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Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the American Stock Exchange LLC To Adopt Sanctioning Guidelines for the Exchange's Order Handling Rules

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Information about this document as published in the Federal Register.

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Start Preamble February 7, 2002.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),[1] and Rule 19b-4 thereunder,[2] notice is hereby given that on September 4, 2001, the American Stock Start Printed Page 6771Exchange 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.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to adoopt sanctioning guidelines for violation of its options order handling rules. The text of the proposed rule change is available at the Amex's Office of the Secretary, 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 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 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, Proposed Rule Change

(1) Purpose

The Exchange proposes to adopt sanction guidelines for violations of its options rules related to firm quotes (Exchange Rule 958A), limit order display (Exchange Rule 958A),[3] priority, parity, and precedence (Exchange Rules 111, 126, 155, 950, and 958),[4] and trade reporting (Exchange Rule 992).[5] The Exchange also proposes to adopt sanction guidelines for its rule regarding anti-competitive behavior and harassment (Exchange Rule 16).

The Exchange has developed the proposed sanctions guidelines for use by the various bodies adjudicating disciplinary matters in determining appropriate sanctions. These bodies include Disciplinary Panels, the Amex Adjudicatory Council and the Amex Board of Governors (“Adjudicators”).[6] The guidelines also may be used by parties to a disciplinary action in entering into a stipulation of facts and consent to penalty.

The proposed sanction guidelines contain an introductory section that explains the overall purpose of the guidelines and sets forth general principles that apply to all sanctions determinations. The introductory section also includes principal considerations for determining sanctions that may be considered as aggravating or mitigating factors. The proposed sanction guidelines contain Individual Guidelines that provide specific monetary and non-monetary sanctions generally applicable to the violations at issue and list additional principal considerations for the specific violations.

The Exchange believes that the proposed sanction guidelines would provide members of Disciplinary Panels, the Amex Adjudicatory Council, and the Board with guidance in determining appropriate remedial sanctions that may be applied flexibly. Because the guidelines do not prescribe fixed sanctions for particular misconduct, they encourage Adjudicators to exercise discretion while maintaining consistency and uniformity in the imposition of disciplinary sanctions.[7] For these reasons, the Exchange believes that the proposed sanction guidelines would enhance its disciplinary processes.

(2) Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) [8] of the Act, in general, and furthers the objectives of Section 6(b),[9] in particular, in that it provides that members and persons associated with members will be appropriately disciplined for violations of the Exchange's rules.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange states that the proposed rule change will impose no 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 Exchange consents, the Commission will:

A. by order approve such 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. 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 Start Printed Page 6772communications 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 such filings will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-Amex-2001-68 and should be submitted by March 6, 2002.

Start Signature

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

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  The Exchange has an option limit order display rule filing pending with the Commission. See SR-Amex-00-27.

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4. According to the Exchange, it does not have an explicit definition of its members' obligation of “best execution” owed to its customer. The Exchange states that its rules regarding firm quotes, limit order display, priority, parity and precedence, however, collectively define the obligations of members with respect to orders and, therefore, embody the concept of best execution.

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5.  The Exchange filed this proposed rule change pursuant to the provisions of Section IV.B.i of the Commission's September 11, 2000 Order Instituting Administrative Proceedings Pursuant to Section 19(h)(1) of the Act, which required the Exchange to adopt rules establishing, or modifying existing, sanctioning guidelines such that they are reasonably designed to effectively enforce compliance with options order handling rules. See Securities Exchange Act Release No. 43268 (September 11, 2000), Administrative Proceeding File No. 3-10282 (the “Order”).

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6.  The composition and function of Disciplinary Panels, the Amex Adjudicatory Council, and the Amex Board in disciplinary matters is set forth in the following rules of the Exchange: Article II, Section 6 of the Exchange Constitution (“Amex Adjudicatory Council”), Article V of the Exchange Constitution (“Discipline of Members”), Exchange Rule 345 (“Determinations Involving Employees and Prospective Employees”), and the Rules of Procedure Applicable to Exchange Disciplinary Proceedings. Disciplinary Panels, the Adjudicatory Council and the Amex Board (when it reviews disciplinary decisions) all function independently of the Exchange's regulatory staff. Adjudicators determine whether the aggregation of violations for purposes of determining sanctions is appropriate in any situation.

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7.  The Exchange submitted to the Commission a letter, for which it requested confidential treatment, proposing how its regulatory staff would aggregate violations of the order handling rules, where the violations are identified through the Exchange's automated surveillance system. See letter from Richard T. Chase, Executive Vice President, Amex, to John McCarthy, Associate Director, Office of Compliance, Inspections and Examinations, Commission, dated December 24, 2001.

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[FR Doc. 02-3494 Filed 2-12-02; 8:45 am]