Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices 6669

6The Exchange interprets Rule 2.40 to allow the

EFPC to vote on market-maker surcharge before a

class has been listed for trading on another

exchange. Rule 2.40, however, provides that the

market-maker surcharge may not actually be

assessed until the class has been listed for trading

on another exchange. 7Telephone conversation between Stephanie C.

Mullins, Attorney, CBOE, and Gordon Fuller,

Special Counsel, Division, Commission (December

10, 1999). 8 15 U.S.C. 78f(b).

9 15 U.S.C. 78f(b)(4).

10 15 U.S.C. 78s(b)(3)(A)(ii). 11 15 CFR 240.19b–4(f)(2). 12 In reviewing this proposal, the Commission has

considered its impact on efficiency, competition,

and capital formation. 15 U.S.C. 78c(f). 13 17 CFR 200.30–3(a)(12).

Option class

Marketmaker surcharge (per

contract)

Order book

official brokerage rate

(per contract) 5

The Boeing Company (BA) ............................................................................................................................................. 0.14 $0.00

Friede Goldman International (FGI) ................................................................................................................................ 0.02 0.00

Northwest Airlines Corporation (NAQ) ............................................................................................................................ 0.02 0.00

Open Market, Inc. (OQM) ................................................................................................................................................ 0.02 0.00

Orbital Science Corp. (ORB) ........................................................................................................................................... 0.02 0.00

Onsale, Inc. (QOL) .......................................................................................................................................................... 0.02 0.00

Prime Medical Services, Inc. (QSI0 ................................................................................................................................ 0.02 0.00

Synovous Financial Corp. (SNV) ..................................................................................................................................... 0.02 0.00

Wackenhut Corrections Corp. (WHC) ............................................................................................................................. 0.02 0.00

Zebra Technologies Corp. (ZBQ) .................................................................................................................................... 0.02 0.02

5The market-maker surcharge will be used in reimburse the Exchange for the reduction in the OBO brokerage rate from $0.20 in the relevant

option classes. Any remaining funds will be paid to SFBs as proved in Exchange Rule 2.40.

These fees went into effect on

Thursday, September 2, 1999. All of the

option classes above are currently

multiple listed on at least one other

exchange. The most recent certification

for multiple listing relates to options on

The Boeing Company (BA) (‘‘Boeing’’),

which were listed on the Pacific

Exchange (‘‘PCX’’) beginning on

September 2, 1999. All of the marketmaker surcharge fees, except those

applicable to Boeing, reflect reductions

in former market-maker surcharge fees

imposed pursuant to Exchange Rule

2.40.

With respect to options on Boeing,

CBOE Rule 2.40(e) requires that an

option be listed for trading on another

exchange before a market-maker

surcharge fee can be assessed. Boeing

has been certified by the Options

Clearing Corporation to be listed on the

PCX. Therefore, the CBOE began

assessing the market-market surcharge

on September 2, 1999, when Boeing was

first listed on the PCX.6

The CBOE represents that the marketmaker surcharge fees were effective

from September 2, 1999 until the

options at issue were designated to

DPMs—September 7, 1999 for FGI,

NAQ, OQM, QOL, QSI, SNV, WHC, and

ZBQ, and September 13, 1999 for BA.

The fees were eliminated when the

options were designated to DPMs.7

2. Statutory Basis

The proposed rule change is

consistent with Section 6(b) of the Act,8

in general, and furthers the objectives of

Section 6(b)(4),9 in particular, in that it

is designed to provide for the equitable

allocation of reasonable dues, fees, and

other charges among CBOE members.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement of Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange did not solicit or

receive written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Because the foregoing rule change

establishes or changes a due, fee, or

other charge imposed by the Exchange,

it has become effective pursuant to

Section 19(b)(3)(A)(ii) of the Act,10 and

Rule 19b–4(f)(2) 11 thereunder. At any

time within 60 days of the filing of the

proposed rule change, the Commission

may summarily abrogate such rule

change if it appears to the Commission

that such action is necessary or

appropriate in the public interest, for

the protection of investors, or otherwise

in furtherance of the purposes of the

Act.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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. 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 will also be

available for inspection and copying at

the principal office of the CBOE. All

submissions should refer to the File No.

