[Federal Register Volume 59, Number 166 (Monday, August 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21177]
[[Page Unknown]]
[Federal Register: August 29, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34564; File No. SR-NASD-94-27]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change Relating to the Storage of Account Information for Options
Customers for Supervisory Purposes
August 19, 1994.
On June 20, 1994, the National Association of Securities Dealers,
Inc. (``NASD'' or ``Association'') filed with the securities and
Exchange Commission (``SEC'' or ``Commission'') a propose rule
change\1\ pursuant to Section 19(b)(1) of the Securities Exchange Act
of 1934 (``Act'')\2\ and Rule 19b-4 thereunder.\3\ The rule change
amends Sections 33(b) (17) and (20) of the NASD Rules of Fair
Practice\4\ relating to the maintenance of records and the supervision
of accounts for options customers.
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\1\The NASD amended the proposed rule change subsequent to the
original filing on May 23, 1994, in order to correct a technical
deficiency.
\2\15 U.S.C. 78s(b)(1).
\3\17 CFR 240.19b-4.
\4\NASD Manual, Rules of Fair Practice, Art. III, Sec. 33(b)
(17) and (20), (CCH), 2183.
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Under the rule as amended, NASD members will be able to satisfy
their record retention requirements for options accounts by storing
required account information in locations other than the principal
supervisory office for the account, provided such account information
is readily accessible and promptly retrievable by personnel at the
principal supervisory office. The rule change only applies to the
records that, under the current rule, must be retained in principal
supervisory offices. The proposal will not change the record retention
requirements with respect to branch offices.
Notice of the proposed rule change, together with its terms of
substance was provided by issuance of a Commission release\6\ and by
publication in the Federal Register.\6\ No comments were received in
response to the Notice. This order approves the proposed rule change.
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\5\Securities Exchange Act Rel. No. 34352 (July 12, 1994).
\6\59 FR 36459 (July 18, 1994).
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Prior to the amendment, members were required to retain account
statements and other financial and background information for options
accounts in both the branch office and the principal supervisory office
for supervision of accounts.\7\ The technological advances in data
storage and retrieval methods, coupled with the increased expense of
storing records on-site in major financial centers, permit member firms
to make arrangements to store their records away from their principal
supervisory offices. In light of the record retention requirements for
options accounts, however, these new storage arrangements have
necessitated action by the options Self-Regulatory Organizations
(``SROs'').\8\ Specifically, member firms have obtained no-action
positions from the Options Self-Regulatory Council (``OSRC'')\9\ on a
case-by-case basis when moving their storage facilities from principal
supervisory offices to off-site locations.
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\7\NASD Manual, Rules of Fair Practice, Art. III, Secs. 33(b)
(17) and (20), (CCH), 2183.
\8\The NASD has noted that the options exchanges have similar
storage requirements to those found in Sections 33(b) (17) and (20)
of the Rules of Fair Practice. See, e.g., Amex Guide, Vol. 2,
Trading of Options Contracts, Sec. 3, Rule 922(b) and Com. .02,
(CCH) 9722; PSE Guide, Rules of Board of Governors, Rule 9.18(d)
(3) and (4), (CCH) 5893.
\9\The OSRC is a committee comprised of representatives from
each of the options exchanges and the NASD that was created pursuant
to a plan submitted by the options exchanges and the NASD under Rule
17d-2 of the Act (``17d-2 Plan''). The 17d-2 Plan was adopted to
reduce regulatory duplication relative to options-related sales
practice matters for a large number of firms which are currently
members of two or more SRO's. The purpose of the OSRC is: (1) to
administer the 17d-2 Plan; and (2) to address options-related sales
practice matters in a common forum.
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As the NASD indicated in its rule filing, the OSRC believes that
these new storage arrangements are consistent with the SRO's record
retention requirements as long as all necessary documents are readily
accessible and promptly retrievable. In addition to the OSRC's
findings, the NASD stated in the notice\10\ that the supervisory
obligations imposed on member firms will not be compromised by allowing
members to store options customer account statements and information
off-site. In order to ensure that off-site storage arrangements will
not compromise or constrain members' supervisory activities with
respect to options accounts, the NASD has agreed to periodically
examine the document retrieval capabilities of members using off-site
document storage facilities.
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\10\Securities Exchange Act Rel. No. 34352 (July 12, 1994), 59
FR 36459 (July 18, 1994).
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The Commission has determined to approve the NASD's proposal. The
Commission finds that the rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the NASD, including the requirements of Section 15A(b)(6)
of the Act.\11\ Section 15A(b)(6) requires, in part, that the rules of
a national securities association be designed to prevent fraudulent and
manipulative acts and practices; 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. In order to comply with the rule as amended, personnel in
principal supervisory offices must be able to access and retrieve
account information without delay. Due to the technological advances
made in storage and retrieval devices such as optical disks, facsimile
machines, and computers, member firms will continue to have easy access
to all customer account information necessary to discharge their
supervisory duties under the proposed rule change. Further, the
proposal will afford member firms with the opportunity to discharge
their supervisory responsibilities in a more cost-effective manner.
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\11\15 U.S.C. 78o-3(b)(6).
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It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change SR-NASD-94-27 be, and hereby is,
approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
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\12\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21177 Filed 8-26-94; 8:45 am]
BILLING CODE 8010-01-M