[Federal Register Volume 67, Number 233 (Wednesday, December 4, 2002)]
[Notices]
[Pages 72257-72259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30668]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46888; File No. SR-NYSE-2002-34]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change and Amendment No. 1 Thereto by the New York Stock Exchange, Inc. 
Relating to the Amendment of Rule 342 (Offices--Approval, Supervision, 
and Control)

November 22, 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 August 16, 2002, the New York Stock Exchange, Inc. (``NYSE'' 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 by the Exchange. On 
October 22, 2002, the NYSE filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy Sanow, Assistant Director, Division of Market Regulation, 
Commission (October 21, 2002) (``Amendment No. 1''). In Amendment 
No. 1, the Exchange corrected the reference to the provision of the 
Act under which the proposal was filed. The original filing was 
incorrectly marked as having been filed pursuant to section 
19(b)(3)(A) of the Act, 15 U.S.C. 78s(b)(3)(A), while Amendment No. 
1 was marked as having been filed pursuant to Section 19(b)(2) of 
the Act, 15 U.S.C. 78s(b)(2).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is filing with the Commission a proposed amendment to 
NYSE Rule 342 (``Offices--Approval, Supervision, and Control'') 
providing for a new definition of the term ``branch office.'' The 
proposed amendment to the rule would limit the requirement to register 
certain business locations as ``branch offices'' to account for 
advances in technology used to conduct and monitor business, changes in 
the structure of broker-dealers and in the lifestyles and work habits 
of broker-dealers. The text of the proposed rule change is below. 
Proposed new language is in italics; proposed deletions are in 
brackets.

Rule 342. Offices--Approval, Supervision, and Control

    (a)-(e) No Change.
Supplementary Material
    .19 [.10] Annual fee.--Each office of a member organization 
(including any foreign branch office), other than the main office of 
the member organization, shall be subject during its existence to a 
registration fee as determined by the Exchange for each calendar year 
or part thereof, unless specifically exempted by the Exchange.
    .10 Definition of Branch Office
    A ``branch office'' is any location, other than the main office, 
where one or more associated persons of a member or member organization 
(``associated person'') regularly conduct the business of effecting any 
transactions in, or inducing or attempting to induce the purchase or 
sale of any security, or is held out as such, excluding:
    (A) any location that is established solely for customer service 
and/or back office type functions where no sales activities are 
conducted and that is not held out to the public as a branch office;
    (B) any location that is the associated person's primary residence; 
provided that: (i) the location is used for less than 50 business days 
in any one calendar year; (ii) only one associated person, or multiple 
associated persons, who reside at that location and are members of the 
same immediate family, conduct business at the location; (iii) the 
location is not held out to the public as an office and the associated 
person does not meet with customers at the location; (iv) neither 
customer funds nor securities are handled at that location; (v) the 
associated person is assigned to a designated branch office, and such 
branch office is reflected on all business cards, stationery, 
advertisements and other communications to the public by such 
associated person; (vi) the associated person's correspondence and 
communications with the public are subject to the firm's supervision; 
(vii) electronic communications (i.e., e-mail) are made through the 
member organization's electronic system; (viii) all orders are entered 
through the designated branch office; (ix) written supervisory 
procedures pertaining to supervision of sales activities conducted at 
the residence are maintained by the member or member organization; and

[[Page 72258]]

(x) a list of the locations is maintained by the member or member 
organization;
    (C) any location, other than a primary residence, that is used for 
less than 30 business days in any one calendar year, provided the 
member organization complies with the provisions of (iii) through (ix) 
of paragraph (B) above;
    (D) any office of convenience, where the associated person 
occasionally and exclusively by appointment meets with customers, which 
is not held out to the public as a branch office (where such location 
is on bank premises, however, only signage required by the Interagency 
Statement (Statement on Retail Sales of Nondeposit Investment Products 
required under Banking Regulations) may be displayed);
    (E) any location that is used primarily to engage in non-securities 
activities and from which the associated person effects no more than 25 
securities transactions in any one calendar year; provided that any 
advertisements or sales literature identifying such location also sets 
forth the address and telephone number of the location from which the 
associated person conducting business at the non-branch locations are 
directly supervised;
    (F) the Floor of a registered national securities exchange where a 
member or member organization conducts a direct access business with 
public customers; or
    (G) a temporary location established in response to the 
implementation of a business continuity plan.
    The term ``business day'' as used herein shall not include any 
partial business day provided that the associated person spends at 
least four hours on such business day at his or her designated branch 
office during the hours that such office is normally open for business. 
The term an ``associated person of a member'' for purposes of this Rule 
means member, allied member or employee associated with a member or 
member organization.
* * * * *

