[Federal Register Volume 62, Number 88 (Wednesday, May 7, 1997)]
[Notices]
[Pages 25009-25011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11842]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38567; File No. SR-NYSE-97-08]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by New York Stock Exchange, Inc. Consisting of an Information
Memo Relating to Electronic Delivery of Information to Customers by
Exchange Members and Member Organizations
May 1, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 24, 1997 \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 April 24, 1997, the NYSE amended the Information Memo,
attached as Exhibit A to this notice. See letter from James E. Buck,
Senior Vice President and Secretary, NYSE, Inc., to Katherine A.
England, Assistant Director, Division of Market Regulation, SEC,
dated April 24, 1997.
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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 an Information Memo
(``Memo'') setting forth the Exchange's policy regarding electronic
delivery of information required under Exchange rules to be furnished
to customers.
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 Commission, in Release Nos. 34-37182 \3\ and 33-7233,\4\ set
forth standards whereby broker-dealers and others may satisfy their
delivery obligations under federal securities laws by using electronic
media as an alternative to paper-based media provided that they comply
with certain prescribed standards.
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\3\ See, Securities Exchange Act Release No. 37182, May 9, 1996;
61 FR 24644, May 15, 1996, (Commission's interpretation concerning
the delivery of information through electronic media in satisfaction
of broker-dealer and transfer agent requirements to deliver
information under the Act and the rules thereunder).
\4\ See, Securities Act Release No. 7233, Oct. 6, 1995; 60 FR
53458, Oct. 13, 1995, (Commission's interpretation concerning the
use of electronic media as a means of delivering information
required to be disseminated pursuant to the Securities Act of 1933,
the Securities Exchange Act of 1934, and the Investment Company Act
of 1940).
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The Information Memo (attached as Exhibit A to this notice)
establishes Exchange policy regarding electronic
[[Page 25010]]
delivery of information required under Exchange rules to be furnished
to customers. Under this proposed Exchange policy, members and member
organizations will be allowed to electronically transmit documents
required to be furnished to customers under Exchange rules, provided
that they adhere to the Commission's established standards. The Memo
summarizes the Commission standards, which address format, content,
access, evidence of receipt of delivery, and consent for delivery of
personal financial information. The Memo also sets forth a list of
current Exchange rules that require members and member organizations of
furnish specific information to customers for which electronic delivery
may be used in accordance with the Commission Releases. The Exchange
believes this list is complete. Further, it is the Exchange's intention
that the policy outlined in this Memo cover all communications required
to be sent to customers by firms pursuant to Exchange rules. The list
includes:
a. Rule 382(c) (Carrying Agreements) requires notification to each
customer, whose account is introduced on a fully disclosed basis, of
the existence of a clearing agreement, the relationship between the
introducing and carrying organization, and the allocation of
responsibilities between the respective parties.
b. Rule 409 (Statements of Accounts to Customers) requires delivery
of statements of accounts showing security and money positions and
entries at least quarterly to all accounts having an entry, money, or
security position during the preceding quarter.\5\
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\5\ See, Securities Exchange Act Release No. 37182 at p. 24648,
(stating that confirmations of transactions are covered pursuant to
Rule 10b-10 of the Act).
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c. Rule 451 (Transmission of Proxy Material) requires member
organizations to transmit proxy materials and annual reports to
beneficial owners of stock which stock is in the member's possession
and control or to others specified in the Rule.
d. Rule 465 (Transmission of Interim Reports and Other Material)
requires transmittal of interim reports of earnings and other material
to beneficial owners of stock which stock is held by the member
organization.
e. Rule 721(c) (Opening of Accounts) requires that background and
financial information on every new options account customer be sent to
such customer for verification within fifteen days after the account is
approved for options transactions.
f. Rule 721(e)(5) (Uncovered Short Options--Disclosure) requires
that a written description of the risks inherent in writing uncovered
short option transactions be furnished to applicable customers.
g. Rule 725 (Confirmations) requires member organizations to
furnish customers with a written confirmation of each transaction in
options contracts.
h. Rule 726(a) (Delivery of Options Disclosure Document) requires
delivery of a current Options Disclosure Document to a customer at or
prior to the time the account is approved for trading options.
Thereafter, delivery must be made of amendments or revisions to the
Options Disclosure Document to every customer approved for trading the
kind of option covered by the Disclosure Document.
i. Rule 726(b) (Prospectus) requires that a current prospectus of
The Options Clearing Corporation shall be delivered to each customer
who requests one.
j. Rule 730 (Statements of Options Accounts) requires that monthly
statements be sent to options account holders.
k. Rule 781(a) (Allocation of Exercise Assignment Notices) requires
notification to customers of the method used to allocate exercise
notices in customer's accounts.
The Exchange believes that use of electronic media to satisfy
delivery requirements is beneficial to both customers and members and
member organizations and will be effective and efficient when conducted
in accordance with Commission standards.
2. Statutory Basis
The proposed rule change is consistent with the requirements of
Section 6(b)(5) of the Act \6\ which requires that the rules of the
Exchange be designed to prevent fraudulent 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 by providing standards under which members and member
organizations may effectively and efficiently supply required documents
to customers.
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\6\ 15 USC 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 Comments 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 reason 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, 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 nay person, other than those
that may be withheld from the public in accordance with the provisions
of 5 USC 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
above-mentioned self-regulatory organization. All submissions should
refer to the file number in the caption above and should be submitted
by May 28, 1997.
Jonathan G. Katz,
Secretary.
