Self-Regulatory Organizations; The Depository Trust Company, Fixed Income Clearing Corporation, and National Securities Clearing Corporation; Order Approving Proposed Rule Change To Establish a Fine for Members Failing To Conduct Connectivity Testing, 55435-55436 [05-18763]
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Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Notices
that the audit client had filed, or the
address that the audit client would be
required to list on any covered schedule
or form required to be filed, is within
one of the Presidential Disaster Areas;
(c) Services provided by the auditor
are limited to reconstruction of
previously existing accounting records
that were lost or destroyed as a result of
Hurricane Katrina and such services
cease as soon as the client’s lost or
destroyed records are reconstructed, its
financial systems are fully operational
and the client can effect an orderly and
efficient transition to management or
other service provider; and
(d) With respect to issuers, the
services provided by the issuer’s auditor
pursuant to this Order are subject to preapproval by the issuer’s audit committee
as required by Rule 2–01(c)(7) of
Regulation S–X.
*
*
*
*
*
Auditors or audit clients with
questions about this section of the Order
or with other questions relating to
auditor independence are encouraged to
call the Office of the Chief Accountant
directly at (202) 551–5300 or use the
contact information provided at the end
of Section II of the Order.
By the Commission.
Jonathan G. Katz,
Secretary.
[FR Doc. 05–18761 Filed 9–20–05; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52446; File Nos. SR–DTC–
2005–04, SR–FICC–2005–10, and SR–
NSCC–2005–05]
Self-Regulatory Organizations; The
Depository Trust Company, Fixed
Income Clearing Corporation, and
National Securities Clearing
Corporation; Order Approving
Proposed Rule Change To Establish a
Fine for Members Failing To Conduct
Connectivity Testing
September 15, 2005.
I. Introduction
On May 13, 2005, May 3, 2005, and
on May 4, 2005, respectively, The
Depository Trust Company (‘‘DTC’’), the
Fixed Income Clearing Corporation
(‘‘FICC’’), and the National Securities
Clearing Corporation (‘‘NSCC’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) proposed
rule changes SR–DTC–2005–04, SR–
FICC–2005–10, and SR–NSCC–2005–05
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
14:40 Sep 20, 2005
II. Description
DTC, FICC, and NSCC are imposing a
fine on any member that is required to
conduct connectivity testing for
business continuity purposes and fails
to do so.
In the aftermath of September 11,
2001, and in conjunction with a
financial industry white paper, DTC,
FICC, and NSCC require connectivity
testing each year for critical (‘‘Top
Tier’’) members.3 The criteria used by
DTC, FICC, and NSCC to identify their
respective Top Tier members were
revenues, clearing fund contributions,
settlement amounts, and trading
volumes. Connectivity testing for the
Top Tier members was initiated on
January 1, 2004. Due to the critical
importance of being able to assess
whether a Top Tier member has
sufficient operational capabilities, DTC,
FICC, and NSCC have determined that
they need the ability to fine any Top
Tier member that does not test.4
1 15
U.S.C. 78s(b)(1).
Exchange Act Release No. 52403 (July
15, 2005), 70 FR 42122.
3 The Federal Reserve, Office of the Comptroller
of the Currency, and the Commission issued
‘‘Interagency Paper on Sound Practices to
Strengthen the Resilience of the U.S. Financial
System.’’ [68 FR 17809 (April 11, 2003)]. This
document provided guidelines that required core
clearing and settlement organizations, such as DTC,
FICC, and NSCC, and others in the financial
industry to manage business continuity capabilities.
DTC, FICC, and NSCC developed their testing of
Top Tier firms based on the guidelines outlined in
the white paper.
4 Pursuant to DTC Rule 2, ‘‘Participants and
Pledgees,’’ participants must furnish, upon DTC’s
request, information sufficient to demonstrate
operational capability. In addition, DTC Rule 21,
‘‘Disciplinary Sanctions,’’ allows DTC to impose
fines on participants for any error, delay or other
conduct detrimental to the operations of DTC.
Pursuant to GSD Rule 3, ‘‘Responsibility,
Operational Capability, and Other Membership
Standards of Comparison-Only Members and
Netting Members,’’ the GSD may require members
to fulfill operational testing requirements as the
GSD may at any time deem necessary. Pursuant to
MBSD Rule 1, Section 3 of Article III, all MBSD
applicants and members agree to fulfill operational
testing requirements and related reporting
requirements that may be imposed to ensure the
continuing operational capability of the applicant.
