28534 Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 

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

2 17 CFR 240.19b–4. 

3Amendment No. 1 replaced and superseded the 

original rule filing in its entirety. 

4The Commission also is separately publishing a 

notice by the National Association of Securities 

Dealers, Inc. (‘‘NASD’’) to propose new IM–3060 on 

business entertainment, which is substantially 

similar to NYSE’s proposed rule text. See Securities 

Exchange Act Release No. 55765 (May 15, 2007) 

(SR–NASD–2006–044). The NYSE proposal and the 

NASD proposal primarily differ in that the NYSE 

proposal contains a ‘‘Notice to Customers’’

provision. See Section II(A)(1), Purpose section, and 

Section IV, Solicitation of Comments section, 

below. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55766; File No. SR–NYSE–

2006–06] 

Self-Regulatory Organizations; New 

York Stock Exchange LLC; Notice of 

Filing of a Proposed Rule Change and 

Amendment No. 1 Thereto Relating to 

Proposed New Rule 350A (‘‘Business 

Entertainment’’) Concerning Policies 

and Procedures Addressing Business 

Entertainment 

May 15, 2007. 

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 February 15, 2006, the New York 

Stock Exchange LLC (‘‘NYSE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

substantially prepared by NYSE. On 

April 26, 2007, NYSE filed Amendment 

No. 1 to the proposed rule change.3 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as amended, from interested 

persons.4

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes new Rule 

350A (‘‘Business Entertainment’’) to 

address conflict of interest issues in 

connection with the provision of 

business entertainment by member 

organizations to representatives of 

customers or prospective customers. 

Below is the text of the proposed rule 

change. Proposed new language is 

italicized. 

Business Entertainment 

Rule 350A 

(a) General Requirements 

No member organization or person 

associated with a member organization 

shall, directly or indirectly, provide any 

business entertainment to a customer 

representative pursuant to the 

establishment of, or during the course 

of, a business relationship with any 

customer that is intended or designed to 

cause, or would be reasonably judged to 

have the likely effect of causing, such 

customer representative to act in a 

manner that is inconsistent with: 

(1) The best interests of the customer; 

or 

(2) The best interests of any person to 

whom the customer owes a fiduciary 

duty. 

(b) Definitions 

For purposes of this rule, the 

following definitions shall apply: 

(1) The term ‘‘customer’’ means: 

(A) a person that maintains a 

business relationship with a member 

organization via the maintenance of an 

account, through the conduct of 

investment banking, or pursuant to 

other securities-related activity; or 

(B) a person whose customer 

representative receives business 

entertainment for the purpose of 

encouraging such person to establish a 

business relationship with a member 

organization by opening an account 

with the member organization or by 

conducting investment banking or other 

securities-related activity with the 

member organization. 

(2) The term ‘‘customer 

representative’’ means a person who is 

an employee, officer, director, or agent 

of a customer, unless such person is a 

family member of the customer. 

(3) The term ‘‘family member’’ means 

a person’s parents, mother-in-law or 

father-in-law, spouse, brother or sister, 

brother-in-law or sister-in-law, son-inlaw or daughter-in-law, and children. 

(4) The term ‘‘business 

entertainment’’ means any social event, 

hospitality event, sporting event, 

entertainment event, meal, leisure 

activity, or event of like nature or 

purpose, including business 

entertainment offered in connection 

with a charitable event, educational 

event or business conference, as well as 

any transportation or lodging related to 

such activity or event, in which a person 

associated with a member organization 

accompanies a customer representative. 

(A) If a customer representative is not 

accompanied by an appropriate 

associated person of the member 

organization, any expenses associated 

with the business entertainment will be 

considered a gift under Rule 350 unless 

exigent circumstances make it 

impractical for an associated person to 

attend. All instances where such exigent 

circumstances are invoked must be 

clearly and thoroughly documented and 

be subject to the prior written approval 

of a designated supervisory person or, in 

very limited circumstances where such 

prior approval cannot reasonably be 

obtained, to a prompt post-event review 

to be conducted and documented by 

such supervisory person. 

(B) Anything of value given or 

otherwise provided to a customer 

representative that does not fall within 

the definition of ‘‘business 

entertainment’’ is a gift under Rule 350. 

(C) In valuing business entertainment 

expenses pursuant to this Rule, a 

member organization’s written policies 

and procedures must specify the 

methodology to be used by the member 

organization to calculate the value of 

business entertainment. In general, 

business entertainment expenses should 

be valued at the higher of face value or 

cost to the member organization. 

(D) For purposes of this Rule, the 

terms ‘‘person associated with a 

member organization’’ or ‘‘associated 

person’’ are defined to include: (1) A 

natural person who is registered or has 

applied for registration under the Rules 

of the NYSE; (2) a sole proprietor, 

partner, officer, director, or branch 

manager of a member organization, or 

other natural person occupying a 

similar status or performing similar 

functions, or a natural person engaged 

in the investment banking or securities 

business who is directly or indirectly 

controlling or controlled by a member 

organization, whether or not any such 

person is registered or exempt from 

registration with the NYSE or NASD. 