SR–CBOE–99–52 and should be

submitted by March 2, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–3037 Filed 2–9–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42385; File No. SR–MSRB–

00–01]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Municipal Securities Rulemaking

Board Relating to Supervision of

Correspondence With the Public

February 3, 2000.

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

Securities Exchange Act of 1934

6670 Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices

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

2 17 CFR 240.19b–4.

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

notice is hereby given that on January 7,

2000, the Municipal Securities

Rulemaking Board (‘‘Board’’ or

‘‘MSRB’’) 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 prepared by the Board. 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 Board has filed proposed

amendments to MSRB Rules G–8, on

books and records, G–9, on record

retention, and G–27, on supervision

(hereinafter referred to as the ‘‘proposed

rule change’’). The proposed rule

change will revise the Board’s

supervision and record retention rules

to provide dealers with flexibility in

developing reasonable procedures for

the review of correspondence with the

public. The amendments are intended to

recognize the growing use of

correspondence sent and received in

electronic format while still providing

for effective supervision. The Board has

also filed with the Commission a draft

notice that will provide guidance to

dealers on how to implement these rule

changes. The proposed rule change and

accompanying notice are modeled after

and designed to conform to the rules

and guidance of the National

Association of Securities Dealers

(‘‘NASD’’). The text of the proposed rule

change is set forth below. Additional are

italicized and deletions are bracketed.

* * * * *

Rule G–8: Books and Records to be made by

Brokers, Dealers and Municipal Securities

Dealers

(a) Description of Books and Records

Required to be Made. Except as otherwise

specifically indicated in this rule, every

broker, dealer and municipal securities

dealer shall make and keep current the

following books and records, to the extend

applicable to the business of such broker,

dealer or municipal securities dealer:

(i)–(xix) No Change.

(xx) Records Concerning Compliance with

Rule G–27. Each broker, dealer and

municipal securities dealer shall maintain

the records required under G–27(c) and G–

27(d).

(b)–(f) No Change.

Rule G–: Preservation of Records

(a) No Change.

(b) Records to be Preserved for Three

Years. Every broker, dealer and municipal

securities dealer shall preserve the following

records for a period of not less than three

years:

(i)–(vii) No Change.

(viii) the following records, to the extent

made or received by such broker, dealer or

municipal securities dealer in connection

with its business as such broker, dealer or

municipal securities dealer and not

otherwise described in this rule:

(A)–(B) No Change.

(C) all written and electronic

communications received and sent, including

inter-office memoranda, relating to the

conduct of the activities of such broker,

dealer or municipal securities dealer with

respect to municipal securities;

(D)–(E) No Change.

(ix)–(xiii) No Change.

(xiv) the records to be maintained pursuant

to Rule G–8(a)(xx).

Rule G–27: Supervision

(a)–(b) No change

(c) Written supervisory procedures. Each

dealer shall adopt, maintain and enforce

written supervisory procedures reasonably

designed to ensure that the conduct of the

municipal securities activities of the dealer

and its associated persons are in compliance

as required in section (a) of this rule. Such

procedures shall codify the dealer’s

supervisory system for ensuring compliance

and, at a minimum, shall establish

procedures

(i)–(vi) No change

(vii) for the prompt review and written

approval by a designated principal of:

(A) the opening of each customer account

introduced or carried by the dealer in which

transactions in municipal securities may be

effected; and

(B) each transaction in municipal securities

on a daily basis, including each transaction

in municipal securities effected with or for a

discretionary account introduced or carried

by the dealer [; and

(C) all correspondence pertaining to the

solicitation or execution of transactions in

municipal securities].

(d) Review of Correspondence

(i) Supervision of Municipal Securities

Representatives. Each dealer shall establish

procedures for the review by a designated

principal of incoming and outgoing written

(i.e., non-electronic) and electronic

correspondence of its municipal securities

representatives with the public relating to the

municipal securities activities of such dealer.

Such procedures must be in writing and be

designed to reasonably supervise each

municipal securities representative. Evidence

that these supervisory procedures have been

implemented and carried out must be

maintained and made available, upon

request, to a registered securities association

or the appropriate regulatory agency as

defined in Section 3(a)(34) of the Act.

