Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 to Proposed Rule Change by the Pacific Stock Exchange, Inc. Relating to Amendments to its Minor Rule Plan

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33956; File No. SR-PSE-93-31]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change and Amendment No. 1 to Proposed Rule Change by the Pacific Stock

Exchange, Inc. Relating to Amendments to its Minor Rule Plan

April 22, 1994

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 November

30, 1993, the Pacific Stock Exchange, Inc. (``PSE'' 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 PSE.\1\ The Commission is publishing

this notice to solicit comments on the proposed rule change from

interested persons.

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\1\On March 30, 1994, the Exchange filed Amendment No. 1 to the

proposal, which: (1) Eliminated from inclusion in the Exchange's

Minor Rule Plan and the Recommended Fine Schedule violations of

certain rules which are pending before the Commission and have not

yet been approved (See File Nos. SR-PSE-93-10 and SR-PSE-93-26); and

(2) deleted a cross-reference to another rule which also is pending

before the Commission and has not yet been approved (See File No.

SR-PSE-93-19). See Letter from Michael D. Pierson, Senior Attorney,

Market Regulation, PSE, to Thomas N. McManus, Esq., Division of

Market Regulation, SEC, dated March 28, 1994.

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I. Self-Regulatory Organization's Statement of the Terms of

Substance of the Proposal Rule Change

The Exchange is proposing to amend its Minor Rule Plan (``MRP'') by

adding certain violations to the list of those subject to the expedited

disciplinary procedures set forth in PSE Rule 10.13. The Exchange also

is proposing to amend its recommended fine schedule for MRP violations.

The text of the proposed rule change is available at the Office of the

Secretary, the PSE, 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 PSE 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 PSE has prepared summaries, set forth in section

(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

PSE Rule 10.13(a) provides that the Exchange may impose a fine not

to exceed $5,000 on any member, member organization, or person

associated with a member or member organization for any violation of an

Exchange rule that has been determined to be minor in nature.\2\ The

purpose of Rule 10.13 is to provide for a response to a rule violation

when a meaningful sanction is appropriate but when initiation of a

disciplinary proceeding under PSE Rule 10.3 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 10.13 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 that are

eligible for Rule 10.13 procedures specifies those rule violations that

may be the subject of fines under the rule and also includes a schedule

of fines.

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\2\The Exchange's MRP initially was approved by the Commission

in 1985. See Securities Exchange Act Release No. 22654 (November 21,

1985), 50 FR 48853 (November 27, 1985). On June 24, 1993, the

Commission approved a number of amendments to the MRP, including the

addition of certain rules to the list of MRP violations and

revisions to the Exchange's Recommended Fine Schedule. See

Securities Exchange Act Release No. 32510 (June 24, 1993), 58 FR

35491 (July 1, 1993).

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The Exchange is proposing to amend its MRP by adding the following

violations of Exchange rules and policies to the MRP: (1) Members who

act as Floor Brokers and Market Makers trading in excess of 100

contracts per month as a Market Maker without a Primary Appointment

(PSE Rule 6.38(c)); (2) Failure to request a market to be removed from

the screen when leaving the trading crowd (PSE Rule 6.37, Com. .03; PSE

Rule 6.46, Com. .04); (3) Failure to meet 75% Primary Appointment

requirement (PSE Rule 6.35, Com. .03); (4) Failure to meet 60% in-

person trading requirement (PSE Rule 6.37, Com. .07); (5) Unauthorized

use of telephones located in the options trading post areas; (6) Short

Sale Rules (PSE Rule 5.18(a)-(f));\3\ (7) Inadequate staffing at

specialist post (prior to the opening) (PSE Rule 5.28(c)-(d)); (8)

Failure to furnish in a timely manner books, records, or other

requested information or testimony in connection with an examination of

financial responsibility and/or operational conditions (PSE Rule

2.12(c)); and (9) Failure to notify the Exchange of a change of address

where notices may be served (PSE Rule 1.13).

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\3\See, e.g., NYSE Rule 476A ( 2476A); Amex Rule 590(g)(1).

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The Exchange also is proposing to amend its Recommended Fine

Schedule for MRP violations. The proposed amendments include

recommended fines for first-, second-, and third-time violations for

each of the rule violations proposed to be added to the MRP. The

Exchange also is proposing that certain Options and Equity Floor

Decorum and Minor Trading Rule Violations\4\ be calculated on a running

two-year basis, so that a second violation of the same provision within

two years will be subject to the next highest fine (e.g., the second

violation that occurs within a two-year period will be treated as a

second occurrence). However, the Exchange is specifying that violations

of certain Equity Floor Decorum and Minor Trading Rules be considered

on a running one-year basis consistent with existing provisions to the

effect in the Equity Floor Procedure Advices.

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\4\PSE Rule 10.13(h) and (i), respectively.

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The Exchange believes that violations of the rules contained in

this proposal are either objective or technical in nature, and easily

verifiable, and therefore lend themselves to the use of streamlined

disciplinary procedures and the use of a fine schedule. The Exchange

further believes that the proposal will enhance the Exchange's

enforcement capabilities, will provide effective deterrence, and will

allow for just sanctions for minor violations of the specified rules.

The Exchange notes that, pursuant to Rule 10.13(f), nothing in the MRP

requires the Exchange to impose a fine for a violation of a rule under

the MRP, and if the Exchange determines that any violation is not minor

in nature, the Exchange at its discretion may proceed under Rule 10.3

rather than under the MRP.

The Exchange believes that the proposed rule change is consistent

with section 6(b) of the Act in general, and furthers the objectives of

section 6(b)(5) in particular, in that it is designed to promote just

and equitable principles of trade. The Exchange also believes that the

proposed rule change will advance the objectives of section 6(b)(6) of

the Act in that it will provide a procedure whereby members can be

disciplined appropriately in those instances when a violation is minor

in nature, but a sanction more serious than a warning or cautionary

letter is appropriate.

(B) Self-Regulatory Organization's Statement on Burden on Competition

The PSE 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 solicited or received with respect to the

proposed rule change.

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 such 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 in the

Commission's Public Reference Section 450 Fifth Street, NW.,

Washington, DC. Copies of such filing also will be available for

inspection and copying at the principal office of the PSE. All

submissions should refer to File No. SR-PSE-93-31 and should be

submitted by May 31, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\5\

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\5\17 CFR 200.30-3(a)(12) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-10355 Filed 4-29-94; 8:45 am]

BILLING CODE 8010-01-M