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Notice

Self-Regulatory Organizations; Notice Of Filing and Order Granting Accelerated Approval of Proposed Rule Change and Amendment No. 1 by the Chicago Stock Exchange, Inc. To Adopt an Anti-Money Laundering Compliance Program

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Start Preamble January 16, 2004.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”),[1] and Rule 19b-4 thereunder,[2] notice is hereby given that on January 12, 2004, the Chicago Stock Exchange, Inc. (“CHX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange amended the proposal on January 15, 2004. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and to grant accelerated approval to the proposed rule change.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

The Exchange proposes to adopt CHX Rule 10 to Article VI of the CHX Rules to require Exchange members to develop and implement anti-money laundering compliance programs. The text of the proposed rule change follows. Additions are in italics.

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Chicago Stock Exchange Rules

ARTICLE XXVIII

Article VI

Restrictions and Requirements

* * * * *

Anti-Money Laundering Compliance Program

RULE 10. Each member organization and each member not associated with a member organization shall develop and implement a written anti-money laundering program reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act (31 U.S.C. 5311, et seq.) and the implementing regulations promulgated under that Act by the Department of the Treasury. Each member organization's anti-money laundering program must be approved, in writing, by a member of senior management.

The anti-money laundering program required by this Rule shall, at a minimum:

(a) Establish and implement policies and procedures that can be reasonably expected to detect and cause the reporting of transactions as required under 31 U.S.C. 5318(g) (and the regulations promulgated under that provision);

(b) Establish and implement policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act (and the implementing regulations promulgated under that Act);

(c) Provide for independent testing for compliance to be conducted by member staff or by a qualified outside party;

(d) Designate, and identify to the Exchange (by name, title, mailing address, e-mail address, telephone number and facsimile number), an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program and provide prompt notification to the Exchange regarding any change in such designation; and

(e) Provide ongoing training for appropriate staff.

* * * * *

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 III below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. Start Printed Page 3624

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

The proposed rule changes would amend the Exchange's rules to require Exchange members to develop and implement anti-money laundering compliance programs.

Section 352 of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (“Patriot Act”) requires broker-dealers to establish and implement anti-money laundering compliance programs that include, at a minimum: (a) internal policies, procedures and controls; (b) the specific designation of an anti-money laundering compliance officer; (c) ongoing employee training programs; and (d) an independent audit function to test the anti-money laundering program.[3] These requirements, which were incorporated into the Bank Secrecy Act, took effect in April 2002.[4]

Several exchanges have put rules in place that require their members to establish anti-money laundering compliance programs that are designed to comply with their Patriot Act obligations.[5] Through this filing, the Exchange proposes to put similar requirements in place. Specifically, the Exchange proposes to add new CHX Rule 10 to Article VI of CHX Rules to require each of its members to develop and implement a written anti-money laundering program reasonably designed to achieve and monitor compliance with the requirements of the Bank Secrecy Act and the implementing regulations under that Act. Each compliance program must be approved, in writing, by a member of senior management and must consist of five specific components.[6] The Exchange believes that its proposed rule is substantially similar to those proposed and implemented by the New York Stock Exchange, Inc., the National Association of Securities Dealers, Inc., as well as other markets.

2. Statutory Basis

The Exchange believes that the statutory basis for the proposed rule change is Section 6(b)(5) of the Act,[7] in that it is designed to promote just and equitable principles of trade, to remove impediments and to perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.

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

The Exchange believes that no burden will be placed on competition as a result of the proposed rule change.

C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others

No written comments were solicited or received.

III. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, and amended, 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. Comments may also be submitted electronically at the following e-mail address: rule-comments@sec.gov. All comment letters should refer to File No. SR-CHX-2004-05. 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, comments should be sent in hardcopy or by e-mail but not by both methods. 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-CHX-2004-05 and should be submitted by February 17, 2004.

IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change

The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act,[8] which, among other things, requires that the Exchange's rules be designed to prevent fraudulent and manipulative acts and practices, and, in general, protect investors and the public interest.

The Commission believes that the Exchange's proposal to adopt an Anti-Money Laundering Compliance Program accurately, reasonably, and efficiently implements the requirements of the Patriot Act as it applies to its members. The Commission also recognizes that anti-money laundering compliance programs will evolve over time, and that improvements to these programs are inevitable as members find new ways to combat money laundering and to detect suspicious activities.

The Commission finds good cause for approving the proposed rule change, as amended, prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. The Commission notes that the Rule is substantially similar to anti-money laundering compliance program rules that the Commission has previously approved for other self-regulatory organizations.[9] Accordingly, the Start Printed Page 3625Commission believes that there is good cause, consistent with Section 19(b) of the Act,[10] to approve the proposed rule change, as amended, on an accelerated basis.

V. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,[11] that the proposed rule change (SR-CHX-2004-05) is hereby approved on an accelerated basis.

Start Signature

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.[12]

Margaret H. McFarland,

Deputy Secretary.

End Signature End Preamble

Footnotes

3.  Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, 115 Stat. 272 (2001).

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5.  See Securities Exchange Act Release Nos. 45798 (April 22, 2002), 67 FR 20854 (April 26, 2002) (Order approving SR-NASD-2002-24 and SR-NYSE-2002-10); and 48622 (October 10, 2003), 68 FR 59828 (October 17, 2003) (Order approving SR-BSE-2003-18).

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6.  A member firm's anti-money laundering compliance program must: (a) Incorporate policies and procedures that can be reasonably expected to detect and cause the reporting of transactions as required under the Bank Secrecy Act and related regulations; (b) incorporate policies, procedures and internal controls reasonably designed to achieve compliance with the Bank Secrecy Act and related regulations; (c) provide for independent testing to be conducted by the member's staff or by a qualified outside party; (d) designate (and identify to the Exchange by name, title, mailing address, e-mail address, telephone number and facsimile number) an individual or individuals responsible for implementing and monitoring the day-to-day operations and internal controls of the program and promptly notify the Exchange of any change in that designation; and (e) provide ongoing training for appropriate staff. The Exchange will give its members 90 days, after approval of this rule change by the Commission, to identify the individual(s) responsible for their compliance programs.

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

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9.  See Securities Exchange Act Release Nos. 45798 (April 22, 2002), 67 FR 20854 (April 26, 2002) (Order approving SR-NASD-2002-24 and SR-NYSE-2002-10); 46041 (June 6, 2002), 67 FR 40366 (June 12, 2002) (Order approving SR-Phlx-2002-29); 46258 (July 25, 2002), 67 FR 49715 (July 31, 2002) (Order approving SR-Amex-2002-52); 446462 (September 5, 2002), 67 FR 58665 (September 17, 2002) (Notice of Filing and Order Granting Accelerated Approval of SR-CBOE-2002-45); 46468 (September 6, 2002), 67 FR 58095 (September 13, 2002) (Notice of Filing and Immediate Effectiveness of SR-PCX-2002-44); 46739 (October 29, 2002), 67 FR 67432 (November 5, 2002) (Notice of Filing and Immediate Effectiveness of SR-NASD-2002-146); and 48622 (October 10, 2003), 68 FR 59828 (October 17, 2003) (Order approving SR-BSE-2003-18).

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10.  15 U.S.C. 78f(b)(5) and 78s(b).

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[FR Doc. 04-1564 Filed 1-23-04; 8:45 am]

BILLING CODE 8010-01-P