Richard Kwiatkowski

SECURITIES EXCHANGE ACT OF 1934
Rel. No.48707 / October 28, 2003

Admin. Proc. File No. 3-10864

In the Matter of the Application of RICHARD KWIATKOWSKI For Review of Disciplinary Action Taken by the NEW YORK STOCK EXCHANGE, INC.

ORDER SUSTAINING DISCIPLINARY ACTION TAKEN

BY NATIONAL SECURITIES EXCHANGE

On the basis of the Commission's opinion issued this day, it is

ORDERED that the disciplinary action taken by the New York Stock Exchange, Inc. against Richard Kwiatkowski, be, and it hereby is, sustained.

By the Commission.

Endnotes

¹ 15 U.S.C. § 78k(a). Section 11(a), subject to certain exemptions not relevant here, makes it "unlawful for any member of a national securities exchange to effect any transaction on such exchange for its own account, the account of an associated person, or an account with respect to which it or an associated person thereof exercises investment discretion." For a discussion of the regulatory framework governing floor brokers and their trading for accounts in which they have an interest or over which they exercise discretion, see John R. D'Alessio, Exchange Act Rel. No. 47627 (Apr. 3, 2003), 79 SEC Docket 3627, appeal pending (2d Cir.).

² 17 C.F.R. § 240.11a-1. Rule 11a-1, with certain exceptions not relevant here, prohibits an exchange member, while on the trading floor, from initiating any transaction in any security traded on the exchange for any account "in which such member has an interest, or for any such account with respect to which such member has discretion."

³ NYSE Rule 111(a) provides that "[n]o member shall initiate transactions, while on the Floor, for an account in which he has an interest."

⁴ NYSE Rule 95(c) states that:

If a Floor broker acquires a position for an account during a particular trading session while representing at the same time, on behalf of that account, market or limit orders at the minimum variation on both sides of the market, the broker may liquidate or cover the position established during that trading session only pursuant to a new order (a liquidating order) which must be time-recorded upstairs and upon receipt on the trading Floor.

⁵ The minimum variation, also referred to as the minimum fluctuation or minimum tick, is the smallest possible price movement of a security.

⁶ NYSE Rule 91 prohibits a member from crossing trades of a customer with an account in which the member or its member organization, among others, "is directly or indirectly interested," without first ensuring that the order has an opportunity for an improved price on the Exchange floor and providing notification to, and obtaining acceptance of the trade from, the member who placed the trade.

⁷ NYSE Rule 476(a)(4) provides that the Exchange may discipline members who make a "material misstatement to the Exchange."

⁸ NYSE Rule 440 requires brokers and dealers to make and preserve books and records prescribed by the NYSE and by Exchange Act Rules 17a-3 and 17a-4.

Exchange Act Rules 17a-3 and 17a-4 require brokers and dealers to keep and preserve current books and records regarding executed securities transactions and customer accounts. 17 C.F.R. §§ 240.17a-3 and 240.17a-4.

⁹ In his reply brief, Kwiatkowski asserts that he consulted with a floor official about his relationship with Oakford. According to Kwiatkowski's testimony, however, he met with this official because the official was looking to hire a trader. Kwiatkowski told the floor official "the amount of business I thought I could bring to the firm. I also told him I was trading for an account." When asked whether the floor official gave him any advice or counsel about his relationship with Oakford, Kwiatkowski testified, "No. He said nothing. He said nothing to it at all." Nothing about this conversation about business prospects indicates that Kwiatkowski disclosed to this official the nature of his arrangement with Oakford or sought or received advice from this official as to whether Kwiatkowski's relationship with Oakford was appropriate under the federal securities laws or NYSE rules.

¹⁰ Rule 91 provides that, when crossing a customer order with the member's own account, a member may take securities for its own account, provided "(1) he shall have offered the same in the open market at a price which is higher than hisbid by the minimum variation permitted in such securities, and (2) the price is justified by the condition of the market, and (3) the member who gave the order shall directly, or through a broker authorized to act for him, after prompt notification, accept the trade." A member may supply securities from its own account provided that he shall have "bid for the same in the open market at a price which is lower than his offer by the minimum variation permitted in such securities," and provided that he meets the second and third conditions for taking securities for his own account.

