584 Federal Register / Vol. 63, No. 3 / Tuesday, January 6, 1998 / Notices

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

2Securities Exchange Act Release No. 3907

(November 6, 1997), 62 FR 61157 (November 21,

1997).

3 15 U.S.C. 78f(b).

4 15 U.S.C. 78s(b)(12).

5 17 CFR 300.30(a)(12).

Israel Growth Fund, Inc. [File No. 811–

7906]

Summary: Applicant seeks an order

declaring that it has ceased to be an

investment company. Applicant made

liquidating distributions to its security

holders on July 31, 1995, and December

29, 1995, totaling $551,801. Applicant

has paid $40,231 in expenses related to

the liquidation and has retained $1,067

for the purpose of paying its remaining

debts, which include legal and

accounting expenses incurred in

connection with its liquidation.

Filing Dates: The application was

filed on September 3, 1996, and

amendments to the application were

filed on April 8, 1997, and December 9,

1997.

Applicant’s Address: 95 Revere Drive,

Northbrook, Illinois 60062.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–234 Filed 1–5–98; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39498; File No. SR–CHX–

97–21]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the Chicago Stock Exchange,

Incorporated, Regarding Suitability of

Customer Recommendations

December 29, 1997.

On September 18, 1997, the Chicago

Stock Exchange, Incorporated (‘‘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 a proposed rule

change regarding the suitability of

customer recommendations. The

proposed rule change was published for

comment in the Federal Register.2 The

Commission received no comment

letters on the proposed rule change, and

for the reasons discussed below, is

approving the proposal.

I. Description of Proposal

The Exchange proposes to add Article

VIII, Rule 25 to the Exchange’s Rules.

The Exchange currently does not have

rule that expressly addresses suitability,

churning and related matters for

Exchange members. While the Exchange

believes that such conduct may

currently fall within existing Exchange

rules, such as the Exchange’s rule

relating to ‘‘just and equitable’’ activity,

the Exchange believes that it is desirable

at this time to specifically address this

type of conduct. As a result, the purpose

of the proposed rule change is to add

Rule 25 to Article VIII of the Exchange’s

rules, requiring that, in recommending

to a customer the purchase, sale or

exchange of any security, a member

must have reasonable grounds for

believing that the recommendation is

suitable for such customer upon the

basis of the facts, if any, disclosed by

such customer as to his other security

holdings and as to his financial

situation and needs.

Specifically, prior to the execution of

a transaction recommended to a

customer, other than transactions with

customers where investments are

limited to money market mutual funds,

a member would be required to make

reasonable efforts to obtain information

concerning the customer’s financial

status, the customer’s tax status, the

customer’s investment objectives, and

such other information used or

considered to be reasonable by such

member or registered representative in

making recommendations to the

customer.

The rule change would contain a nonexclusive list of practices that the

Exchange deems to violate a member’s

duty to recommend to a customer only

securities suitable for that customer.

These would be: (1) Recommending

speculative low-priced securities to

customers without knowledge of or an

attempt to obtain information

concerning the customer’s other

securities holdings, their financial

situation and other necessary data; (2)

excessive activity in a customer’s

account, often referred to a ‘‘churning’’

or ‘‘overtrading’’; (3) trading in mutual

fund shares, particularly on a short-term

basis; (4) fraudulent activity (including

establishing fictitious accounts in order

to execute transactions which otherwise

would be prohibited, executing

transactions in discretionary accounts in

excess of or without actual authority

from customers, causing the execution

of transactions which are unauthorized

by customers or the sending of

confirmations in order to cause

customers to accept transactions not

actually agreed upon, and unauthorized

use or borrowing of customers’ funds

and securities); and (5) recommending

the purchase of securities or the

continuing purchase of securities in

amounts that are inconsistent with the

reasonable expectation that the

customer has the financial ability to

meet such a commitment.

In addition, with regard to derivative

financial products, the rule change

would require that members make every

effort to familiarize themselves with

each customer’s financial situation,

trading experience, and ability to meet

the risks involved with such products

and to make every effort to make

customers aware of the pertinent

information regarding new financial

products.

II. Discussion

The Commission finds that the

proposed rule change is consistent with

Section 6(b)(5) of the Act and the rules

and regulations thereunder applicable to

a national securities exchange, and

specifically, with the requirements of

Section 6(b).3 In particular, the

Commission believes that the proposal

is consistent with the Section 6(b)(5)

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts, and in general to protect investors

and the public interest.

The Commission believes that the

Exchange’s proposal to add Article VIII,

Rule 25 to the Exchange’s Rules benefits

investors by requiring exchange

members, in recommending to a

customer the purchase, sale or exchange

of any security, to have reasonable

grounds for believing that the

recommendation is suitable for such

customer upon the basis of the facts, if

any, disclosed by such customer as to

his other security holdings and as to his

financial situation and needs. The

Commission also believes that including

a non-exclusive list of practice that the

Exchange deems violates a member’s

duty of suitability with the rule is a

beneficial guide for investors.

Additionally, the proposal will benefit

exchange members by providing them a

rule specifically addressing suitability,

churning and related conduct.

III. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,4 that the

proposed rule change (SR–97–21) be,

and hereby is, approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98–158 Filed 1–5–98; 8:45 am]

BILLING CODE 8010–01–M