[Federal Register Volume 61, Number 215 (Tuesday, November 5, 1996)] [Notices] [Pages 56981-56983] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 96-28313] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-37884; File No. SR-Amex-96-34] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, and 3 to the Proposed Rule Change by the American Stock Exchange, Inc., Relating to Independent Contractors October 29, 1996. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on September 27, 1996, the American Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the Securities and Exchange Commission (``SEC'' or ``Commission'') the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the self- regulatory organization.\1\ The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. --------------------------------------------------------------------------- \1\ On October 2, 1996, the Amex amended its proposal to submit the proposal pursuant to Section 19(b)(2) under Act. See Letter from Claudia Crowley, Special Counsel, Legal and Regulatory Policy, Amex, to Katherine England, Assistant Director, Division of Market Regulation (``Division''), Commission, dated October 2, 1996 (``Amendment No. 1''). On October 23, 1996, the Amex amended its proposal to eliminate inconsistencies between Amex Rule 341(a) and Amex Rule 341, Commentary .01. See Letter from Claudia Crowley, Special Counsel, Legal and Regulatory Policy, Amex, to Katherine England, Assistant Director, Division, Commission, dated October 23, 1996 (``Amendment No. 2''). Specifically, Amendment No. 2 deletes language indicating that only officers of a member must be approved and provides that registered representatives, securities lending representatives, securities traders, and direct supervisors of those persons must be registered and approved. Amendment No. 2 also includes a technical change which clarifies proposed Amex Rule 341B, ``Independent Contractors.'' On October 24, 1996, the Exchange replaced an incorrect reference to Amex Rule 342 with a reference to Amex Rule 320. See Letter from Claudia Crowley, Special Counsel, Legal and Regulatory Policy, Amex, to Yvonne Fraticelli, Attorney, Division, Commission, dated October 24, 1996 (``Amendment No. 3''). --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Amex proposes to adopt Exchange Rule 341B, ``Independent Contractors,'' which provides that the Amex will not object to the assertion of ``independent contractor'' status by a natural person who is a (i) registered representative, (ii) securities lending representative, or (iii) securities trader if such status will not preclude his or her characterization and treatment as an ``employee'' for purposes of the Constitution and Rules of the Amex. The Amex also proposes to amend Amex Rule 341, ``Approval of [[Page 56982]] Registered Employees and Officers,'' to prohibit members from allowing any natural person to perform regularly any of the duties normally performed by (i) a registered representative, (ii) a securities lending representative, (iii) a securities trader, or (iv) a direct supervisor of (i), (ii), or (iii), unless the person has been qualified by, as well as registered with and approved by the Exchange.\2\ --------------------------------------------------------------------------- \2\ Currently, there is no qualification exam for securities lending representatives. --------------------------------------------------------------------------- The text of the proposal is available at the Office of the Secretary, Amex, 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 self-regulatory organization 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 self-regulatory organization 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, the Proposed Rule Change (a) Purpose Amex Rules 340, ``Disapproval of Employees,'' and 341 govern the requirements applicable to registered personnel of member organizations. Specifically, Amex Rule 340 establishes the Exchange's general jurisdiction over all officers and employees of members and member organizations.\3\ Exchange Rule 341 specifies the requirements applicable to registered employees and officers of members and member organizations, including examination and qualification requirements. --------------------------------------------------------------------------- \3\ Amex Rule 340 allows the Amex to disapprove the employment, remuneration or term of employment of any employee of a member or member organization or require the termination of employment of any employee of a member or member organization. --------------------------------------------------------------------------- According to the Amex, in recent years several member organizations have begun to utilize ``independent contractors'' to perform duties traditionally performed by registered employees. To date, the Exchange has required member organizations who utilize independent contractors to provide a written acknowledgement that the member organization will supervise and otherwise be responsible for the independent contractor, in the same manner as if he were an employee. In order to clarify the Exchange's requirements and to ensure that independent contractors are appropriately subject to the Exchange's jurisdiction, the Amex proposes to adopt new Exchange Rule 341B. Proposed Amex Rule 341B provides that the Amex will not object to the assertion of ``independent contractor'' status by a natural person who is a (i) registered representative, (ii) securities lending representative, or (iii) securities trader if such status will not preclude his or her characterization and treatment as an ``employee'' for purposes of the Constitution and Rules of the Amex. Under the proposal, such natural person and the member organization must agree that the natural person is subject to the organization's direct, detailed supervision, control and discipline and, if required by Amex Rule 330, ``Fidelity Bonds,'' is covered by its fidelity bond. Once a member organization approves a registered person's ``independent contractor'' status, the