[Federal Register Volume 65, Number 232 (Friday, December 1, 2000)]
[Notices]
[Pages 75321-75322]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30662]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43617; File No. 4-436]


Notice of Order Exempting American Express Travel Related 
Services Company, Inc., From Broker-Dealer Registration

November 24, 2000.
    On July 24, 2000, the Commission issued an order (Exemptive Order) 
pursuant to section 15(a) of the Securities Exchange Act of 1934 
exempting American Express Travel Related Services Company, Inc. (TRS) 
from broker-dealer registration. That same day, TRS's request for 
confidential treatment was granted in a separate order (Confidential 
Treatment Order) until the earlier of (a) 120 days from the date of the 
issuance of the Exemptive Order; or (b) the date that any information 
contained in the application by TRS for exemption or the Exemptive 
Order was made publicly available by TRS. The Exemptive Order is 
attached as Exhibit A. The Confidential Treatment Order is attached as 
Exhibit B.

Margaret H. McFarland,
Deputy Secretary.

Exhibit A

Securities and Exchange Commission

[File No. 4-436]
July 24, 2000.

Order Exempting American Express Travel Related Services Company, Inc., 
From Broker-Dealer Registration

I. Background

    American Express Travel Related Services Company, Inc. (TRS), a 
wholly owned subsidiary of American Express Company, has requested 
an exemption, pursuant to section 15(a)(2) of the Securities 
Exchange Act of 1934 (the Act), from the broker-dealer registration 
requirement of section 15(a)(1) of the Act.
    TRS offers individual customers (Cardmembers) a variety of 
products and services, including charge cards such as the American 
Express<Register> Card, the American Express<Register> Gold Card, 
and the American Express Platinum Card<Register> (collectively, 
Charge Cards). TRS states that Charge Cards are primarily designed 
as a method of payment or a bill paying mechanism and not as a means 
of financing purchases of goods or services.
    TRS proposes to establish and operate a processing arrangement 
(Arrangement or Program) for its Cardmembers who invest or who wish 
to invest in mutual funds and variable products \1\ distributed by 
three of TRS's affiliates that are registered broker-dealers.\2\ 
Under the Program, individual Cardmembers may appoint TRS as a 
processing agent to collect and promptly remit to the appropriate 
registered broker-dealer their voluntary, periodic payments for 
mutual fund shares or variable products.
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    \1\ Variable products include variable annuities and life 
insurance products.
    \2\ These broker-dealers are American Express Services 
Corporation (AESC), which is a wholly owned subsidiary of TRS, the 
American Express Financial Advisors Inc. and IDS Life Insurance 
Company, both indirect wholly-owned subsidiaries of American Express 
Company, (collectively, the registered broker-dealers).
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    A Cardmember must open a brokerage account with one of the 
registered broker-dealers in order to participate in the Program,\3\ 
and a Cardmember must advise the broker-dealer of the amount he or 
she intends to invest on a monthly basis, the specific mutual funds 
or variable products that he or she would like to purchase, and the 
allocation of investment amounts to each investment. The Cardmember 
may increase, decrease, or suspend investment contributions under 
the Arrangement at his or her discretion.
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    \3\ This Arrangement will be available only for Charge Card 
customers and not for customers of TRS's revolving credit card 
products. TRS will not be extending credit to Cardmembers in the 
Program.
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    Cardmembers participating in the Program will send a single 
check to a TRS payment processing center in Chicago, Illinois 
(Processing Center) to cover both regular Charge Card purchases and 
the purchase of mutual fund shares or variable products. TRS will 
promptly forward the designated part of the payment to the 
appropriate broker-dealer. With respect to mutual fund shares, the 
Cardmembers will receive the price that is computed by the 
registered broker-dealer after receipt of the order.
    The registered broker-dealers will be responsible for all 
securities-related activities, questions and services, including: 
opening accounts, entering orders, executing transactions, setting 
up and maintaining customer files, and distributing order 
confirmations and statements after each payment is processed. The 
registered broker-dealers will also have the exclusive 
responsibility for marketing and distributing information about the 
availability of TRS's services to Cardmembers. The registered 
broker-dealers will disclose to Cardmembers that they, and not TRS, 
are offering the mutual funds or variable products, and that the 
intended investment amount is not covered by the Securities Investor 
Protection Corporation while it is in the possession of TRS. TRS, 
its employees, and its other unregistered affiliates will not market 
the availability of the Program or the underlying products and 
services offered by the registered broker-dealers.
    Moreover, TRS represents that its Processing Center has 
elaborate security and internal control safeguards. TRS has adopted 
a number of safeguards and procedures to ensure the adequate 
protection of Cardmembers' funds designated for remittance to the 
respective broker-dealers, including: (i) automation of the payment 
processing procedures; (ii) electronic surveillance and human 
supervision of all sensitive areas of the processing center at all 
times; (iii) background checks of all personnel in special 
processing areas to assure that such persons are not statutorily 
disqualified as that term is defined under the securities laws; and 
(iv) accessibility to TRS's books and records for the Commission and 
other appropriate regulatory authorities. TRS notes that not a 
single check has been stolen in the Processing Center's seventeen 
years of operation.
    In addition, to guarantee the safety of investors' funds from 
the time of receipt by TRS until remittance to the registered 
broker-dealers, TRS will obtain a surety bond from an unaffiliated 
insurance company with a Best rating of A or better. The bond will 
be increased as necessary so that it equals or exceeds the amount of 
the funds TRS collects and remits to the registered broker-dealers 
under this proposal at all times.
    TRS will not receive a referral fee from the registered broker-
dealers nor will it receive any compensation that is based upon the 
total dollar amount invested by a Cardmember. Instead, IRS will 
charge the registered broker-dealers a fee designed to offset the 
expenses it incurs for providing this service.
    TRS represents that its Cardmembers have used a similar 
processing arrangement to purchase fixed annuity products offered by 
AESC and that over the past ten years, $1.65 billion in payments for 
fixed annuity products have been processed without a single investor 
complaint. TRS indicates that its Cardmembers have requested this 
service for several years because it would give them an additional 
choice in how they can invest and gain access to the securities 
markets. TRS represents that approximately twenty percent of persons 
who call AESC's service representatives to inquire about investment-
related issues also make unsolicited requests to invest in 
connection with paying the balance due on their Charge Cards. 
Moreover, according to TRS, in a survey of Cardmembers making fixed 
annuity payments through the Charge Cards, approximately 63% 
identified ease of payment and convenience as key reasons for using 
this payment method.

