[Federal Register: July 15, 2004 (Volume 69, Number 135)]
[Notices]
[Page 42472-42473]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15jy04-107]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49991; File No. SR-Amex-2004-49]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change To Allow Amex Hearing Officers
to Preside Over Default and Settlement Proceedings Without Empanelling
Members of the Hearing Board To Serve on an Amex Disciplinary Panel
July 9, 2004.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 28, 2004, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Amex proposes to amend Section 1(b) of Article V of the Amex
Constitution, and Rule 2(b) of the Amex Rules of Procedure in
Disciplinary Matters, to allow Amex hearing officers to preside over
default and settlement proceedings without empanelling members of the
Hearing Board to serve on an Amex Disciplinary Panel. The text of the
proposed rule change is available at the Amex and at the Commission.
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 its proposal and discussed any
comments it received regarding the proposal. 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
The Exchange proposes to amend Article V, Section 1(b) of the Amex
Constitution, and Rule 2(b) of the Amex Rules of Procedure in
Disciplinary Matters, to allow Amex hearing officers to preside over
default and settlement proceedings without empanelling members of the
Hearing Board to serve on an Amex Disciplinary Panel (``Disciplinary
Panel'' or ``Panel''). Article V, Section 1(b) of the Amex Constitution
currently requires disciplinary proceedings to be held before a Panel,
which consists of a hearing officer who serves as Panel Chairman, and
two to four persons selected from the Hearing Board.\3\ Consistent with
the Amex Constitution, Rule 2(b) of the Rules of Procedure in
Disciplinary Matters states that the Panel Chairman must review the
Statement of Charges initiating a disciplinary proceeding or the
Stipulation of Facts and Consent to Penalty (``Stipulation''), and
select members of the Hearing Board to serve on a Disciplinary Panel.
The Amex believes that the requirement to appoint panelists from the
Hearing Board, which includes vetting each panelist's background for
experience and conflicts of interest, can cause unnecessary delays in
resolving default and settlement proceedings. There are no exceptions
to the Panel selection process in default and settlement hearings, and
the Exchange believes that the uncontested nature of such proceedings
warrants a more efficient and cost-effective approach.\4\
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\3\ Exchange Officials and other persons are appointed to the
Hearing Board in accordance with Article V, Section 1(b)(2) of the
Amex Constitution and Rule 1 of the Amex Rules of Procedure in
Disciplinary Matters. Members of the Hearing Board are not
compensated by the Exchange, but rather volunteer their time to
adjudicate Amex disciplinary matters.
\4\ The Exchange does not propose to alter the panel selection
process in contested hearings.
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A default hearing arises when a member, member organization or an
employee thereof fails to respond to a Statement of Charges. In
accordance with Article V, Section 1 of the Amex Constitution, failure
to respond to a Statement of Charges results in an admission of the
charge or charges.
A settlement hearing arises when the Exchange and a respondent
successfully negotiate a resolution to an Enforcement investigation,
which includes sanctions. The settlement may be negotiated before the
issuance of a Statement of Charges, or in connection with a Statement
of Charges before a hearing on the merits has begun. The result of a
settlement negotiation is memorialized in a Stipulation.\5\ When
presented with a Stipulation for review, a Disciplinary Panel has three
alternatives: (1) Accept the Stipulation; (2) reject the Stipulation
based on a belief that the penalty agreed upon by the parties is too
low or that the proposed settlement is otherwise inappropriate; or (3)
if the panel finds mitigating factors, lower the penalty in the
Stipulation.\6\ If the parties cannot negotiate a Stipulation that is
acceptable to the Disciplinary Panel, the matter proceeds to a
contested hearing.
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\5\ In settlement proceedings, the respondent neither admits nor
denies the allegations set forth in the Statement of Charges or the
Stipulation.
\6\ See Article V, Section 2 of the Amex Constitution and Amex
Rule 345(k).
