01-1803. Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendment No. 1 by the New York Stock Exchange, Inc. To Permit Firm Delivery of the Regulatory Element of the Continuing ...

January 12, 2001.

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 December 7, 2000, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On December 21, 2000, the NYSE amended the proposal.^[3] The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons, and to grant accelerated approval to the proposed rule change, as amended.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The proposal consists of interpretations with respect to the meaning and administration of NYSE Rule 345A (“Continuing Education for Registered Persons”), to permit firm delivery of the Regulatory Element of the Continuing Education Program. Currently, this computer-based training is administered to registered persons by an outside vendor at its locations. The text of the proposed rule change is below. Proposed new language is in italics. Proposed deletions are in brackets.

Rule 345A Continuing Education for Registered Persons

(a) Regulatory Element

/01 Registration Date

Registered persons are required to participate in the Regulatory Element [on three occasions] on the occurrence of their second registration anniversary date and every three years thereafter, based on their initial registration anniversary date. Initial registration means the first date that the person became registered with the NYSE, NASD or another self-regulatory organization, regardless of subsequent registrations, provided that the person has remained continuously registered since that initial date.

A person's initial registration date is the date that the registration was originally approved rather than the date the person passed a qualification examination. This includes registered persons who have received waivers from specific examination requirements.

/02 Application

The requirements of the Regulatory Element apply to all persons registered or required to be registered under Exchange rules, even if such persons are not required to be qualified by taking and passing an examination e.g., certain allied members and securities lending representatives.

/03 Firm Delivery of Regulatory Element

Members and member organizations will be permitted to administer the Regulatory Element continuing education program to their registered persons by instituting a firm program acceptable to the Exchange.

The following procedures are required:

A. Senior Officer or Partner In-Charge

• The firm has designated a senior officer or partner to be responsible for the firm's delivery of the Regulatory Element continuing education program.

B. Site Requirements.

• The location of all delivery sites will be under the control of the firm.
• Delivery of Regulatory Element continuing education will take place in an environment conducive to training. (Examples: a training facility, conference room or other area dedicated to this purpose would be appropriate. Inappropriate locations would include a personal office or any location that is not or cannot be secured from traffic and interruptions).
• Where multiple delivery terminals are placed in a room, adequate separation between terminals will be maintained.

C. Technology Requirements

• The communication links and firm delivery computer hardware must comply with standards defined by the Exchange or its designated vendor.

D. Supervision

• The firm's Written Supervisory Procedures must contain the procedures implemented to comply with the requirements of its delivery of Regulatory Element continuing education.
• The firm's Written Supervisory Procedures must identify the senior officer or partner designated pursuant to 03/A and contain a list of individuals authorized by the firm to serve as proctors.
• Firm locations for delivery of Regulatory Element continuing education will be specifically listed in the firm's Written Supervisory Procedures.

E. Proctors

• All sessions will be proctored by an authorized person during the entire Regulatory Element continuing education session. Proctors must be present in the session room or must be able to view the person(s) sitting for Regulatory Element continuing education through a window or by video monitor.
• The individual responsible for proctoring at each administration will sign a certification that required procedures have been followed, that no material from Regulatory Element continuing education has been reproduced, and that no candidate received any assistance to complete the session. Such certification may be a part of the sign-in log required under F. Administration.
• Individuals serving as proctors must be persons registered with an SRO and supervised by the designated senior officer/partner for purposes of firm delivery of the Regulatory Element continuing education.
• Proctors will check and verify the identification of all individuals taking Regulatory Element continuing education.

F. Administration

• All appointments will be scheduled in advance using the procedures and software specified by the Exchange, its agent or designated vendor to communicate with the PROCTOR system and CRD.
• The firm/proctor will conduct each session in accordance with the administrative and appointment scheduling procedures required by the Exchange or its designated vendor.
• A sign-in log will be maintained at the delivery facility. Logs will contain the date of each session, the name and social security number of the individual taking the session, that required identification was checked, the sign-in time, the sign-out time and the name of the individual proctoring the session. Such logs are required to be retained pursuant to SEA Rule 17a-4.
• No material will be permitted to be utilized for the session nor may any session-related material be removed.
• Delivery sites will be made available for inspection by the SROs.

Before commencing firm delivery of Regulatory Element continuing education, members and member organizations are required to file with their Designated Examining Authority (“DEA”), a letter of attestation (as specified below) signed by a senior officer or partner attesting to the establishment of required procedures addressing senior officer/partner in-charge, supervision, site, technology, proctors and administrative requirements.

The letter of attestation shall read substantially as follows:

(Name of member or member organization) has established procedures for delivering Regulatory Element continuing education on its premises. I have determined that these procedures are reasonably designed to comply with SRO requirements pertaining to firm delivery of Regulatory Element continuing education including that such procedures have been implemented to comply with senior officer/partner in-charge, supervision, site, technology, proctors and administrative requirements.

Signature

Printed Name

Title (Must be signed by a Senior Officer/Partner of the firm.)

