28532 Federal Register / Vol. 63, No. 100 /Tuesday, May 26, 1998 / Notices

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

2 17 CFR 240.19b–4 (1995).

3Securities Exchange Act Release No. 39767

(March 17, 1998), 63 FR 1414 (March 24, 1998).

4The Amex expects that the ‘‘professional

hearing officer will be an individual who is a

lawyer who has had litigation experience in the

securities area. It is possible that such individual,

or his firm, may provide advice or services to the

Exchange on matters that do not relate to the

investigation or preparation of disciplinary

matters.’’ See letter from Janice M. Stroughter,

Director of Hearings and Special Counsel, Legal &

Regulatory Policy, American Stock Exchange, Inc.,

to Katherine England, Esq., Assistant Director,

Market Supervision, SEC, dated February 25, 1998

(‘‘Amendment No. 2’’).

5CR. CBOE Rule 2.1 (establishing committees,

procedures and duties and powers thereof); NYSE

rule 476(b) (outlining the composition of a Hearing

Board, the selection pool from which panelists are

chosen and length of service); and PCX Rule 11

(procedures for establishing committees in general,

membership selection, and delegation of

jurisdiction to specific committees).

6Cf. CBOE Const. art. IX, NYSE Const. art. XII,

and PCX Const. art. XVI. According to these

provisions, indemnification is granted to members

of any committees authorized by their respective

Constitutions or Boards.

7Cf. CBOE Rule 17.10 (review shall be conducted

by the Board or a committee of the Board); NYSE

Rule 476(f) (review of Hearing Panel’s decision

conducted by the Board); and PCX Rule 10.8(a)

(review may either be conducted by the Board or

by a committee appointed by Board).

8Pursuant to Section 3(f) of the Act, the

Commission has considered the proposed rule’s

impact on efficiency, competition, and capital

formation. In updating its rules to improve its

disciplinary process, the Exchange has enhanced

efficiency by streamlining a process that should

enable the Exchange to expeditiously resolve

disciplinary actions. Competition should also

improve as members and customers become

confident that wrongdoing will be quickly and

effectively addressed. If competition increases then

capital formation should improve as an increase in

business should result in increased profits. 15

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

time of its initial purchase of shares of

the Fund.

Conclusion

For the reasons set forth above,

Applicants represent that the

exemptions requested are necessary and

appropriate in the public interest and

consistent with the protection of

investors and purposes fairly intended

by the policy and provisions of the Act.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–13815 Filed 5–22–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

(Release No. 34–39996; File No. SR–AMEX–

97–30)

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the American Stock Exchange, Inc.

Relating to Professional Hearing

Officers, Executive Committee Review

of Appeals From Disciplinary Panel

Decisions and Indemnification of

Persons Serving on Disciplinary

Panels and Exchange Officials

May 18, 1998.

I. Introduction

On August 11, 1997, the American

Stock Exchange, Inc. (‘‘Amex’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘ACT’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change

which amends the Exchange’s

Constitution and Rules of Procedure

applicable to its disciplinary

proceedings. A notice of the proposed

rule change appeared in the Federal

Register on March 24, 1998.3 The

Commission received no comment

letters concerning this rule change. This

order approves the proposed rule

change.

The Exchange’s Constitution and

Rules of Procedure applicable to

disciplinary proceedings currently

require, among other things, the

Exchange to draw members of

disciplinary panels exclusively from the

ranks of practicing securities industry

professionals. These rules also generally

require the Chairmen of Disciplinary

Panels to be Exchange Officials. The

Exchange believes the current system

for selecting Disciplinary Panels has

worked well for many years, and Panel

members have performed an invaluable

service to the Exchange on a voluntary

basis. Recently, the Exchange has

noticed that the complexity of the legal

issues confronting its disciplinary

panels has increased, thus requiring

Article V, Section 1(b) of the Exchange’s

Constitution and its Rules of Procedure

to be modified.

