Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Amendments to Certain Sections of the Exchange Constitution Concerning the Exchange's Hearing Board and Related Amendments to Exchange Rule 475 and Rule 476, 61866-61875 [E5-5923]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 206 (Wednesday, October 26, 2005)]
[Notices]
[Pages 61866-61875]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-5923]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52638; File No. SR-NYSE-2005-37]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto 
Relating to Amendments to Certain Sections of the Exchange Constitution 
Concerning the Exchange's Hearing Board and Related Amendments to 
Exchange Rule 475 and Rule 476

October 19, 2005.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on May 23, 2005, 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 NYSE. On September 
9, 2005, NYSE amended the proposed rule change (``Amendment No. 
1'').\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Amendment No.1 filed on September 9, 2005. In Amendment 
No. 1, the Exchange made technical corrections to proposed rule text 
contained in Exhibit 5 of the original filing.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Article IX of the Exchange's 
Constitution and NYSE Rules 475 and 476 to modify certain aspects of 
the Exchange's disciplinary procedures and to provide a structure for a 
summary suspension hearing and a ``call-up'' procedure for review by 
members of the Board of Directors (``Board''), certain members of the 
Board of Executives listed in NYSE Rule 476(f), any member of the 
Regulation, Enforcement and Listing Standards Committee and either the 
Division of the Exchange that initiated the proceedings or the 
respondent. The text of the proposed rule change, as amended, is below. 
Proposed new language is in italics; proposed deletions are in 
brackets.\4\
---------------------------------------------------------------------------

    \4\ The rule as set forth herein reflects several minor 
revisions to the proposal's rule text that the Exchange has 
committed to incorporate in an amendment to the filing. Telephone 
conversation between Peggy Kuo, Chief Hearing Officer, NYSE and 
Cyndi N. Rodriquez, Special Counsel, Division of Market Regulations 
(``Division''), Commission on September 29, 2005.
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* * * * *
Disciplinary Rules (Rules 475--477)
Rule 475. Prohibition or Limitation with Respect to Access to Services 
Offered by the Exchange or a Member or Member Organization--Summary 
Proceedings
    (a) Except as provided [is] in subsection (b) of this Rule, the 
Exchange shall not prohibit or limit any person with respect to access 
to services offered by the Exchange or any member or member 
organization thereof unless the Exchange shall have notified such 
person in writing of, and shall have given such person, upon not less 
than 15 days prior written notice, an opportunity to be heard upon, the 
specific grounds for such prohibition or limitation. The Exchange shall 
keep a record of any proceeding pursuant to this Rule. Any 
determination by the Exchange to prohibit or limit any person with 
respect to access to services offered by the Exchange or a member or 
member organization thereof shall be supported by a statement setting 
forth

[[Page 61867]]

the specific grounds on which the prohibition or limitation is based.
    (b) The Exchange may summarily--
    (i) suspend a member, member organization, allied member, approved 
person, or registered or non-registered employee of a member or member 
organization who has been and is expelled or suspended from any other 
self-regulatory organization, as defined in Section 3(a)(26) of the 
Securities Exchange Act of 1934, or barred or suspended from being 
associated with a member or any such self-regulatory organization 
provided, however, that any such summary suspension imposed by the 
Exchange shall not exceed the termination of the suspension imposed by 
such other self-regulatory organization on such member, member 
organization, allied member, approved person, or registered or non-
registered employee;
    (ii) suspend a member or member organization who is in such 
financial or operating difficulty that the Exchange determines and so 
notifies the Securities and Exchange Commission that the member or 
member organization cannot be permitted to continue to do business as a 
member or member organization with safety to investors, creditors, 
other members or member organizations, or the Exchange;
    (iii) limit or prohibit any person with respect to access to 
services offered by the Exchange if subparagraph (i) or (ii) of this 
subsection is applicable to such person or, in the case of a person who 
is not a member or member organization, if the Exchange determines that 
such person does not meet the qualification requirements or other 
prerequisites for such access and such person cannot be permitted to 
continue to have such access with safety to investors, creditors, 
members, member organizations, or the Exchange.
    Any person aggrieved by any such summary action shall be notified 
in writing of, and shall be promptly afforded an opportunity to be 
heard by the Exchange upon, the specific grounds for such summary 
action. The Exchange shall keep a record of any proceeding pursuant to 
the Rule. Any determination by the Exchange with respect to such 
summary action shall be supported by a statement setting forth the 
specific grounds on which the summary action is based. The Commission, 
by order, may stay any such summary action in accordance with the 
provisions of the Securities Exchange Act of 1934.
    (c) Hearings and proceedings pursuant to subsections (a) and (b) of 
this Rule shall be under the jurisdiction of a Hearing Officer, 
appointed by the Board, acting alone. The Hearing Officer shall 
schedule and conduct Hearings promptly and, in doing so, provide such 
discovery to the person whose access or suspension is the subject of 
the Hearing and to the Exchange officers and employees as provided for 
under Rule 476(c). The Hearing Officer shall render determinations 
based upon the record at such Hearings. No determinations by the 
Hearing Officer shall be effective to modify, reverse or terminate a 
summary action until and unless (i) ten days have elapsed after the 
determination has been rendered and (ii) during such ten days, no 
request for review has been filed with the Secretary of the Exchange 
pursuant to the next sentence. Any member of the Board, any member of 
the Board of Executives referred to in Rule 476(f), any member of the 
Regulation, Enforcement and Listing Standards Committee and either the 
Division of the Exchange initiating the proceedings or the respondent 
may require a review by the Board of any determination by the Hearing 
Officer by filing with the Secretary of the Exchange a written request 
therefor within ten days following such determination. The Board shall 
have power to affirm, modify or reverse any such determination, or 
remand the matter to the Hearing Officer for further proceedings.
    [c](d) Whenever a member or member organization fails to perform 
his or its contracts, becomes insolvent, or is in such financial or 
operating difficulty that he or it cannot be permitted to continue to 
do business as a member or member organization with safety to 
investors, creditors, other members or member organizations, or the 
Exchange, such member or member organization shall promptly give 
written notice thereof to the Secretary of the Exchange.
    [d](e) If the Board of Directors determines, after not less than 
ten days written notice to a member described in Section 1(a) of 
Article II who is suspended under the provisions of this Rule, that the 
protection of the persons entitled to make claim against the proceeds 
of the transfer of the membership of such member under Section 11 of 
Article II of the Constitution requires the transfer of the membership 
of such member, such membership may be disposed of by the Board of 
Directors. In any case, if a member suspended under the provisions of 
this Rule is not reinstated within one year from the time of his 
suspension, or within such further time as the Board of Directors may 
grant, his membership shall be disposed of by the Board of Directors; 
but the Board may, by the affirmative vote of a majority of the 
Directors then in office, extend the time for settlement for periods 
not exceeding one year each.
    [e](f) Any person suspended under the provisions of this Rule 
shall, at the request of the Exchange, submit to the Exchange his or 
its books and records (including those books and records with respect 
to which such person has access or control) or the books and records of 
any employee thereof and furnish information to or to appear or testify 
before or cause any such employee to appear or testify before the 
Exchange.
    [f](g) Any person suspended under the provisions of this Rule may, 
at any time, be reinstated by the Board of Directors.
    [g](h) Any person suspended under the provisions of this Rule may 
be disciplined in accordance with the Rules of the Exchange for any 
offense committed by him or it either before or after his or its 
suspension in all respects as if he or it were not under such 
suspension.
    [h](i) A member suspended under the provisions of this Rule shall 
be deprived during the term of his suspension of all rights and 
privileges of membership, but such suspension shall not operate to bar 
or affect the payments provided for by Article XV of the Constitution 
in the event of his death. Any suspension under the provisions of this 
Rule of a member or allied member shall create a vacancy in any office 
or position held by such member or allied member.
    (j) The limitations on the Chief Executive Officer contained in 
Rule 476(l) shall apply to all matters under this Rule.
Rule 476. Disciplinary Proceedings Involving Charges Against Members, 
Member Organizations, Allied Members, Approved Persons, Employees, or 
Others
    (a) If a member, member organization, allied member, approved 
person, registered or non-registered employee of a member or member 
organization or person otherwise subject to the jurisdiction of the 
Exchange is adjudged guilty in a proceeding under this Rule of any of 
the following offenses--
    [1.](1) violating any provision of the Securities Exchange Act of 
1934 or any rule or regulation thereunder;
    [2.](2) violating any of his or its agreements with the Exchange;
    [3.](3) violating any provision of the Constitution or any Rule 
adopted by the Board of Directors of the Exchange;
    [4.](4) making a material misstatement to the Exchange;
    [5.](5) fraud or fraudulent acts;
    [6.](6) conduct or proceeding inconsistent with just and equitable 
principles of trade;

