[Federal Register: March 23, 2004 (Volume 69, Number 56)]
[Notices]
[Page 13608-13609]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23mr04-125]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-49415; File No. SR-NYSE-2003-29]
Self-Regulatory Organizations; New York Stock Exchange; Order
Granting Approval of a Proposed Rule Change Relating Partial Transfers
and Other Non-Standard Customer Account Transfers
March 12, 2004.
On October 1, 2003, the New York Stock Exchange (``NYSE'') filed
with the Securities and Exchange Commission (``Commission'') proposed
rule change SR-NYSE-2003-29 pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal
was published in the Federal Register on December 29, 2003.\2\ Three
comment letters in support of the proposed rule change were
received.\3\ For the reasons discussed below, the Commission is
granting approval of the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 48958, (December 18,
2003), 68 FR 75008 (December 29, 2003)(File No. SR-2003-29).
\3\ Letters from Steven P. Callan, Associate Director, Bear,
Stearns Securities Corp., (January 12, 2004); John Cusumano,
President, and Kristie Thompson, Vice President, Customer Account
Transfer Division, Securities Industry Association (January 20,
2004); Kristie Thompson, Department Leader, Customer Account
Transfer, Edward Jones (January 20, 2004).
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I. Description
Rule 412 of the NYSE's Rules (``Customer Account Transfer
Contracts'') prescribes procedures for member organizations to transfer
customer accounts. It requires use of the Automated Customer Account
Transfer Service (``ACATS''), an electronic system administered by the
National Securities Clearing Corporation (``NSCC'') to facilitate the
transfer of customer account assets from one broker-dealer or bank to
another broker-dealer or bank, where both the carrying and receiving
broker-dealers are members of NSCC. Since ACATS inception in 1985,
numerous enhancements to it and to Rule 412 have allowed for faster and
more efficient transfers of customer accounts. For example, the most
recent amendments to the Interpretation of Rule 412 provided for the
expedited transfer of accounts containing third party or proprietary
products (e.g., mutual funds).\4\
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\4\ Securities Exchange Act Release No. 44596 (July 26, 2001),
66 FR 40306 (August 2, 2001) (SR-NYSE-00-61); NYSE Information
Memorandum No. 01-23 (August 16, 2001).
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A. Non-Standard Account Transfers
Prior to this rule change, Rule 412 and its Interpretation applied
only to ``standard'' transfers (e.g., where customer account assets in
their entirety are transferred from one member organization to another)
processed through ACATS. Rule 412 and its Interpretation, as currently
applied to standard transactions, include specified response times
which a delivering firm and a receiving firm are to verify assets,
resolve discrepancies, and complete the transfer. Standard transfers
processed through ACATS are also subject to the automated processing of
transfer-related fails (e.g., monies posted by a delivering firm where
the security to be transferred is not transferred), reclaims (e.g.,
claims by delivering firm for the return of securities transferred),
and of residual credits (e.g., transfer of dividends, etc. received
after an account has been transferred).
While ACATS could also used to process non-standard transfers, such
as ``partial'' transfers (i.e., the transfer of only specifically
designated assets from a customer account), Rule 412 did not require
the use of the automated processing capabilities of ACATS or that non-
standard transfers be accomplished in accordance with Rule 412
timeframes.
[[Page 13609]]
As amended, Rule 412 and its Interpretation will generally apply
the same procedural standards to both standard and non-standard
transfers (e.g., partial transfers, fail reversals, reclaims, and
mutual fund fail clean ups) processed through ACATS. The amendments
will mandate use of ACATS for non-standard transfers unless otherwise
specifically requested by a customer.\5\ For example, customers will
not be precluded from using authorized alternate instructions to effect
partial transfers.
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\5\ Rule 412(e)(1) will not provide an exception to the members'
obligation to accomplish transfers in accordance with NSCC's rules
when the customer authorizes alternative instructions to transfer
``specifically designated assets.'' The phrase ``specifically
designated assets'' refers to partial transfers only. Telephone
conversation between the NYSE, NSCC, and Commission staff (November
20, 2003).
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However, certain aspects of Rule 412 and its Interpretation will
continue to be applicable to standard transfers only. The amendments to
Rule 412 distinguish between the transfer of security account assets
``in whole'' (i.e., standard transfers) and security account assets
``in specifically designated part'' (i.e., partial transfers). This
distinction is necessary given differing customer and broker-dealer
obligations that result from transferring an entire account from a
delivering firm as opposed to obligations related to the transfer of
specified assets from an account that will remain active at the
delivering firm.
