Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change To Amend Rule 445, 38994-38997 [E5-3539]
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38994
Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Notices
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 were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change: (1) Does not significantly affect
the protection of investors or the public
interest; (2) does not impose any
significant burden on competition; and
(3) by its terms does not become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate if consistent
with the protection of investors and the
public interest, and NASD provided the
Commission with written notice of its
intent to file the proposed rule change
at least five days prior to the filing date,
the proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 10 and Rule 19b–4(f)(6)
thereunder.11 NASD complied with this
pre-filing requirement.
A proposed rule change filed under
Rule 19b–4(f)(6) normally does not
become operative prior to 30 days after
the date of the filing. However, Rule
19b–4(f)(6)(iii) permits the Commission
to designate a shorter time if such action
is consistent with the protection of
investors and the public interest. NASD
has asked the Commission to waive the
30-day operative delay to clarify an
existing policy regarding TRACE market
data fees applicable to professionals and
to reverse expeditiously recent rule
amendments to the definition of ‘‘NonProfessional’’ in Rule 7010(k)(3)
regarding the TRACE policy to avoid
industry confusion. The Commission
hereby grants this request and
designates the proposal to be operative
upon filing with the Commission.12 The
Commission believes that maintaining
conformity among definitions in
NASD’s rules and reducing fees for nonprofessional use of TRACE transaction
data are consistent with the protection
of investors and the public interest.
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
10 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
12 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. See 15 U.S.C. 78c(f).
11 17
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necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.13
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 (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
No. SR–NASD–2005–083 on the subject
line.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.14
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–3544 Filed 7–5–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51934; File No. SR–NYSE–
2005–36]
Self-Regulatory Organizations; New
York Stock Exchange, Inc.; Notice of
Filing of Proposed Rule Change To
Amend Rule 445
June 29, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’) 1 and Rule 19b–4 2
thereunder, notice is hereby given that
Paper Comments
on May 23, 2005, the New York Stock
Exchange, Inc. (‘‘NYSE’’ or the
• Send paper comments in triplicate
‘‘Exchange’’) filed with the Securities
to Jonathan G. Katz, Secretary,
and Exchange Commission (‘‘SEC’’ or
Securities and Exchange Commission,
the ‘‘Commission’’) the proposed rule
Station Place, 100 F Street, NE.,
changes as described in Items I, II, and
Washington, DC 20549–9303.
III below, which items have been
All submissions should refer to File
prepared by the Exchange. The
No. SR–NASD–2005–083. This file
Commission is publishing this notice to
number should be included on the
subject line if e-mail is used. To help the solicit comments on the proposed rule
changes from interested persons.
Commission process and review your
comments more efficiently, please use
I. Self-Regulatory Organization’s
only one method. The Commission will Statement of the Terms of Substance of
post all comments on the Commission’s the Proposed Rule Changes
Internet Web site (https://www.sec.gov/
The Exchange proposes to amend
rules/sro.shtml). Copies of the
Rule 445 (‘‘Anti-Money Laundering
submission, all subsequent
Compliance Program’’) to establish: (1)
amendments, all written statements
Timeframes within which the required
with respect to the proposed rule
independent testing function must be
change that are filed with the
performed; (2) qualification and
Commission, and all written
independence standards for those who
communications relating to the
conduct such testing function; and (3)
proposed rule change between the
jurisdictional requirements pertaining to
Commission and any person, other than
AML Officers (as defined below). The
those that may be withheld from the
text of the proposed rule change is
public in accordance with the
available on the NYSE’s Web site
provisions of 5 U.S.C. 552, will be
(https://www.NYSE.com), at the NYSE’s
available for inspection and copying in
principal office, and at the
the Commission’s Public Reference
Commission’s Public Reference Room.
Room, 100 F Street, NE., Washington,
DC 20549. Copies of such filing will also II. Self-Regulatory Organization’s
Statement of the Purpose of, and
be available for inspection and copying
Statutory Basis for, the Proposed Rule
at the principal office of NASD. All
Changes
comments received will be posted
without change; the Commission does
In its filing with the Commission, the
not edit personal identifying
Exchange included statements
information from submissions. You
concerning the purpose of, and basis for,
should submit only information that
the proposed rule changes. The text of
you wish to make available publicly. All these statements may be examined at
submissions should refer to File No.
the places specified in Item IV below.
SR–NASD–2005–083 and should be
submitted on or before July 27, 2005.
