[Federal Register Volume 59, Number 136 (Monday, July 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17351]
[[Page Unknown]]
[Federal Register: July 18, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34352; File No. SR-NASD-94-27]
Self-Regulatory Organizations; Notice of Proposed Rule Change by
the National Association of Securities Dealers, Inc. Relating to the
Storage of Account Information for Options Customers for Supervisory
Purposes
July 12, 1994.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 20,
1994, the National Association of Securities Dealers, Inc. (``NASD'' or
``Association'') 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
NASD.\1\ The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\The proposed rule change was originally filed on May 23,
1994, and was amended on June 20, 1994, in order to correct a
technical deficiency.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to amend its options rules governing the
manner in which members may store account statements and other
information for options customers for supervisory purposes.
Specifically, the proposal would permit NASD members to satisfy their
record retention requirements for options accounts by storing required
options account information in locations other than the respective
principal supervisory office for the options accounts, provided such
account information is readily accessible and promptly retrievable.
Presently, NASD rules require that certain customer account information
be maintained at both the branch office servicing the customer's
account and the principal supervisory office having jurisdiction over
that office. The proposal would not change the record retention
requirements with respect to branch offices, only supervisory offices.
The text of the proposed rule change is as follows. (Additions are
italicized.)
Section 33 of the NASD Rules of Fair Practice
* * * * *
Section 33(b)(17) Maintenance of Records
(A) No change.
(B) Background and financial information of customers who have been
approved for options trading shall be maintained at both the branch
office servicing the customer's account and the principal supervisory
office having jurisdiction over that branch office. Copies of account
statements of options customers shall also be maintained at both the
branch office supervising the accounts and the principal supervisory
office having jurisdiction over that branch for the most recent six-
month period. With respect solely to the above-noted record retention
requirements applicable to principal supervisory offices, however, the
customer information and account statements may be maintained at a
location other than the principal supervisory office if such documents
and information are readily accessible and promptly retrievable. Other
records necessary to the proper supervision of accounts shall be
maintained at a place easily accessible both to the branch office
servicing the customer's account and to the principal supervisory
office having jurisdiction over that branch office.
* * * * *
Section 33(b)(20) Supervision of Accounts
(A)-(C) No change
(D) Headquarters Review of Accounts
Each member shall maintain at the principal supervisory office
having jurisdiction over the office servicing customer accounts, or
have readily accessible and promptly retrievable, information to permit
review of each customer's options account on a timely basis to
determine (i) the compatibility of options transactions with investment
objectives and with the types of transactions for which the account was
approved; (ii) the size and frequency of options transactions; (iii)
commission activity in the account; (iv) profit or loss in the account;
(v) undue concentration in any options class or classes, and (vi)
compliance with the provisions of Regulation T of the Federal Reserve
Board.
* * * * *
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 NASD 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 NASD 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
Currently, NASD rules and the rules of the options exchanges
uniformly require that both the branch office servicing an options
customer's account and the principal supervisory office having
jurisdiction over that branch office retain account statements and
other financial and background information for the account for
supervisory purposes.\2\ With the advances in data storage and
retrieval through such means as optical disks, fax machines, computers,
and mircofiche, among others, coupled with the increased expenses of
storing records on-site in major financial centers such as New York
City, however, member firms increasingly are storing their records away
from their principal supervisory offices.
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\2\See Sections 33(b) (17) and (20) of the NASD Rules of Fair
Practice.
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In light of the record retention requirements for options accounts,
however, these new storage arrangements have necessitated action by the
options Self-Regulatory Organizations (``SROs''). Specifically, member
firms have obtained no-action positions from the Options Self-
Regulatory Council (``OSRC'') on a case-by-case basis when moving their
operational facilities off-site.\3\ In this regard, 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. Thus, the OSRC has asked each of
the options exchanges and the NASD to consider amending their rules to
permit these types of off-site document storage arrangements. Given the
realities of today's business environment, the NASD agrees with the
OSRC and believes its options rules should be amended accordingly.
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\3\The OSRC is a committee comprised of representatives from
each of the options exchanges and the NASD that was created pursuant
to the plan submitted by the options exchanges and the NASD 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 SRO's. 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.
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In addition, the NASD does not believe that the important
supervisory obligations imposed on member firms will be compromised by
allowing members to store options customer account statements and
information off-site. Under the proposal, member firms will continue to
have easy access to all customer account information necessary to
discharge their supervisory responsibilities. In this connection, in
order to ensure that off-site document storage arrangements will not
jeopardize or constrain members' supervisory activities with respect to
options accounts, the options SROs commit to periodically examine the
document retrieval capabilities of members using off-site document
storage arrangements.
Therefore, the NASD believes the proposed rule change is consistent
with Section 15A(b)(6) of the Act. Section 15A(b)(6) requires that the
rules of a national securities association be 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 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. Specifically, the NASD
believes that the proposal will promote the maintenance of fair and
orderly markets because it will afford member firms with the
opportunity to discharge their supervisory responsibilities in a more
cost-effective manner, thereby improving the efficiency of member
firms, and, in turn, benefiting investors in the marketplace. Moreover,
as noted above, because the NASD does not believe that the proposal
will compromise the ability of member firms to satisfy their
supervisory obligations, the NASD believes the proposal is consistent
with the principle of investor protection.
B. Self-Regulatory Organization's Statement on Burden on Competition
The NASD believes that the proposed rule change will not result in
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
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 date of 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 NASD 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 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
NASD. All submissions should refer to file number SR-NASD-94-27 and
should be submitted by August 8, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
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\4\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-17351 Filed 7-15-94; 8:45 am]
BILLING CODE 8010-01-14
