65362 Federal Register / Vol. 60, No. 243 / Tuesday, December 19, 1995 / Notices

1 17 CFR 200.30–3(a)(12) (1994).

1 17 C.F.R. 240.19b–4 and 19d–(c)(2).

2The Exchange is submitting to the SEC

concurrently with the proposed rule change a minor

rule violation reporting plan in accordance with

Rule 19d–1(c)(2) under the Act. See Letter from

David Rusoff, Attorney, Foley & Lardner, to Glen

Barrentine, Senior Counsel, SEC, dated October 6,

1995.

3See Letter from David Rusoff, Attorney, Foley &

Lardner, to Glen Barrentine, Senior Counsel, SEC,

dated December 8, 1995. Amendment No. 1

renumbers existing Article XII, Rule 9 to Article XII,

Rule 10.

4 In Securities Exchange Act Release No. 21013

(June 1, 1984), 49 FR 23828 (June 8, 1984), the SEC

adopted amendments to paragraph (c) of Rule 19d–

1 to allow self-regulatory organizations to submit

for SEC approval plans for the abbreviated reporting

of minor disciplinary infractions. Under the

amendments, any disciplinary action taken by a

self-regulatory organization against any person for

violation of a rule of the self-regulatory organization

that has been designated as a minor rule violation

pursuant to a plan filed with the SEC shall not be

considered ‘‘final’’ for purposes of Section 19(d)(1)

of the Act if the sanction imposed consists of a fine

not exceeding $2,500 and the sanctioned person has

not sought an adjudication, including a hearing, or

otherwise exhausted his or her administrative

remedies with respect to the matter.

The SEC has approved minor disciplinary rule

plans by virtually every stock exchange and the

National Association of Securities Dealers, Inc. See,

e.g., Securities Exchange Act Release No. 21919

(April 3, 1985), 50 FR 14068 (April 9, 1985) (File

No. 4–260) (Amex); Securities Exchange Act

Release No. 22415 (September 17, 1985), 50 FR

38600 (September 23, 1985) (File No. 4–284)

(NYSE); Securities Exchange Act Release No. 22654

(November 21, 1985), 50 FR 48853 (November 27,

1985) (File No. 4–285) (PSE).

filing will also be available for

inspection and copying at the principal

office of the CBOE. All submissions

should refer to the File No. SR–CBOE–

95–69 and should be submitted by

January 8, 1996.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.1

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30762 Filed 12–18–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36576; File No. SR–CHX–

95–25]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange, Inc.

Relating to the Establishment of a

Minor Rule Violation Procedure and

Reporting Plan

December 12, 1995.

Pursuant to Sections 19(b)(1) and

(d)(1) of the Securities Exchange Act of

1934 (‘‘Act’’), 15 U.S.C. 78s(b)(1) and

(d)(1), and Rules 19b–4 and 19d–1(c)(2)

thereunder,1 notice is hereby given that

on October 11, 1995, 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 selfregulatory organization.2 On December

8, 1995, the Exchange submitted

Amendment No. 1 to the proposed rule

change.3 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 is proposing to add a

minor rule violation procedure as

Article XII, Rule 9 of the Exchange’s

rules, adopt a minor rule violation

reporting plan,4 and renumber existing

Article XII, Rule 9.

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 proposed minor rule violation

procedure (‘‘Procedure’’) authorizes the

Exchange, in lieu of commencing a

disciplinary proceeding, to impose a

fine, not to exceed $2,500, on any

member, member organization,

associated person or registered or nonregistered employee of a member or

member organization for any violation

of an Exchange rule which the Exchange

determines to be minor in nature. The

Committee on Floor Procedure will have

the same authority for violations

relating to decorum on the Exchange

trading floor.

If the fine is to be imposed by the

Exchange (as opposed to the Committee

on Floor Procedure) the fine shall be

imposed in accordance with the method

set forth in paragraph (b) of the

Procedure. Specifically, prior to

imposing the fine, the staff of the

Exchange shall present the facts

supporting such violative conduct to a

Minor Rule Violation Panel (‘‘Panel’’),

which shall consist of three floor

members (one member of the Committee

on Floor Procedure, one member of the

Committee’s Rules Subcommittee, and

one member not on the Committee or

any of its subcommittees) appointed by

the President of the Exchange. The

Panel is then authorized to impose the

fine. In the event the Panel does not

impose the fine, the staff shall, under

circumstances set forth in the

Procedure, issue a report to the

President. The President, in turn, may

either impose the fine, direct the staff to

prefer formal charges or reject the staff’s

recommendation entirely.

