[Federal Register: November 17, 2004 (Volume 69, Number 221)]
[Notices]
[Page 67374-67377]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17no04-93]
[[Page 67374]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-50651; File No. SR-Amex-2004-89]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Amend Exchange Rule 341A Relating to Continuing Education for
Registered Persons
November 10, 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 November 3, 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 and
II below, which Items have been prepared by the Exchange. The Amex has
filed the proposal as a ``non-controversial'' rule change pursuant to
Section 19(b)(3)(A) of the Act \3\ and Rule 19b-4(f)(6) thereunder,\4\
which renders the proposal effective upon filing with the Commission.
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.
\3\ 15 U.S.C. 78s(b)(3)(A).
\4\ 17 CFR 240.19b-4(f)(6).
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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 Rule 341A to eliminate the
``Grandfather'' exemption to the regulatory element of the Continuing
Education (``CE'') Program. Below is the text of the proposed rule
change. Proposed new language is in italics. Deletions are in
[brackets].
Rule 341A. Continuing Education for Registered Persons
(a) Regulatory Element--No member or member organization shall
permit any registered person to continue to, and no registered person
shall continue to, perform duties as a registered person, unless such
person has complied with the continuing education requirements of
Section (a) of this Rule.
Each registered person shall complete the Regulatory Element of the
continuing education program on the occurrence of their second
registration anniversary date and every three years thereafter, or as
otherwise prescribed by the Exchange. On each occasion, the Regulatory
Element must be completed within one hundred twenty days after the
person's registration anniversary date. A person's initial registration
date, also known as the ``base date'', shall establish the cycle of
anniversary dates for purposes of this Rule. The content of the
Regulatory Element of the program shall be determined by the Exchange
for each registration category of persons subject to the rule.
[(1) Persons Exempted From the Rule--Persons who have been
continuously registered for more than ten years on July 1, 1998 shall
be exempt from participation in the Regulatory Element programs for
registered representatives, provided such persons have not been subject
to any disciplinary action within the last ten years as enumerated in
subsection (a)(3) of this Rule. A person who has been continuously
registered as a principal for more than ten years on July 1, 1998 shall
be exempt from participation in the Regulatory Element programs for
registered principals, provided such person has not been subject within
the last 10 years to any disciplinary action as enumerated in paragraph
(a)(3). In the event that a registered representative or principal, who
was exempt from participation in Regulatory Element programs
subsequently becomes the subject of a disciplinary action as enumerated
in paragraph (a)(3), such person shall be required to satisfy the
requirements of the Regulatory Element as if the date of such
disciplinary action is such persons initial registration date.]
[(2)](1) Failure to Complete--Unless otherwise determined by the
Exchange, any registered persons who have not completed the Regulatory
Element of the program within the prescribed time frames will have
their registration deemed inactive until such time as the requirements
of the program have been satisfied. Any person whose registration has
been deemed inactive under this Rule shall cease all activities as a
registered person and is prohibited from performing any duties and
functioning in any capacity requiring registration. The Exchange may,
upon application and a showing of good cause, allow for additional time
for a registered person to satisfy the program requirements.
[(3)](2) [Re-entry into Program] Disciplinary Actions--Unless
otherwise determined by the Exchange, a registered person will be
required to [re-enter] re-take the Regulatory Element of the program
and satisfy all of its requirements in the event such person:
(i) Becomes subject to any statutory disqualification as defined in
Section 3(a)(39) of the Securities Exchange Act of 1934,
(ii) Becomes subject to suspension or to the imposition of a fine
of $5,000 or more for violation of any provision of any securities law
or regulation, or any agreement with or rule or standard of conduct of
any securities governmental agency, securities self-regulatory
organization, or as imposed by any such regulatory or self-regulatory
organization in connection with a disciplinary proceeding; or
(iii) Is ordered as a sanction in a disciplinary action to [re-
enter] re-take the Regulatory Element [continuing education program] by
any securities governmental agency or securities self-regulatory
organization.
[Re-entry] The re-taking of the Regulatory Element shall commence
with [initial] participation within one hundred and twenty days of the
registered person becoming subject to the statutory disqualification,
in the case of (i) above, or the disciplinary action becoming final, in
the case of (ii) or (iii) above. The date the disciplinary action
becomes final shall be treated as such person's [initial registration]
new base date.
[(4)](3) In-Firm Delivery of the Regulatory Element--Members and
member organizations will be permitted to administer the continuing
education Regulatory Element program to their registered persons by
instituting an in-firm program acceptable to the Exchange.
The following procedures are required:
(A) through (F) No change.
(b) No change.
Commentary
.01 to .02 No change.
.03 Any registered person who has terminated association with a
registered broker or dealer and who has, within two years of the date
of termination, become reassociated in a registered capacity with a
registered broker or dealer shall participate in the Regulatory Element
of the continuing education program at such intervals that may apply
(second registration anniversary and every three years thereafter)
based on the initial registration, also known as the ``base date'',
anniversary date, rather than based on the date of reassociation in a
registered capacity.
