[Federal Register Volume 67, Number 161 (Tuesday, August 20, 2002)]
[Notices]
[Pages 54006-54007]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-21129]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46344; File No. SR-NYSE-2001-44]


Self-Regulatory Organizations; Order Approving a Proposed Rule 
Change and Amendment No. 1 Thereto and Notice of Filing and Order 
Granting Accelerated Approval of Amendment No. 2 of the Proposed Rule 
Change by the New York Stock Exchange, Inc. Relating to NYSE Rule 407 
(``Transactions--Employees of Members, Member Organizations and the 
Exchange'')

August 13, 2002.
    On October 22, 2001, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ the proposed rule change to incorporate and amend an 
existing written interpretation of NYSE Rule 407 to require that 
associated persons obtain their employers' written approval before 
entering into private securities transactions, and define the terms 
``securities or commodities account,'' ``private securities 
transactions,'' and ``other financial institution.'' The proposed rule 
change was published in the Federal Register on December 4, 2001.\3\ 
The Commission received three comments on the proposed rule change.\4\ 
On December 12, 2001, the Exchange submitted Amendment No. 1 to the 
proposed rule change.\5\ On April 16, 2002, the NYSE filed a response 
to the comment letters.\6\ On July 3, 2002, the NYSE submitted 
Amendment No. 2 to the proposed rule change.\7\ This order approves the 
proposed rule change, as amended, and approves Amendment No. 2 on an 
accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 45097 (November 21, 
2001), 66 FR 63084.
    \4\ See letters to Jonathan G. Katz, Secretary, Commission, from 
Michael Dardis, Vice President, Compliance Manager, Wells Fargo 
Investments, dated January 11, 2002 (``Wells Fargo Letter''); and 
Les Klein, Managing Director, Solomon Smith Barney, dated January 
11, 2002 (``SSB Letter''). See also letter from Brian C. Underwood, 
Senior Vice President, Director of Compliance, A.G. Edwards & Sons, 
Inc., to Katherine England, Assistant Director, Division of Market 
Regulation (``Division''), Commission, dated January 24, 2002 
(``A.G. Edwards Letter'').
    \5\ See letter from James E. Buck, Senior Vice President and 
Secretary, NYSE, to Nancy Sanow, Assistant Director, Division, 
Commission, dated December 11, 2001 (``Amendment No. 1''). Amendment 
No. 1 modifies the proposed definition of a ``securities or 
commodities account,'' by adding a non-inclusive phrase to be 
consistent with the proposed definitions of other terms in the 
proposed rule text. This was a technical amendment and is not 
subject to notice and comment.
    \6\ See letter from Richard P. Bernard, Executive Vice President 
and General Counsel, NYSE, to Nancy Sanow, Assistant Director, 
Division, Commission, dated April 15, 2002 (``NYSE Response 
Letter'').
    \7\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Katherine A. England, Assistant Director, Division, Commission, 
dated July 5, 2002 (``Amendment No. 2''). Amendment No. 2 clarifies 
that the proposed rule text shall apply to associated persons of 
members or member organizations that either establish or maintain a 
securities or commodities account, or a private securities 
transaction. In addition, Amendment No. 2 modifies the proposed rule 
text to require members and member organizations to develop and 
maintain written procedures for reviewing any securities or 
commodities accounts, or private securities transactions.
---------------------------------------------------------------------------

I. Description of the Proposed Rule Change

    NYSE Rule 407(b) requires that members, allied members and 
employees obtain prior written consent from their employers in order to 
open and maintain a securities or commodities account at another 
broker-dealer, investment adviser, bank or other financial institution. 
Employers of such associated persons must receive duplicate 
confirmations and statements of such accounts.
    The Exchange proposes to amend NYSE Rule 407, and incorporate and 
amend an existing interpretation of NYSE Rule 407 in the NYSE 
Interpretation Handbook, to require that associated persons of members 
or member organizations obtain their employers' written approval 
(rather than notification) before entering into private securities 
transactions. The Exchange also proposes that associated persons 
effecting private securities transactions shall arrange for duplicate 
confirmations and statements (or their equivalents) to be sent to 
another person designated by their member or member organization under 
NYSE Rule 342(b)(1) (``Offices--Approval, Supervision and Control'') to 
periodically review such transactions.
    The Exchange proposes to define the terms ``securities or 
commodities account,'' ``private securities transactions'' and ``other 
financial institution.'' The Exchange also proposes to amend NYSE Rule 
407 to provide the Exchange with the general authority to waive any of 
the requirements of the rule upon written request of a member or member 
organization that has the obligation to approve the account and where 
good cause is shown.