[[Page 61868]]

    [7.](7) acts detrimental to the interest or welfare of the 
Exchange;
    [8.](8) making a fictitious bid, offer or transaction or giving an 
order for the purchase or sale of securities the execution of which 
would involve no change of beneficial ownership or executing such an 
order with knowledge of its character;
    [9.](9) making any purchases or sales or offers of purchase or sale 
of securities for the purpose of upsetting the equilibrium of the 
market or bringing about a condition in which prices will not fairly 
reflect market values, or assisting in making any such purchases or 
sales with knowledge of such purpose, or being, with such knowledge, a 
party to or assisting in carrying out any plan or scheme for the making 
of such purchases or sales or offers of purchase or sale;
    [10.](10) having made a misstatement or omission of fact on his or 
its application for membership or approval, or on any financial 
statement, report, or other submission filed with the Exchange; or
    [11.](11) refusing or failing to comply with a request of the 
Exchange to submit his or its books and records (including those books 
and records with respect to which such member, member organization, 
allied member, approved person, registered or non-registered employee 
or person otherwise subject to the jurisdiction of the Exchange has 
access and control) to the Exchange, any other self-regulatory 
organization, as defined in Section 3(a)(26) of the Securities Exchange 
Act of 1934, any contract market, as referenced in Section 6(a) of the 
Commodities Exchange Act, any registered futures association, as 
referenced in Section 17 of the Commodities Exchange Act, or any 
foreign self-regulatory organization or association with which the 
Exchange has entered into an agreement or to furnish information to or 
to appear or testify before the Exchange or such other organization or 
association, as specified above, or failing to take any of the 
foregoing actions on the date or within the time period that the 
Exchange requires; or if a member who is registered as a specialist is 
adjudged guilty in a proceeding under this Rule of substantial or 
continued failure to engage in a course of dealings for his own account 
to assist in the maintenance, so far as practicable, of a fair and 
orderly market in any security in which he is registered; then, in any 
such event, the Hearing Panel or, when authorized by this Rule, a 
Hearing Officer shall, in accordance with the procedures set forth in 
this Rule, impose one or more of the following disciplinary sanctions 
on such member, member organization, allied member, approved person, 
registered or non-registered employee or person otherwise subject to 
the jurisdiction of the Exchange: expulsion; suspension; limitation as 
to activities, functions, and operations, including the suspension or 
cancellation of a registration in, or assignment of, one or more 
stocks; fine; censure; suspension or bar from being associated with any 
member or member organization; or any other fitting sanction. [In any 
proceeding under this Rule, any sanction imposed may be remitted or 
reduced by the Hearing Panel on such terms and conditions as it deems 
fair and equitable.]
    (b) All proceedings under this Rule, except as to matters [referred 
to in paragraph (c),] which are resolved by a Hearing Officer when 
authorized by this Rule, shall be conducted at a Hearing in accordance 
with the provisions of this Rule and shall be held before a Hearing 
Panel consisting of at least three persons of integrity and judgment: a 
Hearing Officer, who shall [be Chairman of] chair the Panel, [with the 
remainder of the Panel being] and at least two members of the Hearing 
Board, at least one of whom shall be engaged in securities activities 
differing from that of the respondent or, if retired, was so engaged in 
differing activities at the time of retirement. In any disciplinary 
proceeding involving activities on the Floor of the Exchange, no more 
than one of the persons serving on the Hearing Panel shall be, or if 
retired, shall have been, active on the Floor of the Exchange. A 
Hearing Panel can include only one retired person.
    The Chairman, subject to the approval of the Board [of Directors], 
shall from time to time appoint a Hearing Board to be composed of such 
number of members and allied members of the Exchange who are not 
members of the Board of [Directors] Executives, and registered 
employees and non-registered employees of members and member 
organizations, and such other persons as set forth in the rules as the 
Chairman shall deem necessary. Former members, allied members, or 
registered and non-registered employees of members and member 
organizations who have retired from the securities industry can be 
appointed to the Hearing Board within five years of their retirement. 
The members of the Hearing Board shall be appointed annually and shall 
serve at the pleasure of the Board [of Directors]. The Chairman, 
subject to the approval of the Board [of Directors], shall also 
designate [from among the officers and employees of the Exchange] a 
Chief Hearing Officer and one or more other Hearing Officers who shall 
have no Exchange duties or functions relating to the investigation or 
preparation of disciplinary matters and who shall be appointed annually 
and shall serve as Hearing Officers at the pleasure of the Board [of 
Directors]. An individual cannot be a Hearing Officer (including the 
Chief Hearing Officer) if he or she is, or within the last three years 
was, a member, allied member, or registered or non-registered employee 
of a member or member organization.
    [In any hearing under this Rule involving as a respondent therein a 
member, member organization, allied member, or approved person, the 
members of the Hearing Board serving on the Panel shall be members or 
allied members and at least one of whom, to the extent reasonably 
possible, is engaged in similar activities as the respondent. In any 
such proceeding relating to activities on the Floor of the Exchange, at 
least one of the persons serving on the Panel shall be a member active 
on the Floor of the Exchange. In any such proceeding relating to any 
other activities, at least one of the persons serving on the Panel 
shall work in the office of a member or member organization which 
engages in a business involving substantial direct contact with 
securities customers.]
    [In any hearing under this Rule involving as a respondent therein a 
registered or non-registered employee of a member or member 
organization who is not a member or allied member, the members of the 
Hearing Board serving on the Panel shall be registered employees or 
non-registered employees of members and member organizations who are 
not members or allied members and at least one of whom, to the extent 
reasonably possible, is engaged in similar activities as the 
respondent. In any such proceeding relating to such employee's 
activities on the Floor of the Exchange, at least one of the persons 
serving on the Panel shall be a registered or non-registered employee 
of a member or member organization active on the Floor of the Exchange 
who is not a member or allied member. In any such proceeding relating 
to any other activities at least one of the persons serving on the 
Panel shall work in the office of a member or member organization which 
engages in a business involving substantial direct contact with 
securities customers.]
    [In any hearing under this Rule involving as joint respondents 
therein one or more members or member organizations, allied members or 
approved persons, together with one or more registered or non-
registered employees of a member or member

