[Federal Register Volume 59, Number 213 (Friday, November 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27359]


[[Page Unknown]]

[Federal Register: November 4, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34913; File No. SR-Amex-94-37]

 

Self-Regulatory Organizations; Order Granting Accelerated 
Approval of Proposed Rule Change by the American Stock Exchange, Inc., 
Relating to the Off-Site Storage of Customer Options Account 
Information

October 28, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ on September 12, 1994, the 
American Stock Exchange, Inc. (``Amex'' or ``Exchange'') submitted to 
the Securities and Exchange Commission (``SEC'' or ``Commission'') a 
proposal to amend paragraph (b), ``Maintenance of Customer Records,'' 
of Amex Rule 922, ``Supervision of Accounts,'' to provide that the 
customer information and account statements currently maintained at the 
principal supervisor office may be maintained at a location other than 
the principal supervisory office if the documents and information 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 Amex submitted a letter indicating 
that ``readily accessible and promptly retrievable'' means that the 
requested information will be available within 24 hours. See Letter 
from Claire P. McGrath, Managing Director and Special Counsel, 
Derivative Securities, Amex, to Michael Walinskas, Branch Chief, 
Derivatives Regulation, Division of Market Regulation, Commission, 
dated October 24, 1994 (``October 24 Letter'').
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    The proposal was published for comment in the Federal Register in 
Securities Exchange Act Release No. 34811 (October 7, 1994), 59 FR 
52323 (October 17, 1994). No comments were received on the proposal.
    Currently, Amex Rule 922(b) requires that background and financial 
information of customers who have been approved for options 
transactions be maintained at both the branch office servicing the 
customer's account and at the principal supervisory office with 
jurisdiction over the branch office. Amex Rule 922(b) also requires 
that copies of account statements be maintained at both the branch 
office supervising the accounts and at the principal supervisory office 
with jurisdiction over the branch for the most recent six-month period. 
The Amex proposes to amend Exchange Rule 922(b) to provide that the 
customer information and account statements currently maintained at the 
principal supervisory office may be maintained at a location other than 
the principal supervisory office if the documents and information are 
readily accessible and promptly retrievable.
    The Amex states that the rules of all the options exchanges and the 
National Association of Securities Dealers, Inc. (``NASD'') uniformly 
require that both the branch office servicing an options customer's 
account and the principal supervisory office having jurisdiction over 
the branch office retain account statements and other financial and 
background information for the account for supervisory purposes. With 
the advances in data storage and retrieval capability available through 
optical disks, fax machines, microfiche and computers, coupled with the 
escalating costs of storing records on-site, many Amex member 
organizations prefer to store documents away from their principal 
supervisory offices. In this connection, an increasing number of member 
organizations have asked and received permission from the self-
regulatory organizations (``SROs'') to store the required customer 
option account documents off-site so long as they are readily 
accessible and promptly retrievable. In view of the number of requests 
received by the SROs to store customer options information off-site, 
the Options Self-Regulatory Council (``OSRC'')\4\ has asked each of the 
options exchanges and the NASD to consider amending their rules to 
permit the principal supervisory office to store customer account 
information off-site.
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    \4\The OSRC is a committee comprised of representatives from 
each of the options exchanges and the NASD.
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    The Exchange believes that these off-site storage arrangements are 
consistent with the record retention requirement rules, provided the 
documents are readily accessible and promptly retrievable. In this 
regard, the Amex states that the proposed rule will not compromise the 
supervisory obligations of a member firm since the firm will still be 
required to maintain customer option account documents and information 
at the branch office servicing the customer's account. To ensure 
compliance with the provisions of the rule, the Amex states that it 
will periodically examine the document retrieval capabilities of member 
firms using off-site document storage arrangements.
    The Amex 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, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
    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.\5\
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    \5\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 Amex'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,''\6\ 
thereby preserving the Exchange's ability to access and investigate 
customer account records. The Commission notes that the Amex plans to 
periodically examine the document retrieval capabilities of member 
firms using off-site storage arrangements. Thus, the Commission 
believes that the proposal strikes a reasonable balance between the 
Amex'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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    \6\See October 24 Letter, supra note 3.
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    In addition, the Commission believes that it is reasonable for the 
Amex 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.
    The Commission finds good cause for approving the Amex's proposal 
prior to the thirtieth day after the date of publication of notice of 
filing thereof in the Federal Register because the proposal is 
identical to proposals submitted by the Chicago Board Options Exchange, 
Inc. (``CBOE'') and the Philadelphia Stock Exchange, Inc., which were 
subject to the full notice and comment period. The Commission received 
no comments on those proposals, and the Commission has approved the 
CBOE's proposal.\7\ Therefore, the Commission believes it is consistent 
with Sections 6(b)(5) and 19(b)(2) of the Act to approve the Amex's 
proposal on an accelerated basis.
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    \7\See Securities Exchange Act Release No. 34899 (October 26, 
1994) (order approving File No. SR-CBOE-94-30).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-Amex-94-37) is 
approved.

    \8\15 U.S.C. 78s(b)(2) (1982).
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    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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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-27359 Filed 11-3-94; 8:45 am]
BILLING CODE 8010-01-M