Pursuant to NSCC Rule 15, ‘‘Financial
Responsibility and Operational Capability,’’
members must furnish to NSCC adequate
assurances of their financial responsibility and
operational capability as NSCC may at any time
deem necessary. In addition, NSCC Rule 48,
‘‘Disciplinary Procedures,’’ allows NSCC to impose
a fine on participants for any error, delay, or other
2 Securities
BILLING CODE 8010–01–P
VerDate Aug<31>2005
(‘‘Act’’).1 On June 7, 2005, NSCC
amended its proposed rule change.
Notice of the proposals, as amended,
was published in the Federal Register
on July 21, 2005.2 No comment letters
were received. For the reasons
discussed below, the Commission is
approving the proposed rule changes.
Jkt 205001
PO 00000
Frm 00105
Fmt 4703
Sfmt 4703
55435
Currently, each member of DTC, FICC,
and NSCC that is designated as Top Tier
is advised of this status and is provided
with information on the testing
requirements. Under DTC, FICC, and
NSCC’s current procedures, if testing is
not completed by a Top Tier member by
the end of June, a reminder notice is
sent to the member. Thereafter, another
reminder notice is sent in October and,
if necessary, again in December.
The reminder notice sent in December
will advise that if testing is not
completed by December 31, a fine of
$10,000 will be imposed. These fines
will be collected from members in
January of the following year. The
Membership and Risk Management
Committee will be notified of all
members that were fined for failing to
complete connectivity testing.
In the event that any member fails to
complete connectivity testing for two
successive years, the fine that will be
imposed at that time will be $20,000.
Failure to complete testing for more
than two successive years will result in
disciplinary action, including potential
termination of membership.
III. Discussion
Section 17A(b)(3)(F) of the Act
requires that the rules of a clearing
agency be designed to assure the
safeguarding of securities and funds
which are in the custody or control of
the clearing agency or for which it is
responsible.5 The Commission finds
that DTC, FICC, and NSCC’s proposed
rule changes are consistent with this
requirement because the
implementation of the fines should help
DTC, FICC, and NSCC to enforce
compliance with their connectivity
testing rules for business continuity
purposes and as a result should better
enable them to ensure the safeguarding
of securities and funds which are in
their custody or control.
IV. Conclusion
On the basis of the foregoing, the
Commission finds that the proposed
rule changes are consistent with the
requirements of the Act and in
particular Section 17A of the Act and
the rules and regulations thereunder.
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule changes (File Nos. SR–
DTC–2005–04, SR–FICC–2005–10, and
SR–NSCC–2005–05) be and hereby are
approved.
conduct that is determined to be detrimental to the
operations of NSCC.
5 15 U.S.C. 78q–1(b)(3)(F).
E:\FR\FM\21SEN1.SGM
21SEN1
55436
Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Notices
For the Commission by the Division of
Market Regulation, pursuant to delegated
authority.6
Jonathan G. Katz,
Secretary.
[FR Doc. 05–18763 Filed 9–20–05; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52431; File No. SR–NASD–
2005–103]
Self-Regulatory Organizations;
National Association of Securities
Dealers, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Relating to Technical
Changes to NASD Rule 3110 and IM–
3110
September 14, 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
September 6, 2005, the National
Association of Securities Dealers, Inc.
(‘‘NASD’’), through its subsidiary, The
Nasdaq Stock Market, Inc. (‘‘Nasdaq’’),
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by Nasdaq. Nasdaq
has filed the proposal as a ‘‘noncontroversial’’ rule change pursuant to
Section 19(b)(3)(A) of the Act 3 and Rule
19b-4(f)(6)4 thereunder, which renders
the proposed rule change effective upon
filing with the Commission.5 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
Nasdaq is proposing to amend NASD
Rule 3110 to re-label paragraph (d)
(Changes in Account Name or
Designation) as paragraph (j), and
relocate the Interpretive Material 3110
(‘‘IM–3110’’) to the end of NASD Rule
3110. The text of the proposed rule
change is below. Proposed new
language is in italics; proposed
deletions are in [brackets].
*
*
*
*
*
6 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A).
4 17 CFR 240.19b-4(f)(6).
5 Nasdaq asked the Commission to waive the 30day operative delay. See Rule 19b–4(f)(6)(iii). 17
CFR 240.19b–4(f)(6)(iii).
