65948 Federal Register / Vol. 70, No. 210 / Tuesday, November 1, 2005 / Notices 

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

2 17 CFR 240.19b–4. 

3See Amendment No. 1. 

4See PCX Rule 10.4 (defining ‘‘Respondent’’). 

5See proposed PCX Rule 10(e)(1). The 

Commission notes that the Exchange’s Department 

of Enforcement would transmit the Respondent’s 

uncontested offer of settlement, along with a 

proposed decision, to either the Exchange’s General 

Counsel or the Conduct Panel, as appropriate. 

6See proposed PCX Rule 10(e)(2). When a 

Respondent submits an offer of settlement, the 

Department of Enforcement drafts a decision 

accepting the offer and submits both documents to 

the appropriate body. See Letter from Alden 

Adkins, Chief Regulatory Officer, PCX, to Katherine 

A. England, Assistant Director, Division of Market 

Regulation, Commission, dated October 6, 2005. 

7See proposed PCX Rule 10(e)(3). 

8See proposed PCX Rule 10(e)(4). 

9See proposed PCX Rule 10(f)(1). The 

Commission notes that the Exchange’s Department 

of Enforcement would transmit the Respondent’s 

contested offer of settlement, along with a proposed 

decision, to either the EBCC or the Conduct Panel, 

as appropriate. 

10See proposed PCX Rule 10(f)(2). 

11See proposed PCX Rule 10(f)(3). 

12See proposed PCX Rule 10(f)(4). 

13See proposed PCX Rule 10(a)(2). 

14See proposed PCX Rule 10(k). Neither the 

Board’s nor the EBCC’s action will affect any issued 

decisions. 

15See proposed PCX Rule 10(c). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52675; File No. SR–PCX–

2005–75] 

Self-Regulatory Organizations; Pacific 

Exchange, Inc.; Notice of Filing and 

Order Granting Accelerated Approval 

to a Proposed Rule Change and 

Amendment No. 1 Thereto Relating to 

Offers of Settlement 

October 25, 2005. 

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

Securities Exchange Act of 1934 (‘‘Act’’) 

and Rule 19b–4 2 thereunder, notice is 

hereby given that on June 13, 2005, the 

Pacific Exchange, Inc. (‘‘PCX’’ or 

‘‘Exchange’’) 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 

by the Exchange. On September 21, 

2005, PCX submitted Amendment No. 1 

to the proposed rule change.3 The 

Commission is publishing this notice 

and order to solicit comments on the 

proposed rule change, as amended, from 

interested persons and simultaneously 

is approving the proposal, as amended, 

on an accelerated basis. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

PCX is proposing to amend PCX Rule 

10.6 pertaining to offers of settlement. 

The text of the proposed rule change, as 

amended, is available on PCX’s Web site 

(http://www.pacificex.com), at the PCX’s 

principal office, and at the 

Commission’s Public Reference Room. 

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 III 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange states that the purpose 

of the proposed rule change is to revise 

the procedures for offers of settlement 

submitted in Exchange enforcement 

actions against Options Trading Permit 

(‘‘OTP’’) Holders and OTP Firms in 

order to make the disciplinary process 

more efficient and effective while 

maintaining appropriate OTP Holder 

and OTP Firm involvement in the 

oversight of the settlement process. 

Currently, all offers of settlement, 

whether contested or uncontested by the 

Exchange’s Department of Enforcement, 

are considered by the Ethics and 

Business Conduct Committee (‘‘EBCC’’) 

for acceptance or rejection. If an offer of 

settlement is accepted by the EBCC, the 

EBCC issues a decision, and the 

Respondent 4 cannot seek review of the 

decision. EBCC decisions are then 

submitted to the PCX Board of Directors 

(the ‘‘Board’’) in order to provide the 

Board with an opportunity to accept or 

reject the offer of settlement. This 

process is subject to the delays 

occurring between the time when the 

EBCC accepts an offer of settlement and 

the time when the Board subsequently 

reviews the accepted offer of settlement. 

Consequently, the imposition of 

disciplinary measures intended to 

prevent misconduct and maintain the 

integrity of the marketplace are also 

delayed. 

