Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 thereto Relating to ETP Holders Borrowing from or Lending to Their Customers, 33245-33248 [E5-2894]
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Federal Register / Vol. 70, No. 108 / Tuesday, June 7, 2005 / Notices
price competition and added liquidity
in these series.
The Commission waives the five-day
pre-filing notice requirement. In
addition, the Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because it will allow the Pilot Program
to continue without interruption
through June 5, 2006.9 For this reason,
the Commission designates that the
proposal become operative on June 5,
2005.10
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
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:
9 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. 15 U.S.C. 78c(f).
10 As set forth in the Commission’s initial
approval of the Pilot Program and in its order
extending the operation of the Pilot Program
through June 5, 2005, if the PCX proposes to: (1)
Extend the Pilot Program; (2) expand the number
of options eligible for inclusion in the Pilot
Program; or (3) seek permanent approval of the Pilot
Program, it must submit a Pilot Program report to
the Commission along with the filing of its proposal
to extend, expand, or seek permanent approval of
the Pilot Program. The PCX must file any such
proposal and the Pilot Program report with the
Commission at least 60 days prior to the expiration
of the Pilot Program. The Pilot Program report must
cover the entire time the Pilot Program was in effect
and must include: (1) Data and written analysis on
the open interest and trading volume for options (at
all strike price intervals) selected for the Pilot
Program; (2) delisted options series (for all strike
price intervals) for all options selected for the Pilot
Program; (3) an assessment of the appropriateness
of $1 strike price intervals for the options the PCX
selected for the Pilot Program; (4) an assessment of
the impact of the Pilot Program on the capacity of
the PCX’s, the Options Price Reporting Authority’s,
and vendors’ automated systems; (5) any capacity
problems or other problems that arose during the
operation of the Pilot Program and how the PCX
addressed them; (6) any complaints that the PCX
received during the operation of the Pilot Program
and how the PCX addressed them; and (7) any
additional information that would help to assess the
operation of the Pilot Program. See Securities
Exchange Act Release Nos. 48945 (June 17, 2003),
68 FR 37594 (June 24, 2003) (File No. SR–PCX–
2003–28) (order approving the Pilot Program
through June 5, 2004); and 50152 (August 5, 2004),
69 FR 49931 (August 12, 2004) (File No. SR–PCX–
2004–61) (order approving the extension of the Pilot
Program through June 5, 2005).
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20:54 Jun 06, 2005
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Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–PCX–2005–69 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
No. SR–PCX–2005–69. 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 (https://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
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
Room, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such
filing will also be available for
inspection and copying at the principal
office of the PCX. 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 No. SR–PCX–2005–
69 and should be submitted on or before
June 28, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.11
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–2893 Filed 6–6–05; 8:45 am]
BILLING CODE 8010–01–P
PO 00000
11 17
CFR 200.30–3(a)(12).
Frm 00191
Fmt 4703
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33245
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51752; File No. SR–PCX–
2005–34]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1
thereto Relating to ETP Holders
Borrowing from or Lending to Their
Customers
May 27, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 15,
2005, the Pacific Exchange, Inc. (‘‘PCX’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II,
which Items have been prepared by
PCX. The proposed rule change has
been filed by the PCX as a ‘‘noncontroversial’’ rule change pursuant to
Rule 19b–4(f)(6) under the Act.3 On May
25, 2005, the PCX filed Amendment No.
1 to the proposed rule change
(‘‘Amendment No. 1’’).4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
PCX, through its wholly-owned
subsidiary PCX Equities, Inc. (‘‘PCXE’’),
proposes to adopt a new rule restricting
registered persons of ETP Holders from
borrowing from or lending to their
customers, except pursuant to the
conditions specified in the rule. The
text of the proposed rule change is set
forth below. Proposed new language is
in italics.
*
*
*
*
*
Rule 9.29. Borrowing From or Lending to
Customers
(a) No person associated with an ETP
Holder in any registered capacity may
borrow money from or lend money to
any customer of such person unless:
(1) The ETP Holder has written
procedures allowing the borrowing and
lending of money between such
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
4 Amendment No. 1 revised and clarified the
statutory basis for the proposed rule change. See
Letter Dated May 23, 2005, from Melanie Grace,
Office of the Corporate Secretary, PCX, to Nancy
Sanow, Assistant Director, Division of Market
Regulation.
