Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to a Proposed Interpretation to Rule 342 (Offices-Approval, Supervision, and Control), 72484-72486 [E5-6820]

Download as PDF 72484 Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Notices Paper Comments subject to collateral monitor and net debit cap controls. (B) Self-Regulatory Organization’s Statement on Burden on Competition DTC does not believe that the proposed rule change will have any impact on or impose any burden on competition. (C) Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments relating to the proposed rule change have been solicited or received. DTC will notify the Commission of any written comments received by DTC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(i) of the Act 7 and Rule 19b– 4(f)(1) 8 thereunder because the proposed rule change constitutes a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule. At any time within sixty days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.9 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–DTC–2005–18 on the subject line. U.S.C. 78s(b)(3)(A)(i). CFR 240.19b–4(f)(1). 9 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act, the Commission considers the period to commence on November 16, 2005, the date on which the last amendment to the proposed rule change was filed with the Commission. 15 U.S.C. 78s(b)(3)(C). • 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–DTC–2005–18. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Section, 100 F Street, NE., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of DTC and on DTC’s Web site at https:// login.dtcc.com/dtcorg/. 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–DTC–2005–18 and should be submitted on or before December 27, 2005. For the Commission by the Division of Market Regulation, pursuant to delegated authority.10 Jonathan G. Katz, Secretary. [FR Doc. E5–6825 Filed 12–2–05; 8:45 am] BILLING CODE 8010–01–P 7 15 8 17 VerDate Aug<31>2005 17:14 Dec 02, 2005 Jkt 208001 10 17 PO 00000 CFR 200.30–3(a)(12). Frm 00063 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52850; File No. SR–NYSE– 2004–51] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to a Proposed Interpretation to Rule 342 (Offices—Approval, Supervision, and Control) November 29, 2005. I. Introduction On September 3, 2004, the New York Stock Exchange, Inc. (‘‘NYSE’’ or the ‘‘Exchange’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’),1 and Rule 19b–4 thereunder,2 a proposed Interpretation of Exchange Rule 342 (Offices—Approval, Supervision, and Control) to permit the waiver of the qualified resident branch office manager requirement for ‘‘limited purpose offices’’ with more than three registered representatives (‘‘RRs’’). On September 28, 2005, the Exchange filed Amendment No. 1 to the proposed rule change, replacing the original filing in its entirety.3 The proposed rule change was published for comment in the Federal Register on October 25, 2005.4 The Commission received no comments regarding the proposal. This order approves the proposed rule change. II. Description of Proposed Rule Change Currently, except for ‘‘small offices,’’ 5 all member and member organization branch offices are required to have an on-site qualified manager. According to the Exchange, member organizations with branch offices that have a limited scope of activities, but that do not meet the definition of ‘‘small office’’ under the Interpretation, have approached the 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Amendment No. 1 more fully describes the factors to be used in determining whether a location qualifies as a limited purpose office, as well as how those factors will be considered by the Exchange when examining an application for a limited purpose office status. The proposed rule change is described in its entirety in Section II below. 4 See Securities Exchange Act Release No. 52640 (October 19, 2005), 70 FR 61672 (October 25, 2005). 5 The Interpretation of NYSE Rule 342.15 limits a small office to a total of three RRs. Small offices that serve an order-taking function only and have no operational facilities are not required to have a qualified manager on-site if they are under the close supervision of the main office or other designated branch offices. See NYSE Rule Interpretation 342.15/01–02. In addition, supervision and control procedures must be made part of the member’s or member organization’s written plan of supervision. 2 17 E:\FR\FM\05DEN1.SGM 05DEN1 Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Notices Exchange seeking relief from the requirement that such offices have a qualified branch office manager on-site. The Exchange explains that there has been a large increase in the number of small, multi-function offices that offer a combination of services related not only to securities brokerage, but also to banking and insurance products. In fact, many banks and insurance companies with broker-dealer alliances or affiliates often ‘‘dually employ’’ their personnel with the registered broker-dealer. Because the dually employed persons often primarily conduct business (e.g., banking and insurance) other than broker or dealer activities, they typically physically remain on bank and insurance company premises. However, because they are employees of the registered broker-dealer as well, the location is considered a branch office pursuant to NYSE Rule 342 and must have an on-site qualified manager if more than three RRs are employed there. According to the Exchange, advances in technology have resulted in increasingly sophisticated surveillance capabilities that enable Exchange members and member organizations to more effectively supervise and control the business activities of their associated persons in branch offices from remote locations, such as another branch office or a firm’s main office. For example, supervisors and firms use centralized communication networks to monitor their employees’ activities and communication with customers, as well as the trading and handling of funds in customer accounts serviced in branch offices. The use of surveillance