For example, should a customer request the transfer of an entire
account, she must authorize the liquidation of any nontransferable
proprietary money market fund assets in the account and the transfer of
any resulting credit balance to the receiving organization.\6\ In
addition, any residual credit balance resulting from dividend payments
subsequent to the transfer must be forwarded to the receiving
organization.\7\ Clearly, these are obligations that would attach only
in instances of account asset transfers in whole, and not in instances
of specifically designated asset transfers.
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\6\ Rule 412 Interpretation (b)(1)/01.
\7\ NYSE Rule 412(e)(3) and (e)(4).
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Another procedural distinction between the transfer of an entire
account and the transfer of specifically designated asset transfers can
be found in the treatment of ``non-transferable assets.'' Non-
transferable assets are defined as either a proprietary product of a
delivering organization or as an asset that is the product of a third
party (e.g., a mutual fund). When transferring account assets in whole,
the Interpretation of Rule 412 requires that a customer be provided a
letter with disposition options consistent with closing out an account
regarding any non-transferable assets.\8\ This requirement would not be
applicable to partial transfers since a request to transfer
specifically designated assets would not result in closing the
customer's account at the delivering firm.
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\8\ Rule 412 Interpretation (b)(1)/06.
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B. Customer Authorization
Rule 412 and its Interpretation currently make reference to
``written'' customer authorization requirements. The amendments to Rule
412(a) clarify the scope of such customer authorization to include
electronic signatures ``in a format recognized as valid under federal
law to conduct interstate commerce.'' This modification contemplates
legal alternatives to ``pen and paper'' methods of customer
authorization on the condition that such methods otherwise comply with
Rule 412 and its Interpretation.
C. Prescribed Forms
The interpretation of Supplementary Material .30 to Rule 412 had
required members use the transfer instructions and provide the reports
prescribe by the NYSE when making account transfers pursuant to Rule
412 and that such instructions and reports must be substantially
similar to those required by NSCC. Since NSCC no longer requires
specific formats with respect to transfer instructions or reports, the
Interpretation to Supplementary Material .30 is being deleted.
In order to allow member organizations sufficient time to develop
and implement necessary system changes to comply with amended Rule 412,
the NYSE will set an effective date six months from the date of
Commission approval of the proposed amendments.
II. Comment Letters
The Commission received three comment letters, all in support of
the proposed rule change.\9\ The commenters supported both the
application of standard procedures to non-standard transfers (including
partial transfers, fail reversals, reclaims, and mutual fund fail clean
ups) and supported the clarification that client authorizations
includes electronic signatures in a format recognized as valid under
federal law to conduct interstate commerce.\10\ The commenters believe
that these changes will enhance and streamline the account transfer
process and will ultimately benefit investors.
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\9\ Supra note 3.
\10\ The commenters noted that the description of the proposed
rule change only mentioned partial transfers as non-standard
functionality, but the rule change as filed by the NYSE encompasses
all non-standard transfers such as fail reversals, reclaims, and
mutual fund fail clean ups.
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III. Discussion
Section 6(b)(5) of the Act that requires rules of an exchange are
designed to promote just and equitable principles of trade, to remove
impediments to and to perfect the mechanism of a free and open market
and a national market system and, in general, to protect investors and
the public interest.\11\ As amended, Rule 412 expands the scope of
transactions required to be processed through ACATS in order to include
non-standard transfers (e.g., partial transfers, fail reversals,
reclaims, and mutual fund fail clean-ups) and allows broker-dealers to
accept electronic signatures in a format recognized as valid under
Federal law for such transactions. In so doing, the rule change should
expedite the transfer of customer assets between broker-dealers,
increase broker-dealer accountability in transferring customer
accounts, and further competition among broker-dealers by more easily
allowing investors to transfer their assets to the broker-dealer of
their choice. For these reasons, the Commission believes that the
NYSE's rule change is consistent with the exchange's obligations under
the Act.
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\11\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule change is consistent with the requirements of the Act and
in particular section 6 of the Act and the rules and regulations
thereunder.
It is therefore ordered, pursuant to section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-NYSE-2003-29) 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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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 04-6405 Filed 3-22-04; 8:45 am]
BILLING CODE 8010-01-P