(ii) Review of correspondence. Each dealer

shall develop written procedures that are

appropriate to its business, size, structure,

and customers for the review of incoming

and outgoing written (i.e., non-electronic)

and electronic correspondence with the

public relating to its municipal securities

activities. Procedures shall include the

review of incoming, written correspondence

directed to municipal securities

representatives and related to the dealer’s

municipal securities activities to properly

identify and handle customer complaints

and to ensure that customer funds and

securities are handled in accordance with the

dealer’s procedures. Where such procedures

for the review of correspondence do not

require review of all correspondence prior to

use or distribution, they must include

provisions for the education and training of

associated persons as to the dealer’s

procedures governing correspondence;

documentation of such education and

training; and surveillance and follow-up to

ensure that such procedures are

implemented and adhered to.

(iii) Retention of correspondence. Each

dealer shall retain correspondence of

municipal securities representatives relating

to its municipal securities activities in

accordance with rules G–8(a)(xx) and G–

9(b)(viii) and (xiv). The names of the persons

who prepared outgoing correspondence and

who reviewed the correspondence shall be

ascertainable from the retained records and

the retained records shall be readily

available, upon request, to a registered

securities association or the appropriate

regulatory agency as defined in section

3(a)(34) of the Act.

[(d)] (e) Deputy to update and review

written procedures. Each dealer shall revise

and update its written supervisory

procedures as necessary to respond to

changes in Board or other applicable rules

and as other circumstances require. In

addition, each dealer shall review, at least on

an annual basis, its supervisory system and

written supervisory procedures adopted

under sections (c) and (d) of this rule to

determine whether they are adequate and upto-date and shall ensure that the dealer is in

compliance with this rule.

* * * * *

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

Board 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 Board has

prepared summaries, set forth in

Sections A, B, and C below, of the most

significant aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

i. Background

In May 1996, the Commission issued

an Interpretive Release on the use of

Electronic Media by the Broker-Dealers,

Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices 6671

3See Securities Act Release No. 7288, Exchange

Act Release No. 37182, Investment Company Act

Release No. 21945, Investment Advisor Act Release

No. 1562 (May 9, 1996), 61 FR 24644 (May 15,

1996) (File No. S7–13–96).

4 Id.

5See Exchange Act Release No. 39510 (December

31, 1997), 63 FR 1131 (January 8, 1998).

6See Exchange Act Release No. 39511 (December

31, 1997), 63 FR 1135 (January 8, 1998).

7See Exchange Act Release No. 39866 (April 14,

1998), 63 FR 19778 (April 21, 1998).

8See Exchange Act Release No. 40372 (August 27,

1998), 63 FR 47059 (September 3, 1998).

9See NTM 99–03 (January 1999). 10 15 U.S.C. 78c(a)(34).

Transfer Agents, and Investment

Advisors for Delivery of Information.3

That release expressed the views of the

Commission with respect to the delivery

of information through electronic media

in satisfaction of requirements in the

federal securities laws, but did not

address the applicability of any selfregulatory organization (‘‘SRO’’) rules.

In the release the Commission did,

however, strongly encourage the SROs

to work with broker-dealer firms to

adopt SRO supervisory review

requirements governing

communications with customers to

accommodate the use of electronic

media.4

On December 31, 1997, the

Commission approved proposed rule

changes filed by the NASD 5 and New

York Stock Exchange (‘‘NYSE’’) 6 to

update rules governing supervision of

communication with the public. NASD

Notice to Members (‘‘NTM’’) 98–11

announced approval of the proposed

rule change and provided

implementation guidance to dealers.

Most of these rules became effective

on April 7, 1998.7 In response to public

comment and certain Commission

concerns, the NASD subsequently

proposed further changes to these rules

which were approved by the

Commission and became effective on

March 15, 1999.8 NASD NTM 99–03

provided guidance on the further

changes.9

As amended, NASD Rule 3010(d)(1)

provides that procedures for review of

correspondence with the public relating

to a member’s investment banking of

securities business be designed to

provide reasonable supervision for each

registered representative, be described

in an organization’s written supervisory

procedures, and be evidenced in an

appropriate manner.

NASD Rule 3010(d)(2), as amended,

requires each member to develop

written policies and procedures for

review of correspondence with the

public relating to its investment banking

or securities business tailored to its

structure and the nature and size of its

business and customers. These

procedures must also include the review

of incoming, written correspondence

directed to registered representatives

and related to the member’s investment

banking or securities business to

properly identify and handle customer

complaints and to ensure that customer

funds and securities are handled in

accordance with dealer’s procedures.