(c) Written Policies and Procedures 

(1) Each member organization must 

have written policies and supervisory 

procedures that: 

(A) define forms of business 

entertainment that are appropriate and 

inappropriate using quantitative and/or 

qualitative standards that address the 

nature and frequency of the 

entertainment provided, as well as the 

type and class of any accommodations 

or transportation provided in 

connection with such business 

entertainment; and 

(B) make clear that anything of value 

given or otherwise provided to a 

customer representative that does not 

fall within the definition of ‘‘business 

entertainment’’ is a gift under Rule 350; 

and 

(C) impose either specific dollar limits 

on business entertainment or require 

advance written supervisory approval 

beyond specified dollar thresholds; and 

(D) are designed to detect and prevent 

business entertainment that is intended 

as, or could reasonably be perceived to 

be intended as, an improper quid pro 

quo or that could otherwise give rise to 

a potential conflict of interest or 


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Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 28535 

5Although not explicitly defined by the 

Commission, when acting as an agent for its 

customers, a broker-dealer owes such customers a 

duty of best execution. See NYSE Rule 123A.41 

which provides that a broker handling a market 

order is to use due diligence to execute the order 

at the best price or prices available under the 

published market procedures of the Exchange. 

undermine the performance of a 

customer representative’s duty to a 

customer or to any person to whom the 

customer owes a fiduciary duty; and 

(E) establish standards to ensure that 

persons designated to supervise and 

administer the written policies and 

procedures are sufficiently qualified; 

and 

(F) require appropriate training and 

education for all personnel who 

supervise, administer, or are subject to 

the written policies and procedures. 

(2) A member organization’s written 

policies and procedures may 

distinguish, and set specifically tailored 

standards for, business entertainment in 

connection with events that are deemed 

to be primarily educational, charitable, 

or philanthropic in nature, provided 

that such standards comply with the 

requirements of this rule and are 

explicitly addressed in the written 

policies and procedures. 

(d) Recordkeeping 

(1) Each member organization’s 

written policies and procedures must 

require the maintenance of detailed 

records of business entertainment 

expenses provided to any customer 

representative. The member 

organization is not required to maintain 

records of: 

(A) business entertainment when the 

total value of the business 

entertainment, including all expenses 

associated with the business 

entertainment, does not exceed $50 per 

day; or 

(B) additional expenses incurred in 

connection with otherwise recorded 

business entertainment that do not, in 

the aggregate, exceed $50 per day. 

(2) Each member organization’s 

written policies and procedures must 

include provisions reasonably designed 

to prevent member organization 

associated persons from circumventing 

the recordkeeping requirements in 

contravention of the spirit and purpose 

of this rule (e.g., a pattern of providing 

a customer representative with business 

entertainment valued at $48). 

(3) Each member organization’s 

written policies and procedures must 

require that, upon a customer’s written 

request, the member organization will 

promptly make available to the 

customer any records regarding 

business entertainment provided to 

customer representatives of that 

customer. 

(e) Notice to Customers 

Each member organization must have 

a system in place to give notice (e.g., via 

the member organization’s Web site, a 

disclosure document, or other 

appropriate means) to customers that 

utilize customer representatives subject 

to this rule that, upon a customer’s 

written request, the member 

organization will promptly provide 

detailed information regarding the 

manner and expense of any business 

entertainment provided to their 

customer representative(s) by such 

member organization. 

(f) Exemptions 

(1) General Exemptions 

This rule does not apply to any 

member organization that does not 

engage in business entertainment. For 

any member organization that engages 

in business entertainment, this rule 

applies only with respect to business 

entertainment provided to customer 

representatives. 

(2) Specific Exemption for Member 

Organizations with Business 

Entertainment Expenses Below $7,500 

A member organization whose 

business entertainment expenses in the 

course of its fiscal year are below $7,500 

shall be subject only to paragraphs (a), 

(b), (c)(1)(D) and (E) of this rule and 

shall otherwise be exempt from 

paragraphs (c), (d) and (e). Each 

member organization that relies on this 

exemption must be able to evidence that 

its business entertainment expenses are 

below the $7,500 threshold. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

NYSE 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, and the most 

significant aspects of such statements 

are set forth in Sections A, B, and C 

below. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange is proposing new Rule 

350A (‘‘Business Entertainment’’ or the 

‘‘Rule’’) to address conflict of interest 

issues in connection with the provision 

of business entertainment by member 

organizations to representatives of 

customers or prospective customers. 

Specifically, the proposed rule 

addresses the concern that customer 

representatives’ decisions to direct 

business (e.g., order flow) to a given 

member organization may be influenced 

by lavish entertainment provided by a 

member organization or a person 

associated with a member organization 

(‘‘associated person’’), rather than on the 

basis of the brokerage services to be 

provided. Such conduct is potentially 

violative of both Commission and selfregulatory organization rules (e.g., best 

execution obligations).5

The Exchange has worked closely 

with industry representatives and the 

NASD to develop a substantially 

uniform industry business 

entertainment standard to address the 

potential for such conflicts of interest. 

