52798 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

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

2 IPRs have special characteristics, as described in

this rule filing, that distinguish them from unit

investment trust interests that can be listed under

Rule 31.5G. Accordingly, CBOE is proposing

separate listing standards for IPRs.

3 In connection with its plans to list and trade

IPRs, the CBOE will request exemptive,

interpretative or no-action relief from Rules 10a–1,

10b–7, 10b–10, 10b–13, 10b–17, 11d1–2, 15c1–5,

15c1–6 and Rules 101, 102 and 104 of Regulation

M under the Act and Section 16 of the Act.

4The Commission notes that CBOE has not

identified a particular trading product that it seeks

to list pursuant to the proposed listing standards.

Prior to trading a particular , CBOE may have to

submit an additional Section 19(b) filing that more

specifically addresses potential issues associated

with items such as the composition, calculation and

dissemination of the applicable index. A particular

proposal may also involve issues relating to product

disclosure, market impact, and applicable trading

rules. The Commission also notes that approval of

the proposed listing standards would likely provide

CBOE with a basis for concluding that it has rules

providing for transactions in products such as

AMEX SPDRs and MidCap SPDRs, thereby

satisfying rule 12f–5 of the Act and allowing

CBOE’s unlisted trading of such products.

5See File No. SR–AMEX–92–18 (adopting new

rules related to the listing and trading of PDRs); SR–

AMEX–95–16 (providing that the minimum tick

applicable to the MidCap SPDR, a PDR product,

will be 1⁄64 of $1.00); SR–AMEX–94–52 (listing and

trading of MidCap 400 SPDRs under the rules

originally adopted to trade PDRs); SR–AMEX–93–

41 (limiting the AMEX’s liability in connection

with its administration of proprietary indices and

products); and SR–AMEX–92–45 (providing that

the minimum tick applicable to SPDRs will be 1⁄32

of $1.00).

6CBOE anticipates that all of the Trusts will be

governed by a master trust agreement providing for

the issuance, in series, of IPRs based on different

underlying indices. The Sponsor will file (i) a

registration statement under the Investment

Company Act of 1940 (the ‘‘ICA’’) registering the

trust (consisting of such series of Trusts) as an

investment company under the ICA, and (ii) a

separate registration statement under the Securities

Act of 1933 (the ‘‘Securities Act’’) registering the

offer and sale of each series of IPRs. The Sponsor

will also file an application under Section 6(c) of

the ICA requesting exemption of the Trusts and the

Sponsor from certain provisions of the ICA and

permitting the Trusts and the Sponsor to engage in

certain affiliated transactions otherwise prohibited

by Section 17(d) of the ICA and Rule 17d–1

thereunder.

7Each Trust, however, may be terminated earlier

under the following circumstances: (1) delisting of

the IPRs issued by such Trust by the primary

market on which the IPRs are traded; (2)

termination of the license agreement with the

owner of the index on which the Trust is based; or

(3) if either the Trustee, Sponsor, Distributor,

Depository Trust Company (‘‘DTC’’) or the National

Securities Clearing Corporation (‘‘NSCC’’) is unable

to perform its functions or duties with respect to

operation of a Trust and a suitable successor entity

is unavailable. In addition, the Sponsor may also

terminate a Trust if, after six months from

inception, the Trust net asset value falls below $150

million or such other amount as may be specified

in the prospectus, or if, after three years from

inception, the Trust net asset value falls below $350

million or such other amount as may be specified

in the prospectus. IPRs cannot be traded after the

termination of a Trust. However, on termination the

Trust will be liquidated, and IPR holders at that

time will receive a distribution equal to their pro

rata share of the assets of the Trust, net of certain

fees and expenses.

technology. Consideration will be given

to comments and suggestions submitted

in writing within 60 days of this

publication.

Please direct your written comments

to Michael E. Bartell, Associate

Executive Director, Office of

Information Technology, Securities and

Exchange Commission, 450 5th Street,

N.W., Washington, DC 20549.