2 17
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33246
Federal Register / Vol. 70, No. 108 / Tuesday, June 7, 2005 / Notices
registered persons and customers of the
ETP Holder; and
(2) The lending or borrowing
arrangement meets one of the following
conditions:
(A) the customer is a member of such
person’s immediate family;
(B) the customer is a financial
institution regularly engaged in the
business of providing credit, financing,
or loans, or other entity or person that
regularly arranges or extends credit in
the ordinary course of business;
(C) the customer and the registered
person are both registered persons of the
same ETP Holder;
(D) the lending arrangement is based
on a personal relationship with the
customer, such that the loan would not
have been solicited, offered, or given
had the customer and the associated
person not maintained a relationship
outside of the broker/customer
relationship; or
(E) the lending arrangement is based
on a business relationship outside of the
broker/customer relationship;
(b) Procedures.
(1) ETP Holders must pre-approve in
writing the lending or borrowing
arrangements described in
subparagraphs (a)(2)(C), (D), and (E)
above.
(2) With respect to the lending or
borrowing arrangements described in
subparagraph (a)(2)(A) above, an ETP
Holder’s written procedures may
indicate that registered persons are not
required to notify the ETP Holder, or
receive ETP Holder approval either prior
to or subsequent to entering into such
lending or borrowing arrangements.
(3) With respect to the lending or
borrowing arrangements described in
subparagraph (a)(2)(B) above, an ETP
Holder’s written procedures may
indicate that registered persons are not
required to notify the ETP Holder or
receive their approval either prior to or
subsequent to entering into such lending
or borrowing arrangements, provided
that the loan has been made on
commercial terms that the customer
generally makes available to members of
the public similarly situated as to need,
purpose, and creditworthiness. For
purposes of this subparagraph, the ETP
Holder may rely on the registered
person’s representation that the terms of
the loan meet the above-described
standards.
(c) The term immediate family shall
include parents, grandparents, motherin-law or father-in-law, husband or wife,
brother or sister, brother-in-law or sisterin-law, son-in-law or daughter-in-law,
children, grandchildren, cousin, aunt or
uncle, or niece or nephew, and shall
also include any other person whom the
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20:54 Jun 06, 2005
Jkt 205001
registered person supports, directly or
indirectly, to a material extent.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
PCX included statements concerning the
purpose of and basis for the proposed
rule change, as amended, 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. PCX
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
The purpose of the proposed rule
change is to adopt a rule that prohibits
registered persons of an ETP Holder
from borrowing money from or lending
money to a customer unless each of the
following applies: (1) The ETP Holder
has written procedures allowing such
borrowing or lending arrangements; and
(2) the borrowing or lending
arrangement falls within one of five
permissible types of lending
arrangements.5 In certain cases, the ETP
Holder must also pre-approve the loan
in writing. The five types of permissible
lending arrangements are:
(i) The customer is a member of the
registered person’s immediate family (as
defined in the proposed rule);
(ii) The customer is a financial institution
regularly engaged in the business of
providing credit, financing, or loans, or other
entity or person that regularly arranges or
extends credit in the ordinary course of
business;
(iii) The customer and the registered
person are both registered persons of the
same ETP Holder;
(iv) The lending arrangement is based on
a personal relationship outside of the brokercustomer relationship; or
(v) The lending arrangement is based on a
business relationship outside of the brokercustomer relationship.
The proposed rule change establishes
a regulatory framework that would give
ETP Holders greater control over, and
5 The proposed rule is substantially similar to
NASD Rule 2370. See Securities Exchange Act
Release No. 48242 (August 29, 2003), 68 FR 52806
(September 5, 2003). NASD Rule 2370 was
amended in Securities Exchange Act Release No.
49269 (February 18, 2004), 69 FR 8718 (February
25, 2004). See also Securities Exchange Act Release
No. 50874 (December 16, 2004), 69 FR 76803
(December 22, 2004) (SR–CBOE–2004–66).
