[Federal Register Volume 61, Number 19 (Monday, January 29, 1996)]
[Notices]
[Pages 2856-2858]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-1472]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36756; File No. SR-NYSE-95-45]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to Additions to 
``List of Exchange Rule Violations and Fines Applicable Thereto 
Pursuant to Rule 476A''

January 22, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on 
December 28, 1995, the New York Stock Exchange, Inc. (``NYSE'' 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 self-regulatory 
organization. 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 proposed rule change consists of revisions to the ``List of 
Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule 
476A'' (the Rule 476A Violations List) by adding to the List: (1) 
misstatements or omission of fact on any submission filed with the 
Exchange as provided in NYSE Rule 476(a)(10); (2) failure to comply 
with the requirements of NYSE Rule 95 with respect to its order 
identification requirements or prohibition of transactions by members 
on the Floor involving discretion; and (3) failure to comply with 
certain requirements for execution of block cross transactions under 
NYSE Rule 127. The Exchange believes it is appropriate to make the 
failure to comply with the provisions of the above-named rules subject 
to the possible imposition of a fine under Rule 476A procedures.\1\

    \1\ Concurrently with the proposed rule change, the Exchange is 
seeking to amend its Rule 19d-1(c)(2) reporting plan for Rule 476A 
violations (``Minor Rule Violation Plan'') to include the items 
proposed for addition to the list of rules subject to Rule 476A. See 
letter from Daniel Parker Odell, Assistant Secretary, NYSE, to Glen 
Barrentine, Team Leader, Division of Market Regulation, SEC, dated 
December 27, 1995.
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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.

[[Page 2857]]


A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Rule 476A \2\ provides that the Exchange may impose a fine, not to 
exceed $5,000, on any member, member organization, allied member, 
approved person, or registered or non-registered employee of a member 
or member organization for a minor violation of certain specified 
Exchange rules.

    \2\ Rule 476A was approved by the Commission on January 25, 
1985. See Securities Exchange Act Release No. 21688 (Jan. 25, 1985), 
50 FR 5025 (Feb. 5, 1985). For subsequent additions of rules to the 
Rule 476A Violations List see, e.g., Securities Exchange Act Release 
Nos. 22037 (May 14, 1985), 50 FR 12213 (May 21, 1985); 22415 (Sept. 
17, 1985), 50 FR 38600 (Sept. 23, 1985); 22490 (Oct. 2, 1985), 50 FR 
41084 (Oct. 8, 1985); 23104 (Apr. 11, 1986), 51 FR 13307 (Apr. 18, 
1986); 24935 (Oct. 22, 1987), 52 FR 23820 (Oct. 29, 1987), 25763 
(May 27, 1988), 53 FR 20925 (June 7, 1988); 27878 (Apr. 4, 1990), 55 
FR 13345 (Apr. 10, 1990); 28003 (May 9, 1990), 55 FR 20004 (May 14, 
1990); 28505 (Oct. 2, 1990), 55 FR 41288 (Oct. 10, 1990); 28995 
(Mar. 28, 1991), 56 FR 12967 (Mar. 28, 1991); 30280 (Jan. 22, 1992), 
57 FR 3452 (Jan. 29, 1992); 30536 (Mar. 31, 1992), 57 FR 12357 (Apr. 
9, 1992); 32421 (June 7, 1993), 58 FR 32973 (June 14, 1993); 33403 
(Dec. 28, 1993), 59 FR 641 (Jan. 5, 1994); 33816 (Mar. 25, 1994), 59 
FR 15471 (Apr. 1, 1994); 34230 (June 17, 1994), 59 FR 32727 (June 
24, 1994).
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    The purpose of the Rule 476A procedure is to provide for a response 
to a rule violation when a meaningful sanction is appropriate but when 
initiation of a disciplinary proceeding under Rule 476 is not suitable 
because such a proceeding would be more costly and time-consuming than 
would be warranted given the minor nature of the violation. Rule 476A 
provides for an appropriate response to minor violations of certain 
Exchange rules while preserving the due process rights of the party 
accused through specified, required procedures. The list of rules, 
which are eligible for 476A procedures, specifies those rule violations 
that may be the subject of fines under the rule and also includes a 
schedule of fines.
    In SR-NYSE-84-27, which initially set forth the provisions and 
procedures of Rule 476A, the Exchange indicated it would amend the list 
of rules from time to time, as it considered appropriate, in order to 
phase in the implementation of Rule 476A as experience with it was 
gained .
    The Exchange is presently seeking approval to add to the 476A List 
of Rules subject to possible imposition of fines under Rule 476A 
procedures the failure by members or member organizations to adhere to 
certain procedures under NYSE Rule 127 for execution of block cross 
transactions at a price that is outside of the NYSE best bid or 
offer.\3\ Specifically, the Exchange would view the failure to fulfill 
the requirement to satisfy public limit orders at the clean-up price 
when a position is established or increased for a member's or member 
organization's proprietary account as one type of violation for which a 
fine pursuant to Rule 476A might be imposed.\4\ In addition, failure to 
utilize the procedure of NYSE Rule 127 to satisfy all better-priced 
limit orders when effecting block crosses outside the currently quoted 
market would also be considered a violation for which a fine pursuant 
to Rule 476A might be imposed.