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 Exchange 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 Exchange 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 \4\

Background

    Currently, Exchange Rule 342(c) broadly requires that a member or 
member organization obtain the Exchange's prior written consent for 
each office established other than a main office. Continued advances in 
technology used to conduct and monitor business, changes in the 
structure of broker-dealers and in the lifestyles and work habits of 
the workforce have caused the Exchange to reexamine whether all 
business locations continue to need to be registered as branch offices 
of broker-dealer members and member organizations.
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    \4\ The NYSE requested that the Commission change certain 
language submitted by the NYSE in the purpose section of the filing 
to clarify that the instant filing pertains to the NYSE's proposed 
rule filing alone. While the Commission believes that other SROs 
will submit similar filings, such similar filings have not yet been 
submitted and it is not certain that other SROs' filings will be 
uniform. Telephone discussion between Mary Anne Furlong, Director, 
Rule and Interpretive Standards, NYSE, and Katherine England, 
Assistant Director, Elizabeth Badawy, Sr. Policy Liaison, and 
Christopher B. Stone, Special Counsel, Division of Market 
Regulation, Commission (November 21, 2002).
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    The definition of the term ``branch office'' under various self-
regulatory organizations' (``SROs'') and states' rules in this regard 
differ significantly. Further, they differ in the registration, 
notification and approval process as well. Recently, the Exchange has 
worked with the NASD and states' regulators to develop a definition, 
which recognizes the industry changes noted above, while meeting 
regulatory objectives.

Proposed Definition

    As proposed, the term ``branch office'' means any location, other 
than the main office, where one or more associated persons of a member 
or member organization (``associated person'') regularly conduct the 
business of effecting any transactions in, or inducing or attempting to 
induce the purchase or sale of any security, or is held out as such. 
The definition provides for exceptions noted below. The core definition 
is consistent with the term ``office'' as it is defined in the SEC's 
new amendments \5\ to its books and records rules (Rules 17a-3 and 17a-
4),\6\ which were enacted to provide timely access to broker-dealers' 
books and records and to help expedite SEC, SRO and state examinations 
and investigations.
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    \5\ Securities Exchange Act Release No. 44992 (October 26, 
2001), 66 FR 55818 (November 2, 2001).
    \6\ 17 CFR 240.17a-3 and 240.17a-4.
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    In developing a definition, the NYSE considered the evolving nature 
of its members' and member organizations' business models. For example, 
bank-owned members and member organizations often establish small 
offices on bank premises, whereby a registered representative would be 
designated to a parent branch for supervision but would visit different 
bank branches occasionally, and by appointment only, to meet with 
customers. Under the proposed definition such locations would be exempt 
from registering as branch offices, where the bank location is not held 
out as a branch office.
    In exempting such offices of convenience from branch office 
registration, the NYSE has imposed important safeguards for the public. 
In this regard, at such offices of convenience, associated persons 
would be limited to meeting customers occasionally and exclusively by 
appointment. Further, at bank locations, the only permitted signage 
such offices of convenience may display, under regulations promulgated 
by the Office of the Comptroller of the Currency, will be ones 
advertising to the public that ``non-deposit investment products'' are 
being offered at such locations. This signage will prevent confusing 
customers who might otherwise believe that traditional riskless 
investments, such as deposits, are being offered by associated persons 
at such offices located on bank premises. In addition, other than 
meeting customers at these offices of convenience, all other functions 
of the associated person will be conducted and supervised through the 
designated branch office.
    Changing life/work issues of members' and member organizations' 
associated persons is also recognized in the new definition. In this 
regard, associated persons are often forced to work occasionally from 
home to provide childcare and eldercare for certain family members. 
Moreover, illness forces work at home as well. Further, the development 
of technology, and advanced electronic communications, have 
necessitated rethinking traditional views of what constitutes a branch 
office and the supervision of such offices.
    In excepting primary residences from the definition of branch 
office, important safeguards and limitations have been imposed on such 
locations to provide for monitoring and oversight of activities. 
Limitations include, in part,