II. Summary of Comments

    The Commission received three comment letters on the proposal.\8\ 
The commenters generally supported the NYSE's proposal to require 
member firms to conduct a transactional-based review of private 
securities transactions.\9\ However, the commenters recommended certain 
technical changes to the proposed rule language to reflect the purpose 
of the proposed rule change.\10\ Further, one commenter stated that, 
although the proposal requires that associated persons effecting 
private securities transactions arrange for duplicate confirmations and 
statements (or their equivalents), there may be instances in which 
confirmations and statements would not be available.\11\ Therefore, the 
commenter believed that in absence of confirmations and statements, a 
private placement memorandum, offering circular, or subscription 
agreement may be more appropriate to review.
---------------------------------------------------------------------------

    \8\ See note 4, supra.
    \9\ See Wells Fargo Letter; SSB Letter; A.G. Edwards Letter.
    \10\ Id.
    \11\ See A.G. Edwards Letter.
---------------------------------------------------------------------------

    Regarding the commenters' concerns about clarifying the proposed 
rule language, the NYSE believed it was not necessary to clarify the 
text of the proposed rule change.\12\ In response to the commenter's 
suggestions of other

[[Page 54007]]

documents that NYSE members and member organizations review in the 
absence of confirmations and statements on private securities 
transactions, the NYSE stated that the proposed rule language currently 
addresses this concern by providing for the review of confirmations, 
statements, ``or their equivalents.'' \13\ The NYSE also stated that it 
expects members and member organizations to monitor individual 
transactions based on the information available to them.\14\ Further, 
the NYSE stated that where confirmations and statements were not 
available from the issuers, members and member organizations would be 
required to develop and implement policies, which among other things, 
provide for periodic updates and attestations from employees as to 
their existing, and any additional, private securities 
transactions.\15\
---------------------------------------------------------------------------

    \12\ See NYSE Response Letter (stating that the NYSE would 
clarify the requirements of the rule in an Information Memo upon 
approval of the proposal by the Commission).
    \13\ Id.
    \14\ Id.
    \15\ Id.
---------------------------------------------------------------------------

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\16\ In particular, the Commission finds that the 
proposal, as amended, is consistent with Section 6(b)(5) of the 
Act,\17\ which requires, among other things, that the rules of the 
Exchange be designed to prevent fraudulent and manipulative acts and 
practices and promote just and equitable principles of trade.
---------------------------------------------------------------------------

    \16\ In approving this proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \17\ 15. U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that requiring associated persons of 
members or member organizations to obtain their employers' written 
approval before entering into private securities transactions will 
provide member organizations another tool to assist in carrying out 
their supervisory responsibilities. In addition, it will make for more 
consistent regulation across the industry.\18\ After careful 
consideration of the commenters' concerns about the proposed rule 
language and its requirements, the Commission believes that the 
proposal sufficiently addresses the types of information that would be 
necessary to be reviewed by a designated Exchange member or member 
organization. The Commission believes that the proposed rule change 
should assist the Exchange and its members and member organizations in 
monitoring employee transactions for possible conflicts of interest or 
violations of self-regulatory organization or SEC requirements.
---------------------------------------------------------------------------

    \18\ See NASD Rule 3040.
---------------------------------------------------------------------------

IV. Amendment No. 2 of the Proposed Rule Change

    The Commission finds good cause for approving Amendment No. 2 of 
the proposed rule change prior to the thirtieth day after notice of 
publication in the Federal Register. Amendment No. 2 clarifies that the 
proposal applies to associated persons of members or member 
organizations that either establish or maintain a securities or 
commodities account, or a private securities transaction. In addition, 
Amendment No. 2 modifies the proposed rule text to require members and 
member organizations to develop and maintain written procedures for 
reviewing any securities or commodities accounts, or private securities 
transactions. The Commission believes that it is not necessary to 
separately solicit comment on Amendment No. 2 before approving this 
proposal because Amendment No. 2 makes changes to clarify the 
responsibilities of Exchange members, member organizations, and their 
employees, pursuant to this rule. The Commission therefore finds that 
the approval of Amendment No. 2 on an accelerated basis is appropriate.

V. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning Amendment No. 2, including whether the amendment 
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 such filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
submissions should refer to File No. SR-NYSE-2001-44 and should be 
submitted by September 10, 2002.

VI. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-NYSE-2001-44), as amended, 
is approved.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to the delegated authority.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-21129 Filed 8-19-02; 8:45 am]
BILLING CODE 8010-01-P