[Federal Register Volume 65, Number 225 (Tuesday, November 21, 2000)]
[Notices]
[Pages 69975-69976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-29709]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-43554; File No. SR-Amex-00-22]
Self-Regulatory Organizations; Order Granting Approval to
Proposed Rule Change by the American Stock Exchange LLC Amending
Article V, Section 1 of the Exchange Constitution and Exchange Rule 345
November 14, 2000.
I. Introduction
On April 13, 2000, the American Stock Exchange LLC (``Amex'' or
``Exchange'') submitted to 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 grant the Exchange's
Enforcement Department the right to appeal a decision of a Disciplinary
Panel and to grant the Amex Adjudicatory Council (``AAC'') and the Amex
Board of Governors the authority to increase a penalty imposed by a
Disciplinary Panel.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in the Federal
Register on August 2, 2000. \3\ The Commission received one comment on
the proposal. \4\ This order approves the proposal.
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\3\See Securities Exchange Release No. 43065 (July 21, 2000), 65
FR 47528.
\4\ See Letter from George Reichhelm, General Partner, and
Andrew Schwarz, General Partner, AGS Specialist Partners, to
Secretary, Commission, dated August 9, 2000.
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II. Description of Proposal
The Amex is proposing to amend its Constitution and Rules to allow
Exchange staff to appeal decisions of the AAC, and to allow the AAC to
increase penalties imposed by a Disciplinary Panel. Further, the
Exchange seeking to expand the scope of the Board of Governor's
authority to review proposed decisions of the AAC so that the Board may
also sustain, increase, or eliminate any penalty imposed, or impose a
lesser penalty.
a. Article V, Section 1(c) and Rule 345
Currently, under Article V, Section 1(c) of the Exchange
Constitution and Rule 345, only Exchange members may appeal a
determination and/or penalty imposed by a Disciplinary Panel to the
AAC. \5\ The Exchange's Enforcement Department does not have the right
to appeal a Disciplinary Panel's determination under the Constitution
or Rule 345. Because only members have the right to appeal a decision
to the AAC, currently the AAC may only affirm the determination and
penalty imposed, modify or reverse the determination, decrease or
eleminate the penalty imposed, impose any lesser penalty permitted, or
remand the matter to the Disciplinary Panel for further consideration.
The AAC may not impose a greater penalty on appeal.
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\5\ Additionally, any member of the AAC has the authority to
request a review of an Exchange Disciplinary Panel decision, sua
sponte.
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The Exchange proposes to grant the Enforcement Department the right
of appeal, and to give the AAC the authority to increase a penalty
imposed by the Disciplinary Panel if it deems it appropriate. The
Exchange contends that this authority would give the reviewing body the
full range of alternatives that it needs to deal effectively with
appeals.
b. Constitution Article V, Section 1(d) and Rule 345(g)
Pursuant to Exchange Constitution Article V, Section 1(d) and Rule
345(g), as the next level of review, any four members of the Board of
Governors may call a proposed decision of the AAC in a contested
disciplinary matter for review by the entire Board. In reviewing a
decision by the AAC, the Board may affirm, modify or reverse the
decision of the AAC or remand the matter for further consideration. The
Exchange has proposed to expand the scope of the Board's authority to
review proposed decisions of the AAC so that the Board may also
sustain, increase or eliminate any penalty imposed, or imposed a lesser
penalty. \6\
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\6\ Pursuant to New York Stock Exchange (``NYSE'') Rule 476(f),
NYSE enforcement personnel have the authority to appeal adverse
determinations by disciplinary panels and the review boards have the
authority to increase penalties imposed by disciplinary panels.
Further, National Association of Securities Dealers, Inc. (``NASD'')
Rule 9311 provides for similar authority.
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III. Summary of Comments
The Commission received one comment letter on the proposed rule
change. \7\ In their letter, the commenters expressed their opinion
that the proposed rule change violates the general principles of peer
review and double jeopardy. The commenters argued that the peer review
provided by the current Amex review process ``prevents the imposition
penalties by higher authorities that may act in certain circumstances
for the political needs of the institution rather than for the
justified position of an individual.'' The commenters believed that the
purpose of the AAC is to ``ensure that sterile rules that exist in the
virtual world of the Enforcement Department are applied in a real world
environment with the benefit of the experience of real world
participants,'' and that the proposed rule change hampers this purpose.
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\7\ See note 4, supra.
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The comments also stated that the proposed rule change would
violate citizens' rights against double jeopardy. The commenters
asserted that it is contrary to democratic principles to allow a
separate entity to increase a penalty determined to be fair by a peer
group embodied to determine the final outcome of a proceeding.
The Amex responded to the commenters by noting that guarantees
regarding peer review and double jeopardy apply to governmental
proceedings, not proceedings brought by a self-regulatory organization
(``SRO'').\8\ The Amex noted that Section 6(b)(7) of the Act requires
the rules of an exchange to ``provide a fair procedure for the
disciplining of members and persons associated with members.'' \9\
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\8\ See Jones v. SEC, 115 F.3d 1173, 1183 (4th Cir. 1997); see
also, Hudson v. United States, 522 U.S. 93 (1997).
\9\ 15 U.S.C. 78f(b)(7).
