Source: https://www.federalregister.gov/documents/2001/03/19/01-6664/self-regulatory-organizations-notice-of-filing-of-proposed-rule-change-by-the-american-stock
Timestamp: 2018-07-20 01:28:25
Document Index: 772202136

Matched Legal Cases: ['art 1', 'art 2', 'art 3', 'art 1', 'art 1', 'art 1', 'art 1', 'art 1', 'art 3', 'art 1', 'art 1', 'art 3', 'art 3', 'art 3', 'art 1', 'art 1', 'art 1', 'art 1']

Federal Register :: Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange LLC and Amendment Nos. 1 and 2 To Amend Amex Rule 590, Minor Rule Violation Fine Systems
Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange LLC and Amendment Nos. 1 and 2 To Amend Amex Rule 590, Minor Rule Violation Fine Systems
Release No. 34-44066
https://www.federalregister.gov/d/01-6664 https://www.federalregister.gov/d/01-6664
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] and Rule 19b-4 thereunder,[2] notice is hereby given that on August 17, 2000, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Amex amended the proposal on December 7, 2000.[3] On January 29, 2001, the Amex again amended the proposal.[4] The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons.
The Exchange proposes to amend Amex Rule 590, Minor Rule Violation Fine Systems. The text of the proposed rule change is available at the Amex and at the Commission.
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 IV below. The Exchange has prepared summaries, set forth in sections, A, B, and C below, of the most significant aspects of such statements.
The Exchange has had a Minor Rule Violation Fine Plan (“Plan”) since 1976 that provides a simplified procedure for the resolution of minor violations of certain rules. Codified in Amex Rule 590, the plan has three distinct sections: Part 1 (“General Rule Violations”), which covers more substantive matters, the violation of which are nonetheless deemed “minor;” Part 2 (“Floor Decorum”), which covers floor decorum and operational matters; and Part 3 (“Reporting Violations”), which covers the late submission of routine reports.
The Exchange's Enforcement Department and its Minor Floor Violation Disciplinary Committee (“Committee”) [5] divide responsibility for administering Part 1 of Amex Rule 590. The Enforcement Department enforces those rules enumerated in paragraph (g) of Part 1 of Amex Rule 590, and the Committee enforces the rules enumerated in paragraph (h). Part 1 of Amex Rule 590 allows the Enforcement Department and the Committee to issue abbreviated “written statements” to persons who may have violated the specified rules identifying the rules violated, the act or omission constituting the violation, and the amount of the fine.
The issuance of a “written statement” by the Enforcement Department of the Committee does not constitute a finding of guilt. Persons receiving a written statement may plead “no contest” and return the statement to the Exchange with the specified fine. In the alternative, persons who are charged under the plan may contest the fine and receive a hearing before an Exchange Disciplinary Panel (“Panel”). The Panel that hears contested Committee matters currently is composed of a hearing officer and two members of the Committee that did not participate in the decision to issue the fine.Start Printed Page 15512
The Exchange believes that the proposed changes to Amex Rule 590 will make the Plan more efficient and timely. Under the proposal, the size and composition of the Committee would be changed from ten persons, all Floor members, to six persons consisting of two Amex staff, three Floor members, and one representative of an “upstairs” member firm. As is currently the case with the Committee, the Amex Board would appoint the persons that are eligible to serve on the Committee.
As a result of the change in the composition of the Committee, the Panel that hears contested fines would no longer include two members of the Committee in addition to the professional hearing officer. Instead, the Panel would be selected in accordance with Article V, Section 1(b)(4) of the Exchange Constitution or Amex Rule 345 as appropriate.
As described below, the Exchange proposes to add five violations to the list of rules under the Enforcement Department's jurisdiction in Part 1 of Amex Rule 590. The Exchange also seeks to transfer responsibility for enforcing three rules from the Committee to the Enforcement Department and move certain routine reports from Part 1 to Part 3 where the Exchange believes they more properly belong.
