Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Order Approving a Proposed Rule Change and Amendment No. 1 and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 to a Proposed Rule Change Relating to Disciplinary and Delisting Procedures, 55037-55042 [E6-15588]
Download as PDF
<![CDATA[
Federal Register / Vol. 71, No. 182 / Wednesday, September 20, 2006 / Notices
SECURITIES AND EXCHANGE
COMMISSION
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of Filings and
Information Services, Washington, DC
20549.
jlentini on PROD1PC65 with NOTICES
Extension:
Rule 17Ad–4(b) and (c); SEC File No. 270–
264; OMB Control No. 3235–0341.
Notice is hereby given that pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Rule 17Ad–4(b) and (c) (17 CFR
240.17Ad–4) under the Securities
Exchange Act of 1934 (17 U.S.C. 78a et
seq.) is used to document when transfer
agents are exempt, or no longer exempt,
from the minimum performance
standards and certain recordkeeping
provisions of the Commission’s transfer
agent rules. Rule 17Ad–4(c) sets forth
the conditions under which a registered
transfer agent loses its exempt status.
Once the conditions for exemption no
longer exist, the transfer agent, to keep
the appropriate regulatory authority
(‘‘ARA’’) apprised of its current status,
must prepare, and file if the ARA for the
transfer agent is the Board of Governors
of the Federal Reserve System
(‘‘BGFRS’’) or the Federal Deposit
Insurance Corporation (‘‘FDIC’’), a
notice of loss of exempt status under
paragraph (c). The transfer agent then
cannot claim exempt status under Rule
17Ad–4(b) again until it remains subject
to the minimum performance standards
for non-exempt transfer agents for six
consecutive months. The ARAs use the
information contained in the notice to
determine whether a registered transfer
agent qualifies for the exemption, to
determine when a registered transfer
agent no longer qualifies for the
exemption, and to determine the extent
to which that transfer agent is subject to
regulation.
The BGFRS receives approximately
twelve notices of exempt status and six
notices of loss of exempt status
annually. The FDIC receives
approximately eighteen notices of
exempt status and three notices of loss
of exempt status annually. The
Commission and the Office of the
Comptroller of the Currency (‘‘OCC’’) do
VerDate Aug<31>2005
17:40 Sep 19, 2006
Jkt 205001
not require transfer agents to file a
notice of exempt status or loss of
exempt status. Instead, transfer agents
whose ARA is the Commission or OCC
need only to prepare and maintain these
notices. The Commission estimates that
approximately sixteen notices of exempt
status and loss of exempt status are
prepared annually by transfer agents
whose ARA is the Commission.
Similarly, the OCC estimates that the
transfer agents for which it is the ARA
prepare and maintain approximately
fifteen notices of exempt status and loss
of exempt status annually. Thus, a total
of approximately seventy notices of
exempt status and loss of exempt status
are prepared and maintained by transfer
agents annually. Of these seventy
notices, approximately forty are filed
with an ARA. Any additional costs
associated with filing such notices
would be limited primarily to postage,
which would be minimal. Since the
Commission estimates that no more
than one-half hour is required to
prepare each notice, the total annual
burden to transfer agents is
approximately thirty-five hours. The
average cost per hour is approximately
$30. Therefore, the total cost of
compliance to the transfer agent
community is $1,050.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information shall have practical utility;
(b) the accuracy of the agency’s
estimates of the burden of the proposed
collection of information; (c) ways to
enhance the quality, utility, and clarity
of the information to be collected; and
(d) ways to minimize the burden of the
collection of information on
respondents, including through the use
of automated collection techniques or
other forms of information technology.
Consideration will be given to
comments and suggestions submitted in
writing within 60 days of this
publication.
Please direct your written comments
to R. Corey Booth, Director/Chief
Information Officer, Securities and
Exchange Commission, C/O Shirley
Martinson, 6432 General Green Way,
Alexandria, Virginia 22312; or send an
e-mail to: PRA_Mailbox@sec.gov.
Dated: September 11, 2006.
Nancy M. Morris,
Secretary.
[FR Doc. E6–15586 Filed 9–19–06; 8:45 am]
BILLING CODE 8010–01–P
PO 00000
Frm 00062
Fmt 4703
Sfmt 4703
55037
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54437; File No. SR–CHX–
2005–06]
Self-Regulatory Organizations;
Chicago Stock Exchange, Inc.; Order
Approving a Proposed Rule Change
and Amendment No. 1 and Notice of
Filing and Order Granting Accelerated
Approval to Amendment No. 2 to a
Proposed Rule Change Relating to
Disciplinary and Delisting Procedures
September 13, 2006.
I. Introduction
On March 7, 2005, the Chicago Stock
Exchange, Inc. (‘‘CHX’’ 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 proposal to revise
the Exchange’s disciplinary and
delisting procedures. The Exchange
filed Amendment No. 1 to the proposed
rule change on June 2, 2006. The
proposed rule change, as amended by
Amendment No. 1, was published for
comment in the Federal Register on
June 27, 2006.3 The Commission
received no comments regarding the
proposal, as amended by Amendment
No. 1. On August 10, 2006, the
Exchange filed Amendment No. 2 to the
proposed rule change.4 This order
approves the proposal, as amended. In
addition, the Commission is publishing
notice to solicit comments on, and is
simultaneously approving, on an
accelerated basis, Amendment No. 2.
II. Description of the Proposal
The proposal revises a number of
rules governing the CHX’s disciplinary
and delisting procedures. According to
the CHX, the Exchange reviewed its
rules, in part, to respond to the
requirements of the Commission’s 2003
order instituting public administrative
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 54021
(June 20, 2006), 71 FR 36571 (‘‘Notice’’).
4 Amendment No. 2 revises the proposal to: (1)
Clarify that the Exchange will use its emergency
suspension authority under CHX Art. VII, Rule
2(a)(1)(i) only with respect to CHX Participants, and
not with respect to associated persons of CHX
Participants; (2) confirm that the Exchange will not
use its emergency suspension authority under CHX
Art. VII, Rule 2(a)(1)(i) unless the Exchange believes
that the rule violation suggests that a Participant is
in such financial or operational difficulty that the
Participant cannot be permitted to continue to do
business as a Participant with safety to investors,
creditors, other Participants, or the Exchange; and
(3) clarify that only a Participant, but not an
associated person of a Participant, may hold a
trading permit.
2 17
E:\FR\FM\20SEN1.SGM
20SEN1
55038
Federal Register / Vol. 71, No. 182 / Wednesday, September 20, 2006 / Notices
proceedings against the Exchange,5 and
in light of the Commission’s guidance
that a self-regulatory organization
(‘‘SRO’’) should ensure that its
‘‘regulatory function is strong, vigorous,
and sufficiently independent and
insulated from improper influence from
management or any regulated entity.’’ 6
jlentini on PROD1PC65 with NOTICES
A. Authorization of Formal Disciplinary
Actions and Other Proceedings
Several CHX rules currently require
the CHX’s Chief Executive Officer
(‘‘CEO’’) to authorize the institution of
disciplinary and related proceedings.7
The proposal revises these rules to
authorize the CHX’s Chief Regulatory
Officer (‘‘CRO’’), rather than its CEO, to
institute these proceedings. The
Exchange believes that requiring the
CRO, rather than the CEO, to authorize
proceedings under these rules will
eliminate any appearance of a conflict of
interest and bolster the apparent and
actual independence of the Exchange’s
regulatory processes.8
The proposal will allow either the
CRO or the CEO to institute proceedings
under CHX Art. XI, Rule 8, ‘‘Operational
Capability,’’ based upon a Participant’s
failure to maintain operational
capability, and to impose restrictions on
Participant Firm operations under CHX
Art. XI, Rule 3(d), ‘‘Restrictions on
Operations,’’ relating to net capital and
5 See Securities Exchange Act Release No. 48566
(September 30, 2003), Administrative Proceeding
File No. 3–11282 (‘‘Order’’). The Exchange noted
that certain aspects of the proposed rule change are
based on the recommendations of the Independent
Counsel appointed by the terms of the Order.
6 See Securities Exchange Act Release No. 48946
(December 17, 2003), 68 FR 74678 (December 24,
2003) (order approving File No. SR–NYSE–2003–
34).
7 See, e.g., CHX Art. VII, Rule 2, ‘‘Emergency
Suspensions’’ (authorizing the CEO to suspend a
Participant or associated person under certain
circumstances); CHX Art. XII, Rule 2(a), ‘‘Minor
Infraction,’’ (authorizing the CEO to censure a
respondent or impose a fine for a minor infraction);
and CHX Article XII, Rule 2(d) (renumbered by the
proposal as 2(b), ‘‘Collateral Proceedings’’)
(authorizing the CEO to suspend or expel a
Participant or associated person sanctioned by
another SRO). See also CHX Art. XII, Rule 1(b)
(requiring the CEO to direct the CHX’s staff to prefer
written charges if it appears to the CEO that there
has been a violation of the CHX’s rules).
