[Federal Register Volume 69, Number 136 (Friday, July 16, 2004)]
[Notices]
[Pages 42786-42788]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16181]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50000; File No. SR-ISE-2004-13]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the International Securities 
Exchange, Inc. to Adopt an Anti-Money Laundering Rule

July 9, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on June 10, 2004, the International Securities Exchange, Inc. 
(``Exchange'' or ``ISE'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
ISE. On July 7, 2004 ISE submitted Amendment No. 1 to the proposed rule 
change.\3\ ISE filed the proposed rule change pursuant to Section 
19(b)(3)(A) of the Act \4\ and Rule 19b-4(f)(6) thereunder,\5\ which 
renders the proposal effective upon filing with the Commission. 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.
    \3\ In Amendment No. 1, the ISE clarified that if the proposed 
rule conflicts with another, applicable self-regulatory 
organization's rule requiring the development and implementation of 
an anti-money laundering compliance program, the provisions of the 
rule of the Member's Designated Examining Authority shall apply. See 
Letter and attached amendment from Michael Simon to Nancy Sanow, 
Division of Market Regulation, Commission, dated July 7, 2004 
(``Amendment No. 1'').
    \4\ 15 U.S.C. 78s(b)(3)(A).
    \5\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    ISE is proposing to adopt Rule 420 regarding anti-money laundering. 
Below is the text of the proposed rule change. Proposed new language is 
in italics.
* * * * *

Rule 420. Anti-Money Laundering Compliance Program

    Each Member shall develop and implement a written anti-money 
laundering program reasonably designed to achieve and monitor the 
Member's compliance with the requirements of the Bank Secrecy Act (31 
U.S.C. 5311, et seq.) and the implementing regulations promulgated 
thereunder by the Department of the Treasury. Each Member's anti-money 
laundering program must be approved, in writing, by the Member's senior 
management. The anti-money laundering programs required by this Rule 
shall, at a minimum,
    (a) Establish and implement policies and procedures that can be 
reasonably expected to detect and cause the reporting of transactions 
required under 31 U.S.C. 5318(g) and the implementing regulations 
thereunder;
    (b) Establish and implement policies, procedures, and internal 
controls reasonably designed to achieve compliance with the Bank 
Secrecy Act and the implementing regulations thereunder;
    (c) Provide for independent testing for compliance to be conducted 
by the Member's personnel or by a qualified outside party;
    (d) Designate and identify to the Exchange (by name, title, mailing 
address, e-mail address, telephone number, and facsimile number) an 
individual or individuals responsible for implementing and monitoring 
the day-to-day operations and internal controls of the program, and 
provide prompt notification to the Exchange regarding any change in 
such designation(s); and
    (e) Provide ongoing training for appropriate personnel.
    In the event that any of the provisions of this Rule 420 conflict 
with any of the provisions of another, applicable self-regulatory 
organization's rule requiring the development and implementation of an 
anti-money laundering compliance program, the provisions of the rule of 
the Member's Designated Examining Authority shall apply.
* * * * *

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 ISE 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 ISE 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
    In response to the events of September 11, 2001, President Bush 
signed into law on October 26, 2001, the

[[Page 42787]]

Uniting and Strengthening America by Providing Appropriate Tools 
Required to Intercept and Obstruct Terrorism Act of 2001 (the ``Patriot 
Act'') \6\ to address terrorist threats through enhanced domestic 
security measures. Among other things the Patriot Act expanded law 
enforcement surveillance powers, increased information sharing among 
law enforcement and financial institutions, and broadened anti-money 
laundering requirements. The Patriot Act amends, among other laws, the 
Bank Secrecy Act, as set forth in Title 31 of the United States 
Code.\7\ Certain provisions of Title III of the Patriot Act, also known 
as the International Money Laundering Abatement and Anti-Terrorist 
Financing Act of 2001 (``MLAA''), impose affirmative obligations on a 
broad range of financial institutions, including broker-dealers, 
specifically requiring the establishment of anti-money laundering 
monitoring and supervisory programs.
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    \6\ Uniting and Strengthening America by Providing Appropriate 
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. 
L. 107-56, 115 Stat. 272 (2001).
    \7\ 31 U.S.C. 5311, et seq.
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    MLAA Section 352 requires all financial institutions (including 
broker-dealers) to establish anti-money laundering programs that 
include, at a minimum: (i) Internal policies, procedures and controls; 
(ii) the specific designation of an anti-money laundering compliance 
officer; (iii) an ongoing employee training program; and (iv) an 
independent audit function to test the anti-money laundering program.
    The Commission has approved NASD's and several other exchanges' 
proposals to adopt rules requiring their members and member 
organizations to establish anti-money laundering compliance programs 
with the minimum standards described above.\8\ Proposed ISE Rule 420, 
entitled ``Anti-Money Laundering Compliance Program'' involves similar 
requirements. Adoption of the proposed rule would establish a 
regulatory framework for members and member organizations to comply 
with the requirements of the Patriot Act in this area. Member and 
member organizations subject to and in compliance with NASD Rule 3011 
or NYSE Rule 445 will be considered in compliance with ISE Rule 420.
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    \8\ See, e.g., Securities Exchange Act Release No. 45798 (April 
22, 2002), 67 FR 20854 (April 26, 2002) (Order approving SR-NASD-
2002-24 and SR-NYSE-2002-10).
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \9\ that an exchange have rules that 
are designed to remove impediments to and perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest.
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    \9\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not 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 not solicited, and does not intend to solicit, 
comments on this proposed rule change. The Exchange has not received 
any unsolicited written comments from members or other interested 
parties.

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

    The ISE has designated the proposed rule change as one that does 
not: (i) Significantly affect the protection of investors or the public 
interest; (ii) does not impose any significant burden on competition; 
and (iii) does not become operative for 30 days or such shorter time as 
the Commission may designate if consistent with the protection of 
investors and the public interest. Therefore it has become effective 
pursuant to Section 19(b)(3)(A) of the Act \10\ and Rule 19b-4(f)(6) 
thereunder.\11\ At any time within 60 days of the filing of the 
proposed rule change, the Commission may summarily abrogate the rule 
change if it appears to the Commission that the action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. For purposes of 
calculating the 60-day abrogation period, the Commission considers the 
proposed rule change to have been filed on July 7, 2004 when Amendment 
No. 1 was filed.\12\
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ See note 3, supra.
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    Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\13\ the proposal 
may not become operative for 30 days after the date of its filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest, and the Exchange 
must file notice of its intent to file the proposed rule change at 
least five business days beforehand. The Exchange has requested that 
the Commission waive the five-day pre-filing requirement and the 30-day 
operative delay so that the proposed rule change will become 
immediately effective upon filing.
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
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    The Commission believes that waiving the five-day pre-filing 
provision and the 30-day operative delay is consistent with the 
protection of investors and the public interest.\14\ Waiving the pre-
filing requirement and accelerating the operative date will merely 
establish a framework for ISE members and member organizations to 
comply with the requirements of the Patriot Act in this area in a 
manner similar to that of the NASD and NYSE. For these reasons, the 
Commission designates the proposed rule change as effective and 
operative immediately.
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    \14\ For purposes only of accelerating the operative date of 
this proposal, the Commission has considered the proposed rule's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
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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. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an E-mail to [email protected]. Please include 
File Number SR-ISE-2004-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-ISE-2004-13. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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

[[Page 42788]]

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 ISE. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-ISE-2004-13 and should be submitted on or before August 
6, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16181 Filed 7-15-04; 8:45 am]
BILLING CODE 8010-01-P