Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto To Allow Certain Institutional Customers To Elect Not To Receive Account Statements, 69161-69162 [E6-20217]

Download as PDF Federal Register / Vol. 71, No. 229 / Wednesday, November 29, 2006 / Notices current rule.67 The Commission finds that these proposed changes are consistent with Section 15A(b)(6) of the Exchange Act as they adequately reflect the structure and obligations of the NASD’s committee with respect to NASD Rule 11890 upon Nasdaq’s complete separation from the NASD. In Amendment No. 2, the NASD clarified that the Consolidated Quotation Service referred to in NASD Rule 6320 is the ITS/CAES System. The Commission finds that this proposed change is consistent with Section 15A(b)(6) of the Exchange Act 68 because it clarifies NASD’s rule and reflects the fact that CQS Market Makers, who are required to be registered as ITS/CAES Market Makers, will send their quotations to the ITS/ CAES System. In Amendment No. 2, the NASD also amended NASD Rule 6420(d)(3)(B), which relates to riskless principal transactions in the proposed ITS/CAES System so that it would conform to NASD Rule 4632(d)(3)(B), which relates to the same transactions in the NASD/Nasdaq TRF. The NASD also amended NASD Rule 11890(b)(2), which relates to clearly erroneous transactions to provide that officers designated by an Executive Vice President of NASD’s Market Regulation Committee or NASD’s Transparency Services Department could also take action under that rule. The Commission finds that these proposed changes are consistent with the Section 15A(b)(6) of the Exchange Act since they clarify the NASD’s rules and accurately reflect NASD’s proposed ITS/CAES System and its review of clearly erroneous transactions. For these reasons, the Commission finds good cause for approving Amendment No. 2 to the proposal prior to the 30th day after the date of publication of filing thereof in the Federal Register. Accordingly, the Commission finds that it is consistent with Section 15A(b)(6) and Rule 19(b)(2) of the Exchange Act 69 to approve Amendment No. 2 on an accelerated basis. jlentini on PROD1PC65 with NOTICES D. Effective Date of Proposed Rule Change The NASD proposes that the changes to its governing documents, including the Delegation Plan, and its rules become effective on the date on which the Nasdaq Exchange commences operation as a national securities exchange for CTA Plan Securities. The 67 See supra notes 50–51 and accompanying text. In contrast to the MORC’s decisions, decisions by UPC Committee may be submitted by the parties to arbitration. See NASD Rule 11890(c) 68 15 U.S.C. 78o–3(b)(6). 69 15 U.S.C. 78o–3(b)(6) and 15 U.S.C. 78s(b)(2). VerDate Aug<31>2005 15:37 Nov 28, 2006 Jkt 211001 Commission finds that this effective date is consistent with Section 15A of the Exchange Act because until the Nasdaq Exchange begins operations, the NASD must maintain its current rules to fulfill its statutory and regulatory obligations. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 2, including whether Amendment No. 2 is consistent with the Exchange Act. Comments may be submitted by any of the following methods: 69161 V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act, that the proposed rule change (SR– NASD–2006–104), as amended by Amendment No. 1, is approved and that Amendment No. 2 is approved on an accelerated basis.70 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.71 Nancy M. Morris, Secretary. [FR Doc. E6–20215 Filed 11–28–06; 8:45 am] BILLING CODE 8011–01–P Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File No. SR–NASD–2006–104 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File No. SR–NASD–2006–104. 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 also will be available for inspection and copying at the principal office of the NASD. 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 publicly available. All submissions should refer to File No. SR–NASD–2006–104 and should be submitted on or before December 20, 2006. PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54811; File No. SR–NASD– 2006–066] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto To Allow Certain Institutional Customers To Elect Not To Receive Account Statements November 22, 2006. On May 23, 2006, the National Association of Securities Dealers, Inc. (‘‘NASD’’) 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 amendment to NASD rule 2340 (Customer Account Statements). On August 17, 2006, NASD filed Amendment No. 1 to the proposed rule change.3 The proposed rule change, as amended by Amendment No. 1, was published for comment in the Federal Register on October 16, 2006.4 The Commission received one comment on the proposal.5 This order approves the proposed rule change, as amended. 70 In approving the proposed rule change, the Commission considered the proposal’s impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 71 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 In Amendment No. 1, NASD proposed to partially amend the text of proposed amended Rule 2340. 4 See Exchange Act Release No. 54566 (Oct. 3, 2006), 71 FR 60784 (Oct. 16, 2006). 5 See letter from Noland Cheng, Chairman, Operations Committee, Securities Industry and Financial Markets Association (‘‘SIFMA’’), to Nancy M. Morris, Secretary, Commission, dated November 3, 2006 (‘‘SIFMA letter’’) (available for review on the Commission’s Web site at https://www.sec.gov/ comments/sr-nasd-2006-066/nasd2006066-1.pdf). E:\FR\FM\29NON1.SGM 29NON1 69162 Federal Register / Vol. 71, No. 229 / Wednesday, November 29, 2006 / Notices I. Description jlentini on PROD1PC65 with NOTICES The proposed amendment to NASD Rule 2340 would allow institutional customers with Delivery versus Payment/Receive versus Payment (‘‘DVP/RVP’’) accounts to elect not to receive quarterly account statements.6 A DVP/RVP account is an arrangement whereby payment for securities purchased is made to the selling customer’s agent/and or delivery of securities sold is made to the buying customer’s agent in exchange for payment at the time of settlement, usually in the form of cash. Rule 2340, in pertinent part, requires any member that conducts a general securities business and also carries customer accounts or holds customer funds or securities to send account statements to customers at least once each calendar quarter. The statement of account must contain a description of any securities positions, money balances, or account activity, and must be sent to each customer whose account had a security position, money balance, or account activity during the time since the last statement was sent. The proposed