Justia Agencies And Commissions Securities And Exchange Commission Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving a Proposed Rule Change and Amendments No. 1 and 2 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 3 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, 3595-3598 [E6-674]

Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving a Proposed Rule Change and Amendments No. 1 and 2 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 3 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, 3595-3598 [E6-674]

Download as PDF Federal Register / Vol. 71, No. 14 / Monday, January 23, 2006 / Notices open market and national market system, and in general to protect investors and the public interest. The proposed amendments are consistent with this section in that they will better align margin requirements with the actual risk of hedged products, will also potentially alleviate excess margin calls and potentially reduce the risk of forced liquidations of positions in customer accounts. 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 not necessary or appropriate in furtherance of the purposes of the Exchange 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 Exchange consents, the Commission will: (A) By order approve such proposed rule change, as amended; 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 Exchange Act. Comments may be submitted by any of the following methods: All submissions should refer to File Number SR–NYSE–2005–93. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro/shtml). 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 also will be available for inspection and copying at the principal office of the NYSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submission should refer to File Number SR-NYSE–2005–93 and should be submitted on or before February 13, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.21 Nancy M. Morris, Secretary. [FR Doc. E6–668 Filed 1–20–06; 8:45 am] BILLING CODE 8010–01–P erjones on PROD1PC61 with NOTICES Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send e-mail to rulecomments@sec.gov. Please include File Number SR–NYSE–2005–93 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549–9303. VerDate Aug<31>2005 13:01 Jan 20, 2006 Jkt 208001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53124; File No. SR–NYSE– 2005–37] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving a Proposed Rule Change and Amendments No. 1 and 2 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 3 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 January 13, 2006. I. Introduction On May 23, 2005, the New York Stock Exchange, Inc. (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend Article IX of the Exchange’s Constitution and Exchange 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. On September 9, 2005, the NYSE filed Amendment No. 1 to the proposed rule change. The proposed rule change, as amended by Amendment No. 1, was published for comment in the Federal Register on October 26, 2005.3 The Commission received no comments regarding the proposal, as amended. On November 28, 2005 and December 2, 2005, the NYSE filed Amendments No. 2 4 and 3,5 respectively, to the proposed rule change. This order approves the proposed rule change, as amended by 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 52638 (October 19, 2005), 70 FR 61866. 4 In Amendment No. 2, the Exchange makes minor, non-substantive changes to the rule text contained in Exhibit 5 of the proposed rule change. This was a technical amendment and is not subject to notice and comment. 5 In Amendment No. 3, the Exchange proposes that the proposed rule change, as amended, be implemented on or about April 1, 2006 and attaches a revised Exhibit 5 to reflect changes made to the rule text in Amendments No. 1 and 2. 2 17 21 17 PO 00000 CFR 200.30–3(a)(12). Frm 00142 Fmt 4703 Sfmt 4703 3595 E:\FR\FM\23JAN1.SGM 23JAN1 3596 Federal Register / Vol. 71, No. 14 / Monday, January 23, 2006 / Notices Amendments No. 1 and 2, grants accelerated approval to Amendment No. 3, and solicits comments from interested persons on Amendment No. 3 to the proposed rule change. II. Description of the Proposal 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, 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. 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,6 any member of the Regulation, Enforcement and Listing Standards Committee, and either the Division of the Exchange that initiated the proceedings or the respondent. erjones on PROD1PC61 with NOTICES Amendments to Article IX of the Constitution and NYSE Rule 476 Composition of the Hearing Panel The Exchange currently requires that disciplinary hearings be conducted before a Hearing Panel consisting of a Hearing Officer (an Exchange staff member) and two peer panelists. The Exchange believes that this ‘‘trial by peers’’ requirement raises a concern about bias and perception of bias, especially in cases involving charges against individuals on the trading floor because of the relatively small floor community. Accordingly, the Exchange proposes that a Hearing Panel consist of at least one member who is engaged in securities activities differing from that of the respondent. In any disciplinary 6 These are members of the Board of Executives representing the groups referenced in clauses (ii) and (iii) of Article V, Section 2(b) of the Exchange’s Constitution, namely, members who spend a