The Exchange initially contemplated a 

strictly prescriptive approach that 

established specific quantitative dollar 

standards for all broker-dealers. 

However, for the reasons discussed in 

detail below, such an approach was 

ultimately deemed impracticable as it 

neither reasonably addressed the 

regulatory issue in question nor the 

business realities of Exchange 

membership. In light of the practical 

difficulties associated with the 

imposition of a single quantitative 

standard across the spectrum of brokerdealer business models, the proposed 

rule takes a more principle-based 

approach with flexible prescriptive 

elements and guidelines. 

Background 

In attempting to codify business 

entertainment guidelines, the Exchange 

was faced with developing an approach 

that addresses regulatory concerns, is 

practical, and does not unreasonably 

nor unduly interfere with brokerdealers’ legitimate commercial and 

business relationships. The primary 

merit of adopting a strictly prescriptive 

approach with fixed dollar limits is that 

it provides bright line standards that, 

arguably, could facilitate industry 

compliance. However, imposing a fixed 

dollar standard is not without practical 

problems. For example, it does not take 

into account regional differences—

which is to say that what might be 

considered ‘‘lavish’’ or ‘‘excessive’’ in 

one city might not necessarily be 

deemed so in another. Further, what 

might be considered appropriate 

entertainment for an investment 

banking/institutional client base might 

be considered lavish and/or excessive in 

a retail customer context. 

Since terms such as ‘‘lavish’’ or 

‘‘excessive’’ can be subjective and 

standards of appropriateness may vary 


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28536 Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 

6NYSE Rule 2 defines the term ‘‘person’’ to mean 

‘‘a natural person, corporation, partnership, 

association, joint stock company, trust, fund or any 

organized group of persons whether incorporated or 

not. 

7The term ‘‘family member’’ is defined as ‘‘a 

person’s parents, mother-in-law or father-in-law, 

spouse, brother or sister, brother-in-law or sister-inlaw, son-in-law or daughter-in-law, and children.’’

8See also sections titled ‘‘Exigent Circumstances’’

and ‘‘Valuation of Business Entertainment’’ below. 

according to factors noted above, the 

NYSE concluded that the idea of 

prescribing industry-wide dollar 

amount standards was impracticable. A 

specific dollar threshold could not be 

established that would justifiably apply 

to all broker-dealers, taking into account 

variances in size and business model, 

and the range of customer types (e.g., 

investment banking, institutional, retail, 

and those with fiduciary obligations 

such as investment advisers and 

pension fund representatives). 

Further, a uniform standard would 

give rise to unintended effects related to 

firm participation in, or sponsorship of, 

charitable events. There is also frequent 

linkage between education and 

entertainment that would likely become 

problematic. In many instances, firms 

combine legitimate educational 

functions with lodging, meals and 

entertainment, making it difficult to 

separate business expenses from 

entertainment expenses under a 

prescriptive regulatory scheme. 

Thus, the Exchange is proposing a 

more flexible, principle-based approach 

that would require each firm to develop, 

within a prescribed regulatory 

framework, standards that are effective 

and appropriate for its business model 

that would be administered via 

procedures that are transparent and well 

documented. 

Outline of the Proposed Rule 

General Prohibition 

Subsection (a) of proposed Rule 350A 

imposes the general prohibition that ‘‘no 

member organization or person 

associated with a member organization 

shall, directly or indirectly, provide any 

business entertainment to a customer 

representative pursuant to the 

establishment of, or during the course 

of, a business relationship with any 

customer that is intended or designed to 

cause, or would be reasonably judged to 

have the likely effect of causing, such 

customer representative to act in a 

manner that is inconsistent with: (1) 

The best interests of the customer or (2) 

the best interests of any person to whom 

the customer owes a fiduciary duty.’’

The general nature of this prohibition 

recognizes that no rule of this type can 

identify and specifically address each 

and every potential conflict-of-interest 

scenario that may arise. Note, however, 

that the prohibition against provision of 

entertainment ‘‘directly or indirectly’’ is 

intended to prevent circumvention of 

the spirit of the rule. For instance, it 

would be a violation of the Rule if an 

associated person of a member 

organization were to either utilize his or 

her personal funds in an effort to evade 

the dictates of the Rule, or to encourage 

an employee of a member organization 

subsidiary to provide entertainment on 

behalf of the member organization. Note 

also that the purpose of the proposed 

Rule is to address customer 

representative conflicts of interest that 

could adversely affect the customer. The 

Rule would not apply to business 

entertainment provided by an associated 

person directly to individual (natural 

person) customers or potential 

customers. 

Definition of Key Terms 

Proposed Rule 350A(b) defines the 

terms ‘‘customer,’’ ‘‘customer 

representative’’ and ‘‘business 

entertainment’’ as follows: 

‘‘Customer’’

The term ‘‘customer’’ means ‘‘(1) A 

person 6 that maintains a business 

relationship with a member 

organization via the maintenance of an 

account, through the conduct of 

investment banking, or pursuant to 

other securities-related activity, or (2) a 

person whose customer representative 

receives business entertainment for the 

purpose of encouraging such person to 

establish a business relationship with a 

member organization by opening an 

account with the member organization 

or by conducting investment banking or 

other securities-related activity with the 

member organization.’’

