[Federal Register: November 29, 2006 (Volume 71, Number 229)]
[Notices]
[Page 69165-69166]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no06-92]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54810; File No. SR-NYSE-2005-90]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto
and Notice of Filing and Order Granting Accelerated Approval to
Amendment No. 2 Thereto To Allow Certain Institutional Customers To
Elect Not To Receive Account Statements
November 22, 2006.
On December 21, 2005, the New York Stock Exchange, Inc. (now known
as New York Stock Exchange LLC) (``NYSE'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission''),
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934
(``Exchange Act'' or ``Act''),\2\ and Rule 19b-4 thereunder,\3\ a
proposed amendment to NYSE Rule 409 (Statements of Accounts to
Customers). On March 28, 2006, the NYSE filed Amendment No. 1 to the
proposed rule change.\4\ The proposed rule change, as amended by
Amendment No. 1, was published for comment in the Federal Register on
May 25, 2006.\5\ The Commission received two comments on the
proposal.\6\ On August 14, 2006, the NYSE filed Amendment No. 2 to the
proposed rule change.\7\ This order approves the proposed rule change,
as amended by Amendment No. 1. Simultaneously, the Commission is
providing notice of filing of Amendment No. 2 and granting accelerated
approval of Amendment No. 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a et seq.
\3\ 17 CFR 240.19b-4.
\4\ In Amendment No. 1, the NYSE proposed to partially amend the
text of proposed amended Rule 409.
\5\ See Exchange Act Release No. 53826 (May 18, 2006), 71 FR
30211 (May 25, 2006).
\6\ See letter from Tom DiSpaldo, Compliance Officer, BNP
Paribas Securities Corporation, to Nancy M. Morris, Secretary,
Commission, dated June 12, 2006 (``BNP letter'') (available for
review on the Commission's Web site at http://www.sec.gov/comments/sr-nyse-2005-90/tdispaldo7238.htm
); and letter from Noland Cheng,
Chairman, Operations Committee, Securities Industry Association, to
Nancy M. Morris, Secretary, Commission, dated June 16, 2006 (``SIA
letter'') (available for review on the Commission's Web site at
http://www.sec.gov/comments/sr-nyse-2005-90/sia061606.pdf).
\7\ In Amendment No. 2, the NYSE proposed to partially amend the
text of proposed amended Rule 409 as discussed in Section III below.
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I. Description
The proposed amendment to NYSE Rule 409 would allow institutional
customers conducting a Delivery versus Payment and Receive versus
Payment (``DVP/RVP'') business to elect not to receive quarterly
account statements. Rule 409, in pertinent part, specifies the
obligations of member organizations with respect to customer
statements, including frequency of delivery and elements of content.
NYSE Rule 409(a) requires that, except with the permission of the
Exchange, members and member organizations shall send statements at
least quarterly to customers for accounts showing security and money
positions and entries during the preceding quarter. The proposed
amendment would provide relief from this requirement for customer
accounts that are carried solely for the purpose of DVP/RVP
transactions. A DVP/RVP account is an arrangement whereby delivery of
securities sold is made to the buying customer's bank in exchange for
payment, usually in cash, at settlement. Such accounts must comply with
the requirements outlined in NYSE Rule 387 (COD Orders).\8\
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\8\ NYSE Rule 387 sets out specific prerequisites for the
acceptance of such orders:
(1) The member or member organization must have previously
received the name and address of the agent, together with its
customer number;
(2) The order must note the payment on delivery or collect on
delivery nature of the trade;
(3) The member or member organization must deliver to the
customer a confirmation in the specified form; and
(4) The member organization must have obtained an agreement from
the customer regarding the furnishing of appropriate instructions
for the settlement of the trade.
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Due to the nature of DVP/RVP accounts, their statements do not
generally reflect any cash balance or security position at the end of a
quarter. Consequently, according to NYSE, DVP/RVP customers (chiefly
institutional customers) generally rely on confirmations (issued
pursuant to Rule 10b-10 under the Exchange Act) or trade runs for
transaction-related information. Such records provide critical
transactional information (such as security name and price, commission
or markup, if applicable, trade date, settlement date, etc.) in a
timely fashion. According to NYSE, institutional investors prefer
transaction confirms or trade run information to quarterly account
statements.
The proposed amendment to NYSE Rule 409 would relieve member
organizations of the obligation to send quarterly statements to
customers if: (1) The customer's account is carried solely for the
purpose of execution on a DVP/RVP basis; (2) all transactions effected
for the account are done on a DVP/RVP basis in conformity with Rule
387; (3) the account does not show security or money positions at the
end of the quarter; (4) the customer consents to the suspension of such
statements in writing and such consents are maintained by the member
organization in a manner consistent with Exchange Rule 440 and Rule
17a-4 under the Exchange Act; \9\ (5) the member organization
undertakes to provide any particular statement or statements to the
customer promptly upon request; and (6) the member organization
undertakes to promptly reinstate the delivery of such statements to the
customer upon request. The proposed rule change specifies that Rule 409
does not qualify or condition the obligations of a member organization
under Rule 15c3-2 under the Exchange Act concerning quarterly notices
of free credit balances on statements.\10\
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\9\ Under NYSE Rule 440, NYSE member organizations are, among
other things, required to make and preserve books and records as
prescribed by Rule 17a-3 under the Exchange Act. Rule 440 also
states that the recordkeeping format, medium, and retention period
must comply with Rule 17a-4 under the Exchange Act. Rule 17a-4
specifies the manner in which broker-dealers must maintain the
records created in accordance with Rule 17a-3, and certain other
records produced by broker-dealers, and the required retention
periods for these records.
