Skip to Content


Self-Regulatory Organizations; the Pacific Exchange, Inc.; Order Granting Approval to Proposed Rule Change to Increase Fines for Violations of Exchange Rules Under the Exchange's Minor Rule Plan

Document Details

Information about this document as published in the Federal Register.

Published Document

This document has been published in the Federal Register. Use the PDF linked in the document sidebar for the official electronic format.

Start Preamble February 27, 2001.

I. Introduction

On December 11, 2000, the Pacific Exchange, Inc. (“PCX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) [1] and Rule 19b-4 thereunder,[2] a proposed rule change to increase fines for members, floor brokers and market makers for violating Exchange rules under the Minor Rule Plan. The Exchange amended the proposal on January 8, 2001.[3] The proposed rule change was published for comment in the Federal Register on January 23, 2001.[4] The Commission received no comments on the proposal. This order approves the proposed rule change, as amended.

II. Description of the Proposal

The Exchange proposes to amend PCX Rule 10.13(k) governing Minor Rule Plan violations to increase most of the fines. The PCX believes the current average Minor Rule Plan fine of $250 is too low to deter violations of PCX rules. The Exchange believes that an increase in fines will more adequately sanction violations of the PCX's order handling and investigating rules, many of which are processed under the Minor Rule Plan.

Most PCX Minor Rule Plan violations currently specify a fine of $250 for a first violation, $500 for a second, and $750 for a third. Multiple violations are calculated on a two-year basis. Under the proposed increases, most fines will be $1,000 for a first violation, $2,500 for a second and $3,500 for a third,[5] calculated on the same two-year basis. Some violations, such as disruptive conduct or abusive language on the options floor, will be $500 for a first violation, $2,000 for a second, and $3,500 for a third.

Other violations, such as a member's failure to cooperate with a PCX examination of its financial responsibility or operational condition, will be fined $2,000 for a first violation, $4,000 for a second, and $5,000 for a third. A member that impedes or fails to cooperate in an Exchange investigation will be fined $3,500 for a first violation, $4,000 for a second, and $5,000 for a third. Less serious violations, such as fines for improper dress under the PCX dress code, remain unchanged at $100 for the first violation, $200 for the second, and $500 for the third.

Under the proposal, the Enforcement Department would continue to exercise its discretion under PCX Rule 10.13(f) and take cases out of the Minor Rule Plan to pursue them as formal disciplinary matters if the facts or circumstances warrant such action.

III. Discussion

The Commission has reviewed carefully the PCX's proposed rule change and finds, for the reasons set forth below, that the proposal is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange,[6] and with the requirements of section 6(b).[7] In particular, the Commission finds the proposal is consistent with section 6(b)(5) [8] of the Act in that it is 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 Start Printed Page 13619public interest. The Commission finds the proposal is also consistent with section 6(b)(6) [9] of the Act, which requires that the rules of an exchange provide that its members and associated persons be appropriately disciplined for violations of the Act and the rules of the Exchange. The Commission believes that the proposed rule change should assist the Exchange in exercising its responsibilities as self-regulatory organization to properly conduct surveillance and to diligently monitor its members for compliance with the securities laws. The Commission also believes that increasing the fines for Minor Rule Plan violations will serve as a deterrent, and hopefully will result in fewer violations. The Commission notes, however, that the Exchange must continue to exercise its discretion under PCX Rule 10.13(f) and pursue violations of the rules included in the Minor Rule Plan as formal disciplinary matters if the facts and circumstances of the violation warrant such action.

IV. Conclusion

It Is Therefore Ordered, pursuant to section 19(b)(2) of the Act,[10] that the proposed rule change (SR-PCX-00-37), as amended, is approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[11]

Start Signature

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  See January 5, 2001 letter from Cindy L. Sink, Senior Attorney, Regulatory Policy, PCX to Nancy Sanow, Assistant Director, Division of Market Regulation (“Division”), SEC and attachments (“Amendment No. 1”). In response to a request from the Division, the PCX converted the proposal from effective upon filing pursuant to section 19(b)(3)(A) of the Act, to being considered pursuant to Section 19(b)(2) in Amendment No. 1. 15 U.S.C. 78s(b)(3)(A). 15 U.S.C. 78s(b)(2).

Back to Citation

4.  Securities Exchange Act Release No. 43846 (January 16, 2001), 66 FR 7526.

Back to Citation

5.  The Commission notes that when the PCX imposes a sanction in excess of $2,500, it must comply with Rule 19d-1 under the Act. 17 CFR 240.19d-1.

Back to Citation

6.  In approving this rule, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

Back to Citation

[FR Doc. 01-5331 Filed 3-5-01; 8:45 am]