94-21177. Self-Regulatory Organizations; Order Approving Proposed Rule Change Relating to the Storage of Account Information for Options Customers for Supervisory Purposes  

  • [Federal Register Volume 59, Number 166 (Monday, August 29, 1994)]
    [Unknown Section]
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    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 94-21177]
    
    
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    [Federal Register: August 29, 1994]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Release No. 34-34564; File No. SR-NASD-94-27]
    
     
    
    Self-Regulatory Organizations; Order Approving Proposed Rule 
    Change Relating to the Storage of Account Information for Options 
    Customers for Supervisory Purposes
    
    August 19, 1994.
        On June 20, 1994, the National Association of Securities Dealers, 
    Inc. (``NASD'' or ``Association'') filed with the securities and 
    Exchange Commission (``SEC'' or ``Commission'') a propose rule 
    change\1\ pursuant to Section 19(b)(1) of the Securities Exchange Act 
    of 1934 (``Act'')\2\ and Rule 19b-4 thereunder.\3\ The rule change 
    amends Sections 33(b) (17) and (20) of the NASD Rules of Fair 
    Practice\4\ relating to the maintenance of records and the supervision 
    of accounts for options customers.
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        \1\The NASD amended the proposed rule change subsequent to the 
    original filing on May 23, 1994, in order to correct a technical 
    deficiency.
        \2\15 U.S.C. 78s(b)(1).
        \3\17 CFR 240.19b-4.
        \4\NASD Manual, Rules of Fair Practice, Art. III, Sec. 33(b) 
    (17) and (20), (CCH), 2183.
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        Under the rule as amended, NASD members will be able to satisfy 
    their record retention requirements for options accounts by storing 
    required account information in locations other than the principal 
    supervisory office for the account, provided such account information 
    is readily accessible and promptly retrievable by personnel at the 
    principal supervisory office. The rule change only applies to the 
    records that, under the current rule, must be retained in principal 
    supervisory offices. The proposal will not change the record retention 
    requirements with respect to branch offices.
        Notice of the proposed rule change, together with its terms of 
    substance was provided by issuance of a Commission release\6\ and by 
    publication in the Federal Register.\6\ No comments were received in 
    response to the Notice. This order approves the proposed rule change.
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        \5\Securities Exchange Act Rel. No. 34352 (July 12, 1994).
        \6\59 FR 36459 (July 18, 1994).
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        Prior to the amendment, members were required to retain account 
    statements and other financial and background information for options 
    accounts in both the branch office and the principal supervisory office 
    for supervision of accounts.\7\ The technological advances in data 
    storage and retrieval methods, coupled with the increased expense of 
    storing records on-site in major financial centers, permit member firms 
    to make arrangements to store their records away from their principal 
    supervisory offices. 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'').\8\ Specifically, member firms have obtained no-action 
    positions from the Options Self-Regulatory Council (``OSRC'')\9\ on a 
    case-by-case basis when moving their storage facilities from principal 
    supervisory offices to off-site locations.
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        \7\NASD Manual, Rules of Fair Practice, Art. III, Secs. 33(b) 
    (17) and (20), (CCH), 2183.
        \8\The NASD has noted that the options exchanges have similar 
    storage requirements to those found in Sections 33(b) (17) and (20) 
    of the Rules of Fair Practice. See, e.g., Amex Guide, Vol. 2, 
    Trading of Options Contracts, Sec. 3, Rule 922(b) and Com. .02, 
    (CCH) 9722; PSE Guide, Rules of Board of Governors, Rule 9.18(d) 
    (3) and (4), (CCH) 5893.
        \9\The OSRC is a committee comprised of representatives from 
    each of the options exchanges and the NASD that was created pursuant 
    to a 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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        As the NASD indicated in its rule filing, the OSRC believes that 
    these new storage arrangements are consistent with the SRO's record 
    retention requirements as long as all necessary documents are readily 
    accessible and promptly retrievable. In addition to the OSRC's 
    findings, the NASD stated in the notice\10\ that the supervisory 
    obligations imposed on member firms will not be compromised by allowing 
    members to store options customer account statements and information 
    off-site. In order to ensure that off-site storage arrangements will 
    not compromise or constrain members' supervisory activities with 
    respect to options accounts, the NASD has agreed to periodically 
    examine the document retrieval capabilities of members using off-site 
    document storage facilities.
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        \10\Securities Exchange Act Rel. No. 34352 (July 12, 1994), 59 
    FR 36459 (July 18, 1994).
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        The Commission has determined to approve the NASD's proposal. The 
    Commission finds that the rule change is consistent with the 
    requirements of the Act and the rules and regulations thereunder 
    applicable to the NASD, including the requirements of Section 15A(b)(6) 
    of the Act.\11\ Section 15A(b)(6) requires, in part, that the rules of 
    a national securities association be designed to prevent fraudulent and 
    manipulative acts and practices; to foster cooperation and coordination 
    with persons engaged in regulating, clearing, settling, processing 
    information with respect to, and facilitating transactions in 
    securities; and in general to protect investors and the public 
    interest. In order to comply with the rule as amended, personnel in 
    principal supervisory offices must be able to access and retrieve 
    account information without delay. Due to the technological advances 
    made in storage and retrieval devices such as optical disks, facsimile 
    machines, and computers, member firms will continue to have easy access 
    to all customer account information necessary to discharge their 
    supervisory duties under the proposed rule change. Further, the 
    proposal will afford member firms with the opportunity to discharge 
    their supervisory responsibilities in a more cost-effective manner.
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        \11\15 U.S.C. 78o-3(b)(6).
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        It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
    that the proposed rule change SR-NASD-94-27 be, and hereby is, 
    approved.
    
        For the Commission, by the Division of Market Regulation, 
    pursuant to delegated authority.\12\
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        \12\17 CFR 200.30-3(a)(12).
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    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 94-21177 Filed 8-26-94; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
08/29/1994
Department:
Securities and Exchange Commission
Entry Type:
Uncategorized Document
Document Number:
94-21177
Pages:
0-0 (1 pages)
Docket Numbers:
Federal Register: August 29, 1994, Release No. 34-34564, File No. SR-NASD-94-27