regulatory organizations; proposed rule changes: Chicago Stock Exchange, Inc.,
[Federal Register: October 21, 1998 (Volume 63, Number 203)]
[Notices]
[Page 56276-56278]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21oc98-118]
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40550; File No. SR-CHX-98-23]
Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by The Chicago Stock Exchange, Inc. Relating to the Submission of Written Statements by Respondents In Disciplinary Investigations, or ``Wells Submissions''
October 14, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4(e)(6) thereunder,\2\ notice is hereby given that on October 7, 1998, the Chicago Stock Exchange, Incorporated (``CHX'' or the ``Exchange'') filedwith 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.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b(e)(6).
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Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change
The Exchange proposes to add interpretation and policy .01 to Rule 1 of Article XII of the Exchange's Rules to codify the Exchange's practice of permitting, but not requiring, the Exchange staff to notify persons that they are the subject of an investigative report and give those persons the opportunity to submit a written statement prior to the CHX president's review of the investigative report to determine whether charges should be brought (a so-called Wells Submission).\3\
\3\ The CHX notes that its disciplinary procedures are currently being amended to change the person reviewing the report from the CHX President to an Initial Determination Panel. See SR-CHX-96-31. Upon approval by the Commission, this new interpretation will apply to current procedures, as well as procedures existing after the approval of SR-CHX-96-31.
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The text of the proposed rule change is set forth below (additions are italicized):
ARTICLE XII
Discipline and Trial Proceedings
Rule 1
Interpretations and Policies:
.01 Notice and Statement. Prior to making a report pursuant to paragraph (a) of this Rule 1, the staff may notify the person(s) who is (are) the subject of the report (``Subject'') of the general nature of the allegations and of the specific provisions of the Exchange Act, rules and regulations promulgated thereunder or constitutional provisions, by-laws or rules of the Exchange or any interpretation thereof or any resolution of the board regulating the conduct of business on the Exchange, that appear to have been violated. The Subject(s) may, within the time frame set forth in the notice from the staff, then submit a written statement to the Exchange setting forth their interests and position in regard to the subject matter of the investigation. To assist a Subject in preparing such a written statement he or she shall, upon request, have access to any documents and other materials in the investigative file of the Exchange that were furnished by him or her or his or her agents to the Exchange.
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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.
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Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
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Purpose
The purpose of the proposed rule change is to codify the Exchange's practice of permitting Wells Submissions in connection with its disciplinary process. Prior to submitting any investigative report in which the staff of the Exchange submits that there is a reasonable basis to believe a violation within the disciplinary jurisdiction of the Exchange has occurred, the staff may, but is not required to, notify the person who is the subject of the report (the ``Subject'') of the pending investigation. This notice includes the general nature of the allegations and the specific rule or by-law that appears to have been violated. If the staff provides such notice, the Subject will generally then submit a written statement to the staff setting forth his or her interests and positions regarding the subject matter of the investigation.\4\ This written statement is usually referred to as a Wells Submission and is used by the Commission and other self- regulatory organizations in their enforcement programs. The Exchange has, in the past, accepted Wells Submissions and is now merely codifying such practice within its rules.\5\ The current policy, as codified, gives the Subject notified of a pending disciplinary investigation a reasonable period of time, depending on the circumstances of the matter, to comment on the notice and proposed disciplinary action. The deadline for the responsive Wells Submission will be included in the notice to the Subject. If such a response is received within the timeframe set forth in the notice, the staff will include the Wells Submission with its report to the CHX President (or, upon approval of SR-CHX-96-31, to the Initial Determination Panel). The staff, of course, reserves the right to amend its report to respond to the arguments raised in the Wells Submission.
\4\ Several additional non-substantive textual changes were also provided by telephone call on October 8, 1998. Telephone call between Kirsten M. Carlson, Foley & Lardner, and Anitra T. Cassas, Division of Market Regulation, Commission.
\5\ See Chicago Board Options Exchange Rule 17.2(d), Philadelphia Stock Exchange Rule 960.2(e), and proposed Cincinnati Stock Exchange Rule 8.2(d) which are all similar to this rule, except that those rules require the staff of those exchanges to provide notification of pending disciplinary investigations. The proposed CHX rule permits, but does not require, the staff to provide such notification. The permissive nature of the proposed CHX rule is similar to current Commission procedures and is consistent with the NASD's policy, as addressed in connection with its recently revised disciplinary procedures. See NASD Notice to Members 97-55.
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Statutory Basis
The Exchange believes the proposed rule change is consistent with Section 6(b) \6\ of the Act, in general, and furthers the objectives of Section 6(b)(7),\7\ in particular, by providing a fair procedure for the disciplining of members and persons associated with members by codifying the existing practice permitting the Exchange to (a) notify members and associated persons of their involvement in a disciplinary investigation, and (b) permit members and associated persons an opportunity to comment upon such notice prior to the commencement of enforcement proceedings.
\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(7).
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Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would impose any inappropriate burden on competition.
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Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants or Others
The Exchange has neither solicited nor received written comments on the proposed rule change.
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Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action
Because the foregoing proposed rule change: (1) does not significantly affect the protection of investors or the public interest; (2) does not impose any significant burden on competition; and (3) does not become operative for 30 days from October 7, 1998, the date on which it was filedand, since the Exchange provided the Commission with written notice of its intent to file the proposed rule change at least five business days prior to the filing date, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act \8\ and subparagraph (e)(6) of Rule 19b-4 thereunder.\9\
\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(e)(6).
At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appopriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.
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Solictation 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. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filedwith the Commission, and all written communications relating to the
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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 filing will also be available for inspection and copying at the principal office of the CHX. All submissions should refer to the File No. SR-CHX-98-23 and should be submitted by November 12, 1998.
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\10\
\10\ 17 CFR 200.30-3(a)(12).
Margaret H. McFarland, Deputy Secretary.
[FR Doc. 98-28198Filed10-20-98; 8:45 am]
BILLING CODE 8010-01-M