14 17 CFR 200.30–3(a)(12).
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1 15
13 See
15 U.S.C. 78s(b)(3)(C).
Frm 00133
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2 17
E:\FR\FM\06JYN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Notices
The Exchange 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
Summary
The proposed rule change consists of
amendments to Rule 445 (‘‘Anti-Money
Laundering Compliance Program’’) to
establish that the ‘‘independent testing’’
requirement of the Rule must be
conducted, at minimum, on an annual
calendar-year basis by members and
member organizations that conduct a
public business, or every two years if no
public business is conducted. The
amendments also establish a standard to
determine who is adequately qualified
and sufficiently independent to conduct
the required testing. Further, they
clarify that each person designated to
implement and monitor an Anti-Money
Laundering Program must either be an
employee of the member or member
organization for which they are
designated or, with the prior approval of
the Exchange, an employee of a parent,
affiliate, or subsidiary of the member or
member organization. Employees of a
parent, affiliate, or subsidiary of a
member or member organization who
are designated to implement and
monitor Anti-Money Laundering
Programs must consent to the
jurisdiction of the Exchange and the
member or member organization must
acknowledge their responsibility to
supervise them as employees.
Background and Detail
Rule 445, which became effective on
April 24, 2002,3 requires each member
organization and each member not
associated with a member organization
to develop and implement an antimoney laundering (‘‘AML’’) program
consistent with ongoing obligations
pursuant to Treasury regulation 31 CFR
103.120 under the Bank Secrecy Act,4 as
amended by the United and
Strengthening America by Providing
Appropriate Tools Required to Intercept
and Obstruct Terrorism (USA PATRIOT
ACT) Act of 2001.5
3 See Securities Exchange Act Release No. 45798
(April 22, 2002); 67 FR 20854 (April 26, 2002) (SR–
NYSE–2002–10).
4 Currency and Foreign Transactions Reporting
Act of 1970 (commonly referred to as the Bank
Secrecy Act), 12 U.S.C. 1829b, 12 U.S.C. 1951–
1959, and 31 U.S.C. 5311–5330.
5 Pub. L. 107–56, 115 Stat. 272 (2001).
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The prescribed AML program
obligations include the development of
internal policies, procedures and
controls; the designation of a person to
implement and monitor the day-to-day
operations and internal controls of the
program (commonly referred to as an
‘‘AML Officer’’); ongoing training for
appropriate persons; and an
independent testing function for overall
compliance.
Neither the Bank Secrecy Act nor
Rule 445 currently specifies: (1)
Timeframes within which the
independent testing function must be
performed, (2) qualification and
independence standards for those who
conduct such testing function, or (3)
jurisdictional requirements pertaining to
AML Officers. In order to provide
interpretive clarity to the text, the
following amendments to Rule 445 are
proposed.
Timeframes for Independent Testing
The proposed amendments would
require that independent testing of AML
programs be conducted, at a minimum,
on an annual (calendar-year) basis by
members or member organizations that
conduct a public business, or every two
years if no public business is conducted
(i.e., if the member or member
organization engages solely in
proprietary trading, and/or conducts
business only with other brokerdealers). The Exchange believes these
timeframes are reasonable in that they
require more frequent testing of AML
programs designed to monitor a public
business, which is likely more
susceptible to money laundering
schemes than strictly proprietary
business. Further, the one-year time
frame for testing is consistent with
standard industry practice in that it is
similar to generally accepted guidelines
for conducting tests in the context of, for
instance, general audits and branch
office visits. However, the proposed
amendments make clear that more
frequent testing should be conducted if
circumstances warrant (e.g., should the
business mix of the member or member
organization materially change; in the
event of a merger or acquisition; in light
of systemic weaknesses uncovered via
testing of the AML program; or in
response to any other ‘‘red flags’’).
Qualification and Independence
Standards for Testing
With regard to who is adequately
qualified and sufficiently independent
to conduct the independent testing
function, the proposed amendments
would require that testing be conducted
by a designated person with a working
knowledge of applicable requirements
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38995
under the Bank Secrecy Act and its
implementing regulations. Such person
need not be an employee of the member
or member organization since the
responsibility being delegated is
essentially an auditing function and, as
such, it would not be unusual or
ineffective for it to be performed by an
independent outside party. As noted
below, the proposed amendments
require that the day-to-day
responsibilities for monitoring
operations and internal controls of AML
programs be performed by a person fully
subject to the supervision of the member
or member organization for which they
are designated, and to the jurisdiction of
the Exchange.