8 Although the CRO reports to the CEO, and
therefore could potentially be influenced by the
CEO’s views on a proposed disciplinary matter, the
Exchange noted that the CRO is required to appear
before, and report on the Exchange’s regulatory
programs to, the Exchange’s Regulatory Oversight
Committee not less than quarterly. The Regulatory
Oversight Committee, a committee of the CHX’s
Board of Directors (‘‘Board’’) composed
predominately of independent directors, is charged
with oversight of the Exchange’s regulatory
function. The Exchange believes that this review by
the Regulatory Oversight Committee serves as a
reasonable mechanism to prevent any conflict of
interest from interfering with the Exchange’s
regulatory role.
VerDate Aug<31>2005
17:40 Sep 19, 2006
Jkt 205001
aggregate indebtedness requirements.
The Exchange believes that allowing
either the CEO or the CRO to authorize
proceedings under these rules is
appropriate because they may involve a
mixture of business and regulatory
concerns.
B. Initial Decision by Hearing Officers
To eliminate any appearance of a
conflict of interest, the proposal
eliminates the provisions in current
CHX Art. XII, Rule 5(b), ‘‘Decision,’’ that
authorize the CEO to review a Hearing
Officer’s proposed decision and modify
its conclusions, remand the matter for
additional findings or supplemental
proceedings, or conduct further
proceedings himself.9 The revised rule
provides that the Hearing Officer’s
decision will be final, although it may
be appealed to a Judiciary Committee or
to the Board, as applicable, in
accordance with CHX Art. XII, Rule 6.
C. Criteria for the Selection of Hearing
Officers in Disciplinary and Delisting
Proceedings
The proposal revises CHX Article XII,
Rule 5, ‘‘Hearing Procedure,’’ to
delineate the criteria that the CEO must
consider in selecting a Hearing Officer
for a disciplinary proceeding 10 and to
create a process through which a
respondent may object to a particular
Hearing Officer on the grounds of bias
or conflict of interest.11 The proposal
adopts identical criteria and objection
procedures with respect to Hearing
Officers for delisting hearings.12
D. Elimination of Redundant Procedures
The proposal eliminates the summary
hearing process in current CHX Art. XII,
Rule 2(b), ‘‘Summary Hearing and
Penalty,’’ which the Exchange believes
is redundant of other CHX disciplinary
processes and, therefore, unnecessary.
Similarly, the proposal deletes the
suspension and termination rules
applicable to specialists, odd-lot
dealers, and market makers in CHX
Articles XXX, XXXI, and XXXIV,
respectively, because the Exchange
believes that these provisions are
9 The proposal renumbers this provision as CHX
Art. XII, Rule 5(f).
10 See CHX Art. XII, Rule 5(e), ‘‘Appointment of
Hearing Officer.’’ Specifically, the rule states that
the CEO should give reasonable consideration to a
prospective Hearing Officer’s professional
competence and reputation, experience in the
securities industry, familiarity with the subject
matter involved, the absence of bias and any
conflict of interest, and any other relevant factors.
11 See CHX Art. XII, Rule 5(h), ‘‘Impartiality of
Hearing Officer.’’ The rule permits a respondent to
file a motion seeking the disqualification of a
Hearing Officer for bias or conflict of interest within
15 days of the Hearing Officer’s appointment.
12 See CHX Art. XXVIII, Rule 4(d).
PO 00000
Frm 00063
Fmt 4703
Sfmt 4703
obsolete and redundant of the
Emergency Suspension provisions
provided under CHX Art. VII, Rule 2.
E. Appeal of Disciplinary Proceedings
The proposal revises CHX Art. XII,
Rule 6 to allow the Exchange, as well as
a respondent, to appeal decisions to a
Judiciary Committee.13 Similarly, the
proposal revises CHX Art. XXVIII, Rule
4(e) to allow the Exchange, as well as an
issuer, to appeal the decision of a
Hearing Officer in a delisting
proceeding.
In addition, the proposal streamlines
the current appellate review process for
disciplinary actions. Currently, appeals
are heard first by a Judiciary Committee,
then by the Executive Committee and
finally, on a discretionary basis, by the
Board.14 The proposal eliminates
appellate review by the Executive
Committee and provides that appeals
will be heard by a Judiciary Committee
and, on a discretionary basis, by the full
Board.15 The Exchange believes that the
revised procedures should reduce the
time required to reach a final judgment,
thus contributing to the fair and
effective enforcement of the Exchange’s
rules.
F. Failure to Promptly Pay Fines
Under CHX Art. XIV, Rule 10,
‘‘Failure to Pay Debts,’’ a Participant
who fails to pay a fine owed to the
Exchange within 60 days may be
suspended, after due notice, until
payment is made. The proposal revises
this rule to authorize the Exchange to
initiate a disciplinary proceeding under
Art. XII against a Participant or
associated person for the failure to pay
a debt owed to the Exchange. The
Exchange believes that the revised rule
will provide the Exchange with the
flexibility to assess additional fines or
other sanctions, either in lieu of or in
addition to a suspension, as an added
inducement to avoid late payment of a
fine owed to the Exchange.
G. Procedural Changes
The proposal revises several CHX
rules to provide greater clarity to the
Exchange’s disciplinary and delisting
procedures. In this regard, the proposal
sets forth clear timeframes for
responding to charges, scheduling
hearings, filing motions, and issuing
orders.16 The proposal also: (i) Specifies
13 Specifically, the revised rule allows the
Exchange to appeal an order issued under CHX Art.
XII, Rules 2(b), 4(b), and 5.
14 See CHX Art. XII, Rule 6.
15 See CHX Art. XII, Rule 6.
16 For example, the proposal revises CHX Art. XII,
Rule 5, to require that: (i) A respondent file a
written answer to charges within 30 days from the
E:\FR\FM\20SEN1.SGM
20SEN1
Federal Register / Vol. 71, No. 182 / Wednesday, September 20, 2006 / Notices
jlentini on PROD1PC65 with NOTICES
the information that must be included
in certain notices; 17 (ii) creates limited
rights to prehearing discovery for all
parties to a proceeding; 18 (iii) sets
timeframes for motions and appeals; 19
(iv) confirms that the Board or the
Executive Committee could direct the
CRO to initiate a disciplinary
proceeding; 20 (v) confirms that a
Hearing Officer must make specific
findings as to each proffered charge and
impose an appropriate sanction for
violations that are found to have
occurred; 21 (vi) clarifies that fines
assessed under the summary procedure
of CHX Art. XII, Rule 2 are not publicly
reported, except as may be required by
Rule 19d–1 under the Act; 22 and (vii)
confirms that the three-person Board
panel that hears an appeal from an
emergency suspension decision will
date of service of the charges; (ii) the Hearing
Officer schedule a hearing within 30 days after the
filing of an answer; and (iii) the Hearing Officer
ordinarily issue an order within 90 days after the
conclusion of a hearing. Similarly, the proposal
revises CHX Art. XXVIII, Rule 4(d), ‘‘Hearing,’’ to
require that a Hearing Officer in a delisting hearing
to schedule a hearing within 30 days after receipt
of an issuer’s demand for a hearing, and that the
Hearing Officer issue an order within 90 days after
the conclusion of a hearing.
17 Specifically, the proposal revises Article XII,
Rule 1(b), ‘‘Written Charges,’’ to state that a
respondent must be served with written charges
identifying with specificity each Exchange rule or
provision of the federal securities laws alleged to
have been violated. The proposal revises CHX Art.
XII, Rule 2(a), ‘‘Minor Infraction,’’ to state explicitly
that the person against whom a fine is imposed
shall be served with a written statement (the
‘‘Notice of Fines’’), signed by the CRO or his
designee, setting forth: (i) The rule(s) or policy(ies)
alleged to have been violated; (ii) the act or
omission constituting each such violation; (iii) the
fine imposed for each such violation; (iv) the date
on which such action is taken; and (v) the date on
which such determination becomes final and such
fine becomes due and payable to the Exchange, or
on which such action must be contested. The
Exchange represents that it currently provides this
notice to persons against whom a fine is imposed,
and that the language added to the rule confirms
that this practice should continue.
18 The parties must exchange a list of witnesses
that they plan to call to testify at least 30 days
before the hearing. See CHX Art. XII, Rule 5(c)(1).
In addition, any party may request production of
some or all of the documents that an opposing party
intends to introduce as evidence. This request must
be made at least 45 days prior to the hearing, and
the documents must be produced at least 30 days
before the hearing. See CHX Art. XII, Rule 5(c)(2).
A party that does not identify witnesses or produce
requested documents will be barred from presenting
those witnesses or documents at the hearing, unless
the party seeking to introduce the evidence can
show good cause for the failure to earlier identify
the witnesses or documents and can establish that
the failure to allow the presentation of the evidence
would result in undue hardship to that party. See
CHX Art. XII, Rules 5(c)(1) and 5(c)(2).
19 See, e.g., CHX Art. XII, Rule 5(h) (regarding
motions to disqualify the hearing examiner) and
CHX Art. XII, Rule 6(a) (regarding appeals to the
Judiciary Committee).