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Given the limited number of alternatives that can be taken by the
Disciplinary Panel in default and settlement proceedings and, as
described below, the use of sanction guidelines, precedent memoranda
and the procedures for review by the Amex Adjudicatory Council
(``AAC'')\7\ and the Amex Board, the Exchange believes that it is
appropriate for the hearing officer to preside over such proceedings
without convening a full disciplinary panel.
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\7\ The AAC, which is comprised of Floor and Public Governors,
has the authority to act on behalf of the Board with respect to any
appeal or review of a disciplinary proceeding or any review of a
Stipulation. See Article II, Section 6(a) of the Amex Constitution.
Upon the request of any four of its members, the Board may review
any determination of the AAC. See Article V, Section 1(d) of the
Amex Constitution and Amex Rule 345(g).
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All disciplinary actions are subject to Amex Sanction Guidelines.
When a particular violation is not addressed by Amex Sanction
Guidelines, it is the policy of the Exchange to use NASD Sanction
Guidelines, to the extent applicable and absent sufficient reason to
depart from those guidelines. In addition, for each disciplinary
action, the Exchange will prepare a ``precedent memorandum''
highlighting factually similar cases and the penalty or penalties
associated therewith.\8\ The Amex believes that the use of sanction
guidelines and precedent memoranda ensures the fair and consistent
assessment of penalties.
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\8\ Precedent memoranda are provided to both respondents and
members of the Disciplinary Panel.
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Pursuant to Article V, Section 1(c) of the Amex Constitution and
Amex Rule 345(f), any determination or penalty imposed by a
Disciplinary Panel may be appealed to, or called for review by, the
AAC. The AAC has authority to affirm, modify or remand any
determination or
[[Page 42473]]
penalty imposed by a Disciplinary Panel. Similarly, pursuant to Article
V, Section 2 of the Amex Constitution and Amex Rule 345(k), any
Disciplinary Panel determination in connection with a Stipulation may
be called for review by the AAC. If called for review, the AAC has
authority to affirm or lower the penalty associated with the
Stipulation or to reject the Stipulation.
In view of the foregoing, the Exchange believes that a three to
five member Disciplinary Panel is not necessary in default and
settlement hearings, as such proceedings are uncontested. In default
proceedings, the facts are undisputed, as the respondent is deemed to
have admitted each allegation in the Statement of Charges. In
settlement proceedings, the Exchange and the respondent have negotiated
and agreed to the terms of a settlement as evidenced by the
Stipulation. With respect to the appropriateness of penalties assessed
in default and settlement proceedings, the hearing officer will be
informed by sanction guidelines and precedent memoranda. Moreover, in
light of the AAC and the Board's authority to review the outcome of any
disciplinary action, the Amex believes sufficient safeguards exist to
ensure the fairness of the Exchange's disciplinary process. As an added
safeguard, this proposed rule change preserves a hearing officer's
authority to select members of the Hearing Board to serve on a
Disciplinary Panel in default and settlement proceedings when the
hearing officer believes that their judgment or expertise is required.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act \9\ in general, and furthers the
objectives of Section 6(b)(7) of the Act \10\ in particular in that it
is designed to provide a fair and efficient procedure for the
disciplining of members and persons associated with members. Moreover,
the Amex believes the proposed rule change furthers the objectives of
Section 6(b)(5) of the Act \11\ in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, to
remove impediments to and perfect the mechanism of a free and open
market and a national market system, to protect investors and the
public interest, and is not designed to permit unfair discrimination
between customers, issuers, brokers, or dealers.
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\9\ 15 U.S.C. 78(f)(b).
\10\ 15 U.S.C. 78(f)(b)(7).
\11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
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 Amex consents, the Commission will:
(A) By order approve the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2004-49 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW.,
Washington, DC 20549-0609.
All submissions should refer to File Number SR-Amex-2004-49. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://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 Section, 450 Fifth
Street, NW., Washington, DC 20549. Copies of such filing also will be
available for inspection and copying at the principal office of the
Amex. 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-
Amex-2004-49 and should be submitted on or before August 5, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16046 Filed 7-14-04; 8:45 am]
BILLING CODE 8010-01-P