systems and exception reports that are linked to the broker-dealer’s internal order management system further enhances this remote supervision. Given these surveillance and monitoring capabilities, and the oftenlimited scope of securities-related business activities conducted in many offices, the Exchange believes that the requirement to have an on-site qualified branch office manager may often be neither practical nor necessary for its members. Consequently, the Exchange re-examined its ‘‘four-or-more’’ standard for requiring on-site supervision, and proposed an alternative system for granting regulatory relief currently available only to small offices. The proposed rule change sets forth a process by which Exchange members and member organizations may seek a waiver of the on-site branch office manager requirement for ‘‘limited purpose offices,’’ which are a proposed new category of offices that have more than three RRs and conduct limited VerDate Aug<31>2005 17:14 Dec 02, 2005 Jkt 208001 securities-related business activities. Under the proposed rule change, members and member organizations seeking a waiver of the on-site qualified branch office manager requirement for limited purpose offices would be required to provide a written plan of risk-based supervision and control acceptable to the Exchange. Notwithstanding the grant of a waiver, all limited purpose offices would be required to be under the close supervision and control of a qualified person, as defined under NYSE Rule 342.13, at the main office or other designated branch office. The proposed Interpretation sets forth factors to be used in determining whether a location qualifies as a limited purpose office and the supervisory requirements for each such office, including: (i) The number of registered persons in the office (the RR to offsite Branch Office Manager ratio), their registration category, and the functions they perform (the nature and level of the RRs’ responsibilities would be taken into account); (ii) the scope and types of business activities conducted (in general, the nature of business should not pose special risks or otherwise warrant onsite supervision); (iii) the nature and complexity of products and services offered (likewise, the products and services offered should not pose special risks or otherwise warrant on-site supervision); (iv) the volume of business done (e.g., annual revenues, number of transactions, number of customers, etc. Locations with high activity levels would generally be deemed more likely to require an on-site manager); (v) the adequacy of procedures to supervise the limited purpose office activities; and (vi) the adequacy and independence of systems and supervisory persons for regular and ‘‘for cause’’ internal and third party inspections and audits.6 With respect to factors (v) and (vi) above, the Exchange expects members and member organizations to present a system of supervision and control that is reasonably designed to detect and prevent regulatory violations and that otherwise meets the requirements of NYSE Rule 342. Such a system should include, but is not limited to, the following elements, where applicable: (1) Clearly articulated policies and procedures, and sufficient resources to implement them; (2) systematic monitoring of activity using routine and 6 See also NYSE Info Memo 04–38 regarding independence of supervision and internal controls. PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 72485 exception reporting criteria; (3) an appropriate system of follow-up and review if ‘‘red flags’’ are detected, and mechanisms for verifying that deficiencies are corrected; (4) routine and ‘‘for cause’’ inspections, including possible use of unannounced surprise inspections; (5) offsite monitoring of trading, handling of funds, and use of personal computers; (6) adequate designation of supervisors and clearly delineated supervisory responsibilities, including a system of review and follow-up to ensure that such supervision is sufficiently independent and is diligently exercised; (7) monitoring of outside business activities and outside accounts; (8) monitoring and surveillance of internal and external communications; and (9) the education and training of RRs and their supervisors to ensure they understand their responsibilities under the firm’s procedures and all applicable securities laws. In addition to the elements enumerated above, members and member organizations should also take into consideration relevant guidance provided by the Exchange and other regulatory bodies when developing their supervisory plan for a proposed limited purpose office.7 All of the above factors will be considered as a whole to determine whether an application for limited purpose office status should be granted. However, any one factor could cause an application to be delayed or rejected by the Exchange if it raises a substantive issue with respect to the appropriateness or advisability of a remote supervisory arrangement. If an application for limited purpose office status encompasses more than one office, pursuant to a categorical description or plan, the member organization must submit the proposed list of prospective offices so as to disclose the scope of the request. In addition, members and member organizations will be responsible for maintaining a readily available, current and accurate list of all locations either specifically approved and designated by the Exchange as a limited purpose office, or otherwise designated as such pursuant to a general categorical description or plan approved by the Exchange. Further, any material change with respect to the representations made by any member or member organization pursuant to the proposed Interpretation 7 See, e.g., NYSE Info Memo 04–38 (Amendments to Rules 342, 401, 408 and 410 Relating to Supervision and Internal Controls) (July 26, 2004); SEC Division of Market Regulation Staff Legal Bulletin No. 17: Remote Office Supervision (March 19, 2004). E:\FR\FM\05DEN1.SGM 05DEN1 72486 Federal Register / Vol. 70, No. 232 / Monday, December 5, 2005 / Notices with respect to any location so approved