[Federal Register Volume 66, Number 182 (Wednesday, September 19, 2001)]
[Notices]
[Pages 48301-48303]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23308]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44787; File No. SR-NASD-2001-53]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of a Proposed Rule Change by the National 
Association of Securities Dealers, Inc. Amending Rule 11870, Customer 
Account Transfer Contracts

September 12, 2001.
    Pursuant to Section 19(b)(1) of the Securities Exchange of 1934 
(``Act''),\1\ notice is hereby given that on August 16, 2001, the 
National Association of Securities Dealers, Inc. (``NASD''), through 
its wholly owned subsidiary, NASD Regulation, Inc. (``NASD-R'') filed 
with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by NASD-R. The Commission is publishing this notice 
and order to solicit comments on the proposed rule change from 
interested persons and to grant accelerated approval.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

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

    NASD Regulation proposes to amend NASD Uniform Practice Code Rule 
11870(c) and 11870(d) in order to expedite the transfer of customer 
accounts that contain proprietary or third party products (e.g., mutual 
funds or money market funds) that the receiving member cannot receive 
or carry.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASD-R 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 
test of these statements may be examined at the places specified in 
Item IV below NASD-R has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.\2\
---------------------------------------------------------------------------

    \2\ The Commission has modified the text of the summaries 
prepared by NASD.

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

[[Page 48302]]

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 conform Uniform 
Practice Code Rule 11870 to recent modifications to the Automated 
Customer Account Transfer Service (``ACATS''), which is administered by 
the National Securities Clearing Corporation (``NSCC''). Recent ACATS 
modifications offer the capability to facilitate the transfer of 
accounts containing third party and/or proprietary products. The 
proposed changes to NASD Rules 11870(c) and 11870(d) would correspond 
to those modifications and would give member firms the ability to 
expedite the transfer of such accounts. The proposed rule change also 
conforms the NASD Rules to a recent amendment to the Interpretation of 
the New York Stock Exchange (``NYSE'') Rule 412.\3\
---------------------------------------------------------------------------

    \3\ Securities Exchange Act Release No. 44596 (July 26, 2001), 
66 FR 40306 (Aug. 2, 2001).
---------------------------------------------------------------------------

    Under current Rules 11870(c) and 11870(d), when a customer whose 
securities account is carried by a member (``carrying member'') wishes 
to transfer the entire account to another member (``receiving member'') 
the customer submits a signed broker-to-broker transfer instruction to 
the receiving member. The receiving member immediately submits the 
instruction to the carrying member, and the carrying member has three 
business days either to validate and return the transfer instruction to 
the receiving member (with an attachment reflecting all positions and 
money balances as shown on its books) or to take exception to the 
instruction. Prior to or at the time of validation of the transfer 
instruction, the carrying member must request in writing instructions 
from the customer with respect to the disposition of any assets in the 
account that it identifies as nontransferable, including any asset that 
is a proprietary product of the carrying member. The customer may ask 
the carrying member to liquidate the asset, continue to retain the 
asset, or physically transfer the asset in the customer's name to the 
customer.
    The account, however, also may contain assets that have not been 
identified by the carrying member as nontransferable because they are 
the product of a third party (e.g., mutual fund/money market fund) with 
which the receiving member does not maintain the relationship or 
arrangement necessary to receive/carry the assets. Notwithstanding the 
presence of such assets in the account, the carrying member currently 
must include such assets in the transfer of the account, the carrying 
member currently must include such assets in the transfer of the 
account. If the receiving member is unable to receive/carry an asset 
that is a product of a third party, the receiving member must send the 
asset back to the carrying member.
    The carrying member must complete the transfer of the account to 
the receiving member within three business days following the 
validation of a transfer instruction, The receiving member and the 
carrying member must immediately establish fail-to-receive and fail-to-
deliver contracts at then-current market values upon their respective 
books against the long positions and short positions, respectfully, in 
the customer's account that have not been delivered or received, and 
the receiving member must debit and the carrying member must credit the 
related money amount. These fails require substantial processing time 
for both the carrying and receiving members and require carrying 
members to credit the receiving firm funds equivalent to the value of 
the assets they are unable to deliver. These fails can also cause 
customers confusion in that customers receive multiple account 
statements from the carrying and receiving firms as the firms transfer 
and then reverse transactions.
    The proposed rule change would require the receiving member upon 
receipt of the asset validation report to designate any assets that are 
the product of a third party with which the receiving member does not 
maintain the relationship or arrangement necessary to receive/carry the 
asset for the customer's account. The carrying member upon receipt of 
such designation may treat such designated assets as nontransferable 
and refrain from transferring the designated assets.
    The receiving member after designating those third party assets it 
is unable to receive/carry would have to provide the customer with a 
list of those assets and request instructions from the customer 
regarding their disposition. The customer would be given the 
alternatives of having to liquidate the assets, having the carrying 
broker-dealer continue to retain the assets, having the assets 
physically transferred in the customer's name to the customer, or 
transferring the assets to the third party that is the original source 
of the product for credit to an account opened by the customer with the 
third party.
    The proposed rule change would also deem as a nontransferable asset 
a proprietary product of the carrying member unless the receiving 
member agrees to accept transfer of the assets.
    Current Rule 11870(d)(3)(C) provides that a member may take 
exception to a transfer instruction if the account number is invalid 
(account number is not on the carrying member's books). The proposed 
change to Rule 11870(d)(3)(C) will make clear that the carrying member 
is responsible for tracking account number changes; therefore, an 
account number that has been changed due to internal reassignment of an 
account to another broker or account executive with the carrying member 
will not be considered invalid for purposes of taking exception to a 
transfer instruction.
2. Statutory Basis
    NASD-R believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act, which requires, among 
other things, that NASD's rules be 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. NASD-R believes that the proposed rule change is 
designed to accomplish these goals by making the transfer of customer 
accounts faster and more efficient, reducing customer confusion, and 
facilitating the transfer of third-party and proprietary products. The 
proposed rule change will also conform NASD requirements to recent 
amendments to the Interpretation of NYSE Rule 412.

