27606 Federal Register / Vol. 72, No. 94 / Wednesday, May 16, 2007 / Notices 

9 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 54871 

(December 5, 2006), 71 FR 74970 (December 13, 

2006) (SR–NASD–2006–124) (‘‘Notice’’). 

4See e-mail from Frederick G. Ferrara, Chief 

Compliance Office, Panattoni Securities, Inc. dated 

December 20, 2006 (‘‘Ferrara 1’’); e-mail from Philip 

C. McMorrow, President, Cantella Co., Inc. dated 

December 21, 2006 (‘‘McMorrow’’); e-mail from E.C. 

Blitz dated December 22, 2006 (‘‘Blitz’’); letter from 

Kenneth M. Cherrier, Chief Compliance Officer, 

Fintegra, to Nancy M. Morris, Secretary, 

Commission, dated December 22, 2006 (‘‘Cherrier’’); 

e-mail from Michael A. Pagano, 1st Global Capital 

Corp. dated December 22, 2006 (‘‘Pagano’’); e-mail 

from Christine E. Saccente, Vice President, Chief 

Compliance Officer, Operations Manager, Maxwell 

Noll Inc. dated December 27, 2006 (‘‘Saccente’’); email from William R. Sykes, Sykes Financial 

Services LLC dated December 28, 2006 (‘‘Sykes’’); 

e-mail from John Harris, Chief Executive Officer, 

BondMart, Inc. dated December 30, 2006 (‘‘Harris’’); 

letter from Noland Cheng, Chairman, SIFMA 

Operations Committee, to Nancy M. Morris, 

Secretary, Commission, dated January 12, 2007 

(‘‘Cheng’’). 

5Amendment No. 1 modified the text of proposed 

Rule 2342. 

6See e-mail from Frederick G. Ferrara, Chief 

Compliance Officer, Panattoni Securities, Inc. dated 

February 13, 2007 (‘‘Ferrara 2’’) 

7Amendment No. 2 further modified the text of 

proposed Rule 2342 and proposed changing the 

effective date of the rule change. 

8See Cherrier. 9See Cheng. 10See Ferrara 1; McMorrow; Blitz; Pagano; 

Saccente; Sykes; Harris. 11See McMorrow; Blitz; Pagano; Saccente; Sykes; 

Harris. 

12See Pagano; Saccente. 

13See Pagano. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.9

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–9365 Filed 5–15–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55737; File No. SR–NASD–

2006–124] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing of 

Amendment Nos. 1 and 2 to, and Order 

Granting Accelerated Approval of, a 

Proposed Rule Change as Modified by 

Amendment Nos. 1 and 2 To Require 

the Provision of Certain Information 

About the Securities Investor 

Protection Corporation to Customers 

May 10, 2007. 

I. Introduction 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’) has filed Amendment Nos. 1 

and 2 to the proposed rule change, 

which, as amended, would adopt 

proposed NASD Rule 2342 to require 

NASD members, except those excluded 

from membership in the Securities 

Investor Protection Corporation 

(‘‘SIPC’’) or who sell only investments 

ineligible for SIPC protection, to provide 

new customers, and all customers 

annually, with certain information 

about SIPC. This order provides notice 

of and solicits comments from 

interested persons on the proposed rule 

change as modified by Amendment Nos. 

1 and 2, and approves the proposed rule 

change as amended on an accelerated 

basis. 

II. Description of the Proposal 

NASD filed the proposed rule change 

with the Securities and Exchange 

Commission (the ‘‘Commission’’) on 

November 9, 2006. The Commission 

published the proposal for comment in 

the Federal Register on December 13, 

2006.3 The Commission received nine 

comments in response to the Notice.4

On February 7, 2007, NASD filed 

Amendment No. 1 to the proposed rule 

change, which also responded to the 

comments.5 The Commission received 

one comment in response to 

Amendment No. 1.6 All of the 

comments received by the Commission 

regarding the proposed rule change are 

available on the Commission’s Internet 

Web site (http://www.sec.gov/rules/ 

sro.shtml). On April 19, 2007, NASD 

filed Amendment No. 2 to the proposed 

rule change, which also responded to 

the comment on the proposed rule 

change as modified by Amendment No. 

1.7

NASD filed the proposed rule change 

to adopt proposed NASD Rule 2342, 

which would require NASD members to 

advise all new customers, in writing, at 

the opening of an account, and all 

customers at least once each year that 

they may obtain information about 

SIPC, including the SIPC brochure, by 

contacting SIPC, and to provide such 

customers with SIPC’s telephone 

number and Web site address. 