PO 00000
Frm 00192
Fmt 4703
Sfmt 4703
more specific supervisory
responsibilities for, lending
arrangements between registered
persons and their customers. ETP
Holders could choose to permit their
registered persons to borrow from or
lend to specified customers consistent
with the requirements of the rule. If ETP
Holders choose to permit their
registered persons to engage in lending
arrangements with those customers, the
proposed rule change would require
ETP Holders to have written procedures
allowing the borrowing and lending of
money between registered persons and
customers or ETP Holders. As stated
above, ETP Holders would be permitted
to approve loans only if the loan falls
within one of the five types of
permissible lending arrangements set
forth in the rule.
The proposed rule would require ETP
Holders to pre-approve in writing three
out of the five types of lending
arrangements permitted by the rule. It
would exempt from the rule’s notice
and approval requirements lending
arrangements involving a registered
person and his/her customer that is (1)
a member of his/her immediate family
(as defined in the proposed rule); or (2)
a financial institution regularly engaged
in the business of providing credit,
financing, or loans (or other entity or
persons that regularly arranges or
extends credit in the ordinary course of
business), provided the loan has been
made on commercial terms that the
customer generally makes available to
members of the general public similarly
situated as to need, purpose, and
creditworthiness. PCX believes the
requirement in the proposed rule that
certain types of lending and borrowing
arrangements must be pre-approved by
the ETP Holder would enhance the ETP
Holder’s ability to supervise such
lending and borrowing activities of
registered personnel.
PCX also believes that the proposed
rule change would enhance PCX’s
ability to monitor loans between
registered persons and their customers.
Currently, under controlling
Commission decisions, to bring a
disciplinary action against a registered
person who has entered into an
unethical lending arrangement with a
customer, PCX generally must prove
that the arrangement is inconsistent
with just and equitable principles of
trade because the registered person has
acted in bad faith or unethically. This
can be difficult to prove in cases in
which the customer is unable or
unavailable to testify, or refuses to
testify because he or she is relying on
the registered person for financial
advice. The proposed rule change
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Federal Register / Vol. 70, No. 108 / Tuesday, June 7, 2005 / Notices
would better enable PCX to monitor and
bring disciplinary actions in cases
involving such loans.
PCX notes that the safeguards
provided under the proposed rule,
including bringing disciplinary actions
for violations of the rule, are in addition
to the general powers that PCX has to
bring disciplinary actions against a
registered person who has entered into
an unethical lending arrangement with
a customer. It is also important to note
that this proposal does not change the
applications of Regulation T to lending
activities by associated persons.
Specifically, the definition of ‘‘creditor’’
under Regulation T extends to
associated persons of broker-dealers and
therefore, certain loans to customers by
associated persons may require
compliance with the provisions of
Regulation T.
2. Statutory Basis
For the above reasons, PCX believes
that the proposed rule change would
enhance competition. PCX believes that
the proposed rule change is consistent
with Section 6(b) 6 of the Act, in general,
and furthers the objectives of Section
6(b)(5),7 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices,
promote just and equitable principles of
trade, to foster competition and to
protect investors and the public interest.
PCX believes that the proposed rule
change is designed to accomplish these
ends by establishing a regulatory
framework that will give ETP Holders
greater control over lending
arrangements by permitting ETP
Holders to permit such arrangements
only if they fall within the five types of
permissible arrangements, or, as was the
case before the proposal of this new
rule, prohibit such arrangements
altogether. ETP Holders that permit
such arrangements would be required to
keep written procedures. These
procedures would enable both ETP
Holders and PCX to proscribe certain
customer-broker loans and monitor
those that have been approved.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
PCX does not believe that the
proposed rule change will impose any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
6 15
7 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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20:54 Jun 06, 2005
Jkt 205001
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received from
Members, Participants, or Others
Written comments on the proposed
rule change were neither solicited nor
received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
PCX has stated that the foregoing
proposed rule change has become
effective pursuant to Section
19(b)(3)(A)(iii) of the Act 8 and Rule
19b–4(f)(6) 9 thereunder because the
proposed rule change: (i) Does not
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 from the date on
which it was filed, or such shorter time
as the Commission may designate if
consistent with the protection of
investors and the public interest. At any
time within 60 days of the filing of such
proposed rule change, the Commission
may summarily abrogate such rule
change if it appears to the Commission
that such action is necessary or
appropriate in the public interest, for
the protection of investors, or otherwise
in furtherance of the purposes of the
Act.10 The PCX provided the
Commission with written notice of its
intent to file this proposed rule change
at least five business days prior to the
date of filing the proposed rule change.