Dated: September 30, 1997.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–26725 Filed 10–8–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39189; File No. SR–CBOE–

97–38]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Relating to Listing and Trading of IPRs

October 2, 1997.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

August 14, 1997, the Chicago Board

Options Exchange, Incorporated

(‘‘CBOE’’ or ‘‘Exchange’’) 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 the Exchange. 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

The CBOE proposes to amend its rules

to permit the listing and trading of

index portfolio receipts (‘‘IPRs’’) 2 of one

of more series. IPRs of each series

represent interests in a unit investment

trust (each a ‘‘Trust’’ and collectively

the ‘‘Trusts’’) operating on an open-end

basis and holding a portfolio of

securities that mirrors the securities in

a published index of securities.3

Amendments are proposed to Rules 1.1,

30.10, 30.20, 30.33, 30.36, 31.5 and

31.94. Also, the Exchange proposes to

adopt two new rules—Rule 30.54

applicable only to IPRs, and Rule 30.55

applicable to all securities governed by

the rules of CBOE’s Chapter XXX.

The text of the proposed rule change

is available at the Office of the

Secretary, CBOE and at the Commission.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization 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.

The self-regulatory organization 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 the

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The proposed rules 4 are substantially

similar to existing rules of the American

Stock Exchange (‘‘AMEX’’) applicable to

Portfolio Depositary Receipts (‘‘PDRs’’),

which are substantively very similar to

IPRs.5 IPRs will be issued by one or

more Trusts to be formed by an entity

serving as the sponsor for the Trusts (the

‘‘Sponsor’’).6 Upon receipts of securities

and cash in payment for a creation order

placed through the Distributor as

described below, the Trustee will issue

a specified number of IPRs referred to as

a ‘‘Creation Unit.’’

Each series of IPRs will be based on

a published index of securities. IPRs of

each such series are intended to

produce investment results that

generally correspond to the price and

yield performance of the component

common stocks of the selected index.

Each Trust will provide investors with

an interest in a portfolio of securities

that is intended to closely track the

value of the index on which it is based.

IPRs will trade like shares of common

stock and will pay periodic dividends

proportionate to those paid with respect

to the underlying portfolio of securities,

less certain expenses, as described in

the prospectus for each series of IPRs.

The Exchange expects that the Trusts

will terminate 125 years from the initial

date of deposit of the trust corpus into

each respective Trust or on such earlier

date as may be required in order to

permit such Trust to comply with the

rule against perpetuities, in the event

that the Trust is governed by the law of

a state in which the rule against

perpetuities remains in effect.7

The Sponsor will enter into a trust

agreement with a trustee in accordance

with Section 26 of the ICA. CBOE will

establish a relationship with an entity
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 52799

8At such time as the Exchange seeks to list series

of IPRs, the Sponsor and the Trusts will file with

the Commission an application seeking, among

other things, an order: (1) permitting secondary

market transactions in IPRs at negotiated prices,

rather than at a current public offering price

described in the prospectus for the applicable series

of IPRs as required by Section 22(d) of the ICA and

Rule 22c–1 thereunder; and (2) permitting the sale

of IPRs to purchasers in the secondary market

unaccompanied by a prospectus, when prospectus

delivery is not required by Section 4(3) of the

Securities Act but may be required according to

Section 24(d) of the ICA for redeemable securities

issued by a unit investment trust. These

exemptions, if granted, will permit IPRs to be

traded in secondary market transactions just as

interests in a closed-end investment company are

traded.

9See CBOE Rule 30.4(c) which provides that the

‘‘hours during which transactions in . . . UIT

interest may be made on the Exchange shall be as

provided in Rule 24.6 in respect of index options.’’

Rule 24.6 provides a 3:15 p.m. closing time.

10Because the Trusts intend to qualify for and

elect tax treatment as regulated investment

companies under the Internal Revenue Code, the

Trustee will also be required to make additional

distributions to the minimum extent necessary (i)

to distribute the entire annual taxable income of

each Trust, including any net capital gains from

sales of securities in connection with adjustments

to the portfolio of securities held by such Trust, or

to generate cash for distributions, and (ii) to avoid

imposition of the excise tax imposed by section

4982 of the Internal Revenue Code.

that will act as the underwriter of IPRs

on an agency basis (‘‘Distributor’’). All

orders to create IPRs in Creation Units

will be required to be placed with the

Distributor, and it will be the

responsibility of the Distributor to

transmit such orders to the Trustee. The

Distributor will be a registered brokerdealer and a member of the National

Association of Securities Dealers, Inc.