Exhibit A--Information Memo
To: All Members and Member Organizations
Note: Please Route to your Compliance Officer/Chief Operating
Officer
Subject: Electronic Delivery of Information to Customers by Members
and Member Organizations
This information Memo sets forth the Exchange's policy
applicable to electronic delivery of information required to be
provided to customers by members and member organizations pursuant
to New York Stock Exchange Rules.
[[Page 25011]]
On May 9, 1996, the Securities and Exchange Commission (``SEC''
or ``Commission'') issued Release No. 34-37182 to publish its views
respecting the use of electronic media by broker-dealers. The
Commission stated that broker-dealers may satisfy their delivery
obligations under federal securities laws by using electronic media
as an alternatives to paper-based media within the framework
established in Release No. 33-7233 dated October 6, 1995.
The Exchange will permit members and member organizations that
wish to electronically transmit documents that they are required to
furnish to customers under NYSE Rules to do so provided they adhere
to the standards contained in the SEC Releases. Members and member
organizations are urged to review these releases in their entirety
to ensure they comply with all electronic delivery requirements. The
SEC standards are summarized below:
Electronic delivery must result in customers receiving
information that is substantially equivalent to the information
these customers would have received if the required information were
delivered in paper from, i.e., the electronically transmitted
document must convey all required information. For instance, if a
paper document is required to present information in a certain
order, then the information delivered electronically should be in
substantially the same order.
A person who chooses to receive a document
electronically, must be provided with the information in paper form,
upon request.
Customers who are provided information through
electronic delivery from broker-dealers must be able to effectively
access the information provided. Also, person to whom information is
sent electronically should have an opportunity to retain the
information through the selected medium or have ongoing access
equivalent to personal retention.
Broker-dealers must have reason to believe that
electronically delivered information will result in the satisfaction
of the delivery requirements under the federal securities laws.
Broker-dealers may be able to evidence satisfaction of delivery
obligations, for example, by:
(1) obtaining the intended recipient's informed consent to
delivery through a specified electronic medium, and ensuring that
the recipient has appropriate notice and access;
(2) obtaining evidence that the intended recipient actually
received the information, such as by an electronic mail return-
receipt or by confirmation that the information was accessed,
downloaded, or printed; or
(3) disseminating information through certain facsimile methods.
Prior to delivering personal financial information
(e.g., confirmations and account statements) electronically, the
broker-dealer must obtain the intended recipient's informed consent.
The customer's consent may be either by a manual signature or by
electronic means.
The SEC release stated that the above standards are intended to
permit broker-dealers to comply with their delivery obligations
under the federal securities laws when using electronic media. While
compliance with the guidelines is not mandatory for the electronic
delivery of non-required information that, in some cases, is being
provided voluntarily to customers, the Exchange believes adherence
to the guidelines should be considered, especially with respect to
documents furnished pursuant to agreements or other specific
arrangements with customers. Further, the SEC stated that broker-
dealers should evaluate the need for systems and procedures to deter
or detect misconduct by firm personnel in connection with the
delivery of information, whether by electronic or paper means.
A list of current Exchange rules which require members and
member organizations to furnish specific information to customers
for which electronic delivery may be used in accordance with the SEC
releases is set forth below. The Exchange believes the list is
complete and intends that the policy outlined in this Information
Memo covers all communications that firms are required to send to
customers pursuant to Exchange rules. Further, the summary of
delivery obligations provided in intended for reference only and
does not purport to be a statement of all requirements under the
rules listed.
Rule 382(c) Carrying Agreements) requires notification
to each customer whose account is introduced on a fully disclosed
basis of the existence of a clearing agreement, the relationship
between the introducing and carrying organization and the allocation
of responsibilities between the respective parties.
Rule 409 (Statements of Accounts to Customers) requires
delivery of statements of accounts showing security and money
positions and entries at least quarterly to all accounts having an
entry, money or security position during the preceding quarter. (See
Release No. 34-37182 which covers confirmations of transactions
pursuant to SEC Rule 10b-10).
Rule 451 (Transmission of Proxy Material) requires
member organizations to transmit proxy materials and annual reports
to beneficial owners of stock which is in its possession and control
or to others specified in the Rule.
Rule 465 (Transmission of Interim Reports and Other
Material) requires transmittal of interim reports of earnings and
other material to beneficial owners of stock held by the member
organization.
Rule 721(c) (Opening of Accounts) requires that
background and financial information on every new options account
customer be sent to such customer for verification within fifteen
days after the account is approved for options.
Rule 721(e)(5) (Uncovered Short Options--Disclosure)
requires that a written description of the risks inherent in writing
uncovered short option transactions must be furnished to applicable
customers.
Rule 725 (Confirmations) requires member organizations
to furnish customers with a written confirmation of each transaction
in options contracts.
Rule 726(a) (Delivery of Options Disclosure Document)
requires delivery of a current Options Disclosure Document to a
customer at or prior to the time the account is approved for trading
options. Thereafter, delivery must be made of amendments or
revisions to the Options Disclosure Document to every customer
approved for trading the kind of option covered by the Disclosure
Document.
Rule 726(b) (Prospectus) requires that a current
prospectus of The Options Clearing Corporation shall be delivered to
each customer who requests one.
Rule 730 (Statements of Options Accounts) requires that
monthly statements be sent to options account holders.
Rule 781(a) (Allocation of Exercise Assignment Notices)
requires notification to customers of the method used to allocate
exercise notices in customer's account.
Questions relating to Exchange matters may be directed to
Rudolph J. Schreiber at (212) 656-5226 or Mary Anne Furlong at (212)
656-4823.
Salvatore Pallante,
Senior Vice President.
[FR Doc. 97-11842 Filed 5-6-97; 8:45 am]
BILLING CODE 8010-01-M