The proposed amendments do not
preclude an employee of the member or
member organization from conducting
the required independent testing of the
AML program; however the proposed
‘‘independence’’ standard would
prohibit testing from being conducted
by a person who performs the functions
being tested, or by the designated AML
compliance officer, or by a person who
reports to either. This standard is
designed to promote the independence,
and thus the integrity, of the testing
function by insulating it from the dayto-day administration of the activities
being tested. It also serves to remove the
testing function from the supervisory
structure of the member or member
organization, thus eliminating the
possibility that a person might not
candidly report shortcomings in a
system designed by their supervisor for
fear of reprisal.
Jurisdiction Over AML Officers
The proposed amendments clarify
that the person or persons designated to
implement and monitor a member’s or
member organization’s Anti-Money
Laundering Program (commonly
referred to as an AML Officer, as
previously indicated) must either be an
employee of the member or member
organization for which they are
designated or, with the prior approval of
the Exchange, an employee of a parent,
affiliate or subsidiary of the member or
member organization.
The rationale behind the proposal to
allow employees of parents, affiliates
and subsidiaries to be designated AML
Officers of members and member
organizations is the recognition that
AML programs may be integrated into,
and extend throughout, the corporate
family. Accordingly, a person acting as
an AML Officer for both a member
organization and the member
organization’s parent bank would be
better situated to see the ‘‘big picture’’
(i.e., to monitor the movements of funds
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38996
Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Notices
and securities throughout the corporate
structure and, thus, be better able to
identify and understand AML issues
across the range of such structure). The
ability to situate AML Officers where
they can be most effective gives
members and member organizations the
flexibility to integrate their AML
program into the larger corporate
structure to achieve a more global
perspective, and thus a more
comprehensive and effective AML
program.
The prior written approval of the
Exchange is required if the designated
AML Officer is other than an employee
of the member or member organization.
Further, each such person must execute
an attestation, acceptable to the
Exchange, consenting to the supervision
of each member or member organization
for which they are designated and to the
jurisdiction of the Exchange. A
proposed example of such an attestation
is included in Exhibit 3 of the proposed
rule change, which is available on the
NYSE’s Web site (https://
www.NYSE.com), at the NYSE’s
principal office, and at the
Commission’s Public Reference Room,
under the heading ‘‘AML Officer
Consent to Jurisdiction.’’ In addition,
the member or member organization
must execute an agreement, acceptable
to the Exchange, acknowledging their
responsibility to supervise, as an
employee for all regulatory purposes,
each such person designated by them. A
proposed example of such an agreement
is included in Exhibit 3 of the proposed
rule change under the heading
‘‘Acknowledgement of Supervisory
Responsibility over AML Officer.’’
2. Statutory Basis
The proposed rule change is
consistent with the requirements of the
Exchange Act and the rules and
regulations thereunder applicable to a
national securities exchange, and in
particular, with the requirements of
Sections 6(b)(5) 6 of the Exchange Act.
Section 6(b)(5) requires, among other
things, that the rules of an exchange be
designed to promote just and equitable
principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and national market system, and in
general, to protect investors and the
public interest. NYSE believes that the
proposed rule change is designed to
accomplish these ends by requiring
members to conduct periodic tests of
their AML compliance programs,
preserve the independence of their
testing personnel, and ensure the
6 15
U.S.C. 78f(b)(5).
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accuracy of their AML compliance
program.7
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes that the
proposal does not impose any burden
on competition not necessary or
appropriate in furtherance of the
purposes of the Exchange Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve such proposed
rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
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 Exchange
Act. The Commission particularly urges
commenters to consider the proposed
rule change in light of a similar but not
identical proposed rule change by the
National Association of Securities
Dealers, Inc. (‘‘NASD’’).8
Specifically, the NYSE and NASD
proposals differ in who would be
permitted to serve as an AML Officer.
As discussed above, the NYSE proposal
would, subject to certain restrictions,
permit the AML Officer to be an
employee of a parent, affiliate, or
subsidiary of a member. The NASD
proposal, however, would require the
AML Officer to be an ‘‘associated person
of the member,’’ as that term is defined
in Article I(dd) of the NASD By-Laws.
7 Statement regarding NYSE beliefs is based on
statements by the NYSE during a conference call
with the staff of the Division of Market Regulation
on June 27, 2005.
