[Federal Register Volume 59, Number 179 (Friday, September 16, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22916]


[[Page Unknown]]

[Federal Register: September 16, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34651; File No. SR-PHLX-94-35]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 by the Philadelphia Stock Exchange, Inc., 
Relating to the Storage of Option Customer Account Information for 
Supervisory Purposes

September 12, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on July 5, 
1994, the Philadelphia Stock Exchange, Inc. (``PHLX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or 
``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the self-regulatory 
organization.\1\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\On August 26, 1994, the PHLX submitted Amendment No. 1 to the 
proposal to clarify that the purpose of the proposal is to allow 
members to maintain required customer information and account 
statements off-site, rather than at the member's principal 
supervisory office, as long as the records are readily accessible 
and promptly retrievable.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Paragraph (d), ``Maintenance of Customer Records,'' of PHLX Rule 
1025, ``Supervision of Accounts,'' requires member organizations to 
maintain at the branch office servicing the customer's account and at 
the principal supervisory office background and financial information 
of customers who have been approved for options transactions. In 
addition, Commentary .03 to PHLX Rule 1025 requires member 
organizations to maintain, at the principal supervisory office with 
jurisdiction over the office servicing the customer's account, 
information to permit review of each customer's options account to 
determine the compatibility of options transactions with investment 
objectives, the size and frequency of options transactions, commission 
activity in the account, profit or loss in the account, undue 
concentration in any options class or classes, and compliance with the 
provisions of Regulation T of the Federal Reserve Board. The PHLX 
proposes to amend PHLX Rule 1025(d) and Commentary 0.3 to allow member 
organizations to maintain the required customer information and account 
statements off-site, rather than at the principal supervisory office, 
as long as the records are readily accessible and promptly retrievable.
    The text of the proposed rule change is available at the Office of 
the Secretary, PHLX, and at the Commission.

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 self-regulatory organization 
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 self-regulatory organization 
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

    Currently, PHLX Rule 1025 requires written procedures for the 
review and maintenance of customer options accounts. Specifically, 
paragraph (d) requires that backgrounds, financial information and 
copies of account statements respecting option-approved accounts be 
maintained at the branch office servicing that customer's account as 
well as at the principal supervisory office with jurisdiction over that 
branch office. The PHLX proposes that the requirement applicable to 
principal supervisory offices be amended to permit the required 
information to be maintained at another location, provided that the 
information is readily accessible and promptly retrievable. The record 
retention requirement applicable to branch offices remains unchanged, 
such that off-site record maintenance is not permissible.
    The PHLX states that the increasing use of computers, fax machines, 
optical disk and other technology coupled with the expense of storing 
records on-site have resulted in more member organizations storing 
records away from their principal supervisory offices.\2\ The PHLX 
states that corresponding amendments to exchange option rules relating 
to customer account records are now required, and that the other self-
regulatory organizations (``SROs'') have enacted similar amendments to 
their rules\3\ or are proposing the same to their respective rules in 
order to maintain uniformity among the SROs respecting option account 
rules.
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    \2\In June 1993, the Division of Market Regulation 
(``Division'') issued a no-action letter permitting broker-dealers 
to maintain certain records required by Rules 17a-3 and 17a-4 under 
the Act on optical disk technology, under certain conditions. See 
Letter from Michael A. Macchiaroli, Associate Director, Division, 
Commission, to Michael D. Udoff, Chairman, Ad Hoc Record Retention 
Committee, Securities Industry Association, dated June 18, 1993.
    \3\See Securities Exchange Act Release No. 34564 (August 19, 
1994), 59 FR 44442 (order approving File No. SR-NASD-94-27).
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    In view of technological advances, the Exchange believes that it is 
appropriate to permit the off-site storage of customer records 
previously required to be maintained at a principal supervisory office. 
Technological advances such as optical storage technology may enable 
broker-dealers to improve customer service, due to the speedier and 
higher quality access to records that optical disks afford. The 
Exchange also believes that off-site storage should not compromise the 
supervisory obligations of member/participant organizations because the 
customer information necessary to fulfill those responsibilities must 
be easily accessible and promptly retrievable.
    Accordingly, the Exchange believes that the proposed rule change is 
consistent with Section 6 of the Act, in general, and, in particular 
with Section 6(b)(5), in that it is designed to prevent fraudulent and 
manipulative acts and practices, as well as to protect investors and 
the public interest. While facilitating the storage concerns and 
technological needs of member organizations whose principal supervisory 
offices would be affected, the PHLX believes that the proposed change 
to PHLX Rule 1025(d) should nevertheless safeguard the customer 
protection purposes of maintaining customer account information because 
the information would continue to be readily accessible and promptly 
retrievable, merely at a different, usually central, location. As a 
result, the PHLX believes that the Exchange's ability to investigate 
and access option customer account records would be preserved, and 
possibly enhanced, as computer technology advances.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    The PHLX does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received from Members Participants or Others

    No written comments were either received or requested.

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 reason for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (a) by order approve such proposed rule change, or
    (b) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. 
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 at the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. Copies of such filing will also be available for 
inspection and copying at the principal office of the above-mentioned 
self-regulatory organization. All submissions should refer to the file 
number in the caption above and should be submitted by October 7, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\17 CFR 200.30-3(a)(12) (1993).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-22916 Filed 9-15-94; 8:45 am]
BILLING CODE 8010-01-M