[Federal Register Volume 59, Number 212 (Thursday, November 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27230]


[[Page Unknown]]

[Federal Register: November 3, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34909; File No. SR-PHLX-94-35]

 

Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc., Relating to the 
Storage of Option Customer Account Information for Supervisory Purposes

October 27, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ on July 5, 1994, the 
Philadelphia Stock Exchange, Inc. (``PHLX'' or ``Exchange'') submitted 
to the Securities and Exchange Commission (``SEC'' or ``Commission'') a 
proposal to amend paragraph (d), ``Maintenance of Customer Account 
Records,'' of PHLX Rule 1025, ``Supervision of Accounts,'' to allow 
member organizations to maintain 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.\3\
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1993).
    \3\On October 27, 1994, the PHLX submitted a letter indicating 
that ``readily accessible and promptly retrievable'' generally means 
that the records will be available on the business day following the 
request. See Letter from Gerald D. O'Connell, First Vice President, 
Market Regulation and Trading Operations, PHLX, to Michael 
Walinskas, Branch Chief, Options Branch, Division of Market 
Regulation, Commission, dated October 26, 1994 (``October 26 
Letter'').
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    The proposal was published for comment in the Federal Register in 
Securities Exchange Act Release No. 34561 (September 12, 1994), 59 FR 
47660 (September 16, 1994).\4\ No comments were received on the 
proposal.
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    \4\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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    Currently, PHLX Rule 1025(d) 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 .03 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. 
However, branch offices must continue to maintain customer account 
information on site.
    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.\5\ 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. The Exchange also 
believes that offsite storage should not compromise the supervisory 
obligations of member/participant organizations because, under the 
proposal, the customer information necessary to fulfill those 
responsibilities must be easily accessible and promptly retrievable.
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    \5\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.
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    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.
    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.\6\
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    \6\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 PHLX'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,''\7\ 
thereby preserving the Exchange's ability to access and investigate 
customer account records. Thus, the Commission believes that the 
proposal strikes a reasonable balance between the PHLX'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.
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    \7\See October 26 Letter, supra note 3.
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    In addition, the Commission believes that it is reasonable for the 
PHLX 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,\8\ that the proposed rule change (File No. SR-PHLX-94-35) is 
approved.
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    \8\15 U.S.C. 78s(b)(2) (1982).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-27230 Filed 11-2-94; 8:45 am]
BILLING CODE 8010-01-M