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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-36756; File No. SR-NYSE-95-45]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the New York Stock Exchange, Inc. Relating to Additions to

``List of Exchange Rule Violations and Fines Applicable Thereto

Pursuant to Rule 476A''

January 22, 1996.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on

December 28, 1995, 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. The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons.

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

of the Proposed Rule Change

The proposed rule change consists of revisions to the ``List of

Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule

476A'' (the Rule 476A Violations List) by adding to the List: (1)

misstatements or omission of fact on any submission filed with the

Exchange as provided in NYSE Rule 476(a)(10); (2) failure to comply

with the requirements of NYSE Rule 95 with respect to its order

identification requirements or prohibition of transactions by members

on the Floor involving discretion; and (3) failure to comply with

certain requirements for execution of block cross transactions under

NYSE Rule 127. The Exchange believes it is appropriate to make the

failure to comply with the provisions of the above-named rules subject

to the possible imposition of a fine under Rule 476A procedures.\1\

\1\ Concurrently with the proposed rule change, the Exchange is

seeking to amend its Rule 19d-1(c)(2) reporting plan for Rule 476A

violations (``Minor Rule Violation Plan'') to include the items

proposed for addition to the list of rules subject to Rule 476A. See

letter from Daniel Parker Odell, Assistant Secretary, NYSE, to Glen

Barrentine, Team Leader, Division of Market Regulation, SEC, dated

December 27, 1995.

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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.

[[Page 2857]]

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

Statutory Basis for, the Proposed Rule Change

1. Purpose

Rule 476A \2\ 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.

\2\ Rule 476A was approved by the Commission on January 25,

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

50 FR 5025 (Feb. 5, 1985). For subsequent additions of rules to the

Rule 476A Violations List see, e.g., Securities Exchange Act Release

Nos. 22037 (May 14, 1985), 50 FR 12213 (May 21, 1985); 22415 (Sept.

17, 1985), 50 FR 38600 (Sept. 23, 1985); 22490 (Oct. 2, 1985), 50 FR

41084 (Oct. 8, 1985); 23104 (Apr. 11, 1986), 51 FR 13307 (Apr. 18,

1986); 24935 (Oct. 22, 1987), 52 FR 23820 (Oct. 29, 1987), 25763

(May 27, 1988), 53 FR 20925 (June 7, 1988); 27878 (Apr. 4, 1990), 55

FR 13345 (Apr. 10, 1990); 28003 (May 9, 1990), 55 FR 20004 (May 14,

1990); 28505 (Oct. 2, 1990), 55 FR 41288 (Oct. 10, 1990); 28995

(Mar. 28, 1991), 56 FR 12967 (Mar. 28, 1991); 30280 (Jan. 22, 1992),

57 FR 3452 (Jan. 29, 1992); 30536 (Mar. 31, 1992), 57 FR 12357 (Apr.

9, 1992); 32421 (June 7, 1993), 58 FR 32973 (June 14, 1993); 33403

(Dec. 28, 1993), 59 FR 641 (Jan. 5, 1994); 33816 (Mar. 25, 1994), 59

FR 15471 (Apr. 1, 1994); 34230 (June 17, 1994), 59 FR 32727 (June

24, 1994).

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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 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

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

schedule of fines.

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 .

The Exchange is presently seeking approval to add to the 476A List

of Rules subject to possible imposition of fines under Rule 476A

procedures the failure by members or member organizations to adhere to

certain procedures under NYSE Rule 127 for execution of block cross

transactions at a price that is outside of the NYSE best bid or

offer.\3\ Specifically, the Exchange would view the failure to fulfill

the requirement to satisfy public limit orders at the clean-up price

when a position is established or increased for a member's or member

organization's proprietary account as one type of violation for which a

fine pursuant to Rule 476A might be imposed.\4\ In addition, failure to

utilize the procedure of NYSE Rule 127 to satisfy all better-priced

limit orders when effecting block crosses outside the currently quoted

market would also be considered a violation for which a fine pursuant

to Rule 476A might be imposed.

\3\ In Securities Exchange Act Release No. 35103 (Dec. 15,

1994), 59 FR 65835 (Dec. 21, 1994), the Commission approved

amendments to NYSE Rule 127 involving revised procedures for

handling such blocks.

\4\ The Exchange would not seek to review a member's initial

determination as to whether the member would incur excessive stock

loss by satisfying all orders at the clean-up price. Given the

member's initial determination as to which of NYSE Rule 127's

procedures to use, the Exchange would regard the failure to adhere

to the requirements of the rule to satisfy public orders limited to

the clean-up price at that price before retaining stock for the

member organization's proprietary account as a possible minor

violation.

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The Exchange is also seeking to add to the 476A List failure by

members or member organizations to follow the procedures of NYSE Rule

95 with respect to prohibition of transactions by members on the Floor

involving discretion as to (1) choice of security, (2) total amount of

security to be bought or sold, or (3) whether a transaction is to be a

purchase or a sale. The Exchange is also seeking to add to the 476A

List of failure to appropriately identify a liquidating order pursuant

to NYSE Rule 95(c) (all liquidating orders effected pursuant to Rule

95(c) must be marked on the Floor as ``BC'' in the case of an order

covering a short position or ``SLQ'' in the case of the sell order

liquidating a long position).

The Exchange is also seeking to add to the 476A List misstatements

or omissions of fact on applications for membership approval, financial

statements, reports or other submissions filed with the Exchange as

provided in NYSE Rule 476(a)(10). The Exchange would be careful to

distinguish misstatements or omissions of facts from willfully made

false or misleading statements and omissions of material fact, as a

finding by the Exchange of conduct in the latter two categories could

cause an individual or entity to be subject to a statutory

disqualification as defined in Section 3(a)(39)(F) of the Act.

Moreover, in appropriate circumstances (e.g., findings of a pattern of

misstatements or omissions), the Exchange would not use the procedures

under Rule 476A to address the conduct.

While the Exchange, upon investigation, may determine that a

violation of these procedures is a minor violation of the type which is

properly addressed by the procedures adopted under Rule 476A, in those

instances where investigation reveals a more serious violation of the

above-described rules, the Exchange will provide an appropriate

regulatory response.

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 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 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 either solicited or received.

III. Date or 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

[[Page 2858]]

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.

Sec. 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 Exchange. All

submissions should refer to File No. SR-NYSE-95-45 and should be

submitted by February 20, 1996.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96-1472 Filed 1-26-96; 8:45 am]

BILLING CODE 8010-01-M