Under the proposed rule change, an 

offer of settlement would be 

‘‘uncontested’’ when a Respondent 

makes an offer and the Department of 

Enforcement does not oppose it.5 In 

cases of uncontested offers of settlement 

made before a complaint has been 

issued, the General Counsel of the 

Exchange would have the authority to 

accept or reject the offers and 

decisions.6 Similarly, in cases of 

uncontested offers of settlement made 

after a complaint has been issued but 

before the hearing on the merits, the 

General Counsel of the Exchange would 

have the authority to accept or reject the 

offers and decisions.7 Finally, in cases 

of uncontested offers of settlement made 

after a hearing on the merits has begun, 

the Conduct Panel for the hearing would 

have the authority to accept or reject 

offers and decisions.8

Any offer of settlement opposed by 

the Department of Enforcement would 

be ‘‘contested.’’ 9 Under the proposal, 

Respondents would not be permitted to 

submit contested offers of settlement for 

consideration by the EBCC or the 

Conduct Panel before a complaint has 

been issued.10 In cases of contested 

offers of settlement made after a 

complaint has been issued but before a 

hearing on the merits has begun, the 

EBCC would have the authority to 

accept or reject the offers and 

decisions,11 which is consistent with 

current PCX practices. In cases of 

contested offers of settlement made after 

a hearing on the merits has begun, the 

Conduct Panel would have the authority 

to accept or reject the offers and 

decisions.12 Any offer of settlement 

submitted by a Respondent to the 

Conduct Panel after a hearing on the 

merits has begun would not stay the 

proceedings, unless the Conduct Panel 

decides to stay the proceedings.13

All offers of settlement would become 

final upon acceptance by the General 

Counsel of the Exchange, the EBCC, or 

the Conduct Panel, as appropriate, and 

thus Board approval of offers of 

settlement would no longer be required. 

Under the proposal, the Board and the 

EBCC would review on a quarterly basis 

all offers of settlement after-the-fact to 

provide guidance and feedback to the 

Department of Enforcement and the 

General Counsel of the Exchange 

concerning appropriate settlement 

practices and amounts.14

In addition, the proposed rule change 

sets forth certain requirements with 

which offers of settlement must 

comply.15 These requirements include 

that the offer be in writing and signed 

by the person making the offer, and that 

the offer set forth certain details stating 

Federal Register / Vol. 70, No. 210 / Tuesday, November 1, 2005 / Notices 65949 

16See proposed PCX Rule 10(d). 

17Paragraph (j) of the proposed rule change 

provides that a Respondent shall not be prejudiced 

by an offer of settlement that is rejected. 

18 15 U.S.C. 78f(b)(5). 

19 15 U.S.C. 78f(b). 

20 In approving this proposed rule change, as 

amended, the Commission has considered its 

impact on efficiency, competition, and capital 

formation. See 15 U.S.C. 78c(f). 

21 15 U.S.C. 78f(b)(7). 

22The Exchange represents that it contacts a 

Respondent before any complaint is issued, such 

that the Respondent would be in a position to 

ascertain whether the terms of any contemplated 

offer of settlement would be ‘‘uncontested’’ or 

‘‘contested’’ by the Exchange’s Department of 

Enforcement. 

the statutory provisions or rules alleged 

to have been violated, the acts or 

practices that the OTP Holder or OTP 

Firm is alleged to have engaged in or 

omitted, findings of fact, proposed 

sanctions, and the effective date of such 

proposed sanctions. 

Finally, the proposed rule change sets 

forth certain rights that a Respondent 

waives upon submission of an offer of 

settlement to the PCX. In particular, a 

Respondent waives his right to: (1) 

Claim bias or prejudgment by certain 

individuals; (2) appeal before PCX 

committees, the Commission, and 

federal, state, and local courts; and (3) 

claim violations of the ex parte 

prohibitions of PCX Rule 10.3.16 The 

Exchange believes that waiver of such 

rights is appropriate in light of the 

proposed rule’s intent, which is to 

create a more efficient and effective 

disciplinary process.17

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

section 6(b) of the Act 18 in general, and 

furthers the objectives of section 6(b)(5) 

of the Act 19 in particular, because it is 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, 

and to remove impediments to and 

perfect the mechanism of a free and 

open market and a national market 

system. 