(‘‘NASD’’).

Payment with respect to creation

orders for a Trust placed through the

Distributor will be made by (1) the ‘‘inkind’’ deposit with the Trustee of a

specified portfolio of securities that

contains substantially the same

securities in substantially the same

proportions or ‘‘weighting’’ as the

component securities of the index on

which the Trust is based and (2) a cash

payment sufficient to enable the Trustee

to make a distribution (‘‘Division

Equivalent Payment’’) to the holders of

beneficial interests in the Trust on the

next dividend payment date as if all the

securities had been held for the entire

accumulation period for the

distribution, subject to certain specified

adjustments (see ‘‘Distributions’’ below)

plus or minus a ‘‘Balancing Amount’’ to

compensate for any differences between

the market value of the securities paid

and the net asset value of a Creation

Unit of such Trust. The Dividend

Equivalent Payment and the Balancing

Amount are collectively referred to as

the ‘‘Cash Component.’’ The portfolio of

securities and the Cash Component

accepted by the Trustee are referred to

as the ‘‘Portfolio Deposit.’’

Issuance of IPRs

Upon receipt of a Portfolio Deposit for

a Trust in payment for a creation order

placed through the Distributor as

described above, the Trustee will issue

a specified number of IPRs of that Trust

equal to the Creation Unit. IPRs may be

created only in a Creation Unit or

multiples thereof. The Exchange

anticipates that a Creation Unit for a

series of IPRs will consist of 50,000 IPRs

of such other number as the Exchange

may designate taking into account the

value of individual IPRs of that

particular series and such other factors

as the Exchange deems to be relevant.

Individual IPRs can then be traded in

the secondary market like any other

equity security.8 It is expected that

Portfolio Deposits will be made by

institutional investors and arbitragers as

well as Market-Makers and Designated

Primary Market-Makers as defined in

the CBOE’s rules.

To maintain the correlation between

the portfolio of securities held in a Trust

and that of the underlying index, the

Trustee will adjust the composition of

the Portfolio Deposits from time to time

to conform to changes to the index made

by the organization that compiles and

maintains such index. The Trustee will

aggregate certain of these adjustments

and make periodic conforming changes

to the Trust portfolio.

It is expected that the Trustee or

Sponsor will make available (a) on a

daily basis, a list of the names and

required number of shares for each of

the securities in the then current

Portfolio Deposit for each of the Trusts;

(b) on at least a minute-by-minute basis

throughout the day, a number

representing the value (on a per IPR

basis) of the securities portion of each

Portfolio Deposit; and (c) on a daily

basis, the accumulated dividends, less

expenses, per each outstanding IPR unit.

Transactions in IPRs may be effected

on the Exchange until 3:15 p.m. Chicago

time each business day.9 IPRs will trade

in round lots of 100.

Redemption

IPRs will be redeemable in kind by

tendering them to the Trustee, but only

in Creation Unit aggregations. While

holders may sell any number of IPRs in

the secondary market at any time, they

must accumulate a minimum number of

IPRs equal to a Creation Unit in order

to redeem through a Trust. IPRs will

remain outstanding until redeemed or

until termination of the Trust by which

they were issued. Creation Units of a

Trust will be redeemable on any

business day in exchange for a portfolio

of the securities held by the Trust

substantially identical in weighting and

composition to the securities portion of

the Portfolio Deposit for such Trust in

effect on the date request is made for

redemption, together with the Cash

Component. The number of shares of

each of the securities transferred to the

redeeming holder will be the number of

shares of each of the component stocks

in such a Portfolio Deposit on the day

the redemption notice is received by the

Trustee, multiplied by the number of

Creation Units being redeemed.

Nominal service fees will be charged in

connection with the creation and

redemption of Creations Units. The

Trustee will cancel all tendered

Creation Units upon redemption.

