Self-Regulatory Organizations; Filing of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to the Addition of Rules 72(b) and 410A to the ``List of Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule 476A'' and Amending Minor Rule Violation Enforcement and Reporting Plan

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33564; File No. SR-NYSE-93-27]

Self-Regulatory Organizations; Filing of Proposed Rule Change by

the New York Stock Exchange, Inc. Relating to the Addition of Rules

72(b) and 410A to the ``List of Exchange Rule Violations and Fines

Applicable Thereto Pursuant to Rule 476A'' and Amending Minor Rule

Violation Enforcement and Reporting Plan

February 1, 1994.

Pursuant to Sections 19 (b)(1) and (d)(1) of the Securities

Exchange Act of 1934 (``Act'')\1\ and Rules 19b-4 and 19d-1(c)(2)

thereunder\2\ notice is hereby given that on May 27, 1993, 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 (``SRO''). On June 9,

1993, the NYSE submitted to the Commission Amendment No. 1 to the

proposed rule change.\3\ On January 3, 1994, the Commission received

from the NYSE Amendment No. 2 to the proposed rule change.\4\ The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

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\1\15 U.S.C. 78s (b)(1) and (d)(1) (1988).

\2\17 CFR 240.19b-4 and 19d-1(c)(2) (1991).

\3\See letter from Donald Siemer, Director, Market Surveillance,

NYSE, to Diana Luka-Hopson, Branch Chief, Commission, submitted on

June 9, 1993 by which the NYSE made corrections to its current Rule

476A Violations List.

\4\See letter from Robert J. McSweeney, Senior Vice President,

Market Surveillance, to Sandra Sciole, Special Counsel, Commission,

dated December 23, 1993. Amendment No. 2 withdrew Rule 401 from the

list of proposed additions to the Rule 476A list of minor rule

violations and limited the violations of Rule 72(b) that would be

eligible to be fined under Rule 476A to instances of proprietary

participation with the cross.

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

of the Proposed Rule Change

This proposal would revise the Rule 476A Violations List for

imposition of fines for minor violations of rules and/or policies by

adding to the list violations of Exchange Rule 410A and the provision

in Rule 72(b) which prohibits proprietary participation in a cross

transaction.\5\ The Exchange proposes to adopt the following

amendment:\6\

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\5\The NYSE also has requested approval, under Rule 19d-1(c)(2),

17 CFR 240.19d-1(c)(2), to amend its Rule 19d-1 Minor Rule Violation

Enforcement and Reporting Plan (``Plan'') to include Rules 72(b),

401 and 410A. See letter from James E. Buck, Senior Vice President

and Secretary, NYSE, to Sharon Lawson, Assistant Director, Exchange

and Options Regulation, Division of Market Regulation, Commission,

dated May 26, 1993. Subsequent to this request, the Exchange amended

the proposal to withdraw Rule 401 from the list of minor rule

violations and to add violations of Rule 72(b) involving instances

of proprietary participation with the cross to the list of minor

rules. See Amendment No. 2, supra note 4.

\6\With respect to the following amendment, italicizing

indicates new material and brackets indicate material to be deleted.

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List of Exchange Rule Violations and Fines Applicable Thereto

Pursuant to Rule 476A

Rule 72(b) requirements for ``clean'' agency crosses which

cannot be broken up at the cross price\7\

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\7\As noted above, the minor rule list would include only the

section of Rule 72(b) which prohibits instances of proprietary

participation with the cross transaction. See Amendment No. 2,

supra, note 4.

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Rule 410A requirements for automated submission of trading

data

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

(a) Purpose

Rule 476A\8\ provides that the Exchange may impose a fine, not to

exceed $5,000, or 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.\9\

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\8\Rule 476A was approved by the Commission on January 25, 1985.

