[Federal Register Volume 69, Number 140 (Thursday, July 22, 2004)]
[Notices]
[Pages 43873-43874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-16643]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50018; File No. SR-NASD-2004-058]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Relating to Partial Customer Account 
Transfers

July 14, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on April 1, 2004, the 
National Association of Securities Dealers, Inc. (``NASD'') 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 NASD. The Commission is publishing 
this notice and order to solicit comments from interested persons and 
to grant accelerated approval of the proposed rule change.
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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

    The NASD is amending Rule 11870 to make the procedures for non-
standard transfers of customer account assets though the Automated 
Customer Account Transfer Service (``ACATS'') consistent with the 
procedures for transferring security account assets in their entirety.

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 NASD 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 NASD.
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(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    The purpose of the proposed rule change is to amend NASD Rule 11870 
so that the procedures for making non-standard transfers of customer 
assets \3\ through ACATS consistent with the procedures for standard 
transfers of customer assets through ACATS.\4\ The proposed rule change 
also permits a customer to authorize the delivering member to transfer 
specifically designated account assets outside of ACATS. In addition, 
the proposed rule change permits a customer to authorize an account 
transfer, in whole or in part, using an electronic signature in a 
format recognized as valid under federal law to conduct interstate 
commerce. This modification contemplates legal alternatives to written 
notice, as currently required, on the condition that such methods 
otherwise comply with the requirements of Rule 11870. The proposed rule 
change conforms to recently adopted amendments to the New York Stock 
Exchange's (``NYSE'') Rule 412 and the Interpretations of Rule 412.\5\
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    \3\ Non-standard transfers of customer assets include such 
things as partial transfers of account assets, fail reversals, 
reclaims, and mutual fund clean-ups.
    \4\ Standard transfers of customer assets is generally a 
transfer of all assets in a customer's account where none of the 
securities in the account are ``nontransferable assets'' as that 
term is defined in NASD Rule 11870.
    \5\ Exchange Act Release No. 49415 (March 12, 2004), 69 FR 13608 
(March 23, 2004) [File No. SR-NYSE-2003-29].
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    Rule 11870(a) sets forth the procedures for members to use when 
transferring customer assets. The rule currently states that broker-
dealers must utilize ACATS for non-standard as well as standard 
transfers; however, the current rule generally refers to the transfer 
of an entire securities account. As amended by this proposed rule 
change, Rule 11870 will generally apply the same procedures to both 
standard and non-standard transfers of customer account assets through 
ACATS.
    Because customer and broker-dealer obligations resulting from the 
transfer of an entire account differ from the obligations arising from 
the transfer of specified assets within an account that will remain 
active at the delivering firm after the transfer, the proposed 
amendments to Rule 11870 will distinguish between the transfer of 
security account assets ``in whole'' (i.e., entire accounts) and the 
transfer of security account assets ``in specifically designated part'' 
(i.e., partial transfers). This distinction is necessary given the 
different obligations that arise depending on if a broker-dealer is 
transferring an entire account to a receiving firm or is only 
transferring specified assets to a receiving firm. For example, it 
would not be necessary for a customer to instruct the delivering firm 
as to the disposition of his or her assets that are non-transferable if 
the customer is not transferring the account in whole.
    The proposed rule change also permits customers to authorize 
alternative instructions for the transfer of ``specifically designated 
assets'' from one broker-dealer to another. This proposed rule change 
therefore creates an exception to a member's obligation to transfer 
specifically designated assets (i.e., partial transfers) through ACATS. 
The ability to authorize alternative instructions refers to partial 
transfers only and does not provide an exception to the members' 
obligation to otherwise accomplish transfers in accordance with the 
rules of the National Securities Clearing Corporation (``NSCC'').
    Further, Rule 11870 currently states that a customer who wishes to 
transfer securities account assets to another member must give 
``written notice of that fact to the receiving member'' and must 
``sign'' a broker-to-broker transfer instruction form. The proposed 
rule change to Rule 11870 will provide that the customer may authorize 
an account transfer, in whole or in part, using either the customer's 
actual signature or an electronic signature ``in a format recognized as 
valid under federal law to conduct interstate commerce.''
    Currently Rule 11870 requires that members use the transfer 
instructions and provide the reports prescribed by the NASD when 
accomplishing account transfers pursuant to the rule. The NASD is 
deleting this requirement in the proposed rule because it believes this 
provision is no longer necessary.
    In order to allow members sufficient time to develop and implement 
necessary system changes to comply with amended Rule 11870, the NASD 
proposes to set an implementation date of September 13, 2004. The NASD 
will announce the implementation date in a Notice to Members to be 
published no later than thirty days following the Commission's notice 
of the proposed rule change.\6\
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    \6\ In its filing to the Commission, the NASD indicated an 
implementation date of September 30, 2004. However, in order to 
conform to the NYSE's implementation date of September 12, 2004, the 
NASD requested to change their implementation date to September 13, 
2004. Telephone conversation between Shirley H. Weiss, Office of 
General Counsel, NASD, and Susan Petersen, Division of Market 
Regulation, Commission, (June 25, 2004).

