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Self-Regulatory Organizations; Approval of Proposed Rule Change by the Pacific Exchange, Inc. Relating to Exchange Rules Under the Minor Rule Plan

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Start Preamble July 27, 2001.

I. Introduction

On April 4, 2001, the Pacific Exchange, Inc. (“PCX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”), Start Printed Page 40772pursuant 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 imposed on ETP Holders, ETP Firms or associated persons of an ETP Firm of its wholly-owned subsidiary, PCX Equities, Inc. (“PCXE” or “Corporation”) for violating the Exchange rules under the Minor Rule Plan. The proposed rule change was published for comment in the Federal Register on June 18, 2001.[3] The Commission received no comments on the proposal. This order approves the proposed rule change.

II. Description of the Proposal

The Exchange proposes to amend PCXE's rules governing Minor Rule Plan violations to increase most fines because the Exchange believes that the current fines are too low to deter violations of PCXE rules. The Exchange further believes that an increase in the current fines will more adequately sanction violations of the PCXE's order-handling and investigating rules. Many of these violations are processed under the Minor Rule Plan.

Under the proposed increases, the fines for disruptive conduct will be $500 for a first violation, $2,000 for a second and $3,500 [4] for a third calculated on a two-year basis. More serious 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 violation, and $5,000 for a third violation. 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 PCXE dress code remain the same at $100 for the first violation, $250 for the second and $500 for the third.

Under the proposed rule, the Exchange's Enforcement Department would continue to exercise its discretion under PCXE Rule 10.12(j) and take cases out of the Minor Rule Plan to pursue them as formal disciplinary matters if the facts or circumstances warrant such action. The Exchange's proposal also includes amendments to PCXE's Equity Floor Procedure Advices (“EFPA”) that correspond to the increased Minor Rule Plan fines.

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.[5] and with the requirements of Section 6(b).[6] In particular, the Commission finds the proposal is consistent with Section 6(b)(5) [7] 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 public interest. The Commission finds the proposal is also consistent with Section 6(b)(6) [8] 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 a 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,[9] that the proposed rule change (SR-PCX-2001-19) is approved.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[10]

Start Signature

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  See Securities Exchange Act Release No. 44402 (June 8, 2001), 66 FR 32856.

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4.  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.

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

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[FR Doc. 01-19433 Filed 8-2-01; 8:45 am]