[Federal Register Volume 62, Number 88 (Wednesday, May 7, 1997)]
[Notices]
[Pages 25009-25011]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-11842]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-38567; File No. SR-NYSE-97-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by New York Stock Exchange, Inc. Consisting of an Information 
Memo Relating to Electronic Delivery of Information to Customers by 
Exchange Members and Member Organizations

May 1, 1997.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 24, 1997 \2\ 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. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ On April 24, 1997, the NYSE amended the Information Memo, 
attached as Exhibit A to this notice. See letter from James E. Buck, 
Senior Vice President and Secretary, NYSE, Inc., to Katherine A. 
England, Assistant Director, Division of Market Regulation, SEC, 
dated April 24, 1997.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange has filed with the Commission an Information Memo 
(``Memo'') setting forth the Exchange's policy regarding electronic 
delivery of information required under Exchange rules to be furnished 
to customers.

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. 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.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission, in Release Nos. 34-37182 \3\ and 33-7233,\4\ set 
forth standards whereby broker-dealers and others may satisfy their 
delivery obligations under federal securities laws by using electronic 
media as an alternative to paper-based media provided that they comply 
with certain prescribed standards.
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    \3\ See, Securities Exchange Act Release No. 37182, May 9, 1996; 
61 FR 24644, May 15, 1996, (Commission's interpretation concerning 
the delivery of information through electronic media in satisfaction 
of broker-dealer and transfer agent requirements to deliver 
information under the Act and the rules thereunder).
    \4\ See, Securities Act Release No. 7233, Oct. 6, 1995; 60 FR 
53458, Oct. 13, 1995, (Commission's interpretation concerning the 
use of electronic media as a means of delivering information 
required to be disseminated pursuant to the Securities Act of 1933, 
the Securities Exchange Act of 1934, and the Investment Company Act 
of 1940).
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    The Information Memo (attached as Exhibit A to this notice) 
establishes Exchange policy regarding electronic

[[Page 25010]]

delivery of information required under Exchange rules to be furnished 
to customers. Under this proposed Exchange policy, members and member 
organizations will be allowed to electronically transmit documents 
required to be furnished to customers under Exchange rules, provided 
that they adhere to the Commission's established standards. The Memo 
summarizes the Commission standards, which address format, content, 
access, evidence of receipt of delivery, and consent for delivery of 
personal financial information. The Memo also sets forth a list of 
current Exchange rules that require members and member organizations of 
furnish specific information to customers for which electronic delivery 
may be used in accordance with the Commission Releases. The Exchange 
believes this list is complete. Further, it is the Exchange's intention 
that the policy outlined in this Memo cover all communications required 
to be sent to customers by firms pursuant to Exchange rules. The list 
includes:
    a. Rule 382(c) (Carrying Agreements) requires notification to each 
customer, whose account is introduced on a fully disclosed basis, of 
the existence of a clearing agreement, the relationship between the 
introducing and carrying organization, and the allocation of 
responsibilities between the respective parties.
    b. Rule 409 (Statements of Accounts to Customers) requires delivery 
of statements of accounts showing security and money positions and 
entries at least quarterly to all accounts having an entry, money, or 
security position during the preceding quarter.\5\
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    \5\ See, Securities Exchange Act Release No. 37182 at p. 24648, 
(stating that confirmations of transactions are covered pursuant to 
Rule 10b-10 of the Act).
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    c. Rule 451 (Transmission of Proxy Material) requires member 
organizations to transmit proxy materials and annual reports to 
beneficial owners of stock which stock is in the member's possession 
and control or to others specified in the Rule.
    d. Rule 465 (Transmission of Interim Reports and Other Material) 
requires transmittal of interim reports of earnings and other material 
to beneficial owners of stock which stock is held by the member 
organization.
    e. Rule 721(c) (Opening of Accounts) requires that background and 
financial information on every new options account customer be sent to 
such customer for verification within fifteen days after the account is 
approved for options transactions.
    f. Rule 721(e)(5) (Uncovered Short Options--Disclosure) requires 
that a written description of the risks inherent in writing uncovered 
short option transactions be furnished to applicable customers.
    g. Rule 725 (Confirmations) requires member organizations to 
furnish customers with a written confirmation of each transaction in 
options contracts.
    h. Rule 726(a) (Delivery of Options Disclosure Document) requires 
delivery of a current Options Disclosure Document to a customer at or 
prior to the time the account is approved for trading options. 
Thereafter, delivery must be made of amendments or revisions to the 
Options Disclosure Document to every customer approved for trading the 
kind of option covered by the Disclosure Document.
    i. Rule 726(b) (Prospectus) requires that a current prospectus of 
The Options Clearing Corporation shall be delivered to each customer 
who requests one.
    j. Rule 730 (Statements of Options Accounts) requires that monthly 
statements be sent to options account holders.
    k. Rule 781(a) (Allocation of Exercise Assignment Notices) requires 
notification to customers of the method used to allocate exercise 
notices in customer's accounts.
    The Exchange believes that use of electronic media to satisfy 
delivery requirements is beneficial to both customers and members and 
member organizations and will be effective and efficient when conducted 
in accordance with Commission standards.
2. Statutory Basis
    The proposed rule change is consistent with the requirements of 
Section 6(b)(5) of the Act \6\ which requires that the rules of the 
Exchange be 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. This proposal complies with 
the Act by providing standards under which members and member 
organizations may effectively and efficiently supply required documents 
to customers.
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    \6\ 15 USC 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposed rule change does 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

