Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Notices 55435 

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

2Securities Exchange Act Release No. 52403 (July 

15, 2005), 70 FR 42122. 

3The Federal Reserve, Office of the Comptroller 

of the Currency, and the Commission issued 

‘‘Interagency Paper on Sound Practices to 

Strengthen the Resilience of the U.S. Financial 

System.’’ [68 FR 17809 (April 11, 2003)]. This 

document provided guidelines that required core 

clearing and settlement organizations, such as DTC, 

FICC, and NSCC, and others in the financial 

industry to manage business continuity capabilities. 

DTC, FICC, and NSCC developed their testing of 

Top Tier firms based on the guidelines outlined in 

the white paper. 

4Pursuant to DTC Rule 2, ‘‘Participants and 

Pledgees,’’ participants must furnish, upon DTC’s 

request, information sufficient to demonstrate 

operational capability. In addition, DTC Rule 21, 

‘‘Disciplinary Sanctions,’’ allows DTC to impose 

fines on participants for any error, delay or other 

conduct detrimental to the operations of DTC. 

Pursuant to GSD Rule 3, ‘‘Responsibility, 

Operational Capability, and Other Membership 

Standards of Comparison-Only Members and 

Netting Members,’’ the GSD may require members 

to fulfill operational testing requirements as the 

GSD may at any time deem necessary. Pursuant to 

MBSD Rule 1, Section 3 of Article III, all MBSD 

applicants and members agree to fulfill operational 

testing requirements and related reporting 

requirements that may be imposed to ensure the 

continuing operational capability of the applicant. 

Pursuant to NSCC Rule 15, ‘‘Financial 

Responsibility and Operational Capability,’’

members must furnish to NSCC adequate 

assurances of their financial responsibility and 

operational capability as NSCC may at any time 

deem necessary. In addition, NSCC Rule 48, 

‘‘Disciplinary Procedures,’’ allows NSCC to impose 

a fine on participants for any error, delay, or other 

conduct that is determined to be detrimental to the 

operations of NSCC. 

5 15 U.S.C. 78q–1(b)(3)(F). 

that the audit client had filed, or the 

address that the audit client would be 

required to list on any covered schedule 

or form required to be filed, is within 

one of the Presidential Disaster Areas; 

(c) Services provided by the auditor 

are limited to reconstruction of 

previously existing accounting records 

that were lost or destroyed as a result of 

Hurricane Katrina and such services 

cease as soon as the client’s lost or 

destroyed records are reconstructed, its 

financial systems are fully operational 

and the client can effect an orderly and 

efficient transition to management or 

other service provider; and 

(d) With respect to issuers, the 

services provided by the issuer’s auditor 

pursuant to this Order are subject to preapproval by the issuer’s audit committee 

as required by Rule 2–01(c)(7) of 

Regulation S–X. 

* * * * * 

Auditors or audit clients with 

questions about this section of the Order 

or with other questions relating to 

auditor independence are encouraged to 

call the Office of the Chief Accountant 

directly at (202) 551–5300 or use the 

contact information provided at the end 

of Section II of the Order. 

By the Commission. 

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–18761 Filed 9–20–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52446; File Nos. SR–DTC–

2005–04, SR–FICC–2005–10, and SR–

NSCC–2005–05] 

Self-Regulatory Organizations; The 

Depository Trust Company, Fixed 

Income Clearing Corporation, and 

National Securities Clearing 

Corporation; Order Approving 

Proposed Rule Change To Establish a 

Fine for Members Failing To Conduct 

Connectivity Testing 

September 15, 2005. 

I. Introduction 

On May 13, 2005, May 3, 2005, and 

on May 4, 2005, respectively, The 

Depository Trust Company (‘‘DTC’’), the 

Fixed Income Clearing Corporation 

(‘‘FICC’’), and the National Securities 

Clearing Corporation (‘‘NSCC’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) proposed 

rule changes SR–DTC–2005–04, SR–

FICC–2005–10, and SR–NSCC–2005–05 

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

Securities Exchange Act of 1934 

(‘‘Act’’).1 On June 7, 2005, NSCC 

amended its proposed rule change. 

Notice of the proposals, as amended, 

was published in the Federal Register 

on July 21, 2005.2 No comment letters 

were received. For the reasons 

discussed below, the Commission is 

approving the proposed rule changes. 