[[Page 61869]]

organization who are not members or allied members, at least one of the 
persons serving on the Panel shall be a member or allied member and at 
least one other person serving on the Panel shall be a registered or 
non-registered employee of a member or member organization who is not a 
member or allied member, and the functional qualifications required of 
Hearing Panel members as stated above shall be satisfied.]
    For all purposes of this Rule, the decision of a majority of the 
Panel shall be the decision of the Panel and shall be final and 
conclusive, unless a request to the Board [of Directors] for review is 
filed as provided in this Rule.
    (c) Upon application to the Chief Hearing Officer [of the Exchange] 
by either party to a proceeding, the Chief Hearing Officer, or any 
Hearing Officer designated by the Chief Hearing Officer, shall resolve 
any and all procedural and evidentiary matters and substantive legal 
motions, and may require the Exchange to permit the respondent to 
inspect and copy documents or records in the possession of the Exchange 
which are material to the preparation of the defense or are intended 
for use by the [d]Division [or department] of the Exchange initiating 
the proceeding as evidence in chief at the [h]Hearing. The respondent 
may be required to provide discovery of non-privileged documents and 
records to the Exchange. This provision does not authorize the 
discovery or inspection of reports, memoranda, or other internal 
Exchange documents prepared by the Exchange in connection with the 
proceeding. There shall be no interlocutory appeal to the Board [of 
Directors] of any determination as to which this provision applies.
    (d) Except as provided in paragraph (g), in any proceeding under 
this Rule before a Hearing Panel, or Hearing Officer as provided by 
this rule, the specific charges against the respondent shall be in the 
form of a written statement (Charge Memorandum) and shall be signed by 
an authorized officer or employee of the Exchange on behalf of the 
[d]Division [or department] of the Exchange bringing the charges. A 
copy of such Charge Memorandum (including any exhibits attached 
thereto) shall be filed with the Hearing Board at the same time it is 
served upon the respondent. Service shall be deemed effective by 
personal service of such Charge Memorandum, or by leaving same either 
at the respondent's last known office address during business hours or 
respondent's last place of residence as reflected in Exchange records, 
or upon mailing same to the respondent at the aforesaid office address 
or place of residence. The Hearing Board shall assume jurisdiction upon 
receipt of the Charge Memorandum.
    An Answer to the Charge Memorandum shall be filed not later than 
twenty five days from the date of service or within such longer period 
of time as the [Exchange] Hearing Officer may deem proper.
    The Answer shall be in writing, signed by or on behalf of the 
respondent and filed with the Hearing Board, with a copy served on the 
[d]Division [or department] of the Exchange bringing the charges. The 
Answer shall indicate specifically which assertions of fact and charges 
in the Charge Memorandum are denied and which are admitted; and shall 
also contain any specific facts in contradiction of the charges and any 
affirmative defenses. A general denial without more shall not be deemed 
to satisfy this requirement. Any assertions of fact not specifically 
denied in the Answer may be deemed admitted and failure to file an 
Answer may be deemed an admission of any facts asserted in the Charge 
Memorandum.
    The Hearing Board shall set a schedule for filing of motions and 
shall establish Hearing dates. If the respondent has failed to file an 
Answer, the Division of the Exchange bringing the charges, by motion, 
accompanied by proof of notice to the respondent, may request a 
determination of guilt by default, and may recommend a penalty to be 
imposed. If the respondent opposes the motion, the Hearing Officer, on 
a determination that respondent had adequate reason to fail to file an 
Answer, may adjourn the Hearing date and direct the respondent to 
promptly file an Answer. If the default motion is unopposed, or 
respondent did not have adequate reason to fail to file an Answer, or 
respondent failed to file an Answer after being given an opportunity to 
do so, the Hearing Officer, on a determination that respondent has had 
notice of the charges and that the Exchange has jurisdiction in the 
matter, may find guilt and determine penalty.
    Notice of the [h]Hearing to be held for the purpose of considering 
the charges shall be served upon the Division of the Exchange and the 
respondent as provided above[, who shall be]. The respondent shall be 
entitled to be personally present thereat if a natural person, and if 
other than a natural person, by a designee. The Hearing Officer shall 
determine the specific facts [put into] in issue [by the Charge 
Memorandum and the Answer], and with respect to those facts only, both 
the [d]Division [or department] of the Exchange bringing the charges 
and the respondent may produce witnesses and any other evidence and 
they may examine and cross-examine any witnesses so produced. [If the 
respondent has failed to file an Answer or if the facts and charges in 
the Charge Memorandum are not specifically denied, any witnesses or 
other evidence may be limited to the determination of the penalty to be 
imposed. In the event a respondent who has failed to file an Answer 
appears at the hearing, such respondent shall not be entitled to 
produce witnesses or other evidence or testify in defense of the facts 
or charges contained in the Charge Memorandum unless the Hearing Panel 
determines that such respondent had adequate reason to excuse his 
failure to file an Answer. Upon such determination by the Hearing 
Panel, the hearing may be adjourned and the respondent may be directed 
to promptly file a written Answer.] After hearing all the witnesses and 
considering all the evidence, the Hearing Panel shall determine whether 
the respondent is guilty of the charges. If the Hearing Panel 
determines that the respondent is guilty, it shall fix and impose the 
penalty or penalties.
    (e) The Exchange shall keep a record of any [h]Hearing conducted 
under this Rule and a written notice of the result setting forth the 
requirements contained in Section 6(d)(1) of the Securities Exchange 
Act of 1934 shall be served upon the respondent and the [d]Division [or 
department] of the Exchange which brought the charges.
    The determination of the Hearing Panel, or of the Hearing Officer 
on a determination of default, and any penalty imposed, shall be final 
and conclusive twenty five days after notice thereof has been served 
upon the respondent in the manner provided in paragraph (d) above, 
unless a request to the Board [of Directors] for review of such 
determination and/or penalty is filed as hereinafter provided. If such 
a request to the Board [of Directors] for review is filed as 
hereinafter provided, any penalty imposed shall be stayed pending the 
outcome of such review.
    (f) The Division [or department] of the Exchange which brought the 
charges, the respondent, [or] and any member of the Board, [of 
Directors or] any member of the Board of Executives [of the Exchange] 
representing the groups referenced in clauses (ii) and (iii) of Article 
V, Section 2(b) of the Exchange Constitution, any member of the Board 
of Executives in such other categories as the Board, by rule, shall 
designate, and any member of the Regulation, Enforcement and Listing 
Standards Committee may require a review by the Board of any 
determination or penalty,