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In response to the commenters' opinion that the proposed rule
change would undermine the peer review provided for under the current
disciplinary structure, the Exchange noted that the AAC (which the
commenters regarded as their ``peer group'') is composed of six Board
members (three Floor Governors, all of whom are members, and three
Public
[[Page 69976]]
Governors). Therefore, the Exchange explained, when the Board exercises
its discretionary right to review a decision of the AAC, all of the
members of the AAC who participated in the initial decision will also
participate in the Board's consideration of the matter, thus providing
member representation. Further, the Exchange pointed out that one-third
of the Board's governors are Exchange members. Therefore, the Exchange
believes that at both the AAC level of review and at the Board level of
review, member participation is more than adequate to satisfy any peer
review requirement that might be implicit in Section 6(b)(7) of the
Act.\10\
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\10\ 15 U.S.C. 78f(b)(7).
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With regard to the commenters' opinion that the proposed rule
change would expose members to double jeopardy because a separate
entity could increase a penalty determined to be fair by a peer group,
the Exchange noted that the proposed rule does not provide that a
member or member organization may be charged twice for the same
conduct.
IV. Discussion
For the reasons discussed below, the Commission finds that the
proposed changes to the Amex Constitution and Rules governing the
procedures for review of disciplinary decisions are consistent with the
Act in that they will enhance the ability of the Exchange to enforce
compliance by its members and persons associated with its members with
the provisions of the Act, the rules and regulations thereunder, and
the rules of the Exchange consistent with the requirement of Section
6(b)(1) of the Act; \11\ they will help ensure that members and persons
associated with members are appropriately disciplined for violations of
the Act, the rules and regulations thereunder, and the rules of the
Exchange consistent with Section 6(b)(6) of the Act; \12\ and they will
provide a fair procedure for the disciplining of members and persons
associated with members consistent with Section 6(b)(7) of the Act.\13\
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\11\ 15 U.S.C. 78f(b)(1).
\12\ 15 U.S.C. 78f(b)(6).
\13\ 15 U.S.C. 78f(b)(7).
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The Commission finds that it is fair and appropriate to grant the
division or department of the Exchange which brought the charges
(``Enforcement Department'') the same right to appeal decisions of the
Disciplinary Panel to the AAC as is granted to members. The Commission
believes that allowing the Enforcement Department to appeal these
decisions will provide an additional check on the disciplinary process
to ensure that all parties are treated fairly. While the Commission
recognizes the importance of Exchange rules designed to protect members
accused of violating Exchange rules from unfair treatment, it is also
important to have procedures in place that allow the Enforcement
Department to seek review of decisions that it believes are improper or
unfair. The Commission does not believe that the rights and protections
granted to members under the Rules will be impinged upon by virtue of
the fact the Enforcement Department also has the right of appeal. All
final disciplinary actions of SROs can be appealed to the Commission.
In addition, the Commission has the ability to review on its own motion
any final disciplinary action of an SRO.
Further, the Commission believes that it is appropriate to grant
the AAC the authority to increase penalties imposed by the Disciplinary
Panel upon appeal.\14\ The Enforcement Department's right to appeal is
limited under the current rule because the AAC may not impose a penalty
harsher than that originally imposed by the Disciplinary Panel. The
Commission believes that as part of the Enforcement Division's right to
appeal, it should be permitted to request an increased penalty if it
believes that the penalty imposed by the Disciplinary Panel is
inadequate.\15\
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\14\ Currently, the AAC is only permitted to affirm the
determination and penalty imposed, modify or reverse the
determination, decrease or eliminate the penalty imposed, impose any
lesser penalty permitted, or remand the matter to the Disciplinary
Panel for further consideration. See Exchange Rule 345.
\15\ The Commission notes that both parties in a civil
proceeding have the right to appeal the decision of the court.
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Finally, the Commission believes that it is also appropriate to
allow the Board of Governors additional discretion to review penalties
imposed as proposed by the Exchange. Currently, the Board may only
affirm, modify or reverse the decision of the AAC, or remand the matter
for further consideration. The Commission believes that by granting the
Board the authority to sustain, increase or eliminate any penalty
imposed, or impose a lesser penalty, the disciplinary process will be
more streamlined. This change will permit the Board to review not only
decisions of the AAC regarding whether it is appropriate to sanction a
member, but also whether the sanction ultimately imposed is
appropriate. For example, if the Board fees AAC's decision to impose a
penalty is correct, but disagrees with the penalty imposed, instead of
remanding the matter to the AAC for additional consideration with
instructions, the Board may impose a penalty that it believes is just.
The Commission finds that it is appropriate for the Board to have the
authority to make these decisions.
V. Conclusion
For all of the aforementioned reasons, 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.\16\
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\16\ In approving this rule change, the Commission has
considered the proposal's impact on efficiency, competition, and
capital formation, consistent with Section 3(f) of the Act. 15
U.S.C. 78c(f).
\17\ 15 U.S.C. 78s(b)(2).
\18\ 17 CFR 200.30-3(a)(12).
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It is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-AMEX-00-22) is approved.
For the Commission, by the Division of Market Regulation, pursuant
to delegated authority.\18\
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-29709 Filed 11-20-00; 8:45 am]
BILLING CODE 8010-01-M