[Federal Register Volume 61, Number 224 (Tuesday, November 19, 1996)]
[Notices]
[Pages 58919-58921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29550]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37941; File No. SR-NYSE-96-26]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change and Amendment No. 1 to the Proposed Rule Change by the New York
Stock Exchange, Inc., Relating to NYSE Rules 342, ``Offices--Approval,
Supervision and Control,'' 440, ``Books and Records,'' and 472,
``Communications With the Public''
November 13, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on
September 12, 1996, the New York Stock Exchange, Inc. (``NYSE'' or
``Exchange'') 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 self-
regulatory organization.\1\ The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ On November 7, 1996, the NYSE amended NYSE Rule 440, ``Books
and Records,'' to indicate that members must preserve books and
records as required under SEC Rule 17a-3 and comply with the
recordkeeping format, medium and retention period specified in SEC
Rule 17a-4. In addition, the NYSE amended paragraph (c) of NYSE Rule
472, ``Communications with the Public,'' to clarify that records
retained must be readily available to the Exchange, upon request.
See Letter from James E. Buck, Senior Vice President and Secretary,
NYSE, to Katherine A. England, Assistant Director, Division of
Market Regulation (``Division''), Commission, dated November 6, 1996
(``Amendment No. 1''). In addition, the NYSE submitted a draft of an
information memo to members which explains the proposed changes to
the Exchange's rules governing supervision and review of
communications with the public. See Letter from Donald Van Weezel,
Managing Director, Regulatory Affairs, NYSE, to Katherine A.
England, Assistant Director, Division, Commission, dated November 5,
1996 (``NYSE Information Memo'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Currently, Supplementary Material .16, ``Supervision of registered
representatives,'' to NYSE Rule 342, ``Offices--Approval, Supervision,
and Control,'' requires supervisors to review the correspondence of
registered representatives. The NYSE proposes to amend Exchange Rule
342.16 to provide that the supervision of registered representatives
will ordinarily include, among other things, reasonable procedures for
review of registered representatives' communications with the public
relating to their business. Under NYSE Rule 342.16, as amended, such
policies and procedures should be in writing and be designed to
reasonably supervise each registered representative. The NYSE also
proposes to adopt NYSE Rule 342.17, ``Review of communications with the
public,'' which will require members to develop written policies and
procedures for review of public communications relating to their
business that are appropriate for the member's business, size,
structure and customers. The Exchange proposes to amend NYSE Rule 472,
``Communications with the Public,'' to require prior approval of each
advertisement, market letter, sales literature, or other similar
communication which is generally distributed or made available to
customers or the public, rather than require prior approval of any
communication which is generally distributed or made available to
customers or the public. In addition, NYSE Rule 472, as amended,
provides that research reports must be approved in advance by a
supervisory analyst. Finally, the NYSE proposes to amend Exchange Rule
440, ``Books and Records,'' to indicate that members must preserve
books and records as required under SEC Rule 17a-3 and comply with the
recordkeeping format, medium and retention period specified in SEC Rule
17a-4.
The text of the proposed rule change is available at the office of
the Secretary, NYSE, and at the Commission.
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 self-regulatory organization
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 self-regulatory organization
has prepared summaries, set forth in sections (A), (B), and (C) below,
of the most significant aspects of such statements.
[[Page 58920]]
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
(a) Purpose
According to the NYSE, new technology and new means of
communication (e.g., e-mail and the Internet) have and will continue to
impact and change the way member organizations and their associated
persons conduct business and communicate with customers and other
members of the public. The NYSE states that the Exchange has been
working with a committee composed of member organization
representatives to study questions that have arisen as a result of
those communications means with emphasis on supervision and review. As
a result, the Exchange has developed and is proposing amendments to
NYSE Rules, 342, 440, and 472.
NYSE Rule 342.16, as amended, will provide that supervision of
registered representatives will ordinarily include, among other things,
reasonable procedures for review of registered representatives'
communications with the public relating to a member or member
organization's business. The proposal states that such policies and
procedures should be in writing and designed to provide reasonable
supervision of each registered representative. Evidence that the
supervisory policies and procedures have been implemented and carried
out must be maintained and made available to the NYSE upon request. In
developing supervisory systems, the NYSE notes that members should
specify, among other things, what is to be pre- or post-reviewed, the
level and qualifications of persons who will conduct the reviews, the
frequency of review, and how the review will be evidenced.\2\
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\2\ See NYSE Information memo, supra note 1.
