[Federal Register Volume 65, Number 211 (Tuesday, October 31, 2000)]
[Notices]
[Pages 65034-65037]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-27860]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-43468; File No. SR-Amex-00-23]
Self Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the American Stock Exchange LLC Relating to Member Firm
Transactions With Exchange Employees
October 20, 2000.
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 April 13, 2000, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission or SEC'') the proposed rule change as described in Items
I, II, and III below, which Items have been prepared by the Exchange.
On September 25, 2000, the Amex filed Amendment No. 1 to the
proposal.\3\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as amended, from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Letter from Bruce Ferguson, Associate General Counsel, Legal
& Regulatory policy, Amex, to Jack Drogin, Assistant Director,
Division of Market Regulation, Commission, September 25, 2000
(``Amendment No. 1''). Amendment No. 1 made a revision to the text
of Amex Rule 417(c) to remove a specific reference to the Code of
Conduct of the National Association of Securities Dealers, Inc.
(``NASD'').
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change.
The Exchange is proposing to amend Amex rules relating to member
firm transactions with Exchange employees. proposed new language is
italicized, proposed deletions are in brackets.
* * * * *
Rule 416. [Accounts of Employees of Exchange and Members]
Member Employee Transactions with Another Member Organization
No member or member organization shall open a cash or margin
account or execute any transaction in securities or commodities in
which an employee of [the Exchange or of any corporate subsidiary of
the Exchange or of any] another is directly or indirectly interested
without the prior written consent of the employer. Where such prior
consent has been obtained, duplicate confirmations and account
statements shall be sent to the employer.
Commentary
[[Page 65035]]
[.01 Employees of Exchange--An employee of the Exchange, who
wishes to open a securities or commodities account shall apply for
permission from the Human Resources Department of the Exchange.]
[.02] .01 The requirement to send duplicate conformations and
statements shall be as stated in Commentary .02 to Rule 415.
Amendments.
March 3, 1954.
December 9, 1993.
May 16, 1995.
* * * * *
Rule 15. Loans by [Exchange Officers] Members
Without the prior approval of the Board of Governors, (i) no
member, member organization, approved person, employee or any employee
or any employee pension, retirement or similar plan of any member
organization (``Member'') shall directly or indirectly make any loan of
money or securities to, or obtain any such loan from, any member of the
Board of Governors, any member of any committee of the Exchange, or any
Trustee of the Gratuity Fund (``Designated Person'') and (ii) no
[member of the Board of Governors or of any committee of the Exchange,
no Trustee of the Gratuity Fund and no officer or employee of the
Exchange] Such Designated Person shall directly or indirectly make any
such loan [of money or securities] to, or obtain any such loan form,
any [member, member organization, approved person, employee or any
employee pension, retirement or similar plan of any member
organization] Member, unless such loan be:
(a) Fully secured by readily marketable collateral, or
(b) Made by a Governor, committee member of Trustee to, or obtained
by a Governor, committee member or Trustee from, the member
organization of which he is a member or employee or a member or
employee therein or a party to a registered joint account in which such
Governor, committee member or Trustee participates.
Amendments.
September 6, 1962.
June 1, 1970.
* * * * *
[Rule 348. Gratuities to Employees of Exchange]
[No member or member organization may, without the prior written
approval of the Exchange, employ or give any compensation or gratuity
to any employee of the Exchange or any employee of any corporate
subsidiary of the Exchange.]
[Amendment.
July 29, 1965, effective August 16, 1965.]
[Commentary]
[.01 Gratuity Defined.--A gratuity is a gift of any nature.
Pursuant to Exchange policy, however, gratuities valued at $50 or less
in total to any one person during a calendar year are considered an
exception to Rule 348, and prior written approval of the Exchange is
not required.]
[.02 Records.--Records must be retained by members and member
organizations as to any gratuity as required by Commentary 2 to Rule
347 above.]
[.03 Obtaining Written Approval.--Requests for approval of any
employment or gratuity under Rule 348 should be directed to the
Secretary's Office.]
[Amendments.
Adopted July 29, 1965, effective August 16, 1965.
December 14, 1977.]
* * * * *
Rule 417. Transactions Involving Exchange Employees
(a) When a member or member organization has actual notice that an
Exchange employee has a financial interest in, or controls trading in,
an account, the member or member organization shall promptly obtain and
implement an instruction from the Exchange employee directing that
duplicate account statements be provided by the member or member
organization to the Exchange.