[[Page 61870]]

or both, imposed by a Hearing Panel or Hearing Officer. A request for 
review shall be made by filing with the Secretary of the Exchange a 
written request therefore, which states the basis and reasons for such 
review, within twenty-five days after notice of the determination and/
or penalty is served upon the respondent. The Secretary of the Exchange 
shall give notice of any such request for review to the [d]Division [or 
department] of the Exchange which brought the charges and any 
respondent affected thereby.
    Any review by the Board [of Directors] shall be based on oral 
arguments and written briefs and shall be limited to consideration of 
the record before the Hearing Panel or Hearing Officer. Upon review, 
the Board [of Directors], by the affirmative vote of a majority of the 
Directors then in office, may sustain any determination or penalty 
imposed, or both, may modify or reverse any such determination, and may 
increase, decrease or eliminate any such penalty, or impose any penalty 
permitted under the provisions of this Rule, as it deems appropriate. 
Unless the Board [of Directors] otherwise specifically directs, the 
determination and penalty, if any, of the Board [of Directors] after 
review shall be final and conclusive subject to the provisions for 
review of the Securities Exchange Act of 1934.
    Notwithstanding the foregoing, if either party upon review applies 
to the Board [of Directors] for leave to adduce additional evidence, 
and shows to the satisfaction of the Board [of Directors] that the 
additional evidence is material and that there was reasonable ground 
for failure to adduce it before the Hearing Panel or Hearing Officer, 
the Board [of Directors] may remand the case [to a Hearing Panel] for 
further proceedings, in whatever manner and on whatever conditions the 
Board [of Directors] considers appropriate.
    (g) In lieu of the procedures set forth in paragraph (d) above, a 
Hearing [Panel] Officer acting alone [,at a hearing called for that 
purpose,] shall also determine whether a member, member organization, 
allied member, approved person, or registered or non-registered 
employee of a member or member organization has committed any one or 
more of the offenses specified in paragraph (a) above, on the basis of 
a written Stipulation and Consent entered into between the respondent 
and any authorized officer or employee of the Exchange. Any such 
Stipulation and Consent shall contain a stipulation with respect to the 
facts, or the basis for findings of fact by the Hearing [Panel] 
Officer; a consent to findings of fact by the Hearing [Panel] Officer, 
including a finding that a specified offense had been committed; and a 
consent to the imposition of a specified penalty.
    A Hearing Officer shall convene a Hearing Panel, if the Hearing 
Officer requires clarification or further information on the 
Stipulation and Consent, or if either party requests a Hearing before a 
Hearing Panel. A Hearing Officer, acting alone, may not reject a 
Stipulation or Consent, but shall convene a Hearing Panel to consider 
such action. Notice of any Hearing held for the purpose of considering 
a Stipulation and Consent shall be served upon the respondent as 
provided in paragraph (d) above. In any such [h]Hearing, if the Hearing 
Panel determines that the respondent has committed an offense, it may 
impose the penalty agreed to in such Stipulation and Consent [or any 
penalty which is less severe than the stipulated penalty, as it deems 
appropriate]. In addition, a Hearing Panel may reject such Stipulation 
and Consent.
    Such rejection shall not preclude the parties to the proceeding 
from entering into a modified Stipulation and Consent which shall be 
presented to a Hearing Panel in accordance with the provisions of this 
subsection, nor shall such rejection preclude the Exchange from 
bringing or presenting the same or different charges to a Hearing Panel 
in accordance with the provisions of paragraph (d) above. The Exchange 
shall keep a record of any Hearing conducted under this Rule and a 
written notice of the result setting forth the requirements contained 
in Section 6(d)(1) of the Securities Exchange Act of 1934 shall be 
served on the parties to the proceeding.
    The determination of the Hearing Panel or Hearing Officer and any 
penalty imposed shall be final and conclusive, twenty five days after 
notice thereof has been served upon the respondent in the manner 
provided in paragraph (d) above, unless a request to the Board [of 
Directors] for review of such determination and/or penalty is filed as 
hereinafter provided. If such a request to the Board [of Directors] for 
review is filed as hereinafter provided, any penalty imposed shall be 
stayed pending the outcome of such review. Any member of the Board, [of 
Directors or of] the Board of Executives [of the Exchange] specified in 
or designated pursuant to paragraph (f) above and any member of the 
Regulation, Enforcement & Listing Standards Committee may require a 
review by the Board of any determination or penalty, or both, imposed 
by a Hearing Panel or Hearing Officer in connection with a Stipulation 
and Consent. [In addition, the division or department of the Exchange 
which entered into the written consent may require a review by the 
Board of Directors of any penalty which is less severe than the 
stipulated penalty.] The respondent or the [d]Division [or department] 
which entered into the written consent may require a review by the 
Board [of Directors] of any rejection of a Stipulation and Consent by 
the Hearing Panel.
    A request for review shall be made by filing with the Secretary of 
the Exchange a written request therefor, which states the basis and 
reasons for such review, within twenty-five days after notice of the 
determination and/or penalty is served on the respondent. The Secretary 
of the Exchange shall give notice of any such request for review to the 
[d]Division [or department] of the Exchange involved in the proceeding 
and any respondent affected thereby.
    Any review by the Board [of Directors] shall consist of oral 
arguments and written briefs and shall be limited to consideration of 
the record before the Hearing Panel or Hearing Officer. Upon review, 
the Board [of Directors], by the affirmative vote of a majority of the 
Directors then in office, may fix and impose the penalty agreed to in 
such Stipulation and Consent or any penalty which is less severe than 
the stipulated penalty, or may remand for further proceedings. Unless 
the Board [of Directors] otherwise specifically directs, the 
determination and penalty, if any, of the Board [of Directors] after 
review shall be final and conclusive subject to the provisions for 
review of the Securities Exchange Act of 1934.
    (h) A member, member organization, allied member, approved person, 
or registered or non-registered employee of a member or member 
organization, or any other person shall have the right to be 
represented by legal counsel or other representative in any [h]Hearing 
or review held pursuant to the provisions of this Rule and in any 
investigation before any committee, officer, or employee of the 
Exchange. A Hearing Officer may impose a fine or any other appropriate 
sanction on any party or the party's representative for improper 
conduct in connection with a matter before the Hearing Board, and may, 
if appropriate, exclude any participant, including any party, witness, 
attorney or representative from a Hearing on the basis of such conduct.
    (i) A member or allied member of the Exchange who is associated 
with a member organization is liable to the same discipline and 
penalties for any act or omission of such member