substantial part of their time on the trading floor. VerDate Aug<31>2005 13:01 Jan 20, 2006 Jkt 208001 proceeding involving activities on the floor of the Exchange, the Exchange also proposes that no more than one of the persons serving on the Hearing Panel be, or if retired, has been, active on the floor. For example, 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. In addition, the Exchange proposes that a Hearing Panel could include only one retired person. Composition of the Hearing Board and Hearing Officers The Exchange also proposes to 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. However, under the amendments to the Exchange’s Constitution and 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 registered and non-registered employees of members and member organizations to be appointed to the Hearing Board within five years of their retirement.7 Hearing Officer’s Authority The Exchange also proposes to permit Hearing Officers to handle stipulations and uncontested cases without the full Hearing Panel. 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 full Hearing Panel. The Exchange proposes to confer authority on an Exchange Hearing Officer to act alone in considering such uncontested and settled cases and impose penalties, without a hearing, in order to expedite resolution of such matters. Under the proposal, the Hearing Officer would convene a 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 7 The Exchange also proposes to amend NYSE Rule 476 to conform this rule with language in Article IX, Section 3 of the Exchange’s Constitution prohibiting members of the Board or the Board of Executives from serving on the Hearing Board. Members of the Hearing Panel, other than the Hearing Officer, are selected from members of the Hearing Board. See Article 14, Secs. 2–4 of the Exchange’s Constitution. PO 00000 Frm 00143 Fmt 4703 Sfmt 4703 his or her own initiative, calls for a hearing. Moreover, the Hearing Officer could not reject a stipulated penalty without convening a Hearing Panel. Furthermore, the proposed rule change would permit the Hearing Officer 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. The proposed rule change also would clarify the Hearing Officer’s authority to order prehearing discovery of documents from the Division of Enforcement and from the respondent. Finally, the proposal would clarify the Hearing Officer’s authority to penalize contemptuous participants 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 exclude, in extreme situations, any such persons from further participation in the proceeding. 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 change 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. ‘‘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 proposes amendments to its Constitution and NYSE Rule 476 to reallocate this responsibility to members of the Board, Board of Executives’ members representing the trading floor, members of the Regulation, Enforcement and E:\FR\FM\23JAN1.SGM 23JAN1 Federal Register / Vol. 71, No. 14 / Monday, January 23, 2006 / Notices information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–NYSE–2005–37 and should be submitted on or before February 13, 2006. Listing Standards Committee, the Exchange Division that initiated the proceedings or the respondent, but would preserve the Board’s right to designate, by rule, categories of members of the Board of Executives with this responsibility, if warranted. IV. Discussion After careful consideration, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.8 In particular, the III. Solicitation of Comments Commission finds that, the proposed Interested persons are invited to rule change, as amended, is consistent submit written data, views, and with Section 6(b)(1) of the Act 9 which arguments concerning Amendment No. requires that the exchange be ‘‘so 3, including whether Amendment No. 3 organized and [have] the capacity to is consistent with the Act. Comments carry out the purposes of [the Act]’’ and may be submitted by any of the to ‘‘enforce compliance by its members following methods: and persons associated with its members with the provisions of [the Electronic Comments Act].’’ The Commission also finds that • Use the Commission’s Internet the proposed amendments relating to comment form (https://www.sec.gov/ the composition of the Hearing Panel rules/sro.shtml); or comport with the requirements of • Send an e-mail to ruleSection 6(b)(3) of the Act,10 which comments@sec.gov. Please include File requires that the rules of a national No. SR–NYSE–2005–37 on the subject securities exchange assure the fair line. representation of its members in the selection of its directors and Paper Comments administration of its affairs, and provide • Send paper comments in triplicate that one or more directors shall be to Nancy M. Morris, Secretary, representative of issuers and investors Securities and Exchange Commission, and not be associated with a member of Station Place, 100 F Street, NE., the exchange, broker, or dealer. The Washington, DC 20549–9303. Commission also finds that the All submissions should refer to File proposed rule change, as amended, is Number SR–NYSE–2005–37. This file consistent with Section 6(b)(5) of the number should be included on the Act 11 in that it is designed, among other subject line if e-mail is used. To help the things, to prevent fraudulent and Commission process and review your manipulative acts and practices, to