[Federal Register Volume 62, Number 216 (Friday, November 7, 1997)]
[Notices]
[Page 60296]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29419]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39291]


Order Denying Exemption From Broker-Dealer Registration to 
Investors Direct Empowerment Association, Inc.

November 3, 1997.
AGENCY: Securities and Exchange Commission.

ACTION: Denial of exemption.

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SUMMARY: The Securities and Exchange Commission is denying an exemption 
from broker-dealer registration pursuant to Section 15(a) of the 
Securities Exchange Act of 1934 to Investors Direct Empowerment 
Association, Inc.

FOR FURTHER INFORMATION CONTACT:
Catherine McGuire, Chief Counsel, or Lourdes Gonzalez, Special Counsel, 
(202) 942-0073, Office of Chief Counsel, Division of Market Regulation, 
Mail Stop 5-10, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

I. Background

    Investors Direct Empowerment Association, Inc. (``IDEA''), a not-
for-profit corporation, has requested an exemption, pursuant to Section 
15(a)(2) of the Securities Exchange Act of 1934 (``Exchange Act''), 
from the broker-dealer registration requirement of Section 15(a)(1) of 
the Exchange Act.
    Under IDEA's proposed program, IDEA would purchase one share of 
stock from various corporations with dividend reinvestment and stock 
purchase plans (``DRSPPs'') and then would join each corporation's 
DRSPP. An investor interested in joining a corporation's DRSPP would 
send funds to IDEA, made payable to an unaffiliated escrow agent, for 
the purchase of specified securities. IDEA would aggregate investors' 
funds, then forward them to the appropriate DRSPP to purchase shares of 
that corporation in IDEA's name as nominee. IDEA then would allocate 
the shares purchased among participating investors. IDEA would charge a 
fee per order received.
    IDEA maintains that its proposed program is similar to a program 
operated since 1979 by another not-for-profit corporation, the National 
Association of Investors Corporation (formerly the National Association 
of Investment Clubs) (``NAIC''), for which the Commission granted an 
exemption pursuant to Section 15(a)(2) of the Exchange Act. In granting 
the NAIC's exemption in 1979, the Commission stated that ``it would be 
in the public interest to grant the NAIC a conditional exemption with 
respect to registration as a broker or dealer. The NAIC proposes to 
offer brokerage services to a potentially large number of customers 
through an unusual and novel program.'' \1\
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    \1\ See Letter re the National Association of Investment Clubs 
(June 1, 1979).
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II. Discussion

    The Commission cannot find that exempting IDEA from the broker-
dealer registration requirement would be consistent with the public 
interest and the protection of investors. Although IDEA's goal of 
providing small investors with a means of buying securities at fees 
lower than those charged by broker-dealers is laudable, IDEA's proposed 
program presents significant investor protection concerns. These 
concerns are among the primary reasons the Exchange Act normally 
requires broker-dealer registration. In particular, IDEA's control over 
investors' funds and securities would expose investors to the same 
types of risks as those inherent in dealing with a registered broker-
dealer. IDEA's status as a not-for-profit corporation does not mitigate 
these concerns.
    While only a limited number of DRSPPs currently permit direct 
investment by first time investors, this number is increasing rapidly. 
In response to investor concerns with respect to T+3 settlement, the 
Commission took several steps in December 1994 to permit investors to 
buy securities directly from issuers through ``open availability'' 
direct registration programs and to permit investors to leave these 
securities with transfer agents.\2\ These initiatives were designed, in 
part, to facilitate investors' access to issuer DRSPPs. IDEA's program, 
therefore, is not so unusual or novel, and does not present any other 
compelling justifications, as to mitigate the investor protection 
concerns raised by IDEA's handling of investors' funds and securities.
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    \2\ Securities Exchange Act Release No. 35058 (December 1, 
1994); Securities Exchange Act Release No. 35040 (December 1, 1994); 
Letter re: The Securities Transfer Association (December 1, 1994); 
Letter re: First Chicago Trust Company of New York (December 1, 
1994).
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    It is therefore ordered, pursuant to Section 15(a)(2) of the 
Exchange Act, that IDEA's request for an exemption from broker-dealer 
registration pursuant to Section 15(a)(1) of the Exchange Act is 
denied.

    By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 97-29419 Filed 11-6-97; 8:45 am]
BILLING CODE 8010-01-M