    \3\ In Securities Exchange Act Release No. 35103 (Dec. 15, 
1994), 59 FR 65835 (Dec. 21, 1994), the Commission approved 
amendments to NYSE Rule 127 involving revised procedures for 
handling such blocks.
    \4\ The Exchange would not seek to review a member's initial 
determination as to whether the member would incur excessive stock 
loss by satisfying all orders at the clean-up price. Given the 
member's initial determination as to which of NYSE Rule 127's 
procedures to use, the Exchange would regard the failure to adhere 
to the requirements of the rule to satisfy public orders limited to 
the clean-up price at that price before retaining stock for the 
member organization's proprietary account as a possible minor 
violation.
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    The Exchange is also seeking to add to the 476A List failure by 
members or member organizations to follow the procedures of NYSE Rule 
95 with respect to prohibition of transactions by members on the Floor 
involving discretion as to (1) choice of security, (2) total amount of 
security to be bought or sold, or (3) whether a transaction is to be a 
purchase or a sale. The Exchange is also seeking to add to the 476A 
List of failure to appropriately identify a liquidating order pursuant 
to NYSE Rule 95(c) (all liquidating orders effected pursuant to Rule 
95(c) must be marked on the Floor as ``BC'' in the case of an order 
covering a short position or ``SLQ'' in the case of the sell order 
liquidating a long position).
    The Exchange is also seeking to add to the 476A List misstatements 
or omissions of fact on applications for membership approval, financial 
statements, reports or other submissions filed with the Exchange as 
provided in NYSE Rule 476(a)(10). The Exchange would be careful to 
distinguish misstatements or omissions of facts from willfully made 
false or misleading statements and omissions of material fact, as a 
finding by the Exchange of conduct in the latter two categories could 
cause an individual or entity to be subject to a statutory 
disqualification as defined in Section 3(a)(39)(F) of the Act. 
Moreover, in appropriate circumstances (e.g., findings of a pattern of 
misstatements or omissions), the Exchange would not use the procedures 
under Rule 476A to address the conduct.
    While the Exchange, upon investigation, may determine that a 
violation of these procedures is a minor violation of the type which is 
properly addressed by the procedures adopted under Rule 476A, in those 
instances where investigation reveals a more serious violation of the 
above-described rules, the Exchange will provide an appropriate 
regulatory response.
2. Statutory Basis
    The proposed rule change will advance the objectives of Section 
6(b)(6) of the Act in that it will provide a procedure whereby member 
organizations 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. The proposed rule 
change provides a fair procedure for imposing such sanctions, in 
accordance with the requirements of Sections 6(b)(7) and 6(d)(1) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate 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 or Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the publication of this notice in the Federal 
Register or within such other 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 

[[Page 2858]]
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. 
Sec. 552, will be available for inspection and copying at the 
Commission's Public Reference 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-NYSE-95-45 and should be 
submitted by February 20, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-1472 Filed 1-26-96; 8:45 am]
BILLING CODE 8010-01-M