[Federal Register Volume 62, Number 114 (Friday, June 13, 1997)]
[Notices]
[Pages 32390-32393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-15464]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38724; File No. SR-Amex-97-17]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval of Proposed Rule Change and Amendment
Nos. 1 and 2 Thereto by the American Stock Exchange, Inc. Relating to
Telemarketing Practices by Members and Member Organizations
June 6, 1997.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on May 19, 1997, the American
Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
change as described in Items I and II below, which Items have been
prepared by the self-regulatory organization.\2\ On May 29, 1997, the
Amex filed Amendment No. 2 to its proposal.\3\ The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons and to grant accelerated approval of the
proposed rule change.
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\1\ 15 U.S.C. Sec. 78s(b)(1).
\2\ The Amex submitted the filing on April 2, 1997, however, the
submission did not include the text of the proposed rule change,
and, therefore, it did not comply with the requirements of Form 19b-
4. In Amendment No. 1, the Amex submitted as Exhibit A the text of
the proposed changes to Rules 428 and 429 and requested that the
Commission approve the proposal on an accelerated basis pursuant to
Section 19(b)(2) of the Act. Letter from Claudia Crowley, Special
Counsel, Legal and Regulatory Policy, Amex, to George Villasana,
Attorney, Division of Market Regulation, SEC, dated May 19, 1997.
\3\ In Amendment No. 2, the Amex amended commentary .10 to Rule
481 to include telemarketing scripts within the definition of sales
literature so that telemarketing scripts must be retained for three
years. Letter from Claudia Crowley, Special Counsel, Legal and
Regulatory Policy, Amex, to George Villasana, Attorney, Division of
Market Regulation, SEC, dated May 29, 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 a proposal to add Rule 429
(``Telemarketing'') and amend Rule 428 (``Telephone Solicitation-
Recordkeeping''), which are substantially similar to applicable
provisions of the Federal Trade Commission rules adopted pursuant to
the Telemarketing and Consumer Fraud and Abuse Prevention Act
(``Telemarketing Act'').\4\ The proposal also amends commentary .10 to
Rule 481 (``Communications with the Public'') requiring telemarketing
scripts to be retained for three years.\5\
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\4\ 15 U.S.C. Secs. 6101-08.
\5\ According to the Exchange, it will issue an Information
Circular advising the membership of the new telemarketing rules upon
their approval, and clarifying that abusive, annoying or harassing
telemarketing calls by members, member organizations or their
associated persons are violative of Article V, Section 4(h) of the
Amex Constitution and Amex Rule 345.
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The text of the proposed rule change is available at the Office of
the Secretary, Amex, and at the Commission.
II. Self-Regulatory Organization's Statement for 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 an 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Pursuant to the Telephone Consumer Protection Act (``TCPA''),\6\
the Amex adopted in January 1996 a ``cold call'' rule \7\ that
paralleled one of the rules of
[[Page 32391]]
the Federal Communications Commission (``FCC Rules'') \8\ and requires
persons who engage in telephone solicitations to sell products and
services (``telemarketers'') to establish and maintain a list of
persons who have requested that they not be contacted by the caller
(``do-not-call list'').
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\6\ 47 U.S.C. Sec. 227.
\7\ Under the ``cold call'' rule, each Amex member who engages
in telephone solicitation to market its products and services is
required to make and maintain a centralized do-not-call list of
persons who do not wish to receive telephone solicitations from such
member or its associated persons. Securities Exchange Act Release
No. 36748 (Jan. 19, 1996), 61 FR 2556 (approving File No. SR-AMEX-
96-01).
The NYSE, NASD, the MSRB, the CBOE, and the PSE also adopted
similar rules. See Securities Exchange Act Release Nos. 35821 (June
7, 1995), 60 FR 31337 (approving File No. SR-NYSE-95-11); 35831
(June 9, 1995), 60 FR 31527 (approving File No. SR-NASD-96-28);
38053 (Dec. 16, 1996), 61 FR 68078 (approving File No. SR-MSRB-96-
06); 36588 (Dec. 13, 1995), 60 FR 56624 (approving File No. SR-CBOE-
95-63); and 37897 (Oct. 30, 1996), 61 FR 57937 (approving File No.
SR-PSE-96-32).