[[Page 61871]]

organization as for his own personal act or omission. The Hearing Panel 
which considers the charges against such member or allied member or the 
Board [of Directors] upon any review thereof, may relieve him from the 
penalty therefor or may remit or reduce such penalty on such terms and 
conditions as the Panel or the Board shall deem fair and equitable.
    (j) When a member is suspended under the provisions of this Rule, 
such member shall be deprived during the term of his suspension of all 
rights and privileges of membership. No such suspension shall operate 
to bar or affect the payments provided for by Article XV of the 
Constitution of the Exchange in the event of the death of the suspended 
member. The expulsion of a member shall terminate all rights and 
privileges arising out of his membership except such rights as he may 
have under the provisions of Sections 11 and 14 of Article II of the 
Constitution.
    (k) Any approved person or registered or non-registered employee 
who shall neglect to pay any fine within forty five days after the same 
shall become payable may, after written notice mailed to such person at 
either his office or last place of residence as reflected in Exchange 
records, be summarily suspended from association in any capacity with a 
member organization or have his approval withdrawn until such fine is 
paid. (See Art. X, Sec. 6 for penalties imposed upon members, allied 
members and member organizations for failure to pay fines or other sums 
due the Exchange.)
    Whenever a member, member organization, allied member, approved 
person or registered or non-registered employee of a member or member 
organization is suspended under the provisions of this Rule, [he or it] 
that person or organization may be proceeded against for any offense 
other than that for which such member, member organization, allied 
member, approved person or registered or non-registered employee was 
suspended. The suspension or expulsion of a member or allied member 
under the provisions of this Rule shall create a vacancy in any office 
or position held by him.
    (l) Notwithstanding any other provisions of this Rule, the Chief 
Executive Officer (a) may not require a review by the Board under this 
Rule and (b) shall be recused from deliberations and actions of the 
Board with respect to matters to be reviewed by the Board under this 
Rule.
* * * * *
NYSE Constitution
* * * * *
ARTICLE IX Disciplinary Proceedings
    Sec. 1. Disciplinary Rules. The Board shall adopt such rules as it 
deems necessary or appropriate for the discipline of members, member 
organizations, allied members, approved persons, and registered and 
non-registered employees of members and member organizations for the 
violation of the Act, the rules of the Exchange and for such other 
offenses as may be set forth in the rules of the Exchange. The Board 
shall also adopt such rules as it deems necessary or appropriate 
governing the conduct of disciplinary proceedings including 
disciplinary hearings and reviews thereof. The determination and 
penalty, if any, of the Board after review shall be final and 
conclusive, subject to the provisions of the Act.
    Sec. 2. Hearing Panel. All proceedings relating to disciplinary 
matters, except as otherwise specifically set forth in the rules of the 
Exchange [with respect to procedural and evidentiary matters,] shall be 
conducted before a hearing panel consisting of at least three 
persons[;]: a hearing officer, who shall [be chairman of] chair the 
panel, [with the remainder of the panel being] and at least two members 
of the hearing board.
    Sec. 3. Hearing Board. The Chairman of the Board, subject to the 
approval of the Board, shall from time to time appoint a hearing board 
to be composed of such number of members and allied members of the 
Exchange who are not members of the Board or of the Board of 
Executives, and registered employees and non-registered employees of 
members and member organizations, and such other persons as set forth 
in the rules, as the Chairman of the Board shall deem necessary. The 
members of the hearing board shall be appointed annually and serve at 
the pleasure of the Board. The Chairman of the Board, subject to the 
approval of the Board, shall also designate [from among the officers 
and employees of the Exchange] a chief hearing officer and one or more 
other hearing officers who shall have no Exchange duties or functions 
relating to the investigation or preparation of disciplinary matters 
and who shall be appointed annually and shall serve as hearing officers 
at the pleasure of the Board. An individual cannot be a hearing officer 
(including the chief hearing officer) if he or she is, or within the 
last three years was, a member, allied member, or registered or non-
registered employee of a member or member organization.
    Sec. 4. Composition of Hearing Panel. [In any disciplinary 
proceeding involving as a respondent therein a member, member 
organization, allied member, or approved person, the members of the 
hearing board serving on the panel shall be members or allied members. 
In any such proceeding relating to activities on the floor of the 
Exchange, at least one of the persons serving on the panel shall be a 
member active on the floor of the Exchange. In any such proceeding 
relating to any other activities, at least one of the persons serving 
on the panel shall work in the office of a member or member 
organization which engages in a business involving substantial direct 
contact with securities customers.]
    [In any disciplinary proceeding involving as a respondent therein a 
registered or non-registered employee of a member or member 
organization who is not a member or allied member, the members of the 
hearing board serving on the panel shall be registered employees or 
non-registered employees of members or member organizations who are not 
members or allied members. In any such proceeding relating to such 
employee's activities on the floor of the Exchange, at least one of the 
persons serving on the panel shall be a registered or non-registered 
employee of a member or member organization active on the floor of the 
Exchange who is not a member or allied member. In any such proceeding 
relating to any other activities, at least one of the persons serving 
on the panel shall work in the office of a member or member 
organization which engages in a business involving substantial direct 
contact with securities customers.]
    [In any disciplinary proceeding involving as joint respondents 
therein one or more members or member organizations, allied members or 
approved persons, together with one or more registered or non-
registered employees of a member or member organization who are not 
members or allied members, at least one of the persons serving on the 
panel shall be a member or allied member and at least one other person 
serving on the panel shall be a registered or non-registered employee 
of a member or member organization who is not a member or allied 
member, and the functional qualifications required of hearing panel 
members as stated in this Section shall be satisfied.]
    A hearing panel shall be composed of a hearing officer, who shall 
chair the panel, and at least two members of the hearing board, at 
least one of whom shall be engaged in securities activities differing 
from that of the respondent. In

