[Federal Register Volume 64, Number 26 (Tuesday, February 9, 1999)]
[Notices]
[Pages 6413-6415]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-3029]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40982; File No. SR-CSE-99-01]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the Cincinnati
Stock Exchange, Inc., Relating to Mandatory Year 2000 Testing
January 26, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934,\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on
January 26, 1999 the Cincinnati Stock Exchange, Incorporated (``CSE''
or ``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the CSE. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons and to approve the proposal on an accelerated
basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Exchange proposes to adopt new Rule 4.5, Mandatory Year 2000
Testing, that would require member firms to participate in testing of
computer systems designed to prepare for Year 2000 and to file reports
regarding the testing with the Exchange.
The text of the proposed rule change is below. Proposed new
language is italicized.
* * * * *
CHAPTER IV
Books and Records
Rule 4.5 Mandatory Year 2000 Testing
This rule will expire automatically on January 1, 2001.
(a) Point-to-Point Testing. Each member that has an electronic
interface with the Exchange shall participate in point-to-point testing
with the Exchange of its computer systems designed to ascertain Year
2000 compatibility of those computer systems, in a manner and frequency
as prescribed by the Exchange. A member that has its electronic
interface through a service provider need not participate in point-to-
point testing if, by a time designated by the Exchange, (i) the service
provider conducts successful tests with the Exchange on behalf of the
firms it serves, (ii) the member conducts successful point-on-point
testing with the service provider, and (iii) the Exchange agrees that
further testing is not necessary.
(b) Industry-Wide Testing. The Exchange may require certain of its
members to participate in industry-wide testing of computer systems for
Year 2000 compatibility. The Exchange may require any member who will
participate in industry-wide testing to also participate in any tests
necessary to ensure preparedness to participate in industry-wide
testing.
(c) Reports. Members participating in point-to-point testing
(whether between the firm and the Exchange, between the firm and its
service provider, or between the firm's service provider and the
Exchange) or industry-wide testing shall file reports with the Exchange
concerning the required tests in the manner and frequency required by
the Exchange. The Exchange may require reports before the testing is
begun to ensure that the member or its service provider is prepared to
participate in the tests.\3\
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\3\ Technical corrections to the rule language were made during
a telephone conversation between Robert Ackerman, Vice President
Regulatory Services, CSE, and Joshua Kans, Attorney, Division of
Market Regulation, Commission, January 26, 1999.
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II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, CSE 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 place specified in Item
IV below. The CSE has prepared
[[Page 6414]]
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
On January 1, 2000, the internal date in computers throughout the
world will change from ``12/31/99'' to ``01/01/00.'' Absent the
necessary changes to the computers' codes, a number of errors could
occur in even the most routine processing as the computers may read the
two digit ``00'' year code as 1900 instead of as 2000. This ``Year
2000'' problem could have disastrous consequences for a number of
businesses, including the securities industry, if businesses do not
make the necessary changes and perform the necessary testing prior to
the Year 2000. The constituents of the securities industry will need to
coordinate extensive testing to ensure there are not widespread
problems.
The CSE, in cooperation with the SEC and other self regulatory
organizations (``SROs''), has been working to raise awareness of the
Year 2000 problem in the industry. The proposed rule, Rule 4.5, would
require CSE members to participate in testing of computer systems and
file reports with the Exchange regarding the testing, in a manner and
frequency prescribed by the Exchange. Other SROs, including NASD
Regulation, the New York Stock Exchange, the Chicago Board Options
Exchange and the American Stock Exchange, already have rules to require
mandatory Year 2000 testing by their members. The Exchange is proposing
that the rule expire automatically on January 1, 2001.
Proposed Rule 4.5(a) requires any firm with an electronic interface
with the Exchange to conduct point-to-point testing with the Exchange.
Point-to-point testing means testing between two entities, in this case
between the member with the electronic interface and the Exchange. The
Rule allows for exemptions if certain conditions are met by the member.
Additionally, to ensure that the securities industry is adequately
prepared to meet the ``Year 2000'' problem, the Securities Industry
Association (``SIA'') has undertaken to coordinate industry wide
testing. Testing will include, among others, exchanges, registered
clearing corporations, data processors and broker-dealers. The first
test is scheduled for March 6, 1999. Proposed Rule 4.5(b) will require
certain CSE members to participate in these tests. Proposed Rule 4.5(c)
would also require members to file reports with the CSE concerning the
required tests in the manner and frequency required by the Exchange.
A member that is subject to the Rule and fails to participate in
the tests or fails to file any required reports may be subject to
disciplinary action pursuant to Chapter VIII of the Exchange's Rules.
(2) Basis
By helping to ensure the participation of Exchange members in
important industry testing to prepare for Year 2000, the proposed rule
change is consistent with Section 6(b) of the Act \4\ in general, and
in particular will further the objectives of Section 6(b)(5),\5\ which
requires that the rules of an exchange be designed to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, 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.
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\4\ 15 U.S.C. 78f(b).
\5\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The CSE does not believe the proposed rule change will impose any
burden on competition that is not necessary or appropriate in
furtherance of the Act.
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. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
After careful consideration, the Commission has concluded, for the
reasons set forth below, that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder. Mandating Year 2000 testing and reporting is consistent
with Section 6(b)(5) of the Act, which, among other aspects, requires
that the rules of an exchange promote just and equitable principles of
trade, foster cooperation and coordination with persons engaged in
regulating, clearing, settling, processing information with respect to,
and facilitating transactions in securities, and remove impediments to
and perfect the mechanism of a free and open market and a national
market system. The Commission believes that the proposed rule change
will facilitate the CSE's and member firms' efforts to ensure the
securities markets' continued smooth operation during the period
leading up to and beyond January 1, 2000.
The Exchange has requested that the Commission approve the proposed
rule change prior to the 30th day after the date of publication of
notice of the filing in the Federal Register because industry-wide
tests will soon begin, and the Exchange wants to ensure that members
are able to comply with point-to-point and industry testing schedules
and file reports with the Exchange concerning the required tests, and
meet the deadline for correcting Year 2000 problems. The Commission
finds good cause for approving the proposed rule change prior to the
30th day after the date of publication of notice of the filing in the
Federal Register. It is vital that SROs such as the CSE have the
authority to mandate that their member firms participate in Year 2000
testing and that they report test results (and other Year 2000
information) to the SROs. The proposed rule change will help the CSE
participate in coordinating Year 2000 testing, including industry-wide
testing, and in remediating any potential Year 2000 problems. This, in
turn, will help ensure that the industry-wide tests and the CSE's Year
2000 efforts are successful. The proposed rule change will also help
the CSE work with its member firms, the SIA, and other SROs to minimize
any possible disruptions the Year 2000 may cause.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, 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
[[Page 6415]]
provisions of 5 U.S.C. 552, will be available for inspection and
copying in the Commission's Public Reference Section, 450 Fifth Street,
Washington, D.C. Copies of such filing will also be available for
inspection and copying at the principal office of CSE. All submissions
should refer to File No. SR-CSE-99-01 and should be submitted by March
2, 1999.
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\6\ that the proposed rule change (SR-CSE-99-01) is hereby approved on
an accelerated basis.\7\
\6\ 15 U.S.C. 78s(b)(2).
\7\ In approving the proposal, the Commission has considered the
rule's impact on efficiency, competition and capital formation. 15
U.S.C. 78c(f).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-3029 Filed 2-8-99; 8:45 am]
BILLING CODE 8010-01-M