comments more efficiently, please use promote just and equitable principles of only one method. The Commission will trade, to foster cooperation and post all comments on the Commission’s coordination with persons engaged in Internet Web site (https://www.sec.gov/ regulating, clearing, settling, processing rules/sro.shtml). Copies of the information with respect to, and submission, all subsequent facilitating transactions in securities, to amendments, all written statements remove impediments to and perfect the with respect to the proposed rule mechanism of a free and open market change that are filed with the and a national market system, and, in Commission, and all written general, to protect investors and the communications relating to the public interest. Further, the Commission proposed rule change between the finds that the proposed rule change is Commission and any person, other than consistent with Section 6(b)(7) of the those that may be withheld from the Act,12 which, among other things, public in accordance with the requires that the rules of a national provisions of 5 U.S.C. 552, will be securities exchange provide a fair available for inspection and copying in 8 In approving this proposed rule change, the the Commission’s Public Reference Room. Copies of such filing also will be Commission has considered the proposed rule’s impact on efficiency, competition, and capital available for inspection and copying at formation. 15 U.S.C. 78c(f). the principal office of the NYSE. All 9 15 U.S.C. 78f(b)(1). comments received will be posted 10 15 U.S.C. 78f(b)(3). 11 15 U.S.C. 78f(b)(5). without change; the Commission does 12 15 U.S.C. 78f(b)(7). not edit personal identifying erjones on PROD1PC61 with NOTICES Amendment No. 3 In Amendment No. 3, the Exchange proposes to implement the proposed rule change, as amended, on or about April 1, 2006 and attached an Exhibit 5 to reflect changes made to the rule text in Amendments No.1 and 2. VerDate Aug<31>2005 13:01 Jan 20, 2006 Jkt 208001 PO 00000 Frm 00144 Fmt 4703 Sfmt 4703 3597 procedure for the disciplining of members and persons associated with members. Specifically, the Commission believes that the proposed changes to the Exchange’s disciplinary procedures should help strengthen the Exchange’s ability to carry out its oversight and enforcement responsibilities as a selfregulatory organization. The Commission also believes that the proposal is reasonably designed to improve the timeliness, fairness, and efficiency of the disciplinary process to address violations of the Exchange’s rules and the federal securities laws by the Exchange’s members and persons associated with members. In particular, the Commission believes that it is appropriate for the Exchange to provide a structure in NYSE Rule 475 for a summary suspension hearing to prohibit or limit a person’s access to services and to provide a ‘‘call-up’’ procedure for Board review of such proceedings by members of the Board, certain specified 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 proceeding or the respondent. In addition, the Commission believes that it is appropriate for the Exchange to revise Article IX of its Constitution to permit the ‘‘call up’’ for Board review of any disciplinary determination or penalty (other than a proceeding involving a written consent to a specified penalty) by any member of the Board, certain specified members of the Board of Executives, any member of the Regulation, Enforcement and Listing Standards Committee, as well as the Exchange Division that brought the charges or the respondent. The Commission notes, however, that the proposed revision to this ‘‘call up’’ procedure contained in the Exchange’s Constitution would preserve the Board’s right to designate, by rule, other categories of members of the Board of Executives that can require such review by the Board. In addition, the Commission believes that the proposed changes to Article IX of the Exchange’s Constitution and NYSE Rule 476 with respect to the composition of the Hearing Panel should expand the available pool of panelists with the requisite knowledge of the securities industry to serve on the Hearing Panel. At the same time, the Commission believes that the proposed requirement that a Hearing Panel have at least one member who is engaged in securities activities differing from that of the respondent is designed to mitigate E:\FR\FM\23JAN1.SGM 23JAN1 3598 Federal Register / Vol. 71, No. 14 / Monday, January 23, 2006 / Notices erjones on PROD1PC61 with NOTICES the perception of bias that may have occurred when a majority of the panel members in the same line of business as the respondent was not precluded from serving on such panel. Similarly, the Commission believes that the proposed changes to allow recently retired members and employees of members to serve on the Hearing Board and to allow non-NYSE employees to serve as Hearing Officers should enlarge the pool of individuals with the requisite expertise to hear and adjudicate cases and with the ability to readily serve during regular business hours, thereby potentially allowing cases to be resolved more expeditiously. Moreover, the Commission notes that the proposal specifies that, in any disciplinary proceeding involving activities on the floor of the Exchange, no more than one person on the Hearing Panel shall have been active on the floor of the Exchange, which also is intended to reduce the perception of bias in the