Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 3 to Proposed Rule Change 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. 34-33816; File No. SR-NYSE-93-27]

Self-Regulatory Organizations; New York Stock Exchange, Inc.;

Order Approving Proposed Rule Change and Notice of Filing and Order

Granting Accelerated Approval to Amendment No. 3 to Proposed Rule

Change 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

March 25, 1994.

I. Introduction

On May 27, 1993, the New York Stock Exchange, Inc. (``NYSE'' or

``Exchange'') submitted to the Securities and Exchange Commission

(``SEC'' or ``Commission''), pursuant to section 19(b)(1) of the

Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4

thereunder,\2\ a proposed rule change to revise the List of Exchange

Rule Violations and Fines Applicable Thereto Pursuant to Rule 476A by

adding to the list violations of the agency provisions of Rule 72(b)

and Rule 410A.\3\ On June 9, 1993, the NYSE submitted to the Commission

Amendment No. 1 to the proposed rule change.\4\ On January 3, 1994, the

Commission received from the NYSE Amendment No. 2 to the proposed rule

change.\5\ On February 18, 1994, the NYSE submitted to the Commission

Amendment No. 3 to the proposed rule change.\6\

---------------------------------------------------------------------------

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

\2\17 CFR 240.19b-4 (1992).

\3\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 clarify that violations of Rule 72(b) involving

instances of proprietary participation with the cross would be added

to the list of minor rules. See Amendment No. 2, infra note 5.

\4\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 Violation List.

\5\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.

\6\See letter from Brian M. McNamara, Managing Director, Market

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

dated February 11, 1994. Amendment No. 3 amended the text of the

List of Exchange Rule Violations and Fines Applicable Thereto

Pursuant To Rule 476A to replace the words ``Rule 72(b)'' with

``violation of the agency provisions of Rule 72(b).''

---------------------------------------------------------------------------

The proposed rule change, together with Amendment Nos. 1 and 2, was

noticed in Securities Exchange Act Release No. 33564 (February 1,

1994), 59 FR 5793 (February 8, 1994). No comments were received on the

proposal. This order approves the proposed rule change, including

Amendment No. 3 on an accelerated basis.

II. Description of the Proposal

In 1984, the Commission adopted amendments to paragraph (c) of

Securities Exchange Act Rule 19d-1 to allow SROs to submit, for

Commission approval, plans for the abbreviated reporting of minor rule

violations.\7\ Subsequently, in 1985, the Commission approved an NYSE

Plan (``Plan'') for the abbreviated reporting of minor rule violations

pursuant to Rule 19d-1(c) under the Act. The Plan relieves the NYSE of

the current reporting requirements imposed under section 19(d)(1) for

violations listed in NYSE Rule 476A. The NYSE Plan, as embodied in NYSE

Rule 476A, provides that the Exchange may designate violations of

certain rules as minor rule violations. 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 violation of the delineated rules

by issuing a citation with a specific penalty.\8\ Such person can

either accept the penalty, or opt for a full disciplinary hearing on

the matter. Fines assessed pursuant to NYSE Rule 476A in excess of

$2,500 are not considered pursuant to the Plan and must be reported in

a manner consistent with the current reporting requirement of section

19(d)(1) of the Act. The Exchange also retains the option of bringing

violations of rules included under NYSE Rule 476A to full disciplinary

proceedings, and the Commission expects the Exchange to do so for

egregious repeat violations.

---------------------------------------------------------------------------

\7\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.

\8\The List is contained under Supplementary Material to

Exchange Rule 476A. As discussed in note 7, supra, only those fines

imposed that are not in excess of $2,500 are subject to periodic

reporting. Fines imposed pursuant to Rule 476A in excess of $2,500

are deemed final and therefore are subject to immediate reporting to

the Commission.

---------------------------------------------------------------------------

In adopting Rule 19d-1, the Commission noted that the Rule was an

attempt to balance the informational needs of the Commission against

the reporting burdens of the SROs.\9\ In promulgating paragraph (c) of

the Rule, the Commission was attempting further to reduce those

reporting burdens by permitting, where immediate reporting was

unnecessary, quarterly reporting of minor rule violations. The Rule is

intended to be limited to rules which can be adjudicated quickly and

objectively.

---------------------------------------------------------------------------

\9\See Securities Exchange Act Release No. 13762 (July 8, 1977),

42 FR 35411 (July 14, 1977).

---------------------------------------------------------------------------

The NYSE currently is adding violations of Rule 410A and the agency

provisions of Rule 72(b) to the list of minor rule violations subject

to the Rule 476A minor rule violation plan. As amended, the minor rule

list includes only violations of the agency provisions of Rule

72(b).\10\ In addition, the list includes the Rule 410A requirements

for automated submission of trading data.\11\

---------------------------------------------------------------------------

\10\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 for 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.