\8\ Pursuant to the TCPA, the FCC adopted rules in December 1992
that, among other things, (1) prohibit cold-calls to residential
telephone customers before 8 a.m. or after 9 p.m. (local time at the
called party's location) and (2) require persons or entities
engaging in cold-calling to institute procedures for maintaining a
``do-not-call'' list that included, at a minimum, (a) a written
policy for maintaining the do-not-call list, (b) training personnel
in the existence and use thereof, (c) recording a consumer's name
and telephone number on the do-not-call list at the time the request
not to receive calls is made, and retaining such information on the
do-not-call list for a period of at least ten years, and (d)
requiring telephone solicitors to provide the called party with the
name of the individual caller, the name of the person or entity on
whose behalf the call is being made and a telephone number or
address at which such person or entity may be contacted. 57 FR 48333
(codified at 47 CFR 64.1200). With certain limited exceptions, the
FCC Rules apply to all residential telephone solicitations,
including those relating to securities transactions. Id. While the
FCC Rules are applicable to brokers that engage in telephone
solicitation to market their products and services, those
regulations cannot be enforced by either the SEC or the securities
self-regulatory organizations (``SROs'').
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Under the Telemarketing Act, which became law in August 1994,\9\
the Federal Trade Commission adopted detailed regulations (``FTC
Rules'') \10\ to prohibit deceptive and abusive telemarketing acts and
practices; the regulations became effective on December 31, 1995.\11\
The FTC rules, among other things, (i) require the maintenance of ``do-
not-call'' lists and procedures, (ii) prohibit certain abusive,
annoying, or harassing telemarketing calls, (iii) prohibit
telemarketing calls before 8 a.m. or after 9 p.m., (vi) require a
telemarketer to identify himself or herself, the company he or she
works for, and the purpose of the call, and (v) require express written
authorization or other verifiable authorization from the customer
before the firm may use negotiable instruments called ``demand
drafts.'' \12\
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\9\ Telemarketing, supra note 4.
\10\ 16 CFR 310.
\11\ Secs. 310.3-4 of FTC Rules.
\12\ Id. Pursuant to the Telemarketing Act, the FTC Rules do not
apply to brokers, dealers, and other securities industry
professionals. Section 3(d)(2)(A) of the Telemarketing Act.
A ``demand draft'' is used to obtain funds from a customer's
bank account without that person's signature on a negotiable
instrument. The customer provides a potential payee with bank
account identification information that permits the payee to create
a piece of paper that will be processed like a check, including the
words ``signature on file'' or ``signature preapproved'' in the
location where the customer's signature normally appears.
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Under the Telemarketing Act, the SEC is required either to
promulgate or to require the SROs to promulgate rules substantially
similar to the FTC Rules, unless the SEC determines either that the
rules are not necessary or appropriate for the protection of investors
or the maintenance of orderly markets, or that existing federal
securities laws or SEC rules already provide for such protection.\13\
The purpose of the proposed rule change is to add Amex Rule 429 and
amend Amex Rule 428 and the Amex commentary .10 to Rule 481 in response
to the Commission's request that major self-regulatory organizations
(``SROs'') promulgate rules substantially similar to applicable
provisions of the Federal Trade Commission rules adopted pursuant to
the Telemarketing Act.
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\13\ In response, the NASD and MSRB have adopted rules to curb
abusive telemarketing practices. See Securities Exchange Act Release
Nos. 38009 (Dec. 2, 1996), 61 FR 65625 (Dec. 13, 1996) (order
approving File No. SR-NASD-96-28) and 38053 (Dec. 16, 1996) 61 FR
68078 (Dec. 26, 1996) (order approving File No. SR-MSRB-96-06).
The Commission has determined that the NASD Rule and MSRB Rule,
together with the Exchange Act and the Investment Advisers Act of
1940, the rules thereunder, and the other rules of the SROs, satisfy
the requirements of the Telemarketing Act, because the applicable
provisions of such laws and rules are substantially similar to the
FTC Rules except for those FTC Rules that involve areas already
extensively regulated by existing securities laws or regulations or
activities inapplicable to securities transactions. Securities
Exchange Act Release No. 38480 (Apr. 7, 1997), 62 FR 18666 (Apr. 16,
1996). Accordingly, the Commission has determined that no additional
rulemaking is required by it under the Telemarketing Act. Id.
Notwithstanding this determination, the Commission still expects the
remaining SROs to file similar proposals.
