[Federal Register Volume 66, Number 14 (Monday, January 22, 2001)]
[Notices]
[Pages 6722-6726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1803]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43838; File No. SR-NYSE-00-55]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change and Amendment No. 
1 by the New York Stock Exchange, Inc. To Permit Firm Delivery of the 
Regulatory Element of the Continuing Education Program

January 12, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on December 7, 2000, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. On December 21, 2000, the NYSE amended the proposal.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons, and to grant 
accelerated approval to the proposed rule change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See December 20, 2000 letter from James E. Buck, Senior Vice 
President and Secretary, NYSE, to Nancy Sanow, Assistant Director, 
Division of Market Regulation (``Division''), SEC (``Amendment No. 
1''). In Amendment No. 1, the NYSE requested accelerated approval of 
the proposed rule change, and made minor, non-substantive 
corrections to Exhibit A to the proposed rule change.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The proposal consists of interpretations with respect to the

[[Page 6723]]

meaning and administration of NYSE Rule 345A (``Continuing Education 
for Registered Persons''), to permit firm delivery of the Regulatory 
Element of the Continuing Education Program. Currently, this computer-
based training is administered to registered persons by an outside 
vendor at its locations. The text of the proposed rule change is below. 
Proposed new language is in italics. Proposed deletions are in 
brackets.

Rule 345A Continuing Education for Registered Persons

(a) Regulatory Element
/01  Registration Date
    Registered persons are required to participate in the Regulatory 
Element [on three occasions] on the occurrence of their second 
registration anniversary date and every three years thereafter, based 
on their initial registration anniversary date. Initial registration 
means the first date that the person became registered with the NYSE, 
NASD or another self-regulatory organization, regardless of subsequent 
registrations, provided that the person has remained continuously 
registered since that initial date.
    A person's initial registration date is the date that the 
registration was originally approved rather than the date the person 
passed a qualification examination. This includes registered persons 
who have received waivers from specific examination requirements.
/02  Application
    The requirements of the Regulatory Element apply to all persons 
registered or required to be registered under Exchange rules, even if 
such persons are not required to be qualified by taking and passing an 
examination e.g., certain allied members and securities lending 
representatives.

/03  Firm Delivery of Regulatory Element

    Members and member organizations will be permitted to administer 
the Regulatory Element continuing education program to their registered 
persons by instituting a firm program acceptable to the Exchange.
    The following procedures are required:

A. Senior Officer or Partner In-Charge

     The firm has designated a senior officer or partner to be 
responsible for the firm's delivery of the Regulatory Element 
continuing education program.

B. Site Requirements.

     The location of all delivery sites will be under the 
control of the firm.
     Delivery of Regulatory Element continuing education will 
take place in an environment conducive to training. (Examples: a 
training facility, conference room or other area dedicated to this 
purpose would be appropriate. Inappropriate locations would include a 
personal office or any location that is not or cannot be secured from 
traffic and interruptions).
     Where multiple delivery terminals are placed in a room, 
adequate separation between terminals will be maintained.

C. Technology Requirements

     The communication links and firm delivery computer 
hardware must comply with standards defined by the Exchange or its 
designated vendor.

D. Supervision

     The firm's Written Supervisory Procedures must contain the 
procedures implemented to comply with the requirements of its delivery 
of Regulatory Element continuing education.
     The firm's Written Supervisory Procedures must identify 
the senior officer or partner designated pursuant to 03/A and contain a 
list of individuals authorized by the firm to serve as proctors.
     Firm locations for delivery of Regulatory Element 
continuing education will be specifically listed in the firm's Written 
Supervisory Procedures.

E. Proctors

     All sessions will be proctored by an authorized person 
during the entire Regulatory Element continuing education session. 
Proctors must be present in the session room or must be able to view 
the person(s) sitting for Regulatory Element continuing education 
through a window or by video monitor.
     The individual responsible for proctoring at each 
administration will sign a certification that required procedures have 
been followed, that no material from Regulatory Element continuing 
education has been reproduced, and that no candidate received any 
assistance to complete the session. Such certification may be a part of 
the sign-in log required under F. Administration.
     Individuals serving as proctors must be persons registered 
with an SRO and supervised by the designated senior officer/partner for 
purposes of firm delivery of the Regulatory Element continuing 
education.
     Proctors will check and verify the identification of all 
individuals taking Regulatory Element continuing education.

