Document ID: SEC-2006-1276-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange LLC
Posted Date: 2006-10-02T04:00Z

[Federal Register: October 2, 2006 (Volume 71, Number 190)]
[Notices]               
[Page 58032-58034]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02oc06-140]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54491; File No. SR-NYSE-2005-09]

 
 Self-Regulatory Organizations; New York Stock Exchange, Inc. (n/
k/a New York Stock Exchange LLC); Notice of Filing of Proposed Rule 
Change and Amendment Nos. 1 and 2 Thereto Relating to Rule 409 
Regarding Statements of Accounts to Customers and Proposed New Rule 
409A Regarding SIPC Disclosure

September 22, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that on January 14, 2005, the New York Stock Exchange, Inc. (n/k/
a New York Stock Exchange LLC) (``Exchange'' or ``NYSE'') filed with 
the Securities and Exchange Commission (``Commission'' or ``SEC'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. On December 13, 2005, the 
Exchange filed Amendment No. 1 to the proposed rule change.\3\ On 
September 19, 2006, the Exchange filed Amendment No. 2 to the proposed 
rule change.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, NYSE withdrew its proposal to amend NYSE 
Rule 409(a), which would have permitted institutional customers 
conducting a Delivery versus Payment and Receive versus Payment 
(``DVP/RVP'') business to opt out of receiving customer account 
statements. NYSE refiled this proposal in File No. SR-NYSE-2005-90.
    \4\ In Amendment No. 2, NYSE proposed additional changes to NYSE 
Rule 409(a) and proposed new NYSE Rule 409A, which are discussed 
below.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend NYSE Rule 409(e) to require that 
each statement of account sent to a customer include a legend advising 
the customer to promptly report any inaccuracy or discrepancy in that 
person's account to his or her brokerage firm. If the account is 
subject to a clearing agreement pursuant to NYSE Rule 382, amended NYSE 
Rule 409(e) would require the legend to advise that the customer's 
notification be sent to both the introducing firm and the clearing 
firm. The legend also would need to advise the customer that he or she 
should re-confirm any oral communications with either the clearing or 
introducing firm in writing to further protect the customer's rights, 
including rights under the Securities Investor Protection Act (SIPA). 
The Exchange is also proposing to adopt a new rule, NYSE Rule 409A, 
which would require member organizations to advise each customer in 
writing, upon the opening of an account and at least annually 
thereafter, that he or she may obtain information from the Securities 
Investor Protection Corporation (SIPC). Proposed Rule 409A would 
require the written advisories to include SIPC's Web site address and 
telephone number, and, if the account is subject to a clearing 
agreement pursuant to NYSE Rule 382, the rule would permit its 
requirements to be delegated to either the introducing firm or the 
clearing firm.
    The text of the proposed rule change is set forth below. Additions 
are italicized. Deletions are [bracketed].
Rule 409
Statements of Accounts to Customers
    (a) through (d)--No change.
    (e) Each statement of account sent to a customer pursuant to this 
rule shall include the following:
    (1) [bear a] A legend [as follows] that reads: ``A financial 
statement of this organization is available for your personal 
inspection at its offices, or a copy of it will be mailed upon your 
written request.''
    (2) A legend that advises customers to report promptly any 
inaccuracy or discrepancy in that person's account to

[[Page 58033]]

his or her brokerage firm. If a customer's account is subject to a 
clearing agreement pursuant to Rule 382, the legend must advise that 
such notification be sent to both the introducing firm and the clearing 
firm. The legend must also advise the customer that any oral 
communications with either the introducing firm or the clearing firm 
should be re-confirmed in writing in order to further protect the 
customer's rights, including its rights under the Securities Investor 
Protection Act (SIPA).
    (f) through (g)--No change.
    Supplementary Material--No change.

