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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-33834; File No. SR-NYSE-94-05]

Self-Regulatory Organizations; Filing of Proposed Rule Change by

New York Stock Exchange, Inc. Relating to Additions to the ``List of

Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule

476A''

March 30, 1994.

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

Exchange Act of 1934 (``Act''), 15 U.S.C. 78s (b)(1) and (d)(1), notice

is hereby given that on March 2, 1994, the New York Stock Exchange,

Inc. (``NYSE'' 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 self-regulatory organization. On March 21, 1994, the NYSE

submitted to the Commission Amendment No. 1 to the proposed rule change

in order to clarify certain aspects of the original filing.\1\ The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

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\1\See letter from Donald Siemer, Director, Market Surveillance

Division, NYSE, to Beth Stekler, Attorney, Division of Market

Regulation, SEC, dated March 16, 1994 (``Amendment No. 1'')

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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 Exchange policy regarding a two-week probationary

period for execution of orders by new members on the Exchange trading

floor.\2\ As part of the proposed rule change, the NYSE is also seeking

approval of the policy itself.\3\

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\2\The Exchange also has requested approval, under Rule 19d-

1(c)(2), to amend its Rule 19d-1 Minor Rule Violation Enforcement

and Reporting Plan (``Plan'') to include its policy in regard to

execution of orders by new members. See letter from James E. Buck,

Senior Vice President and Secretary, NYSE, to Sandra Sciole, Special

Counsel, Division of Market Regulation, SEC, dated March 1, 1994.

\3\See Amendment No. 1, supra, note 1.

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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.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

1. Purpose

Rule 476A\4\ 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.

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\4\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 Nos. 22037 (May 14, 1985), 50 FR 21008 (May 21, 1985); 23104

(April 11, 1986), 51 FR 13307 (April 18, 1986); 24985 (October 5,

1987), 52 FR 41643 (October 29, 1987); 25763 (May 27, 1988), 54 FR

20925 (June 7, 1988); 27878 (April 4, 1990), 55 FR 13345 (April 10,

1990); 28003 (May 8, 1990), 55 FR 20004 (May 14, 1990); 28505

(October 2, 1990), 55 FR 41288 (October 10, 1990); 28995 (March 21,

1991), 56 FR 12967 (March 28, 1991); 30280 (January 22, 1992), 57 FR

3452 (January 29, 1992); 30536 (March 31, 1992), 57 FR 12357 (April

9, 1992); 32421 (June 7, 1993), 58 FR 32973 (June 14, 1993).

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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 or policies, while preserving the due process rights of

the party accused through specified, required procedures. Violations of

these rules and policies that are deemed by the Exchange not to be

minor in nature are also subject to formal disciplinary proceedings

under Exchange Rule 476. The list of rules and policies which are

eligible for the Rule 476A procedures specifies those rule violations

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

schedule of fines.

In File No. SR-NYSE-84-27, which initially set forth the provisions

and procedures of Rule 476A,\5\ 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.

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\5\See Securities Exchange Act Release No. 21688, supra, note 4.

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The Exchange is seeking approval to add to the list of rules

subject to possible imposition of fines under Rule 476A its policy with

respect to a requirement for new members of the Exchange to have their

order executions observed by another member for a period of two weeks.

As part of their training regimen, new Exchange members are

required to participate in a New Member Orientation Program

(``Program''). The Program, consisting of six one-hour sessions over a

two-week period, is designed to familiarize the new members with

regulations, systems and trading practices. Subsequent to the Program

and passing the member examination (Series 15), a new member is

required to wear a temporary badge (called on the Exchange today an

``orange badge'') for a minimum of two weeks, during which time the new

member may execute orders only under the direct supervision of another

experienced member.\6\

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\6\According to the NYSE, a new member may execute an order

under the direct supervision of any fully qualified NYSE member who

is a disinterested third party to the transaction. The experienced

member observes the trade, and reviews it for compliance with the

relevant Exchange rules and trading practices. This review is

evidenced by placing the experienced member's badge number on the

back of the order ticket. See Amendment No. 1, supra, note 1.

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The purpose for the proposed rule change is to facilitate the

Exchange's ability to ensure compliance with all aspects of the above-

named policy. New members would be informed that, if they are found to

have executed an order during the initial two-week period not under an

experienced member's supervision, the requirement to wear the temporary

badge and have their executions observed by an experienced member would

be extended for an additional week. A second violation of the policy

would result in a possible fine under the provisions of Rule 476A.\7\

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\7\The Exchange has clarified that, because the initial

violation of this policy would result in an extension of the

probationary period, the second violation would be subject to the

first time fine provided by Rule 476A. See Amendment No. 1, supra,

note 1.

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The Exchange believes failure to comply with the requirements of

this policy should be addressed with an appropriate sanction and seeks

Commission approval to add violations of these requirements to the Rule

476A List.

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 members

and 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 Section 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 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 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 NYSE. All

submissions should refer to File No. SR-NYSE-94-05 and should be

submitted by April 27, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-8163 Filed 4-5-94; 8:45 am]

BILLING CODE 8010-01-M