[Federal Register Volume 59, Number 175 (Monday, September 12, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22469]
[[Page Unknown]]
[Federal Register: September 12, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34633; File No. SR-NYSE-94-21]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Approving a Proposed Rule Change Relating to Customer Account
Transfer Contracts
September 2, 1994.
On June 16, 1994, the New York Stock Exchange, Inc. (``NYSE'')
filed with the Securities and Exchange Commission (``Commission'') a
proposed rule change (File No. SR-NYSE-94-21) pursuant to Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of
the proposal was published on June 29, 1994, in the Federal Register to
solicit comments on the proposed rule change.\2\ Two comment letters
were received in favor of the proposal.\3\ For the reasons discussed
below, the Commission is approving the proposed rule change.
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\1\15 U.S.C. 78s (b)(1) (1988).
\2\Securities Exchange Act Release No. 34246 (June 22, 1994), 59
FR 33559 [File No. SR-NYSE-94-21].
\3\Letter from John E. Nolan, Senior Vice President, Operations
and Compliance, Raymond James & Associates, Inc., to Jonathan G.
Katz, Secretary, Commission (July 15, 1994) and letter from Kevin
Farragher, Director of Operations, Distribution & Service, The
Investment Company Institute, to Jonathan G. Katz, Secretary,
Commission (July 11, 1994). The comment letters are discussed in
detail in Section B below.
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I. Description of the Proposal
A. Description
NYSE is amending its Rule 412, Customer Account Transfer Contracts,
and its related interpretations in order to incorporate into its
customer account transfer process enhancements the National Securities
Clearing Corporation (``NSCC'') has made to its Automated Customer
Account Transfer (``ACAT'') service. Presently, the transfer time for
transferring customers' cash or margin accounts is ten business days
and is fifteen business days for transferring retirement accounts. The
proposed amendments will reduce the time period for transferring
customers' cash, margin, and retirement accounts to seven business
days. This will be accomplished by reducing the five business day
validation period for accounts to three business days\4\ and by
reducing the delivery period from five business days to four business
days.\5\ The rule change also mandates the use of an automated customer
account transfer system for transferring mutual fund positions where
both the receiving broker-dealer and the delivering broker-dealer are
participants in a registered clearing agency which has such a
facility.\6\
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\4\The rule change deletes the interpretation that permitted a
ten day validation period for retirement accounts. NYSE Rule 12,
Interpretation (f)/01.
\5\NYSE Rule 412(b).
\6\NYSE Rule 412(e)(2).
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Where both receiving and delivery member organizations participate
in a registered clearing agency with an automated customer account
transfer system with residual credit processing capabilities, the rule
change requires the members to utilize such facilities to transfer
residual credit positions which accrue to an account after transfer.
Member organizations already are required to transfer credit balances
accruing in a transferred account within ten business days after
accrual for a minimum of six months following the transfer. This
requirement applies to all member organizations regardless of whether
they utilize an automated customer account transfer system.
The rule change also permits partial customer account transfers to
be accomplished through a registered clearing agency's automated
customer account transfer system. Presently, partial transfers are
accomplished outside of the system. The time frames required by Rule
412 for transfer of entire customer accounts do not apply to partial
transfers. However, the NYSE states in its filing and in existing
interpretations to NYSE Rule 412 that member organizations are expected
to expedite partial transfers of customer accounts.\7\
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\7\NYSE Rule 412, Interpretation (a)/01.
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In an effort to facilitate communication between organizations and
improve exchange oversight, the NYSE will provide more explicit reason
codes for rejection of customer account transfers.\8\ However, NYSE's
new reason codes will become effective only after NSCC implements
system changes which will allow use of such reason codes.\9\ Also,
member organizations that receive an account transfer related claim
letter will be required to resolve the claim within five business days
or respond in writing setting forth specific reasons for denying the
claim.\10\
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\8\NYSE Rule 412, Interpretation (b)(1)/02.
\9\Telephone conversation between Rudy Schrieber, Senior Special
Counsel of Rule and Interpretive Standards, NYSE, and Jerry W.
