[Federal Register Volume 64, Number 182 (Tuesday, September 21, 1999)]
[Notices]
[Pages 51165-51170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24493]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-41875; File No. SR-NASD-99-41]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. Relating
to Opening of Day-Trading Accounts
September 14, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 20, 1999, the National Association of Securities Dealers,
Inc. (``NASD''), through its wholly-owned subsidiary, NASD Regulation,
Inc. (``NASD Regulation''), 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 NASD Regulation. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
NASD Regulation is proposing to amend the 2300 Series of the Rules
of the NASD to include new Rule 2360 and Rule 2361 regarding the
opening of day-trading accounts. Below is the text of the proposed rule
change. Proposed new language is in italics.
Rule 2360. Approval Procedures for Day-Trading Accounts
(a) No member that is promoting a day-trading strategy, directly or
indirectly, shall open an account for or on behalf of a non-
institutional customer, unless, prior to opening the account, the
member has furnished to the customer the risk disclosure
[[Page 51166]]
statement set forth in Rule 2361 and has:
(1) approved the customer's account for a day-trading strategy in
accordance with the procedures set forth in paragraph (b) and prepared
a record setting forth the basis on which the member has approved the
customer's account; or
(2) received from the customer a written agreement that the
customer does not intend to use the account for the purpose of engaging
in a day-trading strategy, except that the member may not rely on such
agreement if the member knows that the customer intends to use the
account for the purpose of engaging in a day-trading strategy.
(b) In order to approve a customer's account for a day-trading
strategy, a member shall have reasonable grounds for believing that the
day-trading strategy is appropriate for the customer. In making this
determination, the member shall exercise reasonable diligence to
ascertain the essential facts relative to the customer, including his
or her financial situation, tax status, prior investment and trading
experience, and investment objectives.
(c) If a member that is promoting a day-trading strategy opens an
account for a non-institutional customer in reliance on a written
agreement from the customer pursuant to paragraph (a)(2) and, following
the opening of the account, knows that the customer is using the
account for a day-trading strategy, then the member shall be required
to approve the customer's account for a day-trading strategy in
accordance with paragraph (a)(1) as soon as practicable, but in no
event later than 10 days following the date that such member knows that
the customer is using the account for such a strategy.
(d) Any record or written statement prepared or obtained by a
member pursuant to this rule shall be preserved in accordance with Rule
3110(a).
(e) For purposes of this rule, the term ``day-trading strategy''
means an overall trading strategy characterized by the regular
transmission by a customer of intra-day orders to effect both purchase
and sale transactions in the same security or securities.
(f) For purposes of this rule, the term ``non-institutional
customer'' means a customer that does not qualify as an ``institutional
account'' under Rule 3110(c)(4).
Rule 2361. Day-Trading Risk Disclosure Statement
(a) Except as provided in paragraph (b), no member that is
promoting a day-trading strategy, directly or indirectly, shall open an
account for or on behalf of a non-institutional customer unless, prior
to opening the account, the member has furnished to the customer, in
writing or electronically, the following disclosure statement:
You should consider the following points before engaging in a day-
trading strategy. For purposes of this notice, a ``day-trading
strategy'' means a strategy characterized by the regular transmission
by a customer of intra-day orders to effect both purchase and sale
transactions in the same security or securities.
Day trading can be extremely risky. Day trading generally
is not appropriate for someone of limited resources and limited
investment or trading experience and low risk tolerance. You should be
prepared to lose all of the funds that you use for day trading. In
particular, you should not fund day-trading activities with retirement
savings, student loans, second mortgages, emergency funds, funds set
aside for purposes such as education or home ownership, or funds
required to meet your living expenses.
Be cautious of claims of large profits from day trading.
You should be wary of advertisements or other statements that emphasize
the potential for large profits in day trading. Day trading can also
lead to large and immediate financial losses.
Day trading requires knowledge of securities markets. Day
trading requires in-depth knowledge of the securities markets and
trading techniques and strategies. In attempting to profit through day
trading, you must compete with professional, licensed traders employed
by securities firms. You should have appropriate experience before
engaging in day trading.
Day trading requires knowledge of a firm's operations. You
should be familiar with a securities firm's business practices,
including the operations of the firm's order execution systems and
procedures.
