[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