‘‘Customer Representative’’

The term ‘‘customer representative’’

means ‘‘a person who is an employee, 

officer, director, or agent of a customer, 

unless such person is a family member 7

of the customer.’’ The ‘‘family member’’

exemption is proposed to exclude 

instances where an individual has 

power of attorney over the account of a 

close family member’s account, such 

accounts opened under the Uniform 

Gifts to Minors Act or instances where 

a person exercises discretion over their 

spouse’s account. The Exchange does 

not believe such arrangements are likely 

to result in the types of conflicts the 

proposed rule is intended to address 

and their inclusion would thus 

constitute an undue regulatory burden 

on membership. 

‘‘Business Entertainment’’ 8

The term ‘‘business entertainment’’

means ‘‘any social event, hospitality 

event, sporting event, entertainment 

event, meal, leisure activity, or event of 

like nature or purpose, including 

business entertainment offered in 

connection with a charitable event, 

educational event or business 

conference, as well as any 

transportation or lodging related to such 

activity or event, in which an associated 

person of a member organization 

accompanies a customer representative’’

(absent ‘‘exigent circumstances,’’

discussed below). Anything of value 

given or otherwise provided to a 

customer representative that does not 

fall within the definition of ‘‘business 

entertainment’’ is a gift subject to NYSE 

Rule 350 (‘‘Compensation or Gratuities 

to Employees of Others’’). 

‘‘Associated Person’’

The terms ‘‘person associated with a 

member organization’’ or ‘‘associated 

person’’ are defined to include: (1) A 

natural person who is registered or has 

applied for registration under the Rules 

of the NYSE; (2) a sole proprietor, 

partner, officer, director, or branch 

manager of a member organization, or 

other natural person occupying a similar 

status or performing similar functions, 

or a natural person engaged in the 

investment banking or securities 

business who is directly or indirectly 

controlling or controlled by a member 

organization, whether or not any such 

person is registered or exempt from 

registration with the NYSE or NASD. 

The Exchange has been asked about 

the extent to which the proposed rule 

change reaches business entertainment 

conducted outside the United States, 

particularly entertainment provided by 

persons who are employed in 

commonly controlled affiliates of a 

financial services company operating in 

the United States and/or foreign 

jurisdictions. As an initial matter, 

proposed Rule 350A reaches all 

business entertainment of a member 

organization and persons associated 

with a member organization, even if 

such entertainment occurs outside of 

the United States or is provided to 

foreign individuals. However, the 

Exchange does not believe that all 

persons who are employed in 

commonly controlled affiliates of a 

financial services company operating in 

the United States and/or foreign 

jurisdictions are necessarily associated 

persons of the member organization, 

even if they report to a person who, in 


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Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 28537 

9See Rule 350A(b)(4)(A). 

10See proposed Rule 350A(f) and section below 

entitled ‘‘Specific Exemptions for Member 

Organizations with Business Entertainment 

Expenses Below $7,500.’’

11See NYSE Rule 345A(b). Note also that 

although Rule 350A, as proposed in Amendment 

No. 1, does not include a specific requirement that 

Continued 

another capacity, is an associated 

person of a member organization. 

An associated person of a member 

organization may have management and 

supervisory responsibilities for nonmember affiliates of a financial services 

company, located within or outside of 

the United States, without the result 

that the persons being managed and 

supervised in the non-member affiliates 

would necessarily be deemed associated 

persons of the member organization. It 

is the view of the Exchange that in such 

instances the following factors establish 

that an employee of a non-member 

affiliate is not an associated person of 

the member organization: (1) The 

manager/supervisor of that employee is 

recognized in the member organization 

as having a scope of responsibilities 

outside of the member organization; (2) 

the exercise of the management and 

supervision over that employee by such 

manager/supervisor is not controlled by 

the member organization, is reviewable 

for purposes of performance and 

compensation outside of the member 

organization, and is not conducted for 

the benefit of the member organization; 

and (3) the employee of the non-member 

affiliate is not otherwise employed or 

engaged in the investment banking or 

securities business of the member 

organization or controlled by the 

member organization in respect of such 

activities. 

Undefined Terms 

Any term not specifically defined in 

Rule 350A shall have the meaning 

ascribed to it as otherwise defined or 

understood within the rules of the 

Exchange and the interpretations 

thereof. 

Exigent Circumstances 

As noted above, the definition of 

‘‘business entertainment’’ generally 

prescribes that if a customer 

representative is not accompanied by an 

appropriate associated person of the 

member organization, any expenses 

associated with the business 

entertainment will be considered a gift 

under NYSE Rule 350. An exception to 

this requirement is proposed to address 

instances when exigent circumstances 

make it impractical for an associated 

person to attend a business 

entertainment event.9 All instances 

where such exigent circumstances are 

invoked must be clearly and thoroughly 

documented and be subject to the prior 

written approval of a designated 

supervisory person or, in very limited 

circumstances where such prior 

approval cannot reasonably be obtained, 

to a prompt post-event review to be 

conducted and documented by such 

supervisory person. 