Distributions

The Trust will pay dividends

quarterly. It is expected that the regular

quarterly ex-dividend dates for an

underlying index of securities traded on

the New York Stock Exchange, Inc.

(‘‘NYSE’’) will be the third Friday in

March, June, September and December,

unless such day is an NYSE holiday, in

which case the ex-dividend date will be

the preceding Thursday. Holders of IPRs

on the business day preceding the exdividend date will be entitled to receive

an amount representing dividends

accumulated through the quarterly

dividend period preceding such exdividend date net of fees and expenses

for such period. The payment of

dividends will be made on the last

Exchange business day in the calendar

month following the ex-dividend date

(‘‘Dividend Payment Date’’). On the

Dividend Payment Date, dividends

payable will be distributed for those

securities with ex-dividend dates falling

within the period from the ex-dividend

date most recently preceding the current

ex-dividend date through the business

day preceding the current ex-dividend

date.10 The Trustee will compute on a

daily basis the dividends accumulated

for each Trust within each quarterly

dividend period. Dividend payments

will be made through DTC and its

participants to all such holders with

funds received from the Trustee. IPRs

will be registered in book entry form

only, which records will be kept by

DTC.

Criteria for Initial and Continued

Listing

CBOE’s proposed standards for listing

and delisting of IPRs allow some

flexibility in listing each series of IPRs.
52800 Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices

11See supra note 7.

12 15 U.S.C. 78f(b).

13 15 U.S.C. 78f(b)(5).

With respect to initial listing, the

Exchange proposes that, for each series,

the Exchange will establish a minimum

number of IPRs required to be

outstanding at the time of

commencement of Exchange trading.

For IPRs having a Creation Unit size of

50,000 IPRs, a minimum of 150,000 IPRs

of each such series (i.e., three Creation

Units) will be required to be outstanding

when trading in such series of IPRs

begins.

Because the Trusts operate on an

open-end basis, and because the number

of holders of IPRs of each Trust is

subject to substantial fluctuation

depending on market conditions, the

Exchange believes it would be

inappropriate and burdensome on IPR

holders to consider suspending trading

in or delisting a series of IPRs, with the

consequent termination of the Trust by

which they were issued, unless the

number of holders remains severely

depressed during an extended time

period. Therefore, following twelve

months from the formation of a Trust

and commencement of Exchange

trading, the Exchange will consider

suspension of trading in, or removal

from listing of, IPRs of any series when,

in its opinion, further dealing in such

securities appears unwarranted under

the following circumstances:

(a) the Trust by which IPRs of such

series are issued has more than 60 days

remaining until termination and there

have been fewer than 50 record and/or

beneficial holders of IPRs of such series

for 30 or more consecutive trading days;

or

(b) the index on which the Trust is

based is no longer calculated or

available; or

(c) such other event shall occur or

condition exist which, in the opinion of

the Exchange, makes further dealings on

the Exchange inadvisable.

A Trust shall terminate upon removal

from Exchange listing, and the series of

IPRs representing interests in such Trust

will be redeemed as described in the

prospectus for such series. A Trust may

also terminate under such other

conditions as may be described in the

prospectus for such series. For example,

the Sponsor, following notice to IPR

holders, will have discretion to direct

that a Trust be terminated if the value

of securities held by such Trust falls

below a specified amount. A Trust

based on an index licensed to the

Exchange by a third party will also

terminate if the required license

terminates.11

Trading Halts

Prior to commencement of trading in

IPRs, the Exchange will issue a circular

to members informing them of Exchange

policies regarding trading halts in such

securities. The circular will make clear

that, in addition to other factors that

may be relevant, the Exchange may

consider factors such as those set forth

in Exchange Rule 24.7 in exercising its

discretion to halt or suspend trading.

These factors would include whether

trading has been halted or suspended in

the primary market(s) for any

combination of underlying stocks

accounting for 20% or more of the value

of the applicable current index group or

whether other unusual conditions or

circumstances detrimental to the

maintenance of a fair and orderly

market are present. Also, IPR trading

would be halted (along with trading in

other securities on the Exchange) if the

circuit breaker parameters under

Exchange Rule 6.3B are reached.