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Time Limitations and Disclosure
The proposed rule change amends Rule 429 to prohibit, under
proposed paragraph (a) to Rule 429, a member, member organization, or
employee of a member or member organization from making outbound
telephone calls to a member of the public's residence for the purpose
of soliciting the purchase of securities or related services at any
time other than between 8 a.m. and 9 p.m. local time at the called
person's location and to require, under proposed paragraph (b) to Rule
429, such member, member organization or employee of a member or member
organization to promptly disclose to the called person in a clear and
conspicuous manner the caller's identify and firm, the telephone number
or address at which the caller may be contacted, and that the purpose
of the call is to solicit the purchase of securities or related
services.
Proposed paragraph (c) to Rule 429 creates exemptions from the
time-of-day and disclosure requirements of paragraphs (a) and (b) for
telephone calls by any persons associated with a member or member
organization, or other associated persons acting at the direction of
such persons for the purposes of maintaining and servicing existing
customers assigned to or under the control of the associated persons,
to certain categories of ``existing customers.'' Paragraph (d) defines
``existing customer'' as a customer for whom the broker or dealer, or
clearing broker or dealer on behalf of the broker or dealer, carries an
account. Proposed subparagraph (c)(1) exempts calls, by an associated
person, to an existing customer who, within the preceding twelve
months, has effected a securities transaction in, or made a deposit of
funds or securities into, an account under the control of or assigned
to the associated person at the time of the transaction or deposit.
Proposed subparagraph (c)(2) exempts calls, by an associated person, to
an existing customer who, at any time, has effected a securities
transaction in, or made a deposit of funds or securities into an
account under the control of or assigned to the associated person at
the time of the transaction or deposit, as long as the customer's
account has earned interest or dividend income during the preceding
twelve months. Each of these exemptions also permits calls by other
associated persons acting at the direction of an associated person who
is assigned to or controlling the account. Proposed paragraph (c)(3)
exempts telephone calls to a broker or dealer. The proposed rule change
also expressly clarifies that the scope of this rule is limited to the
telemarketing calls described herein; the terms of the Rule do not
otherwise expressly or by implication impose on members any additional
requirements with respect to the relationship between a member and a
customer or between a person associated with a member and a customer.
Demand Draft Authorization and Recordkeeping
Proposed paragraphs (b) and (c) to Rule 428 prohibit members,
member
[[Page 32392]]
organizations or persons associated with a member or member
organization from obtaining from a customer or submitting for payment a
check, draft, or other form of negotiable paper drawn on a customer's
checking, savings, share, or similar account (``demand draft'') without
that person's express written authorization, which may include the
customer's signature on the instrument, and to require the retention of
such authorization for a period of three years. The proposal also
states that this provision shall not, however, require maintenance of
copies of negotiable instruments signed by customers.
Telemarketing Scripts
The proposed rule change also amends the definition of ``sales
literature'' contained in the commentary to Rule 481 to include
``telemarketing scripts'' within that definition. This will require
telemarketing scripts to be retained for a period of three years.
2. Statutory Basis
The basis under the Act for the proposed rule change is the
requirement under Section 6(b)(5) that an Exchange have rules that are
designed to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and public interest.
B. Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change will impose no burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received from Members, Participants or Others
No written comments were solicited or received without respect to
the proposed rule change.\14\
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\14\ The Commission, however, received, two comment letters on
an NASD proposal, which is substantially similar. See Letter from
Brad N. Bernstein, Assistant Vice President & Senior Attorney,
Merrill Lynch, to Jonathan G. Katz, Secretary, SEC, dated Aug. 19,
1996 (``Merrill Lynch Letter from Frances M. Stadler, Associate
Counsel, Investment Company Institute (``ICI''), to Jonathan G.
Katz, Secretary, SEC, dated Aug. 21, 1996 (``ICI Letter'').
For a discussion of the letters and responses thereto, see
Securities Exchange Act Release No. 38009 (Dec. 2, 1996) (approving
File No. SR-NASD-96-28).
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III. Commission's Findings and Order Granting Accelerated Approval of
the Proposed Rule Change
The Commission finds 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, with Section 6(b)(5) of the Act \15\ which requires, among
other things, that the rules of the exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and, in general, to protect investors
and the public interest.\16\ The proposed rule change is consistent
with these objectives in that it imposes time restriction and
disclosure requirements, with certain exceptions, on members'
telemarketing calls, requires verifiable authorization from a customer
for demand drafts, and prevents members from engaging in certain
deceptive and abusive telemarketing acts and practices while allowing
for legitimate telemarketing activities.
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\15\ 15 U.S.C. Sec. 78f(b)(5).
\16\ In approving this rule, the Commission has considered the
proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. Sec. 78c(f).
