[Federal Register Volume 59, Number 211 (Wednesday, November 2, 1994)]
[Notices]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27166]


[[Page Unknown]]

[Federal Register: November 2, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34899; File No. SR-CBOE-94-30]

 

Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Chicago Board Options Exchange, Inc., Relating to Storage 
of Customer Account Records

October 26, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ on September 7, 1994, the 
Chicago Board Options Exchange, Inc. (``CBOE'' or ``Exchange'') 
submitted to the Securities and Exchange Commission (``SEC'' or 
``Commission'') a proposal to amend paragraph (c) of CBOE Rule 9.8, 
``Supervision of Accounts,'' and Interpretation and Policy .03\3\ to 
CBOE Rule 9.8 to enable members' supervisory offices to maintain 
certain customer account information at off-site locations as long as 
the records are readily accessible and promptly retrievable.\4\

    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1993).
    \3\Interpretation and Policy .03 requires members to maintain, 
at the principal supervisory office with jurisdiction over the 
office servicing a customer's account, information to permit review 
of each customer's account to determine (1) the compatibility of 
options transactions with investment objectives and with the types 
of transactions for which the account was approved; (2) the size and 
frequency of options transactions; (3) commission activity in the 
account; (4) profit or loss in the account; (5) undue concentration 
in any options class or classes and (6) compliance with the 
provisions of Regulation T of the Federal Reserve Board.
    \4\On October 25, 1994, the CBOE submitted a letter indicating 
that the Exchange generally expects to receive a hard copy of any 
document maintained at an off-site location on the business day 
following the request. See Letter from Lawrence J. Breshahan, 
Assistant Vice President, Department of Compliance, CBOE, to Yvonne 
Fraticelli, Attorney, Options Branch, Division of Market Regulation, 
Commission, dated October 24, 1994 (``October 24 Letter'').
    The proposal was published for comment in Securities Exchange Act 
Release No. 34711 (September 23, 1994), 59 FR 50304 (October 3, 1994). 
No comments were received on the proposal.
    Currently, CBOE Rule 9.8(c) provides that background and financial 
information of customers who have been approved for options 
transactions must be maintained at both the branch office servicing the 
customer's account and at the principal supervisory office with 
jurisdiction over the branch office. In addition, copies of options 
customer account statements over the most recent six months must be 
maintained at both the branch office supervising the accounts and at 
the principal supervisory office with jurisdiction over that branch. 
The CBOE proposes to amend CBOE Rule 9.8(c) and Interpretation and 
Policy .03 to enable members' supervisory offices to maintain certain 
customer account information at off-site locations as long as the 
records are readily accessible and promptly retrievable.
    The CBOE states that the substance of CBOE Rule 9.8(c) appears 
uniformly in the rules of the other options exchanges and in the 
options account rules of the National Association of Securities 
Dealers, Inc. (``NASD''). According to the CBOE, on-site storage in 
major financial centers is expensive, and, in today's market 
environment, automated and secure facilities for data storage and 
retrieval make it unnecessary to require on-site storage. The CBOE 
states that, given those realities, the Options Self-Regulatory Council 
(``OSRC'')\5\ has recommended that record retention requirements be 
relaxed and that the exchanges and the NASD amend their rules to permit 
supervisory offices to store customer records off-premises as a matter 
of routine practice.\6\ The CBOE concurs with the OSRC's recommendation 
and believes that its proposal will provide the CBOE's members with the 
opportunity to discharge their supervisory responsibilities more 
efficiently and more cost-effectively.

    \5\The OSRC, which was created pursuant to a plan submitted by 
the options exchanges under Rule 17d-2 (``17d-2 plan'') under the 
Act, includes representatives from each of the registered options 
exchanges and the NASD. The 17d-2 plan was developed by the 
exchanges and approved by the Commission to reduce regulatory 
duplication and to coordinate solutions to options-related sales 
practice issues common to firms which are members of two or more 
self-regulatory organizations.
    \6\In connection with the OSRC's recommendation, the designated 
options examining authorities, including the CBOE, have committed to 
periodic examinations of the document retention and supervisory 
practices of firms using off-site storage arrangements.
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    The CBOE believes that the proposed rule change is consistent with 
Section 6(b) of the Act, in general, and furthers the objectives of 
Section 6(b)(5), in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and to protect investors and the public 
interest.
    The Commission believes that the proposed rule change is consistent 
with the requirements of the Act and the rules and regulations 
thereunder applicable to a national securities exchange, and, in 
particular, the requirements of Section 6(b)(5) in that it is designed 
to prevent fraudulent and manipulative acts and practices, to 
facilitate transactions in securities, and to protect investors and the 
public interest.\7\

    \7\15 U.S.C. 78f(b)(5) (1988).
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    Specifically, by allowing off-site storage of customer account 
information maintained at supervisory offices, the Commission believes 
that the proposal should provide the CBOE's members with a cost-
effective means to utilize computers, facsimile machines, optical 
disks, and other technology to store the required customer account 
information off-site while ensuring that member firms will continue to 
have easy access to all of the customer account information necessary 
to discharge their supervisory responsibilities. In this regard, the 
proposal provides that options customer account information stored off-
site must be ``readily accessible and promptly retrievable,''\8\ 
thereby preserving the Exchange's ability to access and investigate 
customer account records. The Commission notes that the designated 
options examining authorities, including the CBOE, have agreed to make 
periodic examinations of the document retention and supervisory 
practices of firms using off-site storage arrangements. Thus, the 
Commission believes that the proposal strikes a reasonable balance 
between the CBOE's interest in allowing member organizations to reduce 
the cost of storing customer account information and ensuring that the 
information continues to be available for supervisory purposes.

    \8\See October 24 Letter, supra note 4.
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    In addition, the Commission believes that it is reasonable for the 
CBOE to allow off-site storage of customer account information 
maintained at supervisory offices, but not of account information 
stored at branch offices, because branch offices are responsible for 
the day-to-day administration of customer accounts and require 
immediate access to account information. For example, by continuing to 
require branch offices to store customer account information on-site, 
the proposal facilitates broker compliance with the suitability 
requirements applicable to options customers.
    It is therefore ordered, Pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (File No. SR-CBOE-94-30) is 
approved.

    \9\ 15 U.S.C. 78s(b)(2) (1982).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\

    \10\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-27166 Filed 11-1-94; 8:45 am]
BILLING CODE 8010-01-M