If a fine is to be imposed under the

Procedure, the Exchange will serve a

written statement on the person against

whom a fine is imposed setting forth the

rule violated, the act or omission

constituting the violation, the fine

imposed and the date of imposition, the

date the fine must be paid and the date

by which such determination must be

contested.

If the person against whom a fine is

imposed pursuant to the Procedure

chooses not to contest the matter and

pays the fine, he or she waives his or her

right to a disciplinary proceeding under

Article XII of the Exchange’s rules and

any right to review or appeal (to the

extent such right would otherwise exist

under current Exchange rules).

Alternatively, any person may choose to

contest a fine by submitting a written

answer, at which point the matter

becomes a ‘‘disciplinary proceeding’’

subject to the applicable provisions of

Article XII, including all disciplinary

sanctions available thereunder (except

for contests of a fine by the Committee

on Floor Procedure, which will be

subject to the provisions of Article XII,

Rule 3).

Under the Procedure, the Exchange

will periodically prepare and announce

to its members and member

organizations a list of Exchange rules

and policies as to which the Exchange

may impose fines pursuant to the

Procedure as well as the fines that may

be imposed for their violation. The

Procedure, however, expressly states

that the Exchange is not required to

impose a fine under the Procedure with

respect to any violation of any rule

included on such list. In addition,

whenever the Exchange determines that

a rule violation is not minor in nature,

it has the discretion to commence

disciplinary proceedings under Article

XII of the CHX rules.

The Exchange also proposes to adopt

a minor rule violation reporting plan

(‘‘Plan’’). Under its Plan, the Exchange

designates certain specified rule
Federal Register / Vol. 60, No. 243 / Tuesday, December 19, 1995 / Notices 65363

5The Exchange’s quarterly report to the SEC will

include: the CHX’s internal file number for the case,

the name of the individual and/or organization, the

nature of the violation, the specific rule provision

violated, the fine imposed, the number of times the

rule violation has occurred, and the date of

disposition.

6 15 U.S.C. 78f(b)(5).

7 15 U.S.C. 78f(b)(6). 8 15 U.S.C. 78f(b)(7) and (d)(1).

violations as minor rule violations and

requests that it be relieved of the current

reporting requirement of Rule 19d–

1(c)(1) under the Act regarding such

violations, provided it gives notice of

such violations to the Commission on a

quarterly basis.5 The Plan, however,

would not cover any fine imposed

pursuant to the Procedure that is

contested. Such violations and fines

would continue to be reported as they

occur.

Initially, the Exchange is proposing to

include the following rule and policy

violations in both its Procedure and

Plan: (1) Acquisition of membership by

general or limited partner (Article II,

Rule 1); (2) general partners bound by

rules of Exchange (Article II, Rule 4); (3)

notice of death or retirement of partner

(Article II, Rule 9); (4) filing and

approval of Articles of Incorporation

(Article III, Rule 4); (5) authorization of

officers to act (Article III, Rule 5); (6)

officers, directors and principal

stockholders (Article III, Rule 6); (7)

death or retirement of registrant member

(Article III, Rule 11); (8) transactions off

the floor (Article VIII, Rule 9); (9)

records of orders transmitted (Article IX,

Rule 7); (10) dealing in stocks on put,

call, straddle or option (Article IX, Rule

15); (11) record of margin calls and

receipt of margin (Article X, Rule 2);

(12) record of orders (Article XX, Rule

24); (13) specialist’s book (Article XXX,

Rule 4); (14) written reports of

transactions (Article XXX, Rule 5); (15)

record of orders (Article XXX, Rule 11);

(16) financial operational reports

(Article XI, Rule 4); (17) notification of

change in bond coverage (Article XI,

Rule 6); (18) filing requirements on

change of examining authority (Article

XI, Rule 7); (19) submission of books to

board (Article VIII, Rule 11); (20)

submission of evaluation of cospecialists survey (Article VIII, Rule 11);

(21) failure to issue ITS pre-opening

notification (Article XX, Rule 39); (22)

failure to comply with ITS tradethrough, locked markets and block trade

rules (Article XX, Rule 40); (23) failure

to comply with stop order rule (Article

XXX, Rule 22); (24) failure to comply

with 50 percent requirement (Article

XXXIV, Rule 3); (25) failure to comply

with trading from off the floor rule

(Article XXXIV, Rule 4); (26) failure to

comply with public outcry rule (Article

XXXIV, Rule 10); (27) violation of Class

A decorum rules (Article II, Rule 3,

Interpretation and Policy .01); (28)

violation of Class B decorum rules

(Article XII, Rule 3, Interpretation and

Policy .01); (29) failure to comply with

recognized quotations (Article XX, Rule

7); (30) failure to clear the post (Article

XX, Rule 10); (31) failure to comply

with cabinet securities provision

(Article XX, Rule 11); (32) failure to

comply with minimum fractional

changes Article XX, Rule 22); (33)

failure to comply with agency cross rule

(Article XX, Rule 23); (34) failure to

comply with ‘‘stopped’’order rule

(Article XX, Rule 28); (35) improper use

of ‘‘SOLD’’ designator (Article VIII, Rule

7); (36) trading ahead of customer orders

(Article XXX, Rule 2); (37) violation of

preference solely on competitive basis

rule (Article XXX, Rule 3).