Date

G. Annual Representation

Each member and member organization will be required to represent to the Exchange, annually, that they have continued to maintain, and reasonably believe that they have complied with, all required procedures outlined in sections A through F of this interpretation for the previous year. Such attestation must be signed by a senior officer or partner.

H. Definition of Senior Officer or Partner

For purposes of interpretation /03, a “senior officer or partner” means the chief executive officer or managing partner or either (A) any other officer or partner who is a member of the member organization's executive or management committee or its equivalent committee or group or (B) if the member organization has no such committee or group, any officer or partner having senior executive or management responsibility who reports directly to the chief executive officer or managing partner. If, in the case of a member organization, its chief executive officer or managing partner does not sign the attestation, a copy of the attestation shall be provided to the chief executive officer or managing partner.

[/03] /04 Registration Lapses

A person whose registration lapsed for less than two years and who seeks to be reregistered will be required to participate in the Regulatory Element to cover [the] any occasion[s] that [were] was missed during the period in which the person was unregistered, based on such person's initial registration date. [For example, a person whose registration lapses four and a half years after initial registration and thereafter wants to reactivate the registration six years after the initial registration date, must satisfy the fifth-year anniversary Regulatory Element before they may function under the new registration.]

If any such person has been unregistered for more than two years, then such person would be a new registrant and required to satisfy appropriate qualifying examination requirements and satisfy the requirements of the Regulatory Element based on the new initial registration anniversary [beginning a new 10-year cycle (e.g., 2, 5 and 10 year anniversaries of reregistration)].

[/04] 05 CRD Notification

Members and member organizations will be notified by the Central Registration Depository (“CRD”) concerning those registered persons in the CRD system whose registration anniversary dates trigger participation in the Regulatory Element computer-based training.

Even though notification will be provided by CRD as a courtesy, the final responsibility to ensure timely participation in and completion of the Regulatory Element as required is that of members and member organizations, and registered personnel themselves.

Members and member organizations and personnel who receive such notices from the CRD but would otherwise be exempt from the requirements of the Regulatory Element because their business is limited solely to the transaction of business on the Floor with members or registered broker-dealers must contact the Exchange's Qualifications and Registrations Department to confirm that they are (by definition) exempt from the Regulatory Element. However, any such persons who do not conduct public business on the Floor, but maintain a registration (e.g. Series #7 or 7A) that would enable them to conduct a public business, must satisfy the Regulatory Element requirements in order for their registration to remain active.

[Members and member organizations whose registered personnel are not on the CRD system and therefore will not receive CRD notification, are responsible for tracking the registration anniversary dates and contacting the Exchange's Qualifications and Registration Department to make appointments for computer-based training sessions for such persons.]

* * * * *

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 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.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

The purpose of the proposed rule change is to permit firm delivery of the Regulatory Element of the Continuing Education Program.

Background

The Continuing Education Program is designed to keep industry participants up to date on products, services and rules, and is composed of a Regulatory Element and a Firm Element. The Regulatory Element is computer-based training that covers ethical, sales practice, and regulatory matters, and requires that each registered person complete this training on the occurrence of their second registration anniversary date and every three years thereafter. A registered person who fails to complete the training will be deemed inactive, and may not conduct or be compensated for activities requiring registration. The Firm Element requires member and member organizations to provide to registered employees having direct contact with customers ongoing training that is specifically tailored to their business.

Proposed Amended Interpretation of Rule 345A

At the recommendation of the Securities Industry/Regulatory Council on Continuing Education,^[4] the Exchange proposes to adopt interpretations of NYSE Rule 345A to permit members and member organizations to administer the Regulatory Element of the Continuing Education Program to their registered persons by instituting firm programs acceptable to the Exchange. Currently, the Regulatory Element is administered only at vendor locations.

Under the proposal, before beginning firm delivery of the Regulatory Element, members and member organizations are required to develop stipulated procedures relating to the delivery of the program and to file with their Designated Examining Authority (“DEA”) a letter of attestation signed by a senior officer or partner attesting to the establishment of those required procedures. The stipulated procedures and letter of attestation must address the designation of a senior officer/partner in charge, supervision, delivery site, technology, proctors and administrative requirements. In addition, members and member organizations will be required to file with the Exchange annually an attestation that they have continued to maintain and reasonably believe that they have adhered to all required procedures for the previous year.

In-house delivery of the Regulatory Element will, for the practical purposes of tracking participation by registered category representatives and the aggregate performance by firm and registration category, adhere to the same standards as if it was administered at vendor locations.

Additional amendments to the Interpretation of NYSE rule 345A reflect previous changes to the Rule that require registered persons to complete the Regulatory Element on the occurrence of their second registration anniversary date and every three years thereafter (see Interpretation paragraphs /01 and /04).^[5]

Further, paragraph /05 will be amended to delete the provision addressing members and member organizations whose personnel are not included in the CRD system. After November 13, 2000, all member organization personnel will be included in the CRD database and will be tracked for continuing education training purposes.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange in general, and in particular, with the requirements of Section 6(b)(5).^[6] Section 6(b)(5) requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and national market system, and in general, to protect investors and the public interest.

