[Federal Register Volume 67, Number 86 (Friday, May 3, 2002)]
[Notices]
[Pages 22472-22473]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11005]


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SECURITIES AND EXCHANGE COMMISSION

[Release No.34-45830; File No. SR-Phlx-2002-29]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change Relating to Phlx Rule 757, 
Anti-Money Laundering Compliance Program

April 26, 2002.
    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 April 24, 2002, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared substantially by the 
self-regulatory organization. The Commission is publishing this notice 
to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Phlx proposes to adopt Rule 757, Anti-Money Laundering 
Compliance Program. The proposed rule would require each member, member 
organization, participant and participant organization (``members''), 
for which the Exchange is the Designated Examining Authority (``DEA''), 
to develop and implement an anti-money laundering compliance program 
consistent with applicable provisions of the Bank Secrecy Act (``BSA'') 
and the Regulations thereunder.

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 self-regulatory organization 
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 Phlx 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 and Background
    In 2001, President Bush signed into law, the USA PATRIOT Act of 
2001 (the ``PATRIOT Act'')\3\, which amends among other laws the Bank 
Secrecy Act as set forth in Title 31 of the United States Code (the 
``Code''). The PATRIOT Act expands the powers of the government to 
fight the war on terrorism and requires that financial institutions, 
including broker-dealers, implement policies and procedures to that 
end.
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    \3\ USA PATRIOT Act stands for ``Uniting and Strengthening 
America by Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism.''
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    Title III of the Patriot Act, separately referred to as the 
International Money Laundering Abatement and Financial Anti-Terrorism 
Act of 2001 (the ``Money Laundering Act'') focuses on the requirement 
that financial institutions establish anti-money laundering, 
monitoring, and supervisory systems.\4\ The Money Laundering Act 
imposes obligations on brokers and dealers through the new provisions 
and amendments to the BSA. Among other things, brokers and dealers must 
implement anti-money laundering compliance programs, prepare and file 
suspicious transaction reports, and follow due diligence procedures. 
Brokers and dealers will be required to comply with these new 
obligations in addition to continuing to comply with existing BSA 
reporting and record-keeping requirements.\5\] The Money Laundering Act 
Section 352, which amends Section 5318(h) of the Code, requires each 
financial institution to establish anti-money laundering programs by 
April 24, 2002, that include at a minimum (1) the development of 
internal policies, procedures and controls; (2) the designation of a 
compliance officer; (3) an ongoing employee training program; and (4) 
an independent audit function to test programs.
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    \4\ The statutory definition of ``financial institution'' in the 
Money Laundering Act is exceptionally broad and encompasses 26 
separate categories. 31 U.S.C. 5312(a)(2). Specifically the 
definition includes, inter alia, an insured bank, a commercial bank 
or trust company; a private banker, an agency or branch of a foreign 
bank in the United States, a thrift institution, a broker or dealer 
registered with the Securities and Exchange Commission under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), a broker 
dealer in securities or commodities, an investment banker or 
investment company, a currency exchange, an insurance company, a 
loan or finance company, and any business or agency which engages in 
any activity which the Secretary of the Treasury determines, by 
regulation, to be activity which is similar to, or a substitute for 
any activity in which any business described in Sec. 5312 (a)(2) is 
authorized to engage.
    \5\ In addition to the direct requirement of the BSA, and the 
regulations thereunder, Rule 17a-8 under the Act (17 CFR 240.17a-8) 
requires broker/dealers to comply with the recordkeeping and 
reporting requirements of the BSA and related regulations, including 
the obligation to file reports and make and preserve records in 
connection with certain transactions generally exceeding $10,000 and 
involving currency or the physical transport of currency into or out 
of the United States.
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    The legislative history of the PATRIOT Act explains that the 
requirement to have an anti-money laundering compliance program is not 
a ``one-size-fits-all'' requirement. The general nature of the 
requirements reflect Congress' intent that each financial institution 
should have the flexibility to tailor the anti-money laundering 
programs to fit its business, taking into account factors such as size, 
location, activities of the firm's business and the risks or 
vulnerabilities to money laundering in the firm. This flexibility is 
designed to ensure that all entities covered by the statute, from very 
large financial institutions to the small firms, have in place policies 
and procedures to

[[Page 22473]]

monitor for anti-money laundering compliance.\6\
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    \6\ See USA PATRIOT Act of 2001: Consideration of H.R. 3162 
Before the Senate (October 25, 2001) (statement of Sen. Sarbanes); 
Financial Anti-Terrorism Act of 2001: Consideration Under Suspension 
of Rules of H.R. 3004 Before the House of Representatives (October 
17, 2001) (statement of Rep. Kelley) (provisions of the Financial 
Anti-Terrorism Act of 2001 were incorporated as Title III in the USA 
PATRIOT Act.)
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    The Exchange anticipates providing guidance in the form of a floor 
memorandum to assist members in developing an anti-money laundering 
program that fits their business model and needs.
2. Statutory Basis
    For these reasons, the Exchange believes that its proposal is 
consistent with section 6(b) of the Act in general and further the 
objectives of Section 6(b)(5)\7\ 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 national 
market system and to protect investors and the public interest by 
establishing minimum requirements for anti-money laundering compliance 
programs for Exchange members for which the Exchange is the DEA. The 
programs are designed to help identify and prevent money laundering 
that can affect the integrity of the U.S. capital markets.
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    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Phlx does not believe that the proposed rule change will impose 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    Within 35 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 90 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 self-regulatory organization 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 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 the filing will also be 
available for inspection and copying at the principal office of the 
Phlx. All submissions should refer to SR-Phlx-2002-29 and should be 
submitted by May 24, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-11005 Filed 5-2-02; 8:45 am]
BILLING CODE 8010-01-P