20 See CHX Art. XII, Rule 1(b)(2).
21 See CHX Art. XII, Rule 5(f).
22 See CHX Art. XII, Rule 2(a).
VerDate Aug<31>2005
17:40 Sep 19, 2006
Jkt 205001
consist of at least two public directors
on the Board.23 The proposal also
adopts provisions that set forth the
required content of settlement
agreements in disciplinary
proceedings.24
H. Removal of Securities
The proposal revises CHX Art.
XXVIII, Rule 4, ‘‘Removal of Securities,’’
to provide that the Listing Unit of the
CHX’s Market Regulation Department,
rather than the Board, will make the
initial determination to delist a security.
The proposal also eliminates the CEO’s
review of a Hearing Officer’s findings
with respect to a delisting. In addition,
the proposal confirms that a Hearing
Officer’s decision is final unless a
review is specifically demanded,25 and
sets forth the process and standards that
the Executive Committee must follow
with respect to any appeal of a Hearing
Officer’s decision.26
I. Role of Exchange Counsel
The proposal clarifies the role of
Exchange counsel in disciplinary and
delisting proceedings by providing that,
in both types of proceedings, the
Exchange counsel acting as counsel to
the Hearing Officer may not be an
employee of the CHX’s Market
Regulation Department and may not
have directly participated in any
examination, investigation, or decision
associated with the initiation or conduct
of the proceeding.27
J. Additional Changes
The proposal also revises several
terms used throughout CHX Art. XII. For
example, the proposal revises CHX Art.
23 See
CHX Art. VII, Rule 2(b).
CHX Art. XII, Rule 1(d). The proposal
deletes the current provisions in CHX Art. XII, Rule
2(c) governing settlement agreements and adopts
new Rule 1(d) of CHX Art. XII. This provision
confirms that a respondent could settle a
proceeding at any time by entering into a settlement
agreement with the Exchange without admitting or
denying the charges, except as to jurisdiction,
which must be admitted. The settlement agreement
must contain a waiver by the respondent of all
rights to appeal and a proposed penalty to be
imposed, which must be reasonable under the
circumstances and consistent with the seriousness
of the alleged violations. The CRO will have the
sole right to approve a proposed settlement
agreement.
25 Appeals from a Hearing Officer’s decision
would be heard by the Executive Committee. See
CHX Art. XXVIII, Rule 4(e).
26 See CHX Art. XXVIII, Rules 4(d) and (e). As
noted above, the proposal also adopts provisions
setting forth the criteria that a CEO must consider
in selecting a Hearing Officer for a delisting
proceeding and provides a process for objecting to
a Hearing Officer on the grounds of bias or conflict
of interest. See notes 10–12, supra, and
accompanying text.
27 See CHX Art. XII, Rule 5(g) and CHX Art.
XXVIII, Rule 4(d).
24 See
PO 00000
Frm 00064
Fmt 4703
Sfmt 4703
55039
XII to substitute the term ‘‘respondent’’
for ‘‘accused’’ and ‘‘hearing’’ for ‘‘trial.’’
K. Effective Date of the Rule Changes
The Exchange states that the rule
changes contained in the proposal will
apply to any formal disciplinary
proceeding, suspension decision, or
delisting proceeding that the Exchange
initiates on or after a date that
immediately follows the date of the
Commission’s approval. The Exchange
will issue a notice to Participants
announcing this date.
L. Amendment No. 2
CHX Art. VII, Rule 2(a)(1)(i), as
amended, provides the Exchange with
emergency suspension authority over a
Participant that has failed to perform its
contracts, is insolvent, or is in such
financial or operational condition or
otherwise conducting its business in
such a manner that the Participant
cannot be permitted to continue in
business with safety to its customers,
creditors, or the Exchange, including a
reasonable belief that the Participant is
violating and will continue to violate
any provision of the CHX’s rules, the
federal securities laws or rules or
regulations thereunder, or any condition
or restriction imposed pursuant to the
provisions of CHX Art. XI, Rule 3(d), or
CHX Art. XI, Rule 8(a). Amendment No.
2 revises the proposal to: (1) Clarify that
the Exchange will use its emergency
suspension authority under CHX Art.
VII, Rule 2(a)(1)(i) only with respect to
CHX Participants, and not with respect
to associated persons of CHX
Participants; (2) confirm that the
Exchange will not use its emergency
suspension authority under CHX Art.
VII, Rule 2(a)(1)(i) unless the Exchange
believes that the rule violation suggests
that a Participant is in such financial or
operational difficulty that the
Participant cannot be permitted to
continue to do business as a Participant
with safety to investors, creditors, other
Participants, or the Exchange; and (3)
clarify that only a Participant, but not an
associated person of a Participant, may
hold a trading permit. The proposal also
revises CHX Art. VII, Rule 2(a)(1) to
allow the Exchange to use its emergency
suspension authority with respect to an
associated person who has been barred
or suspended from being associated
with a member of any SRO.
III. Discussion
After careful review, 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
E:\FR\FM\20SEN1.SGM
20SEN1
55040
Federal Register / Vol. 71, No. 182 / Wednesday, September 20, 2006 / Notices
jlentini on PROD1PC65 with NOTICES
a national securities exchange.28 In
particular, the Commission finds that
the proposed rule change, as amended,
is consistent with Section 6(b)(1) of the
Act,29 which requires, among other
things, that a national securities
exchange have the capacity to enforce
compliance by its members and persons
associated with its members with the
provisions of the Act and the rules and
regulations thereunder, and with the
rules of the exchange; with Section
6(b)(5) of the Act,30 which requires,
among other things, that the rules of a
national securities exchange be
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, 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; and
with Section 6(b)(7) of the Act,31 which
requires that the rules of a national
securities exchange provide a fair
procedure for the disciplining of
members and persons associated with
members. In addition, the Commission
finds that the proposal, as amended, is
consistent with Section 6(d)(1) of the
Act,32 which requires, among other
things, that a national securities
exchange, in determining whether a
member or associated person should be
disciplined, bring specific charges,
notify the member or associated person
of, and give him an opportunity to
defend against the charges, and keep a
record. The Commission also finds that
the proposal, as amended, is consistent
with Section 6(d)(3) of the Act,33 which,
among other things, allows a national
securities exchange to summarily
suspend a member or person associated
with a member who has been and is
expelled or suspended from any SRO or
barred or suspended from being
associated with a member of any SRO,
and to summarily suspend a member
who is in such financial or operating
difficulty that the exchange determines
and so notifies the Commission that the
member cannot be permitted to
continue to do business as a member
with safety to investors, creditors, other
members, or the exchange.
The Commission finds that the rule
changes 34 requiring the CRO, rather
28 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
29 15 U.S.C. 78f(b)(1).
30 15 U.S.C. 78f(b)(5).
31 15 U.S.C. 78f(b)(7).
32 15 U.S.C. 78f(d)(1).
33 15 U.S.C. 78f(d)(3).
34See note 7, supra, and accompanying text.
VerDate Aug<31>2005
17:40 Sep 19, 2006
Jkt 205001
than the CEO, to authorize the
institution of disciplinary and related
proceedings could help to reduce the
appearance of, or potential for, a conflict
of interest in the institution of such
proceedings, thereby helping the
Exchange to provide a fair procedure for
disciplining members, as required by
Section 6(b)(7) of the Act,35 and helping
to separate the CHX’s business and
regulatory functions. Similarly, the
Commission finds that the proposal to
eliminate the provisions in current CHX
Art. XII, Rule 5(b) that allow the CEO to
review and modify a Hearing Officer’s
proposed decision should help to
eliminate the appearance of a conflict of
interest in the Exchange’s disciplinary
process. The Commission believes that
the proposal to amend CHX Art. XI,
Rules 3(d) and 8(a), to allow the CRO,
as well as the CEO, to authorize
proceedings under those rules is
reasonable because those rules govern
matters that raise both business and
regulatory concerns.
The Commission finds that the
adoption of criteria that the CEO should
consider in selecting a Hearing Officer
for disciplinary proceedings, and the
procedures for objecting to a Hearing
Officer in a disciplinary proceeding,36
are consistent with Section 6(b)(7) of the
Act because they should help the
Exchange to provide a fair procedure for
disciplining members. The Commission
finds that the comparable provisions
relating to the criteria for selection of
Hearing Officers for delisting
proceedings 37 are consistent with
Section 6(b)(5) of the Act because they
should help the Exchange to provide a
fair procedure for delisting proceedings.
Similarly, the Commission believes
that the rule changes prohibiting the
person acting as Exchange counsel to
the Hearing Officer in a disciplinary or
delisting proceeding from being an
employee of the CHX’s Market
Regulation Department or from having
directly participated in any
examination, investigation, or decision
associated with the initiation or conduct
of the proceeding 38 should help the
Exchange to provide fair disciplinary
and delisting proceedings by ensuring
that such counsel did not participate in
35 Although the CRO reports to the CEO, the CRO
must report not less than quarterly to the Board’s
Regulatory Oversight Committee, which is
composed predominately of independent directors
and assists the Board in monitoring the design,
implementation, and effectiveness of the CHX’s
regulatory programs. See CHX Article IV, Rule 4,
‘‘Regulatory Oversight Committee.’’
36 See notes 10–12, supra, and accompanying
text.
37 See CHX Art, XXVIII, Rule 4(d).
38 See CHX Art, XII, Rule 5(g) and CHX Art.
XXVIII, Rule 4(d).
