206 Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices

8 15 U.S.C. § 78s(b)(2) (1988).

9 17 CFR 200.30–3(a)(12) (1991).

1NASD Manual, Uniform Practice Code, Section

65 (CCH) ¶ 3565.

should serve to promote just and

equitable principles of trade and protect

investors and the public interest by

facilitating the orderly distribution and

pricing of IPO securities. Specifically,

the proposed mandatory delay in third

market trading of IPO securities should

help to minimize any potential risk of

price volatility that may be associated

with multiple-market trading of listed

IPO securities before the listing

exchange has provided for the first trade

in the security. This should benefit

investors and the capital formation

process by decreasing the risk of price

volatility in the IPO securities.

The Commission finds good cause for

approving the proposed rule change

prior the thirtieth day after the date of

publication of notice of filing thereof in

the Federal Register. The Commission

believes that accelerated approval of the

proposal is appropriate because the

proposal is an important precautionary

measure for the protection of investors,

yet accelerated approval should have

minimal impact on market participants

because the third market so rarely trades

IPOs before the listing exchange effects

the first trade in the securities.

It is therefore ordered, pursuant to

Section 19(b)(2) 8 that the proposed rule

change is hereby approved.

For the Commission, by the Division

of Market Regulation, pursuant to

delegated authority.9

Jonathan G. Katz,

Secretary.

[FR Doc. 96–00036 Filed 1–2–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36638; File No. SR–NASD–

95–59]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. to Amend Section 65 of

the Uniform Practice Code to Require

Members Who are Participants in a

Registered Clearing Agency to Use the

Electronic Facilities of such Agency to

Transmit Customer Account Transfer

Instructions

December 26, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on December 16, 1995,

the National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

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 NASD. 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 NASD proposes to amend Section

65 of the Uniform Practice Code

(UPC’’) 1 to require members who are

participants in a registered clearing

agency to use the electronic facilities of

such agency to transmit customer

account transfer instructions. Below is

the text of the proposed rule change.

Proposed new language is italicized;

proposed deletions are in brackets.

UNIFORM PRACTICE CODE

Customer Account Transfer Contracts

Sec. 65.

* * * * *

Participant in a Registered Clearing

Agency

(m)(1) When both the carrying

member and the receiving member are

participants in a registered clearing

agency having automated customer

securities account transfer capabilities

and are eligible to use such capabilities,

the account transfer procedure,

including the establishing and closing

out of fail contracts, must be

accomplished in accordance with the

provisions of this rule and pursuant to

the rules of and through such registered

clearing agency.

(2) When both the carrying member

and the receiving member are

participants in a registered clearing

agency having automated customer

securities account transfer capabilities

with an automated facility for

transferring mutual fund positions such

facilities must be utilized for

transferring mutual fund positions.

(3) When both the carrying member

and the receiving member are

participants in a registered clearing

agency having automated customer

securities account transfer capabilities

with a facility for transferring residual

credit positions (both cash and

securities) which have accrued to an

account after the account has been

transferred (residual credit processing),

such facilities must be utilized for

transferring residual credit positions

from carrying member to receiving

member.

(4) When both the carrying member

and the receiving member are

participants in a registered clearing

agency having automated customer

securities account transfer capabilities

with a facility permitting electronic

transmittal of customer account transfer

instructions, such facilities shall be used

in accordance with the following:

(A) Members using such facilities

shall execute an agreement designated

by the Committee specifying the rights,

obligations and liabilities of all

participants in or users of such

facilities;

(B) Customer account transfer

instructions shall be transmitted in

accordance with the procedures

prescribed by the registered clearing

agency;

(C) The transmittal of a transfer

request through such electronic facilities

shall constitute a representation by the

receiving member that it has received a

properly executed Transfer Instruction

Form (TIF) or other actual authority to

receive the customer’s securities and

funds; and

(D) Transfer instructions transmitted

through such facilities shall contain the

information necessary for the clearing

agency and the carrying member to

respond to the transfer instruction as

may be specified by this Section and the

clearing agency.

[(4)](5) For purposes of this rule, the

term ‘‘registered clearing agency’’ shall

be deemed to be a clearing agency as

defined in the Securities Exchange Act

of 1934 and registered in accordance

with that Act.

* * * * *

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

NASD 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 NASD 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

Background

Section 65 of the UPC requires a

customer who wishes to transfer an

account from one member to another to

give written notice (a Transfer

Instruction Form or ‘‘TIF’’) to the

member who will be receiving the
Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices 207

2The Program has grown to 27 broker/dealers

representing 85% of the accounts transferred.

3NSCC administers the Program by providing

application material to prospective participants.

The application material includes the Agreement.

4For transfers occurring outside the Program a

carrying firm is liable, in general, if it improperly

transfers an account, or securities in an account.