The Board has determined to adopt

substantially similar rule changes. The

Board believes that conforming its rule

language to the language in the NASD

rules will help ensure a coordinated

regulatory approach to the supervision

of correspondence. In addition, in

connection with Commission approval

of the proposed rule change, the Board

will issue a notice to dealers to provide

guidance to dealers on how to

implement the proposed rule changes.

This guidance has been coordinated

with NASD NTM 98–11 and NASD

NTM 99–03 and is described below.

ii. Description of the Rule as Revised

Supervision of Municipal Securities

Representatives

The proposed amendments to MSRB

Rule G–27(d), provide, among other

things, that a dealer must establish

procedures for the review by a

designated principal of each municipal

securities representative’s incoming and

outgoing written (i.e., non-electronic)

and electronic correspondence with the

public relating to the municipal

securities activities of such dealer. The

procedures must be designed to provide

reasonable supervision of each

municipal securities representative and

must be described in the dealer’s

written supervisory procedures.

Implementation and execution of these

procedures must be clearly evidenced,

and the evidence must be maintained

and be made available upon request to

a registered securities association or the

appropriate regulatory agency as

defined in section 3(a)(34) 10 of the Act.

Procedures for Review of

Correspondence

Currently, MSRB Rule 27(c)(vii)(C)

provides that each dealer shall establish

procedures for the review and written

approval by a designated principal of all

correspondence pertaining to the

solicitation or execution of transactions

in municipal securities. Under the

proposed MSRB Rule G–27(d)(ii), a

review of each item of correspondence

will no longer be required. Dealers will

be allowed flexibility in developing

procedures for the review of

correspondence relating to the dealer’s

municipal securities activities—both

incoming and outgoing, written or

electronic—tailored to the nature and

size of the dealer’s business and

customers.

With respect to incoming, written

(i.e., non-electronic) correspondence

directed to municipal securities

representatives and related to the

municipal securities activities of the

dealer, the proposal would require

review of the correspondence to

properly identify and handle customer

complaints and to ensure that customer

funds and securities are handled in

accordance with the dealer’s

procedures. The proposed rule change

does not require review of all

correspondence prior to use or

distribution. However, any dealer that

does not conduct electronic or manual

pre-use review of each item of

correspondence will be required to

regularly educate and train its

associated persons as to the dealer’s

procedures governing review of

correspondence, document such

education and training, and monitor to

ensure compliance with such

procedures.

Retention of Correspondence

The proposed rule change will

include amendments to MSRB Rules G–

8(a)(xx), G–9(b)(viii) and (xiv), and G–

7(d)(i), (ii), and (iii) requiring each

dealer to preserve correspondence of

municipal securities representatives

relating to the municipal securities

activities and maintain the records of

written supervisory procedures,

education and training required under

Rule G–27(c) and (d) for three years. The

proposed rule change also requires that

the names of the persons who prepared

and reviewed correspondence must be

ascertainable from the retained records

and the records must be made available,

upon request, to the appropriate

enforcement agency (i.e., NASD or

federal bank regulatory agency).

Draft Notice-Guidelines for Supervision

and Review

The notice to dealers will provide

guidance on how to implement the

proposed rule change. In particular, the

notice states that in adopting review

procedures pursuant to Rule G–27(d)(i),

dealers must:

• Specify, in writing, the dealer’s policies

and procedures for reviewing different types

of correspondence;

• Identify how supervisory reviews will be

conducted and documented;

• Identify what types of correspondence

will be pre- or post-reviewed;

• Identify the organizational position(s)

responsible for conducting review of the

different types of correspondence;

6672 Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices

11Amended language per telephone conservation

between Carolyn Walsh, Assistant General Counsel,

MSRB, and Ira L. Brandriss, the Commission,

February 3, 2000.

12 15 U.S.C. 78o–4(b)(2)(c).

• Specify the minimum frequency of the

reviews for each type of correspondence;

• Monitor the implementation of and

compliance with the dealer’s procedures for

reviewing public correspondence; and

• Periodically re-evaluate the effectiveness

of the dealer’s procedures for reviewing

public correspondence and consider any

necessary revisions.

The notice also states that in

conducting reviews, dealers may use

reasonable sampling techniques. As an

example of appropriate evidence of

review, e-mail related to the dealer’s

municipal securities activities may be

reviewed electronically and the

evidence of review may be recorded

electronically.