Pursuant to Rule 19b–4(f)(6)(iii) under
the Act,11 the proposal does 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. The PCX has requested
that the Commission waive the 30-day
operative delay so that the proposed
rule change will become immediately
effective upon filing.
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest.12
Accelerating the operative date will
allow for an immediately effective
mechanism for proscribing certain
customer-broker loans and monitoring
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6)(iii).
10 For purposes only of calculating the 60-day
abrogation period, the Commission considers the
proposed rule change to have been filed on May 25,
2005, when Amendment No. 1 was filed.
11 Id.
12 For purposes 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).
PO 00000
8 15
9 17
Frm 00193
Fmt 4703
Sfmt 4703
33247
those that have been approved. For
these reasons, the Commission
designates that the proposed rule
change has become effective and
operative immediately.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
the Act. Comments may be submitted by
any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–PCX–2005–34 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–PCX–2005–34. 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 (https://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
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 PCX. 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–PCX–
2005–34 and should be submitted on or
before June 28, 2005.
E:\FR\FM\07JNN1.SGM
07JNN1
33248
Federal Register / Vol. 70, No. 108 / Tuesday, June 7, 2005 / Notices
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.13
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–2894 Filed 6–6–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51751; File No. SR–PCX–
2005–33]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change and Amendment No. 1
Thereto Relating to OTP Holders and
OTP Firms Borrowing From or Lending
to Their Customers
May 27, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on April 15,
2005, the Pacific Exchange, Inc. (‘‘PCX’’
or ‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by PCX. The proposed rule change has
been filed by the PCX as a ‘‘noncontroversial’’ rule change pursuant to
Rule 19b–4(f)(6) under the Act.3 On May
23, 2005, the PCX filed Amendment No.
1 to the proposed rule change
(‘‘Amendment No. 1’’).4 The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
PCX proposes to adopt a new rule
restricting registered persons of OTP
Holders or OTP Firms from borrowing
from or lending to their customers,
except pursuant to the conditions
specified in the rule. The text of the
proposed rule change is set forth below.
Proposed new language is in italics.
*
*
*
*
*
13 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 17 CFR 240.19b–4(f)(6).
4 Amendment No. 1 revised and clarified the
statutory basis for the proposed rule change. See
Letter Dated May 23, 2005, from Melanie Grace,
Office of the Corporate Secretary, PCX, to Nancy
Sanow, Assistant Director, Division of Market
Regulation.
1 15
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20:54 Jun 06, 2005
Jkt 205001
Rule 9.29. Borrowing From or Lending to
Customers
(a) No person associated with an OTP
Holder or OTP Firm in any registered
capacity may borrow money from or
lend money to any customer of such
person unless:
(1) The OTP Holder or OTP Firm has
written procedures allowing the
borrowing and lending of money
between such registered persons and
customers of the OTP Holder or OTP
Firm; and
(2) The lending or borrowing
arrangement meets one of the following
conditions:
(A) the customer is a member of such
person’s immediate family;
(B) the customer is a financial
institution regularly engaged in the
business of providing credit, financing,
or loans, or other entity or person that
regularly arranges or extends credit in
the ordinary course of business;
(C) the customer and the registered
person are both registered persons of the
same OTP Holder or OTP Firm;
(D) the lending arrangement is based
on a personal relationship with the
customer, such that the loan would not
have been solicited, offered, or given
had the customer and the associated
person not maintained a relationship
outside of the broker/customer
relationship; or
(E) the lending arrangement is based
on a business relationship outside of the
broker/customer relationship;
(b) Procedures.
(1) OTP Holders or OTP Firms must
pre-approve in writing the lending or
borrowing arrangements described in
subparagraphs (a)(2)(C), (D), and (E)
above.
(2) With respect to the lending or
borrowing arrangements described in
subparagraph (a)(2)(A) above, an OTP
Holder’s or OTP Firm’s written
procedures may indicate that registered
persons are not required to notify the
OTP Holder or OTP Firm, or receive
OTP Holder or OTP Firm approval
either prior to or subsequent to entering
into such lending or borrowing
arrangements.