and designated must be promptly brought to the attention of the Exchange for reconsideration. III. Discussion and Findings The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.8 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Exchange Act,9 which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. According to the Exchange, many broker-dealer business models are becoming more reliant on offices of more than three RRs that service geographically isolated locations, but do not offer a full line of securities products and services. Given that the proposed safeguards are designed to promote effective supervisory procedures, the Commission believes it is reasonable for the Exchange to have more flexibility and discretion to determine whether a qualified on-site branch office manager is necessary for offices that engage in a limited scope of securities-related business activity. The Commission also believes that the proposed Interpretation strikes an appropriate balance between providing flexibility to the Exchange to accommodate the evolving business models of its members, while at the same time setting parameters to ensure that limited purpose offices will continue to be effectively supervised. To further ensure that such offices receive effective remote supervision, the Commission expects the Exchange to review plans of risk-based supervision and control for limited purpose offices and their implementation as part of the Exchange’s regular examination of members and member organizations. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act 10 that the proposed rule change (SR– 8 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). 10 15 U.S.C. 78s(b)(2). VerDate Aug<31>2005 17:14 Dec 02, 2005 Jkt 208001 NYSE–2004–51) be, and hereby is, approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.11 Jonathan G. Katz, Secretary. [FR Doc. E5–6820 Filed 12–2–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52843; File No. SR–NYSE– 2005–65] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Granting Accelerated Approval of a Proposed Rule Change Regarding the Euro Currency Trust November 28, 2005. I. Introduction On September 29, 2005, the New York Stock Exchange, Inc. (‘‘NYSE’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade Euro Shares under new NYSE Rules 1300A et seq. The proposed rule change was published for comment in the Federal Register on November 10, 2005 for a 15day comment period, which ended on November 25, 2005.3 The Commission received no comments on the proposal. This order approves the proposed rule change on an accelerated basis. II. Description of the Proposal The Exchange proposes to list and trade Euro Shares (‘‘Shares’’), which represent units of fractional undivided beneficial interest in and ownership of the Euro Currency Trust (‘‘Trust’’). As stated in the Trust’s Registration Statement,4 the investment objective of the Trust, which will hold euro as its sole asset, is for the Shares to reflect the value of the euro. To facilitate trading of the new product, the NYSE has proposed new NYSE Rules 1300A and 1301A that will govern the trading of Shares on the Exchange. Information 11 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See Securities Exchange Act Release No. 52715 (November 1, 2005), 70 FR 68490 (‘‘Notice’’). 4 The Sponsor, on behalf of the Trust, filed the Form S–1 (the ‘‘Registration Statement’’) on June 7, 2005, Amendment No. 1 thereto on August 12, 2005, and Amendment No. 2 thereto on October 25, 2005. See Registration No. 33–125581. 1 15 PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 about the liquidity, depth, and pricing mechanisms of the euro market, management and structure of the Trust, and description of the Shares follows below. A. Description of the Foreign Exchange Industry and the Euro The Exchange represents that the foreign exchange market is the largest and most liquid financial market in the world. The Exchange states that, as of April 2004, the foreign exchange market experienced average daily turnover of approximately $1.88 trillion, which was a 57% increase (at current exchange rates) from 2001 daily averages. The foreign exchange market is predominantly an over-the-counter market with no fixed location, and it operates 24 hours a day, seven days a week. London, New York, and Tokyo are the principal geographic centers of the worldwide foreign exchange market, with approximately 58% of all foreign exchange business executed in the United Kingdom, United States (‘‘U.S.’’), and Japan. Approximately 89% of foreign exchange transactions involve the U.S. dollar (‘‘USD’’), and approximately 37% involve the euro. The Exchange represents that the euro/USD pair is by far the most-traded currency pair and in recent years has comprised approximately 28% of the global turnover in foreign exchange. As of September 26, 2005, $1 USD was worth approximately 0.828 euro, calculated at the then-current Noon Buying Rate.5 The Exchange states that there are three major kinds of transactions in the traditional foreign exchange markets: spot transactions, outright forwards, and foreign exchange swaps. There also are transactions in currency options, which trade both over-the-counter and, in the U.S., on the Philadelphia Stock Exchange (‘‘Phlx’’). Currency futures are traded on a number of regulated markets, including the International Monetary Market division of the Chicago Mercantile Exchange (‘‘CME’’), the Singapore Exchange Derivatives Trading Limited (‘‘SGX,’’ formerly the Singapore International Monetary Exchange or SIMEX), and the London International Financial Futures 5 For April 2004, the daily average foreign exchange turnover of the U.S. dollar against the euro was approximately $550 billion. See Bank for International Settlements, Triennial Central Bank Survey, March 2005, Statistical annex tables, Table E–2. In addition, the reported daily turnover of foreign exchange contracts (USD against euro) in over-the-counter derivatives markets for April 2004, including outright forwards and Forex swaps, was $1.15 trillion. See id. at 17. E:\FR\FM\05DEN1.SGM 05DEN1