1 15
VerDate Aug<31>2005
14:40 Sep 20, 2005
Jkt 205001
3100. BOOKS AND RECORDS, AND
FINANCIAL CONDITION
(j) Changes in Account Name or
Designation
3110. Books and Records
Before any customer order is
executed, there must be placed upon the
memorandum for each transaction, the
name or designation of the account (or
accounts) for which such order is to be
executed. No change in such account
name(s) (including related accounts) or
designation(s) (including error accounts)
shall be made unless the change has
been authorized by a member or a
person(s) designated under the
provisions of NASD rules. Such person
must, prior to giving his or her approval
of the account designation change, be
personally informed of the essential
facts relative thereto and indicate his or
her approval of such change in writing
on the order or other similar record of
the member. The essential facts relied
upon by the person approving the
change must be documented in writing
and preserved for a period of not less
than three years, the first two years in
an easily accessible place, as the term
‘‘easily accessible place’’ is used in SEC
Rule 17a–4.
For purposes of this paragraph (j), a
person(s) designated under the
provisions of NASD rules to approve
account name or designation changes
must pass a qualifying principal
examination appropriate to the business
of the firm.
(a) through (c) No change.
[(d) Changes in Account Name or
Designation]
[Before any customer order is
executed, there must be placed upon the
memorandum for each transaction, the
name or designation of the account (or
accounts) for which such order is to be
executed. No change in such account
name(s) (including related accounts) or
designation(s) (including error accounts)
shall be made unless the change has
been authorized by a member or a
person(s) designated under the
provisions of NASD rules. Such person
must, prior to giving his or her approval
of the account designation change, be
personally informed of the essential
facts relative thereto and indicate his or
her approval of such change in writing
on the order or other similar record of
the member. The essential facts relied
upon by the person approving the
change must be documented in writing
and preserved for a period of not less
than three years, the first two years in
an easily accessible place, as the term
‘‘easily accessible place’’ is used in SEC
Rule 17a–4.]
[For purposes of this paragraph (d), a
person(s) designated under the
provisions of NASD rules to approve
account name or designation changes
must pass a qualifying principal
examination appropriate to the business
of the firm.]
[* * *]
[IM–3110. Customer Account
Information]
[(a) Members should be aware that,
effective January 1, 1990, any
transaction which involves a nonNasdaq, non-exchange equity security
trading for less than five dollars per
share may be subject to the provisions
of SEC Rules 15g–1 through 15g–9, and
those rules should be reviewed to
determine if an executed customer
suitability agreement is required.]
[(b) Additional information is
required to be obtained prior to making
recommendations to customers (see
Rule 2310) and in connection with
discretionary accounts (see Rule 2510).]
[(c) Accounts opened, and
recommendations made prior to January
1, 1991 remain subject to former Article
III, Sections 2 and 21(c) as previously in
effect as set forth in Notice to Members
90–52 (August 1990).]
[* * *]
(d) through (i) No change.
PO 00000
Frm 00106
Fmt 4703
Sfmt 4703
IM–3110. Customer Account
Information
(a) Members should be aware that,
effective January 1, 1990, any
transaction which involves a nonNasdaq, non-exchange equity security
trading for less than five dollars per
share may be subject to the provisions
of SEC Rules 15g–1 through 15g–9, and
those rules should be reviewed to
determine if an executed customer
suitability agreement is required.
(b) Additional information is required
to be obtained prior to making
recommendations to customers (see
Rule 2310) and in connection with
discretionary accounts (see Rule 2510).
(c) Accounts opened, and
recommendations made prior to January
1, 1991 remain subject to former Article
III, Sections 2 and 21(c) as previously in
effect as set forth in Notice to Members
90–52 (August 1990).
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq included statements concerning
the purpose of and basis for the
E:\FR\FM\21SEN1.SGM
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]]>Agencies
[Federal Register Volume 70, Number 182 (Wednesday, September 21, 2005)]
[Notices]
[Pages 55435-55436]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-18763]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52446; File Nos. SR-DTC-2005-04, SR-FICC-2005-10, and
SR-NSCC-2005-05]
Self-Regulatory Organizations; The Depository Trust Company,
Fixed Income Clearing Corporation, and National Securities Clearing
Corporation; Order Approving Proposed Rule Change To Establish a Fine
for Members Failing To Conduct Connectivity Testing
September 15, 2005.
I. Introduction
On May 13, 2005, May 3, 2005, and on May 4, 2005, respectively, The
Depository Trust Company (``DTC''), the Fixed Income Clearing
Corporation (``FICC''), and the National Securities Clearing
Corporation (``NSCC'') filed with the Securities and Exchange
Commission (``Commission'') proposed rule changes SR-DTC-2005-04, SR-
FICC-2005-10, and SR-NSCC-2005-05 pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'').\1\ On June 7, 2005, NSCC
amended its proposed rule change. Notice of the proposals, as amended,
was published in the Federal Register on July 21, 2005.\2\ No comment
letters were received. For the reasons discussed below, the Commission
is approving the proposed rule changes.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 52403 (July 15, 2005),
70 FR 42122.
---------------------------------------------------------------------------
II. Description
DTC, FICC, and NSCC are imposing a fine on any member that is
required to conduct connectivity testing for business continuity
purposes and fails to do so.
