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Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Pacific Exchange, Inc. Relating to Disciplinary Jurisdiction of the Ethics and Business Conduct Committee

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Information about this document as published in the Federal Register.

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Start Preamble November 2, 2000.

I. Introduction

On March 26, 2000, the Pacific Exchange, Inc. (“PCX” or “Exchange”) submitted to the Securities and Exchange Commission (“Commission” or “SEC”) pursuant to Section 19(b)(1) of Securities Exchange Act 1934 (“Act”) [1] Rule 19b-4 thereunder,[2] a proposed rule change relating to the disciplinary jurisdiction of the Ethics and Business Conduct Committee (“EBCC”). On September 12, 2000, the PCX filed Amendment No. 1 to the proposed rule change.[3]

The proposed rule change, including Amendment No. 1, was published for comment in the Federal Register on September 27, 2000.[4] No comments were received on the proposal. This order approves the proposal.

II. Description of Proposal

In its proposed rule change, the Exchange seeks to broaden the Start Printed Page 67786jurisdiction of the EBCC to include the enforcement of rules and regulations relating to trading, order, decorum, health, safety, and welfare on the trading floors. Currently, Article IV, Section 9(b) of the PCX Constitution, states that “[t]he jurisdiction of [the EBCC] shall not extend to the enforcement of rules and regulations of the Floor Trading Committees relating to trading, order, decorum, health, safety, and welfare on the trading floors, or to hearings held by and sanctions imposed by such committees relating to such matters.” Currently, the rules and regulations governing trading, order, decorum, health, safety, and welfare are within the exclusive jurisdiction of the Floor Trading Committees (“FTCs”). The Exchange proposes to delete the above-quoted section from the PCX Constitution, and grant the EBCC and FTCs concurrent jurisdiction over the enforcement of these rules and regulations.

Under the proposal, the EBCC will be the primary disciplinary committee at the Exchange and the FTCs will retain jurisdiction to hear certain disciplinary matters, if necessary. An FTC rather than the EBCC may hear a case if it involves technical issues. For example, an FTC may act as the disciplinary committee if a “Marking the Close” trading violation occurs. That is, an incident that involves a market maker changing his quotes at the close to not accurately reflect the market in order to improve the market maker's position. In such a case, the Exchange believes having the expertise of Floor Officials would be appropriate.

III. Discussion

The Commission finds that the proposed rule change is consistent with Section 6(b) [5] of the Act, in general, and furthers the objectives of Section 6(b)(6),[6] in particular, in that it is designed to assure that Exchange members and persons associated with Exchange members are appropriately disciplined for violations of the Act, the rules and regulations thereunder, and the rules of the Exchange.

The Commission believes that it is appropriate for the EBCC to have jurisdiction over disciplinary matters arising from the floor because it is less likely that the members of the EBCC will have personal knowledge of relevant incidents or a Floor Official ruling relating to the incident. The Commission believes that this will assist in creating a more objective disciplinary process at the PCX. Further, the proposed rule change will centralize disciplinary actions in one committee at the Exchange. The Commission believes that having one primary disciplinary committee responsible for hearing complaints will better assure consistency in the decisions rendered.

However, the Commission also believes that it is appropriate for the Exchange to allow the FTC to retain jurisdiction to hear those disciplinary matters that require specialized knowledge of the trading rules. The Commission understands many of the trading rules involve complex issues which require a high level of expertise to fully comprehend, and evaluate in a meaningful way.

The Commission believes that the Exchange's proposal to grant the EBCC and FTCs concurrent jurisdiction over disciplinary proceedings relating to trading, order, decorum, health, safety, and welfare on the trading floors, with the EBCC being the primary committee responsible, will result in consistent, independent decision-making. Moreover, the proposal will also ensure that matters involving complex and technical issues are handled by committees appropriately skilled to understand them and render fair decisions.

IV. Conclusion

For all of the aforementioned reasons, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.[7]

It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,[8] that the proposed rule change (SR-PCX-00-12) is approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[9]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  See Letter from Cindy L. Sink, Senior Attorney, Regulatory Policy, PCX, to Jennifer L. Colihan, Attorney, Division of Market Regulation, Commission, dated September 11, 2000 (“Amendment No. 1”).

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4.  See Securities Exchange Act Release No. 43312 (September 20, 2000), 65 FR 58139.

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7.  In approving this rule change, the Commission has considered the proposal's impact on efficiency, competition, and capital formation, consistent with Section 3(f) of the Act. 15 U.S.C. 78c(f).

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[FR Doc. 00-28946 Filed 11-9-00; 8:45 am]

BILLING CODE 8010-01-M