[Federal Register Volume 63, Number 129 (Tuesday, July 7, 1998)]
[Notices]
[Pages 36725-36726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17834]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-40138; File No. SR-NYSE-98-02]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the New York Stock Exchange, Inc. to Include Rules 392, 
460.30, 80A(b), 79A.15 and 105 in its Minor Disciplinary Fine System 
under Exchange Rule 476A

June 26, 1998.

I. Introduction

    On January 20, 1998, the New York Stock Exchange, Incorporated 
(``NYSE'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'' or ``SEC'') pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act''),\1\ a proposed rule 
change amending its ``List of Exchange Rule Violations and Fines 
Applicable Thereto Pursuant to Rule 476A'' and its reporting plan for 
476A violations to include the items proposed for addition to the list 
of rules subject to Rule 476A. The proposed rule change was published 
for comment in Securities Exchange Act Release No. 39980 (May 8, 1998), 
63 FR 27339 (May 18, 1998). No comments were received on the proposal. 
For the reasons discussed below, the Commission is approving the 
proposed rule change.
---------------------------------------------------------------------------

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

II. Description of the Proposal

    On March 11, 1985, the Commission approved a NYSE plan for the 
abbreviated reporting of minor rule violations. The NYSE Minor Rule 
Violation Plan (``MRVP''), as embodied in NYSE Rule 476A, provides that 
the Exchange may designate violations of certain rules as minor rule 
violations. The Exchange may impose a fine, not to exceed $5000, on any 
member or member organization for a violation of the delineated rules 
by issuing a citation with a specific penalty.\2\ The Exchange

[[Page 36726]]

also retains the option of bringing violations of rules subject to NYSE 
Rule 476A to full disciplinary proceedings. The Exchange proposed that 
the failure to comply with the provisions of (1) Rule 392 and Rule 
460.30 which require notification to the Exchange by member 
organizations when they are participating in or engaging in certain 
activities related to an offering of securities listed on the Exchange; 
(2) Rule 80A(b) which prohibits entry of stop orders for the remainder 
of any trading day on which ``sidecar'' procedures have been invoked; 
(3) Rule 79A.15 which requires specialists to publish bids and offers 
upon receipt of limit orders; and (4) Rule 105 and its Guidelines 
regarding specialists' speciality stock options transactions and the 
reporting of such transactions be included in the rule. The Exchange 
proposed the additions to broaden the regulatory responses available to 
the Exchange in effectively inducing compliance with all aspects of the 
rules.
---------------------------------------------------------------------------

    \2\ The list of delineated rules is contained in Supplementary 
Material to NYSE Rule 476A. Only those fines that are not in excess 
of $2,500 are subject to the periodic reporting requirements of SEC 
Rule 19d-1(c).
---------------------------------------------------------------------------

III. Discussion

    The Commission believes that the proposed rule change is consistent 
with the Act and the rules and regulations thereunder applicable to a 
national securities exchange, and, in particular, with Section 6(b)(5) 
which requires that the rules of an exchange be designed to promote 
just and equitable principles of trade, to remove impediments and to 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public 
interest.\3\
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange's proposal is also consistent with the requirements in 
Sections 6(b)(1) \4\ and 6(b)(6) \5\ requiring that the rules of an 
exchange enforce compliance and provide appropriate discipline for 
violations of Commission and Exchange rules. Moreover, because NYSE 
Rule 476A provides procedural rights to the person fined and permits a 
disciplined person to request a full hearing on the matter, the 
proposal provides a fair procedure for the disciplining of members and 
persons associated with members, consistent with Sections 6(b)(7) \6\ 
and 6(d)(1) \7\ of the Act.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(b)(1).
    \5\ 15 U.S.C. 78f(b)(6).
    \6\ 15 U.S.C. 78f(b)(7).
    \7\ 15 U.S.C. 78f(d)(1).
---------------------------------------------------------------------------

    The Commission believes that the Exchange's proposal, adding five 
additional rules to those subject to the imposition of fines under Rule 
476A reinforces the obligations of exchange specialists. Most notably, 
by adding NYSE Rule 79A.15 to the MRVP, the Commission believes that 
the Exchange is emphasizing the importance of the obligation of an 
exchange specialist to immediately display certain customer limit 
orders in accordance with the Commission's Limit Order Display Rule \8\ 
and NYSE Rule 79A.15. The Commission believes that displaying customer 
limit orders benefits investors by providing enhanced execution 
opportunities and improved transparency.\9\
---------------------------------------------------------------------------

    \8\ 17 CFR 240.11Ac1-4.
    \9\ See Securities Exchange Act Release 37619A (September 6, 
1996), 61 FR 48290 (September 12, 1996)(``Adopting Release'').
---------------------------------------------------------------------------

    The Commission expects that the Exchange has the appropriate 
surveillance procedures to easily identify a specialist who fails to 
display a customer limit order immediately or is relying on an 
automated system that does not display limit orders immediately.\10\ 
The Commission, therefore, believes that because certain violations of 
the Limit Order Rule are amenable to efficient and equitable 
enforcement they are appropriate for inclusion in NYSE Rule 476A. The 
Commission expects, however, because a violation of NYSE Rule 79A.15 
amounts to a violation of a federal securities law, that the Exchange 
will err on the side of caution in disposing of such violations under 
the Plan.\11\ The Commission expects the Exchange to continue to 
resolve more serious violations of rules through the use of formal 
disciplinary procedures, as in the case of an egregious violation or 
habitual offender.
---------------------------------------------------------------------------

    \10\ A specialist is not displaying customer limit orders 
immediately if the specialist regularly executes customer limit 
orders at, for example, the 27th second after receipt. As stated in 
the Adopting Release, the requirement that a limit order be 
displayed ``immediately'' means that the limit order must be 
displayed as soon as practicable, but no later than 30 seconds after 
receipt under normal market conditions. This 30 seconds is an outer 
limit under normal market conditions and is not to be interpreted as 
a 30-second safe harbor.
    \11\ For example, the Commission expects that the Exchange would 
not issue several cautionary letters before instituting the fines 
under the Plan or aggregate multiple violations of the rules before 
instituting abbreviated disciplinary procedures under the Plan or, 
if necessary, full disciplinary procedures.
---------------------------------------------------------------------------

IV. Conclusion

    For the foregoing reasons, the Commission believes that the 
proposed rule change is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, with Sections 6(b)(1), 6(b)(5), 6(b)(6), 6(b)(7), 
6(d)(1) and 19(d) of the Act.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\12\ and Rule 19d-1(c)(2) thereunder,\13\ that the proposed rule change 
(SR-NYSE-98-02) be, and hereby is, approved.

    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 240.19d-1(c)(2).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(2).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-17834 Filed 7-6-98; 8:45 am]
BILLING CODE 8010-01-M