The Exchange believes that the 

‘‘exigent circumstances’’ exception 

provides necessary flexibility in light of 

real-world, last minute emergency 

situations that could arise that would 

make it difficult, if not impossible, for 

an appropriate member organization 

associated person to attend a business 

entertainment event with a customer 

representative. Examples of exigent 

circumstances would be a sick child, an 

accident, or some other sudden 

overriding circumstance. The Exchange 

does not believe this provision would 

lead to circumvention of the spirit or 

substance of the proposed rule since all 

such occurrences are subject to detailed 

documentation such that any patterns of 

abuse would become quickly apparent 

to supervisory personnel. 

Written Policies and Supervisory 

Procedures Required 

Pursuant to the general directive of 

proposed Rule 350A(a), Rule 350A(c) 

would require that each member 

organization have written policies and 

supervisory procedures applicable to 

business entertainment that incorporate 

prescribed elements. The following 

prescribed elements, outlined under 

subsection (c)(1), are applicable to all 

member organizations except those with 

business expenses below $7,500, which 

are subject only to subsection (c)(1)(D) 

and (c)(1)(E): 10

(A) The policies and procedures must 

define forms of business entertainment 

that are ‘‘appropriate’’ and 

‘‘inappropriate,’’ using quantitative and/ 

or qualitative standards that address the 

nature and frequency of the 

entertainment provided, as well as the 

type and class of any accommodations 

or transportation provided in 

connection with such business 

entertainment. This provision 

recognizes that, in order to establish 

meaningful standards that are 

enforceable, firms must have objective 

bases upon which to determine the 

appropriateness of business 

entertainment. It also recognizes that, 

given the wide range of broker-dealer 

business models, it is impractical to 

require a single, industry-wide set of 

standards. Further, by placing the 

responsibility on firm personnel to 

develop firm-specific standards has the 

benefit of fostering internal discussion 

and serious consideration of issues 

related to the provision of business 

entertainment in both an ethical and 

practical context. 

(B) The policies and procedures must 

make clear that anything of value given 

or otherwise provided to a customer 

representative that does not fall within 

the definition of ‘‘business 

entertainment’’ is a gift under NYSE 

Rule 350. 

(C) The policies and procedures must 

impose either specific dollar limits on 

business entertainment or require prior 

written supervisory approval when such 

entertainment expenses will exceed 

certain specified dollar thresholds. This 

provision would require firms to make 

objective, ‘‘hard number’’ value 

determinations regarding generally 

acceptable levels of business 

entertainment. Not only would this 

approach have the benefit of 

establishing unambiguous standards, it 

would also encourage the selfcomparison of such standards among 

firms of similar size and circumstance. 

This, in conjunction with feedback from 

regulatory organizations, would likely 

result in the establishment of 

‘‘unofficial,’’ but generally accepted 

industry standards over time. 

(D) The policies and procedures must 

be designed to detect and prevent 

business entertainment that is intended 

as, or could reasonably be perceived to 

be intended as, an improper quid pro 

quo or that could otherwise give rise to 

a potential conflict of interest, or 

undermine the performance of a 

customer representative’s duty to a 

customer or to any person to whom the 

customer owes a fiduciary duty. In 

addition to highlighting the core 

purpose of the Rule, this provision is 

intended to make clear that member 

organizations are expected to take a 

proactive approach with respect to 

potential violations of their business 

entertainment policy. 

(E) The policies and procedures must 

establish standards to ensure that 

persons designated to supervise and 

administer the written policies and 

procedures are sufficiently qualified. 

Since the Rule does not prescribe exam 

qualifications or other standardized 

qualification requirements for 

supervisors or administrators of 

business entertainment policies and 

procedures, member organizations must 

formalize a process to ensure that 

informed determinations are made with 

regard to the ability of persons assigned 

such responsibilities.11


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28538 Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 

members test business entertainment policies and 

procedures, such policies and procedures are 

subject to NYSE Rule 342.23 which requires the 

development and maintenance of adequate controls 

over each business activity and the establishment 

of procedures for independent verification and 

testing of those business activities. Telephone call 

between Rebekah Liu, Special Counsel, Division of 

Market Regulation (‘‘Division’’), Commission, and 

Steve Kasprzak, Principal Counsel, NYSE, May 15, 

2007. 

12See NYSE Rule 345A(b). 

13See Rule 350A(c)(2). 

14Member organizations should be aware, 

however, that they may need to track such expenses 

under other NYSE or Commission rules. 

15See Rule 350A(a)(4)(C). 

16Telephone call between Steve Kuan, Special 

Counsel, Division, Commission, and Steve 

Kasprzak, Principal Counsel, NYSE, May 7, 2007. 