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
[[Page 67375]]
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 Amex has prepared summaries, set forth in sections
A, B, and C below, of the most significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Amex Rule 341A specifies the CE requirements for registered persons
subsequent to their initial qualification and registration with the
Central Registration Depository (``CRD''). The CE requirements consist
of a Regulatory Element and a Firm Element.\5\ The Regulatory Element
is a computer-based education program administered by National
Association of Securities Dealers, Inc. (``NASD'') to help ensure that
registered persons are kept up to date on regulatory, compliance and
sales practice matters in the industry.\6\ Unless exempt, each
registered person is required to complete the Regulatory Element
initially within 120 days after the person's second anniversary date
and, thereafter, within 120 days after every third registration
anniversary date.\7\ There are three Regulatory Element programs: the
S201 Supervisor Program for registered principals and supervisors; the
S106 Series 6 Program for Series 6 registered persons; and the S101
General Program for Series 7 and all other registrations.
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\5\ The Firm Element of the CE Program applies to any registered
person who has direct contact with customers in the conduct of the
member's securities sales, trading and investment banking
activities, and to the immediate supervisors of such persons
(collectively called ``covered registered persons''). The
requirement stipulates that each member firm must maintain a
continuing education program for its covered registered persons to
enhance their securities knowledge, skill and professionalism. Each
firm has the requirement to annually conduct a training needs
analysis, develop a written training plan, and implement the plan.
\6\ Amex Rule 341A(a)(4), which is proposed to be renumbered
Amex Rule 341A(a)(3), permits a member firm to deliver the
Regulatory Element to registered persons on firm premises (``In-Firm
Delivery'') as an alternative to having persons take the training at
a designated center provided that firms comply with specific
requirements relating to supervision, delivery site(s), technology,
administration, and proctoring. In addition, Amex Rule
341A(a)(3)(E)(iii) requires that persons serving as proctors for the
purposes of In-Firm Delivery must be registered.
\7\ This is the current Regulatory Element schedule, as amended
in 1998.
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Approximately 135,000 registered persons currently are exempt from
the Regulatory Element. These include registered persons who, when the
CE Program was adopted in 1995, had been registered for at least ten
years and who did not have a significant disciplinary action \8\ in
their CRD record for the previous ten years (``grandfathered''
persons). These also include those persons who had ``graduated'' from
the Regulatory Element by satisfying their tenth anniversary
requirement before July 1998, when Amex Rule 341A was amended and the
graduation provision eliminated, and did not have a significant
disciplinary action in their CRD record for the previous ten years.\9\
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\8\ Generally, for purposes of Amex Rule 341A, a significant
``disciplinary action'' includes a statutory disqualification as
defined in Section 3(a)(39) of the Securities Exchange Act of 1934;
suspension or imposition of a fine of $5,000 or more, or being
subject to an order from a securities regulator to re-take the
Regulatory Element. See Amex Rule 341A(a)(3)(i)-(iii), which is
proposed to be renumbered Amex Rule 341A(a)(2)(i)-(iii).
\9\ When Amex Rule 341A was first adopted in 1995, the
Regulatory Element schedule required registered persons to satisfy
the Regulatory Element on the second, fifth, and tenth anniversary
of their initial securities registration. After satisfying the tenth
anniversary requirement, a person was ``graduated'' from the
Regulatory Element. A graduated principal re-entered the Regulatory
Element if he or she incurred a significant disciplinary action. A
graduated person who was not a principal re-entered if he or she
acquired a principal registration or incurred a significant
disciplinary action.
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At its December 2003 meeting, the Securities Industry/Regulatory
Council on Continuing Education (``Council'') \10\ discussed the
current exemptions from the Regulatory Element and agreed unanimously
to recommend that the SROs repeal the exemptions and require all
registered persons to participate in the Regulatory Element. In
reaching this conclusion, the Council was of the view that there is
great value in exposing all industry participants to the benefits of
the Regulatory Element, in part because of the significant regulatory
issues that have emerged over the past few years. The Regulatory
Element programs include teaching and training content that is
continuously updated to address current regulatory concerns as well as
new products and trading strategies. Exempt persons presently do not
have the benefit of this material.
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\10\ According to the Council's Charter, the Council is composed
of at least nine, but not more than fifteen representatives from
securities firms and representatives from six self-regulatory
organizations (``SROs'') including: the Amex; the Chicago Board
Options Exchange (``CBOE''); the Municipal Securities Rulemaking
Board (``MSRB''); the NASD, the New York Stock Exchange, Inc.
(``NYSE''), and the Philadelphia Stock Exchange (``Phlx''). The SEC
and the North American Securities Administrators Associations have
liaisons to the Council.
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In addition, the Council will introduce a new content module to the
Regulatory Element programs that will specifically address ethics and
will require participants to recognize ethical issues in given
situations. Participants will be required to make decisions in the
context of, for example, peer pressure, the temptation to rationalize,
or a lack of clear-cut guidelines from existing rules or regulations.
The Council strongly believes that all registered persons, regardless
of their years of experience in the industry, should have the benefit
of this training.
