[Federal Register Volume 61, Number 22 (Thursday, February 1, 1996)]
[Notices]
[Pages 3743-3746]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-2056]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36780; File No. SR-NASD-96-03]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change by the National
Association of Securities Dealers, Inc. Relating to the Association's
FOCUS Filing Plan
January 26, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on
January 24, 1996, the National Association of Securities Dealers, Inc.
(``NASD'' or ``Association'') 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 NASD.\1\ The
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Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons. For the reasons discussed
below, the Commission is granting accelerated approval of the proposed
rule change.
\1\ The proposal was originally filed with the Commission on
January 16, 1996. The NASD subsequently submitted Amendment No. 1 to
the filing. This document provides notice of the filing as amended.
Letter from Elliot Curzon, Assistant General Counsel, NASD, to Mark
Barracca, Branch Chief, Over-the-Counter Regulation, Division of
Market Regulations, SEC, dated January 24, 1996.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The NASD is proposing to amend the Plan of the National Association
of Securities Dealers, Inc. For the Implementation of Parts I, II & IIA
of Form X-17A-5 Financial and Operation Combined Uniform Single Report
(``Focus Report'') and Schedule I Thereunder as Amended. Below is the
text of the proposed rule change.\2\ Proposed new language is
italicized; proposed deletions are in brackets.
\2\ The text refers to Exhibits A and B of the FOCUS filing plan
which are not attached to this amendment.
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Plan of the National Association of Securities Dealers, Inc. for the
Implementation of Parts I, II & IIA of Form X-17A-5 Financial and
Operational Combined Uniform Single Report (``Focus Report'') and
Schedule I Thereunder as Amended
1. Every member that is subject to the requirements of
subparagraph (e) of SEC Rule 15c3-3 or that conducts a business in
accordance with [the exemptive provisions specified in subparagraph
(k)(2)(i) thereof shall file a monthly Part I of Form X-17A-5. Such
report shall be filed with the Association on or before the tenth
(10th) business day of the next month following the month-end
reporting date. In addition, pursuant to the provisions of
subparagraph (a)(2)(iv) of SEC Rule 17a-5, every member that
conducts a business in accordance with the exemptive provisions
specified in subparagraph (k)(2)(ii) of SEC Rule 15c-3-3 shall file
a monthly FOCUS Part I of Form X-17A-5.] subparagraph (k)(2)(i) of
Rule 15c3-3, or that is subject to subparagraph (a)(2)(i) through
(a)(2)(iii) of SEC Rule 15c3-1 shall file monthly a FOCUS Part II
Report. Such report shall be filed on or before the 17th business
day of the next month following the month-end reporting date. The
monthly filing for those months that are not calender quarters shall
contain only the balance sheet, net capital computation, reserve
formula computation, the net monthly profit or loss, and certain
financial and operational data. The filing made at each calendar
quarter-end shall contain a complete detailed profit and loss
statement and all other schedules required by SEC Rule 17a-5.
2. [Every member that is subject to the requirements of
subparagraph (e) of SEC Rule 15c3-3 or that conducts a business in
accordance with the exemptive provisions of subparagraph (k)(2)(i)
thereof shall file a quarterly Part II of Form X-17A-5 with the
Association on or before the seventeenth (17th) business day of the
next month following the calendar quarter ending date] Every member
that conducts a business in accordance with subparagraph (k)(1)(i)
through (iii), (k)(2)(ii), or (k)(3) of SEC Rule 15c3-3 and is not
subject to subparagraphs (a)(2)(i) through (a)(2)(iii) of SEC Rule
15c3-1 shall file quarterly a FOCUS Part IIA Report. Such report shall
be filed on or before the 17th business day of the next month following
the end of the calendar quarter.
3. Every member that conducts a business in accordance with [the
provisions of subparagraphs (k)(1)(i) through (iii), (k)(2)(ii) or
(k)(3) of SEC Rule 15c-3-3 shall file a quarterly Part IIA of the
Form X-17A-5 with the Association on or before the seventeenth
(17th) business day of the next month following the calendar quarter
ending date.] subparagraphs (a)(6), (a)(7), and (a)(8) of SEC Rule
15c3-1 shall file quarterly a FOCUS Part IIA Report. Such report
shall be filed on or before the 17th business day of the next month
following the end of the calendar quarter.
4. The provisions of paragraphs (1), (2) and (3) of this plan
shall not apply to any member not designated to the Association
pursuant to SEC Rule 17d-1 (17 CFR 240.17d-1); provided, however,
that Form X-17A-5 information which is required to be furnished to
the Commission by other self-regulatory designees for Association
members having exchange memberships is provided to the Association
on a quarterly basis pursuant to an arrangement or arrangements
which shall be mutually agreeable to the SEC, the Association and
such other regulatory body.