The proposed changes would transfer to the Enforcement Department rule violations pertaining to the SEC's Firm Quote rule, [6] specialists trading with orders on the limit order “book,” and the improper taking or supplying of securities to fill customer orders. The proposed revisions also would add five violations that previously were not included in Part 1 to the list of rules under the Enforcement Department's jurisdiction [7] and would rephrase and reorder a number of the violations enforced by the Committee and the Enforcement Department under Part 1.[8]
Under the proposal, routine filings that are currently under the jurisdiction of the Committee (e.g., the Specialist Floor Broker Questionnaire) would be shifted to Part 3, and would be enforced by the Trading Analysis Department. In addition, a failure by a Registered Equity Market Maker to file certain reports would be shifted from the Enforcement Department's jurisdiction to the Trading Analysis Department's jurisdiction under Part 3. Further, since the rule requiring members and member firms to timely file Form U-5s (Uniform Termination Notices) was recently added to the Membership Department's jurisdiction under Part 3,[9] the Exchange proposes to delete this rule from Part 1.
The Exchange proposes to remove three rule violations from Amex Rule 590 altogether: (1) Members trading ahead of customer orders (Amex Rule 150); (2) leaving orders with more than one broker (Amex Rule 157), and (3) off-Floor trading (Amex Rule 958(g)).
Part 1 currently has graduated fine schedules for individuals and member organizations with progressively higher fines for second, third, and subsequent offenses occurring within a “rolling” 12-month period.[10] The Plan further provides that the Enforcement Department and the Committee may impose fines for a second or subsequent offense in the case of a first or second offense if the circumstances warrant a more substantial penalty than called for by the schedule. For example, if the Committee finds that a particular violation is more serious than the norm, the Committee may impose the maximum fine, notwithstanding the fact that the violation may be a first offense within the rolling 12-month period.
The Exchange has determined that most violations covered under the Plan could be included in an expanded 24-month review period. In addition, certain rules that may be violated more frequently, such as the Firm Quote rule or rules requiring the submission of audit trail data, are best enforced using a “patterns and practices” approach, where market participants are evaluated both in terms of their overall performance and relative to their peers. For these types of rules, using a “patterns and practices” approach, the Exchange believes that extending the time period is also appropriate.
The Exchange believes that an extension of the rolling time period is appropriate only if it is coupled with explicit authority to combine separate violations into a single offense under the Plan, where appropriate. The Exchange, therefore, proposes that Amex Rule 590(e) be amended to clarify the authority of the staff and the Committee to combine violations under paragraphs (g) and (h) of Amex Rule 590. The staff and Committee would be permitted to aggregate violations when the number of violations is determined based upon a program of comprehensive surveillance, thereby enabling the staff or Committee to analyze large amounts of regulatory data and craft appropriate remedies, including minor fines, without being held to rigid schedules or being compelled to bring formal disciplinary action based on a minimal number of surveillance breaks. The staff and Committee also would be permitted to aggregate similar violations generally if the conduct was unintentional or negligent, if there was no injury to public investors, or if the violations resulted from a single systemic problem or cause that has since been corrected.
The Amex believes that the proposed rule change is consistent with Section 6(b) of the Act [11] in general and furthers the objectives of Sections 6(b)(1),[12] 6(b)(6),[13] and 6(b)(7) [14] in particular, in that it is designed to enhance the ability of the Exchange to enforce compliance by its members and persons associated with its members with the provisions of the Act, the rules and regulations thereunder, and the rules of the Exchange. The Exchange believes the proposal will help ensure that members and persons associated with members are appropriately disciplined for violations of the Act, the rules and regulations thereunder, and the rules of the Exchange. The Exchange also believes the proposal will provide a fair procedure for the disciplining of members and persons associated with members.