[[Page 72259]]

that: The location is used for less than 50 business days in one 
calendar year; the location is not held out as a branch office; the 
associated person is assigned to a designated branch office for 
supervision and such office is reflected on all business cards, 
stationery, advertisements and communications to the public; the 
associated person does not meet with customers at his or her residence; 
the associated person's correspondence and communications with the 
public are subject to the firm's supervision; electronic 
communications, including e-mails, are made through the firm's 
electronic system; all orders are entered through the designated branch 
office; and written procedures relating to the supervision of sales 
activities conducted at the residence are maintained by the member or 
member organization.
    The definition also exempts from branch office registration any 
temporary location, other than the primary residence discussed above, 
provided it is used less than 30 business days in any calendar year. In 
granting this exemption, the NYSE has imposed the same safeguards noted 
above for the exemption granted for primary residence. The Exchange 
believes that effective supervision can be achieved because of the use 
of advanced and sophisticated technology in the supervision and review 
of associated persons in such exempt locations.
    In addition, under both exceptions noted above, the NYSE has 
defined ``business day'' to include any partial day, provided the 
associated person spends less than four hours on such business day at 
his or her designated branch office during the hours such office is 
normally open for business.\7\ In doing so, it will prevent associated 
persons from regularly conducting business from their primary or other 
residences for the majority of a business day, without such activity 
being counted towards the 30 and 50 day limitations.
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    \7\ The NYSE requested that the Commission make a clarifying 
correction of language in the purpose section of the NYSE's filing 
with regard to the definition of ``business day.'' Telephone 
discussion between Mary Anne Furlong, Director, Rule and 
Interpretive Standards, NYSE, and Katherine England, Assistant 
Director, Elizabeth Badawy, Sr. Policy Liaison, and Christopher B. 
Stone, Special Counsel, Division of Market Regulation, Commission 
(November 21, 2002).
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    Where the 50 business day (primary residence) and 30 business day 
(other location) exemptions are utilized by associated persons, members 
and member organizations are expected to maintain records adequate to 
demonstrate compliance with the ``business day'' limitations.
    In addition, the definition exempts from registration locations 
where associated persons are primarily engaged in non-securities 
activities (e.g., insurance) and from which an associated person 
effects no more than 25 securities transactions in a calendar year, 
provided that advertisements or sales literature identifying such 
location also set forth locations from which the associated persons are 
directly supervised. Further, such activities attendant to the primary 
function performed as an occasional accommodation to customers will be 
conducted through and supervised by the associated person's designated 
registered branch office.
    Similarly, the new definition exempts non-sales locations, e.g., 
where operations activities are conducted, from registering as a branch 
office. Such locations must be established solely for customer service 
and/or back office functions and not be held out to the public as a 
branch office, and no sales activities may be conducted from such 
locations.
    The proposed definition of branch office would serve the entire 
broker-dealer community by recognizing the many different business 
models and streamlining the branch office registration process 
significantly. The scope of sales practice examinations conducted by 
the Exchange will be expanded to ensure compliance with the new rule 
amendments.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the provisions of section 6(b) of the Act,\8\ in general, and 
section 6(b)(5) of the Act,\9\ in particular, which requires, among 
other things, that the rules of an exchange be designed to foster 
cooperation and coordination with persons engaged in regulating 
transactions in securities.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, will impose 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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change, as amended.

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 Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, as amended, or
    (B) Institute proceedings to determine whether the proposed rule 
change, as amended, 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, as amended, 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-2002-34 and should be submitted by December 26, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-30668 Filed 12-3-02; 8:45 am]
BILLING CODE 8010-01-P