[Federal Register Volume 60, Number 24 (Monday, February 6, 1995)]
[Notices]
[Pages 7089-7091]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2751]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35298; File Nos. SR-NYSE-94-48 and SR-PSE 94-37]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the New York
Stock Exchange, Inc. and the Pacific Stock Exchange, Inc., Relating to
the Off-Site Storage of Customer Options Account Information
January 30, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on December 20, 1994, the New
York Stock Exchange, Inc. (``NYSE''),\2\ and on December 23, 1994, the
Pacific Stock Exchange, Inc. (``PSE'') (together, the ``Exchanges''),
submitted to the Securities and Exchange Commission (``SEC'' or
``Commission'') the proposed rule changes as described in Items I and
II below, which Items have been prepared by the Exchanges. The
Commission is publishing this notice to solicit comments on the
proposed rule changes from interested persons.
\1\15 U.S.C. 78s(b)(1) (1988).
\2\On January 27, 1995, the NYSE submitted a letter requesting
accelerated approval of its proposal. See Letter from James E. Buck,
Senior Vice President and Secretary, NYSE, to Glenn Barrentine, Team
Leader, Division of Market Regulation, Commission, dated January 27,
1995.
---------------------------------------------------------------------------
I. Self-Regulatory Organizations' Statement of the Terms of Substance
of the Proposed Rule Changes
Currently, paragraph (c), ``Maintenance of Customer Records,'' of
NYSE Rule 722, ``Supervision of Accounts,'' and paragraph (d)(3),
``Maintenance of Customer Records,'' of PSE Rule 9.18, ``Doing a Public
Business in Options,'' require that background and financial
information of customers be maintained at both the branch office
servicing the customer's account and at the principal supervisory
office with jurisdiction over the branch office. NYSE Rule 722(c) and
PSE Rule 9.18(d)(3) also require that copies of account statements of
options customers be maintained at both the branch office supervising
the accounts and at the principle supervisory office with jurisdiction
over that branch for the most recent six-month period. The Exchanges
propose to amend their rules to provide that the customer information
and account statements currently maintained at the principal
supervisory office may be maintained at a location other than the
principal supervisory office if the documents and information are
readily accessible and promptly retrievable.
The text of the proposed rule changes is available at the Office of
the Secretary, NYSE, at the Office of the Secretary, PSE, and at the
Commission.
II. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
In their filings with the Commission, the self-regulatory
organizations included statements concerning the purpose of and basis
for the proposed rule changes and discussed any comments they received
on the proposed rule changes. The text of these statements may be
examined at the places specified in Item IV below. The self-regulatory
organizations have prepared summaries, set forth in Section (A), (B),
and (C) below, of the most significant aspects of such statements.
(A) Self-Regulatory Organizations' Statements of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
Currently, the rules of the NYSE and the PSE require that both the
branch [[Page 7090]] office servicing an options customer's account and
the principal supervisory office having jurisdiction over the branch
office retain account statements and other financial and background
information for the account for supervisory purposes. With advances in
data storage and retrieval capability available through optical disks,
fax machines, microfiche and computers, coupled with the escalating
costs of storing records on-site, member organizations increasingly are
storing their records away from their principal supervisory offices.
According to the NYSE, NYSE members have obtained no-action
positions from the Options Self-Regulatory Council (``OSRC'')\3\ on a
case-by-case basis when moving their operational facilities off-site.
The OSRC has determined that these arrangements are consistent with the
record retention requirement rules so long as the documents are readily
accessible and promptly retrievable. In view of the number of requests
received by the options self-regulatory organizations (``SROs''), the
OSRC has asked each of the options exchanges and NASD to consider
amending their rules to permit the principal supervisory office to
store customer account information off-site.
\3\The ORSC is a committee comprised of representatives from
each of the options exchanges and the National Association of
Securities Dealers, Inc. (``NASD''). The OSRC was created pursuant
to the plan submitted by the options SROs under Rule 17d-2 of the
Act (``17d-2 Plan''). The 17d-2 Plan was adopted to reduce
regulatory duplication relative to options-related sales practice
matters for a large number of firms which are currently members of
two or more SROs. The purpose of the OSRC is: (1) to administer the
17d-2 Plan; and (2) to address options-related sales practice
matters in a common forum.
---------------------------------------------------------------------------
The Exchanges propose to amend their rules accordingly. The
Exchanges believe that the off-site storage arrangements are consistent
with the record retention requirement rules, provided the documents are
readily accessible and promptly retrievable.\4\ In addition, the
Exchanges do not believe that the supervisory obligations of member
organizations will be compromised by the proposal since members will
continue to be required to maintain customer option account documents
and information at the branch office servicing the customer's account.
To ensure compliance with the provisions of the rules, the Exchanges
state that they will periodically examine the document retrieval
capabilities of member firms using off-site document storage
arrangements.
\4\The NYSE defines ``readily accessible and promptly
retrievable'' to mean that the requested information will be
available by noon of the next business day. The PSE defines
``readily accessible and promptly retrievable'' to mean that the
requested information can be returned to the principal supervisory
office generally within 24 hours.