8 The text of the proposed rule change is available
on the NASD’s Web site (https://www.nasd.com), at
the NASD’s Office of the Secretary, and at the
Commission’s Public Reference Room.
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Serving as an AML Officer, by itself,
would not make a person an associated
person of an NASD member. What
issues, if any, would arise from the
application of both standards regarding
who can serve as an AML Officer at
firms that are dual members of the
NYSE and NASD?
The NYSE and NASD proposals also
differ in who would be permitted to
perform the independent testing
function for AML compliance. Primarily
to accommodate smaller firms, the
NASD proposal would permit an
employee who reports to a person who
performs the functions being tested and/
or reports to the AML Officer to perform
the independent testing, if, among other
requirements, the member has no other
qualified internal personnel to conduct
the test and the member creates a
written policy to address conflicts. The
NYSE proposal, however, would not
permit an employee who reports to a
person who performs the functions
being tested or reports to the AML
Officer to perform the independent
testing. How would these standards, if
adopted, affect the AML program of
dual members of the NYSE and NASD?
Firms are invited to discuss how this
would affect their specific operations.
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–NYSE–2005–36 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–NYSE–2005–36. 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
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06JYN1
Federal Register / Vol. 70, No. 128 / Wednesday, July 6, 2005 / Notices
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, 100 F Street, NE., Washington,
DC 20549. Copies of such filing will also
be available for inspection and copying
at the principal office of the NYSE.
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 the File
Number SR–NYSE–2005–36 and should
be submitted on or before July 27, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.9
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5–3539 Filed 7–5–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–51937; File No. SR–PCX–
2005–31]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Notice of Filing of
Proposed Rule Change and
Amendments No. 1, 2, and 3 Thereto
To Permit Lead Market Makers To
Operate From a Remote Location
June 29, 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 March 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, II and III
below, which Items have been prepared
by the Exchange. The Exchange
submitted Amendments No. 1, 2, and 3
on May 27, 2005,3 June 6, 2005,4 and
June 22, 2005,5 respectively. The
Commission is publishing this notice to
solicit comments on the proposed rule
9 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 CFR 240.19b–4.
3 Amendment No. 1 makes clarifying changes to
the purpose statement and rule text. Amendment
No. 1 replaces the original rule filing in its entirety.
4 Amendment No. 2 makes a technical correction
to the rule text in Exhibit 5.
5 Amendment No. 3 clarifies how a Lead Market
Maker will garner their guaranteed trade allocations
to the PCX by adding the words ‘‘via the PCX Plus
system’’ at the end of the second paragraph in the
purpose statement. Amendment No. 3 also
eliminates the deletion of PCX Rule 6.37(f)(1).
1 15
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change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The PCX is proposing to amend PCX
trading rules in order to allow OTP
Holders and OTP Firms who conduct
Lead Market Making activity to do so
whether on the trading floor or from a
remote location. The text of the
proposed rule change is set forth below.
Additions are in italics; deletions are in
brackets.
Rules of the Pacific Exchange, Inc.
Rule 6
Options Trading
Rule 6.32(a). A Market Maker is an
individual who is registered with the
Exchange for the purpose of making
transactions as a dealer-specialist on the
Floor of the Exchange or, in the case of
a Remote Market Maker or a Lead
Market Maker, through the facilities of
the Exchange in accordance with the
provisions of this subsection. Registered
Market Makers are designated as
specialists on the Exchange for all
purposes under the Securities Exchange
Act of 1934 and the Rules and
Regulations thereunder. Except as
provided in subsection (c) below, only
transactions that are initiated on the
Floor of the Exchange or executed
through the facilities of the Exchange
[by a Remote Market Maker] will count
as Market Maker transactions for the
purposes of Rule 6.32. A Market Maker
on the Exchange must be either a Lead
Market Maker, a Remote Market Maker,
a Supplemental Market Maker, or a
Floor Market Maker.
(1) A Lead Market Maker is a
registered Market Maker who makes
transactions as dealer-specialist [while]
on [the Floor of] the Exchange and who
meets the qualification requirements of
Rule 6.82(b).
(2)–(4)—No change.
