[Federal Register Volume 59, Number 233 (Tuesday, December 6, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29935]


[[Page Unknown]]

[Federal Register: December 6, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35031; File No. SR-NASD-94-56]

 

Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Granting Partial, Accelerated Approval of Proposed 
Rule Change Relating to the Transfer of Customer Accounts

November 30, 1994.
    On October 12, 1994, the National Association of Securities 
Dealers, Inc. (``NASD'') filed with the Securities and Exchange 
Commission (``Commission'') a proposed rule change pursuant to Section 
19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ On 
November 9, 1994, the NASD filed with the Commission Amendment No. 
1.\2\ The proposed rule change will amend the NASD's rules to provide 
for three business day settlement of securities transactions and will 
amend the NASD's rules on the transfer of customer accounts between 
broker-dealers. The Commission published notice of the proposed rule 
change in the Federal Register On November 18, 1994.\3\ No comments 
have been received on the notice. As discussed below, the Commission is 
approving on an accelerated basis that portion of the proposed rule 
change relating to the transfer of customer accounts.\4\
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\Letter from Suzanne E. Rothwell, Associate General Counsel, 
NASD, to Mark Barracca, Branch Chief, Over-the-Counter Regulation, 
Division of Market Regulation, Commission (November 8, 1994).
    \3\Securities Exchange Act Release No. 34966 (November 10, 
1994), 59 FR 59802.
    \4\The Commission is not approving by this order the portion of 
the proposed rule change relating to three day settlement of 
securities transactions (proposed amendments to Sections 5, 6, 12, 
46, and 64 of the Uniform Practice Code and Article III, Section 
26(m)(1) and Article III, Section 1 of the Rules of Fair Practice).
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I. Description

    The proposal amends the NASD's Uniform Practice Code (``UPC'') 
Section 65 which sets forth the procedures for the transfer of customer 
accounts from one broker-dealer (``carrying member'') to another 
broker-dealer (``receiving member''). The proposed rule change for 
Section 65 was developed in conjunction with the New York Stock 
Exchange (``NYSE''), National Securities Clearing Corporation 
(``NSCC''), and the Securities Industry Association Customer Account 
Division. Under the proposed language of Section 65, upon receipt from 
the customer of signed account transfer instructions a receiving member 
must immediately submit the transfer instructions to the carrying 
member. The proposal will reduce from five to three business days the 
time frame for the carrying member either to validate or to take 
exception to the transfer instructions for all accounts including 
retirement plan accounts.\5\ The proposal will require that the 
carrying member complete all transfers in four rather than five 
business days after validation of the transfer instructions. The 
proposal also (1) will more clearly define the reasons why the carrying 
member may take exception to account transfer instructions,\6\ (2) will 
require the use of an automated facility for the transfer of mutual 
fund positions and residual credits when both the carrying and the 
receiving members are participants in a registered clearing agency 
which has automated facilities for such transfers, (3) will set forth 
time frames for the resolution of claims,\7\ (4) will require that 
partial transfers be processed through the automated facilities of a 
registered clearing agency when both the carrying and receiving members 
are participants in a registered clearing agency which has automated 
facilities for such transfers, and (5) will require that for a minimum 
of six months after an account transfer is completed residual credit 
balances must be transferred within ten business days after accrual.
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    \5\Currently, the time frame for validating or taking exception 
to transfer instructions for retirement plan accounts is ten days.
    \6\A member may take exception to a transfer instruction only 
if: additional documentation is required; the account is flat and 
reflects no transferable assets; the account number is invalid; it 
is a duplicate request; it violates the member's credit policy; the 
receiving member cannot identify the client; the client rescinds the 
instruction; the social security number or tax identification number 
does not correspond to the carrying member's records; the receiving 
member's account title or type does not correspond to that of the 
carrying member; there is a missing authorization signature; or the 
entire account is in transfer to be delivered directly to customer.
    \7\When a member receives a written claim letter relating to an 
account transfer, the member must resolve the claim within five 
business days from receipt of the letter or respond in writing to 
the claiming member setting forth specific reasons for denying the 
claim.
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II. Discussion

    The Commission believes the portion of the proposed rule change 
relating to the transfer of customer accounts is consistent with 
Section 15A of the Act and, therefore, is approving that portion of the 
proposal. Specifically, the Commission believes the proposal is 
consistent with Section 15A(b)(6)\8\ of the Act which requires that the 
rules of the NASD be designed to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \8\15 U.S.C. 78o-3.
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    By amending its rules to shorten the time frames for customer 
account transfers in order that its rules correspond with the rules of 
the NYSE and the NSCC, the NASD's proposed rule change should foster 
cooperation and coordination with persons engaged in regulating, 
clearing, and settling securities. By shortening the time it takes to 
transfer securities from one broker-dealer to another, the proposal 
also should assist investors by giving them greater flexibility in the 
selection of a broker-dealer through which to hold securities and by 
giving them enhanced control over their assets. Shortening the time it 
takes to transfer securities to a broker-dealer also should facilitate 
transactions in securities.
    NASD has requested that the Commission find good cause for 
approving the portion of the proposed rule change relating to customer 
account transfers prior to the thirtieth day after the date of 
publication of the notice of filing. On September 2, 1994, the 
Commission approved the NYSE's proposed rule change to implement 
corresponding changes to the NYSE's procedures for transferring 
customer accounts.\9\ The NYSE amendments relating to the automated 
transfer of mutual fund positions and residual credit processing become 
effective 180 days from approval i.e., on March 3, 1995) while all 
other provisions become effective 90 days from approval i.e, on 
December 2, 1994). Because many broker-dealers are subject to both the 
NYSE's rules and the NASD's rules and because of systems changes NSCC 
has made to its customer account transfer system, it is important that 
the rules of the NYSE and the NASD's rules and because of systems 
changes NSCC has made to its customer account transfer system, it is 
important that the rules of the NYSE and the NASD do not conflict. In 
order to permit the NASD's rules to become effective simultaneously 
with the NYSE's rules, the Commission is granting accelerated approval 
to the portion of the proposed rule change relating to customer account 
transfers. Thus, sections 65(m)(2) and 65(m)(3), relating to automated 
transfer of mutual fund positions and residual credit processing, will 
became effective on March 3, 1995, and all other amendments to Section 
65 will become effective on December 2, 1994.
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    \9\Securities Exchange Act Release No. 34633 (September 2, 
1994), 59 FR 46872.
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III. Conclusion

    For the reasons stated above, the Commission finds that the portion 
of the proposed rule change relating to customer account transfers is 
consistent with Section 15A of the Act.
    It is therefore ordered. Pursuant to Section 19(b)(2) of the Act, 
that the portion of the proposed rule change (File No. SR-NASD-94-56) 
containing the amendments to Section 65 be and hereby is approved.
    For the Commission by the Division of Market Regulation pursuant to 
delegated authority.\10\
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    \10\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-29935 Filed 12-5-94; 8:45 am]
BILLING CODE 8010-01-M