[Federal Register: December 4, 2002 (Volume 67, Number 233)]
[Notices]
[Page 72257-72259]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04de02-104]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46888; File No. SR-NYSE-2002-34]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc.
Relating to the Amendment of Rule 342 (Offices--Approval, Supervision,
and Control)
November 22, 2002.
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 August 16, 2002, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') 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 by the Exchange. On
October 22, 2002, the NYSE filed Amendment No. 1 to the proposed rule
change.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE,
to Nancy Sanow, Assistant Director, Division of Market Regulation,
Commission (October 21, 2002) (``Amendment No. 1''). In Amendment
No. 1, the Exchange corrected the reference to the provision of the
Act under which the proposal was filed. The original filing was
incorrectly marked as having been filed pursuant to section
19(b)(3)(A) of the Act, 15 U.S.C. 78s(b)(3)(A), while Amendment No.
1 was marked as having been filed pursuant to Section 19(b)(2) of
the Act, 15 U.S.C. 78s(b)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange is filing with the Commission a proposed amendment to
NYSE Rule 342 (``Offices--Approval, Supervision, and Control'')
providing for a new definition of the term ``branch office.'' The
proposed amendment to the rule would limit the requirement to register
certain business locations as ``branch offices'' to account for
advances in technology used to conduct and monitor business, changes in
the structure of broker-dealers and in the lifestyles and work habits
of broker-dealers. The text of the proposed rule change is below.
Proposed new language is in italics; proposed deletions are in
brackets.
Rule 342. Offices--Approval, Supervision, and Control
(a)-(e) No Change.
Supplementary Material
.19 [.10] Annual fee.--Each office of a member organization
(including any foreign branch office), other than the main office of
the member organization, shall be subject during its existence to a
registration fee as determined by the Exchange for each calendar year
or part thereof, unless specifically exempted by the Exchange.
.10 Definition of Branch Office
A ``branch office'' is any location, other than the main office,
where one or more associated persons of a member or member organization
(``associated person'') regularly conduct the business of effecting any
transactions in, or inducing or attempting to induce the purchase or
sale of any security, or is held out as such, excluding:
(A) any location that is established solely for customer service
and/or back office type functions where no sales activities are
conducted and that is not held out to the public as a branch office;
(B) any location that is the associated person's primary residence;
provided that: (i) the location is used for less than 50 business days
in any one calendar year; (ii) only one associated person, or multiple
associated persons, who reside at that location and are members of the
same immediate family, conduct business at the location; (iii) the
location is not held out to the public as an office and the associated
person does not meet with customers at the location; (iv) neither
customer funds nor securities are handled at that location; (v) the
associated person is assigned to a designated branch office, and such
branch office is reflected on all business cards, stationery,
advertisements and other communications to the public by such
associated person; (vi) the associated person's correspondence and
communications with the public are subject to the firm's supervision;
(vii) electronic communications (i.e., e-mail) are made through the
member organization's electronic system; (viii) all orders are entered
through the designated branch office; (ix) written supervisory
procedures pertaining to supervision of sales activities conducted at
the residence are maintained by the member or member organization; and
[[Page 72258]]
(x) a list of the locations is maintained by the member or member
organization;
(C) any location, other than a primary residence, that is used for
less than 30 business days in any one calendar year, provided the
member organization complies with the provisions of (iii) through (ix)
of paragraph (B) above;
(D) any office of convenience, where the associated person
occasionally and exclusively by appointment meets with customers, which
is not held out to the public as a branch office (where such location
is on bank premises, however, only signage required by the Interagency
Statement (Statement on Retail Sales of Nondeposit Investment Products
required under Banking Regulations) may be displayed);
(E) any location that is used primarily to engage in non-securities
activities and from which the associated person effects no more than 25
securities transactions in any one calendar year; provided that any
advertisements or sales literature identifying such location also sets
forth the address and telephone number of the location from which the
associated person conducting business at the non-branch locations are
directly supervised;
(F) the Floor of a registered national securities exchange where a
member or member organization conducts a direct access business with
public customers; or
(G) a temporary location established in response to the
implementation of a business continuity plan.