(F) The policies and procedures must 

provide appropriate education and 

training to all personnel who supervise, 

administer, or are subject to the written 

policies and procedures prescribed by 

the proposed Rule. This provision is 

intended to ensure that all relevant 

personnel are familiar with, and have a 

clear understanding of, the firm’s 

business entertainment policies and 

procedures. Such education and 

training could be provided as part of the 

‘‘Firm Element’’ requirement of NYSE 

Rule 345A (‘‘Continuing Education for 

Registered Persons’’).12

Certain ‘‘Business Entertainment’’

Standards May Be Distinguished 

In addition to the above requirements, 

the proposed Rule 13 would make clear 

that the written policies and supervisory 

procedures may distinguish, and set 

specifically tailored standards for, 

business entertainment deemed to be 

primarily educational in nature or 

closely associated with a charitable 

event or philanthropic cause. This 

provision recognizes that certain types 

of events that could be characterized as 

business entertainment, or that include 

entertainment as an element, might 

serve a larger purpose than those strictly 

or primarily intended to solicit 

business. Any such standards to be 

utilized must be explicitly addressed in 

the member’s organization policies and 

procedures, and must still comply with 

all requirements of the proposed Rule. 

Recordkeeping Requirements 

In order to ensure that expenses can 

be tracked and analyzed for potential 

improprieties, proposed Rule 350A(d) 

makes clear that each member 

organization’s written policies and 

procedures must require maintenance of 

detailed records of business 

entertainment expense provided to any 

customer representative. Further, such 

policies and procedures must require 

that, upon a customer’s written request, 

each member organization will 

promptly make available to a customer 

any records regarding business 

entertainment provided to customer 

representatives of that customer. 

However, in order not to impose an 

undue regulatory burden, the proposed 

Rule includes an exemption to the 

recordkeeping requirement for de 

minimis or incidental expenses that 

would not reasonably be expected to 

influence the behavior of a customer 

representative. Specifically, records 

would not be required to be maintained 

for: 

(1) Business entertainment when its 

total value, including all associated 

expenses, does not exceed $50 per day 

(such as a $45 dinner, or an inexpensive 

dinner and movie which, in the 

aggregate, cost less than $50); or 

(2) Additional expenses incurred in 

connection with otherwise recorded 

business entertainment that do not, in 

the aggregate, exceed $50 per day (such 

as a hot dog and soda purchased at a 

professional sporting event where the 

cost of the ticket—presuming it is 

greater than $50—has been duly 

recorded as a business entertainment 

expense).14

Each member organization’s written 

policies and procedures must include 

provisions reasonably designed to 

prevent member organization associated 

persons from circumventing the 

recordkeeping requirements in 

contravention of the spirit and purpose 

of this rule (e.g., a pattern of providing 

a customer representative with business 

entertainment valued at $48, or the 

disaggregation of events—such as a $40 

dinner followed by a $40 sporting 

event—required by the Rule to be 

aggregated and recorded). 

As discussed more fully below, the 

recordkeeping requirements of proposed 

Rule 350A(d) shall not apply to member 

organizations with annual business 

entertainment expenses below $7,500. 

Valuation of Business Entertainment 

The definition of the term ‘‘business 

entertainment’’ states that each member 

organization’s written policies and 

procedures must specify the 

methodology to be used by the member 

organization to calculate the value of 

business entertainment.15 In general, 

business entertainment expenses should 

be valued at the higher of face value or 

cost to the member organization. Thus, 

if a theatre ticket with a face value of 

$100 is obtained at a cost to the member 

organization of $300, the ticket would 

be valued at the higher purchase price. 

Provision of Business Entertainment 

Records to Customers/Notice 

Requirement 

Proposed Rule 350A(e) requires that 

each member organization’s written 

policies and procedures provide that, 

upon a customer’s written request, the 

member organization will promptly 

make available to the customer any 

business entertainment records 

regarding business entertainment 

provided any customer representative of 

that customer. Further, each member 

organization must have a system in 

place to give notice (e.g., via the 

member organization’s Web site, a 

disclosure document, or other 

appropriate means) to customers that 

utilize customer representatives subject 

to this rule that, upon a customer’s 

written request, the member 

organization will promptly provide such 

information. The Exchange notes that 

the ‘‘notice’’ provision will encourage 

the expansion of monitoring and 

controls on business entertainment 

beyond broker-dealers to the employers 

of business entertainment recipients. 

Application of Proposed Rule 350A 

General Application 

Subsection (f)(1) makes clear that the 

proposed Rule does not apply to any 

member organization that does not 

engage in business entertainment. Thus, 

for example, if a member organization 

provides no business entertainment as 

defined by the proposed Rule, it would 

not be required to establish otherwise 

applicable policies and procedures. This 

subsection further clarifies that the 

proposed rule applies only with respect 

to business entertainment provided to 

customer representatives. Thus, as 

noted above, it would not be applicable 

to situations where a member 

organization directly provides business 

entertainment to natural person 

customers or potential natural person 

customers.16

Specific Exemptions for Member 

Organizations With Business 

Entertainment Expenses Below $7,500 

The concerns that the proposed rule 

seek to address are not presented by 

those member organizations that, in the 

aggregate, do not devote significant 

resources to business entertainment. 

Consequently, the proposed rule 

provides for a partial exemption, under 

subsection (f)(2), for those member 

organizations with annual business 

entertainment expenses below $7,500. 


pwalker on PROD1PC71 with NOTICES
Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 28539 

17 15 U.S.C. 78f. 