The NYSE believes the proposed rule change is also consistent with Section 6(c)(3)(B) of the Act.^[7] Under Section 6(c)(3)(B), it is the Exchange's responsibility to prescribe standards for training, experience and competence for persons associated with Exchange members and member organizations. The Exchange has proposed this rule change to establish an additional mechanism for the administration of the Regulatory Element of the Continuing Education Program, which will enable registered persons to satisfy their continuing education obligations.

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

The Exchange believes that the proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.

C. 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.

III. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, 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 filing will also be available for inspection and copying at the principal office of the NYSE. All submissions should refer to file number SR-NYSE-00-55 and should be submitted by February 12, 2001.

IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change

The Commission has reviewed carefully the NYSE's proposed rule change and Amendment No. 1, and finds, for the reasons set forth below, the proposal is consistent with the requirements of Section 6 of the Act ^[8] and the rules and regulations thereunder applicable to a national securities exchange.^[9] Specifically, the Commission finds the proposal is consistent with Section 6(b)(5) of the Act ^[10] because it should facilitate compliance with the Regulatory Element of the Continuing Education Program. Under this proposal, firms will be able to deliver the Regulatory Element to their employees in-house. The Commission is satisfied that the proposal provides reasonable safeguards to uphold the integrity of the program, consistent with the requirements specified by the Securities Industry/Regulatory Council.

The Commission also finds the proposal is consistent with Section 6(c)(3)(B) of the Act,^[11] because the proposal provides an additional mechanism for the administration of the Regulatory Element of the Continuing Education Program, which should make it easier for registered persons to satisfy their continuing education obligations.

The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after the date of publication of notice thereof in the Federal Register. The Commission notes that the proposed is very similar to SR-NASD-00-64, which the Commission approved after the proposal was published for a full 21-day notice and comment period.^[12] Approving this proposal will allow NYSE firms to take advantage of the in-house delivery option, which NASD member firms are already able to do. Additionally, approval of this proposal will conform the Interpretation to Rule 345A to the requirements of NYSE Rule 345A, which Rule was amended in 1998. The Commission finds, therefore, that granting accelerated approval of the proposed rule change, as amended, is appropriate and consistent with the Act.

It is therefore ordered, pursuant to Section 19(b)(2) of Act,^[13] that the proposed rule change (SR-NYSE-00-55), as amended, is hereby approved on an accelerated basis.

For the Commission by the Division of Market Regulation, pursuant to delegated authority.¹⁴

Johnathan G. Katz,

Secretary.

Footnotes

1.  15 U.S.C. 78s(b)(1).

2.  17 CFR 240.19b-4.

3.  See December 20, 2000 letter from James E. Buck, Senior Vice President and Secretary, NYSE, to Nancy Sanow, Assistant Director, Division of Market Regulation (“Division”), SEC (“Amendment No. 1”). In Amendment No. 1, the NYSE requested accelerated approval of the proposed rule change, and made minor, non-substantive corrections to Exhibit A to the proposed rule change.

4.  The Securities Industry/Regulatory Council on Continuing Education is comprised of representatives from broker/dealers and SROs whose duties include recommending and helping to develop specific content and questions for the Regulatory Element, as well as minimum core curricula for the Firm Element. The Council has developed a model under which firms may deliver the computer-based training in-house.

5.  The NYSE modified continuing education requirements for registered persons in 1998. See Securities Exchange Act Release No. 39712 (March 3, 1998), 63 FR 11939 (March 11, 1998) (Order approving proposed rule changes by the Chicago Board Options Exchange, Municipal Securities Rulemaking Board, National Association of Securities Dealers, Inc., and NYSE). At that time, however, the NYSE did not modify the corresponding Interpretation to NYSE Rule 345A to reflect the changes made to the Rule. The instant proposal now conforms the Interpretation to the requirements of NYSE Rule 345A. Telephone conversation between Donald Van Weezel, Managing Director, Regulatory Affairs, NYSE, and Katherine England, Assistant Director, Division, SEC, and Joseph Morra, Special Counsel, Division, SEC, January 11, 2001.

6.  15 U.S.C. 78f(b)(5).

7.  15 U.S.C. 78f(c)(3)(B).

8.  15 U.S.C. 78f.

9.  In approving the proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

10.  15 U.S.C. 78f(b)(5).

11.  15 U.S.C. 78f(c)(3)(B).

12.  See Securities Exchange Act Release No. 43701 (December 11, 2000), 65 FR 79143 (December 18, 2000) (Order approving in-firm delivery of the Regulatory Element of the Continuing Education Requirements). The NASD proposal received one comment letter in support of the proposal, and none in opposition. The only substantive difference between the NASD in-firm delivery rules and the NYSE proposal is the NYSE requires an annual representation that each member and member organization has continued to maintain and comply with all required procedures regarding firm delivery of the Regulatory Element for the previous year. The NASD rules require a one-time attestation. Conversation between Mary Ann Furlong, NYSE, and Joseph P. Morra, Special Counsel, Division, SEC, December 12, 2000.

13.  15 U.S.C. 78s(b)(2).

14.  17 CFR 200.30-3(a)(12).