F. Administration

     All appointments will be scheduled in advance using the 
procedures and software specified by the Exchange, its agent or 
designated vendor to communicate with the PROCTOR system and CRD.
     The firm/proctor will conduct each session in accordance 
with the administrative and appointment scheduling procedures required 
by the Exchange or its designated vendor.
     A sign-in log will be maintained at the delivery facility. 
Logs will contain the date of each session, the name and social 
security number of the individual taking the session, that required 
identification was checked, the sign-in time, the sign-out time and the 
name of the individual proctoring the session. Such logs are required 
to be retained pursuant to SEA Rule 17a-4.
     No material will be permitted to be utilized for the 
session nor may any session-related material be removed.
     Delivery sites will be made available for inspection by 
the SROs.
    Before commencing firm delivery of Regulatory Element continuing 
education, members and member organizations are required to file with 
their Designated Examining Authority (``DEA''), a letter of attestation 
(as specified below) signed by a senior officer or partner attesting to 
the establishment of required procedures addressing senior officer/
partner in-charge, supervision, site, technology, proctors and 
administrative requirements.
    The letter of attestation shall read substantially as follows:
    (Name of member or member organization) has established procedures 
for delivering Regulatory Element continuing education on its premises. 
I have determined that these procedures are reasonably designed to 
comply with SRO requirements pertaining to firm delivery of Regulatory 
Element continuing education including that such procedures have been 
implemented to comply with senior officer/partner in-charge, 
supervision, site, technology, proctors and administrative 
requirements.

----------------------------------------------------------------------
Signature
----------------------------------------------------------------------
Printed Name
----------------------------------------------------------------------

[[Page 6724]]

Title (Must be signed by a Senior Officer/Partner of the firm.)
----------------------------------------------------------------------
Date

G. Annual Representation

    Each member and member organization will be required to represent 
to the Exchange, annually, that they have continued to maintain, and 
reasonably believe that they have complied with, all required 
procedures outlined in sections A through F of this interpretation for 
the previous year. Such attestation must be signed by a senior officer 
or partner.

H. Definition of Senior Officer or Partner

    For purposes of interpretation /03, a ``senior officer or partner'' 
means the chief executive officer or managing partner or either (A) any 
other officer or partner who is a member of the member organization's 
executive or management committee or its equivalent committee or group 
or (B) if the member organization has no such committee or group, any 
officer or partner having senior executive or management responsibility 
who reports directly to the chief executive officer or managing 
partner. If, in the case of a member organization, its chief executive 
officer or managing partner does not sign the attestation, a copy of 
the attestation shall be provided to the chief executive officer or 
managing partner.
[/03] /04  Registration Lapses
    A person whose registration lapsed for less than two years and who 
seeks to be reregistered will be required to participate in the 
Regulatory Element to cover [the] any occasion[s] that [were] was 
missed during the period in which the person was unregistered, based on 
such person's initial registration date. [For example, a person whose 
registration lapses four and a half years after initial registration 
and thereafter wants to reactivate the registration six years after the 
initial registration date, must satisfy the fifth-year anniversary 
Regulatory Element before they may function under the new 
registration.]
    If any such person has been unregistered for more than two years, 
then such person would be a new registrant and required to satisfy 
appropriate qualifying examination requirements and satisfy the 
requirements of the Regulatory Element based on the new initial 
registration anniversary [beginning a new 10-year cycle (e.g., 2, 5 and 
10 year anniversaries of reregistration)].
[/04]  05  CRD Notification
    Members and member organizations will be notified by the Central 
Registration Depository (``CRD'') concerning those registered persons 
in the CRD system whose registration anniversary dates trigger 
participation in the Regulatory Element computer-based training.
    Even though notification will be provided by CRD as a courtesy, the 
final responsibility to ensure timely participation in and completion 
of the Regulatory Element as required is that of members and member 
organizations, and registered personnel themselves.
    Members and member organizations and personnel who receive such 
notices from the CRD but would otherwise be exempt from the 
requirements of the Regulatory Element because their business is 
limited solely to the transaction of business on the Floor with members 
or registered broker-dealers must contact the Exchange's Qualifications 
and Registrations Department to confirm that they are (by definition) 
exempt from the Regulatory Element. However, any such persons who do 
not conduct public business on the Floor, but maintain a registration 
(e.g. Series #7 or 7A) that would enable them to conduct a public 
business, must satisfy the Regulatory Element requirements in order for 
their registration to remain active.
    [Members and member organizations whose registered personnel are 
not on the CRD system and therefore will not receive CRD notification, 
are responsible for tracking the registration anniversary dates and 
contacting the Exchange's Qualifications and Registration Department to 
make appointments for computer-based training sessions for such 
persons.]
* * * * *

