[Federal Register: July 22, 2004 (Volume 69, Number 140)]
[Notices]
[Page 43873-43874]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22jy04-109]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-50018; File No. SR-NASD-2004-058]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval
of a Proposed Rule Change Relating to Partial Customer Account
Transfers
July 14, 2004.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on April 1, 2004, the
National Association of Securities Dealers, Inc. (``NASD'') 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 NASD. The Commission is publishing
this notice and order to solicit comments from interested persons and
to grant accelerated approval of the proposed rule change.
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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
The NASD is amending Rule 11870 to make the procedures for non-
standard transfers of customer account assets though the Automated
Customer Account Transfer Service (``ACATS'') consistent with the
procedures for transferring security account assets in their entirety.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD 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 NASD.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The purpose of the proposed rule change is to amend NASD Rule 11870
so that the procedures for making non-standard transfers of customer
assets \3\ through ACATS consistent with the procedures for standard
transfers of customer assets through ACATS.\4\ The proposed rule change
also permits a customer to authorize the delivering member to transfer
specifically designated account assets outside of ACATS. In addition,
the proposed rule change permits a customer to authorize an account
transfer, in whole or in part, using an electronic signature in a
format recognized as valid under federal law to conduct interstate
commerce. This modification contemplates legal alternatives to written
notice, as currently required, on the condition that such methods
otherwise comply with the requirements of Rule 11870. The proposed rule
change conforms to recently adopted amendments to the New York Stock
Exchange's (``NYSE'') Rule 412 and the Interpretations of Rule 412.\5\
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\3\ Non-standard transfers of customer assets include such
things as partial transfers of account assets, fail reversals,
reclaims, and mutual fund clean-ups.
\4\ Standard transfers of customer assets is generally a
transfer of all assets in a customer's account where none of the
securities in the account are ``nontransferable assets'' as that
term is defined in NASD Rule 11870.
\5\ Exchange Act Release No. 49415 (March 12, 2004), 69 FR 13608
(March 23, 2004) [File No. SR-NYSE-2003-29].
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Rule 11870(a) sets forth the procedures for members to use when
transferring customer assets. The rule currently states that broker-
dealers must utilize ACATS for non-standard as well as standard
transfers; however, the current rule generally refers to the transfer
of an entire securities account. As amended by this proposed rule
change, Rule 11870 will generally apply the same procedures to both
standard and non-standard transfers of customer account assets through
ACATS.
Because customer and broker-dealer obligations resulting from the
transfer of an entire account differ from the obligations arising from
the transfer of specified assets within an account that will remain
active at the delivering firm after the transfer, the proposed
amendments to Rule 11870 will distinguish between the transfer of
security account assets ``in whole'' (i.e., entire accounts) and the
transfer of security account assets ``in specifically designated part''
(i.e., partial transfers). This distinction is necessary given the
different obligations that arise depending on if a broker-dealer is
transferring an entire account to a receiving firm or is only
transferring specified assets to a receiving firm. For example, it
would not be necessary for a customer to instruct the delivering firm
as to the disposition of his or her assets that are non-transferable if
the customer is not transferring the account in whole.
The proposed rule change also permits customers to authorize
alternative instructions for the transfer of ``specifically designated
assets'' from one broker-dealer to another. This proposed rule change
therefore creates an exception to a member's obligation to transfer
specifically designated assets (i.e., partial transfers) through ACATS.
The ability to authorize alternative instructions refers to partial
transfers only and does not provide an exception to the members'
obligation to otherwise accomplish transfers in accordance with the
rules of the National Securities Clearing Corporation (``NSCC'').
Further, Rule 11870 currently states that a customer who wishes to
transfer securities account assets to another member must give
``written notice of that fact to the receiving member'' and must
``sign'' a broker-to-broker transfer instruction form. The proposed
rule change to Rule 11870 will provide that the customer may authorize
an account transfer, in whole or in part, using either the customer's
actual signature or an electronic signature ``in a format recognized as
valid under federal law to conduct interstate commerce.''
Currently Rule 11870 requires that members use the transfer
instructions and provide the reports prescribed by the NASD when
accomplishing account transfers pursuant to the rule. The NASD is
deleting this requirement in the proposed rule because it believes this
provision is no longer necessary.
In order to allow members sufficient time to develop and implement
necessary system changes to comply with amended Rule 11870, the NASD
proposes to set an implementation date of September 13, 2004. The NASD
will announce the implementation date in a Notice to Members to be
published no later than thirty days following the Commission's notice
of the proposed rule change.\6\
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\6\ In its filing to the Commission, the NASD indicated an
implementation date of September 30, 2004. However, in order to
conform to the NYSE's implementation date of September 12, 2004, the
NASD requested to change their implementation date to September 13,
2004. Telephone conversation between Shirley H. Weiss, Office of
General Counsel, NASD, and Susan Petersen, Division of Market
Regulation, Commission, (June 25, 2004).
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[[Page 43874]]
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act,\7\ which requires,
among other things, that NASD rules must be 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. The NASD believes that the proposed rule change is
designed to accomplish these objectives by making the procedures for
transferring designated parts of a customer account through ACATS
consistent with the procedures for transferring the entire account,
permitting customers to authorize a partial transfer of assets outside
of ACATS, and permitting customers to authorize an account transfer, in
whole or in part, using electronic signature in a format recognized as
valid under federal law to conduct interstate commerce. The proposed
amendments to Rule 11870 are designed to expedite the transfer of
customer assets between broker-dealers and more easily allow investors
to transfer their assets to the broker-dealer of their choice. The
proposed rule change would also conform NASD requirements to those
recently adopted by the NYSE's Rule 412 and their interpretation under
Rule 412.
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\7\ 15 U.S.C. 78o-3(b)(6).
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(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD 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. The NASD will notify the Commission of any
written comments it receives.
III. 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. All comment letters should refer to
File No. SR-NASD-2004-058. 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, 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 NASD. All submissions should refer to
File No. SR-NASD-2004-058 and should be submitted by August 12, 2004.
IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities
association.\8\ In particular, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of Section
15A(b)(6) of the Act,\9\ which requires that the rules of the NASD be
designed to remove impediments to and protect the mechanism of a free
an open market and a national market system, and in general, to protect
investors and the public interest. The Commission finds the approval of
the NASD's rule change is consistent with this section because the
amendments are designed to make the transfer of customer securities
account assets easier, more efficient, and faster process for investors
to move their securities to their broker-dealer of choice. The proposed
rule change also makes the NASD and NYSE Rule 412 governing the
transfer of customer accounts between broker-dealers consistent, which
should eliminate confusion and differing treatment of customer account
transfers.
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\8\ 15 U.S.C. 78o-3(b). In approving this proposal, the
Commission has considered the proposed rule's impact on efficiency,
competition and capital formation. 15 U.S.C. 78f(b)(5).
\9\ 15 U.S.C. 78o-3(b)(6).
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The NASD has requested that the Commission approve the proposed
rule change prior to thirtieth day after publication of the notice of
the filing. The Commission finds good cause for approving the proposed
rule change prior to the thirtieth day after the publication of notice
because the rule is substantially the same as the NYSE rule, which was
recently approved by the Commission,\10\ and because by so approving
the NASD can implement its revised rule concurrently with the NYSE's
implementation of its rule.
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\10\ Supra note 5. The Commission received no comment letters
opposing the NYSE rule.
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It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-NASD-2004-058) be, and
hereby is, approved on an accelerated basis.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16643 Filed 7-21-04; 8:45 am]
BILLING CODE 8010-01-P