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 

Written comments on the proposed 

rule change were neither solicited nor 

received. 

III. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as amended, is consistent with 

the Act. Comments may be submitted by 

any of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–PCX–2005–75 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Jonathan G. Katz, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–9303. 

All submissions should refer to File 

Number SR–PCX–2005–75. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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 

the Commission’s Public Reference 

Room. Copies of the filing also will be 

available for inspection and copying at 

the principal office of the PCX. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–PCX–2005–75 and should 

be submitted on or before November 22, 

2005. 

IV. Commission’s Findings and Order 

Granting Accelerated Approval of 

Proposed Rule Change 

The Commission finds that the 

proposed rule change, as amended, is 

consistent with the requirements of the 

Act and the rules and regulations 

thereunder applicable to a national 

securities exchange.20 Specifically, the 

Commission believes that the proposal 

is consistent with section 6(b)(7) of the 

Act,21 which requires that the rules of 

an exchange provide a fair procedure for 

the discipline of its members and 

persons associated with its members. 

The Commission also believes that the 

proposal is reasonably designed to 

provide a more efficient disciplinary 

process to address violations of the 

Exchange’s rules and the federal 

securities laws by the Exchange’s 

members. 

Under the Exchange’s proposal, a 

Respondent may propose an 

uncontested offer of settlement to the 

Exchange’s Department of Enforcement 

in response to the initiation of a 

disciplinary inquiry by the Department 

of Enforcement.22 If the Respondent 

submits an uncontested offer of 

settlement before a hearing on the 

merits has begun, then the Department 

of Enforcement would transmit the 

uncontested offer, along with a 

proposed decision, to the Exchange’s 

General Counsel for consideration. 

Specifically, if a Respondent submits an 

uncontested offer of settlement before 

the issuance of a complaint, and the 

General Counsel accepts it, then the 

Department of Enforcement would issue 

the decision and notify the parties. If a 

Respondent submits an uncontested 

offer of settlement after the Department 

of Enforcement has issued a complaint, 

and the General Counsel accepts it, then 

the General Counsel would issue the 

decision and notify the parties. Finally, 

if the Respondent submits an 

uncontested offer of settlement after a 

hearing on the merits has begun, then 

the Department of Enforcement would 

transmit the uncontested offer, along 

with a proposed decision, to the 

Conduct Panel for consideration. If the 

Conduct Panel accepts the decision, 

then the General Counsel would issue 

the decision and notify the parties. 

The Commission believes that the 

involvement of the Exchange’s General 

Counsel in considering uncontested 

offers of settlement submitted before a 

hearing on the merits has begun should 

be an appropriate safeguard and 

provides for an appropriate separation 

of functions at the Exchange. Further, 

the Commission believes that the 

proposal is reasonably designed to 

advance the interests of the Exchange’s 

Department of Enforcement in 

efficiently and expeditiously resolving 

65950 Federal Register / Vol. 70, No. 210 / Tuesday, November 1, 2005 / Notices 

23 15 U.S.C. 78s(b)(2). 

24 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Amendment No. 1. 

disciplinary cases when an uncontested 

offer of settlement is made before the 

commencement of a hearing on the 

merits without the involvement of the 

EBCC, while providing for review and 

consideration of possible violations. In 

particular, the Commission believes that 

the involvement of the Department of 

Enforcement and General Counsel in 

considering and rendering decisions on 

uncontested offers of settlement before 

the commencement of a hearing on the 

merits is appropriate, given the 

Respondent’s choice to propose 

settlement terms that the Exchange’s 

Department of Enforcement considers 

acceptable. 