(b) Market Makers and Floor Brokers
effecting transactions as Market Makers
are instructed that, except as specified
in subsection (c) below, only
transactions that are initiated on the
Floor of the Exchange or[, in the case of
a Remote Market Maker,] through the
facilities of the Exchange by that person
shall count as Market Maker
transactions and be entitled to special
margin treatment, pursuant to the net
capital requirements of Rule 15c3–1
under the Securities Exchange Act of
1934 and Regulation T of the Board of
Governors of the Federal Reserve
system. Accordingly, any position
established for the account of a Market
Maker [other than a Remote Market
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38997
Maker] which has been ‘‘entered [from
off the floor] through an OTP Firm
acting as a Floor Broker’’ must be
placed in the Market Maker’s
investment account and be subject to
applicable customer margin.
(c) A Market Maker may enter
opening orders from off the Floor of the
Exchange for execution by Floor Brokers
and receive special margin treatment for
such orders during any calendar quarter,
provided that such Market Maker
executes in person or through a facility
of the exchange, and not through the
use of orders, at least 80% of his or her
total transactions during that calendar
quarter. This provision, if applicable,
shall supersede the 60% in-person
requirement of Rule 6.37. In addition,
the [off-floor] orders executed by a Floor
Broker for which a Market Maker
received market-maker treatment shall
be consistent with a Market Maker’s
duty to maintain fair and orderly
markets and in general shall be effected
for the purpose of hedging, reducing the
risk of, or rebalancing open positions of
the Market Maker. Remote Market
Makers may enter opening orders from
off the Floor of the Exchange for
execution by Floor Brokers and receive
special margin treatment for them as
long as the entry of such orders is
consistent with the Remote Market
Maker’s duty to maintain fair and
orderly markets and such orders are
entered for the purpose of hedging,
reducing the risk of, or rebalancing open
positions of the Remote Market Maker.
(d)–(e)—No change.
Rule 6.33–6.35(h)(3)—No Change.
Rule 6.35(h)(4) at no time will a
Remote Market Maker concurrently
trade or quote the same option issue as
a Remote Market Maker or Lead Market
Maker who is a Nominee for the same
OTP Holder or OTP Firm.
Rule 6.36(a). Required of Each OTP
Holder. No Market Maker may make any
transaction on the floor of the Exchange
or, in the case of a Remote Market
Maker or a Lead Market Maker, through
the facilities of the Exchange unless
there is in effect a Letter of Guarantee
which has been issued for such OTP
Holder or OTP Firm by a Clearing
Member and approved by the Options
Clearing Corporation and the Exchange.
An OTP Holder or OTP Firm may not
have more than one such Letter in effect
at the same time except for the purpose
of facilitating the transfer of that OTP
Holder or OTP Firm’s Market Maker
account from one Clearing Member to
another or unless the Exchange
determines otherwise.
Rule 6.36(b)–6.37(c)—No Change.
Rule 6.37(d) In-Person Requirements
for Market Makers [(other than Remote
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]]>Agencies
[Federal Register Volume 70, Number 128 (Wednesday, July 6, 2005)]
[Notices]
[Pages 38994-38997]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-3539]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-51934; File No. SR-NYSE-2005-36]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change To Amend Rule 445
June 29, 2005.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Exchange Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is
hereby given that on May 23, 2005, the New York Stock Exchange, Inc.
(``NYSE'' or the ``Exchange'') filed with the Securities and Exchange
Commission (``SEC'' or the ``Commission'') the proposed rule changes as
described in Items I, II, and III below, which items have been prepared
by the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule changes from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Changes
The Exchange proposes to amend Rule 445 (``Anti-Money Laundering
Compliance Program'') to establish: (1) Timeframes within which the
required independent testing function must be performed; (2)
qualification and independence standards for those who conduct such
testing function; and (3) jurisdictional requirements pertaining to AML
Officers (as defined below). The text of the proposed rule change is
available on the NYSE's Web site (https://www.NYSE.com), at the NYSE's
principal office, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Changes
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule changes.
The text of these statements may be examined at the places specified in
Item IV below.
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The Exchange 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
Summary
The proposed rule change consists of amendments to Rule 445
(``Anti-Money Laundering Compliance Program'') to establish that the
``independent testing'' requirement of the Rule must be conducted, at
minimum, on an annual calendar-year basis by members and member
organizations that conduct a public business, or every two years if no
public business is conducted. The amendments also establish a standard
to determine who is adequately qualified and sufficiently independent
to conduct the required testing. Further, they clarify that each person
designated to implement and monitor an Anti-Money Laundering Program
must either be an employee of the member or member organization for
which they are designated or, with the prior approval of the Exchange,
an employee of a parent, affiliate, or subsidiary of the member or
member organization. Employees of a parent, affiliate, or subsidiary of
a member or member organization who are designated to implement and
monitor Anti-Money Laundering Programs must consent to the jurisdiction
of the Exchange and the member or member organization must acknowledge
their responsibility to supervise them as employees.