---------------------------------------------------------------------------
The Exchanges believe that the proposed rule changes are consistent
with Section 6(b) of the Act, in general, and further the objectives of
Section 6(b)(5), in particular, in that they are designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system and in general to protect investors
and the public interest.
Additionally, the NYSE believes that the proposal will promote the
maintenance of fair and orderly markets because it will provide member
organizations with the opportunity to discharge their supervisory
responsibilities in a more cost-effective manner, thereby improving the
efficiency of NYSE member organizations, and, in turn, benefitting
investors in the marketplace. Moreover, because the NYSE does not
believe that the proposal will compromise the ability of members to
satisfy their supervisory obligations, the NYSE believes the proposal
is consistent with the protection of investors.
(B) Self-Regulatory Organizations' Statement on Burden on Competition
The Exchanges do not believe that the proposed rule changes will
impose any burden on competition that are not necessary or appropriate
in furtherance of the purposes of the Act.
(C) Self-Regulatory Organizations' Statement on Comments on the
Proposed Rule Changes Received From Members, Participants or Others.
No written comments were either received or requested.
III. Date of Effectiveness of the Proposed Rule Changes and Timing for
Commission Action
The Exchanges have requested that the proposed rule changes be
given accelerated effectiveness pursuant to Section 19(b)(2) of the
Act.
The Commission believes that the proposed rule changes are
consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange,
and, in particular, the requirements of Section 6(b)(5) in that they
are designed to prevent fraudulent and manipulative acts and practices,
to facilitate transactions in securities, and to protect investors and
the public interest.\5\
\5\15 U.S.C. 78f(b)(5) (1988).
---------------------------------------------------------------------------
Specifically, by allowing off-site storage of customer account
information maintained at supervisory offices, the Commission believes
that the proposal should provide the Exchanges' members with a cost-
effective means to utilize computers, facsimile machines, optical
disks, and other technology to store the required customer account
information off-site while ensuring that member firms will continue to
have easy access to all of the customer account information necessary
to discharge their supervisory responsibilities. In this regard, the
proposals provide that options customer account information stored off-
site must be ``readily accessible and promptly retrievable,''\6\
thereby preserving the ability of the Exchanges to access and
investigate customer account records. The Commission notes that the
Exchanges plan to periodically examine the document retrieval
capabilities of member firms using off-site storage arrangements. Thus,
the Commission believes that both proposals strike a reasonable balance
between the Exchanges' interest in allowing member organizations to
reduce the cost of storing customer account information and ensuring
that the information continues to be available for supervisory
purposes.
\6\See note 4, supra.
---------------------------------------------------------------------------
In addition, the Commission believes that it is reasonable for the
Exchanges to allow off-site storage of customer account information
maintained at supervisory offices, but not of account information
stored at branch offices, because branch offices are responsible for
the day-to-day administration of customer accounts and require
immediate access to account information. For example, by continuing to
require branch offices to store customer account information on-site,
the proposal facilitates broker compliance with the suitability
requirements applicable to options customers.
The Commission finds good cause for approving the Exchanges'
proposals prior to the thirtieth day after the date of publication of
notice of filing thereof in the Federal Register because the proposals
are identical to previously approved proposals submitted by the Chicago
Board Options Exchange, Inc. (``CBOE''), the Philadelphia Stock
Exchange, Inc. (``PHLX'') and the American Stock Exchange, Inc.
[[Page 7091]] (``Amex'').\7\ The CBOE and PHLX proposals were subject
to the full notice and comment period and the Commission received no
comments on those proposals. Therefore, the Commission believes it is
consistent with Sections 6(b)(5) and 19(b)(2) of the Act to approve the
Exchanges' proposals on an accelerated basis.
\7\See Securities Exchange Act Release Nos. 34899 (October 26,
1994), 59 FR 54929 (November 2, 1994) (order approving File No. SR-
CBOE-94-30); 34909 (October 27, 1994), 59 FR 55144 (November 3,
1994) (order approving File No. SR-PHLX-94-35); and 34913 (October
28, 1994), 59 FR 55300 (November 4, 1994) (order approving File No.
SR-Amex-94-37).
---------------------------------------------------------------------------
IV. Solicitation of Comments
Interested persons are invited to submitt 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, NW., Washington, DC 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, NW.,
Washington, DC. Copies of each filing will also be available for
inspection and copying at the principal office of the respective above-
mentioned self-regulatory organization. All submissions should refer to
the file number in the caption above and should be submitted by
February 24, 1995.
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule changes (File Nos. SR-NYSE-94-48 and SR-
PSE-94-37) are approved.
\8\15 U.S.C. 78s(b)(2) (1982).
---------------------------------------------------------------------------
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
\9\17 CFR 200.30-3(a)(12) (1994).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-2751 Filed 2-3-95; 8:45 am]
BILLING CODE 8010-01-M