5. The provisions of paragraphs (1), (2) and (3) of the plan
shall not apply to any insurance company that: is registered with
the SEC as a broker-dealer and is a member of this Association; is
exempt from SEC Rule 15c3-1; and, is otherwise operating in
accordance with the requirements of subparagraph (k)(1)(iv) of SEC
Rule 15c3-3.
6. Every member subject to the requirements of paragraphs (2) or
(3) of this plan that receives written notice from the Association
that it has exceeded [parameters of] financial and operational
condition parameters established by the Association shall file Part
II or IIA of Form X-17A-5 or such other financial and operational
information on a monthly or such other basis as determined by the
Association. Among other things, such additional information may be
required of a member whenever it is referred by the Association to
SIPC pursuant to Section 5(a) of the Securities Investors Protection
Act of 1970, as amended; whenever it is subject to monitoring by the
Association on a closer-than-normal surveillance basis; or, whenever
it is deemed necessary for reasons relating to any member's
financial and/or operational condition or the condition of the
marketplace or the industry.
7. Every member, other than those referenced in paragraph (4)
above, which is subject to the requirements of paragraph (d) of SEC
Rule 17a-5, shall file an additional Part II or Part IIA of Form X-
17A-5, as applicable, with the Association within seventeen (17)
business days after the date selected for the annual audit whenever
said date is other than a calendar quarter.
8. Edited data from the information supplied the Association on
reports filed by members pursuant to paragraphs (1) (quarterly
filings only), (2) and (3) of this plan shall be furnished to the
Commission by the Association on a quarterly basis on a date not
later than sixty (60) calendar days following quarter ending
reporting date. Such data shall be supplied to the Commission on
magnetic computer tape in a format compatible, to the extent
technically possible, with the computer tape criteria specified by
the SEC and attached hereto as Exhibit A.
9. Upon request, the Association shall furnish the Commission
with information contained on reports filed by members pursuant to
this plan in a form and format which shall be mutually agreed upon
by the Commission and the Association.
10. The information supplied the Association on Parts [I], II[,]
and IIA of Form X-17A-5 by members participating in this plan which
are also members of one or more national securities exchanges shall
be furnished by the Association to such other exchange or exchanges
in a format and on a schedule which shall be mutually agreed upon by
the Association and such other exchange or exchanges.
11. For the fourth calendar quarter ending December 31 of each
year, every member shall file Schedule I of Form X-17A-5 with the
Association within seventeen (17) business days following the end of
the calendar quarter [ending date]. Such schedules shall be filed
jointly with the member's normal quarterly filing of Part II or IIA
of Form X-17A-5 for the same period ending date.
12. The provisions of paragraph (11) of this plan shall not
apply to any member which is not designated to the Association
pursuant to SEC Rule 17d-1 (17 CFR 240.17d-1).
13. Edited data from the information supplied by members on
Schedule I of Form X-17A-5 and received by the Association pursuant
to paragraph (11) of this plan shall be furnished to the Commission
by the Association on a date no later than one-hundred (100)
calendar days following the end of the calendar year. Such data
shall be supplied the Commission on magnetic computer tape in a
format compatible, to the extent technically possible, with the
computer tape criteria specified by the SEC and attached hereto as
Exhibit B.
14. Members request to file any part of Form X-17A-5 with the
Association, including Schedule I, shall do so electronically in
accordance with the provisions of the Electronic FOCUS Filing System
User's Guide as it may be changed by the Association from time to
time. Notwithstanding the foregoing, the requirement to file
electronically shall not apply to the annual financial statement
filed pursuant to SEC Rule 17a-5(d).
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15. In the event that the Association enters into an agreement
with another self-regulatory organization to provide data processing
services in respect to Form X-17A-5 reports and/or schedules
collected by such organization on behalf of its designated members
pursuant to a plan adopted by that organization and declared
effective by the Commission, the Association shall, pursuant to a
written agreement, process the information collected by such
organization for transmission to the Commission in accordance with
the same criteria and specifications employed by the Association in
the processing of data collected by it from its designated members
pursuant to this plan.
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 NASD 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 NASD 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
Background
SEC Rule 17a-5 requires all registered broker-dealers to submit
certain financial information on Form X-17A-5 (FOCUS Reports).
Paragraph (a)(4) of SEC Rule 17a-5 provides that the filing
requirements contained in paragraphs (a)(2) and (a)(3) shall not apply
to a member of a registered national securities association if the
association, among other things, has members make FOCUS filings
pursuant to a plan, procedures and provisions of which have been
submitted to and declared effective by the SEC. The Association has had
a FOCUS filing plan (Plan) in effect since December 16, 1977, and it
has been amended from time to time since then.
