[Federal Register: October 16, 2006 (Volume 71, Number 199)]
[Notices]
[Page 60784-60786]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16oc06-111]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-54566; File No. SR-NASD-2006-066]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change To Allow
Certain Institutional Customers To Elect Not To Receive Account
Statements
October 3, 2006.
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 May 23, 2006, the National Association of Securities Dealers, Inc.
(``NASD'') 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. On August
17, 2006, NASD filed Amendment No. 1 to the proposed rule change.\3\
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, NASD proposed additional changes to the
text of proposed amended Rule 2340, which are incorporated in the
proposed rule text below.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
NASD is proposing to amend NASD Rule 2340 to relieve members from
the requirement to send quarterly account statements to customer
accounts that are carried solely for the purpose of execution on a
delivery versus payment and receive versus payment (``DVP/RVP'') basis,
provided certain conditions are met.\4\ Below is the text of the
proposed rule change.\5\ Proposed new language is in italic; proposed
deletions are in [brackets].\6\
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\4\ The proposed rule change is similar to a rule change
proposed by the New York Stock Exchange, Inc. (now known as New York
Stock Exchange LLC). See Securities Exchange Act Release No. 53826
(May 18, 2006), 71 FR 30211 (May 25, 2006).
\5\ The text includes minor technical changes to proposed
paragraph (b)(4) pursuant to a telephone conversation between
Shirley Weiss, Associate General Counsel, NASD, and Brice Prince,
Special Counsel, Division of Market Regulation, Commission, on
October 3, 2006.
\6\ The changes to Rule 2340 proposed in this rule filing are
marked to the current version of the rule text as recently amended
in SR-NASD-2004-171. See Securities Exchange Act Release No. 54411
(Sept. 7, 2006), 71 FR 54105 (Sept. 13, 2006).
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* * * * *
[[Page 60785]]
2300. TRANSACTIONS WITH CUSTOMERS
* * * * *
2340. Customer Account Statements
(a) General
(1) Except as otherwise provided by paragraph (b), [E]each general
securities member shall, with a frequency of not less than once every
calendar quarter, send a statement of account (``account statement'')
containing a description of any securities positions, money balances,
or account activity to each customer whose account had a security
position, money balance, or account activity during the period since
the last such statement was sent to the customer.
(2) No change in text.
(b) Delivery Versus Payment/Receive Versus Payment (DVP/RVP)
Accounts
Quarterly account statements need not be sent to a customer
pursuant to paragraph (a) of this Rule 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 11860;
(3) the account does not show security or money positions at the
end of the quarter (provided, however that positions of a temporary
nature, such as those arising from fails to receive or deliver, errors,
questioned trades, dividend or bond interest entries and other similar
transactions, shall not be deemed security or money positions for the
purpose of this paragraph (b));
(4) the customer consents to the suspension of such statements in
writing, and the member maintains such consents in a manner consistent
with Rule 3110 and SEC Rule 17a-4;
(5) the member undertakes to provide any particular statement or
statements to the customer promptly upon request; and
(6) the member undertakes to promptly reinstate the delivery of
such statements to the customer upon request.
Nothing in this Rule shall be seen to qualify or condition the
obligations of a member under SEC Rule 15c3-2 concerning quarterly
notices of free credit balances on statements.
[(b)] (c) No change in text.
[(c)] (d) Definitions
For purposes of this Rule, the following terms will have the stated
meanings:
(1)-(5) No change in text.
(6) a ``DVP/RVP account'' is an arrangement whereby payment for
securities purchased is made to the selling customer's agent and/or
delivery of securities sold is made to the buying customer's agent in
exchange for payment at time of settlement, usually in the form of
cash.
[(d)] (e) Exemptions
Pursuant to this Rule 9600 Series, [the Association] NASD may
exempt any member from the provisions of this Rule for good cause
shown.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In filing the proposed rule change and Amendment No. 1 with the
Commission, NASD included statements concerning the purpose of, and
basis for, the proposed rule change, as amended. The text of these
statements may be examined at the places specified in Item IV below.
NASD 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
1. Purpose
NASD Rule 2340 requires any member that conducts a general
securities business and also carries customer accounts or holds
customer funds or securities, at least once each calendar quarter, to
send a statement of account containing a description of any securities
positions, money balances, or account activity to each customer whose
account had a security position, money balance, or account activity
during the time since the last statement was sent.