amendment would provide relief from this requirement with regard to customer accounts that are carried solely for the purpose of DVP/RVP transactions. NASD states that account statements for DVP/RVP accounts (chiefly institutional accounts) generally do not reflect any cash balance or security position at the end of a quarter, and that DVP/RVP customers generally rely on trade runs or customer confirmations issued pursuant to Rule 10b–10 under the Exchange Act for transaction-related information. The proposed amendment would relieve members from the obligation to send quarterly statements to customers with DVP/RVP accounts if: (1) The customer’s account is carried solely for the purpose of execution on a DVP/RVP basis; (2) all transactions in the account are handled on a DVP/RVP basis in conformity with Rule 11860;7 (3) there are no securities or cash positions in the account at the end of the quarter (other than positions of a temporary nature, such as those arising from fails to receive or deliver, errors, questioned 6 The proposed rule change is similar to a rule change proposed by the New York Stock Exchange, Inc. (now known as New York Stock Exchange LLC). See Securities Exchange Act Release No. 53826 (May 18, 2006), 71 FR 30211 (May 25, 2006). 7 Prior to accepting an order in a DVP/RVP account, a member must comply with Rule 11860, which requires, among other things, that the member obtain certain information from the customer, including the name and address of the agent and the account number of the customer on file with the agent. VerDate Aug<31>2005 15:37 Nov 28, 2006 Jkt 211001 trades, dividend or bond interest entries and other similar transactions); (4) the customer consents to the suspension in writing and the member maintains such consents in a manner consistent with NASD Rule 3110 and Rule 17a–4 under the Exchange Act;8 (5) the member undertakes to provide any particular statement or statements to the customer promptly upon request; and (6) the member undertakes to promptly reinstate the delivery of such statements to the customer upon request. The proposed rule change specifies that Rule 2340 does not qualify or condition the obligations of a member under Rule 15c3–2 under the Exchange Act concerning quarterly notices of free credit balances on statements.9 The proposed rule change would also define ‘‘DVP/RVP account’’ for purposes of Rule 2340.10 Finally, the proposed rule change includes a technical amendment that would replace the reference to ‘‘the Association’’ in paragraph (e) of Rule 2340 with ‘‘NASD.’’ II. Summary of Comments The Commission received one comment on the proposal, which was supportive, did not suggest any changes to the proposal, and did not require a response from NASD.11 III. Discussion and Findings The Commission finds that the proposed rule change is consistent with the Act, and in particular, with section 15A(b)(6) of the Act,12 which requires, among other things, that NASD rules be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market 8 Under NASD Rule 3110(a), NASD members are, among other things, required to make and preserve books and records as prescribed by Rule 17a–3 under the Exchange Act. Rule 3110(a) also states that the recordkeeping format, medium, and retention period must comply with Rule 17a–4 under the Exchange Act. Rule 17a–4 specifies the manner in which broker-dealers must maintain the records created in accordance with Rule 17a–3, and certain other records produced by broker-dealers, and the required retention periods for these records. 9 Rule 15c3–2 under the Exchange Act requires broker-dealers to provide each of their customers for whom a free credit balance is carried, not less frequently than once every three months, a written statement informing the customer of the amount due to the customer, and written notice that the funds are not segregated and may be used in the broker-dealer’s business operations, and that the funds are payable on the customer’s demand. 10 Proposed Rule 2340(d)(6) would define a ‘‘DVP/RVP account’’ as ‘‘an arrangement whereby payment for securities purchased is made to the selling customer’s agent and/or delivery of securities sold is made to the buying customer’s agent in exchange for payment at time of settlement, usually in the form of cash.’’ 11 See SIFMA letter, footnote 5, supra. 12 15 U.S.C. 78o–3(b)(6). PO 00000 Frm 00066 Fmt 4703 Sfmt 4703 and national market system, and in general, to protect investors and the public interest. The Commission believes that the proposed rule change, as amended, should remove impediments to and perfect the mechanisms of a free and open market and national market system by removing an unnecessary and potentially costly obligation on firms to deliver quarterly account statements to DVP/RVP customers. At the same time, the proposal maintains certain investor protections (i.e., requiring NASD members to obtain affirmative consent to the suspension of quarterly account statements, preserving the ability of customers to obtain particular statements upon request and to resume receipt of statements promptly upon request, and precluding member organizations from unilaterally terminating delivery of such statements). The Commission therefore believes the proposal is consistent with the Exchange Act. IV. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act 13 that the proposed rule change (SR–NASD–2006– 066) be, and hereby is, approved,14 effective immediately.15 For the Commission, by the Division of Market Regulation, pursuant to delegated authority.16 Nancy M. Morris, Secretary. [FR Doc. E6–20217 Filed 11–28–06; 8:45 am] BILLING CODE 8011–01–P 13 15 U.S.C. 78s(b)(2). approving this proposed rule change, the Commission notes that it has considered the proposed rule change’s impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 15 NASD initially requested that the effective date of the proposed rule change be 30 days following NASD’s publication, within 60 days of the Commission’s approval of the rule change, of a Notice to Members announcing the rule change. NASD withdrew its request to delay effectiveness of the proposal in a telephone conversation between Shirley Weiss, Associate General Counsel, NASD, and Brice Prince, Special Counsel, Division of Market Regulation, Commission, on November 21, 2006. 16 17 CFR 200.30–3(a)(12). 14 In E:\FR\FM\29NON1.SGM 29NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 71, Number 229 (Wednesday, November 29, 2006)]
[Notices]
[Pages 69161-69162]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-20217]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54811; File No. SR-NASD-2006-066]


Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 
Thereto To Allow Certain Institutional Customers To Elect Not To 
Receive Account Statements

November 22, 2006.
    On May 23, 2006, the National Association of Securities Dealers, 
Inc. (``NASD'') 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 amendment to NASD rule 2340 (Customer Account 
Statements). On August 17, 2006, NASD filed Amendment No. 1 to the 
proposed rule change.\3\ The proposed rule change, as amended by 
Amendment No. 1, was published for comment in the Federal Register on 
October 16, 2006.\4\ The Commission received one comment on the 
proposal.\5\ This order approves the proposed rule change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, NASD proposed to partially amend the 
text of proposed amended Rule 2340.
    \4\ See Exchange Act Release No. 54566 (Oct. 3, 2006), 71 FR 
60784 (Oct. 16, 2006).
    \5\ See letter from Noland Cheng, Chairman, Operations 
Committee, Securities Industry and Financial Markets Association 
(``SIFMA''), to Nancy M. Morris, Secretary, Commission, dated 
November 3, 2006 (``SIFMA letter'') (available for review on the 
Commission's Web site at https://www.sec.gov/comments/sr-nasd-2006-
066/nasd2006066-1.pdf).

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[[Page 69162]]

I. Description

    The proposed amendment to NASD Rule 2340 would allow institutional 
customers with Delivery versus Payment/Receive versus Payment (``DVP/
RVP'') accounts to elect not to receive quarterly account 
statements.\6\ A DVP/RVP account is an arrangement whereby payment for 
securities purchased is made to the selling customer's agent/and or 
delivery of securities sold is made to the buying customer's agent in 
exchange for payment at the time of settlement, usually in the form of 
cash.
---------------------------------------------------------------------------

    \6\ The proposed rule change is similar to a rule change 
proposed by the New York Stock Exchange, Inc. (now known as New York 
Stock Exchange LLC). See Securities Exchange Act Release No. 53826 
(May 18, 2006), 71 FR 30211 (May 25, 2006).
---------------------------------------------------------------------------

