[Federal Register Volume 66, Number 149 (Thursday, August 2, 2001)]
[Notices]
[Pages 40306-40307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-19280]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44596; File No. SR-NYSE-00-61]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the New York Stock Exchange, Inc., Amending the 
Interpretation of NYSE Rule 412, ``Customer Account Transfer 
Contracts''

July 26, 2001.
    On December 22, 2000, the New York Stock Exchange, Inc., (``NYSE'') 
filed with the Securities and Exchange Commission (``Commission'') a 
proposed rule change pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') and on February 12, 2001, amended the 
proposed rule change.\1\ Notice of the proposal was published in the 
Federal Register on May 22, 2001.\2\ Four comment letters were 
received.\3\ For the reasons discussed below, the Commission is 
approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 44302 (May 14, 2001), 66 
FR 28210.
    \3\ Letters to Jonathan G. Katz, Secretary, Commission from 
Richard Bommer, President, Customer Account Transfer Division, 
Securities Industry Association (June 6, 2001); Brian Warshaw, 
Director, Merrill Lynch, Pierce, Fenner & Smith (June 8, 2001); 
Pattie Schuchman, Associate Vice President, A.G. Edwards & Sons, 
Inc. (June 11, 2001); and Frederic M. Krieger, Senior Vice 
President, Charles Schwab & Co., Inc. (June 15, 2001).
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I. Description

    NYSE Rule 412, ``Customer Account Transfer Contracts,'' prescribes 
procedures for member organizations transferring customer accounts and 
requires the use of the Automated Customer Account Transfer Service 
(``ACATS'') that 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 of customer accounts. Recent ACATS 
modifications facilitate the transfer of accounts containing third 
party and/or proprietary products.
    In the current ACATS environment, a carrying firms must deliver 
third party 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 firms and then reversed back to the carrying 
firm. This results in substantial processing time by both firms and an 
overall delay in completing the transfer.\4\
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    \4\ NYSE-member organizations approximate that 50% of their 
ACATS ``fails-to-deliver'' that are ultimately reversed are caused 
by the attempted transfer of mutual funds that 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.
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    The proposed amendments to paragraphs (b)(1)/01, /04, and /06 of 
the Interpretation of NYSE Rule 412, in conjunction with the 
corresponding recent modifications to the ACATS system, require the 
receiving firms to review an asset validation report provided by the 
carrying firms and designate those third party products (i.e., mutual 
funds/money market funds) it is unable to support. Regarding the third 
party products it is unable to support, the receiving firm will have to 
provide the customer with a list of the specific assets and will have 
to request in writing further instructions from the customer with 
respect to the disposition of those third party products prior to or at 
the time it makes such a designation. The customer would, at minimum, 
have to be provided with the following options: (1) Liquidation; (2) 
retention by the carrying organization; (3) physical delivery in the 
customer's name to the customer; or (4) transfer to the third party 
that is the original source of the product. The transfer of the other 
assets in the account will be undertaken simultaneously with the 
receiving firm's designation of nontransferable assets.
    The amendments also include a notification enhancement that will 
expedite the disposition of nontransferable proprietary products of

[[Page 40307]]

the carrying firm. 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 
amendments require the carrying organization to provide the customer 
with a list of the specific nontransferable, proprietary products of 
the carrying firm that are in the customer's account.
    Finally, the NYSE is amendment the Interpretation of Rule 412 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 Rule 
412.

II. Comments

    The Commission received four comment letters. All the commenters 
expressed strong support for the proposed changes to the Interpretation 
of Rule 412 discussed above.

III. Discussion

    The Commission finds that the proposed rule change is consistent 
with the Act's requirements and the rules and regulations thereunder 
and particularly with the requirements of Section 6(b)(5) of the 
Act.\5\ Section 6(b)(5) of the Act \6\ requires that the rules of a 
national securities exchange be designed to 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 
obligations are met when procedures governing the transfer of customer 
accounts are made faster and more efficient. For example, 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 NYSE's 
member organizations. The change to the Interpretation should also 
reduce customer confusion and facilitate decisions by customers 
concerning the disposition of proprietary and third party products.
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    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the act and in 
particular with the requirements of Section 17A of the Act and the 
rules and regulations thereunder.
    It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NYSE-00-61) be, and hereby 
is, approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-19280 Filed 8-1-01; 8:45 am]
BILLING CODE 8010-01-M