The Exchange believes that the proposed rule change will impose no burden on competition.Start Printed Page 15513
Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 such filing will also be available for inspection and copying at the principal office of the Amex. All submissions should refer to file number SR-Amex-00-48 and should be submitted by April 9, 2001.
3. See December 1, 2000 letter from William Floyd-Jones, Jr., Esq., Assistant General counsel, Amex, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), SEC and attachments (“Amendment No. 1”). In Amendment No. 1, the Amex made technical changes to the proposed rule language to clarify which language was added and which language was rearranged.
4. See January 26, 2001 letter from William Floyd-Jones, Jr., Esq. to Nancy J. Sanow, Assistant Director, Division, SEC and attachments (“Amendment No. 2”). While the cover letter indicates that Amendment No. 2 replaces and supersedes the original filing, Amendment No. 2 only replaces and supersedes the proposed rule language provided in the original proposal and Amendment No. 1. Telephone conversation March 12, 2001 between William Floyd-Jones, Jr., Esq., Assistant General Counsel, Amex, and Joseph P. Morra, Special Counsel, Division, SEC.
5. The Exchange established the Committee in 1993. See Securities Exchange Act Release No. 32989 (September 29, 1993), 58 FR 52122 (October 6, 1993) (SR-Amex-92-11). Originally, the Committee had authority to issue fines for the following violations: (1) failure to comply with SEC Rule 11Ac1-4, commonly referred to as the “Firm Quote” rule, and honoring a ten-up market for customer option orders; (2) failure to quote options markets within the maximum quote spread differentials; (3) failure to comply with option solicitation procedures; (4) violation of the off-floor trading prohibition; (5) failure to comply with the Exchange's Auto-Ex policy relating to signing on and off the Auto-Ex system; (6) failure to properly mark, identify and represent floor orders as required under Exchange rules; and (7) violation of the Exchange's delayed opening policy. Over time, the following violations were added to the list of rules enforced by the Committee: (8) violation of the “2, 1 and 1/2 Point Rule,” (9) failure to comply with stop order procedures and approval requirements; (10) failure to obtain Floor Official approval when establishing, increasing, or liquidating a position; (11) violation of ITS rules relating to pre-opening applications, and the Trade Through, Locked Markets, and Block Trade policies; (12) failure to comply with requirements relating to agency crosses; (13) failure to submit properly completed Specialist Floor Broker Questionnaires; and (14) failure to obtain Exchange approval for proprietary electronic devices.
6. 17 CFR 240.11 Ac1-1.
7. The five new rules are: (1) violation of the Exchange's short sale borrowing policies; (2) violation of SEC Rule 11 Ac1-4 (commonly referred to as the “Limit Order Display Rule,” 17 CFR 240.11 Ac1-4); (3) violation of the Exchange's rules regarding the deactivation of Quote Assist; (4) failure to liquidate positions as directed by the Exchange that are over applicable position limits; and (5) failure to comply with Exchange restrictions on transactions and exercises.
8. Currently, “Failure to properly mark or identify and represent Floor orders as required under Exchange rules. (Rules 108, 109, 111, 114, 150-157, 950(a)-(d), 958, Commentary .09, and 958A(b))” is listed as a single entry in Part 1 of the Plan. Because the rules cited under this violation cover some of the Exchange's principal requirements for trading equities and options, and since responsibility for enforcing these rules under the Plan will be divided between the Enforcement Department and the Committee or removed entirely from the Plan, the existing single entry will be divided into multiple entries reflecting its constituent rules. Thus, while the proposed list of rules enforced under Part 1 may appear much longer than it is currently, only five new violations are being added to the Plan.
9. See Securities Exchange Act Release No. 41735 (August 12, 1999), 64 FR 45294 (August 19, 1999) (SR-Amex-99-24).
10. Violations that occur outside the 12-month rolling review period are not counted in determining whether a particular violation is a second, third or subsequent offense.
[FR Doc. 01-6664 Filed 3-16-01; 8:45 am]