Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Amend Rule 352 Concerning Guarantees and Sharing in Accounts, 45461-45464 [E5-4234]

Download as PDF Federal Register / Vol. 70, No. 150 / Friday, August 5, 2005 / Notices Act, the Exchange may bar a natural person from becoming a member or person associated with a member, if such natural person does not meet such standards of training, experience and competence as are prescribed by the rules of the Exchange. The Exchange believes that the proposed amendments are consistent with the Act in that they codify qualification and examination requirements for certain prescribed individuals. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange believes that the proposed rule change does not impose any burden on competition 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 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 dated if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the Exchange 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 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–NYSE–2005–04 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. VerDate jul<14>2003 15:34 Aug 04, 2005 Jkt 205001 All submissions should refer to File Number SR–NYSE–2005–04. 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. 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 File Number SR–NYSE–2005–04 and should be submitted on or before August 26, 2005. For the Commission, by the Division of Market Regulation, pursuant to the delegated authority.13 Jill M. Peterson, Assistant Secretary. [FR Doc. E5–4230 Filed 8–4–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52179; File No. SR–NYSE– 2004–47] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Amend Rule 352 Concerning Guarantees and Sharing in Accounts July 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 August 14, 2004 and on July 6, 2005 (Amendment No. 1), the New York Stock Exchange, Inc. (‘‘NYSE’’ or the PO 00000 13 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 Frm 00109 Fmt 4703 Sfmt 4703 45461 ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or the ‘‘Commission’’) the proposed rule change. The proposed rule change as described in items I, II, and III below, which items have been prepared by the Exchange, incorporates amendments submitted to the Commission as Amendment No. 1. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rule 352 (the ‘‘Rule’’) to expand the Rule to include specific limitations on loan arrangements between personnel associated with a member organization in any registered capacity on the one hand, and customers on the other. In addition, the amendments integrate the Rule’s Interpretation into the proposed Rule text, and otherwise clarify both the Rule’s scope and purpose. 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 Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change. The text of these statements may be examined at the places specified in item IV below. 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 Background. Rule 352 generally prohibits members, member organizations, and specified associated persons of such from entering into arrangements that guarantee the payment of a debit balance in any customer account; guarantee a customer against loss; or establish a profit and/or loss-sharing agreement with a customer. The amendments proposed herein expand the Rule to include specific limitations on loan arrangements between personnel associated with a member organization in any registered capacity on the one hand, and E:\FR\FM\05AUN1.SGM 05AUN1 45462 Federal Register / Vol. 70, No. 150 / Friday, August 5, 2005 / Notices customers on the other. In addition, the amendments integrate the Rule’s Interpretation into the proposed Rule text, and otherwise clarify both the Rule’s scope and purpose. Loan Arrangements between Registered Personnel and Customers. The Exchange does not currently have a rule that specifically addresses the issue of loan arrangements between member organization personnel and customers; however, the Exchange believes that such arrangements, given their inherent potential for conflict of interest and abuse, are generally not a good business practice. Bearing this concern in mind, it is recognized that there are certain situations when such loans may be appropriate. Accordingly, proposed paragraphs (e) and (f) to Rule 352 would limit loan arrangements, between persons associated with a member organization in any registered capacity and customers, to certain prescribed situations. As outlined in detail below, proposed Rule 352(e) requires written supervisory procedures that would limit loan arrangements between registered member organization personnel and customers of the member organization to those arising either in the context of a prescribed personal or business relationship outside of the brokercustomer relationship, or to those involving other registered personnel of the member organization. Proposed Rule 352(f) further requires detailed written supervisory procedures that would require that certain loan arrangements between registered member organization personnel and customers of the member organization be disclosed to the member organization for prior approval. Limitations on Loan Arrangements. Proposed Rule 352(e) would permit a person associated with a member organization in any registered capacity to borrow money from or lend money to a customer of such person only if: (A) The member organization has written supervisory procedures permitting the borrowing and lending of money between such registered persons and their customers; and (B) the lending or borrowing arrangement meets one of the following conditions: (1) The customer is a member of such registered person’s immediate family; or (2) 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; or (3) the customer and the registered person are both registered persons of the same member organization; or (4) the lending arrangement is based on a personal relationship with the customer, such VerDate jul<14>2003 15:34 Aug 04, 2005 Jkt 205001 that the loan would not have been solicited, offered, or given had the customer and the registered person not maintained a relationship outside of the broker/customer relationship; or (5) the lending arrangement is based on a business relationship outside of the broker-customer relationship. Loan Procedures. Proposed Rule 352(f)(1) would require member organizations to pre-approve, in writing, the lending or borrowing arrangements described in proposed paragraphs (e)(3) (between registered persons of the same member organization); (e)(4) (involving a personal relationship outside the context of the broker-customer relationship); and (e)(5) (involving a business relationship outside the context of the broker-customer relationship). With respect to the lending or borrowing arrangements described in proposed Rule 352(e)(1) between a person associated with a member organization in any registered capacity and a customer that is a member of such registered person’s immediate family, proposed paragraph (f)(2) would