[Federal Register Volume 59, Number 179 (Friday, September 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22916]
[[Page Unknown]]
[Federal Register: September 16, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34651; File No. SR-PHLX-94-35]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc.,
Relating to the Storage of Option Customer Account Information for
Supervisory Purposes
September 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 July 5,
1994, the Philadelphia Stock Exchange, Inc. (``PHLX'' 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.\1\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\On August 26, 1994, the PHLX submitted Amendment No. 1 to the
proposal to clarify that the purpose of the proposal is to allow
members to maintain required customer information and account
statements off-site, rather than at the member's principal
supervisory office, as long as the records are readily accessible
and promptly retrievable.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Paragraph (d), ``Maintenance of Customer Records,'' of PHLX Rule
1025, ``Supervision of Accounts,'' requires member organizations to
maintain at the branch office servicing the customer's account and at
the principal supervisory office background and financial information
of customers who have been approved for options transactions. In
addition, Commentary .03 to PHLX Rule 1025 requires member
organizations to maintain, at the principal supervisory office with
jurisdiction over the office servicing the customer's account,
information to permit review of each customer's options account to
determine the compatibility of options transactions with investment
objectives, the size and frequency of options transactions, commission
activity in the account, profit or loss in the account, undue
concentration in any options class or classes, and compliance with the
provisions of Regulation T of the Federal Reserve Board. The PHLX
proposes to amend PHLX Rule 1025(d) and Commentary 0.3 to allow member
organizations to maintain the required customer information and account
statements off-site, rather than at the principal supervisory office,
as long as the records are readily accessible and promptly retrievable.
The text of the proposed rule change is available at the Office of
the Secretary, PHLX, and at the Commission.
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 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 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
Currently, PHLX Rule 1025 requires written procedures for the
review and maintenance of customer options accounts. Specifically,
paragraph (d) requires that backgrounds, financial information and
copies of account statements respecting option-approved accounts be
maintained at the branch office servicing that customer's account as
well as at the principal supervisory office with jurisdiction over that
branch office. The PHLX proposes that the requirement applicable to
principal supervisory offices be amended to permit the required
information to be maintained at another location, provided that the
information is readily accessible and promptly retrievable. The record
retention requirement applicable to branch offices remains unchanged,
such that off-site record maintenance is not permissible.
The PHLX states that the increasing use of computers, fax machines,
optical disk and other technology coupled with the expense of storing
records on-site have resulted in more member organizations storing
records away from their principal supervisory offices.\2\ The PHLX
states that corresponding amendments to exchange option rules relating
to customer account records are now required, and that the other self-
regulatory organizations (``SROs'') have enacted similar amendments to
their rules\3\ or are proposing the same to their respective rules in
order to maintain uniformity among the SROs respecting option account
rules.
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\2\In June 1993, the Division of Market Regulation
(``Division'') issued a no-action letter permitting broker-dealers
to maintain certain records required by Rules 17a-3 and 17a-4 under
the Act on optical disk technology, under certain conditions. See
Letter from Michael A. Macchiaroli, Associate Director, Division,
Commission, to Michael D. Udoff, Chairman, Ad Hoc Record Retention
Committee, Securities Industry Association, dated June 18, 1993.
\3\See Securities Exchange Act Release No. 34564 (August 19,
1994), 59 FR 44442 (order approving File No. SR-NASD-94-27).
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In view of technological advances, the Exchange believes that it is
appropriate to permit the off-site storage of customer records
previously required to be maintained at a principal supervisory office.
Technological advances such as optical storage technology may enable
broker-dealers to improve customer service, due to the speedier and
higher quality access to records that optical disks afford. The
Exchange also believes that off-site storage should not compromise the
supervisory obligations of member/participant organizations because the
customer information necessary to fulfill those responsibilities must
be easily accessible and promptly retrievable.
Accordingly, the Exchange believes that the proposed rule change is
consistent with Section 6 of the Act, in general, and, in particular
with Section 6(b)(5), in that it is designed to prevent fraudulent and
manipulative acts and practices, as well as to protect investors and
the public interest. While facilitating the storage concerns and
technological needs of member organizations whose principal supervisory
offices would be affected, the PHLX believes that the proposed change
to PHLX Rule 1025(d) should nevertheless safeguard the customer
protection purposes of maintaining customer account information because
the information would continue to be readily accessible and promptly
retrievable, merely at a different, usually central, location. As a
result, the PHLX believes that the Exchange's ability to investigate
and access option customer account records would be preserved, and
possibly enhanced, as computer technology advances.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The PHLX does not believe that the proposed rule change will impose
any inappropriate burden on competition.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members Participants or Others
No written comments were either received or requested.
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 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, N.W., 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 provisions
of 5 U.S.C. 552, will be available for inspection and copying at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 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 October 7, 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. 94-22916 Filed 9-15-94; 8:45 am]
BILLING CODE 8010-01-M