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 permit firm delivery 
of the Regulatory Element of the Continuing Education Program.

Background

    The Continuing Education Program is designed to keep industry 
participants up to date on products, services and rules, and is 
composed of a Regulatory Element and a Firm Element. The Regulatory 
Element is computer-based training that covers ethical, sales practice, 
and regulatory matters, and requires that each registered person 
complete this training on the occurrence of their second registration 
anniversary date and every three years thereafter. A registered person 
who fails to complete the training will be deemed inactive, and may not 
conduct or be compensated for activities requiring registration. The 
Firm Element requires member and member organizations to provide to 
registered employees having direct contact with customers ongoing 
training that is specifically tailored to their business.

Proposed Amended Interpretation of Rule 345A

    At the recommendation of the Securities Industry/Regulatory Council 
on Continuing Education,\4\ the Exchange proposes to adopt 
interpretations of NYSE Rule 345A to permit members and member 
organizations to administer the Regulatory Element of the Continuing 
Education Program to their registered persons by instituting firm 
programs acceptable to the Exchange. Currently, the Regulatory Element 
is administered only at vendor locations.
---------------------------------------------------------------------------

    \4\ The Securities Industry/Regulatory Council on Continuing 
Education is comprised of representatives from broker/dealers and 
SROs whose duties include recommending and helping to develop 
specific content and questions for the Regulatory Element, as well 
as minimum core curricula for the Firm Element. The Council has 
developed a model under which firms may deliver the computer-based 
training in-house.
---------------------------------------------------------------------------

    Under the proposal, before beginning firm delivery of the 
Regulatory Element, members and member organizations are required to 
develop stipulated procedures relating to the delivery of the program 
and to file with their Designated Examining Authority (``DEA'') a 
letter of attestation signed by a senior officer or partner attesting 
to the establishment of those required procedures. The stipulated 
procedures and letter of attestation must address the

[[Page 6725]]

designation of a senior officer/partner in charge, supervision, 
delivery site, technology, proctors and administrative requirements. In 
addition, members and member organizations will be required to file 
with the Exchange annually an attestation that they have continued to 
maintain and reasonably believe that they have adhered to all required 
procedures for the previous year.
    In-house delivery of the Regulatory Element will, for the practical 
purposes of tracking participation by registered category 
representatives and the aggregate performance by firm and registration 
category, adhere to the same standards as if it was administered at 
vendor locations.
    Additional amendments to the Interpretation of NYSE rule 345A 
reflect previous changes to the Rule that require registered persons to 
complete the Regulatory Element on the occurrence of their second 
registration anniversary date and every three years thereafter (see 
Interpretation paragraphs /01 and /04).\5\
---------------------------------------------------------------------------

    \5\ The NYSE modified continuing education requirements for 
registered persons in 1998. See Securities Exchange Act Release No. 
39712 (March 3, 1998), 63 FR 11939 (March 11, 1998) (Order approving 
proposed rule changes by the Chicago Board Options Exchange, 
Municipal Securities Rulemaking Board, National Association of 
Securities Dealers, Inc., and NYSE). At that time, however, the NYSE 
did not modify the corresponding Interpretation to NYSE Rule 345A to 
reflect the changes made to the Rule. The instant proposal now 
conforms the Interpretation to the requirements of NYSE Rule 345A. 
Telephone conversation between Donald Van Weezel, Managing Director, 
Regulatory Affairs, NYSE, and Katherine England, Assistant Director, 
Division, SEC, and Joseph Morra, Special Counsel, Division, SEC, 
January 11, 2001.
---------------------------------------------------------------------------