permit a member organization’s written procedures to indicate that registered persons are not required to notify the member organization or receive member organization approval either prior to or subsequent to entering into a lending or borrowing arrangement with an immediate family member. For purposes of this proposed rule, the term ‘‘immediate family’’ is defined in proposed paragraph 352(g) to 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 would also include any other person whom the registered person supports, directly or indirectly, to a material extent. With respect to the lending or borrowing arrangements described in proposed Rule 352(e)(2) between a person associated with a member organization in any registered capacity and a customer that 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, proposed paragraph (f)(3) would permit a member organization’s written procedures to indicate that registered persons are not required to notify the member organization or receive approval either prior to or subsequent to entering into a lending or borrowing arrangements with a customer that is a prescribed financial institution, PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 provided that 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. For purposes of proposed paragraph (e)(2), a member organization may rely on the registered person’s written representation that the terms of the loan meet the standards required by proposed paragraph (f)(3). Integration of the Rule’s Interpretation. The NYSE Interpretation Handbook contains an exception to the general prohibition, under current Rule 352(c), against sharing or agreeing to share in any profits or losses in any customer’s account or from any transaction transacted therein.3 The Interpretation states, in part, that: ‘‘* * * where a participatory compensation arrangement is entered into by a member organization that itself is registered with the SEC as an investment adviser, and such arrangement complies with section 205(1) and the rules thereunder, the arrangement will not be deemed violative of Rule 352(c) if the arrangement arises in the context of such member organization’s advisory relationship with the customer. Member organizations may not have such participatory compensation arrangements if they are only acting as a broker for the customer.’’ Since this exemption for member organizations acting in the capacity of a registered investment adviser is not referred to nor reasonably implied by the Rule, it is proposed that it be deleted in its entirety from the Interpretation Handbook, and integrated into the proposed Rule text.4 In addition, the Interpretation text reference to section 205(1) of the Investment Advisers Act of 1940 is inaccurate. It is proposed that the reference be corrected to read ‘‘Section 205* * *unless exempt pursuant to section 203(b) of the Advisers Act.’’ 5 The proposed change simply clarifies the scope and original intent of the reference, and does not alter the substance of the Interpretation. Miscellaneous Rule Text Clarifications. The Exchange has taken this opportunity to rearrange and clarify certain sections of the Rule. For example, the text of Rule 352(b) arguably suggests an application of the Rule to a category broader than that of ‘‘customers’’ (e.g., encompassing broker3 See text 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. 4 Id. 5 Id. E:\FR\FM\05AUN1.SGM 05AUN1 Federal Register / Vol. 70, No. 150 / Friday, August 5, 2005 / Notices dealers). Specifically, it states that ‘‘no member, allied member, registered representative or officer shall guarantee or in any way represent that either he or his employer will guarantee any customer against loss in any account or on any transaction’’ (italics added). It is proposed that this text be amended to specify ‘‘customer’’ accounts and ‘‘customer’’ transactions in order to remove any suggestion that proposed Rule 352 is to be construed more expansively than other NYSE sales practice rules. These proposed amendments are consistent with both the original intent of the Rule and the Exchange’s ongoing interpretation of it. It is proposed that the text of Rule 352(c) be amended, as reflected in proposed Rule 352(b), to clarify that its general restriction against receiving or agreeing to receive a share in the profits or losses of any customer account extends to officers of a member organization who are acting in the capacity of a registered representative. Inclusion of the term ‘‘officer’’ also makes proposed paragraph (b) consistent with proposed paragraph (a). Current Rule 352 paragraphs (a) and (b) have been combined into proposed paragraph (a). Further, the exceptions to the general prohibition against sharing in profits and losses which are currently in paragraphs .10 and .20 of the Rule’s Supplemental Material have been clarified and relocated to proposed paragraph 352(c) under the heading ‘‘Joint Accounts and Order Errors.’’ Additional amendments are nonsubstantive changes, such as the clarification of rule text and the revision of dated language to reflect current usage. (2) Statutory Basis The Exchange believes 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. The Exchange believes that the proposed rule change is designed to accomplish these ends (1) by placing limitations on loan arrangements between personnel associated with a member organization 6 15 U.S.C. 78f(b)(5). VerDate jul<14>2003 15:34 Aug 04, 2005 Jkt 205001 in any registered capacity on the one hand, and customers on the other, (2) by integrating the Rule’s Interpretation into the proposed Rule, and (3) by clarifying both the Rule’s scope and purpose with respect to prohibiting members, member organizations, and specified associated persons of such from entering into arrangements that guarantee the payment of a debit balance in any customer account; guarantee a customer against loss; or establish a profit and/or loss-sharing agreement with a customer.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, as amended, is consistent with the Exchange Act. The Commission in particular solicits comment on the following question(s): Will any changes created by combining Rule 352 paragraphs (a) and (b) into proposed Rule 352 paragraph (a) allow a person associated with a member organization as a registered representative or officer, to guarantee to his employer the 7 Telephone conversation between William Jannace, Director, Rule and Interpretive Standards, NYSE, and Lourdes Gonzalez, Assistant Chief Counsel, Division of Market Regulation, Commission, (July 11, 2005). PO 00000 Frm 00111 Fmt 4703 Sfmt 4703 45463 payment of the debit balance in a customer’s account? If so, will such proposed change create any adverse impact on a member organization’s incentive to supervise the activities of a person associated with such member organization as a registered representative or officer? 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–2004–47 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–2004–47. 