In a DVP/RVP arrangement, payment for securities purchased is made
to the selling customer's agent and/or delivery of securities sold is
made to the buying customer's agent in exchange for payment at time of
settlement, usually in the form of cash. Because transactions in DVP/
RVP accounts (chiefly institutional accounts) are settled directly with
the agent on a transaction-by-transaction basis, account statements
sent by general securities firms to customers with DVP/RVP accounts
generally do not reflect any cash balance or security position at the
end of a quarter. Rather than using the information provided in
quarterly statements, DVP/RVP customers generally rely on trade runs or
customer confirmations issued pursuant to Rule 10b-10 under the Act for
transaction-related information.
The proposed rule change to Rule 2340 would relieve members from
the obligation to send quarterly statements to customers with DVP/RVP
accounts if: (1) The customer's account is carried solely for the
purpose of execution on a DVP/RVP basis; (2) all transactions in the
account are handled on a DVP/RVP basis in conformity with Rule 11860;
\7\ (3) there are no securities or cash positions in the account at the
end of the quarter (other than positions of a temporary nature, such as
those arising from fails to receive or deliver, errors, questioned
trades, dividend or bond interest entries and other similar
transactions); (4) the customer consents to the suspension in writing;
(5) the member undertakes to provide any particular statement or
statements to the customer promptly upon request; and (6) the member
undertakes to promptly reinstate the delivery of such statements to the
customer upon request. The proposed rule change specifies that Rule
2340 does not qualify or condition the obligations of a member under
SEC Rule 15c3-2 concerning quarterly notices of free credit balances on
statements. The proposed rule change would also define ``DVP/RVP
account'' for purposes of Rule 2340.\8\
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\7\ Prior to accepting an order in a DVP/RVP account, a member
must comply with Rule 11860, which requires, among other things,
that the member obtain certain information from the customer,
including the name and address of the agent and the account number
of the customer on file with the agent.
\8\ Proposed Rule 2340(d)(6) would define a ``DVP/RVP account''
as ``an arrangement whereby payment for securities purchased is made
to the selling customer's agent and/or delivery of securities sold
is made to the buying customer's agent in exchange for payment at
time of settlement, usually in the form of cash.''
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By requiring the customer's affirmative consent, the customer's
ability to receive quarterly statements is preserved, and the member is
precluded from unilaterally terminating delivery of customer
statements. In addition, customers would be able to promptly receive
particular account statements upon request, and promptly reinstate the
delivery of account statements upon request.
The proposed rule change also includes a technical amendment that
would replace the reference to ``the Association'' in paragraph (e) of
Rule 2340 with ``NASD,'' because NASD no longer refers to itself using
its full corporate name, ``the Association,'' or ``the NASD.'' Instead,
NASD uses ``NASD'' unless otherwise appropriate for corporate or
regulatory reasons.
[[Page 60786]]
2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act, which requires, among other
things, that NASD rules must be designed to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, and, in general, to protect investors and the public
interest. NASD believes that the proposed rule change is designed to
facilitate transactions in securities and to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to transactions in securities by
giving members a mechanism to allow certain customers that utilize
alternative sources of information to keep track of their trading to
opt out of receiving unwanted account statements. NASD also believes
that the conditions of the proposed amended rule are designed to
promote just and equitable principles of trade and, in general, to
protect investors and the public interest by requiring that consents to
the suspension of account statements under the amended rule be in
writing, and by requiring members to undertake to promptly provide any
particular account statement upon request and to promptly reinstate
delivery of account statements upon request.
B. Self-Regulatory Organization's Statement on Burden on Competition
NASD 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
NASD neither solicited nor received written comments on the
proposed rule change.
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.
NASD will announce the effective date of the proposed rule change
in a Notice to Members to be published no later than 60 days following
Commission approval. The effective date of the proposed rule change
will be 30 days following publication of the Notice to Members
announcing Commission approval.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NASD-2006-066 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NASD-2006-066. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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, 100 F Street,
NE., Washington, DC 20549. Copies of such filing also will be available
for inspection and copying at the principal office of NASD. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NASD-2006-066 and should be
submitted on or before November 6, 2006.
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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Nancy M. Morris,
Secretary.
[FR Doc. E6-17064 Filed 10-13-06; 8:45 am]
BILLING CODE 8011-01-P