    Further, paragraph /05 will be amended to delete the provision 
addressing members and member organizations whose personnel are not 
included in the CRD system. After November 13, 2000, all member 
organization personnel will be included in the CRD database and will be 
tracked for continuing education training purposes.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the Act and the rules and regulations thereunder applicable to a 
national securities exchange in general, and in particular, with the 
requirements of Section 6(b)(5).\6\ Section 6(b)(5) requires, among 
other things, that the rules of an exchange be designed to promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and national market system, and 
in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \6\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The NYSE believes the proposed rule change is also consistent with 
Section 6(c)(3)(B) of the Act.\7\ Under Section 6(c)(3)(B), it is the 
Exchange's responsibility to prescribe standards for training, 
experience and competence for persons associated with Exchange members 
and member organizations. The Exchange has proposed this rule change to 
establish an additional mechanism for the administration of the 
Regulatory Element of the Continuing Education Program, which will 
enable registered persons to satisfy their continuing education 
obligations.
---------------------------------------------------------------------------

    \7\ 15 U.S.C. 78f(c)(3)(B).
---------------------------------------------------------------------------

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, 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 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 NYSE. All submissions should refer to file 
number SR-NYSE-00-55 and should be submitted by February 12, 2001.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission has reviewed carefully the NYSE's proposed rule 
change and Amendment No. 1, and finds, for the reasons set forth below, 
the proposal is consistent with the requirements of Section 6 of the 
Act \8\ and the rules and regulations thereunder applicable to a 
national securities exchange.\9\ Specifically, the Commission finds the 
proposal is consistent with Section 6(b)(5) of the Act \10\ because it 
should facilitate compliance with the Regulatory Element of the 
Continuing Education Program. Under this proposal, firms will be able 
to deliver the Regulatory Element to their employees in-house. The 
Commission is satisfied that the proposal provides reasonable 
safeguards to uphold the integrity of the program, consistent with the 
requirements specified by the Securities Industry/Regulatory Council.
    The Commission also finds the proposal is consistent with Section 
6(c)(3)(B) of the Act,\11\ because the proposal provides an additional 
mechanism for the administration of the Regulatory Element of the 
Continuing Education Program, which should make it easier for 
registered persons to satisfy their continuing education obligations.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \9\ In approving the proposal, the Commission has considered its 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ 15 U.S.C. 78f(c)(3)(B).
---------------------------------------------------------------------------

    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 Commission notes that the 
proposed is very similar to SR-NASD-00-64, which the Commission 
approved after the proposal was published for a full 21-day notice and 
comment period.\12\ Approving this proposal will allow NYSE firms to 
take advantage of the in-house delivery option, which NASD member firms 
are

[[Page 6726]]

already able to do. Additionally, approval of this proposal will 
conform the Interpretation to Rule 345A to the requirements of NYSE 
Rule 345A, which Rule was amended in 1998. The Commission finds, 
therefore, that granting accelerated approval of the proposed rule 
change, as amended, is appropriate and consistent with the Act.
---------------------------------------------------------------------------

    \12\ See Securities Exchange Act Release No. 43701 (December 11, 
2000), 65 FR 79143 (December 18, 2000) (Order approving in-firm 
delivery of the Regulatory Element of the Continuing Education 
Requirements). The NASD proposal received one comment letter in 
support of the proposal, and none in opposition. The only 
substantive difference between the NASD in-firm delivery rules and 
the NYSE proposal is the NYSE requires an annual representation that 
each member and member organization has continued to maintain and 
comply with all required procedures regarding firm delivery of the 
Regulatory Element for the previous year. The NASD rules require a 
one-time attestation. Conversation between Mary Ann Furlong, NYSE, 
and Joseph P. Morra, Special Counsel, Division, SEC, December 12, 
2000.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2) of Act,\13\ 
that the proposed rule change (SR-NYSE-00-55), as amended, is hereby 
approved on an accelerated basis.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Johnathan G. Katz,
Secretary.
[FR Doc. 01-1803 Filed 1-19-01; 8:45 am]
BILLING CODE 8010-01-M