[Federal Register Volume 69, Number 193 (Wednesday, October 6, 2004)]
[Notices]
[Pages 59977-59978]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2499]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50475; File No. SR-NSX-2004-02]


Self-Regulatory Organizations; National Stock Exchange; Order 
Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to 
Anti-Money Laundering Compliance Programs

September 30, 2004.

I. Introduction

A. Filing Background

    On March 5, 2004, National Stock Exchange (``NSX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC''), pursuant to Section 19(b)(1) of the Securities Exchange Act 
of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to establish NSX Rule 5.6, Anti-Money Laundering Compliance 
Program. The proposed rule change prescribes the minimum standards 
required for each member firm's anti-money laundering program. On 
August 9, 2004, NSX filed Amendment No. 1 to the proposed rule 
change.\3\ On August 20, 2004, notice of the proposed rule change was 
published in the Federal Register.\4\ The Commission received no 
comments on the proposal. For the reasons discussed below this order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from James C. Yong, Senior Vice President of 
Regulation and General Counsel, NSX, to Nancy Sanow, Assistant 
Director, Division of Market Regulation, Commission, dated August 9, 
2004 (``Amendment No. 1'').
    \4\ Exchange Act Release No. 50198 (August 13, 2004), 69 FR 
51739 (August 20, 2004).
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B. USA PATRIOT Act

    In response to the events of September 11, 2001, President Bush 
signed into law on October 26, 2001, the Uniting and Strengthening 
America by Providing Appropriate Tools Required to Intercept and 
Obstruct Terrorism Act of 2001 (the ``PATRIOT Act'') to address 
terrorist threats through enhanced domestic security measures, expanded 
surveillance powers, increased information sharing and broadened anti-
money laundering requirements.\5\ The PATRIOT Act amends, among other 
laws, the Bank Secrecy Act, as set forth in Title 31 of the United 
States Code.\6\ 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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    \5\ Pub. L. 107-56, 115 Stat. 272 (2001).
    \6\ 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 audit 
function to test the anti-money laundering program.
    The Commission has previously approved several other self-
regulatory organizations' (``SROs'') proposals (including those of the 
NYSE and the NASD) to adopt rules requiring their members to establish 
anti-money laundering compliance programs with the minimum standards 
described above.\7\ Proposed NSX Rule 5.6 involves similar 
requirements.
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    \7\ See, e.g., Securities Exchange Act Release No. 45798 (April 
22, 2002), 67 FR 20854 (April 26, 2002)(order approving SR-NASD-
2002-10 and SR-NASD-2002-24).
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II. Description of the Proposed Rule Change

    NSX proposes to establish NSX Rule 5.6, Anti-Money Laundering 
Compliance Program, which requires NSX members to establish and 
implement anti-money laundering compliance programs. These anti-money 
laundering compliance programs must be designed to comply with Section 
352 of the PATRIOT Act. The proposed rule change prescribes the minimum 
standards required for each member firm's anti-money laundering 
program.
    Under the proposal, NSX members must develop and implement an anti-
money laundering compliance program reasonably designed to achieve and 
monitor compliance with the requirements of the Bank Secrecy Act, and 
the implementing regulations promulgated under that Act by the 
Department of Treasury. Each member's anti-money laundering program 
must be approved, in writing, by a member of its senior management. The 
anti-money

[[Page 59978]]

laundering programs required under the proposed rule must establish and 
implement policies and procedures that can be reasonably expected to 
detect and cause the reporting of transactions required under Section 
5318(g) of the Bank Secrecy Act and the implementing regulations under 
that Act. The programs must also establish and implement policies, 
procedures, and internal controls reasonably designed to achieve 
compliance with the Bank Secrecy Act and the implementing regulations 
thereunder. The programs must provide for independent testing for 
compliance to be conducted by member personnel or by a qualified 
outside party. The programs must also designate, and identify to the 
Exchange, a person or persons 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. In addition, the programs must provide 
ongoing training for appropriate persons. The proposed rule also states 
that, in the event any of the provisions of the rule conflict with any 
of the provisions of another applicable SRO's rule requiring the 
development and implementation of an anti-money laundering compliance 
program, the provisions of the member's Designated Examining Authority 
(``DEA'') rule would apply.

III. Discussion and Commission Findings

    The Commission finds, for the reasons set forth below, that the 
proposal is consistent with the requirements of the Act and the rules 
and regulations thereunder applicable to a registered national 
securities exchange,\8\ and, in particular, with the requirements of 
Sections 6(b)(5)\9\ of the Act. Section 6(b)(5) requires, among other 
things that the rules of a registered national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect o, and facilitating 
transactions in securities, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system and, 
in general to protect investors and the public interest.
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    \8\ In approving these rules, the Commission has considered 
their impact on efficiency, competition, and capital formation. 15 
U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposed rule change is consistent 
with these Sections of the Act. The Commission finds that the NSX has 
proposed a rule that accurately, reasonably, and efficiently implements 
the requirements of the PATRIOT Act as it applies to NSX members. 
Moreover, the Commission finds it appropriate and consistent with the 
Act for NSX members to follow the anti-money laundering rules of their 
DEAs to the extent those rules conflict with NSX's. The Commission 
believes that provision of the NSX rule implementing this approach will 
avoid confusion and enhance compliance for dual members.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\10\ that the proposal SR-NSX-2004-02, as amended, be and hereby is 
approved.
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    \10\ 15 U.S.C. 78s(b)(2).

    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. E4-2499 Filed 10-5-04; 8:45 am]
BILLING CODE 8010-01-P