Exchange’s disciplinary process. In addition, the Commission believes that the Exchange’s proposal to expand the Hearing Officer’s authority to handle stipulations and uncontested cases, procedural and evidentiary matters, and substantive legal motions is designed to expedite the hearing process by allowing the Hearing Officer to resolve efficiently certain matters that currently require action by the full Hearing Panel. The Commission notes that, according to the Exchange, these motions often involve legal issues that the Hearing Officer is best suited to resolve. Finally, the Commission believes that the Exchange’s proposal to require that the filing of charges be made with the Hearing Board at the time they are served on the respondent will allow the Hearing Board to immediately assume jurisdiction of the matter and to be able to expeditiously schedule hearings, as well as rule on pre-hearing motions. Accelerated Approval of Amendment No. 3 The Commission finds good cause to approve Amendment No. 3 to the proposed rule change, as amended, prior to the thirtieth day after the amendment is published for comment in the Federal Register pursuant to Section 19(b)(2) of the Act.13 Amendment No. 3 clarifies that the Exchange intends to implement the proposed rule change, as amended, on or about April 1, 2006. The Commission notes that the Exchange has represented that it will issue an Information Memo to alert its members of the proposed rule change and its implementation date 13 15 U.S.C. 78s(b)(2). VerDate Aug<31>2005 13:01 Jan 20, 2006 Jkt 208001 which is scheduled to occur on or about April 1, 2006.14 Specifically, the Commission finds that Amendment No. 3 provides clarification to members and other appropriate parties of the intended implementation date of the proposed changes to the Exchange’s disciplinary procedures that are contained in Article IX of the Exchange’s Constitution and NYSE Rules 475 and 476 and raises no new issues of regulatory concern. For these reasons, the Commission believes that good cause exists to accelerate approval of Amendment No. 3. IV. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, and, in particular, with Sections 6(b)(1), 6(b)(5), and 6(b)(7) of the Act.15 It is therefore ordered, pursuant to Section 19(b)(2) of the Act,16 that the proposed rule change (SR–NYSE–2005– 37) and Amendments No. 1 and 2 thereto are approved, and that Amendment No. 3 thereto is approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.17 Nancy M. Morris, Secretary. [FR Doc. E6–674 Filed 1–20–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–53133; File No. SR–PCX– 2005–135] Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of Filing of Proposed Rule Change Relating to Exposure of Orders in the PCX Plus Crossing Mechanism January 17, 2006. 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 December 22, 2005, the Pacific Exchange, Inc. (‘‘PCX’’ or ‘‘Exchange’’) filed with the 14 Telephone conversation between Peggy Kuo, Chief Hearing Officer, NYSE, and Cyndi N. Rodriguez, Special Counsel, Division of Market Regulation, Commission, on January 11, 2006. 15 15 U.S.C. 78f(b)(1), 15 U.S.C. 78f(b)(5), and 15 U.S.C. 78f(b)(7). 16 15 U.S.C. 78s(b)(2). 17 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. PO 00000 Frm 00145 Fmt 4703 Sfmt 4703 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 PCX. 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 PCX is proposing to decrease the exposure period in its Crossing Mechanism from ten seconds to three seconds. The text of the proposed rule change is available on the PCX’s Web site (https://www.pacificex.com), at the PCX’s Office of the Secretary, and at the Commission’s Public Reference Room. 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 PCX 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 PCX 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 PCX rules provide that a PCX Broker may not facilitate orders or cross two orders, using the Crossing Mechanism of the PCX Plus System (‘‘PCX Plus’’ or ‘‘System’’), unless it enters into the System the terms of each order that is to be included as part of a Cross Order,3 pursuant to PCX Rule 6.76(c)(2)(A). Both facilitation crosses and nonfacilitation crosses are executed in the same manner in PCX Plus. Upon entry into PCX Plus, the System will evaluate the terms of the Cross Order and, after accepting the Cross Order, will execute the cross in accordance with PCX Rule 6.76(c)(2)(B). Among other conditions, Rule 6.76(c)(2)(B) requires a ten-second exposure period in which OTP Holders and OTP Firms may enter orders to trade against the side of the Cross Order that has been designated as the Exposed 3 See PCX Rule 6.76(c)(1)(A), which defines Cross Order for the purposes of PCX Rule 6.76(c) as ‘‘two orders with instructions to match the identified buy-side with the identified sell-side at a specified price (the ‘‘Cross Price’’).’’ E:\FR\FM\23JAN1.SGM 23JAN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 71, Number 14 (Monday, January 23, 2006)]
[Notices]
[Pages 3595-3598]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-674]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53124; File No. SR-NYSE-2005-37]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving a Proposed Rule Change and Amendments No. 1 and 2 
Thereto and Notice of Filing and Order Granting Accelerated Approval to 
Amendment No. 3 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

