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Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change Relating to Revising 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 August 2, 2000.

I. Introduction

On May 25, 2000, 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 (“Act”),[1] and Rule 19b-4 thereunder,[2] a proposed rule change to revise the Exchange's FORM AP-1 (the “Form”) Application. The proposed rule change was published for comment in the Federal Register on June 27, 2000.[3] No comments were received on the proposal. This order approves the NYSE's proposal.

II. Description of the Proposal

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 Start Printed Page 49044or 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. 8);
  • 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 re-filings 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.

Certain additional changes are proposed in response to suggestions made by Commission staff. They include the addition of a question (item 7B of the Form) to elicit the identity 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.

III. Discussion

The Commission finds that the proposal is consistent with the requirements of the Act of the rules and regulations thereunder applicable to a national securities exchange.[4] Specifically, the Commission believes that the proposal is consistent with the requirements of Section 6(b)(5) of the Act [5] because it is designed to prevent fraudulent and manipulative acts and practices, promotes just and equitable principles of trade, and, in general, protects investors and the public interest, in that it will enhance the process by which the Exchange reviews, approves, and monitors Approved Persons. The Commission believes that by providing more meaningful and detailed information for the Exchange's review, the proposed revisions to the NYSE's FORM AP-1, Application will enable the Exchange to make a better-informed decision concerning approval of applicants. The Commission also believes that such additional information on the application should improve the utility of the form in connection with the Exchange's regulatory oversight responsibilities.

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,[6] that the proposed rule change (SR-NYSE-00-24) is approved.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[7]

Margeret H. McFarland,

Deputy Secretary.

End Signature End Preamble


3.  Securities Exchange Act Release No. 42971 (June 21, 2000), 65 FR 39644.

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

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[FR Doc. 00-20257 Filed 8-9-00; 8:45 am]