II. Description 

DTC, FICC, and NSCC are imposing a 

fine on any member that is required to 

conduct connectivity testing for 

business continuity purposes and fails 

to do so. 

In the aftermath of September 11, 

2001, and in conjunction with a 

financial industry white paper, DTC, 

FICC, and NSCC require connectivity 

testing each year for critical (‘‘Top 

Tier’’) members.3 The criteria used by 

DTC, FICC, and NSCC to identify their 

respective Top Tier members were 

revenues, clearing fund contributions, 

settlement amounts, and trading 

volumes. Connectivity testing for the 

Top Tier members was initiated on 

January 1, 2004. Due to the critical 

importance of being able to assess 

whether a Top Tier member has 

sufficient operational capabilities, DTC, 

FICC, and NSCC have determined that 

they need the ability to fine any Top 

Tier member that does not test.4

Currently, each member of DTC, FICC, 

and NSCC that is designated as Top Tier 

is advised of this status and is provided 

with information on the testing 

requirements. Under DTC, FICC, and 

NSCC’s current procedures, if testing is 

not completed by a Top Tier member by 

the end of June, a reminder notice is 

sent to the member. Thereafter, another 

reminder notice is sent in October and, 

if necessary, again in December. 

The reminder notice sent in December 

will advise that if testing is not 

completed by December 31, a fine of 

$10,000 will be imposed. These fines 

will be collected from members in 

January of the following year. The 

Membership and Risk Management 

Committee will be notified of all 

members that were fined for failing to 

complete connectivity testing. 

In the event that any member fails to 

complete connectivity testing for two 

successive years, the fine that will be 

imposed at that time will be $20,000. 

Failure to complete testing for more 

than two successive years will result in 

disciplinary action, including potential 

termination of membership. 

III. Discussion 

Section 17A(b)(3)(F) of the Act 

requires that the rules of a clearing 

agency be designed to assure the 

safeguarding of securities and funds 

which are in the custody or control of 

the clearing agency or for which it is 

responsible.5 The Commission finds 

that DTC, FICC, and NSCC’s proposed 

rule changes are consistent with this 

requirement because the 

implementation of the fines should help 

DTC, FICC, and NSCC to enforce 

compliance with their connectivity 

testing rules for business continuity 

purposes and as a result should better 

enable them to ensure the safeguarding 

of securities and funds which are in 

their custody or control. 

IV. Conclusion 

On the basis of the foregoing, the 

Commission finds that the proposed 

rule changes are consistent with the 

requirements of the Act and in 

particular Section 17A of the Act and 

the rules and regulations thereunder. 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act, that the 

proposed rule changes (File Nos. SR–

DTC–2005–04, SR–FICC–2005–10, and 

SR–NSCC–2005–05) be and hereby are 

approved. 

55436 Federal Register / Vol. 70, No. 182 / Wednesday, September 21, 2005 / Notices 

6 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A). 

4 17 CFR 240.19b-4(f)(6). 

5Nasdaq asked the Commission to waive the 30- 

day operative delay. See Rule 19b–4(f)(6)(iii). 17 

CFR 240.19b–4(f)(6)(iii). 

For the Commission by the Division of 

Market Regulation, pursuant to delegated 

authority.6

Jonathan G. Katz, 

Secretary. 

[FR Doc. 05–18763 Filed 9–20–05; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–52431; File No. SR–NASD–

2005–103] 

Self-Regulatory Organizations; 

National Association of Securities 

Dealers, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Technical 

Changes to NASD Rule 3110 and IM–

3110 

September 14, 2005. 

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 

September 6, 2005, the National 

Association of Securities Dealers, Inc. 

(‘‘NASD’’), through its subsidiary, The 

Nasdaq Stock Market, Inc. (‘‘Nasdaq’’), 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’) 

the proposed rule change as described 

in Items I and II below, which Items 

have been prepared by Nasdaq. Nasdaq 

has filed the proposal as a ‘‘noncontroversial’’ rule change pursuant to 

Section 19(b)(3)(A) of the Act 3 and Rule 

19b-4(f)(6)4 thereunder, which renders 

the proposed rule change effective upon 

filing with the Commission.5 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 

Nasdaq is proposing to amend NASD 

Rule 3110 to re-label paragraph (d) 

(Changes in Account Name or 

Designation) as paragraph (j), and 

relocate the Interpretive Material 3110 

(‘‘IM–3110’’) to the end of NASD Rule 

3110. The text of the proposed rule 

change is below. Proposed new 

language is in italics; proposed 

deletions are in [brackets]. 