18 15 U.S.C. 78f(b)(5). 

The provision prescribes that the $7,500 

ceiling be measured on a fiscal year 

basis. Each member organization that 

relies on the exemption must evidence 

that its business entertainment expenses 

are below the threshold. 

Specifically, member organizations 

below the $7,500 threshold would be 

exempt from the written ‘‘Policies and 

Procedures’’ provisions of proposed 

Rule 350A(c)(1) except for subsections 

(D) and (E). Subsection (D) requires 

written policies and procedures to 

detect and prevent business 

entertainment that is intended as, or 

could reasonably be perceived to be 

intended as, an improper quid pro quo 

or that could otherwise give rise to a 

potential conflict of interest, or 

undermine the performance of a 

customer representative’s duty to a 

customer or to any person to whom the 

customer owes a fiduciary duty. 

Subsection (E) requires the 

establishment of standards to ensure 

that persons designated to supervise and 

administer the written policies and 

procedures are sufficiently qualified. 

Member organizations below the 

$7,500 threshold would also be exempt 

from the prescribed recordkeeping 

provisions of proposed Rule 350A(d). 

As noted above, however, member 

organizations must be able to evidence 

that its business entertainment expenses 

were below the threshold over the 

course of their fiscal year. 

In addition, member organizations 

below the $7,500 threshold would be 

exempt from the requirement, under 

Rule 350A(e) to have a system in place 

to give notice (e.g., via a website, 

disclosure document, or other 

appropriate means) to customers that 

utilize customer representatives that, 

upon a customer’s written request, the 

member organization will promptly 

provide detailed information regarding 

the manner and expense of any business 

entertainment provided to their 

customer representatives by such 

member organization. 

Note that member organizations that 

avail themselves of the specified 

exemptions under proposed subsection 

(f)(2) would still be fully subject to 

proposed Rule 350A(a) which imposes 

the general prohibition that ‘‘no member 

organization or person associated with a 

member organization shall, directly or 

indirectly, provide any business 

entertainment to a customer 

representative pursuant to the 

establishment of, or during the course 

of, a business relationship with any 

customer that is intended or designed to 

cause, or would be reasonably judged to 

have the likely effect of causing, such 

customer representative to act in a 

manner that is inconsistent with: (1) 

The best interests of the customer or (2) 

the best interests of any person to whom 

the customer owes a fiduciary duty.’’

Interpretive Guidance/Practical Criteria 

As discussed above, required written 

policies and procedures addressing 

business entertainment must include 

criteria that the member organization 

will utilize to evaluate the propriety of 

business entertainment in various 

contexts. Although not included in the 

Rule text itself, the Exchange intends to 

include in an Information Memo 

released in conjunction with the 

approval of proposed Rule 350A the 

following factors to be considered when 

establishing such criteria: 

With Respect to the Entertainment 

(a) Whether the nature, cost, or extent 

of the entertainment could reasonably 

give rise to an actual or perceived 

conflict of interest, or encourage a quid 

pro quo business transaction; 

(b) Whether the nature, cost, and 

extent of the entertainment is consistent 

with the nature of the business 

relationship and the relationship of the 

parties involved; 

(c) Whether the provision of any 

transportation, lodging, or other 

accommodations is appropriate; 

(d) Whether the entertainment would 

be considered usual and customary 

within the industry; 

(e) Whether the cost of the 

entertainment is consistent with the 

location (city and/or establishment) in 

which the entertainment takes place; 

(f) Whether the entertainment extends 

to the client’s spouse or to guests of the 

client; 

(g) Whether the entertainment might 

otherwise reasonably be perceived to be 

improper. 

With Respect to the Client 

(a) Whether the recipient of the 

entertainment has fiduciary duties (e.g., 

to a public company, a state, or a 

municipality) that may give rise to 

specific legal or ethical considerations; 

(b) The frequency of entertainment 

provided to the client; 

(c) The frequency of firm contact with 

the client in the ordinary course of 

business. 

With Respect to the Business Purpose 

(a) Whether the entertainment is in 

recognition of a completed deal; 

(b) Whether the entertainment is 

educational/philanthropic in nature, or 

strictly recreational. 

In closing, the Exchange believes that 

the proposed Rule is an effective and 

practical approach to address the 

conflict-of-interest issues related to 

business entertainment, therefore 

approval of the proposal is requested. 

The Exchange further requests an 

effective date of 6 months from approval 

in order to give membership sufficient 

time to sufficiently upgrade systems and 

develop procedures to effectively 

comply with the Rule’s requirements. 

The Exchange will announce the 

effective date in an Information Memo. 

2. Statutory Basis 

The proposed rule change is 

consistent with Section 6 of the Act,17

in general, and furthers the objectives of 

Section 6(b)(5),18 in particular, in that it 

is designed to promote just and 

equitable principles of trade, to remove 

impediments to and perfect the 

mechanism of a free and open market 

and national market system, and in 

general, to protect investors and the 

public interest. The Exchange believes 

the proposed amendments are 

consistent with this section in that they 

permit firms to develop and maintain 

business relationships while requiring 

controls that mitigate potential conflicts 

of interest that can arise in such 

relationships. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change would impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

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 NYSE 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. 


pwalker on PROD1PC71 with NOTICES
28540 Federal Register / Vol. 72, No. 97 / Monday, May 21, 2007 / Notices 

19As noted above, according to the Exchange the 

notice provision will encourage the expansion of 

monitoring and controls on business entertainment 

beyond broker-dealers to the employers of business 

entertainment recipients. 

