On October 22, 2001, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), and Rule 19b-4 thereunder, the proposed rule change to incorporate and amend an existing written interpretation of NYSE Rule 407 to require that associated persons obtain their employers' written approval before entering into private securities transactions, and define the terms “securities or commodities account,” “private securities transactions,” and “other financial institution.” The proposed rule change was published in the Federal Register on December 4, 2001. The Commission received three comments on the proposed rule change. On December 12, 2001, the Exchange submitted Amendment No. 1 to the proposed rule change. On April 16, 2002, the NYSE filed a response to the comment letters. On July 3, 2002, the NYSE submitted Amendment No. 2 to the proposed rule change. This order approves the proposed rule change, as amended, and approves Amendment No. 2 on an accelerated basis.
I. Description of the Proposed Rule Change
NYSE Rule 407(b) requires that members, allied members and employees obtain prior written consent from their employers in order to open and maintain a securities or commodities account at another broker-dealer, investment adviser, bank or other financial institution. Employers of such associated persons must receive duplicate confirmations and statements of such accounts.
The Exchange proposes to amend NYSE Rule 407, and incorporate and amend an existing interpretation of NYSE Rule 407 in the NYSE Interpretation Handbook, to require that associated persons of members or member organizations obtain their employers' written approval (rather than notification) before entering into private securities transactions. The Exchange also proposes that associated persons effecting private securities transactions shall arrange for duplicate confirmations and statements (or their equivalents) to be sent to another person designated by their member or member organization under NYSE Rule 342(b)(1) (“Offices—Approval, Supervision and Control”) to periodically review such transactions.
The Exchange proposes to define the terms “securities or commodities account,” “private securities transactions” and “other financial institution.” The Exchange also proposes to amend NYSE Rule 407 to provide the Exchange with the general authority to waive any of the requirements of the rule upon written request of a member or member organization that has the obligation to approve the account and where good cause is shown.
II. Summary of Comments
The Commission received three comment letters on the proposal. The commenters generally supported the NYSE's proposal to require member firms to conduct a transactional-based review of private securities transactions. However, the commenters recommended certain technical changes to the proposed rule language to reflect the purpose of the proposed rule change. Further, one commenter stated that, although the proposal requires that associated persons effecting private securities transactions arrange for duplicate confirmations and statements (or their equivalents), there may be instances in which confirmations and statements would not be available. Therefore, the commenter believed that in absence of confirmations and statements, a private placement memorandum, offering circular, or subscription agreement may be more appropriate to review.
Regarding the commenters' concerns about clarifying the proposed rule language, the NYSE believed it was not necessary to clarify the text of the proposed rule change. In response to the commenter's suggestions of other Start Printed Page 54007documents that NYSE members and member organizations review in the absence of confirmations and statements on private securities transactions, the NYSE stated that the proposed rule language currently addresses this concern by providing for the review of confirmations, statements, “or their equivalents.”  The NYSE also stated that it expects members and member organizations to monitor individual transactions based on the information available to them. Further, the NYSE stated that where confirmations and statements were not available from the issuers, members and member organizations would be required to develop and implement policies, which among other things, provide for periodic updates and attestations from employees as to their existing, and any additional, private securities transactions.
After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. In particular, the Commission finds that the proposal, as amended, is consistent with Section 6(b)(5) of the Act, which requires, among other things, that the rules of the Exchange be designed to prevent fraudulent and manipulative acts and practices and promote just and equitable principles of trade.
The Commission believes that requiring associated persons of members or member organizations to obtain their employers' written approval before entering into private securities transactions will provide member organizations another tool to assist in carrying out their supervisory responsibilities. In addition, it will make for more consistent regulation across the industry. After careful consideration of the commenters' concerns about the proposed rule language and its requirements, the Commission believes that the proposal sufficiently addresses the types of information that would be necessary to be reviewed by a designated Exchange member or member organization. The Commission believes that the proposed rule change should assist the Exchange and its members and member organizations in monitoring employee transactions for possible conflicts of interest or violations of self-regulatory organization or SEC requirements.