Day trading may result in your paying large commissions.
Day trading may require you to trade your account aggressively, and you
may pay commissions on each trade. The total daily commissions that you
pay on your trades may add to your losses or significantly reduce your
earnings.
Day trading on margin or short selling may result in
losses beyond your initial investment. When you day trade with funds
borrowed from a firm or someone else, you can lose more than the funds
you originally placed at risk. A decline in the value of the securities
that are purchased may require you to provide additional funds to the
firm to avoid the forced sale of those securities or other securities
in your account. Short selling as part of your day-trading strategy
also may lead to extraordinary losses, because you may have to purchase
a stock at a very high price in order to cover a short position.
(b) In lieu of providing the disclosure statement specified in
paragraph (a), a member that is promoting a day-trading strategy may
provide to the customer, in writing or electronically, prior to opening
the account, an alternative disclosure statement, provided that:
(1) The alternative disclosure statement shall be substantially
similar to the disclosure statement specified in paragraph (a); and
(2) The alternative disclosure statement shall be filed with the
Association's Advertising Department (Department) for review at least
10 days prior to use (or such shorter period as the Department may
allow in particular circumstances) for approval and, if changes are
recommended by the Association, shall be withheld from use until any
changes specified by the Association have been made or, if expressly
disapproved, until the alternative disclosure statement has been
refiled for, and has received, Association approval. The member must
provide with each filing the anticipated date of first use.
(c) For purposes of this rule, the term ``day-trading strategy''
shall have the meaning provided in Rule 2360(e).
(d) For purposes of this rule, the term ``non-institutional
customers'' means a customer that does not qualify as an
``institutional account'' under Rule 3110(c)(4).
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD Regulation 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. NASD Regulation has prepared summaries, set
forth in Sections A, B, and C below, of the most significant aspects of
such statements.
[[Page 51167]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Introduction
Certain brokerage firms focus primarily, or even exclusively, on
promoting day-trading strategies to individuals. These firms generally
advertise on the Internet and elsewhere as ``day-trading'' firms or
otherwise promote their execution and other services as desirable for
``serious'' or ``professional'' traders. In addition, many of these
firms offer training on day-trading techniques, as well as provide
computer facilities and software packages specifically designed to
support and accommodate day trading.
Day trading, however, raises unique investor protection concerns.
In general, day traders seek to profit from very small movements in the
price of a security. Such a strategy often requires aggressive trading
of a brokerage account. As a result, day trading generally requires a
significant amount of capital, a sophisticated understanding of
securities markets and trading techniques, and high risk tolerance.
Even experienced day traders with in-depth knowledge of the securities
markets may suffer severe and unexpected financial losses.
The Proposal in Special Notice to Members 99-32
To address investor protection concerns arising from day-trading
activities, on April 15, 1999, NASD Regulation issued Special Notice to
Members 99-32 soliciting comment on proposed rules regarding approval
procedures for day-trading accounts. The proposal set forth in the
Notice required a firm that had recommended an intra-day trading
strategy to an individual to approve the individual's account for day
trading. The proposal also required the firm, as part of the account
approval process, to determine that the strategy was appropriate for
the customer and to provide a disclosure statement to the customer
discussing the risks associated with day-trading activities. As further
discussed below, NASD Regulation received 39 comment letters in
response to Special Notice to Members 99-32.
The Revised Proposed Rule Change
Based on the comments received in response to the Notice and input
provided by the various NASD standing-committees, NASD Regulation has
revised the proposed rule change concerning the opening of day-trading
accounts. The proposed rule change, similar to its predecessor in
Notice to Members 99-32, focuses on disclosing the basic risks of
engaging in a day-trading strategy and assessing the appropriateness of
day-trading strategies for individuals.
In particular, the proposed rule change would require a firm that
is promoting a day-trading strategy, directly or indirectly, to deliver
a specified risk disclosure statement to a non-institutional customer
prior to opening an account for the customer. In addition, the firm
would be required to (1) approve the customer's account for day trading
or (2) obtain a written agreement from the customer stating that the
customer does not intend to use the account for day-trading activities.
A firm would not be permitted to rely on the written agreement from the
customer if the firm knows that the customer intends to use the account
for day trading. In addition, if a firm knows that a customer who
provided such an agreement is engaging in a day-trading strategy, the
firm would be required to approve the account for day trading.
