30776 Federal Register / Vol. 66, No. 110 / Thursday, June 7, 2001 / Notices

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

2 17 CFR 240.19b–4. 3Securities Exchange Act Release No. 43834

(January 10, 2001), 66 FR 6721.

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44375; File No. SR–NYSE–

00–58]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Approving Proposed Rule Change

Relating to an Interpretation of Rule

342 (‘‘Offices—Approval, Supervision,

and Control’’)

June 1, 2001.

I. Introduction

On December 15, 2000, the New York

Stock Exchange, Inc. (‘‘NYSE’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’), pursuant to section

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

of 1934 (‘‘Act’’),1 and Rule 19b–4

thereunder,2 a proposed rule change to

amend interpretations concerning the

meaning and administration of NYSE

Rule 342 with respect to registered

representatives working in small or

residence branch offices of Exchange

member organizations. The proposed

rule change was published for comment

in the Federal Register on January 22,

2001.3 No comments were received on

the proposal. This order approves the

proposal.

II. Description of the Proposal

The proposal would amend

interpretations of NYSE Rule 342 with

respect to the supervision of, and the

experience requirements for, registered

representatives working in small or

residence branch offices of Exchange

member organizations. This

Interpretation will be published as an

Interpretation Memorandum for

inclusion in the Exchange’s

Interpretation Handbook.

NYSE Rule 342 requires that each

office, department and business activity

be under the supervision and control of

the member organization establishing it

and of the personnel delegated such

authority and responsibility.

Additionally, the structure and

administration of Exchange rules

mandate that all member organization

employees, including registered

representatives (‘‘RR’’), be fully subject

to the direct and ongoing supervision,

control and discipline of their member

organization employers. Further,

Exchange Rule 342(c) requires that a

member or member organization obtain

the Exchange’s prior written consent for

each office established.

NYSE Rule 342.11 and Current

Interpretations

NYSE Rule 342.11 provides that an

RR may operate out of his or her

residence, with Exchange approval, and

that if the residence is advertised

(through, e.g., business cards or

stationery), then the residence

constitutes a branch office of the

member organization employer. Further,

and notwithstanding the above,

Interpretation /01 to Rule 342.11 in the

NYSE Interpretation Handbook states

that if an RR regularly operates from his

home during business hours (even on a

part-time basis), the member

organization employer must register the

home as a branch office (a ‘‘residence

office’’). Interpretation /03 to Rule

342.11 currently provides that an RR

who will be working from his or her

residence must have a minimum of sixmonths’ securities experience before

being approved in a residence office.

Proposed Amendment to Interpretation

/03 to Rule 342.11

The NYSE represents that the sixmonth securities industry experience

requirement for RRs in residence offices

has come to be viewed as unnecessary

and restrictive in that member

organizations are prohibited from

permitting the RR from working for two

additional months beyond the

prescribed four-month training period of

NYSE Rule 345. This six-month

experience requirement has particularly

affected member organizations

structured with multiple one-person

offices.

The additional training period for

inexperienced RRs was appropriate

when the interpretation was

implemented in the 1970s because of

the remote physical location of

supervisors. Now, however, with

member organizations increasingly

employing advanced technology and

electronic communications in the

supervision and review of RR activities,

supervision can be readily performed

without being dependent on close

physical proximity of the manager to the

RR.

Under the proposed amended

Interpretation, the six-month experience

requirement will be eliminated, thereby

allowing the RR who operates from a

residence or one-person office to begin

working upon completion of the

prescribed four-month training period,

provided that the member organization

develops and implements special

supervisory procedures for heightened

supervision for the two-month period

immediately following completion of

prescribed training.

The special supervision will include

procedures such as:

• Daily review of all customer

account activity;

• Daily review of all correspondence

including prior approval of all outgoing

correspondence;

• Review of all incoming and

outgoing electronic communications,

e.g., internet use and electronic mail;

and

• On-site inspection by the branch

office manager (or qualified designee)

responsible for supervision of the

residence office in the two months

following the prescribed training period.

Member organizations will be

required to inform RRs operating from a

residence or small one-person office of

the special supervision, and to maintain

records evidencing the implementation

and conduct of the special supervision.

The Exchange believes the amended

interpretation will allow these RRs to

begin working immediately after

completing the prescribed four-month

training period (like all other RRs),

while also helping to ensure that,

through special supervision, member

organizations have appropriate

supervision and control of RRs

operating from a residence and

customer accounts serviced by those

RRs. Moreover, while the special

supervision is required for a limited

time, there is the ongoing responsibility

of the member organizations, beyond

the two-month special supervision

period, to have appropriate policies and

procedures in place for the supervision

and control of all sales and operational

activities of each branch office and of all

registered employees and the customer

accounts they service.

Proposed Amendments to

Interpretations /01, /02, and a New

Interpretation /04 to NYSE Rule 342.15

Generally, each location where

member organization employees are

engaged in activities on behalf of a

member organization must be registered

as a branch office (excluding locations

on the Exchange Floor where member

organizations conduct Floor Business).

A ‘‘small’’ office is a branch with

three or less registered representatives,

one of whom is designated as ‘‘RR-incharge’’ (this designation is required

only if there is more than one registered

representative in the small office). A

small office may engage in sales

activities but may not conduct

operational functions, such as

cashiering (receipt and disbursement of

funds and securities).