Agencies

[Federal Register Volume 70, Number 232 (Monday, December 5, 2005)]
[Notices]
[Pages 72484-72486]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6820]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52850; File No. SR-NYSE-2004-51]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendment No. 1 Thereto 
Relating to a Proposed Interpretation to Rule 342 (Offices--Approval, 
Supervision, and Control)

November 29, 2005.

I. Introduction

    On September 3, 2004, the New York Stock Exchange, Inc. (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Exchange Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed Interpretation of Exchange Rule 342 
(Offices--Approval, Supervision, and Control) to permit the waiver of 
the qualified resident branch office manager requirement for ``limited 
purpose offices'' with more than three registered representatives 
(``RRs''). On September 28, 2005, the Exchange filed Amendment No. 1 to 
the proposed rule change, replacing the original filing in its 
entirety.\3\ The proposed rule change was published for comment in the 
Federal Register on October 25, 2005.\4\ The Commission received no 
comments regarding the proposal. This order approves the proposed rule 
change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 more fully describes the factors to be used 
in determining whether a location qualifies as a limited purpose 
office, as well as how those factors will be considered by the 
Exchange when examining an application for a limited purpose office 
status. The proposed rule change is described in its entirety in 
Section II below.
    \4\ See Securities Exchange Act Release No. 52640 (October 19, 
2005), 70 FR 61672 (October 25, 2005).
---------------------------------------------------------------------------

II. Description of Proposed Rule Change

    Currently, except for ``small offices,'' \5\ all member and member 
organization branch offices are required to have an on-site qualified 
manager. According to the Exchange, member organizations with branch 
offices that have a limited scope of activities, but that do not meet 
the definition of ``small office'' under the Interpretation, have 
approached the

[[Page 72485]]