PO 00000
Frm 00065
Fmt 4703
Sfmt 4703
the initiation or conduct of the matter
before the Hearing Officer.
The Exchange believes that the
procedures in current CHX Art. XII,
Rule 2(b), and in CHX Articles XXX,
XXXI, and XXXIV are obsolete and
redundant of the emergency suspension
provisions of CHX Art. VII, Rule 2.39
Accordingly, the Commission believes
that the deletion of these provisions
should simplify the CHX’s rules.
The Commission finds that the rule
changes 40 allowing the Exchange to
appeal the decision of the Hearing
Officer in disciplinary and delisting
proceedings are consistent with Section
6(b)(1) of the Act because these
provisions could enhance the
Exchange’s ability to enforce its rules
and the federal securities laws and the
rules and regulations thereunder. In
addition, the Commission believes that
the changes to CHX Art. XII, Rule 6 that
eliminate Executive Committee review
of Judiciary Committee decisions could
allow disciplinary matters to be
resolved more efficiently. The
Commission notes that respondents will
continue to have the ability to appeal a
Hearing Officer’s decision to the
Judiciary Committee, and that the Board
will continue to have the ability to
review decisions of the Judiciary
Committee on a discretionary basis.41
Accordingly, although the proposal
eliminates Executive Committee review
of decisions by the Judiciary Committee,
the Commission believes that the CHX’s
rules will continue to provide a fair
procedure for disciplining members,
consistent with Section 6(b)(7) of the
Act.
The Commission believes that the
amendments to CHX Art. XIV, Rule 10
authorizing the Exchange to initiate a
disciplinary proceeding under CHX Art.
XII for failure to pay a debt owed to the
Exchange could facilitate the Exchange’s
collection of fines by providing the
Exchange with an additional
mechanism for sanctioning Participants,
associated persons, and other persons or
entities subject to the CHX’s jurisdiction
that fail to pay fines within the time
prescribed in the CHX’s rules.
As described more fully in Section
II.G., supra, the proposal also revises the
CHX’s rules to, among other things, set
timeframes for filing motions and
appeals, scheduling hearings, and
issuing orders; provide for pre-hearing
discovery, with timeframes for
exchanging witness lists and producing
documents; and specify the required
content of settlement agreements in
39 See
Section II.D., supra.
Section II.E., supra.
41 See CHX Art. XII, Rule 6.
40 See
E:\FR\FM\20SEN1.SGM
20SEN1
Federal Register / Vol. 71, No. 182 / Wednesday, September 20, 2006 / Notices
disciplinary proceedings. The
Commission finds that these changes
should help the Exchange to provide a
fair procedure for disciplining members,
as required by Section 6(b)(7) of the Act,
by adding clarity and specificity to the
CHX’s disciplinary rules and by
establishing timeframes for respondents
and Hearing Officers that could
facilitate the timely resolution of
disciplinary matters.
The Commission finds that proposal
to revise CHX Art. XII, Rule 1(b) and
CHX Art. XII, Rule 2(a) 42 to clarify in
its rules that the Exchange must provide
a respondent with written charges
identifying the laws or rules allegedly
violated is consistent with Section
6(d)(1) of the Act, which, among other
things, requires that a national securities
exchange, in a proceeding to determine
whether to discipline a member or
associated person, bring specific
charges, notify the member or person of,
and give him an opportunity to defend
against, the charges, and keep a
record.43 Similarly, the Commission
finds that the proposed changes to CHX
Art. XII, Rule 5(f) requiring, among
other things, that a Hearing Officer’s
order make specific findings as to each
charge brought by the Exchange and,
where a violation is found, impose an
appropriate sanction,44 is consistent
with the requirements in Section
6(d)(1)(B) and (C) of the Act that a
national securities exchange’s
determination to impose a disciplinary
sanction be supported by a statement
setting forth the specific law, rule, or
regulation violated and the sanction
imposed and the reasons therefor.
As described more fully above,45 the
proposal revises CHX Art. VII, Rule
2(a)(1) to clarify the manner in which
the Exchange would use its emergency
suspension authority and to allow the
Exchange to use its emergency authority
with respect to a Participant that it
believes is violating any condition or
restriction imposed pursuant to the
provisions of CHX Art. XI, Rule 3(d), or
CHX Art. XI, Rule 8(a).46 The
42 See
note 17, supra.
Exchange has represented that it currently
provides respondents with written notice of the
charges and that the proposed rule change is
intended to confirm that this practice should
continue.
44 See Section II.G., supra.
45 See Section II.L., supra.
46 CHX Art. XI, Rule 3(d) allows the CEO or the
CRO to impose restrictions or conditions on a
Participant that fails to maintain necessary
operational personnel or facilities or engages in an
activity that casts doubt on the Participant’s
continued compliance with the CHX’s net capital
requirements. CHX Art. XI, Rule 8(a) allows the
CEO or the CRO to impose conditions or restrictions
on a Participant that fails to maintain adequate
operational capability, including making and
jlentini on PROD1PC65 with NOTICES
43 The
VerDate Aug<31>2005
17:40 Sep 19, 2006
Jkt 205001
Commission finds that these changes are
consistent with Section 6(d)(3)(B) of the
Act, which allows a national securities
exchange to summarily suspend a
member who is in such financial or
operating difficulty that the exchange
determines and so notifies the
Commission that the member cannot be
permitted to continue to do business as
a member with safety to investors,
creditors, other members, or the
exchange. Similarly, the Commission
finds that the revisions to CHX Art. VII,
Rule 2(a)(1)(ii) that allow the Exchange
to use its emergency authority with
respect to an associated person barred or
suspended from being associated with a
member of any SRO is consistent with
Section 6(d)(3)(A) of the Act, which
allows a national securities exchange to
summarily suspend a member or
associated person who has been and is
expelled or suspended from any SRO or
barred or suspended from being
associated with a member of any SRO.
In addition, the proposal confirms
that the three-person Board panel that
hears an appeal from an emergency
suspension will include two public
members of the Board.47 The
Commission believes that this change
could help to ensure the impartiality of
the panels that hear appeals from
emergency suspensions, thereby helping
the Exchange to provide a fair procedure
for disciplining members and associated
persons, as required by Section 6(b)(7)
of the Act.
The Commission finds that the
changes to CHX Art. XXVIII, Rule 4,
relating to delisting procedures, are
intended to clarify the CHX’s delisting
procedures and to ensure the fairness of
the CHX’s delisting proceedings and
thus are consistent with the Act. In this
regard, the proposal eliminates the
CEO’s review of a Hearing Officer’s
findings with respect to a delisting,
thereby avoiding the appearance of, or
potential for, a conflict of interest.
Similarly, the proposal revises the
CHX’s rules to provide that the Listing
Unit of the CHX’s Market Regulation
Department, rather than the Board, will
make the initial determination to delist
a security, thereby ensuring that the
entity that initiates a delisting will not
participate in an appellate review of the
initial delisting determination. An
issuer may request a hearing of a
delisting before a Hearing Officer, and
the Hearing Officer’s decision will be
final unless either the issuer or the
Exchange requests review of the
keeping current books and records in accordance
with Rules 17a–3 and 17a–4 under the Act, 17 CFR
240.17a–3 and 17a–4.
47 See CHX Art. VII, Rule 2(b).
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
55041
decision by the Executive Committee of
the CHX Board.48 The Executive
Committee must uphold the Hearing
Officer’s decision if it finds that the
Hearing Officer’s factual conclusions are
supported by substantial evidence and
his or her decision is not arbitrary,
capricious, or an abuse of discretion.49
The Commission believes that adopting
these processes and standards for
review should help promote fairness
with respect to the CHX’s appellate
process.
The Commission finds that the
technical changes to revise certain terms
used throughout the CHX’s disciplinary
rules are consistent with the Act.
The Commission finds good cause for
approving Amendment No. 2 prior to
the thirtieth day after the date of
publication of notice of filing thereof in
the Federal Register. As described more
fully above, Amendment No. 2 clarifies
the proposal by confirming that the
Exchange will use its emergency
suspension authority under CHX Art.
VII, Rule 2(a)(1)(i) only with respect to
Participants and only when the
Exchange believes that a rule violation
suggests that a Participant is in such
financial or operational difficulty that
the Participant cannot be permitted to
continue to do business as a Participant
with safety to investors, creditors, other
Participants, or the Exchange.
Accordingly, the Commission finds that
it is consistent with Sections 6(b)(5) and
19(b) of the Act to approve Amendment
No. 2 on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning Amendment No.
2, including whether Amendment No. 2
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 rulecomments@sec.gov. Please include File
Number SR–CHX–2005–06 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
20549–1090.
All submissions should refer to File
Number SR–CHX–2005–06. This file
48 See
49 See
E:\FR\FM\20SEN1.SGM
CHX Art. XXVIII, Rule 4(e).
id.
20SEN1
55042
Federal Register / Vol. 71, No. 182 / Wednesday, September 20, 2006 / Notices
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 the filing also will be
available for inspection and copying at
the principal office of the Exchange. 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–CHX–2005–06 and should
be submitted on or before October 11,
2006.
V. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,50 that the
proposed rule change (SR–CBOE–2005–
06), as amended, is approved.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.51
Nancy M. Morris,
Secretary.
[FR Doc. E6–15588 Filed 9–19–06; 8:45 am]
BILLING CODE 8010–01–P
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August
21, 2006, The NASDAQ Stock Market
LLC (‘‘Nasdaq’’), 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 Nasdaq. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons. In addition, the
Commission is granting accelerated
approval of the proposed rule change.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
Nasdaq has submitted a proposed rule
change to exempt all securities included
in the Nasdaq-100 Index from the price
test set forth in NASDAQ Rule 3350(a).
The text of the proposed rule change is
below. Proposed new language is
italicized.
3350 Short Sale Rule 3
(a)–(b) No Change.
(c)(1)–(9) No Change.
(10) Sales of securities included in the
Nasdaq 100 Index.
(d)–(l) No Change.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq 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 III below. Nasdaq has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–54435; File No. SR–
NASDAQ–2006–031]
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
jlentini on PROD1PC65 with NOTICES
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Order Granting Accelerated
Approval of Proposed Rule Change To
Exempt All Securities Included in the
NASDAQ-100 Index From the Price
Test Set Forth in NASDAQ Rule 3350(a)
Nasdaq is proposing to amend Rule
3350(c) to create an exemption from the
short sale rule for securities included in
the Nasdaq-100 Index. The National
Association of Securities Dealers, Inc.
(‘‘NASD’’), on behalf of Nasdaq, filed a
similar proposal on June 15, 2006, SR–
NASD–2006–076. On August 1, 2006,
September 13, 2006.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
50 15
51 17
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
VerDate Aug<31>2005
17:40 Sep 19, 2006
Jkt 205001
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 Following discussions with Jeffrey Davis,
Associate General Counsel, Nasdaq, Commission
staff made technical changes to the proposed rule
text.
2 17
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
Nasdaq began operating as a national
securities exchange.4 Therefore, Nasdaq
is filing this proposal as a national
securities exchange. The previous filing,
SR–NASD–2006–076, was published for
notice and comment and no comments
were received.5
The NASDAQ-100 Index. First
introduced in 1985, the Nasdaq-100
Index was created to track the
performance of the largest non-financial
companies listed on The Nasdaq Stock
Market, Inc. Nasdaq states that the
Nasdaq-100 Index Tracking Stock, also
known as ‘‘QQQ,’’ is the most actively
traded ETF and the most actively traded
listed equity security in the U.S. by
average daily share trading volume. As
of the end of the fourth quarter of 2005,
QQQ traded an average of 90.4 million
shares per day. Nasdaq notes that QQQ
has grown significantly since its
inception: From $14.5 million in assets
at the start to $20.3 billion in assets as
of December 31, 2005, and from 300,000
total shares outstanding to 501.95
million at the end of the fourth quarter
of 2005.
Nasdaq states that in addition to the
QQQ, nearly 150 licensees have
contracted with Nasdaq to use the
Nasdaq-100 and other Nasdaq indices as
benchmarks for the issuing and trading
of their global financial products.
Nasdaq also states that these third-party
underwritten products, such as equitylinked notes, index warrants, certificates
of deposits, leveraged products and
basket securities, were sold in 32
countries and amounted to $157.05
billion in underlying notional value as
of December 31, 2005. Further, Nasdaq
notes that a total of 33 domestic and
international mutual funds use this
barometer index as a benchmark as well.
Nasdaq notes that, as a result, the
Nasdaq-100 stocks are highly liquid. For
4 The Commission approved Nasdaq’s application
to register as a national securities exchange on
January 13, 2006. See Securities Exchange Act
Release No. 53128 (January 13, 2006), 71 FR 3550
(January 23, 2006). On June 30, 2006, the
Commission issued an order modifying the
conditions for the operation of Nasdaq as a national
securities exchange. The Commission’s order
enabled Nasdaq to begin operating as an exchange
for securities listed on The NASDAQ Stock Market
LLC and reported to the Joint Self-Regulatory
Organization Plan Governing The Collecting,
Consolidation and Dissemination of Quotation and
Transaction Information for Nasdaq-Listed
Securities Traded on Exchanges on an Unlisted
Trading Privileges Basis. See Securities Exchange
Act Release No. 54085 (June 30, 2006), 71 FR 38910
(July 10, 2006); See also Securities Exchange Act
Release No. 54241 (July 31, 2006), 71 FR 45246
(August 8, 2006).
5 The NASD has filed an amendment to SR–
NASD–2006–076 to propose a rule change to NASD
Rule 5100 (formerly, NASD Rule 3350) that would,
if approved, exempt all securities included in the
Nasdaq-100 Index from the NASD’s price test.
E:\FR\FM\20SEN1.SGM
20SEN1
]]>Agencies
[Federal Register Volume 71, Number 182 (Wednesday, September 20, 2006)]
[Notices]
[Pages 55037-55042]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-15588]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54437; File No. SR-CHX-2005-06]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Order Approving a Proposed Rule Change and Amendment No. 1 and Notice
of Filing and Order Granting Accelerated Approval to Amendment No. 2 to
a Proposed Rule Change Relating to Disciplinary and Delisting
Procedures
September 13, 2006.
I. Introduction
On March 7, 2005, the Chicago Stock Exchange, Inc. (``CHX'' 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
proposal to revise the Exchange's disciplinary and delisting
procedures. The Exchange filed Amendment No. 1 to the proposed rule
change on June 2, 2006. The proposed rule change, as amended by
Amendment No. 1, was published for comment in the Federal Register on
June 27, 2006.\3\ The Commission received no comments regarding the
proposal, as amended by Amendment No. 1. On August 10, 2006, the
Exchange filed Amendment No. 2 to the proposed rule change.\4\ This
order approves the proposal, as amended. In addition, the Commission is
publishing notice to solicit comments on, and is simultaneously
approving, on an accelerated basis, Amendment No. 2.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 54021 (June 20,
2006), 71 FR 36571 (``Notice'').
\4\ Amendment No. 2 revises the proposal to: (1) Clarify that
the Exchange will use its emergency suspension authority under CHX
Art. VII, Rule 2(a)(1)(i) only with respect to CHX Participants, and
not with respect to associated persons of CHX Participants; (2)
confirm that the Exchange will not use its emergency suspension
authority under CHX Art. VII, Rule 2(a)(1)(i) unless the Exchange
believes that the rule violation suggests that a Participant is in
such financial or operational difficulty that the Participant cannot
be permitted to continue to do business as a Participant with safety
to investors, creditors, other Participants, or the Exchange; and
(3) clarify that only a Participant, but not an associated person of
a Participant, may hold a trading permit.
---------------------------------------------------------------------------
II. Description of the Proposal
The proposal revises a number of rules governing the CHX's
disciplinary and delisting procedures. According to the CHX, the
Exchange reviewed its rules, in part, to respond to the requirements of
the Commission's 2003 order instituting public administrative
[[Page 55038]]
proceedings against the Exchange,\5\ and in light of the Commission's
guidance that a self-regulatory organization (``SRO'') should ensure
that its ``regulatory function is strong, vigorous, and sufficiently
independent and insulated from improper influence from management or
any regulated entity.'' \6\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 48566 (September 30,
2003), Administrative Proceeding File No. 3-11282 (``Order''). The
Exchange noted that certain aspects of the proposed rule change are
based on the recommendations of the Independent Counsel appointed by
the terms of the Order.
\6\ See Securities Exchange Act Release No. 48946 (December 17,
2003), 68 FR 74678 (December 24, 2003) (order approving File No. SR-
NYSE-2003-34).
---------------------------------------------------------------------------
A. Authorization of Formal Disciplinary Actions and Other Proceedings
Several CHX rules currently require the CHX's Chief Executive
Officer (``CEO'') to authorize the institution of disciplinary and
related proceedings.\7\ The proposal revises these rules to authorize
the CHX's Chief Regulatory Officer (``CRO''), rather than its CEO, to
institute these proceedings. The Exchange believes that requiring the
CRO, rather than the CEO, to authorize proceedings under these rules
will eliminate any appearance of a conflict of interest and bolster the
apparent and actual independence of the Exchange's regulatory
processes.\8\
---------------------------------------------------------------------------
\7\ See, e.g., CHX Art. VII, Rule 2, ``Emergency Suspensions''
(authorizing the CEO to suspend a Participant or associated person
under certain circumstances); CHX Art. XII, Rule 2(a), ``Minor
Infraction,'' (authorizing the CEO to censure a respondent or impose
a fine for a minor infraction); and CHX Article XII, Rule 2(d)
(renumbered by the proposal as 2(b), ``Collateral Proceedings'')
(authorizing the CEO to suspend or expel a Participant or associated
person sanctioned by another SRO). See also CHX Art. XII, Rule 1(b)
(requiring the CEO to direct the CHX's staff to prefer written
charges if it appears to the CEO that there has been a violation of
the CHX's rules).