\10\ Rule 15c3-2 under the Exchange Act requires broker-dealers
to provide each of their customers for whom a free credit balance is
carried, not less frequently than once every three months, a written
statement informing the customer of the amount due to the customer,
and written notice that the funds are not segregated and may be used
in the broker-dealer's business operations, and that the funds are
payable on the customer's demand.
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II. Summary of Comments
The Commission received two comments on the proposal, both of which
generally were supportive.\11\ BNP opposed condition number (3) of the
proposal (i.e., that the account not show security or money positions
at the end of the quarter). BNP believed that proposed condition (3)
could, among other things, require members to monitor qualifying
accounts to ensure that they had no money or positions at the end of
the quarter. BNP also contended that the condition could be triggered
as a result of a failed receipt
[[Page 69166]]
or delivery at the end of the quarter. In such case, the customer would
receive a quarterly statement even though it had consented not to
receive one. BNP contended that the customer would be confused by such
statement and the statement would not benefit the customer.\12\
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\11\ See footnote 6, supra.
\12\ In its comment, discussed below, SIA does not believe that
condition (3) should apply to those accounts that show a money or
position balance at the end of the quarter because of unsettled
items or a ``DK.''
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The SIA letter supported the proposed amendment to NYSE Rule 409
but commented that the proposal would unnecessarily and impractically
require individual firms to retain a record that reflects each
institution's consent to the suspension of statements. SIA proposed
that the NYSE interpret proposed amended Rule 409 to make an
institution's notification to Omgeo \13\ and Omgeo's population of
their database sufficient for recordkeeping purposes.
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\13\ According to SIA, Omgeo, LLC is the leading industry
provider of institutional processing services. SIA believes that
other vendors would also provide such indicators.
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III. NYSE's Response to Comments
In filing Amendment No. 2, NYSE addressed comments on the proposal
by revising proposed amended Rule 409(a)(3) to confirm that
transactional positions, such as those arising from a fail to receive
or deliver money or securities, will not be deemed money or security
positions for purposes of this rule. This proposed change is intended
to avoid the possibility raised by BNP that firms could be in violation
of the rule due to a failed receipt or delivery at the end of a
quarter.
IV. Discussion
The Commission finds that the proposed rule change, as amended, is
consistent with the requirements of the Exchange Act and the rules and
regulations thereunder applicable to a national securities
exchange.\14\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Exchange Act.\15\
Section 6(b)(5) of the Act requires, among other things, that the rules
of an exchange be designed to promote just and equitable principles of
trade, to remove impediments to and perfect the mechanism of a free and
open market and national market system, and in general, to protect
investors and the public interest. The Commission believes that the
proposed rule change, as amended, should remove impediments to and
perfect the mechanisms of a free and open market and national market
system by removing an unnecessary and potentially costly obligation on
firms to deliver quarterly account statements to DVP/RVP customers. At
the same time, the proposal maintains certain investor protections
(i.e., requiring NYSE member organizations to obtain affirmative
consent to the suspension of quarterly account statements, preserving
the ability of customers to obtain particular statements upon request
and to resume receipt of statements promptly upon request, and
precluding member organizations from unilaterally terminating delivery
of such statements). Therefore, the Commission believes the proposal is
consistent with the Exchange Act.
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\14\ In approving this proposed rule change, the Commission has
considered whether the proposed rule change will promote efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\15\ 15 U.S.C. 78f(b)(5).
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Accelerated Approval of Amendment No. 2
The Commission finds good cause to approve Amendment No. 2 to the
proposed rule change, as amended, prior to the thirtieth day after
Amendment No. 2 is published for comment in the Federal Register
pursuant to Section 19(b)(2) of the Act.\16\ Amendment No. 2 clarifies
that transactional positions, such as those arising from a fail to
receive or deliver money or securities, will not be deemed money or
security positions for purposes of the proposed amended rule. The
Commission finds that Amendment No. 2 appropriately addresses a concern
raised by a commenter.\17\ For these reasons, the Commission believes
that good cause exists to accelerate approval of Amendment No. 2.
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\16\ 15 U.S.C. 78s(b)(2).
\17\ See BNP letter, footnote 6, supra.
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\18\ that the proposed rule change (SR-NYSE-2005-90), as
amended by Amendment No. 1 thereto, be, and hereby is, approved, and
that Amendment No. 2 thereto, be, and hereby is, approved on an
accelerated basis.
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\18\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-20227 Filed 11-28-06; 8:45 am]
BILLING CODE 8011-01-P