[Federal Register Volume 70, Number 74 (Tuesday, April 19, 2005)]
[Notices]
[Pages 20410-20411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1817]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51539; File No. SR-NYSE-2004-59]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the New York Stock Exchange, Inc. To Adopt a New Rule (NYSE 
Rule 401A) Requiring Members and Member Organizations To Respond to 
Customer Complaints, and Adding Failure To Acknowledge Customer 
Complaints to the Minor Fine Provisions of NYSE Rule 476A

April 13, 2005.

I. Introduction

    On October 21, 2004, the New York Stock Exchange, Inc. (``NYSE'' or 
``the Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), 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 adopt a new rule, denoted NYSE Rule 401A, to 
require its members and member organizations (``members'') to respond 
to customer complaints, and to add failure to acknowledge customer 
complaints to the minor fine provisions of NYSE Rule 476A. The proposed 
rule change was published for comment in the Federal Register on March 
7, 2005.\3\ The Commission received no comments in response to the 
proposed rule change. For the reasons discussed below, the Commission 
is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 51276 (Feb. 28, 2005), 
70 FR 11040 (Mar. 7, 2005) (``Notice'').
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II. Description of the Proposed Rule Change

    NYSE Rule 351(d) requires NYSE members to ``report to the Exchange 
statistical information regarding customer complaints relating to such 
matters as may be specified by the Exchange.'' Pursuant to this Rule, 
the NYSE currently requires reporting of statistical information 
relating to complaints by customers involving, inter alia, sales 
practices, unauthorized trading and misappropriation of funds.\4\ The 
reporting obligation applies to ``[a]ll complaints, regardless of how 
delivered (oral, written, e-mail or fax) * * *.'' \5\
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    \4\ NYSE Information Memo Number 03-39 (Sep. 19, 2003).
    \5\ NYSE Information Memo Number 03-38 (Sep. 19, 2003).
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    The NYSE now proposes to adopt a new Rule, designated 401A, to 
require its members to acknowledge and respond to customer complaints. 
Specifically, Rule 401A(a) would require NYSE members to acknowledge 
receipt of every customer complaint that is subject to the reporting 
requirements of Rule 351(d) within 15 business days of receipt, and to 
respond to the issues raised in such complaint within a reasonable 
period of time. Rule 401A(b) would mandate specific methods of delivery 
for acknowledgements and responses. Written acknowledgements and 
responses mailed to the complaining customer's last known address would 
suffice in all cases. However, where a complaint was electronically 
transmitted, members would be permitted to acknowledge and respond to 
it by electronic transmission to the e-mail address from which the 
complaint was sent. The Exchange would also permit verbal 
acknowledgements and responses to verbal complaints, provided that they 
are recorded in a log of such actions. Paragraph (c) of the proposed 
rule would require members to keep written records of all such 
acknowledgements, responses, and logs in accordance with NYSE Rule 440 
(``Books and Records'').
    Finally, the Exchange proposes to add failures to acknowledge 
customer complaints within 15 days of receipt to the list of violations 
in NYSE Rule 476A (``Imposition of Fines for Minor Violations of 
Rules''). Rule 476A provides that the Exchange may impose fines, not to 
exceed $5,000, on any member for a minor violation of the Exchange 
rules specified therein.

III. Discussion and Findings

    The Commission finds the proposed rule change is consistent with 
the Act, and in particular with section 6(b)(5) of the Act, which 
requires, among other things, that the rules of a national securities 
exchange 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.\6\ The 
Commission further finds that the proposal is consistent with section 
6(b)(6) of the Act,\7\ which requires that members be appropriately 
disciplined for violations of Exchange rules. Finally, the Commission 
finds the proposal is consistent with Rule 19d-1(c)(2) under the 
Act,\8\ which governs minor rule violation plans.
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ 15 U.S.C. 78f(b)(6).
    \8\ 17 CFR 240.19d-1(c)(2).
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    As the Exchange stated in its proposal, no current NYSE rule 
requires members to acknowledge or respond to complaints from 
customers.\9\ The proposal will require NYSE members to acknowledge and 
respond to any and all customer complaints that must be reported to the 
Exchange under NYSE Rule 351(d). Indeed, under proposed Rule 401A, 
ignoring or neglecting a customer complaint would constitute a 
violation of NYSE rules. The Commission believes that the new Rule is 
consistent with the protection of investors and the public interest 
because, by requiring members to review and respond to customer 
complaints, and by requiring records to be kept with respect to such 
actions, the Rule should encourage NYSE members to attend to complaints 
that may alert them to potential abuses and to take corrective action, 
where appropriate.
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    \9\ Notice at 11041.
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    The Commission also believes that the new required procedures 
should foster an awareness within NYSE member firms of the volume and 
specific types of complaints they receive, thereby promoting 
appropriate preventive or supervisory action by the member's compliance 
personnel. Specifically, requiring firms to review and respond to 
customer complaints should enhance a member's ability to supervise its 
personnel by drawing attention to any that may require additional 
training or monitoring. Exposure to an aggregation of complaints should 
also alert NYSE members to systemic problems with registered 
representatives, products, and services and should allow the member to 
identify areas where it, or its personnel, could improve compliance. 
Further, the Commission believes that the proposed new Rule should 
serve to protect investors because it will require NYSE members to 
notify them when