\8\ Although the CRO reports to the CEO, and therefore could
potentially be influenced by the CEO's views on a proposed
disciplinary matter, the Exchange noted that the CRO is required to
appear before, and report on the Exchange's regulatory programs to,
the Exchange's Regulatory Oversight Committee not less than
quarterly. The Regulatory Oversight Committee, a committee of the
CHX's Board of Directors (``Board'') composed predominately of
independent directors, is charged with oversight of the Exchange's
regulatory function. The Exchange believes that this review by the
Regulatory Oversight Committee serves as a reasonable mechanism to
prevent any conflict of interest from interfering with the
Exchange's regulatory role.
---------------------------------------------------------------------------
The proposal will allow either the CRO or the CEO to institute
proceedings under CHX Art. XI, Rule 8, ``Operational Capability,''
based upon a Participant's failure to maintain operational capability,
and to impose restrictions on Participant Firm operations under CHX
Art. XI, Rule 3(d), ``Restrictions on Operations,'' relating to net
capital and aggregate indebtedness requirements. The Exchange believes
that allowing either the CEO or the CRO to authorize proceedings under
these rules is appropriate because they may involve a mixture of
business and regulatory concerns.
B. Initial Decision by Hearing Officers
To eliminate any appearance of a conflict of interest, the proposal
eliminates the provisions in current CHX Art. XII, Rule 5(b),
``Decision,'' that authorize the CEO to review a Hearing Officer's
proposed decision and modify its conclusions, remand the matter for
additional findings or supplemental proceedings, or conduct further
proceedings himself.\9\ The revised rule provides that the Hearing
Officer's decision will be final, although it may be appealed to a
Judiciary Committee or to the Board, as applicable, in accordance with
CHX Art. XII, Rule 6.
---------------------------------------------------------------------------
\9\ The proposal renumbers this provision as CHX Art. XII, Rule
5(f).
---------------------------------------------------------------------------
C. Criteria for the Selection of Hearing Officers in Disciplinary and
Delisting Proceedings
The proposal revises CHX Article XII, Rule 5, ``Hearing
Procedure,'' to delineate the criteria that the CEO must consider in
selecting a Hearing Officer for a disciplinary proceeding \10\ and to
create a process through which a respondent may object to a particular
Hearing Officer on the grounds of bias or conflict of interest.\11\ The
proposal adopts identical criteria and objection procedures with
respect to Hearing Officers for delisting hearings.\12\
---------------------------------------------------------------------------
\10\ See CHX Art. XII, Rule 5(e), ``Appointment of Hearing
Officer.'' Specifically, the rule states that the CEO should give
reasonable consideration to a prospective Hearing Officer's
professional competence and reputation, experience in the securities
industry, familiarity with the subject matter involved, the absence
of bias and any conflict of interest, and any other relevant
factors.
\11\ See CHX Art. XII, Rule 5(h), ``Impartiality of Hearing
Officer.'' The rule permits a respondent to file a motion seeking
the disqualification of a Hearing Officer for bias or conflict of
interest within 15 days of the Hearing Officer's appointment.
\12\ See CHX Art. XXVIII, Rule 4(d).
---------------------------------------------------------------------------
D. Elimination of Redundant Procedures
The proposal eliminates the summary hearing process in current CHX
Art. XII, Rule 2(b), ``Summary Hearing and Penalty,'' which the
Exchange believes is redundant of other CHX disciplinary processes and,
therefore, unnecessary. Similarly, the proposal deletes the suspension
and termination rules applicable to specialists, odd-lot dealers, and
market makers in CHX Articles XXX, XXXI, and XXXIV, respectively,
because the Exchange believes that these provisions are obsolete and
redundant of the Emergency Suspension provisions provided under CHX
Art. VII, Rule 2.
E. Appeal of Disciplinary Proceedings
The proposal revises CHX Art. XII, Rule 6 to allow the Exchange, as
well as a respondent, to appeal decisions to a Judiciary Committee.\13\
Similarly, the proposal revises CHX Art. XXVIII, Rule 4(e) to allow the
Exchange, as well as an issuer, to appeal the decision of a Hearing
Officer in a delisting proceeding.
---------------------------------------------------------------------------
\13\ Specifically, the revised rule allows the Exchange to
appeal an order issued under CHX Art. XII, Rules 2(b), 4(b), and 5.
---------------------------------------------------------------------------
In addition, the proposal streamlines the current appellate review
process for disciplinary actions. Currently, appeals are heard first by
a Judiciary Committee, then by the Executive Committee and finally, on
a discretionary basis, by the Board.\14\ The proposal eliminates
appellate review by the Executive Committee and provides that appeals
will be heard by a Judiciary Committee and, on a discretionary basis,
by the full Board.\15\ The Exchange believes that the revised
procedures should reduce the time required to reach a final judgment,
thus contributing to the fair and effective enforcement of the
Exchange's rules.
---------------------------------------------------------------------------
\14\ See CHX Art. XII, Rule 6.
\15\ See CHX Art. XII, Rule 6.
---------------------------------------------------------------------------
F. Failure to Promptly Pay Fines
Under CHX Art. XIV, Rule 10, ``Failure to Pay Debts,'' a
Participant who fails to pay a fine owed to the Exchange within 60 days
may be suspended, after due notice, until payment is made. The proposal
revises this rule to authorize the Exchange to initiate a disciplinary
proceeding under Art. XII against a Participant or associated person
for the failure to pay a debt owed to the Exchange. The Exchange
believes that the revised rule will provide the Exchange with the
flexibility to assess additional fines or other sanctions, either in
lieu of or in addition to a suspension, as an added inducement to avoid
late payment of a fine owed to the Exchange.
G. Procedural Changes
The proposal revises several CHX rules to provide greater clarity
to the Exchange's disciplinary and delisting procedures. In this
regard, the proposal sets forth clear timeframes for responding to
charges, scheduling hearings, filing motions, and issuing orders.\16\
The proposal also: (i) Specifies
[[Page 55039]]
the information that must be included in certain notices; \17\ (ii)
creates limited rights to prehearing discovery for all parties to a
proceeding; \18\ (iii) sets timeframes for motions and appeals; \19\
(iv) confirms that the Board or the Executive Committee could direct
the CRO to initiate a disciplinary proceeding; \20\ (v) confirms that a
Hearing Officer must make specific findings as to each proffered charge
and impose an appropriate sanction for violations that are found to
have occurred; \21\ (vi) clarifies that fines assessed under the
summary procedure of CHX Art. XII, Rule 2 are not publicly reported,
except as may be required by Rule 19d-1 under the Act; \22\ and (vii)
confirms that the three-person Board panel that hears an appeal from an
emergency suspension decision will consist of at least two public
directors on the Board.\23\ The proposal also adopts provisions that
set forth the required content of settlement agreements in disciplinary
proceedings.\24\
---------------------------------------------------------------------------
\16\ For example, the proposal revises CHX Art. XII, Rule 5, to
require that: (i) A respondent file a written answer to charges
within 30 days from the date of service of the charges; (ii) the
Hearing Officer schedule a hearing within 30 days after the filing
of an answer; and (iii) the Hearing Officer ordinarily issue an
order within 90 days after the conclusion of a hearing. Similarly,
the proposal revises CHX Art. XXVIII, Rule 4(d), ``Hearing,'' to
require that a Hearing Officer in a delisting hearing to schedule a
hearing within 30 days after receipt of an issuer's demand for a
hearing, and that the Hearing Officer issue an order within 90 days
after the conclusion of a hearing.
\17\ Specifically, the proposal revises Article XII, Rule 1(b),
``Written Charges,'' to state that a respondent must be served with
written charges identifying with specificity each Exchange rule or
provision of the federal securities laws alleged to have been
violated. The proposal revises CHX Art. XII, Rule 2(a), ``Minor
Infraction,'' to state explicitly that the person against whom a
fine is imposed shall be served with a written statement (the
``Notice of Fines''), signed by the CRO or his designee, setting
forth: (i) The rule(s) or policy(ies) alleged to have been violated;
(ii) the act or omission constituting each such violation; (iii) the
fine imposed for each such violation; (iv) the date on which such
action is taken; and (v) the date on which such determination
becomes final and such fine becomes due and payable to the Exchange,
or on which such action must be contested. The Exchange represents
that it currently provides this notice to persons against whom a
fine is imposed, and that the language added to the rule confirms
that this practice should continue.
\18\ The parties must exchange a list of witnesses that they
plan to call to testify at least 30 days before the hearing. See CHX
Art. XII, Rule 5(c)(1). In addition, any party may request
production of some or all of the documents that an opposing party
intends to introduce as evidence. This request must be made at least
45 days prior to the hearing, and the documents must be produced at
least 30 days before the hearing. See CHX Art. XII, Rule 5(c)(2). A
party that does not identify witnesses or produce requested
documents will be barred from presenting those witnesses or
documents at the hearing, unless the party seeking to introduce the
evidence can show good cause for the failure to earlier identify the
witnesses or documents and can establish that the failure to allow
the presentation of the evidence would result in undue hardship to
that party. See CHX Art. XII, Rules 5(c)(1) and 5(c)(2).
\19\ See, e.g., CHX Art. XII, Rule 5(h) (regarding motions to
disqualify the hearing examiner) and CHX Art. XII, Rule 6(a)
(regarding appeals to the Judiciary Committee).