Terms and Characteristics

The Exchange proposes to require that

members and member organizations

provide to all purchasers of each series

of IPRs a written description of the

terms and characteristics of such

securities, in a form prepared by the

Exchange, not later than the time a

confirmation of the first transaction in

each series is delivered to such

purchaser. The Exchange also proposes

to require that such description be

included with any sales material on that

series of IPRs that is provided to

customers or the public. In addition, the

Exchange proposes to require that any

other written materials provided by a

member or member organization to

customers or the public making

reference to a specific series of IPRs as

an investment vehicle must include a

statement in substantially the following

form: ‘‘A circular describing the terms

and characteristics of [the series of IPRs]

is available from your broker or the

Exchange. It is recommended that you

obtain and review such circular before

purchasing [the series of IPRs]. In

addition, upon request you may obtain

from your broker a prospectus for [the

series of IPRs].’’ Finally, as noted above,

the Exchange requires that members and

member organizations provide the

prospectus for a series of IPRs to

customers upon request.

A member or member organization

carrying an omnibus account for a nonmember broker-dealer is required to

inform such non-member that execution

of an order to purchase IPRs for such

omnibus account will be deemed to

constitute an agreement by the nonmember to make such written

description available to its customers on

the same terms as are applicable to

members and member organizations.

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b) of the Act 12

in general and furthers the objectives of

Section 6(b)(5) 13 in particular in that

the rules that are proposed to apply to

the trading of IPRs are designed to

prevent fraudulent and manipulative

acts and practices, promote just and

equitable principles of trade, 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.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

CBOE does not believe that the

proposed rule change will impose any

burden on competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

No written comments were solicited

or received with respect to 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 CBOE 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule
Federal Register / Vol. 62, No. 196 / Thursday, October 9, 1997 / Notices 52801

14 17 CFR 200.30–3(a)(12).

1 In response to comment letters and membership

concerns, the NYSE has submitted three

amendments to this proposed rule change. See

letter from James E. Buck, Senior Vice President

and Secretary, NYSE, Inc., to Ms. Katherine A.

England, Assistant Director, Division of Market

Regulation, SEC, dated April 24, 1997 (responding

to comment letters)(‘‘Amendment No. 1’’); Letter

from James E. Buck, Senior Vice President and

Secretary, NYSE, Inc., to Ms. Katherine A. England,

Assistant Director, Division of Market Regulation,

SEC, dated June 9, 1997 (amending the rule

language to clarify the proposed interpretation and

stipulating to a one year phase-in period for

implementation of the Rule’s

requirements)(‘‘Amendment No. 2’’); Letter from

James E. Buck, Senior Vice President and Secretary,

NYSE, Inc., to Ms. Katherine A. England, Assistant

Director, Division of Market Regulation, SEC, dated

September 18, 1997 (eliminating redundant

provisions in the interpretation)(‘‘Amendment No.

3’’). These amendments are technical in nature and

do not need to be published for comment.

2 15 U.S.C. § 78s(b)(1).

3 17 CFR 240.19b–4.

4Securities Exchange Act Release No. 38106

(December 31, 1996), 62 FR 1353 (January 9, 1997).

5Letter from Sarah A. Miller, Senior Government

Relations Counsel, Trust and Securities, American

Bankers Association, to Jonathan G. Katz, Secretary,

SEC, dated January 30, 1997 (‘‘ABA Letter’’); Letter

from Deborah H. Kaye, Vice President and Assistant

General Counsel, Retail Banking and Securities, The

Chase Manhattan Bank, to Jonathan G. Katz,

Secretary, SEC, dated January 28, 1997 (‘‘Chase

Letter’’); Letter from Thomas W. Evans, Vice

President, Citibank, to Secretary, SEC, dated

January 29, 1997 (‘‘Citibank Letter’’); Letter from

Steven J. Freiberg, Chairman and Chief Executive

Officer, Citicorp Investment Services, to Secretary,

SEC, dated January 29, 1997 (‘‘CIS Letter’’); Letter

from Monica M. Barbour, Vice President and Legal

Counsel, First Chicago NBD, to Margaret H.