(b) No member or member organization shall directly or indirectly
make any loan of money or securities to any Exchange employee;
provided, however, that this prohibition does not apply to loans made
in the context of disclosed, routine banking and brokerage agreements,
or loans that are clearly motivated by a personal or family
relationship.
(c) No member or member organization shall directly or indirectly
give, or permit to be given, anything of more than nominal value to any
Exchange employee who has responsibility for a regulatory matter that
involves the member or member organization. For purposes of this
subsection, the term ``regulatory matter'' includes, but is not limited
to, examinations, disciplinary proceedings, membership applications,
listing applications, delisting proceedings, and dispute resolution
proceedings that involve the member or member organization. Members and
member organizations may not otherwise give business gifts or
courtesies to Exchange employees other than to the extent Exchange
employees are permitted to accept such gifts and courtesies under the
Code of Conduct applicable to Exchange employees. Records of all gifts
and courtesies shall be kept and retained by the member or member
organization for the period specified in SEC Rule 17a-4.
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 Exchange 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 Exchange 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
In 1998, the Amex completed a transaction pursuant to which it
joined the family of companies headed by the NASD. The American Stock
Exchange, Inc. transferred substantially all of its assets and
liabilities to the American Stock Exchange LLC, a new limited liability
company controlled by the NASD.\4\ The Exchange therefore proposes to
amend its rules relating to member firm transactions with Exchange
employees so that they conform with the NASD Code of Conduct.
Specifically, the Exchange proposes to amend Amex Rule 15 (Loans by
Exchange Officers) and Amex rule 416 (Accounts of Employees of Exchange
and Members), to delete Amex Rule 348 (Gratuities to Employees of
Exchange), and to add new Amex Rule 417 (Transactions Involving
Exchange Employees).\5\
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\4\ See Letter, from James F. Duffy, Executive Vice President
and General Counsel, Legal and Regulatory Policy, Amex, to Lori
Richards, Director, Office of Compliance Inspections and
Examinations (``OCIE''), Commission, February 5, 1999.
\5\ The NASD has filed a proposed rule change to adopt a new
rule very similar to new Amex Rule 471 (SR-NASD-00-50).
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a. Member Loans to Exchange Employees. The NASD and Amex employees
from accepting loans from members, issuers, or any person with whom the
NASD or Amex transacts
[[Page 65036]]
business.\6\ Amex Rule 15 also prohibits Exchange employees from
accepting loans from members without prior written approval of the
Exchange, but does not specifically prohibit members from making those
loans to Exchange employees.
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\6\ NASD Code of Conduct, Section IX, Paragraph C.3.
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The SEC staff has recommended that the Amex adopt a rule expressly
prohibiting members from making loans to Amex employees, outside
routine brokerage or banking relationships.\7\ The SEC's recommendation
resulted from an OCIE examination of the ethical conduct and conflicts
of interest rules, policies, and procedures of the Exchange. The SEC
staff report noted a 1996 incident in which an Amex member made a
$70,000 loan to an Amex floor employee. When the Amex through its own
internal procedures became aware of the loan, it promptly terminated
the employees for violating its conflict of interest policies in
accepting the loan. The SEC staff has stated that rules of self-
regulatory organizations (``SROs'') should explicitly prohibit SRO
members from extending loans to SRO employees.\8\
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\7\ See Letter from Lori Richards, Director, OCIE, Commission,
to Richard Syron, Chairman and Chief Executive Officer, Amex,
November 6, 1998.
\8\ Id.
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The Amex therefore proposes to amend Amex Rule 15 to expressly
provide that no member shall make a loan to an Exchange employee
without prior approval of the Amex Board of Governors. Paragraph (b) of
new Amex Rule 417(b) would prohibit members from making loans to
Exchange employees outside of disclosed, routine banking and brokerage
agreements. Consistent with existing Code of Conduct provisions, the
prohibition on member loans to Exchange employees in new Amex Rule
417(b) would not apply to loans that are clearly motivated by a family
or personal relationship. Thus, for example, a registered
representative would not be precluded from making a personal loan to an
adult child who works at the Amex.
b. Brokerage Accounts of Exchange Employees. The NASD Code of
conduct requires disclosure of all security and commodity accounts that
an employee maintains and accounts in which an employee has a financial
interest or controls trading.\9\ Employees are required to instruct the
institutions where such accounts are maintained to provide duplicate
account statements (but not confirmations) to the NASD Office of
General Counsel, which records transaction information in a database.