Background and Detail
Rule 445, which became effective on April 24, 2002,\3\ requires
each member organization and each member not associated with a member
organization to develop and implement an anti-money laundering
(``AML'') program consistent with ongoing obligations pursuant to
Treasury regulation 31 CFR 103.120 under the Bank Secrecy Act,\4\ as
amended by the United and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT ACT) Act of 2001.\5\
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\3\ See Securities Exchange Act Release No. 45798 (April 22,
2002); 67 FR 20854 (April 26, 2002) (SR-NYSE-2002-10).
\4\ Currency and Foreign Transactions Reporting Act of 1970
(commonly referred to as the Bank Secrecy Act), 12 U.S.C. 1829b, 12
U.S.C. 1951-1959, and 31 U.S.C. 5311-5330.
\5\ Pub. L. 107-56, 115 Stat. 272 (2001).
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The prescribed AML program obligations include the development of
internal policies, procedures and controls; the designation of a person
to implement and monitor the day-to-day operations and internal
controls of the program (commonly referred to as an ``AML Officer'');
ongoing training for appropriate persons; and an independent testing
function for overall compliance.
Neither the Bank Secrecy Act nor Rule 445 currently specifies: (1)
Timeframes within which the independent testing function must be
performed, (2) qualification and independence standards for those who
conduct such testing function, or (3) jurisdictional requirements
pertaining to AML Officers. In order to provide interpretive clarity to
the text, the following amendments to Rule 445 are proposed.
Timeframes for Independent Testing
The proposed amendments would require that independent testing of
AML programs be conducted, at a minimum, on an annual (calendar-year)
basis by members or member organizations that conduct a public
business, or every two years if no public business is conducted (i.e.,
if the member or member organization engages solely in proprietary
trading, and/or conducts business only with other broker-dealers). The
Exchange believes these timeframes are reasonable in that they require
more frequent testing of AML programs designed to monitor a public
business, which is likely more susceptible to money laundering schemes
than strictly proprietary business. Further, the one-year time frame
for testing is consistent with standard industry practice in that it is
similar to generally accepted guidelines for conducting tests in the
context of, for instance, general audits and branch office visits.
However, the proposed amendments make clear that more frequent testing
should be conducted if circumstances warrant (e.g., should the business
mix of the member or member organization materially change; in the
event of a merger or acquisition; in light of systemic weaknesses
uncovered via testing of the AML program; or in response to any other
``red flags'').
Qualification and Independence Standards for Testing
With regard to who is adequately qualified and sufficiently
independent to conduct the independent testing function, the proposed
amendments would require that testing be conducted by a designated
person with a working knowledge of applicable requirements under the
Bank Secrecy Act and its implementing regulations. Such person need not
be an employee of the member or member organization since the
responsibility being delegated is essentially an auditing function and,
as such, it would not be unusual or ineffective for it to be performed
by an independent outside party. As noted below, the proposed
amendments require that the day-to-day responsibilities for monitoring
operations and internal controls of AML programs be performed by a
person fully subject to the supervision of the member or member
organization for which they are designated, and to the jurisdiction of
the Exchange.
The proposed amendments do not preclude an employee of the member
or member organization from conducting the required independent testing
of the AML program; however the proposed ``independence'' standard
would prohibit testing from being conducted by a person who performs
the functions being tested, or by the designated AML compliance
officer, or by a person who reports to either. This standard is
designed to promote the independence, and thus the integrity, of the
testing function by insulating it from the day-to-day administration of
the activities being tested. It also serves to remove the testing
function from the supervisory structure of the member or member
organization, thus eliminating the possibility that a person might not
candidly report shortcomings in a system designed by their supervisor
for fear of reprisal.
Jurisdiction Over AML Officers
The proposed amendments clarify that the person or persons
designated to implement and monitor a member's or member organization's
Anti-Money Laundering Program (commonly referred to as an AML Officer,
as previously indicated) must either be an employee of the member or
member organization for which they are designated or, with the prior
approval of the Exchange, an employee of a parent, affiliate or
subsidiary of the member or member organization.
The rationale behind the proposal to allow employees of parents,
affiliates and subsidiaries to be designated AML Officers of members
and member organizations is the recognition that AML programs may be
integrated into, and extend throughout, the corporate family.