January 13, 2006.

I. Introduction

    On May 23, 2005, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Article IX of the Exchange's Constitution 
and Exchange 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. On September 9, 2005, the NYSE filed Amendment No. 1 to the 
proposed rule change. The proposed rule change, as amended by Amendment 
No. 1, was published for comment in the Federal Register on October 26, 
2005.\3\ The Commission received no comments regarding the proposal, as 
amended. On November 28, 2005 and December 2, 2005, the NYSE filed 
Amendments No. 2 \4\ and 3,\5\ respectively, to the proposed rule 
change. This order approves the proposed rule change, as amended by

[[Page 3596]]

Amendments No. 1 and 2, grants accelerated approval to Amendment No. 3, 
and solicits comments from interested persons on Amendment No. 3 to the 
proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 52638 (October 19, 
2005), 70 FR 61866.
    \4\ In Amendment No. 2, the Exchange makes minor, non-
substantive changes to the rule text contained in Exhibit 5 of the 
proposed rule change. This was a technical amendment and is not 
subject to notice and comment.
    \5\ In Amendment No. 3, the Exchange proposes that the proposed 
rule change, as amended, be implemented on or about April 1, 2006 
and attaches a revised Exhibit 5 to reflect changes made to the rule 
text in Amendments No. 1 and 2.
---------------------------------------------------------------------------

II. Description of the Proposal

    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, 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. 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,\6\ any member of the Regulation, Enforcement and Listing 
Standards Committee, and either the Division of the Exchange that 
initiated the proceedings or the respondent.
---------------------------------------------------------------------------

    \6\ These are members of the Board of Executives representing 
the groups referenced in clauses (ii) and (iii) of Article V, 
Section 2(b) of the Exchange's Constitution, namely, members who 
spend a substantial part of their time on the trading floor.
---------------------------------------------------------------------------

Amendments to Article IX of the Constitution and NYSE Rule 476

Composition of the Hearing Panel
    The Exchange currently requires that disciplinary hearings be 
conducted before a Hearing Panel consisting of a Hearing Officer (an 
Exchange staff member) and two peer panelists. The Exchange believes 
that this ``trial by peers'' requirement raises a concern about bias 
and perception of bias, especially in cases involving charges against 
individuals on the trading floor because of the relatively small floor 
community. Accordingly, the Exchange proposes that a Hearing Panel 
consist of at least one member who is engaged in securities activities 
differing from that of the respondent. In any disciplinary proceeding 
involving activities on the floor of the Exchange, the Exchange also 
proposes that no more than one of the persons serving on the Hearing 
Panel be, or if retired, has been, active on the floor. For example, 
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. In addition, the Exchange proposes that 
a Hearing Panel could include only one retired person.
Composition of the Hearing Board and Hearing Officers
    The Exchange also proposes to 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. However, under the amendments to the 
Exchange's Constitution and 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 registered and non-
registered employees of members and member organizations to be 
appointed to the Hearing Board within five years of their 
retirement.\7\
---------------------------------------------------------------------------

    \7\ The Exchange also proposes to amend NYSE Rule 476 to conform 
this rule with language in Article IX, Section 3 of the Exchange's 
Constitution prohibiting members of the Board or the Board of 
Executives from serving on the Hearing Board. Members of the Hearing 
Panel, other than the Hearing Officer, are selected from members of 
the Hearing Board. See Article 14, Secs. 2-4 of the Exchange's 
Constitution.
---------------------------------------------------------------------------