    Rule 2340, in pertinent part, requires any member that conducts a 
general securities business and also carries customer accounts or holds 
customer funds or securities to send account statements to customers at 
least once each calendar quarter. The statement of account must contain 
a description of any securities positions, money balances, or account 
activity, and must be sent to each customer whose account had a 
security position, money balance, or account activity during the time 
since the last statement was sent.
    The proposed amendment would provide relief from this requirement 
with regard to customer accounts that are carried solely for the 
purpose of DVP/RVP transactions. NASD states that account statements 
for DVP/RVP accounts (chiefly institutional accounts) generally do not 
reflect any cash balance or security position at the end of a quarter, 
and that DVP/RVP customers generally rely on trade runs or customer 
confirmations issued pursuant to Rule 10b-10 under the Exchange Act for 
transaction-related information.
    The proposed amendment would relieve members from the obligation to 
send quarterly statements to customers with DVP/RVP accounts if: (1) 
The customer's account is carried solely for the purpose of execution 
on a DVP/RVP basis; (2) all transactions in the account are handled on 
a DVP/RVP basis in conformity with Rule 11860;\7\ (3) there are no 
securities or cash positions in the account at the end of the quarter 
(other than positions of a temporary nature, such as those arising from 
fails to receive or deliver, errors, questioned trades, dividend or 
bond interest entries and other similar transactions); (4) the customer 
consents to the suspension in writing and the member maintains such 
consents in a manner consistent with NASD Rule 3110 and Rule 17a-4 
under the Exchange Act;\8\ (5) the member undertakes to provide any 
particular statement or statements to the customer promptly upon 
request; and (6) the member undertakes to promptly reinstate the 
delivery of such statements to the customer upon request. The proposed 
rule change specifies that Rule 2340 does not qualify or condition the 
obligations of a member under Rule 15c3-2 under the Exchange Act 
concerning quarterly notices of free credit balances on statements.\9\ 
The proposed rule change would also define ``DVP/RVP account'' for 
purposes of Rule 2340.\10\ Finally, the proposed rule change includes a 
technical amendment that would replace the reference to ``the 
Association'' in paragraph (e) of Rule 2340 with ``NASD.''
---------------------------------------------------------------------------

    \7\ Prior to accepting an order in a DVP/RVP account, a member 
must comply with Rule 11860, which requires, among other things, 
that the member obtain certain information from the customer, 
including the name and address of the agent and the account number 
of the customer on file with the agent.
    \8\ Under NASD Rule 3110(a), NASD members are, among other 
things, required to make and preserve books and records as 
prescribed by Rule 17a-3 under the Exchange Act. Rule 3110(a) also 
states that the recordkeeping format, medium, and retention period 
must comply with Rule 17a-4 under the Exchange Act. Rule 17a-4 
specifies the manner in which broker-dealers must maintain the 
records created in accordance with Rule 17a-3, and certain other 
records produced by broker-dealers, and the required retention 
periods for these records.
    \9\ Rule 15c3-2 under the Exchange Act requires broker-dealers 
to provide each of their customers for whom a free credit balance is 
carried, not less frequently than once every three months, a written 
statement informing the customer of the amount due to the customer, 
and written notice that the funds are not segregated and may be used 
in the broker-dealer's business operations, and that the funds are 
payable on the customer's demand.
    \10\ Proposed Rule 2340(d)(6) would define a ``DVP/RVP account'' 
as ``an arrangement whereby payment for securities purchased is made 
to the selling customer's agent and/or delivery of securities sold 
is made to the buying customer's agent in exchange for payment at 
time of settlement, usually in the form of cash.''
---------------------------------------------------------------------------

II. Summary of Comments

    The Commission received one comment on the proposal, which was 
supportive, did not suggest any changes to the proposal, and did not 
require a response from NASD.\11\
---------------------------------------------------------------------------

    \11\ See SIFMA letter, footnote 5, supra.
---------------------------------------------------------------------------

III. Discussion and Findings

    The Commission finds that the proposed rule change is consistent 
with the Act, and in particular, with section 15A(b)(6) of the Act,\12\ 
which requires, among other things, that NASD rules 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 Commission believes that the proposed rule change, as 
amended, should remove impediments to and perfect the mechanisms of a 
free and open market and national market system by removing an 
unnecessary and potentially costly obligation on firms to deliver 
quarterly account statements to DVP/RVP customers. At the same time, 
the proposal maintains certain investor protections (i.e., requiring 
NASD members to obtain affirmative consent to the suspension of 
quarterly account statements, preserving the ability of customers to 
obtain particular statements upon request and to resume receipt of 
statements promptly upon request, and precluding member organizations 
from unilaterally terminating delivery of such statements). The 
Commission therefore believes the proposal is consistent with the 
Exchange Act.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
\13\ that the proposed rule change (SR-NASD-2006-066) be, and hereby 
is, approved,\14\ effective immediately.\15\
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    \13\ 15 U.S.C. 78s(b)(2).
    \14\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \15\ NASD initially requested that the effective date of the 
proposed rule change be 30 days following NASD's publication, within 
60 days of the Commission's approval of the rule change, of a Notice 
to Members announcing the rule change. NASD withdrew its request to 
delay effectiveness of the proposal in a telephone conversation 
between Shirley Weiss, Associate General Counsel, NASD, and Brice 
Prince, Special Counsel, Division of Market Regulation, Commission, 
on November 21, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
---------------------------------------------------------------------------

    \16\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-20217 Filed 11-28-06; 8:45 am]
BILLING CODE 8011-01-P

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