Such an improper transfer could occur, for

example, if the carrying firm transferred the wrong

account or if an IRA account was transferred in a

manner that subjected the account owner to

unintended tax liability. Finally, it could occur if

the receiving firm, or a former employee who had

moved to the receiving firm, submitted a transfer

instruction that had not been authorized by the

customer. In such cases, if the carrying firm did not

verify the transfer instruction with the customer,

the carrying firm would be primarily liable for the

improper transfer even if it could sue the receiving

firm for transmitting an unauthorized or incomplete

transfer instruction.

The forgoing examples are neither exhaustive of

possible improper transfer scenarios, nor are they

representative of any specific cases. Moreover, the

NASD is not aware of any cases of improper

transfers occurring because of fraudulent actions by

a receiving firm or its employees.

5See NSCC Rule 50.

6NASD Manual, Rules of Fair Practice, Art. III,

Sec. 1 (CCH) ¶ 2151.

7NSCC’s rules permit it to specify the

information required for a customer account

transfer instruction. Neither the NSCC’s rules nor

UPC Section 65 specify the information that

constitutes a valid transfer instruction, however,

NSCC currently uses two forms, one for cash/

margin accounts and the other for tax exempt/

retirement accounts. In addition, UPC Section 65

sets forth several bases for carrying members to take

exception to account transfer instructions, some of

which relate to incomplete or missing information

about the account or securities in the account. For

automated transmittals of account transfer

instructions, NSCC requires the same information to

be entered into ACATS by the receiving firm as is

required on TIFs. In addition, NSCC reviews

transfer instructions received through ACATS and

may require the receiving firm to provide any other

information it deems necessary to accomplish an

account transfer.

account (‘‘receiving member’’). The

notice is then delivered to the member

carrying the account (‘‘carrying

member’’) and the carrying member is

then obligated to validate and return the

TIF, or take exception to all or part of

it. The account is then transferred to the

receiving member, subject to the

exceptions.

Subsection 65(m) of the UPC requires

members to use the automated systems

of a registered clearing agency, when

available, to accomplish account

transfers when both the receiving

member and carrying member are

participants in the clearing agency. The

use of such automated systems avoids

the delay and risk associated with

physical delivery and transfer of

securities.

The National Securities Clearing

Corporation’s (‘‘NSCC’’) Automated

Customer Account Transfer Service

(‘‘ACATS’’) is currently the only

automated transfer system and is the

system through which virtually all

customer accounts are transferred

between members. Until recently,

however, it was standard industry

practice to deliver physically (or by

facsimile) a customer-signed TIF to the

carrying member, even though member

firms use ACATS to accomplish

electronic transfers of the customer

accounts.

In early 1993, NSCC implemented a

voluntary TIF Immobilization Program

(‘‘Program’’) to permit transfer

instructions to be transmitted

electronically through ACATS. The goal

of the Program is to automate the entire

customer account transfer process and

immobilize the TIF at the receiving

firm.2 To participate in the Program

current participants require new

participants to execute a ‘‘Pilot Program

Agreement’’ (‘‘Agreement’’) that

specifies the rights, obligations and

liabilities of the participants. The

Agreement was developed by the

industry at the encouragement of NSCC

when the Program was initiated.3 The

most significant aspect of the Agreement

is that it shifts liability for improper

transfers to the receiving firm, provided

the carrying firm transfers the account

according to the instructions it receives

through ACATS.4

The NASD is aware that some

investors and others believe that

account transfers are unreasonably

delayed for reasons that are not related

to difficulties in account transfer

procedures. The NASD believes that

such delays are rare, but that any

unreasonable delay in transferring

customer accounts is unacceptable and

detrimental to the interests of investors.

The NASD believes that mandating

participation in the Program should

help reduce or eliminate the infrequent

delays that some customers may be

experiencing when transferring

accounts and improve investor

confidence in the industry’s ability and

willingness to comply expeditiously

with customer instructions.

Proposed Amendment to Section 65 of

the UPC

The proposed amendment to Section

65 of the UPC will require members to

transmit account transfer instructions

electronically through automated

systems when both the carrying and

receiving firms are participants in a

registered clearing agency that has such

automated facilities. The effect of this

proposed rule change is to require

members who are NSCC participants to

participate in NSCC’s TIF

Immobilization Program and to use

NSCC’s ACATS system to transmit

customer account transfer instructions.

The proposed rule change also

requires members participating in the

TIF Immobilization Program to execute

an agreement designated by the NASD’s

Operations Committee specifying the

rights, obligations and liabilities of all

participants in or users of NSCC’s

ACATS system in transmitting customer

account transfer instructions. The NASD

intends to designate the Pilot Program

Agreement currently in use among

participants in order to maintain

continuity of rights obligations and

liabilities among current and future

participants. In addition, by providing

for the designation of the Agreement for

purposes of the proposed rule, the

NASD’s Operations Committee will be

able to review and approve any changes

to the agreement that may be proposed

by participants or others in the future.

The proposed rule change also

requires that customer account transfer

instructions be transmitted in

accordance with the procedures

prescribed by the registered clearing

agency. NSCC’s rules currently

prescribe procedures for transmitting

customer account transfer instructions.5

The proposed rule change also

provides that the transmittal of a

transfer instruction constitutes a

representation that the receiving

member has received a properly

executed TIF or other actual authority to

receive the customer’s account.