The purpose of the Procedure is to

provide a more appropriate response to

certain rule violations. At the present

time, when the staff of the CHX

discovers a technical, inadvertent, or

otherwise minor rule violation, often,

the Exchange’s only practical response

is to issue a written letter of caution to

the person(s) involved focusing

attention on the necessity of fully

complying with all Exchange rules and

policies and warning against future

violations. Such written admonitions,

however, may not always successfully

deter future violations. The other

alternative, the initiation of a formal

disciplinary proceeding may, in many

cases, be too time consuming, too costly,

and carry too severe a penalty for such

minor violations. The ability to impose

a fine on a discretionary basis may

constitute a more effective deterrent

than a cautionary letter while avoiding

the severe penalty or attendant publicity

of a disciplinary hearing. The Procedure

provides for an appropriate response to

minor rule violations of certain

Exchange rules while preserving the due

process rights of the party accused

through specified, required procedures.

The purpose of the Plan is to provide

the CHX with the flexibility to fashion

reporting requirements that would

result in the Commission receiving the

necessary information regarding minor

rule violations in the least burdensome

way possible.

2. Statutory Basis

The proposed rule change is

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

Act 6 and will advance the objectives of

Section 6(b)(6) of the Act 7 in that it will

provide a procedure whereby members

can be ‘‘appropriately disciplined’’ in

those instances when a rule violation is

minor in nature, but a sanction more

serious than a warning or cautionary

letter is appropriate. In accordance with

Sections 6(b)(7) and 6(d)(1) of the Act,8

the proposed rule change provides a fair

procedure for imposing such sanctions.

Finally, the proposed plan is consistent

with Section 6(d)(1) of the Act and Rule

19d–1(c)(2) thereunder, which

authorizes self-regulatory organizations

to adopt minor rule violation reporting

plans.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose a

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 the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

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, NW.,

Washington, DC 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
65364 Federal Register / Vol. 60, No. 243 / Tuesday, December 19, 1995 / Notices

1See Securities Exchange Act Release No. 35183

(December 30, 1994), 60 FR 2420 (January 9, 1995)

(order approving File No. SR-PHLX–94–41).

2See Securities Exchange Act Release No. 27599

(January 9, 1990), 55 FR 1751 (January 18, 1990)

(order approving File No. SR-PHLX–89–03).

3See Securities Exchange Act Release No. 25540

(March 31, 1988), 53 FR 11390 (April 6, 1988).

4See Securities Exchange Act Release No. 35183,

supra note 1. See also Securities Exchange Act

Release Nos. 25540 (March 31, 1988), 53 FR 11390

(April 6, 1988) (order approving AUTOM on a pilot

basis); 25868 (June 30, 1988), 53 FR 25563 (order

approving File No. SR-PHLX–88–22, extending

pilot through December 31, 1988); 26354 (December

13, 1988), 53 FR 51185 (order approving File No.

SR-PHLX–88–33, extending pilot program through

June 30, 1989); 26522 (February 3, 1989), 54 FR

6465 (order approving File No. SR–PHLX–89–1,

extending pilot through December 31, 1989); 27599

(January 9, 1990), 55 FR 1751 (order approving File

No. SR-PHLX–89–03, extending pilot through June

30, 1990); 28625 (July 26, 1990), 55 FR 31274 (order

approving File No. SR-PHLX–90–16, extending

pilot through December 31, 1990; 28978 (March 15,

1991), 56 FR 12050 (order approving File No. SRPHLX–90–34, extending pilot through December 31,

1991); 29837 (October 18, 1991), 56 FR 36496 (order

approving File No. SR-PHLX–90–03, extending

pilot through December 31, 1993); and 33405

(December 30, 1993), 59 FR 790 (order approving

File No. SR-PHLX–93–57, extending pilot through

December 31, 1994); 29662 (September 9, 1991), 56

FR 46816 (order approving File No. SR-PHLX–91–

31, permitting AUTO-X orders up to 20 contracts

in Duracell options only); 29782 (October 3, 1991),

56 FR 55146 (order approving File No. SR-PHLX–

91–33, permitting AUTO-X for all strike prices and

expiration months); 32906 (September 15, 1993), 58

FR 15168 (order approving File No. SR-PHLX–92–

38, permitting AUTO-X orders up to 25 contracts

in all options); and 33405 (December 30, 1993), 59

FR 790 (order approving File No. SR-PHLX–93–57,

extending pilot through December 31, 1994); 34920

(October 31, 1994), 59 FR 55510 (November 7, 1994)