Hearing Officer's Authority
    The Exchange also proposes to permit Hearing Officers to handle 
stipulations and uncontested cases without the full Hearing Panel. 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 full Hearing Panel. The Exchange proposes to confer authority on an 
Exchange Hearing Officer to act alone in considering such uncontested 
and settled cases and impose penalties, without a hearing, in order to 
expedite resolution of such matters. Under the proposal, the Hearing 
Officer would convene a 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.
    Furthermore, the proposed rule change would permit the Hearing 
Officer 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. The proposed rule change also would 
clarify the Hearing Officer's authority to order pre-hearing discovery 
of documents from the Division of Enforcement and from the respondent.
    Finally, the proposal would clarify the Hearing Officer's authority 
to penalize contemptuous participants 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 exclude, in extreme situations, any such 
persons from further participation in the proceeding.
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 change 
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.
``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 proposes amendments to its Constitution and NYSE Rule 476 
to reallocate this responsibility to members of the Board, Board of 
Executives' members representing the trading floor, members of the 
Regulation, Enforcement and

[[Page 3597]]

Listing Standards Committee, the Exchange Division that initiated the 
proceedings or the respondent, but would preserve the Board's right to 
designate, by rule, categories of members of the Board of Executives 
with this responsibility, if warranted.

Amendment No. 3

    In Amendment No. 3, the Exchange proposes to implement the proposed 
rule change, as amended, on or about April 1, 2006 and attached an 
Exhibit 5 to reflect changes made to the rule text in Amendments No.1 
and 2.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 3, including whether Amendment No. 3 
is consistent with the Act. Comments may be submitted by any of the 
following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File No. SR-NYSE-2005-37 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-9303.

All submissions should refer to File Number SR-NYSE-2005-37. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (https://www.sec.gov/rules/
sro.shtml). 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 also will be available for inspection and copying at the 
principal office of the NYSE. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSE-2005-37 and should be submitted on or before 
February 13, 2006.

IV. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\8\ In particular, the Commission finds that, the 
proposed rule change, as amended, is consistent with Section 6(b)(1) of 
the Act \9\ which requires that the exchange be ``so organized and 
[have] the capacity to carry out the purposes of [the Act]'' and to 
``enforce compliance by its members and persons associated with its 
members with the provisions of [the Act].'' The Commission also finds 
that the proposed amendments relating to the composition of the Hearing 
Panel comport with the requirements of Section 6(b)(3) of the Act,\10\ 
which requires that the rules of a national securities exchange assure 
the fair representation of its members in the selection of its 
directors and administration of its affairs, and provide that one or 
more directors shall be representative of issuers and investors and not 
be associated with a member of the exchange, broker, or dealer. The 
Commission also finds that the proposed rule change, as amended, is 
consistent with Section 6(b)(5) of the Act \11\ in that it is designed, 
among other things, to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
Further, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(7) of the Act,\12\ which, among other 
things, requires that the rules of a national securities exchange 
provide a fair procedure for the disciplining of members and persons 
associated with members.
---------------------------------------------------------------------------

    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(1).
    \10\ 15 U.S.C. 78f(b)(3).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    Specifically, the Commission believes that the proposed changes to 
the Exchange's disciplinary procedures should help strengthen the 
Exchange's ability to carry out its oversight and enforcement 
responsibilities as a self-regulatory organization. The Commission also 
believes that the proposal is reasonably designed to improve the 
timeliness, fairness, and efficiency of the disciplinary process to 
address violations of the Exchange's rules and the federal securities 
laws by the Exchange's members and persons associated with members.
    In particular, the Commission believes that it is appropriate for 
the Exchange to provide a structure in NYSE Rule 475 for a summary 
suspension hearing to prohibit or limit a person's access to services 
and to provide a ``call-up'' procedure for Board review of such 
proceedings by members of the Board, certain specified 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 proceeding or the respondent. In addition, the 
Commission believes that it is appropriate for the Exchange to revise 
Article IX of its Constitution to permit the ``call up'' for Board 
review of any disciplinary determination or penalty (other than a 
proceeding involving a written consent to a specified penalty) by any 
member of the Board, certain specified members of the Board of 
Executives, any member of the Regulation, Enforcement and Listing 
Standards Committee, as well as the Exchange Division that brought the 
charges or the respondent. The Commission notes, however, that the 
proposed revision to this ``call up'' procedure contained in the 
Exchange's Constitution would preserve the Board's right to designate, 
by rule, other categories of members of the Board of Executives that 
can require such review by the Board.
    In addition, the Commission believes that the proposed changes to 
Article IX of the Exchange's Constitution and NYSE Rule 476 with 
respect to the composition of the Hearing Panel should expand the 
available pool of panelists with the requisite knowledge of the 
securities industry to serve on the Hearing Panel. At the same time, 
the Commission believes that the proposed requirement that a Hearing 
Panel have at least one member who is engaged in securities activities 
differing from that of the respondent is designed to mitigate