Interpretation /02 to NYSE Rule

342.15 currently requires small offices

to be under the close supervision and

Federal Register / Vol. 66, No. 110 / Thursday, June 7, 2001 / Notices 30777

4 In approving this rule change, the Commission

has considered the proposed rule’s impact on

efficiency, competition, and capital information. 15

U.S.C. 78c(f). 5 15 U.S.C. 78f(b)(5). 6 15 U.S.C. 78s(b)(2).

7 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 43612,

(November 22, 2000), 65 FR 75331.

3Section 11(a) of Article VI of OCC’s By-Laws

states that whenever there is a dividend, stock split,

reorganization, recapitalization, or similar event

with respect to an underlying security or whenever

there is a merger, consolidation, dissolution, or

liquidation of the issuer of an underlying security,

the number of option contracts, unit of trading,

exercise price, and the underlying security of all

outstanding options contracts open for trading in

that underlying security may be adjusted.

control of the member organization’s

main office or to be supervised by a

manager of another office within short

travel distance. The manager may be

responsible for only two small offices.

The proposed amendments to the

Interpretation will require that small

offices be controlled and supervised by

either the main office or another

designated branch office having a

qualified (i.e., Series 9 and 10 examqualified) Branch Office Manager on the

premises. Further, such supervisory

arrangements must be made part of the

member organization’s written plan of

supervision. Adoption of the

Interpretation will eliminate the current

provision under Interpretation /01 to

NYSE Rule 342.15 that a manager may

be responsible for only two small offices

that are in close geographical proximity.

Given modern electronic surveillance

and monitoring techniques, the

Exchange believes this limitation

regarding number of offices and

geographical location is no longer

necessary. New Interpretation /04 to

NYSE Rule 342.15 provides that RRs

operating from small, one-person branch

offices must be subject to the same

special supervision prescribed in

Interpretation /03 to NYSE Rule 342.11

for residence offices.

III. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange.4 Specifically, the

Commission finds the proposal is

consistent with the section 6(b)(5) 5

requirements that the rules of an

exchange be designed to prevent

fraudulent and manipulative acts and

practices, to promote just and equitable

principles of trade, and, in general, to

protect investors and the public interest.

The Commission believes that by

amending its Interpretations to NYSE

Rule 342, the Exchange will enhance the

process for member organization

supervision and control of small and

residence branch offices, while also

permitting RRs to engage in activities

upon completion of a prescribed

training period.

The proposal would amend

Interpretation /03 to NYSE Rule 342.11

to permit RRs in residence offices to

begin working after the four-month

training period required in NYSE Rule

345, instead of a six-month securities

industry experience requirement in

Interpretation /03. The proposal would

require member organizations to

develop and implement special

supervisory procedures for heightened

supervision for the two-month period

immediately following completion of

prescribed training, and to inform RRs

operating from a residence or small oneperson office of the special supervision,

as well as to maintain records

evidencing the implementation and

conduct of the special supervision.

Notwithstanding the proposed special

supervision period, member

organizations must always have

appropriate policies and procedures in

place for the supervision and control of

all sales and operational activities of

each branch office and of all registered

employees and the customer accounts

they service. The Commission believes

that this interpretation establishes a

good foundation for Exchange members

to develop sufficient procedures for

continuous and meaningful supervision

of their RRs operating from a residence

or small one-person office.

The proposal also would amend

Interpretations /01 and /02 of NYSE

Rule 342.15 to require that small offices

be controlled and supervised by either

the main office of another designated

branch office having a qualified Branch

Office Manager on the premises, and

that such supervisory arrangements

must be made part of the member

organization’s written plan of

supervision. Further, the proposal

would create Interpretation /04 to NYSE

Rule 342.15 which would require that

RRs operating from small, one-person

branch offices must be subject to the

same special supervision prescribed in

Interpretation /03 to NYSE Rule 342.11

for residence offices. The Commission

believes that these proposed changes are

consistent with the Act in that they will

aid the Exchange in supervising member

firms that have small offices and the

RRs who work therein without reducing

any of the currently established

oversight mechanisms.

IV. Conclusion

It is Therefore Ordered, pursuant to

section 19(b)(2) of the Act,6 that the

proposed rule change (SR–NYSE–00–

58) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–14331 Filed 6–6–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44370; File No. SR–OCC–

00–10]

Self-Regulatory Organizations; The

Options Clearing Corporation; Order

Granting Approval of a Proposed Rule

Change Relating to Adjustments of

Options Contracts

May 31, 2001.

On October 3, 2000, The Options

Clearing Corporation (‘‘OCC’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) a

proposed rule change (File No. SR–

OCC–00–10) pursuant to section

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

of 1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on December 1, 2000.2 No comment

letters were received. For the reasons

discussed below, the Commission is

granting approval of the proposed rule

change.

I. Description

The purpose of the rule change is to

add new language to paragraph (b) of

Article VI, Section 11 of OCC’s By-Laws

to clarify that neither OCC nor OCC’s

securities committee will be liable for

any failure to adjust outstanding option

contracts or for any delay in adjusting

such contracts when the securities

committee does not learn in a timely

manner of an event for which it would

otherwise have directed an adjustment.

While OCC believes that this should be

the result under the By-Laws in its

present form, OCC believes it is

advisable to cover this situation

specifically.

Normally, OCC is notified of the

occurrence of a section 11(a) adjustment

event 3 by its internal stock watch