[Federal Register Volume 62, Number 6 (Thursday, January 9, 1997)]
[Notices]
[Pages 1353-1355]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-489]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 38106; File No. SR-NYSE-96-27]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by New York Stock Exchange, Inc., Relating to an Interpretation
of Rule 409 (``Statements of Accounts to Customers'')
December 31, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on December 5, 1996,\2\ the
New York Stock Exchange, Inc. (``NYSE'' 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. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ On December 5, 1996, the NYSE filed Amendment No. 1 with the
Commission. The proposed rule change was submitted on September 25,
1996. However, amendments to the rule language were improperly
identified in contravention of Section 19(b); therefore, the filing
is deemed to be filed on the later date. See letter from James E.
Buck, Senior Vice President and Secretary, NYSE, to Katherine A.
England, Assistant Director, Division of Market Regulation, SEC,
dated December 5, 1996.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange has filed with the Commission a proposed rule change
which consists of an interpretation with respect to the meaning and
administration of existing Exchange Rule 409 (``Statements of Accounts
of Customers''). Below is the text of the proposed rule change.
Proposed new language is in italics; proposed deletions are in
brackets.
RULE 409: STATEMENTS OF ACCOUNTS TO CUSTOMERS
(a)
/01 Applicability
Compliance with Rule 409(a) and the accuracy of statements of
accounts thereunder is the responsibility of the member organization
carrying the customer account for which the statement is required,
unless such responsibility has been allocated to a non-member carrying
organization pursuant to an Exchange approved agreement under Rule 382.
/02 Information To Be Disclosed
Statements of accounts to customers must clearly and prominently
disclose on the front of the statement:
1. the identity of the introducing and carrying organization and
their respective phone numbers for service;\1\
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\1\ If the phone number of the clearing organization appears on
the back of the statement it must be in ``bold'' or ``highlighted''
letters.
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2. where the customers' assets included on the statement are
carried;
3. that the carrying organization is a member of SIPC and whether
any of the customers' assets included on the statement are not covered
by SIPC;
4. the opening and closing balances for the account.
/03 Use of Third Party Agents
Prior to utilizing a ``third party agent'' to prepare and/or
transmit statements of accounts to customers, a member organization
shall represent/undertake in writing to the Exchange that:
1. the third party is acting as agent for the member organization;
2. the member organization retains responsibility for compliance
with Rule 409(a);
3. the member organization has developed procedures/controls for
reviewing and testing the accuracy of statements of accounts prepared
and/or transmitted by the third party agent;
4. the member organization will retain copies of statements of
accounts prepared and/or transmitted by the third party agent in
accordance with applicable books and records requirements.
Allocation of responsibilities for preparation and/or transmission
of statements to any person other than a carrying organization pursuant
to an agreement approved by the Exchange in accordance with Rule 382
(Carrying
[[Page 1354]]
Agreements) shall be deemed to be utilization of a ``third party
agent''.
An introducing organization that is a provider of services included
in a member organization's statements of accounts may not function as a
``third party agent'' and may not itself prepare and or transmit such
statements.
/04 Assets Not In Possession/Control of Member Organization
Where a statement of account includes assets that are not within
the possession or control of the member organization such assets must
be clearly and distinguishably separated on the statement, and it must
be clearly indicated on the statement that such externally held assets:
are not within the possession or control of the member organization,
are included on the statement solely as a service to the customer,
information (including valuation) is derived from the customer or other
external source for which the member organization is not responsible,
and are not covered by SIPC.
/05 Use of Logos, Trademarks, etc.
Where the logo, trademark or other similar identification of a
person (other than the carrying or introducing organization) appears on
a customer account statement, the identify of such person(s) and the
relationship to the introducing, carrying or other organization
included on the statement must be provided and may not be utilized in a
manner which is misleading or causes customer confusion.
/06 Combined Statements
Where a member organization carrying a customer's account and
another person(s) who separately offers financial related products/
services to the same customer (e.g. mutual fund sales/custodial
services, banking products/services, insurance products/services,
securities products/services, etc.) seek to jointly formulate and/or
distribute their respective customer account statements together with a
statement summarizing or combining assets held in different accounts,
(``summary statement''), the Exchange will require:
1. That the summary statement:
a. indicate that the ``summary statement'' is provided for
informational purposes and includes assets held at different entities;
b. identify each entity from which information is provided or
assets being held are included, their relationship with each other
(e.g., parent, subsidiary or affiliated organization), and their
respective functions (introducing/carrying brokerage firms, fund
distributor, banking/insurance product providers, etc.);
c. clearly distinguish between assets held by each entity by way of
use of columns, coloring or other district form of demarcation;
d. identify the customer's account number at each entity; \2\
e. provide a telephone number for customer service at each entity;
\2\
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\2\ Where the customer account number and telephone number for
customer service at each entity are included on each entit[ies]y's
respective customer account statement, such account and telephone
numbers need not be included on the summary statement.
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f. disclose which entity carries each of the different assets or
categories of assets included on the summary;
g. identify and distinguish between those accounts/assets covered
and not covered by SIPC.
2. To the extent that the summary statement aggregates the values
of the various accounts summarized or portions thereof, such
aggregation shall be recognizable as having been arithmetically derived
from the separately stated totals or their components.
3. That the beginning and end of each separate statement (e.g.,
summary, brokerage, mutual fund, banking, insurance, etc.) be clearly
distinguishable by color, pagination or other distinct form of
demarcation.