As part of the account approval process, a firm would be required
to have reasonable grounds for believing that the day-trading strategy
is appropriate for the customer. In making this determination, the firm
would be required to exercise reasonable diligence to ascertain the
essential facts relative to the customer, including his or her
financial situation, tax status, prior investment and trading
experience, and investment objectives. The firm also would be required
to prepare a record setting forth the basis on which the firm has
approved the customer's account. Any record or written statement
prepared or obtained by the firm pursuant to the proposed rule change
would have to be preserved in accordance with NASD Rule 3110(a).
Requirement To Approve the Account for Day Trading
Elimination of the Term ``Recommend''
As noted above, the proposal articulated in Notice to Members 99-32
applied to firms that had recommended an intra-day trading strategy to
individual investors. Many commenters raised serious concerns with the
proposal's use of the term ``recommend.'' While the proposed rules did
not define ``recommendation'' in the context of day trading, Notice to
Members 99-32 provided general guidance on the types of activities that
would constitute a recommendation in this context. The Notice stated
that in general, a member would be recommending a day-trading strategy
for purposes of the proposed rules if it affirmatively promoted day
trading through advertising, training seminars, or direct outreach
programs, and an individual engaged in day trading in response to those
solicitations.
Many commenters voiced concerns that the Notice adopted an overly
broad view of ``recommendation,'' and feared that this broader view
would be applied in other contexts. In particular, these commenters
were concerned that advertisements or other promotions alone would be
deemed to trigger a firm's duty to customers under the NASD's general
suitability rule, Rule 2310. In this regard, one commenter stated its
belief that the historical understanding that a recommendation is a
specific communication from a broker to a customer at a specific time
must be maintained. A second commenter suggested that the rules include
a clear statement that ``recommendation'' for purposes of the rules
shall mean ``recommendation'' as that term is commonly used throughout
NASD rules, other Notices to Members, and NASD interpretative letters.
This same commenter believed the rules should explicitly state that
advertising does not constitute a recommendation for purposes of the
proposed rules.
Several commenters suggested specific interpretations of the term
``recommendation'' in the day-trading context. For instance, one
commenter expressed the view that the types of conduct that constituted
``recommending'' involved actively reaching out to the investing public
with the goal of reaping financial benefits from the recommendation
being made. The commenter also believed that the definition of
recommendation should expressly exclude conduct such as solely
operating a Web site that provided general financial information and
news. A second commenter suggested exempting from the proposed rules
those Internet-based firms that do not provide individualized
instructions or guidance with respect to day trading, and that do not
promote or endorse particular investment strategies to customers on an
individual basis. Many commenters, after addressing issues raised by
the proposal's use of the term ``recommendation,'' suggested that the
proposal be limited to a risk disclosure requirement.
In contrast, several commenters believed that the proposed rules
should apply to a broader scope of firms and firm activities, such as
to any firm that permits or accepts intra-day trading transactions. In
this regard, one commenter opined that all firms
[[Page 51168]]
promoting, advertising, recommending, or providing their customers with
the opportunity to day trade should be required to comply with the
rules. Another commenter suggested that the proposed rules should apply
to all firms that promote or advertise day-trading activities or that
have more than a certain percentage of day-trading accounts.
After considering the comments, NASD Regulation has revised the
proposed rule change to apply to those firms that are ``promoting a
day-trading strategy.'' This revision should address commenters'
concerns that the interpretation of the term ``recommendation'' in the
day-trading context could obfuscate use of the term in the general
suitability area. By using the concept of ``promoting a day-trading
strategy,'' the proposed rule change also would more clearly apply to
those situations where a member firm either solicits a person on an
individual basis or advertises to the general public.
NASD Regulation has determined not to define ``promoting a day-
trading strategy'' for purposes of the proposed rule change. However,
NASD Regulation believes that the promotion by a member of efficient
execution services or lower execution costs based on multiple trades
alone would not trigger the requirements under the proposed rule
change. In addition, merely providing general investment research or
advertising the high quality or prompt availability of such general
research would not constitute the promotion of day trading under the
proposal. Similarly, merely having a Web site that provides general
financial information or news or that allows the multiple entry of
intra-day purchases and sales of the same securities would not
constitute the promotion of day trading.
