[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