¹¹ See Self-Regulatory Organizations: New York Stock Exchange, Inc,; Order Approving Proposed Rule Change to Amend Exchange Rule 95 to Add New Intra-Day Trading Provisions, Exchange Act Rel. No. 34363 (July 13, 1994), 57 SEC Docket 326, 328.

¹² Id.

¹³ Id.

¹⁴ Exchange Act Rule 17a-4(4). 17 C.F.R. § 240.17a-4(4).

¹⁵ Due process requires that "laws give the person of ordinary intelligence a reasonable opportunity to know what is prohibited." Upton v. SEC, 75 F.3d 92, 98 (2d Cir. 1996).

¹⁶ 79 F. Supp.2d 357 (S.D.N.Y. 1999).

¹⁷ Oakford, 79 F. Supp.2d at 366 ("Nor was the potential for violating Section 11(a) and Rule 11a-1 by sharing in a customer's profits hidden from the members of the Exchange.").

¹⁸ Id. citing New York Stock Exchange, Inc., 70 SEC Docket at 159 (The report of the Exchange's Committee on Trading for Eighths noted that, if an independent floor broker "is compensated for his services based on the profitability of transactions in such a way that he becomes, in effect, a partner with his customer in the trade, such a broker may then become subject to the restrictions contained in Section 11(a).").

¹⁹ John R. D'Alessio, 79 SEC Docket at 3644 n.44 (holding that D'Alessio, who traded for an account at Oakford from June 1994 through February 1998, had fair notice of the requirements of Section 11(a) and Exchange Act Rule 11a-1); Edward John McCarthy, Exchange Act Rel. No. 48554 (Sept. 26, 2003) __ SEC Docket __ (holding that McCarthy, who traded for an account at Oakford from June 1995 through March 1996, had fair notice of the requirements of Section 11(a) and Exchange Act Rule 11a-1).

The October 7, 1998, letter sent to the Commission's Director of the Division of Enforcement by Richard Grasso, then the Chairman and Chief Executive Officer of the Exchange, on which Kwiatkowski also relies, lends no support to his claim of lack of fair notice. For a detailed discussion of this letter, see John R. D'Alessio, 79 SEC Docket at 3645.

²⁰ Gold v. SEC, 48 F.3d 987, 992 (7th Cir. 1995).

²¹ John R. D'Alessio, 79 SEC Docket at 3644.

²² For example, the Hearing Officer ordered the Exchange to produce relevant portions of the Report of the Committee for Trading for Eighths and permitted Kwiatkowski to read into the record portions of the testimony given by Edward Kwalwasser in U.S. v Oakford, supra, the federal criminal proceeding against Oakford and seven individual defendants.

²³ Rita H. Malm, 52 S.E.C. 64, 74 (1994) (respondents in self-regulatory organization disciplinary proceedings are entitled to a full and fair opportunity to present their case and defend themselves against charges).

²⁴ Section 19(e)(2) of the Exchange Act, 15 U.S.C. § 78s(e)(2). Kwiatkowski does not claim, and the record does not show, that the NYSE's action has imposed an undue burden on competition.

²⁵ See Butz v. Glover Livestock Comm'n Co., 411 U.S. 182, 187 (1973); Jonathan Feins, Exchange Act Rel. No. 41943 (Sept. 29, 1999), 70 SEC Docket 2116, 2131 n.36; Christopher J. Benz, 52 S.E.C. 1280, 1285 (1997), petition denied, 168 F.3d 478 (3d Cir. 1998) (Table). In any event, the sanctions imposed by the Exchange in this case are consistent with the sanctions imposed by the Exchange in other cases in which Exchange members were found to have shared in the profits and losses of an account for which the member traded.

²⁶ We have considered all of the contentions advanced by the parties. We have rejected or sustained these contentions to the extent that they are inconsistent or in accord with the views expressed in this opinion.