(3) With respect to the lending or
borrowing arrangements described in
subparagraph (a)(2)(B) above, an OTP
Holder’s or OTP Firm’s written
procedures may indicate that registered
persons are not required to notify the
OTP Holder or OTP Firm or receive their
approval either prior to or subsequent to
entering into such lending or borrowing
arrangements, provided that the loan
has been made on commercial terms
that the customer generally makes
available to members of the public
PO 00000
Frm 00194
Fmt 4703
Sfmt 4703
similarly situated as to need, purpose,
and creditworthiness. For purposes of
this subparagraph, the OTP Holder or
OTP Firm may rely on the registered
person’s representation that the terms of
the loan meet the above-described
standards.
(c) The term immediate family shall
include parents, grandparents, motherin-law or father-in-law, husband or wife,
brother or sister, brother-in-law or sisterin-law, son-in-law or daughter-in-law,
children, grandchildren, cousin, aunt or
uncle, or niece or nephew, and shall
also include any other person whom the
registered person supports, directly or
indirectly, to a material extent.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
PCX included statements concerning the
purpose of and basis for the proposed
rule change, as amended, 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. PCX
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
The purpose of the proposed rule
change is to adopt a rule that prohibits
registered persons of an OTP Holder or
OTP Firm from borrowing money from
or lending money to a customer unless
each of the following applies: (1) The
OTP Holder or OTP Firm has written
procedures allowing such borrowing or
lending arrangements; and (2) the
borrowing or lending arrangement falls
within one of five permissible types of
lending arrangements.5 In certain cases,
the OTP Holder or OTP Firm must also
pre-approve the loan in writing. The
five types of permissible lending
arrangements are:
(i) The customer is a member of the
registered person’s immediate family (as
defined in the proposed rule);
5 The proposed rule is substantially similar to
NASD Rule 2370. See Securities Exchange Act
Release No. 48242 (August 29, 2003), 68 FR 52806
(September 5, 2003). NASD Rule 2370 was
amended in Securities Exchange Act Release No.
49269 (February 18, 2004), 69 FR 8718 (February
25, 2004). See also Securities Exchange Act Release
No. 50874 (December 16, 2004), 69 FR 76803
(December 22, 2004) (SR–CBOE–2004–66).
E:\FR\FM\07JNN1.SGM
07JNN1
]]>Agencies
[Federal Register Volume 70, Number 108 (Tuesday, June 7, 2005)]
[Notices]
[Pages 33245-33248]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-2894]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51752; File No. SR-PCX-2005-34]
Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change and
Amendment No. 1 thereto Relating to ETP Holders Borrowing from or
Lending to Their Customers
May 27, 2005.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 15, 2005, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II, which Items have
been prepared by PCX. The proposed rule change has been filed by the
PCX as a ``non-controversial'' rule change pursuant to Rule 19b-4(f)(6)
under the Act.\3\ On May 25, 2005, the PCX filed Amendment No. 1 to the
proposed rule change (``Amendment No. 1'').\4\ The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 17 CFR 240.19b-4(f)(6).
\4\ Amendment No. 1 revised and clarified the statutory basis
for the proposed rule change. See Letter Dated May 23, 2005, from
Melanie Grace, Office of the Corporate Secretary, PCX, to Nancy
Sanow, Assistant Director, Division of Market Regulation.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
PCX, through its wholly-owned subsidiary PCX Equities, Inc.
(``PCXE''), proposes to adopt a new rule restricting registered persons
of ETP Holders from borrowing from or lending to their customers,
except pursuant to the conditions specified in the rule. The text of
the proposed rule change is set forth below. Proposed new language is
in italics.
* * * * *
Rule 9.29. Borrowing From or Lending to Customers
(a) No person associated with an ETP Holder in any registered
capacity may borrow money from or lend money to any customer of such
person unless:
(1) The ETP Holder has written procedures allowing the borrowing
and lending of money between such
[[Page 33246]]
registered persons and customers of the ETP Holder; and
(2) The lending or borrowing arrangement meets one of the following
conditions:
(A) the customer is a member of such person's immediate family;
(B) the customer is a financial institution regularly engaged in
the business of providing credit, financing, or loans, or other entity
or person that regularly arranges or extends credit in the ordinary
course of business;
(C) the customer and the registered person are both registered
persons of the same ETP Holder;
(D) the lending arrangement is based on a personal relationship
with the customer, such that the loan would not have been solicited,
offered, or given had the customer and the associated person not
maintained a relationship outside of the broker/customer relationship;
or
(E) the lending arrangement is based on a business relationship
outside of the broker/customer relationship;
(b) Procedures.