\20\ See CHX Art. XII, Rule 1(b)(2).
\21\ See CHX Art. XII, Rule 5(f).
\22\ See CHX Art. XII, Rule 2(a).
\23\ See CHX Art. VII, Rule 2(b).
\24\ See CHX Art. XII, Rule 1(d). The proposal deletes the
current provisions in CHX Art. XII, Rule 2(c) governing settlement
agreements and adopts new Rule 1(d) of CHX Art. XII. This provision
confirms that a respondent could settle a proceeding at any time by
entering into a settlement agreement with the Exchange without
admitting or denying the charges, except as to jurisdiction, which
must be admitted. The settlement agreement must contain a waiver by
the respondent of all rights to appeal and a proposed penalty to be
imposed, which must be reasonable under the circumstances and
consistent with the seriousness of the alleged violations. The CRO
will have the sole right to approve a proposed settlement agreement.
---------------------------------------------------------------------------
H. Removal of Securities
The proposal revises CHX Art. XXVIII, Rule 4, ``Removal of
Securities,'' to provide that the Listing Unit of the CHX's Market
Regulation Department, rather than the Board, will make the initial
determination to delist a security. The proposal also eliminates the
CEO's review of a Hearing Officer's findings with respect to a
delisting. In addition, the proposal confirms that a Hearing Officer's
decision is final unless a review is specifically demanded,\25\ and
sets forth the process and standards that the Executive Committee must
follow with respect to any appeal of a Hearing Officer's decision.\26\
---------------------------------------------------------------------------
\25\ Appeals from a Hearing Officer's decision would be heard by
the Executive Committee. See CHX Art. XXVIII, Rule 4(e).
\26\ See CHX Art. XXVIII, Rules 4(d) and (e). As noted above,
the proposal also adopts provisions setting forth the criteria that
a CEO must consider in selecting a Hearing Officer for a delisting
proceeding and provides a process for objecting to a Hearing Officer
on the grounds of bias or conflict of interest. See notes 10-12,
supra, and accompanying text.
---------------------------------------------------------------------------
I. Role of Exchange Counsel
The proposal clarifies the role of Exchange counsel in disciplinary
and delisting proceedings by providing that, in both types of
proceedings, the Exchange counsel acting as counsel to the Hearing
Officer may not be an employee of the CHX's Market Regulation
Department and may not have directly participated in any examination,
investigation, or decision associated with the initiation or conduct of
the proceeding.\27\
---------------------------------------------------------------------------
\27\ See CHX Art. XII, Rule 5(g) and CHX Art. XXVIII, Rule 4(d).
---------------------------------------------------------------------------
J. Additional Changes
The proposal also revises several terms used throughout CHX Art.
XII. For example, the proposal revises CHX Art. XII to substitute the
term ``respondent'' for ``accused'' and ``hearing'' for ``trial.''
K. Effective Date of the Rule Changes
The Exchange states that the rule changes contained in the proposal
will apply to any formal disciplinary proceeding, suspension decision,
or delisting proceeding that the Exchange initiates on or after a date
that immediately follows the date of the Commission's approval. The
Exchange will issue a notice to Participants announcing this date.
L. Amendment No. 2
CHX Art. VII, Rule 2(a)(1)(i), as amended, provides the Exchange
with emergency suspension authority over a Participant that has failed
to perform its contracts, is insolvent, or is in such financial or
operational condition or otherwise conducting its business in such a
manner that the Participant cannot be permitted to continue in business
with safety to its customers, creditors, or the Exchange, including a
reasonable belief that the Participant is violating and will continue
to violate any provision of the CHX's rules, the federal securities
laws or rules or regulations thereunder, or any condition or
restriction imposed pursuant to the provisions of CHX Art. XI, Rule
3(d), or CHX Art. XI, Rule 8(a). Amendment No. 2 revises the proposal
to: (1) Clarify that the Exchange will use its emergency suspension
authority under CHX Art. VII, Rule 2(a)(1)(i) only with respect to CHX
Participants, and not with respect to associated persons of CHX
Participants; (2) confirm that the Exchange will not use its emergency
suspension authority under CHX Art. VII, Rule 2(a)(1)(i) unless the
Exchange believes that the rule violation suggests that a Participant
is in such financial or operational difficulty that the Participant
cannot be permitted to continue to do business as a Participant with
safety to investors, creditors, other Participants, or the Exchange;
and (3) clarify that only a Participant, but not an associated person
of a Participant, may hold a trading permit. The proposal also revises
CHX Art. VII, Rule 2(a)(1) to allow the Exchange to use its emergency
suspension authority with respect to an associated person who has been
barred or suspended from being associated with a member of any SRO.
III. Discussion
After careful review, 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
[[Page 55040]]
a national securities exchange.\28\ In particular, the Commission finds
that the proposed rule change, as amended, is consistent with Section
6(b)(1) of the Act,\29\ which requires, among other things, that a
national securities exchange have the capacity to enforce compliance by
its members and persons associated with its members with the provisions
of the Act and the rules and regulations thereunder, and with the rules
of the exchange; with Section 6(b)(5) of the Act,\30\ which requires,
among other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, 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; and with Section 6(b)(7) of the Act,\31\ which requires that
the rules of a national securities exchange provide a fair procedure
for the disciplining of members and persons associated with members. In
addition, the Commission finds that the proposal, as amended, is
consistent with Section 6(d)(1) of the Act,\32\ which requires, among
other things, that a national securities exchange, in determining
whether a member or associated person should be disciplined, bring
specific charges, notify the member or associated person of, and give
him an opportunity to defend against the charges, and keep a record.
The Commission also finds that the proposal, as amended, is consistent
with Section 6(d)(3) of the Act,\33\ which, among other things, allows
a national securities exchange to summarily suspend a member or person
associated with a member who has been and is expelled or suspended from
any SRO or barred or suspended from being associated with a member of
any SRO, and to summarily suspend a member who is in such financial or
operating difficulty that the exchange determines and so notifies the
Commission that the member cannot be permitted to continue to do
business as a member with safety to investors, creditors, other
members, or the exchange.
---------------------------------------------------------------------------
\28\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\29\ 15 U.S.C. 78f(b)(1).
\30\ 15 U.S.C. 78f(b)(5).
\31\ 15 U.S.C. 78f(b)(7).
\32\ 15 U.S.C. 78f(d)(1).
\33\ 15 U.S.C. 78f(d)(3).
---------------------------------------------------------------------------
The Commission finds that the rule changes \34\ requiring the CRO,
rather than the CEO, to authorize the institution of disciplinary and
related proceedings could help to reduce the appearance of, or
potential for, a conflict of interest in the institution of such
proceedings, thereby helping the Exchange to provide a fair procedure
for disciplining members, as required by Section 6(b)(7) of the
Act,\35\ and helping to separate the CHX's business and regulatory
functions. Similarly, the Commission finds that the proposal to
eliminate the provisions in current CHX Art. XII, Rule 5(b) that allow
the CEO to review and modify a Hearing Officer's proposed decision
should help to eliminate the appearance of a conflict of interest in
the Exchange's disciplinary process. The Commission believes that the
proposal to amend CHX Art. XI, Rules 3(d) and 8(a), to allow the CRO,
as well as the CEO, to authorize proceedings under those rules is
reasonable because those rules govern matters that raise both business
and regulatory concerns.
---------------------------------------------------------------------------
\34\See note 7, supra, and accompanying text.
\35\ Although the CRO reports to the CEO, the CRO must report
not less than quarterly to the Board's Regulatory Oversight
Committee, which is composed predominately of independent directors
and assists the Board in monitoring the design, implementation, and
effectiveness of the CHX's regulatory programs. See CHX Article IV,
Rule 4, ``Regulatory Oversight Committee.''
---------------------------------------------------------------------------
The Commission finds that the adoption of criteria that the CEO
should consider in selecting a Hearing Officer for disciplinary
proceedings, and the procedures for objecting to a Hearing Officer in a
disciplinary proceeding,\36\ are consistent with Section 6(b)(7) of the
Act because they should help the Exchange to provide a fair procedure
for disciplining members. The Commission finds that the comparable
provisions relating to the criteria for selection of Hearing Officers
for delisting proceedings \37\ are consistent with Section 6(b)(5) of
the Act because they should help the Exchange to provide a fair
procedure for delisting proceedings.
---------------------------------------------------------------------------
\36\ See notes 10-12, supra, and accompanying text.
\37\ See CHX Art, XXVIII, Rule 4(d).
---------------------------------------------------------------------------
Similarly, the Commission believes that the rule changes
prohibiting the person acting as Exchange counsel to the Hearing
Officer in a disciplinary or delisting proceeding from being an
employee of the CHX's Market Regulation Department or from having
directly participated in any examination, investigation, or decision
associated with the initiation or conduct of the proceeding \38\ should
help the Exchange to provide fair disciplinary and delisting
proceedings by ensuring that such counsel did not participate in the
initiation or conduct of the matter before the Hearing Officer.
---------------------------------------------------------------------------
\38\ See CHX Art, XII, Rule 5(g) and CHX Art. XXVIII, Rule 4(d).