[[Page 61872]]

any disciplinary proceeding involving activities on the Floor of the 
Exchange, no more than one of the persons serving on the hearing panel 
shall be active on the Floor of the Exchange. The decision of a 
majority of the panel shall be the decision of the panel and shall be 
final and conclusive, unless a request to the Board for review is filed 
as provided in this Article and in the rules of the Exchange.
    Sec. 5. Penalties. If a member, member organization, allied member, 
approved person or registered or non-registered employee of a member or 
member organization is adjudged guilty in any disciplinary proceeding, 
the hearing panel, or, to the extent provided in the rules, the hearing 
officer, shall impose one or more of the following disciplinary 
sanctions: expulsion, suspension; limitation as to activities, 
functions, and operations, including the suspension or cancellation of 
a registration in, or assignment of, one or more stocks, fine, censure, 
suspension or bar from being associated with any member or member 
organization, or any other fitting sanction. [In any disciplinary 
proceeding, any sanction imposed may be remitted or reduced by the 
hearing panel on such terms and conditions as it shall deem fair and 
equitable. In a disciplinary proceeding involving a written consent to 
the imposition of a specified penalty, the hearing panel in imposing a 
penalty, may impose the penalty agreed to or any penalty which is less 
severe than the stipulated penalty as it deems appropriate or the 
hearing panel may reject such consent.]
    Sec. 6. Review. In a disciplinary proceeding not involving a 
written consent to the imposition of a specified penalty, any member, 
member organization, allied member, approved person, or registered or 
non-registered employee of a member or member organization, adjudged 
guilty of any charge, or the division [or department] of the Exchange 
which brought the charges, [or] and any member of the Board, [or] any 
member of the Board of Executives representing the groups referenced in 
clauses (ii) and (iii) of Article V, Section 2(b), any member of the 
Board of Executives in such other categories as the Board, by rule, 
shall designate, and any member of the Regulation, Enforcement & 
Listing Standards Committee, may, in accordance with procedures set 
forth in the rules of the Exchange, require a review by the Board, of 
any determination or penalty, or both [, imposed by the hearing panel]. 
Upon review, the Board, by the affirmative vote of a majority of the 
entire Board, may sustain any determination or penalty imposed, may 
modify or reverse any such determination, and may increase, decrease or 
eliminate any such penalty, or impose any penalty permitted under this 
Article as it deems appropriate.
    In a disciplinary proceeding involving a written consent to the 
imposition of a specified penalty, any member of the Board, or the 
Board of Executives specified in or designated pursuant to the 
preceding paragraph, and any member of the Regulation, Enforcement & 
Listing Standards Committee may require a review by the Board of any 
determination or penalty, or both[, imposed by the hearing panel. In 
any such proceeding, the division or department which entered into the 
written consent, may require a review by the Board of any penalty, 
including any determination related thereto, imposed by the hearing 
panel, which is less severe than the stipulated penalty]. The 
respondent or the division or department which entered into the written 
consent may require a review by the Board of any rejection of the 
written consent by the hearing panel. Any review provided in this 
paragraph shall be conducted in accordance with procedures set forth in 
the rules of the Exchange. Upon review, the Board, by the affirmative 
vote of a majority of the entire Board, may fix and impose the penalty 
agreed to in such written consent or any penalty which is less severe 
than the stipulated penalty, or remand the case for further 
proceedings.
    Notwithstanding any other provisions of this Section, the Chief 
Executive Officer (a) may not require a review by the Board under this 
Section and (b) shall be recused from deliberations and actions of the 
Board with respect to matters to be reviewed by the Board under this 
Section.
* * * * *

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
    The Exchange proposes to amend Article IX of the Exchange's 
Constitution and NYSE Rules 475 and 476 to modify certain aspects of 
the Exchange's disciplinary procedures and to provide a structure for a 
summary suspension hearing to prohibit or limit a person's access to 
services and a ``call-up'' procedure for review by members of the 
Board, certain members of the Board of Executives listed in NYSE Rule 
476(f), any member of the Regulation, Enforcement and Listing Standards 
Committee and either the Division of the Exchange that initiated the 
proceedings or the respondent.

