associated with

members.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange 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 written comments were either

solicited or received.

III. Date of Effectiveness of Proposed

Rule Change and Timing for

Commission Action

Within 35 days of the 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.

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. 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 Exchange. All

submissions should refer to File No.

SR–CHX–96–31 and should be

submitted by April 22, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–8231 Filed 3–31–97; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–38421; File No. SR–OCC–

97–03]

Self-Regulatory Organizations; The

Options Clearing Corporation; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change Modifying The Options

Clearing Corporation’s Restated

Certificate of Incorporation and ByLaws

March 19, 1997.

Pursuant to Section 19(b)(1)1 of the

Securities Exchange Act of 1934

(‘‘Act’’), notice is hereby given that on

February 18, 1997, The Options Clearing

Corporation (‘‘OCC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I and II

below, which Items have been prepared

primarily by OCC. The Commission is

publishing this notice and order to

solicit comments from interested

persons on the proposed rule change

and to grant accelerated approval of the

proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change modifies

OCC’s Restated Certificate of

Incorporation and By-Laws to extend

each public director’s term on OCC’s

Board of Directors (‘‘Board’’) from a

maximum of four consecutive years to a

maximum of six consecutive years.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

OCC 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. OCC has prepared

summaries, set forth in sections (A), (B),

and (C) below, of the most significant

aspects of such statements.2

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

The purpose of the proposed rule

change is to modify OCC’s Restated

Certificate of Incorporation and By-Laws

in order to provide greater continuity of

leadership and more meaningful

representation on OCC’s Board by