following conditions must be satisfied:The member organization provides written assurances to the Exchange that it will supervise and control all activities of the ``independent contractor'' effected on its behalf, to the same degree and extent that it regulates the activities of all other registered persons and in a manner consistent with Amex Rule 320, ``Offices, Approval, Supervision, and Control;'' \4\ --------------------------------------------------------------------------- \4\ See Amendment No. 3, supra note 1. --------------------------------------------------------------------------- The member organization submits to the Exchange a copy of a written agreement between the ``independent contractor'' and the member organization which provides that the ``independent contractor'' will engage in securities related activities solely on behalf of the member organization (except as otherwise explicitly may be permitted by the member organization in writing), that such securities related activities will be subject to the direct detailed supervision, control and discipline of the member organization, that such person is not subject to a ``statutory disqualification'' and that nothing therein will negate any of the foregoing; The ``independent contractor'' agrees in writing to be subject to the Exchange's jurisdiction; and The member organization provides the Exchange with assurances that, if required by Amex Rule 330, the ``independent contractor'' is covered by the organization's fidelity insurance and is in compliance with applicable state Blue Sky provisions.\5\ --------------------------------------------------------------------------- \5\ The Amex notes that these requirements do not apply to the traditional practice of a firm using an independent floor broker to execute a transaction on the floor of the Amex. --------------------------------------------------------------------------- Written notice of the cessation of ``independent contractor'' status must be given to the Amex. Proposed Rule 341B does not apply to persons delegated supervisory functions (e.g., branch office manager, registered representative-in-charge), nor does it permit the incorporation of registered persons. The Amex notes that the New York Stock Exchange (``NYSE'') has comparable requirements.\6\ --------------------------------------------------------------------------- \6\ See NYSE Interpretations and Guidance Handbook, 345(a)/02. --------------------------------------------------------------------------- The Amex also proposes to amend Definition six, ``Registered Employee,'' and Exchange Rules 340 and 341 to require that securities traders and securities lending representatives \7\ (and their direct supervisors), as well as registered representatives, must be registered, approved by the Exchange and, as applicable, pass a qualification examination acceptable to the Exchange. Amex Rule 341, Commentary .01, as amended, will provide that a natural person who is an ``independent contractor'' and who performs the duties of a registered representative, securities lending representative, or securities trader is subject to Amex Rule 341. --------------------------------------------------------------------------- \7\ Exchange Rule 341, as amended, defines a securities lending representative as a person who has the discretion to commit a member or member organization with which he is associated to any contract or agreement involving securities lending or borrowing activities with any other person. Amex Rule 341, as amended, defines a securities trader as any person engaged in the purchase or sale of securities or other similar instruments for the account of a member or member organization with which he is associated and who does not transact any business with the public. The Amex proposes to amend Definition six, ``Registered Employee,'' to provide that a ``registered person'' will include a securities lending representative, a securities trader, and a direct supervisor of a securities lending representative or a securities trader, in addition to a branch office manager or a registered representative. --------------------------------------------------------------------------- Finally, the Amex proposes to amend Exchange Rule 340, Commentary .03, to provide that a securities lending representative and his or her direct supervisor must demonstrate their competency by satisfying any applicable qualification examination. According to the Amex, the proposed amendments to Exchange Rules 340 and 341 are consistent with comparable provisions of the NYSE's rules. (b) Basis The Amex believes that the proposed rule change is consistent with Section 6(b) of the Act, in general, and furthers [[Page 56983]] the objectives of Sections 6(b)(5) and 6(b)(6), in particular, in that it is consistent with the Exchange's regulatory responsibilities and will promote just and equitable principles of trade and protect investors and the public interest. (B) Self-Regulatory Organization's Statement on Burden on Competition The Amex does not believe that the proposed rule change will impose any 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 after the 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 reason for so finding; or (ii) as to which the self-regulatory organization consents, the Commission will: (a) By order provide 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 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 at the Commission's Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. Copies of such filing will also be available for inspection and copying at the principal office of the above-mentioned self-regulatory organization. All submissions should refer to file number SR-Amex-96-34 and should be submitted by November 26, 1996. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\8\ --------------------------------------------------------------------------- \8\ 17 CFR 200.30-3(a) (12) (1995). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 96-28313 Filed 11-4-96; 8:45 am] BILLING CODE 8010-01-M