II. Discussion

    Section 3(a)(4) of the Act defines a ``broker'' as ``any person 
engaged in the business of effecting transactions in securities for 
the account of others.'' An entity meets this definition if it 
participates in a meaningful way in any of the key phases of a 
securities transaction. One factor used to determine if an entity's 
participation is meaningful is whether it controls investors' funds. 
IRS proposes to collect and remit funds to the broker-dealers as 
agent for its Cardmembers. In other words, TRS will control 
Cardmembers' funds from the time of receipt until time of remittance 
to the broker-dealers. The Commission believes that this

[[Page 75322]]

proposed activity encompasses a level of control sufficient to 
constitute ``effecting transactions in securities.'' Because TRS 
would conduct this activity on an ongoing basis, the Commission 
would deem TRS to be ``in the business.'' Therefore, TRS's proposal 
would require TRS to register as a broker-dealer with the 
Commission.
    Section 15(a)(2) of the Act authorizes the Commission to exempt 
any broker or dealer or class of brokers or dealers, either 
conditionally or unconditionally, from the registration requirements 
of section 15(a)(1) of the Act, if the Commission deems the 
exemption consistent with the public interest and the protection of 
investors. The Commission believes that granting TRS's request for 
exemption meets this standard.
    The Commission finds that granting this exemptive order is 
consistent with the protection of investors. The registered broker-
dealers will have exclusive responsibility for opening accounts, 
entering orders, executing transactions, transferring investment 
monies to the appropriate mutual fund companies, and distributing 
transaction confirmations and account statements. TRS employees and 
unregistered affiliates will be strictly prohibited from 
recommending, endorsing, responding to questions about, or engaging 
in any negotiations involving brokerage accounts or related 
securities-transactions. TRS will guarantee the safety of investors' 
funds by obtaining a surety bond, automating the processing 
procedures, and surveilling all sensitive areas at all times. 
Moreover, TRS will provide accessibility to its books and records 
for the Commission and other appropriate regulatory authorities.
    The Commission also finds that the requested exemption is 
consistent with the public interest. The Arrangement will allow many 
investors to invest through a payment process with which they are 
already familiar. TRS states that its proposal is in direct response 
to requests from Cardmembers for this type of service.
    It Is Therefore Ordered, pursuant to section 15(a)(2) of the 
Act, that the application by TRS for exemption from the registration 
requirements of Section 15(a)(1) of the Act be, and hereby is, 
granted effective forthwith. This exemption is conditioned on the 
representations made by TRS, as outlined above, and on TRS not 
engaging in the business of buying and selling securities other than 
as described herein.
    It Is Further Ordered, pursuant to section 36 of the Act, that 
TRS shall be exempt, with respect only to the services relating to 
the Arrangement described above, from the reporting and other 
requirements specifically imposed by the Act and the rules and 
regulations thereunder, on a broker or a dealer that is not 
registered with the Commission.\4\
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    \4\ TRS remains subject to all other applicable provisions of 
the federal securities laws, including without limitation Section 
10(b) of the Act and Rule 10b-5 thereunder.

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    By the Commission.

Jonathan G. Katz,
Secretary.

Exhibit B

Securities and Exchange Commission

[File No. 4-436]

July 24, 2000

Order Granting Confidential Treatment for the Exemption of American 
Express Travel Related Services Company, Inc., From Broker-Dealer 
Registration

    The Commission has issued an order (Exemptive Order) pursuant to 
section 15(a) of the Securities Exchange Act of 1934 exempting 
American Express Travel Related Services Company, Inc. (TRS) from 
broker-dealer registration. The Exemptive Order is attached as 
Exhibit A.
    In a letter dated May 31, 2000, TRS requested confidential 
treatment pursuant to Rule 81(b) of the Commission's Regulation 
Concerning Information and Requests,\5\ for 120 days from the 
issuance of any written response by the staff. TRS represents that 
their request for an exemption and the Commission's response to such 
request includes sensitive, proprietary, and confidential 
information, which is not available to the public from any other 
source.
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    \5\ 17 CFR 200.81(b).
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    The Division of Market Regulation has determined that the 
request for confidential treatment is reasonable and appropriate. 
Therefore, the request for confidential treatment has been granted 
until the earlier of (a) 120 days from the date of issuance of the 
Exemptive Order; or (b) the date that any information contained in 
the application by TRS for exemption or the Exemptive Order is made 
publicly available by TRS.
    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.

Jonathan G. Katz,
Secretary.
[FR Doc. 00-30662 Filed 11-30-00; 8:45 am]
BILLING CODE 8010-01-M