* * * * * 

3100. BOOKS AND RECORDS, AND 

FINANCIAL CONDITION 

3110. Books and Records 

(a) through (c) No change. 

[(d) Changes in Account Name or 

Designation] 

[Before any customer order is 

executed, there must be placed upon the 

memorandum for each transaction, the 

name or designation of the account (or 

accounts) for which such order is to be 

executed. No change in such account 

name(s) (including related accounts) or 

designation(s) (including error accounts) 

shall be made unless the change has 

been authorized by a member or a 

person(s) designated under the 

provisions of NASD rules. Such person 

must, prior to giving his or her approval 

of the account designation change, be 

personally informed of the essential 

facts relative thereto and indicate his or 

her approval of such change in writing 

on the order or other similar record of 

the member. The essential facts relied 

upon by the person approving the 

change must be documented in writing 

and preserved for a period of not less 

than three years, the first two years in 

an easily accessible place, as the term 

‘‘easily accessible place’’ is used in SEC 

Rule 17a–4.] 

[For purposes of this paragraph (d), a 

person(s) designated under the 

provisions of NASD rules to approve 

account name or designation changes 

must pass a qualifying principal 

examination appropriate to the business 

of the firm.] 

[* * *] 

[IM–3110. Customer Account 

Information] 

[(a) Members should be aware that, 

effective January 1, 1990, any 

transaction which involves a nonNasdaq, non-exchange equity security 

trading for less than five dollars per 

share may be subject to the provisions 

of SEC Rules 15g–1 through 15g–9, and 

those rules should be reviewed to 

determine if an executed customer 

suitability agreement is required.] 

[(b) Additional information is 

required to be obtained prior to making 

recommendations to customers (see 

Rule 2310) and in connection with 

discretionary accounts (see Rule 2510).] 

[(c) Accounts opened, and 

recommendations made prior to January 

1, 1991 remain subject to former Article 

III, Sections 2 and 21(c) as previously in 

effect as set forth in Notice to Members 

90–52 (August 1990).] 

[* * *] 

(d) through (i) No change. 

(j) Changes in Account Name or 

Designation 

Before any customer order is 

executed, there must be placed upon the 

memorandum for each transaction, the 

name or designation of the account (or 

accounts) for which such order is to be 

executed. No change in such account 

name(s) (including related accounts) or 

designation(s) (including error accounts) 

shall be made unless the change has 

been authorized by a member or a 

person(s) designated under the 

provisions of NASD rules. Such person 

must, prior to giving his or her approval 

of the account designation change, be 

personally informed of the essential 

facts relative thereto and indicate his or 

her approval of such change in writing 

on the order or other similar record of 

the member. The essential facts relied 

upon by the person approving the 

change must be documented in writing 

and preserved for a period of not less 

than three years, the first two years in 

an easily accessible place, as the term 

‘‘easily accessible place’’ is used in SEC 

Rule 17a–4. 

For purposes of this paragraph (j), a 

person(s) designated under the 

provisions of NASD rules to approve 

account name or designation changes 

must pass a qualifying principal 

examination appropriate to the business 

of the firm. 

IM–3110. Customer Account 

Information 

(a) Members should be aware that, 

effective January 1, 1990, any 

transaction which involves a nonNasdaq, non-exchange equity security 

trading for less than five dollars per 

share may be subject to the provisions 

of SEC Rules 15g–1 through 15g–9, and 

those rules should be reviewed to 

determine if an executed customer 

suitability agreement is required. 

(b) Additional information is required 

to be obtained prior to making 

recommendations to customers (see 

Rule 2310) and in connection with 

discretionary accounts (see Rule 2510). 

(c) Accounts opened, and 

recommendations made prior to January 

1, 1991 remain subject to former Article 

III, Sections 2 and 21(c) as previously in 

effect as set forth in Notice to Members 

90–52 (August 1990). 

* * * * * 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

Nasdaq included statements concerning 

the purpose of and basis for the