In developing supervisory procedures

for the review of correspondence with

the public pursuant to Rule G–27(d)(ii),

the notice states that each dealer must

consider its structure, the nature and

size of its business, other pertinent

characteristics, and the appropriateness

of implementing uniform firm-wide

procedures or tailored procedures (i.e.,

by specific function, office/location,

individual, or group of persons).

The notice also provides guidance on

adopting review procedures pursuant to

Rule G–27(d)(ii), and states that dealers

must, at a minimum:

• Specify procedures for reviewing

municipal securities representatives’

recommendations to customers;

• Require supervisory review of some of

each municipal securities representative’s

public correspondence, including

recommendations to customers;

• Consider the complaint and overall

disciplinary history, if any, of municipal

securities representatives and other

employees (with particular emphasis on

complaints regarding written or oral

communications with clients); and

• Consider the nature and extent of

training provided municipal securities

representatives and other employees, as well

as their experience in using communications

media (although a dealer’s procedures may

not eliminate or provide for minimal

supervisory reviews based on an employee’s

training or level of experience in using

communications media).

In addition, the notice provides that

supervisory and procedures must also:

• Provide that all customer complaints,

whether received via e-mail or in written

form from the customer, are kept and

maintained;

• Describe any dealer standards for the

content of different types of correspondence;

and

• Prohibit municipal securities

representatives’ and other employees’ use of

electronic correspondence to the public

unless such communications are subject to

supervisory and review procedures

developed by the dealer. For example, the

Board would expect dealers to prohibit

correspondence with customers from

employees’ home computers or through third

party systems unless the dealer is capable of

monitoring such communications.

The notice also states that the method

used for conducting reviews of

incoming, written correspondence to

identify customer complaints and funds

may vary depending on the dealer’s

office structure. Where the office

structure permits review of all

correspondence, dealers should

designate a municipal securities

representative or other appropriate

person to open and review

correspondence prior to use or

distribution to identify customer

complaints and funds. The designated

person must not be supervised or under

the control of the municipal securities

representative whose correspondence is

opened and reviewed. Unregistered

persons who have received sufficient

training to enable them to identify

complaints and funds would be

permitted to review correspondence.

Where the office structure does not

permit the review of correspondence 11

prior to use or distribution, appropriate

procedures that could be adopted

include the following:

• Forwarding opened incoming, written

correspondence related to the dealer’s

municipal securities activities to a designated

office, or supervising branch office, for

review on a weekly basis;

• Maintenance of a separate log for all

checks received and securities products sold,

which is forwarded to the supervising branch

office on a weekly basis;

• Communication to clients that they can

contact the dealer directly for any matter,

including the filing of a complaint, and

providing them with an address and

telephone number of a central office of the

dealer for this purpose; and

• Branch examination verification that the

procedures are being followed.

2. Statutory Basis

The Board believes that the proposed

rule change is consistent with Section

15B(b)(2)(C) 12 of the Act, which

requires, in pertinent part, that the

Board’s rules shall:

be designed to prevent fraudulent and

manipulative acts and practices, to promote

just and equitable principles of trade, to

foster cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with respect

to, and facilitating transactions in municipal

securities, to remove impediments to and

perfect the mechanism of a free and open

market in municipal securities, and, in

general, to protect investors and the public

interest.

In particular, the Board believes that

the proposed rule change is consistent

with the Act in allowing dealers to use

new technology, such as e-mail and the

Internet, while still providing for

appropriate supervision and review. In

addition, the proposed rule change will

make the Board’s rules on supervision

and record retention substantially

similar to the NASD rules. The Board

believes that such similar rules by the

self-regulatory organizations should

facilitate dealer compliance with these

requirements.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Board does not believe that the

proposed rule change will impose any

burden on competition not necessary or

appropriate in the furtherance of the

Act’s purposes because it would apply

equally to all brokers, dealers and

municipal securities dealers.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the Board consents, the

Commission will:

(A) By order approve such proposed

rule change, or

(B) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549–0609. 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

Federal Register / Vol. 65, No. 28 / Thursday, February 10, 2000 / Notices 6673

12 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3The substance of Amendment No. 1 is

incorporated into this notice.