\11\NYSE Rule 410A requires members and member organizations to

submit certain information concerning transactions in an automated

format as requested by the Exchange. See NYSE Rule 410A for the list

of trade data elements required to be submitted to the NYSE under

this Rule.

---------------------------------------------------------------------------

The Exchange states that the purpose of the proposed rule change is

to facilitate the Exchange's ability to induce compliance with all

aspects of the above-name Rules. Additionally, the NYSE states that the

proposed rule change is consistent with 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. In addition, the Exchange states that

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.

III. Discussion

The Commission finds that the proposed rule change is consistent

with the requirements of the Act and the rules and regulations

thereunder applicable to a national securities Exchange and, in

particular, with the requirements of section 6(b)(1), (6) and (7),

6(d)(1) and 19(d).\12\ The proposal is consistent with the section

6(b)(6) requirement that the rules of an exchange provide that its

members and persons associated with its members shall be appropriately

disciplined for violations of rules of the exchange. In this regard,

the proposal provides an efficient procedure for appropriate

disciplining of members for a rule violation that is technical and

objective in nature. Moreover, because the Plan provides procedural

rights to the person fined and permits a disciplined person to request

a full hearing on the matter, the proposal provides a fair procedure

for the disciplining of members and persons associated with members

which is consistent with section 6(b)(7) and 6(d)(1) of the Act.

---------------------------------------------------------------------------

\12\15 U.S.C. 78f(b)(1), (6) and (7), 78f(d)(1) and 78s(d)

(1988).

---------------------------------------------------------------------------

The Commission also believes that the proposal provides an

alternate means by which to deter violations of the requirements of

Rules 410A and 72(b),\13\ thus furthering the purposes of section

6(b)(1) of the Act. An exchange's ability to effectively enforce

compliance by its members and member organizations with Commission and

Exchange rules is central to its self-regulatory functions. Inclusion

of a rule in an exchange's minor rule violation plan should not be

interpreted to mean it is an unimportant rule. On the contrary, the

Commission recognizes that inclusion of rules under a minor rule

violation plan may not only reduce reporting burdens on an SRO but also

may make its disciplinary system more efficient in prosecuting

violations of these rules.

---------------------------------------------------------------------------

\13\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 5.

---------------------------------------------------------------------------

In addition, because the NYSE retains the discretion to bring a

full disciplinary proceeding for any violation included on the List,

the Commission believes that adding Rule 410A and the proprietary

participation prohibition in Rule 72(b) to the List will enhance,

rather than reduce, the NYSE's enforcement capabilities regarding this

Exchange Rule. Indeed, the Commission expects the NYSE to bring full

disciplinary proceedings for violations of Rule 410A or 72(b) where the

violation is egregious or where there is a history or pattern of repeat

violations.

Finally, the Commission believes that the inclusion of Rules 410A

and 72(b) on the List will prove to be an effective alternate response

to a violation when the initiation of a full disciplinary proceeding is

unsuitable because such a proceeding may be more costly and time-

consuming in view of the minor nature of the particular violation.

The Commission finds good cause for accelerated approval of

Amendment No. 3 to the proposed rule change prior to the thirtieth day

after publication of notice of filing thereof. The NYSE's proposed rule

change was published in the Federal Register for the full statutory

period and no comments were received.\14\ Amendment No. 3 merely amends

the list of minor rule violations to indicate that the list would

include only the section of Rule 72(b) which prohibits instances of

proprietary participation with the cross transaction. The Commission

finds that accelerated approval of Amendment No. 3 is necessary in

order for the NYSE to be able to effectuate its new amendments to Rule

476A in a timely manner upon approval.

---------------------------------------------------------------------------

\14\See Securities Exchange Act Release No. 33564 (February 1,

1994), 59 FR 5793 (February 8, 1994).

---------------------------------------------------------------------------

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning Amendment No. 3. 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 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 April 22, 1994.

It is therefore ordered, pursuant to section 19(b)(2) and Rule 19d-

1(c)(2) under the Act,\15\ that the proposed rule change (SR-NYSE-93-

27) is approved, including Amendment No. 3 on an accelerated basis.

\15\15 U.S.C. 78s(b)(2) (1988) and 17 CFR 240.19d-1(c)(2)

(1991).

---------------------------------------------------------------------------

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.\16\

---------------------------------------------------------------------------

\16\17 CFR 200.30-3(a)(12) (1993).

---------------------------------------------------------------------------

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-7764 Filed 3-31-94; 8:45 am]

BILLING CODE 8010-01-M