Although it is similar to a provision in

the Agreement, the NASD intends that

this provision will perform a regulatory

function in that a member transmitting

account transfer instructions through

ACATS without first obtaining a

properly executed TIF or other actual

authority from the customer may be

subject to disciplinary sanctions for

misrepresenting its authority to receive

the customer account. Such a

misrepresentation may constitute a

violation of Article III, Section 1 of the

Rules of Fair Practice.6

Finally, the proposed rule change

provides that transfer instructions

transmitted through an electronic

facility shall contain the information

necessary for the clearing agency and

the carrying member to respond to the

transfer instruction as may be specified

by Section 65 of the UPC and the

clearing agency. This provision means

that members transmitting transfer

instructions must comply with Section

65 and with the requirements of NSCC’s

rules 7 and that generating a valid

transfer instruction involves providing

the information that NSCC considers

necessary to accomplish the account

transfer.
208 Federal Register / Vol. 61, No. 2 / Wednesday, January 3, 1996 / Notices

1 15 U.S.C. § 78s(b)(1) (1998).

2Securities Exchange Act Release No. 36405

(October 20, 1995), 60 FR 55629 [File No. SR–PTC–

95–07] (notice of filing and order granting

accelerated approval of proposed rule change).

3The Commission has modified the text of the

summaries prepared by PTC.

4For further information on SPEED Release 5.6

and changes to PTC’s processing system, refer to

Securities Exchange Act Release No. 36377 (October

The NASD believes that the proposed

rule change is consistent with the

provisions of Section 15A(b)(6) of the

Act in that requiring participation in a

program that permits account transfer

instructions and customer accounts to

be transferred entirely by electronic

communications will promote the

protection of investors and the public

interest and enhance the clearance and

settlement system by reducing the

delays associated with the physical

transmission of TIFs and increasing

investor confidence in the

responsiveness of the securities

industry.

(B) Self-Regulatory organization’s

Statement on Burden on Competition

The NASD does not believe that the

proposed rule change will result in any

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act, as amended.

(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 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 the self-regulatory

organization 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, N.W.,

Washington, D.C. 20549. 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 NASD. All

submissions should refer to SR–NASD–

95–59 and should be submitted by

January 24, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority, 17 CFR 200.30–3(a)(12).

Johathan G. Katz,

Secretary.

[FR Doc. 96–00039 Filed 1–2–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36624; File No. SR–PTC–

95–08]

Self-Regulatory Organizations;

Participants Trust Company; Notice of

Filing of Proposed Rule Change

Modifying the Opening of Processing

Activity for Security Transactions on a

Permanent Basis

December 21, 1995.

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

Securities Exchange Act of 1934

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

December 19, 1995, the Participants

Trust Company (‘‘PTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change (File No. SR–PTC–95–08) as

described in Items I, II, and III below,

which Items have been prepared

primarily by PTC. 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 proposed rule change modifies

and makes permanent a ninety day pilot

program that commenced on October

23, 1995, that established the opening of

security processing activity at 8:30 a.m.

instead of the previous time of 7:00 a.m.

For purposes of participant log-ons,

intraparticipant movements of

securities, and the return of securities

collateral to participant positions using

PTC’s Collateral Loan Facility (‘‘CLF’’)

mechanism, PTC will retain the 7:00

a.m. opening time.2

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, PTC

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. PTC has prepared

summaries, set forth in sections A, B,

and C below, of the most significant

aspects of such statements.3

A. Self-Regulatory Organization’s

Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule

Change

The purpose of the proposed rule

change is to modify and make

permanent the ninety day pilot program

that commenced on October 23, 1995,

that established the opening of security

processing activity at 8:30 a.m. instead

of the previous time of 7:00 a.m. The

current end-of-day cut-off times will

remain unchanged. Consistent with the

pilot program, PTC’s processing system

will retain the 7:00 a.m. opening time

for purposes of participant log-ons and

intraparticipant movements of securities

into or out of segregated accounts. In

addition, the pilot program will be

modified to permit the return of

securities collateral to participant

positions using the CLF mechanism

beginning at 7:00 a.m.

The proposed rule change will

conform the opening of processing

activity at PTC to the opening time of

the Federal Reserve System’s fedwire.

This will eliminate the hour and a half

window during which time transactions

failing PTC’s credit checks cannot be

processed because participants are

unable to move funds to PTC

(‘‘prefunding’’) until the 8:30 fedwire

opening. The incidence of transactions

that may require prefunding in order to

pass credit checks during this period is

expected to increase after the

implementation of PTC/SPEED

processing Release 5.6, which will

eliminate the posting of securities to a

participant’s abeyance account while

awaiting match by the receiving

participant. Under SPEED Release 5.6,

the abeyance account will be

eliminated, and transactions will be

immediately posted to the deliverer’s

and receiver’s account.4