Amendment No. 1 proposed that firms 

that are excluded from membership in 

SIPC pursuant to Section 3(a)(2)(A)(i) 

through (iii) of the Securities Investor 

Protection Act of 1970 (‘‘SIPA’’) and 

that are not SIPC members be exempt 

from the requirements of proposed Rule 

2342. Amendment No. 2 proposed to 

exempt firms whose business consists 

exclusively of the sale of investments 

that are ineligible for SIPC protection 

from the requirements of proposed Rule 

2342. Below is the text of the proposed 

rule change, as modified by Amendment 

Nos. 1 and 2. Proposed new language is 

in italics. 

2000. BUSINESS CONDUCT 

* * * * * 

2300. Transactions with Customers 

* * * * * 

2342. SIPC Information 

All members, except those members: 

(a) that pursuant to Section 3(a)(2)(A)(i) 

through (iii) of the Securities Investor 

Protection Act of 1970 (SIPA) are 

excluded from membership in the 

Securities Investor Protection 

Corporation (SIPC) and that are not 

SIPC members; and (b) whose business 

consists exclusively of the sale of 

investments that are ineligible for SIPC 

protection, shall advise all new 

customers, in writing, at the opening of 

an account, that they may obtain 

information about SIPC, including the 

SIPC brochure, by contacting SIPC, and 

also shall provide the Web site address 

and telephone number of SIPC. In 

addition, such members shall provide 

all customers with the same 

information, in writing, at least once 

each year. In cases where both an 

introducing firm and clearing firm 

service an account, the firms may assign 

these requirements to one of the firms. 

III. Summary of Comments on the 

Proposal and Amendment No. 1 

Two commenters supported the 

proposed rule change. One believed that 

the disclosure required by proposed 

NASD Rule 2342 would remind clients 

that they are buying a product that is 

not directly underwritten or supported 

by a bank or covered by the Federal 

Deposit Insurance Corporation 

(‘‘FDIC’’).8 Another believed that public 

customers would benefit from broader 

dissemination of information about 

SIPC.9

Seven commenters generally opposed 

the proposed rule change.10 Five 

questioned the need for disseminating 

the information that would be required 

by proposed Rule 2342.11 Two 

suggested that the proposed rule be 

revised to mandate that firms include on 

their Web sites a link to SIPC’s Web 

site.12 One questioned whether 

investors need, or are interested in, 

information about SIPC, suggested that 

investors are unlikely to read the 

proposed disclosure, and questioned the 

cost of implementing it.13 Another 

stated that customers will be made 


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Federal Register / Vol. 72, No. 94 / Wednesday, May 16, 2007 / Notices 27607 

14See Sykes. 

15The GAO has since been renamed the 

Government Accountability Office. 

16See GAO, Securities Investor Protection: Steps 

Needed to Better Disclose SIPC Policies to Investors, 

GAO–01–653 (May 25, 2001). 

17See Blitz; Pagano. 

18See Cheng. 

19See Cherrier; Sykes. 

20See Ferrara 1. 

21See Amendment No. 1 (citing 15 U.S.C. 

78ccc(a)(2)(A)). 

22 15 U.S.C. 78o(b). 

23See Cheng. 

24See Ferrara 2. 

25 15 U.S.C. 78s(b)(2). 

aware of SIPC at such time as they need 

the coverage.14

In its response to these comments 

included with Amendment No. 1, NASD 

stated that, as noted in its initial rule 

filing, the genesis of the proposal was a 

U.S. General Accounting Office 

(‘‘GAO’’) 15 report in which the GAO 

made recommendations to the 

Commission and SIPC about ways to 

improve the information available to the 

public about SIPC and SIPA.16 Among 

other things, the GAO recommended 

that self-regulatory organizations 

(‘‘SROs’’) explore ways to encourage 

broader dissemination of the SIPC 

brochure to customers so that they can 

become more aware of the scope of 

SIPA’s coverage. NASD further stated 

that, after consulting with its members 

regarding the costs of providing 

customers with a copy of the SIPC 

brochure, NASD determined that the 

most cost-effective way of making 

customers aware of the SIPC brochure 

was to provide them with the 

information they would need to obtain 

a copy of the brochure, i.e., by giving 

them SIPC’s address and telephone 

number so they could call or write SIPC 

to order a copy of the brochure, and by 

giving them SIPC’s Web site address so 

they could read the SIPC brochure 

online. NASD believes that requiring 

firms to provide customers with SIPC’s 

address, telephone number and Web site 

at account opening and yearly thereafter 

would help to further educate customers 

regarding SIPC and encourage 

customers to review the SIPC brochure. 