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The Commission believes that the amendments to Rule 429,
prohibiting a member or person associated with a member from making
outbound telephone calls to the residence of any person for the purpose
of soliciting the purchase of securities or related services at any
time other than between 8 a.m. and 9 p.m. local time at the called
person's location, without the prior consent of the person, is
appropriate. The Commission notes that, by restricting the times during
which a member or person associated with a member may call a residence,
the proposal furthers the interest of the public and provides for the
protection of investors by preventing members and member organizations
from engaging in unacceptable practices, such as persistently calling
members of the public at unreasonable hours of the day and night.
The Commission also believes that the addition of Rule 429,
requiring a member or person associated with a member to promptly
disclose to the called person in a clear and conspicuous manner the
caller's identity and firm, telephone number or address at which the
caller may be contacted, and that the purpose of the call is to solicit
the purchase of securities or related services, is appropriate. By
requiring the caller to identify himself or herself and the purpose of
the call, the Rule assists in the prevention of fraudulent and
manipulative acts and practices by providing investors with information
necessary to make an informed decision when purchasing securities.
Moreover, by requiring the associated person to identify the firm for
which he or she works and the telephone number or address at which the
caller may be contacted, the Rule encourages responsible use of the
telephone to market securities.
The Commission also believes that Rule 429, creating exemptions
from the time-of-day and disclosure requirements for telephone calls by
associated persons, or other associated persons acting at the direction
of such persons, to certain categories of ``existing customers'' is
appropriate. The Commission believes it is appropriate to create an
exemption for calls to customers with whom there are existing
relationships in order to accommodate personal and timely contact with
a broker who can be presumed to know when it is convenient for a
customer to respond to telephone calls. Moreover, such an exemption
also may be necessary to accommodate trading with customers in multiple
time zones across the United States. The Commission, however, believes
that the exemption from the time-of-day and disclosure requirements
should be limited to calls to persons with whom the broker has a
minimally active relationship. In this regard, the Commission believes
that Rule 429 achieves an appropriate balance between providing
protection for the public and the members' interest in competing for
customers.
The Commission also believes that the amendment to Rule 428,
requiring that a member or person associated with a member obtain from
a customer, and maintain for three years, express written authorization
when submitting for payment a check, draft, or other form of negotiable
paper drawn on a customer's checking, savings, share or similar
account, is appropriate. The Commission notes that requiring a member
or person associated with a member to obtain express written
authorization from a customer in the above-mentioned circumstances
assists in the prevention of fraudulent and manipulative acts in that
it reduces the opportunity for a member or person associated with a
member to misappropriate customers' funds. Moreover, the Commission
believes that by requiring a member or person associated with a member
to retain the authorization for three years, Rule 428 protects
investors and the public interest in that it provides interested
parties with the ability to acquire information necessary to ensure
that valid authorization was obtained for the transfer of a customer's
funds for the purchase of a security.
[[Page 32393]]
The Commission also believes that the amendment to commentary .10
to Rule 481, requiring the retention of telemarketing scripts for a
period of three years is appropriate. By requiring the retention of
telemarketing scripts for three years, the commentary to Rule 481
assists in the prevention of fraudulent and manipulative acts and
practices and provides for the protection of the public in that
interested parties will have the ability to acquire copies of the
scripts used to solicit the purchase of securities to ensure that
members and associated persons are not engaged in unacceptable
telemarketing practices.
Finally, the Commission believes that the proposed rule achieves a
reasonable balance between the Commission's interest in preventing
members from engaging in deceptive and abusive telemarketing acts and
the members' interest in conducting legitimate telemarketing practices.
The Commission finds good cause for approving the proposed rule
change prior to the thirtieth day after the date of publication of
notice thereof in the Federal Register. The proposal is identical to
the NASD and MSRB rules, which were published for comment and,
subsequently, approved by the Commission. The approval of the Amex's
rules and commentary provides a consistent standard across the
industry. In that regard, the Commission believes that granting
accelerated approval of the proposal rule change is appropriate and
consistent with Section 6 of the Act.
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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Room. Copies of the filing will also
be available for inspection and copying at the principal office of the
Exchange. All submissions should refer to File No. SR-Amex-97-17 and
should be submitted by July 7, 1997.
V. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change
It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,
\17\ that the proposed rule change (SR-Amex-97-17) is approved.
\17\ 15 U.S.C. Sec. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 97-15464 Filed 6-12-97; 8:45 am]
BILLING CODE 8010-01-M