---------------------------------------------------------------------------
The Exchange believes that the procedures in current CHX Art. XII,
Rule 2(b), and in CHX Articles XXX, XXXI, and XXXIV are obsolete and
redundant of the emergency suspension provisions of CHX Art. VII, Rule
2.\39\ Accordingly, the Commission believes that the deletion of these
provisions should simplify the CHX's rules.
---------------------------------------------------------------------------
\39\ See Section II.D., supra.
---------------------------------------------------------------------------
The Commission finds that the rule changes \40\ allowing the
Exchange to appeal the decision of the Hearing Officer in disciplinary
and delisting proceedings are consistent with Section 6(b)(1) of the
Act because these provisions could enhance the Exchange's ability to
enforce its rules and the federal securities laws and the rules and
regulations thereunder. In addition, the Commission believes that the
changes to CHX Art. XII, Rule 6 that eliminate Executive Committee
review of Judiciary Committee decisions could allow disciplinary
matters to be resolved more efficiently. The Commission notes that
respondents will continue to have the ability to appeal a Hearing
Officer's decision to the Judiciary Committee, and that the Board will
continue to have the ability to review decisions of the Judiciary
Committee on a discretionary basis.\41\ Accordingly, although the
proposal eliminates Executive Committee review of decisions by the
Judiciary Committee, the Commission believes that the CHX's rules will
continue to provide a fair procedure for disciplining members,
consistent with Section 6(b)(7) of the Act.
---------------------------------------------------------------------------
\40\ See Section II.E., supra.
\41\ See CHX Art. XII, Rule 6.
---------------------------------------------------------------------------
The Commission believes that the amendments to CHX Art. XIV, Rule
10 authorizing the Exchange to initiate a disciplinary proceeding under
CHX Art. XII for failure to pay a debt owed to the Exchange could
facilitate the Exchange's collection of fines by providing the Exchange
with an additional mechanism for sanctioning Participants, associated
persons, and other persons or entities subject to the CHX's
jurisdiction that fail to pay fines within the time prescribed in the
CHX's rules.
As described more fully in Section II.G., supra, the proposal also
revises the CHX's rules to, among other things, set timeframes for
filing motions and appeals, scheduling hearings, and issuing orders;
provide for pre-hearing discovery, with timeframes for exchanging
witness lists and producing documents; and specify the required content
of settlement agreements in
[[Page 55041]]
disciplinary proceedings. The Commission finds that these changes
should help the Exchange to provide a fair procedure for disciplining
members, as required by Section 6(b)(7) of the Act, by adding clarity
and specificity to the CHX's disciplinary rules and by establishing
timeframes for respondents and Hearing Officers that could facilitate
the timely resolution of disciplinary matters.
The Commission finds that proposal to revise CHX Art. XII, Rule
1(b) and CHX Art. XII, Rule 2(a) \42\ to clarify in its rules that the
Exchange must provide a respondent with written charges identifying the
laws or rules allegedly violated is consistent with Section 6(d)(1) of
the Act, which, among other things, requires that a national securities
exchange, in a proceeding to determine whether to discipline a member
or associated person, bring specific charges, notify the member or
person of, and give him an opportunity to defend against, the charges,
and keep a record.\43\ Similarly, the Commission finds that the
proposed changes to CHX Art. XII, Rule 5(f) requiring, among other
things, that a Hearing Officer's order make specific findings as to
each charge brought by the Exchange and, where a violation is found,
impose an appropriate sanction,\44\ is consistent with the requirements
in Section 6(d)(1)(B) and (C) of the Act that a national securities
exchange's determination to impose a disciplinary sanction be supported
by a statement setting forth the specific law, rule, or regulation
violated and the sanction imposed and the reasons therefor.
---------------------------------------------------------------------------
\42\ See note 17, supra.
\43\ The Exchange has represented that it currently provides
respondents with written notice of the charges and that the proposed
rule change is intended to confirm that this practice should
continue.
\44\ See Section II.G., supra.
---------------------------------------------------------------------------
As described more fully above,\45\ the proposal revises CHX Art.
VII, Rule 2(a)(1) to clarify the manner in which the Exchange would use
its emergency suspension authority and to allow the Exchange to use its
emergency authority with respect to a Participant that it believes is
violating any condition or restriction imposed pursuant to the
provisions of CHX Art. XI, Rule 3(d), or CHX Art. XI, Rule 8(a).\46\
The Commission finds that these changes are consistent with Section
6(d)(3)(B) of the Act, which allows a national securities exchange to
summarily suspend a member who is in such financial or operating
difficulty that the exchange determines and so notifies the Commission
that the member cannot be permitted to continue to do business as a
member with safety to investors, creditors, other members, or the
exchange. Similarly, the Commission finds that the revisions to CHX
Art. VII, Rule 2(a)(1)(ii) that allow the Exchange to use its emergency
authority with respect to an associated person barred or suspended from
being associated with a member of any SRO is consistent with Section
6(d)(3)(A) of the Act, which allows a national securities exchange to
summarily suspend a member or associated person who has been and is
expelled or suspended from any SRO or barred or suspended from being
associated with a member of any SRO.
---------------------------------------------------------------------------
\45\ See Section II.L., supra.
\46\ CHX Art. XI, Rule 3(d) allows the CEO or the CRO to impose
restrictions or conditions on a Participant that fails to maintain
necessary operational personnel or facilities or engages in an
activity that casts doubt on the Participant's continued compliance
with the CHX's net capital requirements. CHX Art. XI, Rule 8(a)
allows the CEO or the CRO to impose conditions or restrictions on a
Participant that fails to maintain adequate operational capability,
including making and keeping current books and records in accordance
with Rules 17a-3 and 17a-4 under the Act, 17 CFR 240.17a-3 and 17a-
4.
---------------------------------------------------------------------------
In addition, the proposal confirms that the three-person Board
panel that hears an appeal from an emergency suspension will include
two public members of the Board.\47\ The Commission believes that this
change could help to ensure the impartiality of the panels that hear
appeals from emergency suspensions, thereby helping the Exchange to
provide a fair procedure for disciplining members and associated
persons, as required by Section 6(b)(7) of the Act.
---------------------------------------------------------------------------
\47\ See CHX Art. VII, Rule 2(b).
---------------------------------------------------------------------------
The Commission finds that the changes to CHX Art. XXVIII, Rule 4,
relating to delisting procedures, are intended to clarify the CHX's
delisting procedures and to ensure the fairness of the CHX's delisting
proceedings and thus are consistent with the Act. In this regard, the
proposal eliminates the CEO's review of a Hearing Officer's findings
with respect to a delisting, thereby avoiding the appearance of, or
potential for, a conflict of interest. Similarly, the proposal revises
the CHX's rules to provide that the Listing Unit of the CHX's Market
Regulation Department, rather than the Board, will make the initial
determination to delist a security, thereby ensuring that the entity
that initiates a delisting will not participate in an appellate review
of the initial delisting determination. An issuer may request a hearing
of a delisting before a Hearing Officer, and the Hearing Officer's
decision will be final unless either the issuer or the Exchange
requests review of the decision by the Executive Committee of the CHX
Board.\48\ The Executive Committee must uphold the Hearing Officer's
decision if it finds that the Hearing Officer's factual conclusions are
supported by substantial evidence and his or her decision is not
arbitrary, capricious, or an abuse of discretion.\49\ The Commission
believes that adopting these processes and standards for review should
help promote fairness with respect to the CHX's appellate process.
---------------------------------------------------------------------------
\48\ See CHX Art. XXVIII, Rule 4(e).
\49\ See id.
---------------------------------------------------------------------------
The Commission finds that the technical changes to revise certain
terms used throughout the CHX's disciplinary rules are consistent with
the Act.
The Commission finds good cause for approving Amendment No. 2 prior
to the thirtieth day after the date of publication of notice of filing
thereof in the Federal Register. As described more fully above,
Amendment No. 2 clarifies the proposal by confirming that the Exchange
will use its emergency suspension authority under CHX Art. VII, Rule
2(a)(1)(i) only with respect to Participants and only when the Exchange
believes that a rule violation suggests that a Participant is in such
financial or operational difficulty that the Participant cannot be
permitted to continue to do business as a Participant with safety to
investors, creditors, other Participants, or the Exchange. Accordingly,
the Commission finds that it is consistent with Sections 6(b)(5) and
19(b) of the Act to approve Amendment No. 2 on an accelerated basis.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 2, including whether Amendment No. 2
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 Number SR-CHX-2005-06 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 20549-1090.
All submissions should refer to File Number SR-CHX-2005-06. This file
[[Page 55042]]
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 the filing
also will be available for inspection and copying at the principal
office of the Exchange. 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-CHX-2005-06 and should be submitted on or before October 11, 2006.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\50\ that the proposed rule change (SR-CBOE-2005-06), as amended,
is approved.
---------------------------------------------------------------------------
\50\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\51\
---------------------------------------------------------------------------
\51\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Nancy M. Morris,
Secretary.
[FR Doc. E6-15588 Filed 9-19-06; 8:45 am]
BILLING CODE 8010-01-P