However, a member would be subject to the proposed rule change if
it affirmatively promotes day-trading activities or strategies through
advertising, training seminars, or direct outreach programs. For
instance, a firm generally would be subject to the proposed rule change
if its advertisements address the benefits of day trading, rapid-fire
trading, or momentum trading, or encourage persons to trade or profit
like a professional trader. A firm also would be subject to the
proposed rule change if it promotes its day-trading services through a
third party. Moreover, the fact that many of a firm's customers are
engaging in a day-trading strategy would be relevant in determining
whether a firm has promoted itself in this way.
Notably, while the proposed rule change does not define the term
``promoting a day-trading strategy,'' firms could submit their
advertisements to NASD Regulation's Advertising Department for review
and guidance on whether the content of the advertisement constitutes
such activity for purposes of the rule change. As a result, the
proposed rule change, as revised, should both limit concerns about any
effect of the proposal on the NASD's general suitability rule and allow
firms to better determine whether a particular advertisement would
trigger the rule prior to publication or distribution of the
advertisement.
Persons Covered by the Proposed Rules
Comments also were varied regarding whether any proposed day-
trading rules should reach a broader range of customers. One commenter
stated that the application of the rules should not be limited to
natural persons, but should include ``non-institutional customers'' as
defined by NASD Rules. This commenter noted that many day traders have
opened accounts under partnership or corporate names and that these
customers typically are no more sophisticated than customers who open
accounts in their own names. Several commenters also believed that all
existing customers should be covered by day-trading rules or, at a
minimum, receive a risk disclosure statement. One individual suggested
that any proposed day-trading rules should apply to all new day-trading
accounts, rather than to new customers.
In response to commenter's concerns, NASD Regulation has determined
to revise the proposal to apply to all non-institutional customers. For
purposes of the proposed rule change, the term ``non-institutional
customer'' would mean a customer that does not qualify as an
``institutional account'' under NASD Rule 3110(c)(4). Rule 3110(c)(4)
defines ``institutional account'' to mean the account of (1) a bank,
savings and loan association, insurance company, or registered
investment company; (2) an investment adviser registered either with
the SEC under Section 203 of the Investment Advisers Act of 1940 or
with a state securities commission (or agency or office performing like
functions); or (3) any other entity (whether a natural person,
corporation, partnership, trust, or otherwise) with total assets of at
least $50 million. Applying the proposed rule change to non-
institutional customers would ensure that most individuals would be
covered by the proposed rule change, regardless of whether they engage
in day-trading activities in their own name or in the name of a
corporation or partnership. As revised, the proposed rule change would
not apply to an existing customer unless the customer opens a new
account at a firm that is promoting a day-trading strategy.
Accounts Used For Purposes Other Than Day-Trading Activities
As an alternative to approving an account for a day-trading
strategy, the proposed rule change would permit a firm that is
promoting a day-trading strategy to obtain from the customer a written
agreement that the customer does not intend to use the account for the
purposes of day trading (``other-use agreement''). In addition, the
firm would be required to provide a risk disclosure statement to the
customer even if the firm obtains an other-use agreement. A firm would
not be permitted to rely on an other-use agreement if it knows that the
customer intends to use the account for day trading. Moreover, if a
firm opens an account for a customer in reliance on an other-use
agreement, but later knows that the customer is using the account for
day-trading activities, then the firm would be required to approve the
customer's account for day trading in accordance with the rule as soon
as practicable, but in no event later than ten days from the date of
discovery.
Elements To Consider in Making Appropriateness Determinations
Commenters also suggested additional elements that a firm should
consider in order to assess the appropriateness of a day-trading
strategy for an individual. For example, several commenters believed
that firms should be required to determine the source of funds that an
individual intends to use for day-trading activities. Other commenters,
however, voiced concerns that any such requirement would be an invasion
of privacy or questioned why this requirement would not apply to all
types of brokerage accounts. One individual believed that all persons
should be required to meet a minimum net worth standard in order to
engage in day trading.