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, 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–2004–47 and should be submitted on or before August 26, 2005. E:\FR\FM\05AUN1.SGM 05AUN1 45464 Federal Register / Vol. 70, No. 150 / Friday, August 5, 2005 / Notices For the Commission, by the Division of Market Regulation, pursuant to delegated authority.8 Jill M. Peterson, Assistant Secretary. [FR Doc. E5–4234 Filed 8–4–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52180; File No. SR–OC– 2005–02] Self-Regulatory Organization; OneChicago, LLC; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Listing Standards for Security Futures Products and the Final Settlement Price for Futures on Narrow-Based Security Indexes July 29, 2005. Pursuant to section 19(b)(7) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–7 thereunder 2 notice is hereby given that on July 20, 2005 OneChicago, LLC (‘‘OneChicago’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change described in items I, II, and III below, which Items have been prepared by OneChicago.3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. OneChicago also has filed the proposed rule change with the Commodity Futures Trading Commission (‘‘CFTC’’). OneChicago filed a written certification with CFTC under Section 5c(c) of the Commodity Exchange Act (‘‘CEA’’) 4 on July 18, 2005. I. Self-Regulatory Organization’s Description of the Proposed Rule Change OneChicago is proposing to amend its listing standards for security futures products (‘‘SFPs’’) and its rule relating to the final settlement price for futures on narrow-based security indexes (‘‘NBIs’’). The text of the proposed rule change follows; additions are italicized; deletions are [bracketed]. 8 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(7). 2 17 CFR 240.19b–7. 3 With the permission of OneChicago, the Commission made typographical, non-substantive corrections to the text of the proposed rule change. Telephone conversations between Madge Piro, Counsel for OneChicago, and Jennifer Dodd, Special Counsel, Division of Market Regulation (‘‘Division’’), Commission, July 21 and 29, 2005. 4 7 U.S.C. 7a–2(c). 1 15 VerDate jul<14>2003 15:34 Aug 04, 2005 Jkt 205001 [Eligibility and Maintenance Criteria for Security Futures Products] 906 [I.]Listing Standards (a) Initial listing standards for a security futures product based on a single security. [A.] For a security futures product that is physically settled to be eligible for initial listing, the security underlying the futures contract must meet each of the following requirements: [(i)] (1) It must be a common stock, an American Depositary Receipt (‘‘ADR’’) representing common stock or ordinary shares, a share of an exchange traded fund (‘‘ETF Share’’), a trust issued receipt (‘‘TIR’’) or a share of a registered closed-end management investment company (‘‘Closed-End Fund Share’’). [(ii)] (2) It must be registered under Section 12 of the Securities Exchange Act of 1934 (as amended from time to time, the ‘‘Exchange Act’’), and its issuer must be in compliance with any applicable requirements of the Exchange Act. [(iii)] (3) It must be listed on a national securities exchange (‘‘Exchange’’) or traded through the facilities of a national securities association (‘‘Association’’) and reported as a ‘‘national market system’’ security as set forth in Rule 11Aa3–1 under the Exchange Act (‘‘NMS security’’). [(iv)] (4) There must be at least seven million shares or receipts evidencing the underlying security outstanding that are owned by persons other than those required to report their security holdings pursuant to Section 16(a) of the Exchange Act. Requirement [(iv)] (4) as Applied to Restructure Securities: In the case of an equity security that a company issues or anticipates issuing as the result of a spin-off, reorganization, recapitalization, restructuring or similar corporate transaction (‘‘Restructure Security’’), [OneChicago, LLC (‘‘OneChicago’’)] the Exchange may assume that this requirement is satisfied if, based on a reasonable investigation, it determines that, on the product’s intended listing date: (A) at least 40 million shares of the Restructure Security will be issued and outstanding; or (B) the Restructure Security will be listed on an Exchange or automated quotation system that is subject to an initial listing requirement of no less than seven million publicly owned shares. In the case of a Restructure Security issued or distributed to the holders of the equity security that existed prior to the ex-date of a spin-off, reorganization, recapitalization, restructuring or similar PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 corporate transaction (‘‘Original Equity Security’’), [OneChicago] the Exchange may consider the number of outstanding shares of the Original Equity Security prior to the spin-off, reorganization, recapitalization, restructuring or similar corporate transaction (‘‘Restructuring Transaction’’). [(v)] (5) In the case of an underlying security other than an ETF Share, TIR or Closed-End Fund Share, there must be at least 2,000 securityholders. Requirement [(v)] (5) as Applied to Restructure Securities: If the security under consideration is a Restructure Security, [OneChicago] the Exchange may assume that this requirement is satisfied if, based on a reasonable investigation,[OneChicago] the Exchange determines that, on the product’s intended listing date: (A) at least 40 million shares of the Restructure Security will be issued and outstanding; or (B) the Restructure Security will be listed on an Exchange or automated quotation system that is subject to an initial listing requirement of at least 2,000 shareholders. In the case of a Restructure Security issued or distributed to the holders of the Original Equity Security, [OneChicago]the Exchange may consider the number of shareholders of the Original Equity Security prior to the Restructuring Transaction. [(vi)] (6) In the case of an underlying security other than an ETF Share, TIR or Closed-End Fund Share, it must have trading volume (in all markets in which the underlying security is traded) of at least 2,400,000 shares in the preceding 12 months. Requirement [(vi)] (6) as Applied to Restructure Securities: Look-Back Test: In determining whether a Restructure Security that is issued or distributed to the shareholders of an Original Equity Security (but not a Restructure Security that is issued pursuant to a public offering or rights distribution) satisfies this requirement,[OneChicago] the Exchange may ‘‘look back’’ to the trading volume history of the Original Equity Security prior to the ex-date of the Restructuring Transaction if the following Look-Back Test is satisfied: [(1)] (A) The Restructure Security has an aggregate market value of at least $500 million; [(2)] (B) The aggregate market value of the Restructure Security equals or exceeds the Relevant Percentage (defined below) of the aggregate market value of the Original Equity Security; [(3)] (C) The aggregate book value of the assets attributed to the business represented by the Restructure Security equals or exceeds $50 million and the E:\FR\FM\05AUN1.SGM 05AUN1