Amendment to NYSE Rule 475

    NYSE Rule 475 currently provides a process for the Exchange: (i) To 
prohibit or limit a person with respect to access of services offered 
by the Exchange, or (ii) to summarily suspend an Exchange member or 
member organization facing certain circumstances, such as financial or 
operating difficulties, or expulsion or suspension by another self-
regulatory organization (``SRO''). NYSE Rule 475 permits the subject 
individual or organization to request and obtain a hearing. The 
proposed rule change would provide a structure for such a hearing and 
for a ``call-up'' procedure for review by members of the Board and 
certain members of the Board of Executives, any member of the 
Regulation, Enforcement and Listing Standards Committee and either the 
Division of the Exchange that initiated the proceedings or the 
respondent.

Amendments to Constitution and NYSE Rule 476

Amendments to Constitution

    At the Exchange's annual members' meeting on April 7, 2005, the 
members voted to amend the Exchange's Constitution to modify certain 
aspects of the Exchange's disciplinary process. The Exchange had 
engaged former Federal judge Stanley Sporkin to review and make 
recommendations regarding the Exchange's disciplinary process. The 
amendments adopted at the member's meeting were proposed by the 
Exchange's Board, in part, in response to Judge Sporkin's 
recommendations. The amendments would:
     Require that at least one member of any hearing panel be 
employed in a field of activity other than that in which the charged 
person is employed;

[[Page 61873]]

     Remove the constitutional requirement that full panels 
handle stipulations and uncontested cases;
     Permit individuals who are not employees of the Exchange 
to serve as hearing officers;
     In conjunction with the proposed amendments to the 
Exchange's principal disciplinary rule, NYSE Rule 476, permit former 
members and allied members, and former registered and non-registered 
employees of members and member organizations to be appointed to the 
Hearing Board within five years of their retirement;
     Remove the constitutional requirement that a hearing panel 
decide all matters except procedural and evidentiary matters; and
     Relieve members of the Board of Executives (other than 
those representing the trading floor) from the responsibility for 
``calling up'' disciplinary decisions for review, and extend that 
responsibility to all members of the Regulation, Enforcement and 
Listing Standards Committee.
    A collateral effect of the changes would be to reduce the overlap 
between the Constitutional text and NYSE Rule 476 by removing some of 
the detail that is currently in the Constitution. The Exchange believes 
that this would enable the Board to effect further refinements to the 
Exchange's disciplinary process without a vote of the membership, so 
long as those changes are consistent with the revised Constitutional 
text.

Composition of Hearing Panels in Disciplinary Proceedings

    The Exchange's Constitution currently requires that disciplinary 
hearings be conducted before a hearing panel consisting of a hearing 
officer (an Exchange staff member) and two peer panelists. Charges 
against a member must be heard by a panel including two members; 
charges against member firm employees must be heard by a panel 
including other member firm employees; and cases involving activity on 
the Exchange floor must include at least one panelist engaged in floor 
activities. The Exchange believes that this ``trial by peers'' 
requirement raises a concern about bias and perception of bias. In 
cases involving charges against individuals on the trading floor, the 
perception of bias is potentially heightened because of the relatively 
small floor community. Although the Exchange has found no empirical 
evidence to indicate that bias exists in the Exchange's disciplinary 
proceedings, the Exchange believes that any perception of bias would be 
reduced if at least one member of a hearing panel were required to be 
employed in a field of activity other than that in which the charged 
person is employed.
    For example, in a case involving the trading floor, charges against 
a specialist or floor broker would be heard before a hearing panel 
consisting of no more than one individual employed on the trading 
floor. In effect, the available pool of panelists to hear a particular 
matter would be expanded, and any possible perceptions of bias in 
having a majority of the panel members in the same line of business as 
the respondent would be avoided. The amendments would, nevertheless, 
allow individuals with extensive knowledge of the securities industry, 
in general, and the particular business of the respondent to serve on 
hearing panels.
    Furthermore, the proposed rule change would permit hearing officers 
to handle stipulations and uncontested cases without the full hearing 
panel. Currently, all disciplinary hearings (including settled cases, 
in which a respondent consents to a penalty, and uncontested cases, in 
which a respondent does not file an answer to the charges) must be 
heard before a full hearing panel. Under the constitutional amendments, 
in conjunction with the proposed amendments to NYSE Rule 476, a hearing 
officer of the Exchange, acting alone, could consider such uncontested 
cases and settled cases and impose penalties, without a hearing, in 
order to expedite resolution of such matters. The hearing officer would 
convene a hearing panel and hold a hearing if either the Enforcement 
Division or the respondent requests a hearing before a full panel, or 
if the hearing officer on his or her own initiative calls for a 
hearing. Moreover, the hearing officer could not reject a stipulated 
penalty without convening a hearing panel.

The Amendments to the Constitution, in Conjunction With the Proposed 
Amendments to NYSE Rule 476, Would Allow Non-NYSE Employees To Serve as 
Hearing Officers and Certain Recently Retired Individuals To Be 
Appointed to the Hearing Board

    The amendments to the Constitution would eliminate the requirement 
that Exchange hearing officers be employees or officers of the 
Exchange, thereby enabling the Exchange to retain outside professionals 
to serve as hearing officers if needed. For example, if the Exchange 
experienced a sudden increase in disciplinary cases, it could retain 
part-time hearing officers to manage the increased caseload. However, 
under the amendments to the Constitution and the proposed amendments to 
NYSE Rule 476, an individual who is, or was within the last three 
years, a member, allied member, or registered or non-registered 
employee of a member or member organization would not be eligible to 
serve as a hearing officer.
    The proposed rule change also would allow former members, allied 
members, and former registered and non-registered employees of members 
and member organizations to be appointed to the Hearing Board within 
five years of their retirement.\5\ This would enlarge the pool of 
individuals with the requisite expertise to adjudicate cases. In 
addition, these individuals could more readily serve during normal 
business hours, potentially allowing cases to be resolved more 
expeditiously. However, a hearing panel could include only one retired 
person.
---------------------------------------------------------------------------

    \5\ The proposed rule change would amend NYSE Rule 476 to state 
that members of its Board of Executives may not serve on the Hearing 
Board. The Exchange, however, has advised that it intends to submit 
an amendment to the proposed rule change to conform the text of NYSE 
Rule 476 regarding the composition of the Hearing Board with the 
language contained in Article IX, Section 3 of the Exchange's 
Constitution. In this regard, NYSE Rule 476 will be amended to state 
that Hearing Board members may not be members of the Exchange's 
Board or of its Board of Executives. Telephone conversation between 
Peggy Kuo, Chief Hearing Officer, NYSE and Cyndi N. Rodriguez, 
Special Counsel, Division, Commission on October 17, 2005.
---------------------------------------------------------------------------

Hearing Officer Authority To Resolve Substantive Legal Motions

    The proposed rule change would permit hearing officers to resolve 
substantive legal motions, such as motions to dismiss and motions for 
summary judgment, by no longer requiring that a hearing panel resolve 
such motions. This authority could serve to expedite the hearing 
process by allowing the hearing officer to resolve motions that 
currently require action by the full panel. In addition, these motions 
often involve legal issues that the hearing officer, who historically 
has been an attorney, is best suited to resolve.

