Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. To Include Rules 392, 460.30, 80A(b), 79A.15 and 105 in Its Minor Disciplinary Fine System under Exchange Rule 476A

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34 39980; File No. SR-NYSE-98-02]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by the New York Stock Exchange, Inc. To Include Rules 392,

460.30, 80A(b), 79A.15 and 105 in Its Minor Disciplinary Fine System

under Exchange Rule 476A

May 8, 1998.

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

1934 (``Act''),\1\ notice is hereby given that on January 20, 1998, the

New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'') filed with the

Securities and Exchange Commission (``SEC'' or ``Commission'') the

proposed rule change as described in Items I, II, and III below, which

Items have been prepared by the NYSE. On March 11, 1998, the Exchange

filed Amendment No. 1,\2\ and on April 16, 1998, the Exchange filed

Amendment No. 2.\3\ 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).

\2\ Amendment No. 1 corrects errors in exhibits to the

Exchange's filing. See Letter from James E. Buck, Senior Vice

President and Secretary, Exchange, to Michael Walinskas, Senior

Special Counsel, Division of Market Regulation, Commission, dated

March 10, 1998.

\3\ Amendment No. 2 clarifies that the Exchange, in those

instances in which an Exchange disciplinary action is not warranted,

will issue a summary fine instead of a cautionary letter as its

first regulatory action against a specialist organization. Such fine

will be issued against the specialist member organization, which,

according to the schedule of fines contained in Rule 476A, would be

result in a fine of $1,000; the second and third regulatory actions

within a rolling 12-month period would result in fines of $2,500 and

$5,000 respectively. If a specialist member organization is issued a

fine relating to Rule 79A.15 twice within a rolling 12-month period,

the Exchange will pursue formal disciplinary proceedings under Rule

476 when continued poor performance during that rolling 12-month

period warrants such action. See letter from Robert J. McSweeny,

Senior Vice President, Market Surveillance, NYSE, to Katherine A.

England, Division of Market Regulation, SEC, dated April 16, 1998.

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

Substance of the Proposed Rule Change

The proposed rule change would revise the ``List of Exchange Rule

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

adding the failure to comply with the provisions of Rules 392,460.30,

80A(b), 79A.15 and 105. 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.\4\

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\4\ Concurrently with the proposed rule change, the Exchange is

seeking to amend its Rule 19d-1 reporting plan for Rule 476A

violations to include the items proposed for addition to the list of

rules subject to Rule 467A. See letter from James E. Buck, Senior

Vice President and Secretary, NYSE, to Michael Walinskas, Senior

Special Counsel, Division of Market Regulation, SEC, dated January

16, 1998.

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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 NYSE 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 NYSE 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 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.

The purpose of the Rule 476A procedure is to provide for a

meaningful sanction for a rule violation when the initiation of a

disciplinary proceeding under Rule 476 would be more costly and time-

consuming than would be warranted given the minor nature of the

violation, or when the violation calls for a stronger regulatory

response than a cautionary letter would convey. Rule 476A preserves due

process rights; identifies those rule violations which may be the

subject of summary fines; and includes a schedule of fines.

In SR-NYSE-84-27, which initially set forth the provisions and

procedures of Rule 476A, the Exchange indicated in 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 List of

Rules subject to possible imposition of fines under Rules 476A

procedures, failure by members or member organizations to comply with

the provisions of: (1) Rule 392 and Rule 460.30 which require

notification to the Exchange by member organizations when they are

participating in or engaging in certain activities related to an

offering of securities listed on the Exchange; (2) Rule 80-A(b) which

prohibits entry of stop orders for the remainder of any trading day on

which `'sidecar'' procedures have been invoked; (3) Rule 79A.15 on

specialists' publishing bids or offers upon receipt of limit orders;

and (4) Rule 105 and its Guidelines with respect to specialists'

specialty stock options transactions and the reporting of such

transactions.

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

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

above-cited rules. The Exchange believes failure to comply with the

requirments 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 so as to have a board range of

regulatory responses available. The Exchange believes that this would

more effectively encourage compliance by enabling a prompt, meaningful

and heightened regulatory response (e.g., the issuance of a fine rather

than a cautionary letter) to a minor violation of a rule.

The Exchange wishes to emphasize the importance it places upon

compliance with the above-named rules and, in particular, Rule 79A.15,

which it adopted to reflect the provisions and certain interpretations

of SEC Rule 11Ac1-4 under the Act. The Exchange recognizes that

violations of Rule 79A.15 would likely result in violations of a

Commission rule and, therefore, proposes, when a full disciplinary

action is not warranted, to issue a summary fine instead of a

cautionary letter as its first regulatory action against a specialist

organization. While the Exchange, upon investigation, may determine

that a violation of any of these rules 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. This includes the full disciplinary procedures

available under Rule 476.

[[Page 27340]]

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 of 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 rules 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 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, including whether the proposed rule

change is consistent with the Act. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 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 Room. Copies of such filing will also be

available for inspection and copying at the principal office of the

NYSE. All submissions should refer to the File No. SR-NYSE-98-02 and

should be submitted by June 8, 1998.

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).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 98-13098 Filed 5-15-98; 8:45 am]

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