Two commenters believed that 

introducing firms should not be subject 

to proposed Rule 2342.17 In response, 

NASD stated that it believed these 

commenters’ concerns were addressed 

by a provision in the proposed rule that 

would allow firms, where both an 

introducing firm and clearing firm 

service an account, to assign the 

requirements of proposed Rule 2342 to 

one of the firms. 

Five commenters believed that, as 

initially proposed, Rule 2342 would 

apply too broadly. One of these 

commenters believed that institutional 

customers should be exempt from the 

proposed rule.18 Two of these 

commenters believed that NASD 

members that are exempt from 

membership in SIPC or from carrying 

SIPC coverage should be exempt from 

the proposed rule.19 Another believed 

that firms selling only investment 

products that are ineligible for SIPC 

protection should be exempt from the 

proposed rule.20

In response to these comments, NASD 

stated, ‘‘SIPA excludes certain 

categories of registered brokers and 

dealers from membership in SIPC, 

including ‘persons whose business as a 

broker or dealer consists exclusively of 

* * * the distribution of shares of 

registered open end investment 

companies or unit investment trusts 

* * * the sale of variable annuities 

* * * the business of insurance, or 

* * * the business of rendering 

investment advisory services to one or 

more registered investment companies 

or insurance company separate 

accounts.’ ’’ 21 NASD further stated that 

SIPA provides that all other persons 

registered as brokers or dealers under 

Section 15(b) of the Securities Exchange 

Act of 1934 22 are required to be 

members of SIPC. NASD believed that 

firms that are required to be SIPC 

members should also be required to 

make the disclosures required by 

proposed NASD Rule 2342, regardless of 

the products currently being sold. 

Therefore, NASD did not propose to 

exempt any SIPC members from the 

requirements of proposed NASD Rule 

2342. 

However, NASD agreed with the 

commenters who believed that NASD 

members that are excluded from 

membership in SIPC should not be 

subject to the proposed rule, and, in 

Amendment No. 1, proposed to exclude 

from the requirements of proposed 

NASD Rule 2342 any member that is 

excluded from membership in SIPC. 

One commenter believed that 

institutional customer accounts should 

be exempt from the proposed rule’s 

disclosure requirements on the grounds 

that institutional customers are 

sophisticated investors that are well 

aware of SIPC and the protections it 

affords.23 This commenter stated that 

institutional customers generally settle 

transactions in delivery versus 

payment/receive versus payment 

(‘‘DVP/RVP’’) accounts, and that most of 

them were likely to opt out of receiving 

quarterly customer account statements 

under NASD Rule 2340. This 

commenter also stated that receiving the 

disclosures that would be required by 

proposed Rule 2342 annually from each 

broker-dealer through which an 

institution executes transactions would 

create a flood of unnecessary and 

redundant disclosures that institutional 

customers would simply discard. 

In response, NASD stated that it 

believed the benefit to institutional 

investors of receiving the SIPC 

disclosures at account opening and 

yearly thereafter outweighs any 

inconvenience that might be incurred. 

NASD stated that although many 

institutional investors are likely to be 

sophisticated investors, there are those 

that are not, and that, to the extent the 

required disclosures may make 

institutional investors more aware of 

SIPC and the protections it affords, 

NASD believed that the dissemination 

of the required information would be 

worthwhile. Therefore, NASD 

determined not to exempt institutional 

investors from the requirements of 

proposed Rule 2342. 

After NASD filed Amendment No. 1, 

one commenter submitted a second 

letter, in which he further contended 

that firms that are SIPC members but 

that only sell investment products that 

are ineligible for SIPC protection may 

violate Article 11, Section 4(g)(2) of the 

SIPC By-Laws (Advertisement of 

Membership) if they are not exempt 

from the requirements of proposed Rule 

2342.24 In response to this comment, 

NASD agreed that proposed Rule 2342 

should not require members whose 

business consists exclusively of the sale 

of investments that are ineligible for 

SIPC protection to distribute SIPC’s 

contact information to their customers 

pursuant to proposed Rule 2342. 

Accordingly, in Amendment No. 2, 

NASD modified proposed Rule 2342 to 

exempt from the rule’s requirements 

members whose business consists 

exclusively of the sale of investments 

that are ineligible for SIPC protection. 