Agencies

[Federal Register Volume 70, Number 150 (Friday, August 5, 2005)]
[Notices]
[Pages 45461-45464]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-4234]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52179; File No. SR-NYSE-2004-47]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Amend Rule 352 Concerning Guarantees and Sharing in Accounts

July 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 August 14, 2004 and on July 6, 2005 (Amendment No. 
1), the New York Stock Exchange, Inc. (``NYSE'' or the ``Exchange'') 
filed with the Securities and Exchange Commission (``SEC'' or the 
``Commission'') the proposed rule change. The proposed rule change as 
described in items I, II, and III below, which items have been prepared 
by the Exchange, incorporates amendments submitted to the Commission as 
Amendment No. 1. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 352 (the ``Rule'') to expand 
the Rule to include specific limitations on loan arrangements between 
personnel associated with a member organization in any registered 
capacity on the one hand, and customers on the other. In addition, the 
amendments integrate the Rule's Interpretation into the proposed Rule 
text, and otherwise clarify both the Rule's scope and purpose. The text 
of the proposed rule change is available on the NYSE's Web site (http:/
/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 Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
item IV below. 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
    Background. Rule 352 generally prohibits members, member 
organizations, and specified associated persons of such from entering 
into arrangements that guarantee the payment of a debit balance in any 
customer account; guarantee a customer against loss; or establish a 
profit and/or loss-sharing agreement with a customer. The amendments 
proposed herein expand the Rule to include specific limitations on loan 
arrangements between personnel associated with a member organization in 
any registered capacity on the one hand, and

