[Federal Register Volume 66, Number 249 (Friday, December 28, 2001)]
[Notices]
[Pages 67341-67342]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31918]


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SECURITIES AND EXCHANGE COMMISSION

[Securities Exchange Act of 1934, Release No. 45179/December 20, 2001]


Secutities Industry Association 1401 Eye Street, NW., Washington, 
DC 20005-2225; Order Extending Broker-Dealer Exemption From Sending 
Financial Information to Customers

    The Securities and Exchange Commission (``Commission'') is 
extending its temporary Order issued December 10, 1999\1\ under Section 
17(e) of the Securities Exchange Act of 1934 (``Exchange Act'') 
exempting broker-dealers from Exchange Act Section 17(e)(1)(B) and Rule 
17a-5(c). These sections require a broker-dealer to send each of its 
customers semi-annually its balance sheet with appropriate footnotes 
prepared in accordance with generally accepted accounting principles 
(``GAAP'') and a footnote disclosing the firm's net capital and 
required net capital. To take advantage of the exemption, a broker-
dealer must semi-annually send the net capital footnote to its 
customers, must send its balance sheet and appropriate footnotes to 
customers upon request via a toll-free number, and must place its 
balance sheet and appropriate footnotes on its Web site.
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    \1\ Exchange Act Release No. 42222.
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    The Commission's temporary Order established a pilot program which 
expires on December 31, 2001. During the pilot program, a broker-dealer 
taking advantage of the exemption was required, among other things, to 
report to the Commission the number of times its balance sheet was 
viewed on its Web site and the number of requests for paper copies 
received via its toll-free number. In a letter dated December 11, 2001, 
the Securities Industry Association (``SIA'') stated that it supported 
an extension of the exemption.
    The Commission has determined, on the basis of information set 
forth in the SIA's letter and information reported by broker-dealers 
taking advantage of the exemption, that extending the exemption for one 
year is consistent with the public interest and the protection of 
investors. The Commission intends to propose a rule amendment shortly 
which would make the relief permanent.
    A broker-dealer exempted under this Order must comply with each of 
the following requirements:
    (1) The broker-dealer semi-annually sends its customers, at the 
times it otherwise would have sent its customers its balance sheet in 
accordance with Rule 17a-5(c), a statement which includes: (a) The 
amount of the broker-dealer's net capital and its required net capital 
in accordance with Rule 15c3-1, (b) to the extent required under Rule 
17a-5(c)(2)(ii), a description of the effect on the broker-dealer's net 
capital and required net capital of subsidiaries consolidated pursuant 
to Appendix C of Rule 15c3-1 (jointly the ``Net Capital Disclosure''), 
and (c) any statements otherwise required by Rule 17a-5(c)(2)(iii)-
(iv).\2\
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    \2\ A broker-dealer may comply with this requirement by: (a) 
delivering the statements to its customers in paper copy form or (b) 
transmitting the statements to its customers electronically.
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    (2) The above statement is given prominence in the materials sent 
to its customers and includes an appropriate caption stating that 
customers may obtain the broker-dealer's balance sheet (in the case of 
the annual balance sheet, audited and with the auditor's certification) 
at no cost, by accessing the broker-dealer's Web site or calling the 
broker-dealer's stated toll-free number. The statement must provide the 
specific Internet Universal Research Locator (URL) at which the broker-
dealer's balance sheet is located.
    (3) The broker-dealer publishes a balance sheet prepared in 
accordance with GAAP, including footnotes and the Net Capital 
Disclosure, accessible through each of the following Internet 
locations:
    (a) The broker-dealer's Website homepage, containing a hyperlink 
providing a direct link to the broker-dealer's balance sheet;
    (b) Each page at which a customer can log-on to the broker-dealer's 
Website, containing a hyperlink providing a

[[Page 67342]]

direct link to the broker-dealer's balance sheet; and
    (c) If the Websites for two or more broker-dealers can be accessed 
from the same home page, a hyperlink directing the Internet user to the 
home page of each broker-dealer. Upon reaching the broker-dealer's home 
page, the home page contains a hyperlink providing a direct link to the 
particular broker-dealer's balance sheet.
    Each of the above hyperlinks is placed on the broker-dealer's 
Website, in either textual or button format, as a separate, prominent 
link, in a manner that is clearly visible.\3\
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    \3\ This Order exempts certain firms from the delivery 
requirement under Rule 17a-5(c), in part, based on the protections 
afforded by the Commission's financial responsibility rules. The 
condition that a broker-dealer makes its balance sheet available on 
its Website is not an alternative method of delivering this 
information to customers under Rule 17a-5(c).
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    (4) The broker-dealer maintains a toll-free number that customers 
can call to request a paper or electronic copy of its balance sheet.
    (5) If a customer requests a paper or electronic copy of the 
broker-dealer's balance sheet, the firm sends it promptly at no cost to 
the customer.
    (6) If the broker-dealer's net capital falls below the early 
warning levels of Rule 17a-11 and the broker-dealer fails to cure the 
relevant deficiency within 24 hours, or if the broker-dealer's auditors 
determine that a material inadequacy exists with regard to any of the 
financial disclosures contained in the audited financial statements or 
in the broker-dealer's internal controls, the firm returns to sending 
its balance sheet as required under Rule 17a-5(c), including footnotes, 
by the next date that financial disclosures are required, until the 
deficiency or material inadequacy is cured.
    (7) The broker-dealer submits to the Commission, addressed to 
Division of Market Regulation, United States Securities and Exchange 
Commission, 450 5th Street, NW., Washington, DC 20549-1001, no later 
than 60 days after each distribution of its published statement 
containing the Net Capital Disclosure:
    (a) A report on the number of requests that the broker-dealer has 
received for copies of its balance sheet via its toll-free number and 
the number of times its balance sheet has been viewed on its Website. 
The report contains the number of requests received in the month 
following its Website publishing of its recent balance sheet and, 
except in the case of the first Website publishing, in the preceding 
six months; and
    (b) Written investor complaints regarding the exemption received by 
the broker-dealer in the preceding six months.
    Accordingly,
    It is ordered, under Exchange Act Section 17(e)(1)(C) and Rule 17a-
5(l)(3), that the exemption from Exchange Act Section 17(e)(1)(B) and 
Rule 17a-5(c) granted in Exchange Act Release No. 42222 is extended to 
December 31, 2002.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-31918 Filed 12-27-01; 8:45 am]
BILLING CODE 8010-01-U