Pursuant to Section 19(b)(1)  of the Securities Exchange Act of 1934 (“Act”)  and Rule 19b-4 thereunder, notice is hereby given that on November 2, 2004, the National Association of Securities Dealers, Inc. (“NASD”), filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by NASD. On February 2, 2005 NASD filed Amendment No. 1 to the proposed rule change. 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
NASD is proposing to amend Rule 2340 to require that account statements include a statement that advises each customer to promptly report any inaccuracy or discrepancy in that person's account to his or her introducing firm and clearing firm (where these are different firms) and to re-confirm any oral communications in writing to further protect the customer's rights, including rights under the Securities Investor Protection Act (“SIPA”). Below is the text of the proposed rule change. Proposed new language is in italics.
2340. Customer Account Statements
Each general securities member shall, with a frequency of not less than once every calendar quarter, send a statement of account (“account statement”) containing a description of any securities positions, money balances, or account activity to each customer whose account had a security position, money balance, or account activity during the period since the last such statement was sent to the customer. In addition, each general securities member shall include in the account statement a statement that advises the customer to report promptly any inaccuracy or discrepancy in that person's account to his or her brokerage firm. (In cases where the customer's account is serviced by both an introducing and clearing firm, each general securities member must include in the advisory a reference that such reports be made to both firms.) Such statement also shall advise the customer that any oral communications should be re-confirmed in writing to further protect the customer's rights, including rights under the Securities Investor Protection Act (SIPA).
(b) through (d) No change
II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD 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. NASD 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
On May 25, 2001, the U.S. General Accounting Office (“GAO”) issued Securities Investor Protection: Steps Needed to Better Disclose SIPC Policies to Investors (GAO-01-653). In that report, the GAO made recommendations to SEC and the Securities Investor Start Printed Page 7991Protection Corporation (“SIPC”) about ways to improve the information available to the public about SIPC and the Securities Investor Protection Act. Among other things, the GAO recommended that self-regulatory organizations (“SROs”) explore actions to include information on periodic statements or trade confirmations to inform investors that they should document any unauthorized trading in writing. This is important because, in the event a firm goes into SIPC liquidation, SIPC and the trustee generally will assume that the firm's records are accurate unless the customer is able to prove otherwise. Currently, clearing firms may include language in customer account statements advising customers to immediately report to the firm any discrepancies in balances or positions, but these advisories may not necessarily direct customers to do so in writing, nor are they required to be included on the statements.
Therefore, NASD is proposing to amend Rule 2340, which specifies disclosures required to be made on customer account statements. The proposed amendment to Rule 2340 would require general securities firms to include in monthly account statements a statement advising customers to report promptly any inaccuracy or discrepancy in their account to their clearing firm and the introducing firm (where these are different firms). Such statement also would need to advise customers that any oral communications should be re-confirmed in writing to further protect customers' rights, including rights under SIPA. The proposed disclosure requirement would not impose any limitation whatsoever on a customer's right to raise concerns regarding inaccuracies or discrepancies in his or her account at any time, either in writing or orally. Further, a customer's failure to promptly raise such concerns, either in writing or orally, does not act to estop a customer from reporting an inaccuracy or discrepancy in his or her account during any SIPC liquidation of his or her brokerage or clearing firm.
NASD will announce the effective date of the proposed rule change in a Notice to Members to be published no later than 30 days following Commission approval. NASD is proposing an effective date of 180 days following Commission approval. This will give members time to make necessary changes to their customer documentation and systems.
(b) Statutory Basis
NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act, which requires, among other things, that NASD rules must be 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. NASD believes that the proposed rule change is consistent with the provisions of the Act noted above because each customer will be advised to promptly report any discrepancies or inaccuracies in his or her account to his or her brokerage firm (both the clearing firm and introducing firm, where the customer's account is serviced by both) and to re-confirm any oral communications in writing, thereby further protecting the customer's rights, including rights under SIPA.
(B) Self-Regulatory Organization's Statement on Burden on Competition
NASD does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.
(C) Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
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 such 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, as amended, is consistent with the Act. Comments may be submitted by any of the following methods:
- Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
- Send an e-mail to email@example.com. Please include File Number SR-NASD-2004-171 on the subject line.
- Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609.
All submissions should refer to File No. SR-NASD-2004-171. 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. 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 Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of 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 available publicly. All submissions should refer to file number SR-NASD-2004-171 and should be submitted on or before March 9, 2005.Start Signature
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.
Margaret H. McFarland,
4. In Amendment No. 1, NASD filed a partial amendment to change the proposed effective date from 30 days following Commission approval to 180 days following Commission approval. NASD also changed the reference to “each customer” to “the customer” in the sentence proposed to be added as the second sentence to paragraph (a) of Rule 2340.Back to Citation
5. In July 2003, the GAO issued Securities Investor Protection: Update on Matters Related to the Securities Investor Protection Corporation, in which the GAO noted that the Commission was working with self-regulatory organizations to explore ways in which the GAO's recommendations could be implemented.Back to Citation
6. The SIPC Brochure advises customers that if they ever discover an error in a confirmation or statement, they should immediately bring the error to the attention of the brokerage firm in writing and keep a copy of this writing. SIPC advises that if there is something wrong with the brokerage firm's records, the customer will have to prove that the records are inaccurate, or SIPC and the trustee will assume that the firm's records are correct.Back to Citation
[FR Doc. E5-649 Filed 2-15-05; 8:45 am]
BILLING CODE 8010-01-P