[Federal Register Volume 66, Number 14 (Monday, January 22, 2001)]
[Notices]
[Pages 6721-6722]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1750]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43834; File No. SR-NYSE-00-58]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to an 
Interpretation with Respect to Rule 342 (``Offices--Approval, 
Supervision, and Control'')

January 10, 2001.
    Pursuant to Section 19(b)(1) of the Securities and Exchange Act of 
1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 15, 2000, the New York Stock Exchange, Inc. (``NYSE'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II 
and III below, which Items have been prepared by the Exchange. 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposed rule change consists of interpretations with respect 
to the meaning administration of existing NYSE Rule 342 (``Offices--
Approval, Supervision, and Control'') with respect to the supervision 
of, and the experience requirements for, registered representatives 
working in small or residence branch offices. The text of the proposed 
rule change is available from the Office of the Secretary, the NYSE or 
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 Exchange 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 Exchange 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 purpose of the proposed rule change is to amend interpretations 
concerning the meaning and administration of NYSE Rule 342 with respect 
to the supervision of, and the experience requirements for, registered 
representatives working in small or residence branch offices of 
Exchange member organizations. Interpretation will be published as an 
Interpretation Memorandum for inclusion in the Exchange's 
Interpretation Handbook.
    NYSE Rule 342 requires that each office, department and business 
activity be under the supervision and control of the member 
organization establishing it and of the personnel delegated such 
authority and responsibility. Additionally, the structure and 
administration of Exchange rules mandate that all member organization 
employees, including registered representatives, be fully subject to 
the direct and ongoing supervision, control and discipline of their 
member organization employers. Further, Exchange Rule 342(c) requires 
that a member or member organization obtain the Exchange's prior 
written consent for each office established.
    NYSE Rule 342.11 and Current Interpretations. NYSE Rule 342.11 
provides that a registered representative (``RR'') may operate out of 
his or her residence, with Exchange approval, and that if the residence 
is advertised (through, e.g., business cards or stationery), then the 
residence constitutes a branch office of the member organization 
employer. Further, and notwithstanding the above, Interpretation/01 to 
Rule 342.11 in the NYSE Interpretation Handbook states that if an RR 
regularly operates from his home during business hours (even on a part-
time basis), the member organization employer must register the home as 
a branch office (a ``residence office''). Interpretation/03 to Rule 
342.11 currently provides that an RR who will be working from his or 
her residence must have a minimum of six-months securities experience 
prior to being approved in a residence office.
    Proposed Amendment to Interpretation/03 to Rule 342.11. The six-
months securities industry experience requirement for RRs in residence 
offices has come to be viewed as unnecessary and restrictive in that 
member organizations are prohibited from permitting the RR from working 
for two additional months beyond the prescribed four-month training 
period of NYSE Rule 345. This six-month experience requirement has 
particularly affected member organizations structured with multiple 
one-person offices.
    The additional training period for inexperience RRs was appropriate 
when the interpretation was implemented in the 1970s because of the 
remote physical location of supervisors. However now, with member 
organizations increasingly employing advanced technology and electronic 
communications in the supervision and review of RR activities, 
supervision can be readily performed without being dependent on close 
physical proximity of the manager to the RR.
    Under the proposed amended Interpretation, the six-month experience 
requirement will be eliminated, thereby allowing the RR who operates 
from a residence or one-person office to begin working upon completion 
of the prescribed four-month training period, provided that the member 
organization develops and implements special supervisory procedures for 
heightened supervision for the two month period immediately following 
completion of prescribed training. The special supervision will include 
procedures such as:
     Daily review of all customer account activity;
     Daily review of all correspondence including prior 
approval of all outgoing correspondence;
     Review of all incoming and outgoing electronic 
communications, e.g., internet use and electronic mail; and
     On-site inspection by the branch office manager (or 
qualified designee) responsible for supervision of the residence office 
in the two months following the prescribed training period.
    Member organizations will be required to inform RRs operating from 
a residence or small one-person office of the special supervision, and 
to maintain records evidencing the implementation and conduct of the 
special supervision.
    The amended interpretation will allow these RRs to begin working 
immediately after completing the prescribed four-month training period 
(like all other RRs), while also helping to ensure that, through 
special supervision, member organizations have appropriate supervision 
and control of RRs operating from a residence and their customer 
accounts. Moreover, while the special supervision is required for a 
limited time, there is the ongoing responsibility of the member 
organizations, beyond the two-month special supervision period, to have

[[Page 6722]]

appropriate policies and procedures in place for the supervision and 
control of all sales and operational activities of each branch office 
and of all registered employees and the customer accounts they service.
    Proposed Amendments to Interpretations /01,/02, and a New 
Interpretation /04 to NYSE Rule 342.15. Generally, each location where 
member organization employees are engaged in activities on behalf on a 
member organization must be registered as a branch office (excluding 
locations on the Exchange Floor where member organizations conduct 
Floor Business).
    A ``small'' office is a branch with three or less registered 
representatives, one of whom is designated as ``RR-in-charge'' (this 
designation is required only if there is more than one registered 
representative in the small office). A small office may engage in sales 
activities but may not conduct operational functions, such as 
cashiering (receipt and disbursement of funds and securities).
    Interpretation /02 to NYSE Rule 342.15 currently requires small 
offices to be under the close supervision and control of the member 
organization's main office or to be supervised by a manager of another 
office within short travel distance. Such manager may be responsible 
for only two small offices.
    The proposed amendments to the Interpretation will require that 
small offices be controlled and supervised by either the main office or 
another designated branch office having a qualified (i.e., Series 9 and 
10 exam-qualified) Branch Office Manager on the premises. Further, such 
supervisory arrangements must be made part of the member organization's 
written plan of supervision. Adoption of the interpretation will 
eliminate the current provision under Interpretation /01 to NYSE rule 
342.15 that a manager may be responsible for only two small offices 
that are in close geographical proximity. Given modern electronic 
surveillance and monitoring techniques, this limitation regarding 
number of offices and geographical location is no longer necessary. New 
Interpretation /04 to NYSE Rule 342.15 provides that RRs operating from 
small, one-person branch offices must be subject to the same special 
supervision prescribed in Interpretation /03 to NYSE Rule 342.11 for 
residence offices.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the requirements of Section 6(b)(5) \3\ that an exchange have rules 
that are 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, in that it will 
enhance the process for member organization supervision and control of 
small and residence branch offices, while also permitting registered 
representatives to engage in activities upon completion of a prescribed 
training period.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.
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    \3\ 15 U.S.C. 78f(b)(5).
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C. Self-Regulatory Organization's Statement in Comments on the Proposed 
Rule Change Received From Members, Participants or Other

    The Exchange has neither solicited nor received any written 
comments with respect to the proposed rule change.

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 reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    A. By order approve the 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, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 Room. Copies of such filing will also be 
available for inspection and copying at the principal office of the 
Exchange. All submissions should refer to File No. SR-NYSE-00-58 and 
should be submitted by February 12, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\4\
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    \4\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-1750 Filed 1-19-01; 8:45 am]
BILLING CODE 8010-01-M