Additionally, the proposal allows a 

Respondent, after a complaint has been 

issued, to submit an offer of settlement 

for consideration that is otherwise 

opposed on its terms, i.e., contested, by 

the Exchange’s Department of 

Enforcement. If submitted before a 

hearing on the merits, a contested offer 

of settlement would be considered by 

the EBCC. If a Respondent submits a 

contested offer of settlement after a 

hearing on the merits has begun, the 

offer would be considered by the 

Conduct Panel. The Commission 

believes that this process is reasonably 

designed to allow Respondents to have 

their contested offers of settlement 

considered by the EBCC or the Conduct 

Panel when the offer would otherwise 

be opposed by the Exchange’s 

Department of Enforcement. In addition, 

the Commission believes that this 

process balances the Exchange’s 

interests in achieving efficient 

resolutions of disciplinary matters with 

its members’ interests in having a 

process through which they can submit 

contested offers of settlement for 

consideration by the EBCC or the 

Conduct Panel. The Commission notes 

that under current PCX Rule 10, all 

offers of settlement are considered by 

the EBCC. 

In particular, the Commission notes 

that contested offers of settlement 

submitted after the issuance of a 

complaint but before the 

commencement of a hearing on the 

merits would be considered by the 

EBCC, and contested offers of settlement 

submitted after the issuance of a 

complaint and after the commencement 

of a hearing on the merits would be 

considered by the Conduct Panel. The 

Commission believes that this 

procedure provides a fair process by 

which the Exchange’s members may 

take their contested offers of settlement 

before the EBCC or Conduct Panel, both 

of which are comprised primarily of the 

OTP Holders or allied persons of OTP 

Firms. 

Moreover, the proposed rule change 

sets forth in detail provisions relating to 

the content and signature requirements 

for offers of settlement, as well as 

waivers of certain rights upon 

submission of an offer of settlement. 

Additionally, the proposal provides for 

quarterly review by the EBCC and the 

Board Appeals Committee of final 

disciplinary actions in order to provide 

the Department of Enforcement and 

General Counsel with guidance on 

future settlement practices and 

settlement amounts. The Commission 

believes that this provision is 

reasonably designed to provide for 

EBCC and Board input, albeit on a 

prospective basis only, on the 

Exchange’s disciplinary program, 

thereby providing a mechanism for the 

Board to comply with the self-regulatory 

organization’s responsibility to maintain 

an adequate and effective disciplinary 

system. 

The Commission finds good cause for 

approving this proposal before the 

thirtieth day after the publication of 

notice thereof in the Federal Register. 

Accelerating approval of the proposal 

will allow the Exchange to implement, 

without undue delay, a more efficient 

process for reviewing and deciding 

upon offers of settlement, while 

maintaining OTP Holder and OTP Firm 

involvement in the settlement process. 

In addition, the Commission notes that 

the NASD has a substantially similar 

rule with respect to offers of settlement. 

V. Conclusion 

It is therefore ordered, pursuant to 

section 19(b)(2) of the Act,23 that the 

proposed rule change, as amended (SR–

PCX–2005–75), is hereby approved on 

an accelerated basis. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.24

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–21716 Filed 10–31–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52676; File No. SR–PCX–

2005–76] 

Self-Regulatory Organizations; Pacific 

Exchange, Inc.; Notice of Filing and 

Order Granting Accelerated Approval 

to a Proposed Rule Change and 

Amendment No. 1 Thereto Relating to 

Offers of Settlement 

October 25, 2005. 

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

Securities Exchange Act of 1934 (‘‘Act’’) 

and Rule 19b–4 2 thereunder, notice is 

hereby given that on June 13, 2005, the 

Pacific Exchange, Inc. (‘‘PCX’’ or 

‘‘Exchange’’) 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 

by the Exchange. On September 21, 

2005, PCX submitted Amendment No. 1 

to the proposed rule change.3 The 

Commission is publishing this notice 

and order to solicit comments on the 

proposed rule change, as amended, from 

interested persons and simultaneously 

is approving the proposal, as amended, 

on an accelerated basis. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

PCX is proposing to amend PCX 

Equities, Inc. (‘‘PCXE’’) Rule 10.6 

pertaining to offers of settlement. The 

text of the proposed rule change, as 

amended, is available on PCX’s Web site 

(http://www.pacificex.com), at the PCX’s 

principal office, and at the 

Commission’s Public Reference Room. 

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 III below. The 

Exchange has prepared summaries, set 

forth in Sections A, B, and C below, of 

the most significant aspects of such 

statements.