After considering the comments, NASD Regulation has revised the
proposed rule change to require a firm that is promoting a day-trading
strategy to have reasonable grounds for believing that the strategy is
appropriate for the customer and to exercise reasonable diligence to
ascertain the essential facts relative to the customer. The proposed
rule change continues to require a firm to review the customer's
financial situation, prior investment and trading experience, and
investment objectives. A firm also would be expressly required
[[Page 51169]]
to review the customer's tax status. The proposed rule change, however,
would not require firms to determine the source of funds, primarily
because of concerns with defining the scope of any such obligation and
the risks of imposing disproportionate burdens on firms.
Definition of an Intra-Day Trading Strategy
The proposal set forth in Notice to Members 99-32 defined ``intra-
day trading strategy'' to mean ``an overall trading strategy
characterized by the regular transmission by a customer of multiple
intra-day electronic orders to effect both purchase and sale
transactions in the same security or securities.'' Several commenters
suggested a broader definition of the term. For example, one commenter
stated that the term should include a person who regularly makes only
one buy and one sale of a particular security or group of securities on
a daily basis. A second commenter believed that the term should include
short-term trading strategies that could occur over, for example, a
two-day period. Another commenter suggested that the definition include
any offer and sale of the same security if the offer and sale are
accomplished prior to settlement.
In contrast, one commenter emphasized its belief that the long-
standing historical definition of a day trader requires a pattern of
day trades, noting that there are legitimate reasons to buy and sell a
single security in a single day that are not premised on a day-trading
strategy. This commenter suggested that the proposal apply only when a
clearly defined and easily identified pattern of activity exists over a
considerable period of time. Another commenter expressed a general view
that the definition of day trading lacked sufficient clarity, and
raised a series of questions regarding the scope of the term, including
whether it should include the transmission of orders in a non-
electronic environment.
In light of the comments, NASD Regulation has revised the proposed
definition of ``day-trading strategy'' to mean ``an overall trading
strategy characterized by the regular transmission by a customer of
intra-day orders to effect both purchase and sale transactions in the
same security or securities.'' NASD Regulation believes that the
revised definition would include those instances where an individual
regularly transmits one or more purchase and sale (i.e., ``round-
trip'') transactions in a single day. In addition, although as a
practical matter, day trading typically requires electronic delivery of
orders, the proposed definition of ``day-trading strategy'' has been
revised to include orders transmitted by non-electronic means, such as
by telephone.
Requirement To Provide Day-Trading Risk Disclosure Statement
As discussed above, the proposed rule change would require a firm
that is promoting a day-trading strategy to deliver a disclosure
statement to the customer discussing the unique risks posed by day
trading. The disclosure statement would include several factors that a
customer should consider before engaging in day trading, including that
the customer should be prepared to lose all of the funds that he or she
uses for day trading and that day trading on margin may result in
losses beyond the initial investment. The firm would be permitted to
develop an alternative risk disclosure statement, provided that the
alternative statement was substantially similar to the mandated
statement and was filed with, and approved by, NASD Regulation's
Advertising Department.
Many commenters agreed that customers should receive additional
information on the risks of day trading or other on-line trading
activities. One commenter suggested that firms be required to provide a
risk disclosure statement to all new individual customers, rather than
limit dissemination to individuals to whom firms have recommended a
day-trading strategy. In contrast, another commenter believed that it
was more effective for the NASD to provide risk disclosures to
potential customers in an educational atmosphere, such as the NASD's
Web site. Some commenters suggested specific revisions to the proposed
risk disclosure statement. In this regard, one commenter proposed that
the statement include the language from the text of the Notice that day
trading generally would not be appropriate for someone of limited
resources and limited investment or trading experience and low risk
tolerance. Another commenter expressed concern that the suggestion in
the disclosure statement that persons inquire as to a firm's capacity
to permit customers to engage in day trading might place an unrealistic
obligation on the customer.
Comments generally were divided as to whether customers should be
required to acknowledge receipt of the disclosure statement. One
commenter believed that a firm should be able to provide a copy of the
statement on its Web site or in an initial mailing to the customer at
the time of account opening. The commenter stated that the document was
a disclosure of risks and not an agreement between the parties. Another
commenter asserted that firms should have flexibility in deciding
whether to require a customer to sign the statement. In contrast, one
commenter emphasized that requiring customers to acknowledge receipt of
the statement would protect both the customer and the firm. In
addition, one individual suggested that the proposed rules require
customers to sign the statement and to wait three days prior to trading
to allow for additional reflection and consideration.