The database can generate certain types of exception reports (i.e.,
reports of apparent Code violations). These reports are forwarded to
department heads for follow-up action.
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\9\ NASD Code of Conduct, Section VIII, Paragraph C.
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Commentary .01 to Amex Rule 416 currently requires members to
obtain the Exchange's prior written approval before opening an account
for an Exchange employees and to provide duplicate confirmations and
statements to the Exchange. To conform Amex rules to the NASD Code of
Conduct, the Exchange approval requirement for the opening of accounts
and the requirement to furnish duplicate confirmations are being
deleted. The requirements to provide duplicate statements to the
Exchange is being retained. The Amex also proposes to adopt new Amex
Rule 417(a), which provides that when a member has actual notice that
an Exchange employee has a financial interest in an account or controls
trading in an account, duplicate account statements shall be provided
by the member to the Exchange.
The Amex believes that the elimination of the Amex approval
requirement for the opening of employee accounts will substantially
lessen the NASD's administrative burden with respect to these accounts.
The Amex represents that the proposed rule change will simply require
employees to obtain a duplicate instruction form (available on OASIS,
the NASD's Intranet), complete and sign the form, and provide it to the
broker/dealer at which the employee has, or wishes to open, an account.
The provision of duplicate statements by the member would allow the
NASD to then properly monitor trading in employee accounts.
c. Member Gifts to Exchange Employees. Currently under Amex Rule
348, Amex members must obtain approval from the Corporate Secretary's
Office before giving an Exchange employee gifts valued at over $50 per
year. The Secretary's Office does not approve gifts that exceed the $50
threshold for employees in the Exchange's Member Firm Regulation area.
There is no pre-approval mechanism under the NASD Code of
Conduct.\10\ Employees are prohibited from accepting any business
gifts, including cash or cash equivalents (e.g., gift certificates) and
gifts of tickets (e.g., tickets to a sporting event), from any NASD or
Amex member, Nasdaq or Amex issuer, or any person or entities that are
involved in any matter in which the employee is involved.\11\ Where
gifts are permissible, they may not exceed $100 in aggregate value from
a single source during a calendar year. All gifts, regardless of value,
must be reported.\12\ At least once each quarter, department heads are
required to review all gifts reported by their staffs.\13\
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\10\ NASD Code of Conduct, Section IX, Paragraph B.1.
\11\ NASD Code of Conduct, Section IX, Paragraph C.
\12\ NASD Code of Conduct, Section IX, Paragraph B.1.
\13\ NASD Code of Conduction, Section IX, Interpretation 3.
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To conform Amex rules to the NASD Code of Conduct, Amex Rule 348
(Gratuities to Employees of Exchange) will be deleted and replaced with
new Amex Rule 417(c), a provision that parallels the NASD Code of
Conduct. Under paragraph (c) of new Amex Rule 417, members are
permitted to give non-cash business gifts with an aggregate annual
value of $100 to Exchange employees when no conflict of interest
exists, but members are prohibited from giving business gifts or
courtesies of more than nominal value to any Exchange employee who has
responsibility for a specific regulatory matter that involves the
member. A ``regulatory matter'' would include such matters as
examinations, disciplinary proceedings, membership applications,
listing applications, delisting proceedings, and dispute resolution
proceedings involving the member. The proposed rule would permit
members to give items of nominal value to employees responsible for
regulatory matters affecting the member. The Amex represents that, for
example, a member would be permitted to offer minor refreshments, such
as a soft drink or coffee, to Amex employees conducting an on-site
examination.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with section 6(b) of the Act \14\ in general, and furthers the
objectives of section 6(b)(5) \15\ in particular, in that it is
designed to prevent fraudulent and manipulative acts and practices.
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\14\ 15 U.S.C. 78f(b).
\15\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden or Competition
C. Self-Regulatory Organizations Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange did not solicit or receive written comments on the
proposed rule change.
[[Page 65037]]
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, 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, as amended, is consistent with the Act. Persons making written
submissions should file six copies thereof with the Secretary,
Securities and Exchange Commission, 450 Fifth Street, NW., Washington,
DC 20549-0609. 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 at the Commission's Public Reference Room.
Copies of such filing will also be available for inspection and
copying at the principal office of the Exchange. All submissions should
refer to File No. SR-Amex-00-23 and should be submitted by November 21,
2000.
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\1\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority. \16\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-27860 Filed 10-30-00; 8:45 am]
BILLING CODE 8010-01-M