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the 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.

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, NW., 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 nay person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 USC 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 
above-mentioned self-regulatory organization. All submissions should 
refer to the file number in the caption above and should be submitted 
by May 28, 1997.
Jonathan G. Katz,
Secretary.

Exhibit A--Information Memo

To: All Members and Member Organizations
    Note: Please Route to your Compliance Officer/Chief Operating 
Officer
Subject: Electronic Delivery of Information to Customers by Members 
and Member Organizations

    This information Memo sets forth the Exchange's policy 
applicable to electronic delivery of information required to be 
provided to customers by members and member organizations pursuant 
to New York Stock Exchange Rules.

[[Page 25011]]

    On May 9, 1996, the Securities and Exchange Commission (``SEC'' 
or ``Commission'') issued Release No. 34-37182 to publish its views 
respecting the use of electronic media by broker-dealers. The 
Commission stated that broker-dealers may satisfy their delivery 
obligations under federal securities laws by using electronic media 
as an alternatives to paper-based media within the framework 
established in Release No. 33-7233 dated October 6, 1995.
    The Exchange will permit members and member organizations that 
wish to electronically transmit documents that they are required to 
furnish to customers under NYSE Rules to do so provided they adhere 
to the standards contained in the SEC Releases. Members and member 
organizations are urged to review these releases in their entirety 
to ensure they comply with all electronic delivery requirements. The 
SEC standards are summarized below:
     Electronic delivery must result in customers receiving 
information that is substantially equivalent to the information 
these customers would have received if the required information were 
delivered in paper from, i.e., the electronically transmitted 
document must convey all required information. For instance, if a 
paper document is required to present information in a certain 
order, then the information delivered electronically should be in 
substantially the same order.
     A person who chooses to receive a document 
electronically, must be provided with the information in paper form, 
upon request.
     Customers who are provided information through 
electronic delivery from broker-dealers must be able to effectively 
access the information provided. Also, person to whom information is 
sent electronically should have an opportunity to retain the 
information through the selected medium or have ongoing access 
equivalent to personal retention.
     Broker-dealers must have reason to believe that 
electronically delivered information will result in the satisfaction 
of the delivery requirements under the federal securities laws. 
Broker-dealers may be able to evidence satisfaction of delivery 
obligations, for example, by:
    (1) obtaining the intended recipient's informed consent to 
delivery through a specified electronic medium, and ensuring that 
the recipient has appropriate notice and access;
    (2) obtaining evidence that the intended recipient actually 
received the information, such as by an electronic mail return-
receipt or by confirmation that the information was accessed, 
downloaded, or printed; or
    (3) disseminating information through certain facsimile methods.
     Prior to delivering personal financial information 
(e.g., confirmations and account statements) electronically, the 
broker-dealer must obtain the intended recipient's informed consent. 
The customer's consent may be either by a manual signature or by 
electronic means.
    The SEC release stated that the above standards are intended to 
permit broker-dealers to comply with their delivery obligations 