[[Page 45462]]

customers on the other. In addition, the amendments integrate the 
Rule's Interpretation into the proposed Rule text, and otherwise 
clarify both the Rule's scope and purpose.
    Loan Arrangements between Registered Personnel and Customers. The 
Exchange does not currently have a rule that specifically addresses the 
issue of loan arrangements between member organization personnel and 
customers; however, the Exchange believes that such arrangements, given 
their inherent potential for conflict of interest and abuse, are 
generally not a good business practice. Bearing this concern in mind, 
it is recognized that there are certain situations when such loans may 
be appropriate. Accordingly, proposed paragraphs (e) and (f) to Rule 
352 would limit loan arrangements, between persons associated with a 
member organization in any registered capacity and customers, to 
certain prescribed situations. As outlined in detail below, proposed 
Rule 352(e) requires written supervisory procedures that would limit 
loan arrangements between registered member organization personnel and 
customers of the member organization to those arising either in the 
context of a prescribed personal or business relationship outside of 
the broker-customer relationship, or to those involving other 
registered personnel of the member organization. Proposed Rule 352(f) 
further requires detailed written supervisory procedures that would 
require that certain loan arrangements between registered member 
organization personnel and customers of the member organization be 
disclosed to the member organization for prior approval.
    Limitations on Loan Arrangements. Proposed Rule 352(e) would permit 
a person associated with a member organization in any registered 
capacity to borrow money from or lend money to a customer of such 
person only if: (A) The member organization has written supervisory 
procedures permitting the borrowing and lending of money between such 
registered persons and their customers; and (B) the lending or 
borrowing arrangement meets one of the following conditions: (1) The 
customer is a member of such registered person's immediate family; or 
(2) 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; or (3) the customer and the registered person are both 
registered persons of the same member organization; or (4) 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 registered person not maintained a relationship 
outside of the broker/customer relationship; or (5) the lending 
arrangement is based on a business relationship outside of the broker-
customer relationship.
    Loan Procedures. Proposed Rule 352(f)(1) would require member 
organizations to pre-approve, in writing, the lending or borrowing 
arrangements described in proposed paragraphs (e)(3) (between 
registered persons of the same member organization); (e)(4) (involving 
a personal relationship outside the context of the broker-customer 
relationship); and (e)(5) (involving a business relationship outside 
the context of the broker-customer relationship).
    With respect to the lending or borrowing arrangements described in 
proposed Rule 352(e)(1) between a person associated with a member 
organization in any registered capacity and a customer that is a member 
of such registered person's immediate family, proposed paragraph (f)(2) 
would permit a member organization's written procedures to indicate 
that registered persons are not required to notify the member 
organization or receive member organization approval either prior to or 
subsequent to entering into a lending or borrowing arrangement with an 
immediate family member. For purposes of this proposed rule, the term 
``immediate family'' is defined in proposed paragraph 352(g) to 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 would also include any other person whom the 
registered person supports, directly or indirectly, to a material 
extent.
    With respect to the lending or borrowing arrangements described in 
proposed Rule 352(e)(2) between a person associated with a member 
organization in any registered capacity and a customer that 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, proposed 
paragraph (f)(3) would permit a member organization's written 
procedures to indicate that registered persons are not required to 
notify the member organization or receive approval either prior to or 
subsequent to entering into a lending or borrowing arrangements with a 
customer that is a prescribed financial institution, provided that 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. For purposes of proposed 
paragraph (e)(2), a member organization may rely on the registered 
person's written representation that the terms of the loan meet the 
standards required by proposed paragraph (f)(3).
    Integration of the Rule's Interpretation. The NYSE Interpretation 
Handbook contains an exception to the general prohibition, under 
current Rule 352(c), against sharing or agreeing to share in any 
profits or losses in any customer's account or from any transaction 
transacted therein.\3\ The Interpretation states, in part, that: ``* * 
* where a participatory compensation arrangement is entered into by a 
member organization that itself is registered with the SEC as an 
investment adviser, and such arrangement complies with section 205(1) 
and the rules thereunder, the arrangement will not be deemed violative 
of Rule 352(c) if the arrangement arises in the context of such member 
organization's advisory relationship with the customer. Member 
organizations may not have such participatory compensation arrangements 
if they are only acting as a broker for the customer.''
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    \3\ See text 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.
---------------------------------------------------------------------------