Carpenter, Assistant Director, Division, Commission (August 30,
1994). See NYSE Rule 412, Interpretation (b)(1)/02.
\10\NYSE Rule 412(d).
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The amendments relating to use of an automated system for
transferring mutual fund positions and residual credit processing will
become effective 180 calendar days after Commission approval of the
amendments. All other amendments referred to above will become
effective ninety days after Commission approval.
B. Comments
As noted above, two comments were received in support of the
proposed rule change. One letter addressed only that portion of the
rule change dealing with the mandatory participation in NSCC's ACAT
service.\11\ The commenter noted that the ACAT service benefits broker-
dealers and mutual fund companies, but the retail investor is the
ultimate benefactor of the process. The commenter also stated that
unless the Commission makes participation mandatory, the process of
transferring mutual fund assets will continue to be done manually in
some instances and possibly will take months to complete. According to
the commenter, this subjects the beneficial shareholders of mutual fund
shares to market fluctuation due to the inability to redeem or exchange
their shares.
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\11\Letter from John E. Nolan, Senior Vice President, Operations
and Compliance, Raymond James & Associates, Inc., supra note 3.
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The second letter strongly recommends adopting the proposed rule
change citing the changes pertaining to ACAT as its primary
concern.\12\ According to this commenter, the benefits of ACAT-Fund/
Serv are twofold. The first advantage is the timely, high quality
customer service provided through ACAT. The second advantage is the
cost savings arising from its efficiency compared to the highly
inefficient manual means used to effect the transfer of mutual fund
accounts from one broker-dealer to another.
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\12\Letter from Kevin Farragher, Director of Operations,
Distribution & Service, The Investment Company Institute, supra note
3.
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This commenter cited the standardized settlement cycle and the
decrease in the amount of work the fund ultimately has to do as one of
the most important aspects of ACAT-Fund/Serv transfers. A standardized
settlement cycle safeguards shareholder accounts from market
fluctuation by limiting the duration of the ``fail to receive'' period
during which shares are unavailable for redemption or exchange.
II. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder and particularly with the requirements of Section
6(b)(5).\13\ Section 6(b)(5) requires, among other things, that the
rules of an exchange 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.\14\ For reasons set forth below, the Commission believes
that the NYSE's amendments are consistent with the requirements of
Section 6(b)(5).
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\13\15 U.S.C. 78f(b)(5) (1988).
\14\Id.
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Shortening the time period for transferring accounts from ten days
to seven days is appropriate because of the enhanced automation of the
process by member organizations and clearing agencies. The shortened
time period should be beneficial to both customers and member
organizations. In addition, reducing the time allowable for account
transfers is consistent with Commission Rule 15c6-1 mandating a three
business day settlement cycle effective June 1, 1995.\15\
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\15\For a complete description of Rule 15c6-1, refer to
Securities Exchange Act Release No. 33023 (October 13, 1993), 58 FR
52891 [File No. S7-5-93] (adopting Commission Rule 15c6-1).
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The development by registered clearing agencies of automated
systems to transfer mutual funds positions and residual credit balances
and their mandatory use should benefit both customers and member
organizations by increasing efficiency, reducing paperwork, and
providing significant cost savings. Permitting partial account
transfers to be accomplished through automated account transfer systems
should allow member organizations to provide more efficient and
expeditious transfers. The use of NYSE's more explicit reject codes
should help reduce unnecessary back office operations functions and
should allow members to determine the exact reason for rejections of
customer account transfers. The new reject codes also will allow the
NYSE to better monitor its members' rejections. The amendments
requiring the resolution or denial of claim letters within five
business days should help provide a regulatory framework in an area
where no specific requirements currently exist and should expedite
resolution of such claims.
III. Conclusion
The Commission finds that the proposal is consistent with the
requirements of the Act and particularly with Section 6(b)(5) of the
Act and the rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-NYSE-94-21) be, and hereby
is, approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\16\
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\16\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-22469 Filed 9-9-94; 8:45 am]
BILLING CODE 8010-01-M