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

    NASD-R does not believe that the proposed rule change will result 
in 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

    Written comments were neither solicited nor received.

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

    The Commission finds that the proposed rule change is consistent 
with the requirements of Section 15A of the Act, which requires, among 
other things, that the rules of a national securities association be 
designed to remove the impediments to and perfect the mechanism of a 
free and open market and a national market system

[[Page 48303]]

and protect investors and the public interest.\4\ These obligations are 
met when procedures governing the transfer of customer accounts are 
made more efficient. The rule change should eliminate the present need 
for reversing the transfer of third party and/or proprietary products, 
thereby reducing delay, and also reduce the cost of customer transfers 
incurred by members under the current system. For example, the proposed 
designation and notice requirements on the part of the receiving firm 
should reduce the overall timeframe for transferring or disposing of 
third party products and should lower the related costs incurred by 
NASD's members. The rule change should also reduce customer confusion 
and facilitate decisions by customers concerning the disposition of 
proprietary and third party products. Finally, because the proposed 
rule change is designed to conform NASD Rules 11870(c) and 11870(d) 
with recent amendments to the Interpretation of NYSE Rule 412, the 
proposal should help provide uniformity.
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78o-3.
---------------------------------------------------------------------------

    NASD-R has requested that the Commission find good cause pursuant 
to Section 19(b)(2) of the Act \5\ for approving the proposed rule 
change prior to the thirtieth day after publication of notice of the 
filing in the Federal Register. The Commission finds good cause for 
approving the proposed rule change prior to the thirtieth day after the 
date of publication in the Federal Register because accelerated 
approval will allow the NASD to implement these changes when NSCC 
implements changes to ACATS. The Commission is approving the proposed 
rule change prior to the expiration of the comment period in order to 
permit the NASD to conform its rule with the NYSE and benefit customers 
as soon as possible.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

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, N.W., Washington, D.C. 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 NASD's principal office. All 
submissions should refer to File No. SR-NASD-2001-53 and should be 
submitted by October 10, 2001.
    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NASD-2001-53) be, and hereby 
is, approved on an accelerated basis.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\6\
---------------------------------------------------------------------------

    \6\ 17 CFR 200.30-3(a)(12).

Margaret H McFarland,
Deputy Secretary.
[FR Doc. 01-23308 Filed 9-18-01; 8:45 am]
BILLING CODE 8010-01-M