The term ``business day'' as used herein shall not include any
partial business day provided that the associated person spends at
least four hours on such business day at his or her designated branch
office during the hours that such office is normally open for business.
The term an ``associated person of a member'' for purposes of this Rule
means member, allied member or employee associated with a member or
member organization.
* * * * *
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 Exchange 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 Exchange 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 \4\
Background
Currently, Exchange Rule 342(c) broadly requires that a member or
member organization obtain the Exchange's prior written consent for
each office established other than a main office. Continued advances in
technology used to conduct and monitor business, changes in the
structure of broker-dealers and in the lifestyles and work habits of
the workforce have caused the Exchange to reexamine whether all
business locations continue to need to be registered as branch offices
of broker-dealer members and member organizations.
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\4\ The NYSE requested that the Commission change certain
language submitted by the NYSE in the purpose section of the filing
to clarify that the instant filing pertains to the NYSE's proposed
rule filing alone. While the Commission believes that other SROs
will submit similar filings, such similar filings have not yet been
submitted and it is not certain that other SROs' filings will be
uniform. Telephone discussion between Mary Anne Furlong, Director,
Rule and Interpretive Standards, NYSE, and Katherine England,
Assistant Director, Elizabeth Badawy, Sr. Policy Liaison, and
Christopher B. Stone, Special Counsel, Division of Market
Regulation, Commission (November 21, 2002).
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The definition of the term ``branch office'' under various self-
regulatory organizations' (``SROs'') and states' rules in this regard
differ significantly. Further, they differ in the registration,
notification and approval process as well. Recently, the Exchange has
worked with the NASD and states' regulators to develop a definition,
which recognizes the industry changes noted above, while meeting
regulatory objectives.
Proposed Definition
As proposed, the term ``branch office'' means any location, other
than the main office, where one or more associated persons of a member
or member organization (``associated person'') regularly conduct the
business of effecting any transactions in, or inducing or attempting to
induce the purchase or sale of any security, or is held out as such.
The definition provides for exceptions noted below. The core definition
is consistent with the term ``office'' as it is defined in the SEC's
new amendments \5\ to its books and records rules (Rules 17a-3 and 17a-
4),\6\ which were enacted to provide timely access to broker-dealers'
books and records and to help expedite SEC, SRO and state examinations
and investigations.
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\5\ Securities Exchange Act Release No. 44992 (October 26,
2001), 66 FR 55818 (November 2, 2001).
\6\ 17 CFR 240.17a-3 and 240.17a-4.
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In developing a definition, the NYSE considered the evolving nature
of its members' and member organizations' business models. For example,
bank-owned members and member organizations often establish small
offices on bank premises, whereby a registered representative would be
designated to a parent branch for supervision but would visit different
bank branches occasionally, and by appointment only, to meet with
customers. Under the proposed definition such locations would be exempt
from registering as branch offices, where the bank location is not held
out as a branch office.
In exempting such offices of convenience from branch office
registration, the NYSE has imposed important safeguards for the public.
In this regard, at such offices of convenience, associated persons
would be limited to meeting customers occasionally and exclusively by
appointment. Further, at bank locations, the only permitted signage
such offices of convenience may display, under regulations promulgated
by the Office of the Comptroller of the Currency, will be ones
advertising to the public that ``non-deposit investment products'' are
being offered at such locations. This signage will prevent confusing
customers who might otherwise believe that traditional riskless
investments, such as deposits, are being offered by associated persons
at such offices located on bank premises. In addition, other than
meeting customers at these offices of convenience, all other functions
of the associated person will be conducted and supervised through the
designated branch office.
Changing life/work issues of members' and member organizations'
associated persons is also recognized in the new definition. In this
regard, associated persons are often forced to work occasionally from
home to provide childcare and eldercare for certain family members.
Moreover, illness forces work at home as well. Further, the development
of technology, and advanced electronic communications, have
necessitated rethinking traditional views of what constitutes a branch
office and the supervision of such offices.