[[Page 3598]]

the perception of bias that may have occurred when a majority of the 
panel members in the same line of business as the respondent was not 
precluded from serving on such panel. Similarly, the Commission 
believes that the proposed changes to allow recently retired members 
and employees of members to serve on the Hearing Board and to allow 
non-NYSE employees to serve as Hearing Officers should enlarge the pool 
of individuals with the requisite expertise to hear and adjudicate 
cases and with the ability to readily serve during regular business 
hours, thereby potentially allowing cases to be resolved more 
expeditiously. Moreover, the Commission notes that the proposal 
specifies that, in any disciplinary proceeding involving activities on 
the floor of the Exchange, no more than one person on the Hearing Panel 
shall have been active on the floor of the Exchange, which also is 
intended to reduce the perception of bias in the Exchange's 
disciplinary process.
    In addition, the Commission believes that the Exchange's proposal 
to expand the Hearing Officer's authority to handle stipulations and 
uncontested cases, procedural and evidentiary matters, and substantive 
legal motions is designed to expedite the hearing process by allowing 
the Hearing Officer to resolve efficiently certain matters that 
currently require action by the full Hearing Panel. The Commission 
notes that, according to the Exchange, these motions often involve 
legal issues that the Hearing Officer is best suited to resolve.
    Finally, the Commission believes that the Exchange's proposal to 
require that the filing of charges be made with the Hearing Board at 
the time they are served on the respondent will allow the Hearing Board 
to immediately assume jurisdiction of the matter and to be able to 
expeditiously schedule hearings, as well as rule on pre-hearing 
motions.

Accelerated Approval of Amendment No. 3

    The Commission finds good cause to approve Amendment No. 3 to the 
proposed rule change, as amended, prior to the thirtieth day after the 
amendment is published for comment in the Federal Register pursuant to 
Section 19(b)(2) of the Act.\13\ Amendment No. 3 clarifies that the 
Exchange intends to implement the proposed rule change, as amended, on 
or about April 1, 2006. The Commission notes that the Exchange has 
represented that it will issue an Information Memo to alert its members 
of the proposed rule change and its implementation date which is 
scheduled to occur on or about April 1, 2006.\14\
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ Telephone conversation between Peggy Kuo, Chief Hearing 
Officer, NYSE, and Cyndi N. Rodriguez, Special Counsel, Division of 
Market Regulation, Commission, on January 11, 2006.
---------------------------------------------------------------------------

    Specifically, the Commission finds that Amendment No. 3 provides 
clarification to members and other appropriate parties of the intended 
implementation date of the proposed changes to the Exchange's 
disciplinary procedures that are contained in Article IX of the 
Exchange's Constitution and NYSE Rules 475 and 476 and raises no new 
issues of regulatory concern. For these reasons, the Commission 
believes that good cause exists to accelerate approval of Amendment No. 
3.

IV. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange, 
and, in particular, with Sections 6(b)(1), 6(b)(5), and 6(b)(7) of the 
Act.\15\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b)(1), 15 U.S.C. 78f(b)(5), and 15 U.S.C. 
78f(b)(7).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-NYSE-2005-37) and Amendments 
No. 1 and 2 thereto are approved, and that Amendment No. 3 thereto is 
approved on an accelerated basis.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

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

Nancy M. Morris,
Secretary.
 [FR Doc. E6-674 Filed 1-20-06; 8:45 am]
BILLING CODE 8010-01-P

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