(File No. SR-PHLX–94–40, codifying use of

AUTOM for index options); 35601 (April 13, 1995),

60 FR 19616 (File No. SR-PHLX–95–18, codifying

the use of AUTOM for certain order types); 35681

(May 30, 1995), 60 FR 30131 (June 7, 1995) (File

No. SR-PHLX–95–29, increasing AUTO-X for

USTOP 100 Index (‘‘TPX’’) options to 50 contracts);

35782 (May 30, 1995), 60 FR 30136 (June 7, 1995)

(File No. SR-PHLX–95–30, increasing the maximum

AUTOM order size from 100 to 500 contracts);

36429 (October 27, 1995), 60 FR 55874 (November

3, 1995) (File No. SR-PHLX–95–35, allowing brokerdealer TPX option orders to be routed through

AUTOM); and 36467 (November 8, 1995), 60 FR

57615 (November 16, 1995) (order approving File

No. SR-PHLX–95–33, limiting AUTO-X for National

Over-the-Counter Index options to series where the

bid is $10 or less).

Section 450 Fifth Street, NW.,

Washington, DC 20549. 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–95–25

and should be submitted by January 8,

1996.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–30761 Filed 12–18–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36582; File No. SR–PHLX–

95–78]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval to a Proposed

Rule Change by the Philadelphia Stock

Exchange, Inc., Relating to an

Extension of the Automated Options

Market Pilot Program

December 13, 1995.

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 1, 1995,

the Philadelphia Stock Exchange, Inc.

(‘‘PHLX’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’) the proposed

rule change as described in Items I and

II below, which Items have been

prepared by the self-regulatory

organization. The Commission is

approving this proposal on an

accelerated basis.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PHLX proposes to extend the

Exchange’s Automated Options Market

(‘‘AUTOM’’) system for a one year

period ending December 31, 1996.

The text of the proposal is available

at the Office of the Secretary, the PHLX,

and at the Commission.

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

AUTOM, which as operated on a pilot

basis since 1988 and was most recently

extended through December 31, 1995,1

is the PHLX’s electronic order routing,

delivery, execution and reporting

system for equity and index options.

AUTOM is an online system that allows

electronic delivery of options orders

from member firms directly to the

appropriate specialist on the Exchange’s

trading floor.

Certain orders are eligible for

AUTOM’s automatic execution feature,

AUTO-X, which was approved as part of

the AUTOM pilot program in 1990.2

AUTO-X orders are executed

automatically at the disseminated

quotation price on the Exchange and

reported to the Options Price Reporting

Authority (‘‘OPRA’’) as well as the

originating firm. Orders that are not

eligible for AUTO-X are handled

manually by the specialist and, upon

execution of the order, are inputted into

exchange systems for reporting to OPRA

and the delivering firm.

Originally, the AUTOM pilot program

was approved by the Commission for

market orders of up to five contracts for

12 PHLX near-month equity options.3

Since that time, AUTOM has been

extended and amended several times.4

The purpose of the proposed rule

change is to extend the AUTOM pilot

program for a one-year period ending

December 31, 1996. The PHLX believes

that this extension of the pilot program

should provide the Exchange with

additional time to study the

effectiveness of AUTOM prior to

permanent approval. During this time,

the Exchange intends to monitor the

implementation of certain

enhancements to AUTOM and to draft

an Exchange rule codifying the entire

pilot program.

Generally, the Exchange believes that,

since the date of the last Commission

order extending the AUTOM pilot

program, AUTOM has functioned

properly and efficiently, without any

material problems reported by PHLX

members or AUTOM users, and without

significant malfunctions or operational

failures.

AUTOM provides small customer

option orders with the benefits of

electronic delivery and reporting, while

AUTO–X provides automatic executions

as well. Accordingly, the Exchange

believes that AUTOM increases the

speed and efficiency of order delivery,

execution and reporting. This, in turn,

promotes both liquidity and fair and

orderly markets. For these reasons, the

PHLX believes that extending the

AUTOM pilot program for a one-year

period is consistent with Section 6 of

the Act, in general, and, in particular,

with Section 6(b)(5), in that the proposal

is designed to promote just and

equitable principles of trade, and to

protect investors and the public interest.

In addition, the Exchange believes that

the proposed rule change is consistent

with Section 11A(a)(1)(B) of the Act in