4See Exchange Act Release No. 41706 (August 4,

1999), 64 FR 44069 (August 12, 1999) (File No. SR–

NYSE–98–25) relating to proposed adoption by the

NYSE of new provisions for recording the details

of an order in an electronic system prior to

representing or executing an order on the Floor. The

two rule changes proposed in this filing replace the

equivalent proposals that were deleted by

amendment from SR–NYSE–98–25. See note 4, id. 5 15 U.S.C. 78o(b).

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 will also be

available for inspection and copying at

the principal offices of the Board. All

submissions should refer to File No.

SR–MSRB–00–01 and should be

submitted by March 2, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority. 12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–3038 Filed 2–9–00; 8:45am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42381; File No. SR–NYSE–

99–25]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the New York Stock Exchange, Inc.

Relating to Amendments to Exchange

Rule 134, Governing Error Accounts,

and New Rule 407A, Concerning Floor

Member Account Disclosure

February 3, 2000.

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

Securities Exchange Act of 1934

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

notice is hereby given that on June 15,

1999, the New York Stock Exchange,

Inc. (‘‘NYSE’’ or ‘‘Exchange’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, III below, which Items have

been prepared by the Exchange. On

December 13, 1999, the NYSE filed

Amendment No. 1 to the proposed rule

change with the Commission.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change as amended from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The proposed rule change consists of

amendments to existing rules governing

error accounts (Rule 134) and a new rule

regarding Floor member account

disclosure (Rule 407A).

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

Exchange 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

Exchange has prepared summaries, set

forth in Sections A, B, and C below, of

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The Exchange is proposing a series of

initiatives to strengthen the regulation

of activities of members on the Floor.

The initiatives proposed herein consist

of amendments to existing rules

governing error accounts and a new rule

regarding Floor member account

disclosure.4

Error Accounts. The Exchange is

proposing to revise NYSE Rule 134(d) to

require that each member maintain an

error account. Under the proposed rule

change, if a member does not maintain

an error account, he or she will not be

permitted to transact business on the

Floor. Only one error account will be

permitted for each member. The error

account may be maintained in the

member’s name or in the name of his or

her member organization, or the

member may participate in an error

account established for a group of

members.

At present there is no requirement

that a member maintain an error

account. The Exchange believes that the

amendment to Rule 134 will enhance its

ability to monitor and detect potential

abuses such as on-Floor trading by

members. Error account transaction

information will be localized to one

place for each member, and not

scattered among several accounts

which, at present, could be held in the

name of another member or member

organization.

Housing Error Accounts. The

proposed rule change, as amended,

would require that a member’s error

account be maintained at a broker or

dealer registered in accordance with

Section 15(b) 5 of the Act. The Exchange

believes that this provision would

enable it to use its oversight authority to

review error records for the brokers or

dealers which are members or member

organizations of the Exchange. If the

error account is maintained at a nonmember broker or dealer, the Exchange

represents that it will work through the

Intermarket Surveillance Group (‘‘ISG’’)

to obtain information on errors. The

Exchange believes this requirement is

necessary to enable review of situations

involving errors in an expedited

fashion.

Error Transaction Procedures. The

proposed rule change would require

that if a member or member

organization acquires or assumes a

security position resulting from an error

transaction, or initiates a transaction to

offset an error transaction, such

transaction must be recorded and

cleared in the member’s or his or her

member organization’s error account, or

in an error account established for a

group of members.

This would include situations where

the execution was wrong (e.g., wrong

side of the market, wrong stock) and

where the member ‘‘missed the market’’

by failing to execute the order in the

prevailing market. If the error can be

corrected at a better price at the time the

error is discovered, the better price must

be offered to the customer. If the

customer refuses the superior execution,

a record of this must be maintained by

the member.

Alternatively, a customer could

accept the error, in which case the

transaction would be placed in the

customer’s account. An error transaction

could also be accepted by the specialist

in the security into his or her

organization’s account as a trade ‘‘on

account of error.’’

When a customer accepts an error

transaction, a monetary settlement (a

‘‘difference check’’) may be made by the

member or member organization. If the

difference check is for more than $500,

the member or member organization

involved would be required under the

proposal to maintain records detailing

the transaction. In some instances, a

customer may accept an error, but not

wish to receive a difference check for

bookkeeping or other reasons. The

member or member organization

involved would be required to maintain

records in these situations, as well.

The proposal further prescribes the

way a member would be required to