Accordingly, a person acting as an AML Officer for both a member
organization and the member organization's parent bank would be better
situated to see the ``big picture'' (i.e., to monitor the movements of
funds
[[Page 38996]]
and securities throughout the corporate structure and, thus, be better
able to identify and understand AML issues across the range of such
structure). The ability to situate AML Officers where they can be most
effective gives members and member organizations the flexibility to
integrate their AML program into the larger corporate structure to
achieve a more global perspective, and thus a more comprehensive and
effective AML program.
The prior written approval of the Exchange is required if the
designated AML Officer is other than an employee of the member or
member organization. Further, each such person must execute an
attestation, acceptable to the Exchange, consenting to the supervision
of each member or member organization for which they are designated and
to the jurisdiction of the Exchange. A proposed example of such an
attestation is included in Exhibit 3 of the proposed rule change, which
is available on the NYSE's Web site (https://www.NYSE.com), at the
NYSE's principal office, and at the Commission's Public Reference Room,
under the heading ``AML Officer Consent to Jurisdiction.'' In addition,
the member or member organization must execute an agreement, acceptable
to the Exchange, acknowledging their responsibility to supervise, as an
employee for all regulatory purposes, each such person designated by
them. A proposed example of such an agreement is included in Exhibit 3
of the proposed rule change under the heading ``Acknowledgement of
Supervisory Responsibility over AML Officer.''
2. Statutory Basis
The proposed rule change is consistent with the requirements of the
Exchange Act and the rules and regulations thereunder applicable to a
national securities exchange, and in particular, with the requirements
of Sections 6(b)(5) \6\ of the Exchange Act. Section 6(b)(5) requires,
among other things, that the rules of an exchange be designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and national
market system, and in general, to protect investors and the public
interest. NYSE believes that the proposed rule change is designed to
accomplish these ends by requiring members to conduct periodic tests of
their AML compliance programs, preserve the independence of their
testing personnel, and ensure the accuracy of their AML compliance
program.\7\
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\6\ 15 U.S.C. 78f(b)(5).
\7\ Statement regarding NYSE beliefs is based on statements by
the NYSE during a conference call with the staff of the Division of
Market Regulation on June 27, 2005.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes that the proposal does not impose any burden
on competition not necessary or appropriate in furtherance of the
purposes of the Exchange Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
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 Exchange Act. The Commission particularly
urges commenters to consider the proposed rule change in light of a
similar but not identical proposed rule change by the National
Association of Securities Dealers, Inc. (``NASD'').\8\
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\8\ The text of the proposed rule change is available on the
NASD's Web site (https://www.nasd.com), at the NASD's Office of the
Secretary, and at the Commission's Public Reference Room.
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Specifically, the NYSE and NASD proposals differ in who would be
permitted to serve as an AML Officer. As discussed above, the NYSE
proposal would, subject to certain restrictions, permit the AML Officer
to be an employee of a parent, affiliate, or subsidiary of a member.
The NASD proposal, however, would require the AML Officer to be an
``associated person of the member,'' as that term is defined in Article
I(dd) of the NASD By-Laws. Serving as an AML Officer, by itself, would
not make a person an associated person of an NASD member. What issues,
if any, would arise from the application of both standards regarding
who can serve as an AML Officer at firms that are dual members of the
NYSE and NASD?
The NYSE and NASD proposals also differ in who would be permitted
to perform the independent testing function for AML compliance.
Primarily to accommodate smaller firms, the NASD proposal would permit
an employee who reports to a person who performs the functions being
tested and/or reports to the AML Officer to perform the independent
testing, if, among other requirements, the member has no other
qualified internal personnel to conduct the test and the member creates
a written policy to address conflicts. The NYSE proposal, however,
would not permit an employee who reports to a person who performs the
functions being tested or reports to the AML Officer to perform the
independent testing. How would these standards, if adopted, affect the
AML program of dual members of the NYSE and NASD? Firms are invited to
discuss how this would affect their specific operations.
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-NYSE-2005-36 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-NYSE-2005-36. 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
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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, 100 F Street, NE., Washington, DC 20549. Copies of such
filing will also be available for inspection and copying at the
principal office of the NYSE.
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 the File Number SR-NYSE-2005-
36 and should be submitted on or before July 27, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. E5-3539 Filed 7-5-05; 8:45 am]
BILLING CODE 8010-01-P