After considering the comments, NASD Regulation has modified the
proposed rule change to require firms promoting a day-trading strategy
to deliver the risk disclosure statement to all non-institutional
customers prior to opening an account for such customers. NASD
Regulation is not recommending that all firms be required to
disseminate the disclosure statement to all new customers because the
benefits of such a requirement are unclear. However, NASD Regulation
will continue to monitor the growth of day-trading activities to
determine whether, in the future, such a requirement might be
justified. In addition, NASD Regulation encourages all firms,
particularly firms that provide on-line trading capability, to provide
the mandated risk disclosure statement or a substantially similar
disclosure statement to their customers.
The disclosure statement also has been revised to include the
additional key point that day trading generally is not appropriate for
persons of limited resources and limited investment or trading
experience and low risk tolerance. The provision in the proposed
statement that an individual should confirm that a firm has adequate
capacity to support day-trading activities has been deleted, in light
of concerns that the provision might place undue burdens on the
customer.
Comments Suggesting No or Minimal Regulatory Response
Those commenters that opposed any action in the area of day trading
generally questioned why day-trading activities merited special
regulation. For example, two commenters emphasized that many
investments were risky and generally believed that the proposed rules
inappropriately targeted day-trading firms. Some commenters also
suggested that the proposed rules were paternalistic. Another commenter
raised concerns that the proposal unfairly suggested to investors that
on-line trading is somehow less scrupulous and more risky than trading
through a traditional broker-dealer. This commenter also believed that
the
[[Page 51170]]
existing regulatory framework provides ample means to combat abuses
associated with day trading. In addition, one commenter generally
stated that it was premature to attempt regulation of day-trading
practices. Several individual commenters, in opposing regulation of day
trading, emphasized the benefits of electronic trading and their
ability to protect themselves.
As noted above, however, NASD Regulation believes that the proposed
rule change focuses on the promotion of trading strategies that present
very high risk to individuals and, as revised, should be easier for
firms to apply to their activities. Firms that are actively promoting a
day-trading strategy should be responsible for assessing whether the
strategy is appropriate for an individual who opens a day-trading
account at that firm. These firms also should be required to disclose
the risks of engaging in a day-trading strategy to an individual prior
to opening an account for that individual.
2. Statutory Basis
NASD Regulation believes that the proposed rule change is
consistent with Section 15A(b)(6) of the Act \3\ in that the proposed
rule change is designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, and, in
general, to protect investors and the public interest. NASD Regulation
believes that the proposed rule change codifying the obligation of
firms promoting day-trading strategies to disclose the risk of these
strategies to non-institutional customers and to determine whether the
strategy is appropriate for a customer will help to protect investors
and the public interest in an increasingly more sophisticated trading
environment.
---------------------------------------------------------------------------
\3\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
(B) Self-Regulatory Organization's Statement on Burden on Competition
NASD Regulation does not believe that the proposed rule change will
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
The proposed rule change was published for comment in NASD Special
Notice to Members 99-32 (April 15, 1999). The comment period expired on
May 31, 1999. Thirty-nine comment letters were received in response to
the Notice. Copies of the comment letters and a brief summary of the
comment letters have been provided to the Commission. Of the 39 comment
letters received, approximately 13 were in favor of the proposed rule
change, 8 supported risk disclosure only, 12 were opposed to the
proposed rule change, and 6 expressed no opinion or addressed broader
issues.
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 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, including whether the proposed rule
change is consistent with the Act. In addition, the Commission seeks
comment on the following specific issues: (1) whether the proposal
should cover existing day-trading accounts; (2) whether the proposed
definition of ``day-trading strategy'' is appropriate; (3) whether the
proposed risk disclosure statement is adequate; and (4) whether the
firm should be required to obtain a customer's acknowledgment of
receipt of the risk disclosure document.
Persons making written submissions should file six copies thereof
with the Secretary, Securities and Exchange Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549-0609. 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 No. SR-NASD-99-41 and should be
submitted by October 12, 1999.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\4\
---------------------------------------------------------------------------
\4\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-24493 Filed 9-20-99; 8:45 am]
BILLING CODE 8010-01-M