20See infra footnote 3. 21 17 CFR 200.30–3(a)(12). 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

The Commission notes that the 

NYSE’s proposed Rule 350A(e) provides 

that the NYSE member organization 

must have a system in place to give 

notice (e.g., via the member 

organization’s Web site, a disclosure 

document, or other appropriate means) 

to customers that use customer 

representatives that upon a customer’s 

written request, the NYSE member will 

provide detailed information regarding 

the manner and expense of any business 

entertainment provided by the NYSE 

member to the customer 

representative,19 while the NASD’s 

proposal does not contain a similar 

notice provision.20 The Commission is 

soliciting comment on this difference 

between the NYSE and NASD proposed 

rules and specifically whether NASD 

should have a similar notification 

provision for customers utilizing 

customer representatives. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (www.sec.gov/rules/ 

sro.shtml); or 

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

Number SR–NYSE–2006–06 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–NYSE–2006–06. 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 (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 the filing also will be 

available for inspection and copying at 

the principal office of the Exchange. 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–NYSE–2006–06 and should 

be submitted on or before June 11, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to 

delegated authority.21

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. E7–9668 Filed 5–18–07; 8:45 am] 

BILLING CODE 8010–01–P 

SOCIAL SECURITY ADMINISTRATION 

Agency Information Collection 

Activities: Proposed Request and 

Comment Request 

The Social Security Administration 

(SSA) publishes a list of information 

collection packages that will require 

clearance by the Office of Management 

and Budget (OMB) in compliance with 

Pub. L. 104–13, the Paperwork 

Reduction Act of 1995, effective October 

1, 1995. The information collection 

packages that may be included in this 

notice are for new information 

collections, approval of existing 

information collections, revisions to 

OMB-approved information collections, 

and extensions (no change) of OMBapproved information collections. 

SSA is soliciting comments on the 

accuracy of the agency’s burden 

estimate; the need for the information; 

its practical utility; ways to enhance its 

quality, utility, and clarity; and on ways 

to minimize burden on respondents, 

including the use of automated 

collection techniques or other forms of 

information technology. Written 

comments and recommendations 

regarding the information collection(s) 

should be submitted to the OMB Desk 

Officer and the SSA Reports Clearance 

Officer. The information can be mailed, 

faxed or e-mailed to the individuals at 

the addresses and fax numbers listed 

below: 

(OMB), Office of Management and 

Budget, Attn: Desk Officer for SSA. 

Fax: 202–395–6974. E-mail address: 

OIRA_Submission@omb.eop.gov. 

(SSA), Social Security Administration, 

DCFAM, Attn: Reports Clearance 

Officer, 1333 Annex Building, 6401 

Security Blvd., Baltimore, MD 21235. 

Fax: 410–965–6400. E-mail address: 

OPLM.RCO@ssa.gov. 

I. The information collections listed 

below are pending at SSA and will be 

submitted to OMB within 60 days from 

the date of this notice. Therefore, your 

comments should be submitted to SSA 

within 60 days from the date of this 

publication. You can obtain copies of 

the collection instruments by calling the 

SSA Reports Clearance Officer at 410–

965–0454 or by writing to the address 

listed above. 

1. eData Registration/Account 

Modification—20 CFR 401.45—0960- 

NEW 

Collection Background 

Section 5 U.S.C. 552a, (e)(10) of the 

Privacy Act of 1974 requires agencies to 

establish appropriate administrative, 

technical, and physical safeguards to 

ensure the security and confidentiality 

of records. Also, Section (f)(2) & (3) 

requires agencies to establish 

requirements for identifying an 

individual who requests a record or 

information pertaining to that 

individual and to establish procedures 

for disclosure of personal information. 

SSA promulgated Privacy Act rules in 

the Code of Federal Regulations, 

Subpart B. Procedures for verifying 

identity are at 20 CFR 401.45. 

Collection Description 

The eData Services Web site allows 

various external organizations to submit 

files to a variety of SSA systems and in 

some cases receive return files. The 

users include State/local government 

agencies, other Federal agencies, and 

some nongovernmental business 

entities. The SSA systems that process 

data transferred via eData include, but 

are not limited to, systems responsible 

for disability processing and benefit 

determination or termination. The 

information collected on form SSA–118 

(Government to Government Services 

Online Web site Registration Form) to 

register organizations is used 

exclusively to maintain the identity of 

the requester within eData. The 

requestor is already a known entity to a 

sponsor within SSA. The SSA sponsor 

completes the registration forms and the 

information is submitted to SSA’s User 

Interface Team (UIT). Once this is 

completed, SSA provides the requestor 


pwalker on PROD1PC71 with NOTICES