(1) ETP Holders must pre-approve in writing the lending or
borrowing arrangements described in subparagraphs (a)(2)(C), (D), and
(E) above.
(2) With respect to the lending or borrowing arrangements described
in subparagraph (a)(2)(A) above, an ETP Holder's written procedures may
indicate that registered persons are not required to notify the ETP
Holder, or receive ETP Holder approval either prior to or subsequent to
entering into such lending or borrowing arrangements.
(3) With respect to the lending or borrowing arrangements described
in subparagraph (a)(2)(B) above, an ETP Holder's written procedures may
indicate that registered persons are not required to notify the ETP
Holder or receive their approval either prior to or subsequent to
entering into such lending or borrowing arrangements, provided that the
loan has been made on commercial terms that the customer generally
makes available to members of the public similarly situated as to need,
purpose, and creditworthiness. For purposes of this subparagraph, the
ETP Holder may rely on the registered person's representation that the
terms of the loan meet the above-described standards.
(c) The term immediate family shall include parents, grandparents,
mother-in-law or father-in-law, husband or wife, brother or sister,
brother-in-law or sister-in-law, son-in-law or daughter-in-law,
children, grandchildren, cousin, aunt or uncle, or niece or nephew, and
shall also include any other person whom the registered person
supports, directly or indirectly, to a material extent.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, PCX included statements
concerning the purpose of and basis for the proposed rule change, as
amended, 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. PCX 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
The purpose of the proposed rule change is to adopt a rule that
prohibits registered persons of an ETP Holder from borrowing money from
or lending money to a customer unless each of the following applies:
(1) The ETP Holder has written procedures allowing such borrowing or
lending arrangements; and (2) the borrowing or lending arrangement
falls within one of five permissible types of lending arrangements.\5\
In certain cases, the ETP Holder must also pre-approve the loan in
writing. The five types of permissible lending arrangements are:
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\5\ The proposed rule is substantially similar to NASD Rule
2370. See Securities Exchange Act Release No. 48242 (August 29,
2003), 68 FR 52806 (September 5, 2003). NASD Rule 2370 was amended
in Securities Exchange Act Release No. 49269 (February 18, 2004), 69
FR 8718 (February 25, 2004). See also Securities Exchange Act
Release No. 50874 (December 16, 2004), 69 FR 76803 (December 22,
2004) (SR-CBOE-2004-66).
(i) The customer is a member of the registered person's
immediate family (as defined in the proposed rule);
(ii) The customer is a financial institution regularly engaged
in the business of providing credit, financing, or loans, or other
entity or person that regularly arranges or extends credit in the
ordinary course of business;
(iii) The customer and the registered person are both registered
persons of the same ETP Holder;
(iv) The lending arrangement is based on a personal relationship
outside of the broker-customer relationship; or
(v) The lending arrangement is based on a business relationship
outside of the broker-customer relationship.
The proposed rule change establishes a regulatory framework that
would give ETP Holders greater control over, and more specific
supervisory responsibilities for, lending arrangements between
registered persons and their customers. ETP Holders could choose to
permit their registered persons to borrow from or lend to specified
customers consistent with the requirements of the rule. If ETP Holders
choose to permit their registered persons to engage in lending
arrangements with those customers, the proposed rule change would
require ETP Holders to have written procedures allowing the borrowing
and lending of money between registered persons and customers or ETP
Holders. As stated above, ETP Holders would be permitted to approve
loans only if the loan falls within one of the five types of
permissible lending arrangements set forth in the rule.