    Since this exemption for member organizations acting in the 
capacity of a registered investment adviser is not referred to nor 
reasonably implied by the Rule, it is proposed that it be deleted in 
its entirety from the Interpretation Handbook, and integrated into the 
proposed Rule text.\4\
---------------------------------------------------------------------------

    \4\ Id.
---------------------------------------------------------------------------

    In addition, the Interpretation text reference to section 205(1) of 
the Investment Advisers Act of 1940 is inaccurate. It is proposed that 
the reference be corrected to read ``Section 205* * *unless exempt 
pursuant to section 203(b) of the Advisers Act.'' \5\ The proposed 
change simply clarifies the scope and original intent of the reference, 
and does not alter the substance of the Interpretation.
---------------------------------------------------------------------------

    \5\ Id.
---------------------------------------------------------------------------

    Miscellaneous Rule Text Clarifications. The Exchange has taken this 
opportunity to rearrange and clarify certain sections of the Rule. For 
example, the text of Rule 352(b) arguably suggests an application of 
the Rule to a category broader than that of ``customers'' (e.g., 
encompassing broker-

[[Page 45463]]

dealers). Specifically, it states that ``no member, allied member, 
registered representative or officer shall guarantee or in any way 
represent that either he or his employer will guarantee any customer 
against loss in any account or on any transaction'' (italics added). It 
is proposed that this text be amended to specify ``customer'' accounts 
and ``customer'' transactions in order to remove any suggestion that 
proposed Rule 352 is to be construed more expansively than other NYSE 
sales practice rules. These proposed amendments are consistent with 
both the original intent of the Rule and the Exchange's ongoing 
interpretation of it.
    It is proposed that the text of Rule 352(c) be amended, as 
reflected in proposed Rule 352(b), to clarify that its general 
restriction against receiving or agreeing to receive a share in the 
profits or losses of any customer account extends to officers of a 
member organization who are acting in the capacity of a registered 
representative. Inclusion of the term ``officer'' also makes proposed 
paragraph (b) consistent with proposed paragraph (a).
    Current Rule 352 paragraphs (a) and (b) have been combined into 
proposed paragraph (a). Further, the exceptions to the general 
prohibition against sharing in profits and losses which are currently 
in paragraphs .10 and .20 of the Rule's Supplemental Material have been 
clarified and relocated to proposed paragraph 352(c) under the heading 
``Joint Accounts and Order Errors.''
    Additional amendments are non-substantive changes, such as the 
clarification of rule text and the revision of dated language to 
reflect current usage.
(2) Statutory Basis
    The Exchange believes 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. The Exchange believes 
that the proposed rule change is designed to accomplish these ends (1) 
by placing limitations on loan arrangements between personnel 
associated with a member organization in any registered capacity on the 
one hand, and customers on the other, (2) by integrating the Rule's 
Interpretation into the proposed Rule, and (3) by clarifying both the 
Rule's scope and purpose with respect to prohibiting members, member 
organizations, and specified associated persons of such from entering 
into arrangements that guarantee the payment of a debit balance in any 
customer account; guarantee a customer against loss; or establish a 
profit and/or loss-sharing agreement with a customer.\7\
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    \6\ 15 U.S.C. 78f(b)(5).
    \7\ Telephone conversation between William Jannace, Director, 
Rule and Interpretive Standards, NYSE, and Lourdes Gonzalez, 
Assistant Chief Counsel, Division of Market Regulation, Commission, 
(July 11, 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, as amended, is consistent with the Exchange Act. The Commission 
in particular solicits comment on the following question(s): Will any 
changes created by combining Rule 352 paragraphs (a) and (b) into 
proposed Rule 352 paragraph (a) allow a person associated with a member 
organization as a registered representative or officer, to guarantee to 
his employer the payment of the debit balance in a customer's account? 
If so, will such proposed change create any adverse impact on a member 
organization's incentive to supervise the activities of a person 
associated with such member organization as a registered representative 
or officer?
    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-2004-47 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-2004-47. 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, 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-2004-47 and should 
be submitted on or before August 26, 2005.


[[Page 45464]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-4234 Filed 8-4-05; 8:45 am]
BILLING CODE 8010-01-P
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