Consistent with the Council's recommendation, the proposed rule
change would eliminate the current Regulatory Element exemptions. The
other SRO members of the Council also support eliminating the
exemptions and are pursuing amendments to their respective rules.
Amex will announce the effective date of the proposed rule change
in a Notice to Members to be published no later than 30 days following
the proposed rule becoming operative. The effective date will be (1)
not more than 30 days following the implementation of necessary changes
to Web CRD administered by the NASD, or (2) April 4, 2005, whichever
date is the latest to occur.
Following the effective date of the proposed rule change,
implementation will be based on the application of the existing
requirements of the Regulatory Element (Amex Rule 341A(a)) to all
registered persons. The way in which CRD applies these requirements is
as follows. CRD establishes a ``base date'' for each registered person
and calculates anniversaries from that date. Usually, the base date is
the person's initial securities registration. However, the base date
may be revised to be the effective date of a significant disciplinary
action in accordance with Amex Rule 341A(a)(3) (which is proposed to be
renumbered as Amex Rule 341A(a)(2)) or the date on which a formerly
registered person re-qualifies for association with an Amex member by
qualification exam. Using the base date, CRD creates a Regulatory
Element requirement on the second anniversary of the base date and then
every three years thereafter. Beginning on or after the effective date
of the proposed rule change, registered persons formerly exempt from
the Regulatory Element requirement must satisfy this requirement on the
occurrence of a Regulatory Element base date anniversary (i.e. the
second anniversary of the base date and every three years thereafter)
(see examples in the Table below).
[[Page 67376]]
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First regulatory
element
requirement of a
registered person
Initial formerly exempt
Registered person registration date from the
regulatory
element (assuming
an effective date
of April 4, 2005)
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A................................. \11\ 4/4/85 4/4/05
B................................. 7/1/83 7/1/06
C................................. 8/1/84 8/1/07
D................................. 4/3/85 4/3/08
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In addition, the proposed rule change would replace references in
Amex Rule 341A(a)(2) to ``re-entry'' into the Regulatory Element with a
requirement to ``re-take'' the Regulatory Element to clarify that the
significant disciplinary action provisions apply to all registered
persons and not only to currently exempt persons. A person's base date
may also be revised to be the date on which a formerly registered
person re-qualifies for association with a member or member firm.
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\11\ A registered person with an initial registration date of
April 4, 1985 will have a Regulatory Element anniversary date on
April 4 of 1987, 1990, 1993, 1996, 1999, 2002 and 2005.
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2. Statutory Basis
The Amex believes the proposed rule change is consistent with the
provisions of Section 6(c) of the Act,\12\ in general and furthers the
objectives of Section 6(c)(3)(B) of the Act,\13\ in particular, since
under that section, it is the Exchange's responsibility to prescribe
standards of training, experience and competence for persons associated
with Exchange members and member organizations.
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\12\ 15 U.S.C. 78f(c).
\13\ 15 U.S.C. 78f(c)(3)(B).
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Additionally, under Section 6(c)(3)(B) of the Act,\14\ the Exchange
may bar a natural person from becoming a member or person associated
with a member, if such natural person does not meet such standards of
training, experience and competence as are prescribed by the rules of
the Exchange. Pursuant to this statutory obligation, the Exchange is
rescinding all currently effective exemptions from required
participation in the Regulatory Element programs, as prescribed by Amex
Rule 341A.
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\14\ Id.
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B. Self-Regulatory Organization's Statement on Burden on Competition
Amex does not believe that the proposed rule change will impose any
burden on competition not necessary or appropriate in furtherance of
the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
The Amex has filed the proposed rule change pursuant to Section
19(b)(3)(A) of the Act \15\ and subparagraph (f)(6) of Rule 19b-4
thereunder.\16\ Because the foregoing rule change: (1) Does not
significantly affect the protection of investors or the public
interest; (2) does not impose any significant burden on competition;
and (3) does not become operative for 30 days after the date of filing,
or such shorter time as the Commission may designate if consistent with
the protection of investors and the public interest, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A) of the Act
\17\ and Rule 19b-4(f)(6) thereunder.\18\ This proposed rule change
will not become operative until 30 days after the date of filing with
the Commission. Furthermore, the Commission notes that Amex designates
the effective date of the proposed rule change to be the latest to
occur of: (1) Not more than 30 days following the implementation of
necessary changes to Web CRD administered by the NASD, or (2) April 4,
2005. At any time within 60 days of the filing of such proposed rule
change, the Commission may summarily abrogate such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.\19\
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\15\ 15 U.S.C. 78s(b)(3)(A).
\16\ 17 CFR 240.19b-4(f)(6). The Commission notes that the
Exchange had satisfied the pre-filing five-day notice requirement.
\17\ 15 U.S.C. 78s(b)(3)(A).
\18\ 17 CFR 240.19b-4(f)(6).
\19\ See Section 19b(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C).
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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-2004-89 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-2004-89. 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 Room. Copies of the
filing also will be available for inspection and copying at
[[Page 67377]]
the principal offices 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-2004-89 and should be submitted on or before
December 8, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E4-3194 Filed 11-16-04; 8:45 am]
BILLING CODE 8010-01-P