Exchange seeking relief from the requirement that such offices have a 
qualified branch office manager on-site. The Exchange explains that 
there has been a large increase in the number of small, multi-function 
offices that offer a combination of services related not only to 
securities brokerage, but also to banking and insurance products. In 
fact, many banks and insurance companies with broker-dealer alliances 
or affiliates often ``dually employ'' their personnel with the 
registered broker-dealer. Because the dually employed persons often 
primarily conduct business (e.g., banking and insurance) other than 
broker or dealer activities, they typically physically remain on bank 
and insurance company premises. However, because they are employees of 
the registered broker-dealer as well, the location is considered a 
branch office pursuant to NYSE Rule 342 and must have an on-site 
qualified manager if more than three RRs are employed there.
---------------------------------------------------------------------------

    \5\ The Interpretation of NYSE Rule 342.15 limits a small office 
to a total of three RRs. Small offices that serve an order-taking 
function only and have no operational facilities are not required to 
have a qualified manager on-site if they are under the close 
supervision of the main office or other designated branch offices. 
See NYSE Rule Interpretation 342.15/01-02. In addition, supervision 
and control procedures must be made part of the member's or member 
organization's written plan of supervision.
---------------------------------------------------------------------------

    According to the Exchange, advances in technology have resulted in 
increasingly sophisticated surveillance capabilities that enable 
Exchange members and member organizations to more effectively supervise 
and control the business activities of their associated persons in 
branch offices from remote locations, such as another branch office or 
a firm's main office. For example, supervisors and firms use 
centralized communication networks to monitor their employees' 
activities and communication with customers, as well as the trading and 
handling of funds in customer accounts serviced in branch offices. The 
use of surveillance systems and exception reports that are linked to 
the broker-dealer's internal order management system further enhances 
this remote supervision.
    Given these surveillance and monitoring capabilities, and the 
often-limited scope of securities-related business activities conducted 
in many offices, the Exchange believes that the requirement to have an 
on-site qualified branch office manager may often be neither practical 
nor necessary for its members. Consequently, the Exchange re-examined 
its ``four-or-more'' standard for requiring on-site supervision, and 
proposed an alternative system for granting regulatory relief currently 
available only to small offices.
    The proposed rule change sets forth a process by which Exchange 
members and member organizations may seek a waiver of the on-site 
branch office manager requirement for ``limited purpose offices,'' 
which are a proposed new category of offices that have more than three 
RRs and conduct limited securities-related business activities. Under 
the proposed rule change, members and member organizations seeking a 
waiver of the on-site qualified branch office manager requirement for 
limited purpose offices would be required to provide a written plan of 
risk-based supervision and control acceptable to the Exchange. 
Notwithstanding the grant of a waiver, all limited purpose offices 
would be required to be under the close supervision and control of a 
qualified person, as defined under NYSE Rule 342.13, at the main office 
or other designated branch office.
    The proposed Interpretation sets forth factors to be used in 
determining whether a location qualifies as a limited purpose office 
and the supervisory requirements for each such office, including:
    (i) The number of registered persons in the office (the RR to 
offsite Branch Office Manager ratio), their registration category, and 
the functions they perform (the nature and level of the RRs' 
responsibilities would be taken into account);
    (ii) the scope and types of business activities conducted (in 
general, the nature of business should not pose special risks or 
otherwise warrant on-site supervision);
    (iii) the nature and complexity of products and services offered 
(likewise, the products and services offered should not pose special 
risks or otherwise warrant on-site supervision);
    (iv) the volume of business done (e.g., annual revenues, number of 
transactions, number of customers, etc. Locations with high activity 
levels would generally be deemed more likely to require an on-site 
manager);
    (v) the adequacy of procedures to supervise the limited purpose 
office activities; and
    (vi) the adequacy and independence of systems and supervisory 
persons for regular and ``for cause'' internal and third party 
inspections and audits.\6\
---------------------------------------------------------------------------

    \6\ See also NYSE Info Memo 04-38 regarding independence of 
supervision and internal controls.
---------------------------------------------------------------------------

