[Federal Register Volume 68, Number 248 (Monday, December 29, 2003)]
[Notices]
[Pages 75008-75010]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31805]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48958; File No. SR-NYSE-2003-29]


Self-Regulatory Organizations; New York Stock Exchange Inc.; 
Notice of Filing of Proposed Rule Change to Amend Rule 412 and its 
Interpretation Relating to Partial Customer Account Transfers

December 18, 2003.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on October 1, 2003, the New 
York Stock Exchange Inc. (``NYSE'') 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 
primarily by the NYSE. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested parties.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NYSE proposes to amend Rule 412 and the Interpretation of Rule 412 
in order to apply the same procedural standards regarding use of the 
Automated Customer Account Transfer System (``ACATS'') to both standard 
and partial customer account transfers.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE 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 NYSE has prepared summaries, set forth in sections 
(A), (B), and (C) below, of the most significant aspects of these 
statements.\2\
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    \2\ The Commission has modified the text of the summaries 
prepared by the NYSE.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Rule 412 of the NYSE's Rules (``Customer Account Transfer 
Contracts'') prescribes procedures for member organizations to transfer 
customer accounts. It requires use of the Automated Customer Account 
Transfer Service (``ACATS''), an electronic system administered by the 
National Securities Clearing Corporation (``NSCC'') to facilitate the 
transfer of customer assets between broker-dealers. Since its inception 
in 1985, numerous enhancements to ACATS and to Rule 412 allowed for 
faster and more efficient transfers of customer accounts. For example, 
the most recent amendments to the Interpretation of Rule 412 have 
provided for the expedited transfer of accounts containing third party 
or proprietary products (e.g., mutual funds).\3\
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    \3\ Securities Exchange Act Release No. 44596 (July 26, 2001), 
66 FR 40306 (August 2, 2001) (SR-NYSE-00-61). See also NYSE 
Information Memorandum No. 01-23 (August 16, 2001).
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    Currently, the requirements of Rule 412 and its Interpretation 
apply only to ``standard'' transfers (i.e., instances where account 
assets in their entirety are transferred from one member organization 
to another) processed through ACATS. While ACATS is also utilized to 
process ``partial'' or ``non-standard'' transfers (i.e., the transfer 
of specifically designated assets from an account held at one member 
organization to an account held at another member organization), Rule 
412 currently does not require that partial transfers be accomplished 
in accordance with Rule 412 timeframes and does not require use of 
automated processing capabilities of ACATS.
    There is strong industry support to generally apply the same 
procedural standards, where applicable, to both standard and partial 
transfers of customer account assets. NYSE has worked closely with 
industry representatives in the development of amendments to that 
purpose. The proposed amendments are expected to significantly expedite 
partial transfers and to increase accountability through use of ACATS. 
This, in turn, will improve customers' services and will reduce 
customers' problems related to transfers.
1. Partial Transfers
    The requirements of Rule 412 and its Interpretation, as currently 
applied to standard transactions, include specified response times 
between a delivering and a receiving firm within which to verify 
assets, resolve discrepancies, and complete the transfer. Standard 
transfers processed through ACATS are also subject to the automated 
processing of transfer-related fails (e.g., monies posted by a 
delivering firm where the security to be transferred is not 
transferred), reclaims (e.g., claims by delivering firm for the return 
of securities transferred),and of residual credits (e.g., transfer of 
dividends, etc., received after an account has been transferred).
    The NYSE proposes to amend Rule 412 and its Interpretation that 
would generally apply the same procedural standards to both standard 
and partial transfers processed through ACATS. The proposed amendments 
would mandate use of ACATS for partial transfers unless otherwise 
specifically requested by a customer.\4\ For example, customers would 
not be precluded from using alternate authorized instructions to effect 
partial transfers.
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    \4\ As proposed, Rule 412(e)(1) would provide for an exception 
to the members' obligation to accomplish transfers in accordance 
with NSCC's rules when the customer authorizes alternative 
instructions to transfer ``specifically designated assets.'' The 
phrase ``specifically designated assets'' refers to partial 
transfers only. Telephone conversation between the NYSE, NSCC, and 
Commission staff (November 20, 2003).
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    However, certain aspects of Rule 412 and its Interpretation, as 
proposed to be amended, would be applicable to standard transfers but 
not partial transfers. The amendments would