In the aftermath of September 11, 2001, and in conjunction with a
financial industry white paper, DTC, FICC, and NSCC require
connectivity testing each year for critical (``Top Tier'') members.\3\
The criteria used by DTC, FICC, and NSCC to identify their respective
Top Tier members were revenues, clearing fund contributions, settlement
amounts, and trading volumes. Connectivity testing for the Top Tier
members was initiated on January 1, 2004. Due to the critical
importance of being able to assess whether a Top Tier member has
sufficient operational capabilities, DTC, FICC, and NSCC have
determined that they need the ability to fine any Top Tier member that
does not test.\4\
---------------------------------------------------------------------------
\3\ The Federal Reserve, Office of the Comptroller of the
Currency, and the Commission issued ``Interagency Paper on Sound
Practices to Strengthen the Resilience of the U.S. Financial
System.'' [68 FR 17809 (April 11, 2003)]. This document provided
guidelines that required core clearing and settlement organizations,
such as DTC, FICC, and NSCC, and others in the financial industry to
manage business continuity capabilities. DTC, FICC, and NSCC
developed their testing of Top Tier firms based on the guidelines
outlined in the white paper.
\4\ Pursuant to DTC Rule 2, ``Participants and Pledgees,''
participants must furnish, upon DTC's request, information
sufficient to demonstrate operational capability. In addition, DTC
Rule 21, ``Disciplinary Sanctions,'' allows DTC to impose fines on
participants for any error, delay or other conduct detrimental to
the operations of DTC.
Pursuant to GSD Rule 3, ``Responsibility, Operational
Capability, and Other Membership Standards of Comparison-Only
Members and Netting Members,'' the GSD may require members to
fulfill operational testing requirements as the GSD may at any time
deem necessary. Pursuant to MBSD Rule 1, Section 3 of Article III,
all MBSD applicants and members agree to fulfill operational testing
requirements and related reporting requirements that may be imposed
to ensure the continuing operational capability of the applicant.
Pursuant to NSCC Rule 15, ``Financial Responsibility and
Operational Capability,'' members must furnish to NSCC adequate
assurances of their financial responsibility and operational
capability as NSCC may at any time deem necessary. In addition, NSCC
Rule 48, ``Disciplinary Procedures,'' allows NSCC to impose a fine
on participants for any error, delay, or other conduct that is
determined to be detrimental to the operations of NSCC.
---------------------------------------------------------------------------
Currently, each member of DTC, FICC, and NSCC that is designated as
Top Tier is advised of this status and is provided with information on
the testing requirements. Under DTC, FICC, and NSCC's current
procedures, if testing is not completed by a Top Tier member by the end
of June, a reminder notice is sent to the member. Thereafter, another
reminder notice is sent in October and, if necessary, again in
December.
The reminder notice sent in December will advise that if testing is
not completed by December 31, a fine of $10,000 will be imposed. These
fines will be collected from members in January of the following year.
The Membership and Risk Management Committee will be notified of all
members that were fined for failing to complete connectivity testing.
In the event that any member fails to complete connectivity testing
for two successive years, the fine that will be imposed at that time
will be $20,000. Failure to complete testing for more than two
successive years will result in disciplinary action, including
potential termination of membership.
III. Discussion
Section 17A(b)(3)(F) of the Act requires that the rules of a
clearing agency be designed to assure the safeguarding of securities
and funds which are in the custody or control of the clearing agency or
for which it is responsible.\5\ The Commission finds that DTC, FICC,
and NSCC's proposed rule changes are consistent with this requirement
because the implementation of the fines should help DTC, FICC, and NSCC
to enforce compliance with their connectivity testing rules for
business continuity purposes and as a result should better enable them
to ensure the safeguarding of securities and funds which are in their
custody or control.
---------------------------------------------------------------------------
\5\ 15 U.S.C. 78q-1(b)(3)(F).
---------------------------------------------------------------------------
IV. Conclusion
On the basis of the foregoing, the Commission finds that the
proposed rule changes are consistent with the requirements of the Act
and in particular Section 17A of the Act and the rules and regulations
thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule changes (File Nos. SR-DTC-2005-04, SR-FICC-2005-
10, and SR-NSCC-2005-05) be and hereby are approved.
[[Page 55436]]
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\6\
---------------------------------------------------------------------------
\6\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Jonathan G. Katz,
Secretary.
[FR Doc. 05-18763 Filed 9-20-05; 8:45 am]
BILLING CODE 8010-01-P