IV. Amendment No. 2 of the Proposed Rule Change
The Commission finds good cause for approving Amendment No. 2 of the proposed rule change prior to the thirtieth day after notice of publication in the Federal Register. Amendment No. 2 clarifies that the proposal applies to associated persons of members or member organizations that either establish or maintain a securities or commodities account, or a private securities transaction. In addition, Amendment No. 2 modifies the proposed rule text to require members and member organizations to develop and maintain written procedures for reviewing any securities or commodities accounts, or private securities transactions. The Commission believes that it is not necessary to separately solicit comment on Amendment No. 2 before approving this proposal because Amendment No. 2 makes changes to clarify the responsibilities of Exchange members, member organizations, and their employees, pursuant to this rule. The Commission therefore finds that the approval of Amendment No. 2 on an accelerated basis is appropriate.
V. Solicitation of Comments
Interested persons are invited to submit written data, views and arguments concerning Amendment No. 2, including whether the amendment 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 in 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-2001-44 and should be submitted by September 10, 2002.
It is therefore ordered, pursuant to section 19(b)(2) of the Act, that the proposed rule change (SR-NYSE-2001-44), as amended, is approved.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to the delegated authority.
Margaret H. McFarland,
4. See letters to Jonathan G. Katz, Secretary, Commission, from Michael Dardis, Vice President, Compliance Manager, Wells Fargo Investments, dated January 11, 2002 (“Wells Fargo Letter”); and Les Klein, Managing Director, Solomon Smith Barney, dated January 11, 2002 (“SSB Letter”). See also letter from Brian C. Underwood, Senior Vice President, Director of Compliance, A.G. Edwards & Sons, Inc., to Katherine England, Assistant Director, Division of Market Regulation (“Division”), Commission, dated January 24, 2002 (“A.G. Edwards Letter”).Back to Citation
5. See letter from James E. Buck, Senior Vice President and Secretary, NYSE, to Nancy Sanow, Assistant Director, Division, Commission, dated December 11, 2001 (“Amendment No. 1”). Amendment No. 1 modifies the proposed definition of a “securities or commodities account,” by adding a non-inclusive phrase to be consistent with the proposed definitions of other terms in the proposed rule text. This was a technical amendment and is not subject to notice and comment.Back to Citation
6. See letter from Richard P. Bernard, Executive Vice President and General Counsel, NYSE, to Nancy Sanow, Assistant Director, Division, Commission, dated April 15, 2002 (“NYSE Response Letter”).Back to Citation
7. See letter from Darla C. Stuckey, Corporate Secretary, NYSE, to Katherine A. England, Assistant Director, Division, Commission, dated July 5, 2002 (“Amendment No. 2”). Amendment No. 2 clarifies that the proposed rule text shall apply to associated persons of members or member organizations that either establish or maintain a securities or commodities account, or a private securities transaction. In addition, Amendment No. 2 modifies the proposed rule text to require members and member organizations to develop and maintain written procedures for reviewing any securities or commodities accounts, or private securities transactions.Back to Citation
8. See note 4, supra.Back to Citation
9. See Wells Fargo Letter; SSB Letter; A.G. Edwards Letter.Back to Citation
10. Id.Back to Citation
11. See A.G. Edwards Letter.Back to Citation
12. See NYSE Response Letter (stating that the NYSE would clarify the requirements of the rule in an Information Memo upon approval of the proposal by the Commission).Back to Citation
13. Id.Back to Citation
14. Id.Back to Citation
15. Id.Back to Citation
16. In approving this proposed rule change, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).Back to Citation
17. 15. U.S.C. 78f(b)(5).Back to Citation
18. See NASD Rule 3040.Back to Citation
[FR Doc. 02-21129 Filed 8-19-02; 8:45 am]
BILLING CODE 8010-01-P