    With respect to factors (v) and (vi) above, the Exchange expects 
members and member organizations to present a system of supervision and 
control that is reasonably designed to detect and prevent regulatory 
violations and that otherwise meets the requirements of NYSE Rule 342. 
Such a system should include, but is not limited to, the following 
elements, where applicable: (1) Clearly articulated policies and 
procedures, and sufficient resources to implement them; (2) systematic 
monitoring of activity using routine and exception reporting criteria; 
(3) an appropriate system of follow-up and review if ``red flags'' are 
detected, and mechanisms for verifying that deficiencies are corrected; 
(4) routine and ``for cause'' inspections, including possible use of 
unannounced surprise inspections; (5) offsite monitoring of trading, 
handling of funds, and use of personal computers; (6) adequate 
designation of supervisors and clearly delineated supervisory 
responsibilities, including a system of review and follow-up to ensure 
that such supervision is sufficiently independent and is diligently 
exercised; (7) monitoring of outside business activities and outside 
accounts; (8) monitoring and surveillance of internal and external 
communications; and (9) the education and training of RRs and their 
supervisors to ensure they understand their responsibilities under the 
firm's procedures and all applicable securities laws.
    In addition to the elements enumerated above, members and member 
organizations should also take into consideration relevant guidance 
provided by the Exchange and other regulatory bodies when developing 
their supervisory plan for a proposed limited purpose office.\7\
---------------------------------------------------------------------------

    \7\ See, e.g., NYSE Info Memo 04-38 (Amendments to Rules 342, 
401, 408 and 410 Relating to Supervision and Internal Controls) 
(July 26, 2004); SEC Division of Market Regulation Staff Legal 
Bulletin No. 17: Remote Office Supervision (March 19, 2004).
---------------------------------------------------------------------------

    All of the above factors will be considered as a whole to determine 
whether an application for limited purpose office status should be 
granted. However, any one factor could cause an application to be 
delayed or rejected by the Exchange if it raises a substantive issue 
with respect to the appropriateness or advisability of a remote 
supervisory arrangement. If an application for limited purpose office 
status encompasses more than one office, pursuant to a categorical 
description or plan, the member organization must submit the proposed 
list of prospective offices so as to disclose the scope of the request.
    In addition, members and member organizations will be responsible 
for maintaining a readily available, current and accurate list of all 
locations either specifically approved and designated by the Exchange 
as a limited purpose office, or otherwise designated as such pursuant 
to a general categorical description or plan approved by the Exchange. 
Further, any material change with respect to the representations made 
by any member or member organization pursuant to the proposed 
Interpretation

[[Page 72486]]

with respect to any location so approved and designated must be 
promptly brought to the attention of the Exchange for reconsideration.

III. Discussion and Findings

    The Commission finds that the proposed rule change, as amended, is 
consistent with the requirements of the Exchange Act and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Exchange Act,\9\ which requires, 
among other things, that the rules of a national securities exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and, in general, to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    According to the Exchange, many broker-dealer business models are 
becoming more reliant on offices of more than three RRs that service 
geographically isolated locations, but do not offer a full line of 
securities products and services. Given that the proposed safeguards 
are designed to promote effective supervisory procedures, the 
Commission believes it is reasonable for the Exchange to have more 
flexibility and discretion to determine whether a qualified on-site 
branch office manager is necessary for offices that engage in a limited 
scope of securities-related business activity. The Commission also 
believes that the proposed Interpretation strikes an appropriate 
balance between providing flexibility to the Exchange to accommodate 
the evolving business models of its members, while at the same time 
setting parameters to ensure that limited purpose offices will continue 
to be effectively supervised. To further ensure that such offices 
receive effective remote supervision, the Commission expects the 
Exchange to review plans of risk-based supervision and control for 
limited purpose offices and their implementation as part of the 
Exchange's regular examination of members and member organizations.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act \10\ that the proposed rule change (SR-NYSE-2004-51) be, 
and hereby is, approved.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78s(b)(2).
    \11\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
Jonathan G. Katz,
Secretary.
[FR Doc. E5-6820 Filed 12-2-05; 8:45 am]
BILLING CODE 8010-01-P
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