Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change by the Cincinnati Stock Exchange, Inc. Amending the Minor Rule Violation Program To Include Violations of Limit Order Display Obligations

[Federal Register Volume 64, Number 92 (Thursday, May 13, 1999)]
[Notices]
[Pages 25939-25940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-12065]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-41366; File No. SR-CSE-99-04]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Cincinnati 
Stock Exchange, Inc. Amending the Minor Rule Violation Program To 
Include Violations of Limit Order Display Obligations

May 4, 1999.
    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 April 15, 1999, the Cincinnati Stock Exchange, Inc. (``CSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the CSE. The 
Commission is publishing this notice and order to solicit comments on 
the proposed rule change from interested persons and to approve the 
proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The CSE proposes to amend Exchange Rule 8.15, Imposition of Fines 
for Minor Violation(s) of Rules, to include Rule 12.10 and 
Interpretation .01 under that rule, which requires Members to display 
customer limit orders by complying with Rule 11Ac1-4 under the Act. The 
text of the proposed rule change is available at the Office of the 
Secretary, the CSE, 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 CSE 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 III below. The CSE 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
    The proposal would amend CSE Rule 8.15, Imposition of Fines for 
Minor Violation(s) of Rules (``Minor Rule Violation Program'' or 
``Program''), which provides for an alternative disciplinary regimen 
involving violations of Exchange rules that the Exchange determines are 
minor in nature. In lieu of commencing a disciplinary proceeding 
pursuant to Rule 8.1 through 8.14, the Minor Rule Violation Program 
permits the Exchange to impose a fine, not to exceed $2500, on any 
member, member organization, or registered or non-registered employee 
of a member or member organization (``Member'') that the Exchange 
determines has violated a rule included in the Program. Adding a 
particular rule violation to the Minor Rule Violation Program does not 
circumscribe the Exchange's ability to treat violations of those rules 
through more formal disciplinary measures or deprive a Member of the 
procedural rights embedded in the disciplinary rules. The Minor Rule 
Violation Program simply provides the Exchange with greater flexibility 
in addressing rule violations that warrant a stronger regulatory 
response after the issuance of cautionary letters and yet, given the 
nature of the violations, do not rise to the level of requiring formal 
disciplinary proceedings.
    The Exchange is now proposing to add the failure to properly 
display customer limit orders contained in Interpretation .01 to Rule 
12.10 to the list of rule violations and fines included in the Minor 
Rule Violation Program. The Exchange believes that limit order display 
violations often are technical in nature and, in most cases, are best 
addressed in a summary fashion. However, because Interpretation .01 to 
Rule 12.10 is predicated on compliance with SEC Rule 11Ac1-4, which 
provides important customer protections, violations of this 
Interpretation require sanctions more rigorous than a series of 
cautionary letters prior to formal proceedings.
    Therefore, the Exchange is proposing to use a recommended fine 
schedule of $100 per violation of the Interpretation. Exchange 
regulatory staff will review the facts and circumstances related to a 
purported violation and determine the appropriateness of a fine or 
other sanction. The Exchange notes that the minor violation fine 
schedule is merely a recommended fine schedule and that fines of more 
or less than the recommended fines can be imposed (up to $2,500 
maximum) in appropriate circumstances. Also, as indicated above the 
Exchange retains the ability to proceed with formal disciplinary action 
if the violations, in the Exchange's view, involve circumstances where 
more severe sanctions would be warranted.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\3\ in general, and furthers the objectives of Sections 6(b)(5),\4\ 
6(b)(6),\5\ 6(b)(7),\6\ and 6(d)(1) \7\ in particular. The proposed 
rule change is consistent with Section 6(b)(5) in that it is designed 
to promote just and equitable principles of trade and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and to protect investors and the public 
interest. Specifically, the proposed rule change will augment the 
Exchange's ability to police its market and will increase the 
Exchange's flexibility in responding to minor violations of Exchange 
rules.
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    \3\ 15 U.S.C. 78f(b).
    \4\ 15 U.S.C. 78f(b)(5).
    \5\ 15 U.S.C. 78f(b)(6).
    \6\ 15 U.S.C. 78f(b)(7).
    \7\ 15 U.S.C. 78f(b)(1).
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    The proposal also is consistent with the Section 6(b)(6) 
requirement that the rules of an exchange provide appropriate 
discipline for violations of SEC and Exchange rules. The proposed rule 
change will provide a procedure to appropriately discipline those 
Members whose violations are minor in nature. In addition, because Rule 
8.15 provides procedural safeguards to the person fined and permits a 
disciplined person to request a full hearing on the matter, the 
proposal provides a fair procedure for the disciplining of Members 
consistent with Sections 6(b)(7) and 6(d)(1) of the Act.

[[Page 25940]]

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

    The CSE does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange did not solicit or receive written comments on the 
proposed rule change.

III. 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 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 such filings will also be 
available for inspection and copying at the principal office of the 
CSE. All submissions should refer to File No. SR-CSE-99-04 and should 
be submitted by June 3, 1999.

IV. Discussion

    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 and, in 
particular, the requirements of Section 6 of the Act \8\ and the rules 
and regulations thereunder.\9\ Section 6(b)(5) of the Act \10\ states 
that the rules of an exchange must be designed to a facilitate 
securities transactions and to remove implements to and perfect the 
mechanism of a free and open market. The Commission believes that the 
proposed rule change will augment the Exchange's ability to police its 
market and will increase the Exchange's flexibility in responding to 
minor violations of limit order display obligations.
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    \8\ 15 U.S.C. 78f.
    \9\ In approving this rule change, the Commission has considered 
the proposal's impact on efficiency, competition, and capital 
formation, consistent with Section 3 of the Act. 15 U.S.C. 78c(f)
    \10\ 15 U.S.C. 78f(b)(5).
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    Pursuant to Section 19(b)(2) of the Act,\11\ the Commission finds 
good cause for approving the proposed rule change prior to the 30th day 
after the date of publication of notice of filing of the proposal in 
the Federal Register in that the proposed rule change will further the 
Exchange's ability to provide effective oversight of SEC and Exchange 
rules in an expeditious manner. The Commission also believes the 
proposed rule change will provide the Exchange greater flexibility in 
punishing violations of these rules.
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    \11\ 15 U.S.C. 78s(b)(2).
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    It is therefore ordered, pursuant to Section 19(b)(2) \12\ of the 
Act, that the proposed rule change (file No. SR-CSE-99-04) be, and 
hereby is, approved.
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    \12\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 7 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-12065 Filed 5-12-99; 8:45 am]
BILLING CODE 8010-01-M