[Federal Register Volume 67, Number 232 (Tuesday, December 3, 2002)]
[Notices]
[Pages 72005-72006]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30665]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 46921 / November 26, 2002]


Securities Exchange Act of 1934; Order Extending Broker-Dealer 
Exemption From Sending Financial Information to Customers

    In the Matter of Securities Industry Association, 1401 Eye 
Street, NW., Washington, DC 20005-2225.

    The Securities and Exchange Commission (``Commission'') is 
extending its Temporary Order, which was originally issued on December 
10, 1999\1\ and then extended on December 20, 2001,\2\ 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 website.
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    \1\ Exchange Act Release No. 42222.
    \2\ Exchange Act Release No. 45179.
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    The Commission's Temporary Order and extension established a pilot 
program which expires on December 31, 2002. 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 website and the number of requests for 
paper copies received via its toll-free number. During the December 31, 
2001 to December 31, 2002 extension of the pilot program, a broker-
dealer was also required to report to the Commission any written 
customer

[[Page 72006]]

complaints it received regarding the exemption.
    The Commission has determined, on the basis of information reported 
by broker-dealers taking advantage of the exemption, which indicates 
that customers are using the exemption to access broker-dealers' 
financial information and that broker-dealers taking advantage of the 
exemption have received no written customer complaints regarding the 
exemption, that extending the exemption for six months is consistent 
with the public interest and the protection of investors. The 
Commission has today proposed a rule amendment for comment which, if 
adopted, would make the relief permanent (Exchange Act Release No. 
46920; File No. S7-48-02).
    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) and 
(iv).\3\
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    \3\ 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 website or calling the 
broker-dealer's stated toll-free number. The statement must provide the 
specific Internet Uniform Resource 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 home page, 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 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.\4\
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    \4\ 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)(l)(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 and extended in 
Exchange Act Release No. 45179 is extended to June 30, 2003.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-30665 Filed 12-2-02; 8:45 am]
BILLING CODE 8010-01-P