[Federal Register Volume 59, Number 212 (Thursday, November 3, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27230]
[[Page Unknown]]
[Federal Register: November 3, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34909; File No. SR-PHLX-94-35]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the Philadelphia Stock Exchange, Inc., Relating to the
Storage of Option Customer Account Information for Supervisory Purposes
October 27, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ on July 5, 1994, the
Philadelphia Stock Exchange, Inc. (``PHLX'' or ``Exchange'') submitted
to the Securities and Exchange Commission (``SEC'' or ``Commission'') a
proposal to amend paragraph (d), ``Maintenance of Customer Account
Records,'' of PHLX Rule 1025, ``Supervision of Accounts,'' to allow
member organizations to maintain customer information and account
statements off-site, rather than at the principal supervisory office,
as long as the records are readily accessible and promptly
retrievable.\3\
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1993).
\3\On October 27, 1994, the PHLX submitted a letter indicating
that ``readily accessible and promptly retrievable'' generally means
that the records will be available on the business day following the
request. See Letter from Gerald D. O'Connell, First Vice President,
Market Regulation and Trading Operations, PHLX, to Michael
Walinskas, Branch Chief, Options Branch, Division of Market
Regulation, Commission, dated October 26, 1994 (``October 26
Letter'').
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The proposal was published for comment in the Federal Register in
Securities Exchange Act Release No. 34561 (September 12, 1994), 59 FR
47660 (September 16, 1994).\4\ No comments were received on the
proposal.
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\4\On August 26, 1994, the PHLX submitted Amendment No. 1 to the
proposal to clarify that the purpose of the proposal is to allow
members to maintain required customer information and account
statements off-site, rather than at the member's principal
supervisory office, as long as the records are readily accessible
and promptly retrievable.
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Currently, PHLX Rule 1025(d) requires member organizations to
maintain at the branch office servicing the customer's account and at
the principal supervisory office background and financial information
of customers who have been approved for options transactions. In
addition, Commentary .03 to PHLX Rule 1025 requires member
organizations to maintain, at the principal supervisory office with
jurisdiction over the office servicing the customer's account,
information to permit review of each customer's options account to
determine the compatibility of options transactions with investment
objectives, the size and frequency of options transactions, commission
activity in the account, profit or loss in the account, undue
concentration in any options class or classes, and compliance with the
provisions of Regulation T of the Federal Reserve Board. The PHLX
proposes to amend PHLX Rule 1025(d) and Commentary .03 to allow member
organizations to maintain the required customer information and account
statements off-site, rather than at the principal supervisory office,
as long as the records are readily accessible and promptly retrievable.
However, branch offices must continue to maintain customer account
information on site.
The PHLX states that the increasing use of computers, fax machines,
optical disk and other technology, coupled with the expense of storing
records on-site, have resulted in more member organizations storing
records away from their principal supervisory offices.\5\ In view of
technological advances, the Exchange believes that it is appropriate to
permit the off-site storage of customer records previously required to
be maintained at a principal supervisory office. The Exchange also
believes that offsite storage should not compromise the supervisory
obligations of member/participant organizations because, under the
proposal, the customer information necessary to fulfill those
responsibilities must be easily accessible and promptly retrievable.
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\5\In June 1993, the Division of Market Regulation
(``Division'') issued a no-action letter permitting broker-dealers
to maintain certain records required by Rules 17a-3 and 17a-4 under
the Act on optical disk technology, under certain conditions. See
Letter from Michael A. Macchiaroli, Associate Director, Division,
Commission, to Michael D. Udoff, Chairman, Ad Hoc Record Retention
Committee, Securities Industry Association, dated June 18, 1993.
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Accordingly, the Exchange believes that the proposed rule change is
consistent with Section 6 of the Act, in general, and, in particular
with Section 6(b)(5), in that it is designed to prevent fraudulent and
manipulative acts and practices, as well as to protect investors and
the public interest.
The Commission believes 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, and, in
particular, the requirements of Section 6(b)(5) in that it is designed
to prevent fraudulent and manipulative acts and practices, to
facilitate transactions in securities, and to protect investors and the
public interest.\6\
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\6\15 U.S.C. 78f(b)(5) (1988).
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Specifically, by allowing off-site storage of customer account
information maintained at supervisory offices, the commission believes
that the proposal should provide the PHLX's members with a cost-
effective means to utilize computers, facsimile machines, optical
disks, and other technology to store the required customer account
information off-site while ensuring that member firms will continue to
have easy access to all of the customer account information necessary
to discharge their supervisory responsibilities. In this regard, the
proposal provides that options customer account information stored off-
site must be ``readily accessible and promptly retrievable,''\7\
thereby preserving the Exchange's ability to access and investigate
customer account records. Thus, the Commission believes that the
proposal strikes a reasonable balance between the PHLX's interest in
allowing member organizations to reduce the cost of storing customer
account information and ensuring that the information continues to be
available for supervisory purposes.
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\7\See October 26 Letter, supra note 3.
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In addition, the Commission believes that it is reasonable for the
PHLX to allow off-site storage of customer account information
maintained at supervisory offices, but not of account information
stored at branch offices, because branch offices are responsible for
the day-to-day administration of customer accounts and require
immediate access to account information. For example by continuing to
require branch offices to store customer account information on-site,
the proposal facilitates broker compliance with the suitability
requirements applicable to options customers.
It is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\8\ that the proposed rule change (File No. SR-PHLX-94-35) is
approved.
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\8\15 U.S.C. 78s(b)(2) (1982).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\17 CFR 200.30-3(a)(12) (1993).
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Jonathan G. Katz,
Secretary.
[FR Doc. 94-27230 Filed 11-2-94; 8:45 am]
BILLING CODE 8010-01-M