II. Description of the Proposal

i. Professional Hearing Officers

Frequently, Disciplinary Panels face

complicated legal questions that must

be resolved promptly to ensure the

timely resolution of enforcement

matters. While the Exchange provides

the Panels with an assistant, this staff

person has a non-substantive role in

enforcement proceedings and, therefore,

is unable to fully participate in

evaluating important legal, evidentiary

and procedural questions. Accordingly,

the Exchange has amended its

Constitution and Rules to provide for

professional hearing officers to serve as

chairmen and voting members of

Exchange Disciplinary Panels.4 The

remaining members of Disciplinary

Panels would continue to be drawn

from the ranks of practicing securities

industry professionals as currently

provided for in the Exchange’s

Constitution and Rules.5

ii. Indemnification of Persons Serving

on Disciplinary Panels and Exchange

Officials

The indemnification provision of the

Exchange’s Constitution had not

specifically mentioned persons serving

on Disciplinary Panels nor Exchange

Officials. Although the Exchange

believes there are sound arguments for

concluding that persons serving on

Disciplinary Panels and Exchange

Officials already are covered by the

Exchange’s indemnity provision, the

Exchange has, nevertheless, amended

the Constitution to make this coverage

explicit to help ensure that the

Exchange can continue to attract and

retain qualified persons to serve in these

capacities.6

iii. Board Review of Disciplinary Panel

Decisions

Prior to this proposal, in all instances,

disciplinary appeals were heard by the

Executive Committee of the Board

pursuant to delegated authority from the

Board of Governors as authorized by

Article V, Section 1(b) of the

Constitution except where a member or

member organization is expelled or

suspended for a period of one year or

more. In such instance, a review by the

full Board would have been required.

However, the Exchange has amended its

Constitution to vest in the Executive

Committee the delegated authority to

hear all appeals (including matters the

Board calls for review) regardless of the

nature of the respondent or the penalty.7

This should make the appeal process

less cumbersome, while at the same

time eliminating a special review

privilege (i.e., full Board review) that

existed for members and member

organizations, but not for their

employees. The full Board would retain

authority to review disciplinary

decisions when such review is deemed

appropriate.

III. Discussion

The Commission believes that the

proposed rule change is consistent with

the Act 8 and the rules and regulations

promulgated thereunder. Specifically,

the Commission believes that approval

of the proposed rule change is
Federal Register / Vol. 63, No. 100 /Tuesday, May 26, 1998 / Notices 28533

9Section 6(b)(7) requires the Commission to

determine that a registered national securities

exchange’s rules are designed to provide a fair

procedure for the disciplining of members and

persons associated with members.

10Cf. CBOE Rule 2.1(c) (no member shall

participate in adjudication of a matter in which he

is personally interested) and PCX Rule 10.8(b)

(review board member required to disclose any

circumstances that might preclude him from

rendering an objective and impartial determination)

and Rule 11.3 (no committee member shall

participate in an adjudication of a matter in which

he is personally interested).

11See supra note 4, Amendment No. 2 at p.2.

12 15 U.S.C. 78s(b)(2).

13 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Letter from Patricia L. Levy, Senior Vice

President and General Counsel, CHX, to Katherine

A. England, Division of Market Regulation

(‘‘Division’’), Commission, dated March 17, 1998

(‘‘Amendment No. 1’’). Amendment No. 1 revises

CHX Article VI, Rule 2(a) to state that registered

persons, as defined in CHX Article VI, Rule 2(b),

must register with the CHX.

4See Securities Exchange Act Release No. 39804

(March 25, 1998), 63 FR 15906.

5See Letter from Patricia L. Levy, Senior Vice

President and General Counsel, CHX, to Yvonne

Fraticelli, Attorney, Division, Commission, dated

May 6, 1998 (‘‘Amendment No. 2’’). Amendment

No. 2 revises CHX Article VI, Rule 2(b) to include

members in the CHX’s definition of registered

persons.

6See Letter from Patricia L. Levy, Senior Vice

President and General Counsel, CHX, to Yvonne

Fraticelli, Division, Commission, dated May 15,

1998 (‘‘Amendment No. 3’’). Amendment No. 3

revises Interpretation and Policy .01 to CHX Article

VI, Rule 2, to indicate that amendments to Form U–

4 and Form BD regarding any registered person

must be filed within 30 days after the registered

person learns the facts or circumstances requiring

the forms to be revised or, if the revision involves

a statutory disqualification, as defined in the Act,

within 10 days after the statutory disqualification

occurs. The CHX’s original proposal did not include

the 10-day limit for the filing of amendments

involving a statutory disqualification.