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New NYSE Rule 342.17 will require each member and member
organization to develop written policies and procedures for review of
incoming and outgoing communications with the public relating to its
business, tailored to its structure and the nature and size of its
business and customer base.\3\ Under the proposal, prior review of
outgoing correspondence (other than research reports and
advertisements; market letters, sales literature, and similar types of
communication) and review of all incoming correspondence will no longer
be required.\4\ However, any organization that does not conduct pre-use
review (whether electronic or manual) will be required to:
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\3\ In developing supervisory procedures for the review of
communications with the public, the NYSE notes that members should
consider the appropriateness of implementing uniform firm-wide
procedures or procedures tailored to specifics (e.g., functions,
offices/locations, individuals, groups of persons or specific
registration categories). In this regard, the NYSE states that
members may consider such factors as ``the number, size and location
of offices, the volume of communications overall and in specific
areas of the organization, the activities conducted by registered
representatives and other applicable persons, the nature and extent
of training provided, the complaint and overall disciplinary record,
if any, of registered representatives and other applicable persons
(with particular emphasis on complaints regarding written or oral
communications with clients) and the overall experience levels of
applicable persons using communications media.'' See NYSE
Information Memo, supra note 1.
\4\ The NYSE plans to delete from the NYSE Interpretation
Handbook interpretation /04 to NYSE Rule 342 (a) and (b) regarding
review and retention of incoming mail. See Letter from Don Van
Weezel, Managing Director, Regulatory Affairs, NYSE, to Katherine A.
England, Assistant Director, Division, Commission, dated November 5,
1996. The NYSE states that members' supervisory systems should
provide specific processes for the receipt and handling of incoming
checks and customer complaints as well as standards for
communications to include permitted and prohibited activities and
any restrictions imposed by the member upon such communications. See
NYSE Information Memo, supra note 1.
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Regularly educate and train employees as to the
organization's current policies and procedures governing review of
communications;
Document how and when employees are educated and trained;
and
Monitor and test to ensure implementation and compliance
with such policies and procedures.
The NYSE proposes to amend NYSE Rule 472(a) to clarify the types of
communications that will continue to require pre-use approval (e.g.,
advertisements, market letters, sales literature, and other similar
types of communications).\5\ In addition, the NYSE proposes to amend
Exchange Rule 472(b) to clarify that research reports must continue to
be prepared or approved in advance by a supervisory analyst. The
Exchange notes that pre-approval of ``any'' communication which is
distributed or made available to customers or the public will no longer
be required.\6\ The NYSE proposes to amend Exchange Rule 472(c) to
provide that the names of persons who prepared and who reviewed and
approved communications with the public must be readily ascertainable
from the retained records.
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\5\ Specifically, under NYSE Rule 472, as amended, each
advertisement, market letter, sales literature or other similar type
of communication which is generally distributed or made available by
a member to customers or the public must be approved in advance. In
addition, research reports must be prepared or approved in advance
by a supervisory analyst.
\6\ See proposed NYSE Rule 342.17 requirements for organizations
not conducting pre-use reviews.
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The standards for communications set forth in NYSE rule 472 will
continue to apply to all communications regardless of the transmission
medium used or the policies and procedures for review and supervision
adopted by members and member organizations pursuant to NYSE Rule 342.
Finally, the NYSE proposes to amend Exchange Rule 440 to recognize
that members must preserve books and records as required under SEC Rule
17a-3 and comply with the recordkeeping format, medium and retention
period specified in SEC Rule 17a-4.
(b) Basis
The NYSE believes that the proposed rule change is consistent with
the requirements of the Act and, in particular, furthers the objectives
of Section 6(b)(5), in that it is designed to prevent fraudulent acts
and practices, to promote just and equitable principles of trade and,
in general, to protect investors and the public interest. In addition,
the NYSE believes that the proposed amendment to NYSE Rule 440 ensures
compliance with Rules 17a-3 and 17a-4 under the Act.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposed rule change will not impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reason for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) by order approve such proposed rule change, or
(b) institute proceedings to determine whether the proposed rule
change should be disapproved.
[[Page 58921]]
IV. 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, D.C. 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 at the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. Copies of such filing will also be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization. All submissions should refer to the file
number SR-NYSE-96-26 and should be submitted by December 10, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12) (1995).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-29550 Filed 11-18-96; 8:45 am]
BILLING CODE 8010-01-M