4. That there be a written agreement between the carrying
organization and each other person jointly formulating and/or
distributing its respective customer account statements attesting that
each such person has developed procedures/controls for reviewing and
testing the accuracy of its respective statements or any information
included by it on a summary statement.
5. The summary statement shall comply with Rule 409 and all
interpretations thereof.
* * * * *
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. 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
1. Purpose
The purpose of the proposed rule change is to set forth an
interpretation concerning the meaning and administration of Exchange
Rule 409 with respect to the establishment of standards regarding the
distribution of ``summary statements'' and the use of ``third party
agents'' to prepare and/or distribute customer account statements. The
proposed interpretation also codifies existing Exchange policy as to
certain information that must be disclosed on account statement. Other
items in the proposed interpretation address statements that include
assets not in possession or control of a member organization and the
use of logos and trademarks on statements.
Exchange Rule 409 addresses the responsibility of member
organizations carrying customer accounts to send statements of these
accounts to their customers. The Exchange has received requests from
member organizations to allow them jointly, with other financial
institutions (e.g., banks and investment companies), to formulate and
distribute to common customers a ``summary statement'' together with
their respective customer account statements. These requests generally
involve entities that are part of a financial services ``group'' or
``family'' or where the Exchange member organization carries accounts
for a broker-dealer that is part of such a group. The ``summary
statement'' provides an overview of the customer's accounts at the
separate entities and is supported by the detail on the separate
respective statements.
The Exchange has worked with industry representatives to develop
parameters so that this may be accomplished in a manner that will
provide customers with accurate account statements that clearly
identify the respective entities involved and distinguish brokerage
from non-brokerage assets.
Specifically, the Exchange will require that the summary statement:
indicate that the statement is informational and includes assets held
at different entities; identify each entity, their relationship to each
other and their respective functions; distinguish clearly between
assets held by each entity \3\; identify the customer's account numbers
at each entity and provide a
[[Page 1355]]
customer service telephone number at each entity \4\; disclose which
entity holds each of the different assets on the summary; and
distinguish between accounts that are or are not covered by SIPC.
Additionally, any aggregation of account values must be recognizable as
having been derived from the separately stated totals; the beginning
and end of each separate underlying statement must be clearly
distinguishable; and there must be a written agreement between the
parties jointly distributing the statements that each has developed
procedures/controls for testing the accuracy of its own information on
the customer statement.
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\3\ Columns, coloring or other distinct form of demarcation
should be used to clearly distinguish assets.
\4\ Where the customer account number and telephone number for
customer service at each entity are included on each entity's
respective customer account statement, such account and telephone
numbers need not be included on the summary statement.
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The proposed interpretation will codify that carrying firms are
responsible for sending statements to customers and for ensuring the
accuracy of such statements. However, it is recognized that in many
cases ``third party agents'' (e.g., service bureaus or other
independent entities) prepare or transmit customer account statements.
Therefore, the proposed interpretation to Rule 409 would also establish
Exchange policy regarding use of ``third party agents'' to prepare and
transmit statements of accounts and to set forth certain
representations which must be made in writing by the member
organization to the Exchange. Specifically, the member organization
must represent that the third party is acting as agent for the member
organization, that the member organization retains responsibility for
compliance with Rule 409(a), that the member organization has developed
procedures and implemented controls for reviewing and testing the
accuracy of statements and that it will retain copies of all such
statements. In addition, the interpretation states that an introducing
organization that is a provider of services included in a member
organization's statements of accounts may not function as a ``third
party agent'' and may not itself prepare and or transmit such
statements.
The proposed interpretation also clarifies that certain information
must be disclosed on the front of account statements, i.e., the
identity of the introducing and carrying organizations, where customer
assets included on the statement are held, whether such customer assets
are covered by SIPC, and the opening and closing account balances.
The interpretation also requires that where the account statement
includes assets not within the possession or control of the member
organization, such assets must be clearly separated on the statement.
In addition, the statement must clearly indicate that such externally
held assets: are not within the possession or control of the member
organization; are included on the statement solely as a service to the
customer; and are not covered by SIPC. Moreover, the summary statement
must indicate that the member organization is not responsible for any
information derived from the customer or other external source relating
to such assets.
As to the use of logos and trademarks, the proposed interpretation
provides that were the logo, trademark or other identification of a
person (other than that of the carrying or introducing organization)
appears on an account statement, then the identity of such person and
the relationship to the introducing, carrying or other organization
included on the statement must be provided and may not be misleading or
cause customer confusion.
The Exchange believes that this proposed interpretation will give
member organizations the flexibility to distribute summary statements
to customers or use third party agents to prepare and transmit customer
account statements, while providing appropriate safeguards through
detailed disclosure to customers and required undertakings to the
Exchange.
2. Statutory Basis
The NYSE believes the proposed rule change is consistent with the
requirements of Section 6(b)(5) \5\ of the Act which requires that the
rules of the Exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest. This proposal complies with the Act in that it
establishes standards enabling members and member organizations to
distribute summary statements and to use third party agents to prepare
and distribute these statements, while providing customer protection
through appropriate disclosures and implementation of specified
procedures and controls.
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\5\ 15 U.S.C. 78f(b)(5).
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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 Comment on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of 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 reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve 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
Commissions' Public Reference Room. Copies of the filing will also be
available for inspection and copying at the principal office of the New
York Stock Exchange. All submissions should refer to the File No. SR-
NYSE-96-27 and should be submitted by January 30, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-489 Filed 1-8-97; 8:45 am]
BILLING CODE 8010-01-M