The proposed rule would require ETP Holders to pre-approve in
writing three out of the five types of lending arrangements permitted
by the rule. It would exempt from the rule's notice and approval
requirements lending arrangements involving a registered person and
his/her customer that is (1) a member of his/her immediate family (as
defined in the proposed rule); or (2) a financial institution regularly
engaged in the business of providing credit, financing, or loans (or
other entity or persons that regularly arranges or extends credit in
the ordinary course of business), provided the loan has been made on
commercial terms that the customer generally makes available to members
of the general public similarly situated as to need, purpose, and
creditworthiness. PCX believes the requirement in the proposed rule
that certain types of lending and borrowing arrangements must be pre-
approved by the ETP Holder would enhance the ETP Holder's ability to
supervise such lending and borrowing activities of registered
personnel.
PCX also believes that the proposed rule change would enhance PCX's
ability to monitor loans between registered persons and their
customers. Currently, under controlling Commission decisions, to bring
a disciplinary action against a registered person who has entered into
an unethical lending arrangement with a customer, PCX generally must
prove that the arrangement is inconsistent with just and equitable
principles of trade because the registered person has acted in bad
faith or unethically. This can be difficult to prove in cases in which
the customer is unable or unavailable to testify, or refuses to testify
because he or she is relying on the registered person for financial
advice. The proposed rule change
[[Page 33247]]
would better enable PCX to monitor and bring disciplinary actions in
cases involving such loans.
PCX notes that the safeguards provided under the proposed rule,
including bringing disciplinary actions for violations of the rule, are
in addition to the general powers that PCX has to bring disciplinary
actions against a registered person who has entered into an unethical
lending arrangement with a customer. It is also important to note that
this proposal does not change the applications of Regulation T to
lending activities by associated persons. Specifically, the definition
of ``creditor'' under Regulation T extends to associated persons of
broker-dealers and therefore, certain loans to customers by associated
persons may require compliance with the provisions of Regulation T.
2. Statutory Basis
For the above reasons, PCX believes that the proposed rule change
would enhance competition. PCX believes that the proposed rule change
is consistent with Section 6(b) \6\ of the Act, in general, and
furthers the objectives of Section 6(b)(5),\7\ in particular, in that
it is designed to prevent fraudulent and manipulative acts and
practices, promote just and equitable principles of trade, to foster
competition and to protect investors and the public interest. PCX
believes that the proposed rule change is designed to accomplish these
ends by establishing a regulatory framework that will give ETP Holders
greater control over lending arrangements by permitting ETP Holders to
permit such arrangements only if they fall within the five types of
permissible arrangements, or, as was the case before the proposal of
this new rule, prohibit such arrangements altogether. ETP Holders that
permit such arrangements would be required to keep written procedures.
These procedures would enable both ETP Holders and PCX to proscribe
certain customer-broker loans and monitor those that have been
approved.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
PCX does not believe that the proposed rule change will 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
Written comments on the proposed rule change were neither solicited
nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
PCX has stated that the foregoing proposed rule change has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \8\ and Rule
19b-4(f)(6) \9\ thereunder because the proposed rule change: (i) Does
not 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 from the date on which
it was filed, or such shorter time as the Commission may designate if
consistent with the protection of investors and the public interest. At
any time within 60 days of the filing of such proposed rule change, the
Commission may summarily abrogate such rule change if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Act.\10\ The PCX provided the Commission with
written notice of its intent to file this proposed rule change at least
five business days prior to the date of filing the proposed rule
change.
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\8\ 15 U.S.C. 78s(b)(3)(A).
\9\ 17 CFR 240.19b-4(f)(6)(iii).
\10\ For purposes only of calculating the 60-day abrogation
period, the Commission considers the proposed rule change to have
been filed on May 25, 2005, when Amendment No. 1 was filed.
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Pursuant to Rule 19b-4(f)(6)(iii) under the Act,\11\ the proposal
does 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. The PCX has
requested that the Commission waive the 30-day operative delay so that
the proposed rule change will become immediately effective upon filing.
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\11\ Id.
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The Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public
interest.\12\ Accelerating the operative date will allow for an
immediately effective mechanism for proscribing certain customer-broker
loans and monitoring those that have been approved. For these reasons,
the Commission designates that the proposed rule change has become
effective and operative immediately.
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\12\ For purposes 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, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-PCX-2005-34 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-PCX-2005-34. 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 (https://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 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 PCX.
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-PCX-2005-34
and should be submitted on or before June 28, 2005.
[[Page 33248]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\13\
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\13\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-2894 Filed 6-6-05; 8:45 am]
BILLING CODE 8010-01-P