``Call Up'' Authority Reallocated

    At present, all members of the Board of Executives (as well as all 
Directors other than the Chief Executive Officer) have the right and 
the responsibility to ``call up'' disciplinary decisions for review. 
The Exchange believes that the Board of Executives' members who 
represent investors, listed companies, ``upstairs'' firms, and others 
do not ordinarily have the requisite experience to discharge this 
responsibility well. On the other hand, the Exchange believes that the 
Board of Executives' members representing the trading floor and

[[Page 61874]]

members of the Regulation, Enforcement and Listing Standards Committee 
are well suited to discharge this responsibility. The amendments to the 
Constitution and NYSE Rule 476 would reallocate this responsibility 
accordingly, but would preserve the Board of Directors' right to charge 
other classes of members of the Board of Executives with this 
responsibility if warranted.

Amendment to NYSE Rule 476

Composition of Hearing Panels in Disciplinary Proceedings

    The Exchange's Constitution and Rules currently require that 
disciplinary hearings be conducted before a Hearing Panel consisting of 
a Hearing Officer (an Exchange staff member) and two peer panelists. 
Charges against a member must be heard by a panel including two 
members; charges against member firm employees must be heard by a panel 
including other member firm employees; and cases involving activity on 
the Exchange floor must include at least one panelist engaged in floor 
activities. The Exchange believes that the requirement of ``trial by 
peers'' raises a concern about bias and perception of bias, 
particularly with respect to charges against individuals on the trading 
floor, given the relatively small floor community.
    The proposed rule changes would reverse these requirements, in 
effect, requiring that at least one panelist in every case be employed 
in an area of responsibility other than that of the person facing 
charges. With respect to cases involving the trading floor, the intent 
of the proposal is such that charges against a specialist or floor 
broker would be heard before a panel consisting of no more than one 
individual employed on the trading floor. By doing so, the available 
pool of panelists to hear a particular matter would be expanded, and 
the perception of bias in having a majority of the panel members in the 
same line of business as the respondent would be avoided. The proposals 
would, nevertheless, allow individuals with extensive knowledge of the 
securities industry in general, and the particular business of the 
respondent, to serve on Hearing Panels.
    Furthermore, at present, all disciplinary hearings (including 
settled cases, in which a respondent consents to a penalty, and 
uncontested cases, in which a respondent does not file an answer to the 
charges) must be heard before a Hearing Panel. The proposal would 
confer authority on an Exchange Hearing Officer alone to consider 
consents and uncontested cases, without a hearing, in order to expedite 
resolution of such matters. The Hearing Officer would convene a panel 
and hold a hearing if either Enforcement or the respondent requests a 
hearing before a full panel, or if the Hearing Officer, on his or her 
own initiative, calls for a hearing. Moreover, the Hearing Officer 
could not reject a stipulated penalty without convening a Hearing 
Panel.

Conferring Jurisdiction on the Hearing Board Upon Filing of the Charge 
Memorandum

    Under current procedures, the hearing in a disciplinary matter is 
scheduled only upon request of the Division of Enforcement, after a 
respondent's answer is received or the time to file an answer has 
expired. The Hearing Board has no jurisdiction to resolve any issues 
that arise until the Division of Enforcement requests a hearing, and a 
respondent has no avenue of recourse if the respondent believes there 
has been an unreasonable or prejudicial delay. The proposed rule 
changes would require the filing of charges with the Hearing Board at 
the time they are served on the respondent. The Hearing Board would 
assume jurisdiction of the matter at that juncture and be able to 
schedule expeditiously hearings, as well as rule on pre-hearing 
motions.

Hearing Officer Authority To Order Pre-Hearing Discovery and Resolve 
Substantive Legal Motions

    Today, a Hearing Officer has clear authority to order pre-hearing 
discovery of documents from the Division of Enforcement. The proposed 
rule change would clarify the Hearing Officer's authority to order 
discovery from the respondent as well. In addition, the proposal would 
permit the Hearing Officer to resolve substantive legal motions, such 
as motions to dismiss and motions for summary judgment.

Hearing Officer Authority To Penalize Contemptuous Participants

    A Hearing Officer must necessarily have the authority to control 
the proceedings, including dealing with obstreperous and disruptive 
participants. The proposal would make this authority clear, and permit 
the Hearing Officer to impose fines on a party for inappropriate 
behavior of either the party or the party's representative. This 
authority would not be limited to dealing with such behavior during a 
hearing, but would allow for sanctions to be imposed at any time during 
the course of proceedings. The Hearing Officer could also, in extreme 
situations, exclude any such persons from further participation in the 
proceeding.

Allowing Non-NYSE Employees To Serve as Hearing Officers, and Allowing 
Certain Recently Retired Individuals To Be Appointed to the Hearing 
Board

    The proposed rule changes would eliminate the requirement that 
Exchange Hearing Officers be employees or officers of the Exchange, 
thereby enabling the Exchange to retain outside consultants to serve as 
Hearing Officers, if and when needed. The proposals also would allow 
recently retired members, allied members, registered and non-registered 
employees of members and member organizations to be appointed to the 
Hearing Board within five years of their retirement.

``Call Up'' Authority Reallocated

    At present, all members of the Board of Executives (as well as all 
Directors other than the Chief Executive Officer) have the right to 
``call up'' disciplinary decisions for review. This authority would be 
reallocated to members of the Board, Board of Executives' members 
representing the trading floor, and members of the Regulation, 
Enforcement and Listing Standards Committee.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b)(5) \6\ of the Act in that it promotes just 
and equitable principles of trade by ensuring that members and member 
organizations and the public have a fair and impartial forum for the 
resolution of their disputes.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, would 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

    No written comments were solicited or received with respect to the 
proposed rule change, as amended.

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)

[[Page 61875]]

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:
     By order approve such proposed rule change; or
     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 
argumen