[[Page 20411]]

their complaints are received, and to notify them of any action (or 
refusal to act) with respect to their complaints. In cases where an 
investor and member are unable to resolve a dispute, records of 
complaints and responses will document the sequence of correspondence 
and/or actions for use in any potential formal resolution proceedings.
    The Commission believes that the Exchange's proposed requirements 
relating to the timing and method of delivery of acknowledgements and 
responses are also reasonably 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, consistent with section 6(b)(5) of the Act.\10\ The 
Commission notes that written, mailed acknowledgements and responses 
will always be sufficient, but that e-mail or verbal correspondence 
will be permitted where the complaint is transmitted by such means. 
These requirements should minimize any confusion regarding how a 
complaint is to be processed, and limit administrative burdens on NYSE 
members. Likewise, the Commission believes that requiring 
acknowledgements to be delivered within 15 business days of receipt of 
a complaint, and responses to be delivered ``within a reasonable period 
of time'' should promote prompt and effective resolution of customer 
complaints, while allowing NYSE members the flexibility to tailor 
specific responses.
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    \10\ 15 U.S.C. 78f(b)(5).
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    Proposed Rule 401A(c) would require retention of records of 
acknowledgements and responses in accordance with NYSE Rule 440. The 
Commission believes that this record-keeping requirement should assist 
the Exchange in monitoring and enforcing compliance with proposed Rule 
401A, as well as Rule 351(d), by allowing it to compare the number of a 
member's reported complaints to the number of acknowledgements and 
responses. Finally, the acknowledgements, responses, and logs required 
by new Rule 401A(c) may contain useful information for the member's 
compliance personnel insofar as it may relate to other obligations of 
the member, such as the preparation of its annual report on supervision 
and compliance efforts during the preceding year. See e.g., NYSE Rule 
342 (``Offices--Approval, Supervision and Control'').
    The proposed rule change is also consistent with section 6(b)(6) 
\11\ of the Act, which requires the rules of the Exchange to provide 
for its members and persons associated with its members to be 
appropriately disciplined for violations of those rules through fitting 
sanctions, including the imposition of fines, and with Rule 19d-1(c)(2) 
under the Act \12\ which governs minor rule violation plans. Rule 476A 
allows the NYSE to impose sanctions for rule violations that do not 
rise to the level of requiring formal disciplinary proceedings. Because 
of the possible range of severity of a member's failure to satisfy the 
acknowledgement provisions of the proposed new rule, Rule 476A would be 
amended in order to allow the NYSE to sanction less serious failures 
with minor fines. The Commission notes that this proposal will render 
violations of the acknowledgement provisions of new Rule 401A eligible 
for treatment as minor violations, but will not require it in all 
cases. Thus, the Exchange will remain able to determine, on a case-by-
case basis, whether a particular violation requires formal disciplinary 
action. Therefore, the Commission believes that this change will not 
compromise the Exchange's ability to bring formal disciplinary actions 
for more serious violations of Rule 401A, but will augment its ability 
to enforce its rules in cases where full disciplinary proceedings are 
not warranted.
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    \11\ 15 U.S.C. 78f(b)(6).
    \12\ 17 CFR 240.19d-1(c)(2).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\13\ and Rule 19d-1(c)(2) under the Act,\14\ that the proposed rule 
change (SR-NYSE-2004-59) be, and hereby is, approved.\15\
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ 17 CFR 240.19d-1(c)(2).
    \15\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-1817 Filed 4-18-05; 8:45 am]
BILLING CODE 8010-01-P