7See Amendment No. 1, supra note 3.

consistent with Section 6(b)(7) 9 of the

Act. The proposed rule change provides

fair procedures for disciplining its

members and associated persons by

changing the composition of

Disciplinary Panels to allow

professional hearing officers to serve as

chairmen and voting members on these

panels. Providing more responsibility

and authority to these professional

hearing officers lends credibility to the

disciplinary process because all parties

involved in the dispute will benefit

from their expertise and knowledge of

the law as it applies to the securities

industry. This expertise and knowledge

should result in speedier Panel

decisions without sacrificing due

process.

The Commission notes, however, that

the Exchange’s rules do not specifically

address the possibility of conflicts of

interest between the panelist and parties

in the dispute.10 In response, the

Exchange states that its Hearings

Department screens panel members for

conflicts of interest.11 Initially,

prospective panel members are chosen

who do not present apparent conflicts.

These prospective panelists are then

given the names of the parties, names of

lawyers or agents representing the

parties, names of any potential

witnesses disclosed by the parties, and

the nature of the case. Prospective

panelists are then asked whether they

have any past or present relationships

with any of the persons mentioned and

whether they are aware of any other

conflict presented by any of the persons

mentioned or by the nature of the case.

The Exchange also forwards the names

of prospective panelists to the parties so

that the parties can conduct their own

conflicts check. In the Commission’s

view, this procedure should go on a

long way in removing any interested

persons from the list of prospective

panelists before the panel is selected,

thereby minimizing the possibility of

conflicts.

The Commission agrees that

extending the right of indemnification

to persons serving on Disciplinary

Panels and to Exchange Officials should

allow the Exchange to attract and retain

qualified persons to serve in these

capacities. By eliminating the

possibility of litigation and potential

judgment as factors in deciding whether

to participate on a Panel, the pool of

qualified candidates should increase

and their decisions will be based on

impartial analysis of the evidence and

circumstances, not fear of reprisal.

Finally, the Commission supports the

Exchange vesting in the Executive

Committee the authority to hear all

appeals. Streamlining the appeals

process should result in expedited

enforcement action where necessary,

which will, in turn, benefit the public.

IV. Conclusion

For the above reasons, the

Commission believes that the proposed

rule change is consistent with the

provisions of the Act, and in particular

with Section 6(b)(7).

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,12 that the

proposed rule change (SR–AMEX–97–

30) be, and hereby is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

[FR Doc. 98–13817 Filed 5–22–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39998; File No. SR–CHX–

98–06]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval to Amendment

Nos. 2 and 3 to the Proposed Rule

Change by the Chicago Stock

Exchange, Inc. Relating to Registration

Requirements

May 18, 1998.

I. Introduction

On February 18, 1998, the Chicago

Stock Exchange, Inc. (‘‘CHX’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposal to amend its

rules to clarify the persons required to

register with the CHX. On March 18,

1998, the CHX filed Amendment No. 1

to the proposal.3 The proposed rule

change and Amendment No. 1 were

published for comment in the Federal

Register on April 1, 1998.4 On May 7,

1998, the CHX filed Amendment No. 2

to the proposal.5 On May 15, 1998, the

CHX filed Amendment No. 3 to the

proposal.6 No comments were received

regarding the proposal. This order

approves the proposed rule change, as

amended.

II. Description of the Proposal

CHX Article VI, ‘‘Restriction and

Requirements,’’ Rule 2, ‘‘Registration

and Approval of Member and Member

Organization Personnel,’’ governs the

registration and approval of member

and member organization personnel and

other associated persons. The CHX

proposes to replace the current text to

CHX Article VI, Rule 2 with new text in

order to clarify those persons who are

required to register with the Exchange.

Specifically, new CHX Article VI, Rule

2(a), ‘‘Registration,’’ will require all

registered persons, as defined in CHX

Article VI, Rule 2(b), to register with the

CHX.7 The CHX may waive the

registration requirement or permit a

short-form registration or notification

for an individual who is properly

registered with another self-regulatory

organization (‘‘SRO’’).

New CHX Article VI, Rule 2(b),

‘‘Definition of Registered Persons,’’

defines ‘‘registered persons’’ as all

members and persons associated with a

member or member organization who

are engaged or will be engaged in the

securities business of a member or