Currently, the Plan requires every member that is subject to the
requirements of subsection (e) of SEC Rule 15c3-3 \1\ or, that conducts
a business in accordance with subparagraph (k)(2)(i), must file monthly
Part I of Form X-17A-5. The report must be filed on or before the tenth
business day of the next month following the month-end reporting date.
Additionally, every member which conducts a business in accordance with
subparagraph (k)(2)(ii) must file monthly Part I of Form X-17A-5 and
members subject to subparagraph (e) or (k)(2)(i) shall also file
quarterly a FOCUS Report Part II on or before the seventeenth business
day of the next month following the end of the calendar quarter.
Members that conduct a business in accordance with subparagraphs (k)(1)
(i) through (iii), (k)(2)(ii) or (k)(3) of SEC Rule 15c3-3 shall file
quarterly a FOCUS Part IIA on or before the seventeenth business day of
the next month following the end of the calendar quarter.
\1\ SEC Rule 15c3-3 is the SEC's Customer Protection-Reserves
and Custody of Securities rule. Subsection (e) requires certain
broker/dealers holding customer securities or funds to establish a
``Special Reserve Account for the Exclusive Benefit of Customers''
according to a formula specified in the rule.
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Proposed Amendment
In recent years, other self-regulatory organizations (SROs) have
simplified their FOCUS filing requirements by eliminating the FOCUS
Part I filing requirement and modifying the requirements for filing
FOCUS Part II reports. The NASD is proposing to modify its Plan to
standardize its requirements with those of the other SROs and reduce
the filing burden on NASD members. Those proposed Plan modifications
would:
1. Eliminate the requirement for members to file monthly FOCUS Part
I reports for all firms, and only require monthly filings of a modified
FOCUS Part II report for certain firms that carry customer accounts and
are subject to the reserve computation requirement of SEC Rule 15c3-3
or are classified as brokers or dealers under the net capital rule. The
modified FOCUS Part II report would consist of a balance sheet, net
capital computation, reserve formula computation, a one line profit and
loss figure for the month and certain financial and operational data.
2. Require all firms to file a quarterly FOCUS Part II or IIA
Report, as currently required.
Under this proposed change, approximately two thousand (2,000)
firms who operate on a fully disclosed basis would no longer have to
file a monthly FOCUS Part I Report, and the firms that must file
monthly will have a simplified filing requirement. The NASD would,
however, continue to have the right under SEC Rule 17a-5(a)(2)(iv) to
require financial and operational information to be submitted more
frequently when conditions or events so warrant.
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act \2\ in that the amended
Plan will foster cooperation with other regulators by making the FOCUS
filing requirements consistent for all registered broker/dealers and
reduce the regulatory burdens on broker/dealers consistent with the
purposes of the Act.
\2\ 15 U.S.C. Sec. 78o-3.
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The NASD believes that the Plan as amended will comply with the
requirements of SEC Rule 17a-5(a)(4) because the FOCUS Part II Reports
required to be filed under the Plan will provide the Association with
the information currently provided in the FOCUS Report Part I.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The NASD does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received from Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
The NASD has requested that the Plan be effective upon Commission
approval for all members, except members subject to the requirements of
SEC Rule 15c3-3 or members engaged in market making activity for whom
the Plan will be effective for the month ending July 31, 1996. In
addition, the NASD has requested that the Commission find good cause
pursuant to Section 19(b)(2) for approving the proposed rule change
prior to the 30th day after publication in the Federal Register.
IV. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to the NASD and, in particular, the requirements
of Section 15A and the rules and regulations thereunder. The Commission
believes that the Plan as amended will comply with the requirements of
SEC Rule 17a-5(a)(4) in that the FOCUS Part II Reports required to be
filed under the Plan will provide the Association with the information
currently provided in the FOCUS Report Part I.
The Commission finds good cause for approving the proposed rule
change prior to the 30th day after the date of
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publication of notice of filing thereof in that the proposed amendments
to the Association's FOCUS Filing Plan submitted herewith are designed
to bring the NASD's filing requirements into line with those of other
SROs, will facilitate member compliance with financial information
filing obligations and reduce regulatory burdens. In addition, because
the first FOCUS filings are due in early February 1996, accelerating
approval of the proposed rule change will benefit NASD members by
permitting them to avoid the significant burden of filing monthly
reports and more cumbersome current FOCUS Form II reports.
V. 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, DC. 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 in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to File No. SR-NASD-96-03 and should
be submitted by February 22, 1996.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change be, and hereby is, approved.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-2056 Filed 1-31-96; 8:45 am]
BILLING CODE 8010-01-M