under the federal securities laws when using electronic media. While 
compliance with the guidelines is not mandatory for the electronic 
delivery of non-required information that, in some cases, is being 
provided voluntarily to customers, the Exchange believes adherence 
to the guidelines should be considered, especially with respect to 
documents furnished pursuant to agreements or other specific 
arrangements with customers. Further, the SEC stated that broker-
dealers should evaluate the need for systems and procedures to deter 
or detect misconduct by firm personnel in connection with the 
delivery of information, whether by electronic or paper means.
    A list of current Exchange rules which require members and 
member organizations to furnish specific information to customers 
for which electronic delivery may be used in accordance with the SEC 
releases is set forth below. The Exchange believes the list is 
complete and intends that the policy outlined in this Information 
Memo covers all communications that firms are required to send to 
customers pursuant to Exchange rules. Further, the summary of 
delivery obligations provided in intended for reference only and 
does not purport to be a statement of all requirements under the 
rules listed.
     Rule 382(c) Carrying Agreements) requires notification 
to each customer whose account is introduced on a fully disclosed 
basis of the existence of a clearing agreement, the relationship 
between the introducing and carrying organization and the allocation 
of responsibilities between the respective parties.
     Rule 409 (Statements of Accounts to Customers) requires 
delivery of statements of accounts showing security and money 
positions and entries at least quarterly to all accounts having an 
entry, money or security position during the preceding quarter. (See 
Release No. 34-37182 which covers confirmations of transactions 
pursuant to SEC Rule 10b-10).
     Rule 451 (Transmission of Proxy Material) requires 
member organizations to transmit proxy materials and annual reports 
to beneficial owners of stock which is in its possession and control 
or to others specified in the Rule.
     Rule 465 (Transmission of Interim Reports and Other 
Material) requires transmittal of interim reports of earnings and 
other material to beneficial owners of stock held by the member 
organization.
     Rule 721(c) (Opening of Accounts) requires that 
background and financial information on every new options account 
customer be sent to such customer for verification within fifteen 
days after the account is approved for options.
     Rule 721(e)(5) (Uncovered Short Options--Disclosure) 
requires that a written description of the risks inherent in writing 
uncovered short option transactions must be furnished to applicable 
customers.
     Rule 725 (Confirmations) requires member organizations 
to furnish customers with a written confirmation of each transaction 
in options contracts.
     Rule 726(a) (Delivery of Options Disclosure Document) 
requires delivery of a current Options Disclosure Document to a 
customer at or prior to the time the account is approved for trading 
options. Thereafter, delivery must be made of amendments or 
revisions to the Options Disclosure Document to every customer 
approved for trading the kind of option covered by the Disclosure 
Document.
     Rule 726(b) (Prospectus) requires that a current 
prospectus of The Options Clearing Corporation shall be delivered to 
each customer who requests one.
     Rule 730 (Statements of Options Accounts) requires that 
monthly statements be sent to options account holders.
     Rule 781(a) (Allocation of Exercise Assignment Notices) 
requires notification to customers of the method used to allocate 
exercise notices in customer's account.
    Questions relating to Exchange matters may be directed to 
Rudolph J. Schreiber at (212) 656-5226 or Mary Anne Furlong at (212) 
656-4823.
Salvatore Pallante,
Senior Vice President.
[FR Doc. 97-11842 Filed 5-6-97; 8:45 am]
BILLING CODE 8010-01-M