[Federal Register: December 29, 2003 (Volume 68, Number 248)]
[Notices]
[Page 75008-75010]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29de03-106]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48958; File No. SR-NYSE-2003-29]
Self-Regulatory Organizations; New York Stock Exchange Inc.;
Notice of Filing of Proposed Rule Change to Amend Rule 412 and its
Interpretation Relating to Partial Customer Account Transfers
December 18, 2003.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 1, 2003, the New
York Stock Exchange Inc. (``NYSE'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which items have been prepared
primarily by the NYSE. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested parties.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NYSE proposes to amend Rule 412 and the Interpretation of Rule 412
in order to apply the same procedural standards regarding use of the
Automated Customer Account Transfer System (``ACATS'') to both standard
and partial customer account transfers.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NYSE 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 NYSE has prepared summaries, set forth in sections
(A), (B), and (C) below, of the most significant aspects of these
statements.\2\
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\2\ The Commission has modified the text of the summaries
prepared by the NYSE.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
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 assets between broker-dealers. Since its inception
in 1985, numerous enhancements to ACATS and to Rule 412 allowed for
faster and more efficient transfers of customer accounts. For example,
the most recent amendments to the Interpretation of Rule 412 have
provided for the expedited transfer of accounts containing third party
or proprietary products (e.g., mutual funds).\3\
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\3\ Securities Exchange Act Release No. 44596 (July 26, 2001),
66 FR 40306 (August 2, 2001) (SR-NYSE-00-61). See also NYSE
Information Memorandum No. 01-23 (August 16, 2001).
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Currently, the requirements of Rule 412 and its Interpretation
apply only to ``standard'' transfers (i.e., instances where account
assets in their entirety are transferred from one member organization
to another) processed through ACATS. While ACATS is also utilized to
process ``partial'' or ``non-standard'' transfers (i.e., the transfer
of specifically designated assets from an account held at one member
organization to an account held at another member organization), Rule
412 currently does not require that partial transfers be accomplished
in accordance with Rule 412 timeframes and does not require use of
automated processing capabilities of ACATS.
There is strong industry support to generally apply the same
procedural standards, where applicable, to both standard and partial
transfers of customer account assets. NYSE has worked closely with
industry representatives in the development of amendments to that
purpose. The proposed amendments are expected to significantly expedite
partial transfers and to increase accountability through use of ACATS.
This, in turn, will improve customers' services and will reduce
customers' problems related to transfers.
1. Partial Transfers
The requirements of Rule 412 and its Interpretation, as currently
applied to standard transactions, include specified response times
between a delivering and a receiving firm within which 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).
The NYSE proposes to amend Rule 412 and its Interpretation that
would generally apply the same procedural standards to both standard
and partial transfers processed through ACATS. The proposed amendments
would mandate use of ACATS for partial transfers unless otherwise
specifically requested by a customer.\4\ For example, customers would
not be precluded from using alternate authorized instructions to effect
partial transfers.
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\4\ As proposed, Rule 412(e)(1) would provide for 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, as
proposed to be amended, would be applicable to standard transfers but
not partial transfers. The amendments would
[[Page 75009]]
distinguished 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.\5\ In
addition, any residual credit balance resulting from dividend payments
subsequent to the transfer must be forwarded to the receiving
organization.\6\ 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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\5\ Rule 412 Interpretation (b)(1)/01.
\6\ 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'' which are
defined as either a proprietary product of a delivering organization or
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.\7\ 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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\7\ Rule 412 Interpretation (b)(1)/06.
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2. Customer Authorization
Rule 412 and its Interpretation currently make reference to
``written'' customer authorization requirements. For example, Rule
412(a) requires customers to give ``written notice'' of their intention
to transfer an account from one member organization to another. Rule
412(b)(1) further indicates that such notice be in the form of a
``signed'' broker-to-broker transfer instruction. Likewise, the
Interpretation of Rule 412(a) refers to the requirement of an
authorized ``letter'' from customers who intend to transfer a portion
of an account outside ACATS, and the Interpretation of Rule 412(b)(1)
refers to the ``transfer instruction form the customer is required to
complete and sign.''
Proposed amendments to Rule 412(a) would 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 and others in the filing contemplate legal
alternatives to ``pen and paper'' methods of customer authorization on
the condition that such methods otherwise comply with Rule 412 and its
Interpretation.
3. Prescribed Forms
The Interpretation of Supplementary Material .30 to Rule 412
currently requires that member organizations use ``the transfer
instructions and provide the reports prescribe by the Exchange when
accomplishing account transfers pursuant to Rule 412 * * *'' and that
such instructions and reports must be the same as or ``substantially
similar'' to those required by NSCC. Since NSCC no longer requires
specific formats with respect to transfer instructions or reports, the
NYSE is proposing that the Interpretation to Supplementary Material .30
be deleted.
In order to allow member organizations sufficient time to develop
and implement necessary system changes to comply with amended Rule 412,
the NYSE proposes to set an effective date six months from Commission
approval of the proposed amendments.
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.\8\ The NYSE believes that the proposed rule is
consistent with its obligations under section 6(b)(5) of the Act
because these interests are served when the procedures governing the
transfer of customer accounts are made more efficient.
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\8\ 15 U.S.C. 78f(b)(5).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
NYSE does not believe that the proposed rule change will have an
impact on or impose a 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 relating to the proposed rule change have been
solicited or received. NYSE will notify the Commission of any written
comments it receives.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five 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 ninety 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. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
Comments may also be submitted electronically at the following e-mail
address: rule-comments@sec.gov. To help the Commission process and
review your comments more efficiently, comments should be sent in
hardcopy or by e-mail but not by both methods. 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 Section, 450 Fifth Street, NW., Washington, DC 20549.
Copies of such filing also will be available for inspection and copying
at the principal office of the NYSE. All submissions should refer to
File No. SR-NYSE-2003-29 and should be submitted by January 20, 2004.
[[Page 75010]]
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-31805 Filed 12-24-03; 8:45 am]
BILLING CODE 8010-01-P