McFarland, Deputy Secretary, SEC, dated January

31, 1997 (‘‘First Chicago Letter’’).

6See First Chicago Letter.

7See ABA Letter, Chase Letter, Citibank Letter,

and CIS Letter.

8Columns, coloring or other distinct forms of

demarcation may be used to clearly distinguish

assets. The Interpretation requires only that a

physical distinction of assets be made on the

summary page. It was not intended to mandate the

manner in which such identification is made. see

infra note 13, at pg. 4.

9Where the customer account number and

telephone number for customer service at each

entity are included on each entity’s respective

customer account statement, such account and

telephone numbers need not be included on the

summary statement. See also note 26, infra.

10See supra note 1, Amendment No. 2.

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. Copies of such filing

will also be available for inspection and

copying at the principal office of the

CBOE. All submissions should refer to

File No. SR–CBOE–97–38 and should be

submitted by October 30, 1997.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–26724 Filed 10–8–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–39190; File No. SR–NYSE–

96–27]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

New York Stock Exchange, Inc.

Relating to an Interpretation of Rule

409 (‘‘Statements of Accounts to

Customers’’)

October 2, 1997.

I. Introduction

On December 5, 1996, 1 the New York

Stock Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’) submitted to the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 2 and Rule 19b–4

thereunder, 3 a proposed rule change

interpreting Exchange Rule 409. A

notice of the proposed rule change

appeared in the Federal Register on

January 9, 1997.4

The Commission received five

comment letters addressing the

proposed rule change.5 One commenter

endorsed the proposed amendments,6

while the remaining commenters

opposed the proposal.7 This order

approves the proposed rule change.

The proposed rule change sets forth

an interpretation of Exchange Rule 409

with respect to the establishment of

standards regarding the distribution of

‘‘summary statements’’ and the use of

‘‘third party agents’’ to prepare or

distribute customer account statements.

The proposed interpretation also

codifies existing Exchange policy as to

certain information that must be

disclosed on account statements. Other

items addressed in the proposed

interpretation include account

statements that reflect assets not in the

possession or control of a member

organization and the use of logos and

trademarks on account statements by an

entity other than the carrying or

introducing organization.

II. Description of the Proposal

Exchange Rule 409 addresses the

responsibility of member organizations

carrying customer accounts to send

statements of these accounts to their

customers. Currently, the rule requires

member organizations to send their

customers account statements showing

security and money positions and

entries at least quarterly to all accounts

having an entry, money or security

position during the preceding quarter.

As amended, the rule will allow

Exchange member organizations, jointly

with other financial institutions (e.g.,

banks and investment companies), to

formulate and distribute to common

customers a ‘‘summary statement’’ of

the customers’ accounts with the

respective institutions. These

consolidated statements will reflect

information from entities that are part of

a financial services ‘‘group’’ or ‘‘family,’’

which could include an Exchange

member organization that carries

accounts for another broker-dealer.

Specifically, the Exchange will

require that the summary statement:

indicate that the statement is

informational and includes assets held

at different entities; identify each entity,

their relationship to each other and their

respective functions; distinguish clearly

between assets held by each entity; 8

identify the customer’s account

numbers at each entity and provide a

customer service telephone number at

each; 9 disclose which entity holds each

of the different assets on the summary;

and identify each entity that is a

member of the Securities Investor

Protection Corporation (‘‘SIPC’’).10

Additionally, any aggregation of account

values must be recognizable as having

been derived from the separately stated

totals; the beginning and end of each

separate underlying statement must be

clearly distinguishable; and there must

be a written agreement between the

parties jointly distributing the

statements that each has developed

procedures and controls for testing the

accuracy of its own information on the

summary statement. Furthermore, the

member organization must indicate on

the summary statement that it is not

responsible for any information derived

from the customer or other external

source relating to externally-held assets.

The proposed interpretation also

clarifies that certain information must

be disclosed on the front of account

statement, i.e., the identity of the

introducing and carrying organizations,

where customer assets included on the

statement are held, whether such

customer assets are covered by SIPC,

and the opening and closing account

balances. Moreover, the interpretation

requires that where the account

statement includes assets not within the

possession or control of the member