IV. Discussion and Commission’s 

Findings 

NASD has requested that the 

Commission find good cause pursuant 

to Section 19(b)(2) of the Act 25 for 

approving the proposed rule change 

prior to the 30th day after publication in 

the Federal Register. NASD also 

proposed an effective date of 180 days 

following Commission approval, in 

order to give member firms sufficient 

time to make changes to their customer 

documentation and systems. After 

careful consideration, the Commission 

finds that the proposed rule change is 

consistent with the Act, and in 

particular, with Section 15A(b)(6) of the 


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27608 Federal Register / Vol. 72, No. 94 / Wednesday, May 16, 2007 / Notices 

26 15 U.S.C. 78o–3(b)(6). 

27 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

28 15 U.S.C. 78s(b)(2). 

29 15 U.S.C. 78s(b)(2). 

30 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(7). 

2 17 CFR 240.19b–7. 

3 15 U.S.C. 78o–3(k). 

4 15 U.S.C. 78o(b)(11). 

Act,26 which provides, among other 

things, that NASD rules must be 

designed to promote just and equitable 

principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and in 

general, to protect investors and the 

public interest.27 The Commission 

believes that NASD has adequately 

responded to concerns about the 

proposed rule change raised by 

commenters, and that the proposed rule 

change is consistent with the provision 

of the Exchange Act noted above. In 

particular, proposed NASD Rule 2342 

should help to improve investors’

awareness of SIPC’s policies and 

practices, and the scope of coverage 

available under SIPA. 

Pursuant to Section 19(b)(2) of the 

Act,28 the Commission finds good cause 

for approving the proposed rule change 

before the thirtieth day after the date of 

publication of notice of filing thereof. 

Accelerating approval and delaying the 

effective date of the proposed rule 

change will give NASD additional time 

to notify its members about the 

requirements of the proposed rule and 

help to ensure that firms have sufficient 

time to efficiently make the changes to 

their customer documentation and 

systems needed to comply with the rule. 

V. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as modified by Amendment 

Nos. 1 and 2, is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–NASD–2006–124 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NASD–2006–124. 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. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). 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 also will 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 the File 

Number SR–NASD–2006–124 and 

should be submitted on or before June 

6, 2007. 

VI. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,29 that the 

proposed rule change (SR–NASD–2006–

124), as modified by Amendment Nos. 

1 and 2, be, and it here is, approved on 

an accelerated basis, and shall be 

effective 180 days following the date of 

this order. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.30

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–9433 Filed 5–15–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55732; File No. SR–NFA–

2007–02] 

Self-Regulatory Organization; National 

Futures Association; Notice of Filing 

and Immediate Effectiveness of a 

Proposed Interpretive Notice to 

Compliance Rule 2–4 Regarding 

Disclosure Guidelines for FCMs 

Offering Sweep Accounts 

May 9, 2007. 

Pursuant to Section 19(b)(7) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1, and Rule 19b–7 under the 

Act,2 notice is hereby given that on 

February 27, 2007, National Futures 

Association (‘‘NFA’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change described in Items I, II, and III 

below, which Items have been 

substantially prepared by NFA. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. NFA, 

on February 26, 2007, submitted the 

proposed rule change to the Commodity 

Futures Trading Commission (‘‘CFTC’’) 

for approval. The CFTC approved the 

proposed rule change on March 12, 

2007. 

I. Self-Regulatory Organization’s 

Description of the Proposed Rules 

Section 15A(k) of the Act 3 makes 

NFA a national securities association for 

the limited purpose of regulating the 

activities of NFA members (‘‘Members’’) 

who are registered as brokers or dealers 

in security futures products under 

Section 15(b)(11) of the Exchange Act.4

The new Interpretive Notice to NFA 

Compliance Rule 2–4 entitled 

‘‘Disclosure Guidelines for FCMs 

Offering Sweep Accounts’’

(‘‘Interpretive Notice’’) will apply to all 

futures commission merchant (‘‘FCM’’) 

Members, including those who are 

registered as security futures brokers or 

dealers under Section 15(b)(11). The 

Interpretive Notice applies certain 

disclosure guidelines to FCM-offered 

sweep account programs that manage 

cash balances. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rules 

NFA has prepared statements 

concerning the purpose of, and basis for, 

the proposed rule change, burdens on 


cprice-sewell on PROD1PC66 with NOTICES