[[Page 75009]]

distinguished between the transfer of security account assets ``in 
whole'' (i.e., standard transfers) and security account assets ``in 
specifically designated part'' (i.e., partial transfers). This 
distinction is necessary given differing customer and broker-dealer 
obligations that result from transferring an entire account from a 
delivering firm as opposed to obligations related to the transfer of 
specified assets from an account that will remain active at the 
delivering firm.
    For example, should a customer request the transfer of an entire 
account, she must authorize the liquidation of any nontransferable 
proprietary money market fund assets in the account and the transfer of 
any resulting credit balance to the receiving organization.\5\ In 
addition, any residual credit balance resulting from dividend payments 
subsequent to the transfer must be forwarded to the receiving 
organization.\6\ Clearly, these are obligations that would attach only 
in instances of account asset transfers in whole, and not in instances 
of specifically designated asset transfers.
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    \5\ Rule 412 Interpretation (b)(1)/01.
    \6\ NYSE Rule 412(e)(3) and (e)(4).
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    Another procedural distinction between the transfer of an entire 
account and the transfer of specifically designated asset transfers can 
be found in the treatment of ``non-transferable assets'' which are 
defined as either a proprietary product of a delivering organization or 
an asset that is the product of a third party (e.g., a mutual fund). 
When transferring account assets in whole, the Interpretation of Rule 
412 requires that a customer be provided a letter with disposition 
options consistent with closing out an account regarding any non-
transferable assets.\7\ This requirement would not be applicable to 
partial transfers since a request to transfer specifically designated 
assets would not result in closing the customer's account at the 
delivering firm.
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    \7\ Rule 412 Interpretation (b)(1)/06.
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2. Customer Authorization
    Rule 412 and its Interpretation currently make reference to 
``written'' customer authorization requirements. For example, Rule 
412(a) requires customers to give ``written notice'' of their intention 
to transfer an account from one member organization to another. Rule 
412(b)(1) further indicates that such notice be in the form of a 
``signed'' broker-to-broker transfer instruction. Likewise, the 
Interpretation of Rule 412(a) refers to the requirement of an 
authorized ``letter'' from customers who intend to transfer a portion 
of an account outside ACATS, and the Interpretation of Rule 412(b)(1) 
refers to the ``transfer instruction form the customer is required to 
complete and sign.''
    Proposed amendments to Rule 412(a) would clarify the scope of such 
customer authorization to include electronic signatures ``in a format 
recognized as valid under federal law to conduct interstate commerce.'' 
This modification and others in the filing contemplate legal 
alternatives to ``pen and paper'' methods of customer authorization on 
the condition that such methods otherwise comply with Rule 412 and its 
Interpretation.
3. Prescribed Forms
    The Interpretation of Supplementary Material .30 to Rule 412 
currently requires that member organizations use ``the transfer 
instructions and provide the reports prescribe by the Exchange when 
accomplishing account transfers pursuant to Rule 412 * * *'' and that 
such instructions and reports must be the same as or ``substantially 
similar'' to those required by NSCC. Since NSCC no longer requires 
specific formats with respect to transfer instructions or reports, the 
NYSE is proposing that the Interpretation to Supplementary Material .30 
be deleted.
    In order to allow member organizations sufficient time to develop 
and implement necessary system changes to comply with amended Rule 412, 
the NYSE proposes to set an effective date six months from Commission 
approval of the proposed amendments.
    Section 6(b)(5) of the Act that requires rules of an exchange are 
designed to promote just and equitable principles of trade, to remove 
impediments to and to perfect the mechanism of a free and open market 
and a national market system and, in general, to protect investors and 
the public interest.\8\ The NYSE believes that the proposed rule is 
consistent with its obligations under section 6(b)(5) of the Act 
because these interests are served when the procedures governing the 
transfer of customer accounts are made more efficient.
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    \8\ 15 U.S.C. 78f(b)(5).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    NYSE does not believe that the proposed rule change will have an 
impact on or impose a 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 relating to the proposed rule change have been 
solicited or received. NYSE will notify the Commission of any written 
comments it receives.

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

    Within thirty-five 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 ninety 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. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. To help the Commission process and 
review your comments more efficiently, comments should be sent in 
hardcopy or by e-mail but not by both methods. 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 Section, 450 Fifth Street, NW., Washington, DC 20549. 
Copies of such filing also will be available for inspection and copying 
at the principal office of the NYSE. All submissions should refer to 
File No. SR-NYSE-2003-29 and should be submitted by January 20, 2004.


[[Page 75010]]


    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-31805 Filed 12-24-03; 8:45 am]
BILLING CODE 8010-01-P