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[[Page 43874]]

    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act,\7\ which requires, 
among other things, that NASD rules must be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and in general, to protect investors and 
the public interest. The NASD believes that the proposed rule change is 
designed to accomplish these objectives by making the procedures for 
transferring designated parts of a customer account through ACATS 
consistent with the procedures for transferring the entire account, 
permitting customers to authorize a partial transfer of assets outside 
of ACATS, and permitting customers to authorize an account transfer, in 
whole or in part, using electronic signature in a format recognized as 
valid under federal law to conduct interstate commerce. The proposed 
amendments to Rule 11870 are designed to expedite the transfer of 
customer assets between broker-dealers and more easily allow investors 
to transfer their assets to the broker-dealer of their choice. The 
proposed rule change would also conform NASD requirements to those 
recently adopted by the NYSE's Rule 412 and their interpretation under 
Rule 412.
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    \7\ 15 U.S.C. 78o-3(b)(6).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    The NASD 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. The NASD will notify the Commission of any 
written comments it receives.

III. 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]. All comment letters should refer to 
File No. SR-NASD-2004-058. 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, 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 NASD. All submissions should refer to 
File No. SR-NASD-2004-058 and should be submitted by August 12, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
association.\8\ In particular, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of Section 
15A(b)(6) of the Act,\9\ which requires that the rules of the NASD be 
designed to remove impediments to and protect the mechanism of a free 
an open market and a national market system, and in general, to protect 
investors and the public interest. The Commission finds the approval of 
the NASD's rule change is consistent with this section because the 
amendments are designed to make the transfer of customer securities 
account assets easier, more efficient, and faster process for investors 
to move their securities to their broker-dealer of choice. The proposed 
rule change also makes the NASD and NYSE Rule 412 governing the 
transfer of customer accounts between broker-dealers consistent, which 
should eliminate confusion and differing treatment of customer account 
transfers.
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    \8\ 15 U.S.C. 78o-3(b). In approving this proposal, the 
Commission has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78o-3(b)(6).
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    The NASD has requested that the Commission approve the proposed 
rule change prior to thirtieth day after publication of the notice of 
the filing. The Commission finds good cause for approving the proposed 
rule change prior to the thirtieth day after the publication of notice 
because the rule is substantially the same as the NYSE rule, which was 
recently approved by the Commission,\10\ and because by so approving 
the NASD can implement its revised rule concurrently with the NYSE's 
implementation of its rule.
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    \10\ Supra note 5. The Commission received no comment letters 
opposing the NYSE rule.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-NASD-2004-058) be, and 
hereby is, approved on an accelerated basis.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-16643 Filed 7-21-04; 8:45 am]
BILLING CODE 8010-01-P