[Federal Register Volume 66, Number 99 (Tuesday, May 22, 2001)]
[Notices]
[Pages 28210-28212]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12791]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44302; File No. SR-NYSE-00-61]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the New York Stock Exchange, Inc., To Amend the 
Interpretation of NYSE Rule 412, ``Customer Account Transfer 
Contracts''

May 14, 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 22, 2000, the New York Stock Exchange, Inc. (``NYSE''), 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change and on February 12, 2001, amended the proposed 
rule change \3\ as described in Items I, II, and III below, which Items 
have been prepared primarily by the NYSE. The Commission is publishing 
this notice to solicit comments on the amended proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Letter from Darla C. Stuckey, Assistant Secretary, NYSE to 
Jerry Carpenter, Assistant Director, Division of Market Regulation 
(February 8, 2001).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The NYSE proposes to amend its Interpretation of NYSE Rule 412, 
``Customer Account Transfer Contracts,'' to expedite the transfer of 
customer accounts containing proprietary and/or third party products. 
The text of the proposed rule change is available upon request from the 
NYSE's Office of the Secretary or through the Commission's Public 
Reference Branch.

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 NYSE included statements 
concerning the prupose 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 NYSE has prepared summaries, set forth in sections 
A, B, and C below, of the most significant aspects of such 
statements.\4\
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    \4\ The Commission has modified the text of the summaries 
prepared by the NYSE.
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A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    a. Introduction. NYSE Rule 412 prescribes procedures for member 
organizations transfering customer accounts and requires the use of the 
automated Customer Account Transfer Service (``ACATS'') which is 
administered by the National Securities Clearing Corporation 
(``NSCC''). Since ACATS's inception in 1985, several enhancements to 
the system and to NYSE Rule 412 have allowed for faster and more 
efficient transfers to customer accounts. Recent ACATS modifications 
offer the capability to facilitate the transfer of accounts containing 
third party and/or proprietary products. The proposed amendments to the 
Interpretation of NYSE Rule 412 relate to these modifications and would 
provide the number greater flexibility to expedite the transfer of such 
accounts.
    b. Background. The transfer process is initiated when, upon a 
customer's written instructions, the receiving firm \5\ submits a 
Transfer Instruction Form or Transfer Initiation Form (``TIF'') to the

[[Page 28211]]

carrying firm.\6\ Although most securities can be transferred through 
ACATS, member organizations vary widely in their ability to accept and 
support certain proprietary and/or third party investment products. 
These differences in servicing capability are particularly problematic 
with regard to mutual funds.
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    \5\ Within the context of NYSE Rule 412, the term ``receiving 
firm'' refers to a member organization to which a customer is 
transferring his account.
    \6\ Within the context of NYSE Rule 412, the term ``carrying 
firm'' refers to a member organization from which a customer is 
transferring his account.
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    In order to carry a mutual fund position for a customer's account, 
the member organization must have a marketing agreement with the 
investment company that has issued the fund and must have certain 
corresponding servicing capabilities (e.g., capacity to by and sell 
shares, reinvest dividends, etc.). The extraordinarily large number of 
mutual funds that have become available over the last decade has 
resulted in great variance among member organizations with respect to 
the third party funds they can sell, service, and support.
    c. Current Situation. In the current ACATS environment, a carrying 
firm must deliver third party client mutual funds without knowing 
whether the receiving firm has the capability to accept, service, and 
support such funds. If the receiving firm cannot support a particular 
fund, the delivery will be made to the receiving firm and then to be 
reversed back to the carrying firm, resulting in substantial processing 
time by both firms and an overall delay in completing the transfer. To 
illustrate the point, member organizations approximate that 50% of 
their ACATS ``fails-to-deliver'' that must ultimately be reversed are 
caused by mutual funds the receiving firm is unable to support. The 
ACATS-generated fails result in considerable expense to carrying firms 
because they are required to credit the receiving firm funds equivalent 
to the value of the assets they are unable to deliver.
    d. Proposed Amendments to the Interpretation of NYSE Rule 412. The 
proposed amendments to paragraphs (b)(1)/01,/04, and /06 of the 
Interpretation of NYSE Rule 412, in conjunction with the corresponding 
modifications to the ACATS system, would allow the receiving firm to 
review an asset validation report provided by the carrying firm and 
designate those proprietary and/or third party products (i.e., mutual 
funds/money market funds) it is unable to support. As to those products 
it is unable to support, the receiving firm would have to provide the 
customer with a list of the specific assets and request in writing 
prior to or at the time it makes such designation, further instructions 
from the customer with respect to the disposition of such assets. The 
customer would, at minimum, have to be provided with the following 
options':
    (1) Liquidation;
    (2) Retention by the carrying organization;
    (3) Physical shipment in the customer's name to the customer; or
    (4) Transfer to the third party that is the original source of the 
product.\7\
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    \7\ Rule 412(b)(/06(B).
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    The transfer of the other assets in the account would be undertaken 
simultaneously with the receiving firm's designation of nontransferable 
assets. The proposed designation requirements on the part of the 
receiving firm should reduce the overall timeframe for transferring 
proprietary and/or third party products and should lower the related 
costs incurred by member organizations.
    The proposed amendments also include a notification enhancement 
that will expedite the disposition of nontransferable carrying firm 
proprietary products.\8\ The current Interpretation requires that the 
carrying organization provide general notification to the customer if 
an account to be transferred contains any nontransferable assets. The 
proposed amendments would require the carrying organization to notify 
the customer of the specific nontransferable, proprietary assets of the 
carrying firm that are in the account and would further require the 
carrying organization to provide the customer with a list of those 
specific assets.
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    \8\ Rule 412(b)(1)/06(A).
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    e. Internal Reassignment of Accounts. An additional amendment to 
the Interpretation of NYSE Rule 412 \9\ is being proposed to address 
situations where a carrying organization internally reassigns customer 
accounts to other registered representatives and establishes new 
account numbers. The proposed amendment places responsibility for 
tracking these account number changes with the carrying organization 
and makes clear that a transfer request rejected on the basis of such 
reassignment will not be considered a legitimate exception under the 
new rule.
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    \9\ Rule 412(b)(1)/02.
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2. Statutory Basis
    The NYSE believes the proposed rule change is consistent with 
section 6(b) of the Act \10\ in general and furthers the objectives of 
section 6(b)(5) of the Act \11\ in particular in that it is designed 
to: promote just and equitable principles of trade, remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and protect investors and the public interest. These 
interests are served when procedures governing the transfer of customer 
accounts are made more efficient.
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    \10\ 15 U.S.C. 78f.
    \11\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The NYSE believes that the proposed rule change will not impose any 
burden on competition that is not necessary or appropriate in the 
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 NYSE has neither solicited nor received written comments on the 
proposed rule change.

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

    Within thirty-five 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 ninety 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 Exchange 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, 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

[[Page 28212]]

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 NYSE's 
principal office. All submissions should refer to File No. SR-NYSE-00-
61 and should be submitted by June 12, 2001.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\12\
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    \12\ 17 CFR 200.30-2(a)(12).
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Jonathan G. Katz,
Secretary.
[FR Doc. 01-12791 Filed 5-21-01; 8:45 am]
BILLING CODE 8010-01-M