In excepting primary residences from the definition of branch
office, important safeguards and limitations have been imposed on such
locations to provide for monitoring and oversight of activities.
Limitations include, in part,
[[Page 72259]]
that: The location is used for less than 50 business days in one
calendar year; the location is not held out as a branch office; the
associated person is assigned to a designated branch office for
supervision and such office is reflected on all business cards,
stationery, advertisements and communications to the public; the
associated person does not meet with customers at his or her residence;
the associated person's correspondence and communications with the
public are subject to the firm's supervision; electronic
communications, including e-mails, are made through the firm's
electronic system; all orders are entered through the designated branch
office; and written procedures relating to the supervision of sales
activities conducted at the residence are maintained by the member or
member organization.
The definition also exempts from branch office registration any
temporary location, other than the primary residence discussed above,
provided it is used less than 30 business days in any calendar year. In
granting this exemption, the NYSE has imposed the same safeguards noted
above for the exemption granted for primary residence. The Exchange
believes that effective supervision can be achieved because of the use
of advanced and sophisticated technology in the supervision and review
of associated persons in such exempt locations.
In addition, under both exceptions noted above, the NYSE has
defined ``business day'' to include any partial day, provided the
associated person spends less than four hours on such business day at
his or her designated branch office during the hours such office is
normally open for business.\7\ In doing so, it will prevent associated
persons from regularly conducting business from their primary or other
residences for the majority of a business day, without such activity
being counted towards the 30 and 50 day limitations.
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\7\ The NYSE requested that the Commission make a clarifying
correction of language in the purpose section of the NYSE's filing
with regard to the definition of ``business day.'' Telephone
discussion between Mary Anne Furlong, Director, Rule and
Interpretive Standards, NYSE, and Katherine England, Assistant
Director, Elizabeth Badawy, Sr. Policy Liaison, and Christopher B.
Stone, Special Counsel, Division of Market Regulation, Commission
(November 21, 2002).
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Where the 50 business day (primary residence) and 30 business day
(other location) exemptions are utilized by associated persons, members
and member organizations are expected to maintain records adequate to
demonstrate compliance with the ``business day'' limitations.
In addition, the definition exempts from registration locations
where associated persons are primarily engaged in non-securities
activities (e.g., insurance) and from which an associated person
effects no more than 25 securities transactions in a calendar year,
provided that advertisements or sales literature identifying such
location also set forth locations from which the associated persons are
directly supervised. Further, such activities attendant to the primary
function performed as an occasional accommodation to customers will be
conducted through and supervised by the associated person's designated
registered branch office.
Similarly, the new definition exempts non-sales locations, e.g.,
where operations activities are conducted, from registering as a branch
office. Such locations must be established solely for customer service
and/or back office functions and not be held out to the public as a
branch office, and no sales activities may be conducted from such
locations.
The proposed definition of branch office would serve the entire
broker-dealer community by recognizing the many different business
models and streamlining the branch office registration process
significantly. The scope of sales practice examinations conducted by
the Exchange will be expanded to ensure compliance with the new rule
amendments.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with the provisions of section 6(b) of the Act,\8\ in general, and
section 6(b)(5) of the Act,\9\ in particular, which requires, among
other things, that the rules of an exchange be designed to foster
cooperation and coordination with persons engaged in regulating
transactions in securities.
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\8\ 15 U.S.C. 78f(b).
\9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change, as
amended, will impose 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
The Exchange has neither solicited nor received written comments on
the proposed rule change, as amended.
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 Exchange consents, the Commission will:
(A) By order approve such proposed rule change, as amended, or
(B) Institute proceedings to determine whether the proposed rule
change, as amended, 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, as amended, 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. 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 Room. Copies of such
filing will also be available for inspection and copying at the
principal office of the Exchange. All submissions should refer to File
No. SR-NYSE-2002-34 and should be submitted by December 26, 2002.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-30668 Filed 12-3-02; 8:45 am]
BILLING CODE 8010-01-P