See Securities Exchange Act Release No. 21688 (January 25, 1985), 50

FR 5025 (February 5, 1985). Subsequent additions of rules to the

Rule 476A Violations List were made in: Securities Exchange Act

Release No. 22037 (May 14, 1985); 50 FR 12213 (May 21, 1985);

Securities Exchange Act Release No. 22496 (October 2, 1985), 50 FR

41084 (October 8, 1985); Securities Exchange Act Release No. 23104

(April 11, 1986), 51 FR 13307 (April 18, 1986); Securities Exchange

Act Release No. 24985 (October 22, 1987), 52 FR 23820 (October 29,

1987); Securities Exchange Act Release No. 25763 (May 27, 1988), 54

FR 20925 (June 7, 1988); Securities Exchange Act Release No. 27878

(April 4, 1990), 55 FR 13345 (April 10, 1990); Securities Exchange

Act Release No. 28003 (May 9, 1990), 55 FR 20004 (May 14, 1990),

Securities Exchange Act Release No. 28505 (October 2, 1990), 55 FR

41288 (October 10, 1990); Securities Exchange Act Release No. 28995

(March 28, 1991), 56 FR 12967 (March 28, 1991); Securities Exchange

Act Release No. 30280 (January 22, 1992), 57 FR 34522 (January 29,

1992); Securities Exchange Act Release No. 30536 (March 31, 1992),

57 FR 12357 (April 9, 1992); and Securities Exchange Act Release No.

32421 (June 7, 1993), 58 FR 32973 (June 14, 1993).

\9\See Securities Exchange Act Release No. 21013 (June 1, 1984),

49 FR 23838 (June 8, 1984). Pursuant to paragraph (c)(1) of Rule

19d-1, an SRO is required to file promptly with the Commission

notice of any ``final'' disciplinary action taken by the SRO.

Pursuant to paragraph (c)(2) of Rule 19d-1, any disciplinary action

taken by an SRO for a violation of an SRO rule that has been

designated a minor rule violation pursuant to the Plan 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.

By deeming unadjudicated minor violations as not final, the

Commission permits the SRO to report violations on a periodic, as

opposed to immediate, basis.

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The purpose of 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.\10\ 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

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

schedule of fines.

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\10\NYSE Rule 476 sets forth procedures for disciplinary

proceedings involving charges against members, member organizations,

allied members, approved persons or employees.

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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.\11\

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\11\See Securities Exchange Act Release No. 21688, supra note 8.

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The Exchange is presently seeking approval to add the following

Exchange Rules to the List of Rules subject to possible imposition of

fines under Rule 476A procedures:

Rule 72(b) which establishes conditions under which

``clean'' agency crosses of 25,000 shares or more cannot be broken

at the cross price;\12\

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\12\As amended, the minor rule list would include only the

section of Rule 72(b) which prohibits instances of proprietary

participation with cross transaction. See supra notes 4 and 7. NYSE

Rule 72(b) states that when a member has an order to buy and an

order to sell an equivalent amount of the same security, and both

orders are of 25,000 shares or more and are for the accounts of

persons who are not members or member organizations, the member may

``cross'' those orders at a price at or within the prevailing

quotation. The member's bid or offer shall be entitled to priority

at such cross price, irrespective of pre-existing bids or offers at

that price. The member shall follow the crossing procedures of Rule

76, and another member may trade with either the bid or offer side

of the cross transaction only to provide a price which is better

than the cross price as to all or part of such bid or offer. A

member who is providing a better price to one side of the cross

transaction must trade with all other market interest having

priority at that price before trading with any part of the cross

transaction. No member may break up the proposed cross transaction,

in whole or in part, at the cross price.

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Rule 410A which requires members and member

organizations to submit certain information concerning transactions

in an automated format as requested by the Exchange;\13\

\13\See NYSE Rule 410A for the list of trade data elements

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required to be submitted to the NYSE under this Rule.

The purpose for the proposed change to Rule 476A is to facilitate

the Exchange's ability to induce compliance with all aspects of the

above-named Rules.

The Exchange believes failure to comply with the requirements of

these Rules should be addressed with an appropriate sanction and seeks

Commission approval to add violations of these requirements to the Rule

476A List.

(b) 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 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

The Exchange has neither solicited nor received written comments on

the proposed rule change.

III. Date of 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 submission, all subsequent amendments, all written

statements with respect to the proposed rule change that are filed with

the Commission, and all written communication 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 Room, 450 Fifth Street, NW., Washington,

DC 20549. Copies of the filing will also be available for inspection

and copying at the principal office of the NYSE. All submissions should

refer to File No. SR-NYSE-93-27 and should be submitted by March 1,

1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-2770 Filed 2-7-94; 8:45 am]

BILLING CODE 8010-01-M