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Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by the New York Stock Exchange, Inc. Relating to Revisions to the Exchange's FORM AP-1 Application

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Information about this document as published in the Federal Register.

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Start Preamble June 21, 2000.

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 May 25, 2000, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The 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 proposed to revise its FORM AP-1 (Approved Person Application Form). The text of the proposed rule change is available upon request from the Office of the Secretary, the Commission or the NYSE.

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 and discussed any comments it received on 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

NYSE Rule 304(h) requires that “[a]ny person who controls a member or member organization, or who engages in a securities or kindred business and is controlled by or under common control with a member or member organization but is not a member or allied member or an employee of a member organization shall apply for approval by the Exchange as an approved person. * * *” The approval process requires that certain pertinent information about the approved person Applicant be provided to the Exchange for review. FORM AP-1 is used by Applicants who are entities and FORM U-4 is completed by natural person Applicants.

The Exchange is proposing several revisions to FORM AP-1, which will require additional information and otherwise enhance its effectiveness for reviewing, approving, and monitoring Approved Persons.

The proposed substantive revisions to FORM AP-1:

  • Require greater detail regarding both the nature of an Applicant's business and the Applicant's relationship with the member organization (items 7A and 9A-C of the Form);
  • Require the Applicant, promptly upon request, to provide the Exchange with updated financial and other information (Instruction Sheet, No. 12);
  • Require the Applicant, if a registered broker/dealer, to submit a copy of its most recent FOCUS Report (Instruction Sheet, No. 10);
  • Continue the effectiveness of the Applicant's FORM AP-1 agreements with the Exchange notwithstanding that the named member or member organization has changed its name or legal form (p. 4 of the Form, 5th paragraph); and
  • Require that a copy of a complete organization chart of Applicant and its affiliates be provided Instruction Sheet, No. 9).

The proposed revisions (Form items 7A and 9A-C) will provide Exchange staff with more detailed information regarding the relationship between the member organization and approved person, enabling a more thorough evaluation of the Applicant (e.g., the Form asks for a general description of the Applicant's business and requires Applicant to indicate specifically how it controls, is controlled by or under common control with the member or member organization).

The proposed revisions clarify circumstances under which an Applicant must file financial statements Instruction Sheet, No. 8). Item 12 of the Form asks the Applicant to submit to the Exchange its most recent balance sheet and income or profit and loss statement if the Applicant: (a) Controls the member organization; (b) is a subsidiary of the member organization for purposes of NYSE Rule 321 or its obligations or liabilities are guaranteed, endorsed or assumed by the member organization (under NYSE Rule 322); or (c) is a “Material Associated Person” as the term is used in Rule 17h-1T under the Act. The Exchange believes that in most cases there is no regulatory purpose served by requiring submission of financial statements of persons under common control unless, as previously indicated, the person is a “Material Associated Person.” The Exchange, however, reserves the right to request current financial statements from applicants under common control. The Form also provides clarification that when financial statements are required to be submitted, they must be current, and clarification of the Exchange's right to request updated financial and other information. Approved person Applicants that are registered broker-dealers must submit copies of their most recent FOCUS report (Instruction Sheet, No. 10).

The revised Form contains a new provision which states that the Applicant agrees that the statements, warranties, representations and undertakings [in the Form] will continue to apply notwithstanding a change to the member organization's name, form of organization, or legal status (but retains same SEC B/D number). This will eliminate the need for more frequent refilings of FORM AP-1 (see page 4 of the Form, 5th paragraph).

To clarify the relationship between the Applicant and the member organization, a complete organization chart of the Applicant and its affiliates must be submitted with the Form (Instruction Sheet, No. 9). An organization chart may also identify other entities which should be approved persons.Start Printed Page 39645

Certain additional changes are proposed in response to suggestions made by Securities and Exchange Commission staff. They include the addition of a question (item 7B of the Form) to elicit the identify of any “foreign financial regulatory authority” to which the Applicant may be subject. They also include highlighting (on the Instruction Sheet) the responsibility of the Applicant to disclose whether it, or any person associated therewith, is subject to a statutory disqualification, and noting on the Instruction Sheet (No. 8) that any required financial statements must be submitted in English.

Several formatting revisions have also been made, such as italicizing defined terms and providing space for evidencing Exchange staff processing, which make the Form clearer and easier to use.

2. Statutory Basis

The Exchange believes the proposed rule change is consistent with the requirements of Section 6(b)(5) [3] that an exchange have rules that are 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, in that it will enhance the process by which the Exchange reviews, approves, and monitors Approved Persons.

B. Self-Regulatory Organization's Statement on Burden on Competition

The Exchange does not believe that the proposed rule change will impose any burden on competition that is 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

The Exchange has neither solicited nor received any written comments with respect to the proposed rule change.

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 the 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. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 at the Commission's Public Reference Room. Copies of such filing will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SR-NYSE-00-24 and should be submitted by July 18, 2000.

For the Commission, by the Division of Market Regulation, pursuant to delegated authority. [4]

Start Signature

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble


[FR Doc. 00-16207 Filed 6-26-00; 8:45 am]