Rule 409A

SIPC Disclosures

    Member organizations must advise each customer in writing, upon the 
opening of an account and at least annually thereafter, that they may 
obtain information about the Securities Investor Protection Corporation 
(SIPC), including the SIPC Brochure, by contacting SIPC, and shall 
provide the Web site address and telephone number of SIPC. If a 
clearing agreement pursuant to Rule 382 exists, the requirements of 
this rule may be delegated to either the introducing firm or the 
clearing firm.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In filing the proposed rule change, the Exchange included 
statements concerning the purpose of, and basis for, the proposed rule 
change, as amended. 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 Purpose of, and 
Statutory Basis for, the Proposed Rule Change

(1) Purpose
Amendments to Rule 409(e)
    In response to recommendations by the U.S. General Accounting 
Office (the ``GAO''), the Exchange proposes amendments to Rule 409(e) 
that would require customer account statements to bear a legend that 
advises customers to promptly notify their brokerage firm of any 
inaccuracy or discrepancy in the account statement.\5\ The legend must 
also advise the customer that any oral communications with either the 
introducing firm or the clearing firm should be re-confirmed in writing 
in order to further protect the customer's rights, including its rights 
under the Securities Investor Protection Act (SIPA). This requirement 
is included to create a written record for the purpose of protecting 
customer interests.\6\ In addition to heightening customer awareness 
regarding information reflected on their statements, the advisory will 
encourage customers to submit a written record of any possible 
unauthorized trading activity, unrecorded dividend payments, and 
unaccounted cash positions. The GAO deems this to be important because, 
in the event a firm goes into a liquidation administered by SIPC, SIPC 
and the trustee generally will assume that the firm's records are 
accurate unless the customer is able to prove otherwise. The Commission 
has approved a substantially similar rule change proposed by NASD.\7\
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    \5\ See GAO, Securities Investor Protection: Steps Needed to 
Better Disclose SIPC Policies to Investors, GAO-01-653 (May 25, 
2001). See also GAO-03-811 (July 11, 2003); GAO-04-848R Follow-Up on 
SIPC (July 9, 2004). GAO has since been renamed the Government 
Accountability Office.
    \6\ NYSE Information Memo No. 98-16, dated April 4, 1998,states 
that oral complaints are reportable under Rule 351(d) (Reporting 
Requirements). The Exchange expects that oral customer complaints 
will be investigated and treated in the same manner as written 
complaints.
    \7\ See Order Approving Proposed Rule Change Relating to Rule 
2340 Concerning Customer Account Statements, Securities Exchange Act 
Release No. 54411 (Sept. 7, 2006).
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Proposed New Rule 409A
    Also, in response to the GAO's recommendations, and to further 
promote investor awareness, the Exchange proposes new Rule 409A, which 
would require member organizations to advise customers in writing, upon 
the opening of an account and at least annually thereafter, that they 
may obtain information from SIPC, including the SIPC Brochure, by 
contacting SIPC via its Web site or by telephone. The proposed rule 
would also require the written advisories to include the SIPC Web site 
address and telephone number. If a clearing agreement pursuant to Rule 
382 exists, the requirements of this rule could be delegated to either 
the introducing firm or the clearing firm.
(2) Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with the requirements of the Exchange Act and the rules and regulations 
thereunder applicable to a national securities exchange, and in 
particular, with the requirements of Sections 6(b)(5) of the Exchange 
Act.\8\ Section 6(b)(5) requires, among other things, that the rules of 
an exchange be designed to promote just and equitable principles of 
trade, to remove impediments to and perfect the mechanism of a free and 
open market and national market system, and in general, to protect 
investors and the public interest. The Exchange believes the proposed 
rule change is designed to promote just and equitable principles of 
trade, perfect the mechanism of a free and open market, and protect 
investors because it will help investors understand procedures for 
preserving their rights in the event of erroneous or unauthorized 
transactions in their accounts.
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    \8\ See 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange believes that the proposal does not impose any burden 
on competition that is not necessary or appropriate in furtherance of 
the purposes of the Exchange Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    The Exchange neither solicited nor received written comments on the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange is proposing an effective date of 180 days after SEC 
approval of the proposed amendments to Rule 409(e) and proposed new 
Rule 409A. This will give member organizations time to make necessary 
changes to their customer documentation and systems.
    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 Exchange 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

[[Page 58034]]

change, as amended, is consistent with the Exchange Act. Comments may 
be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NYSE-2005-09 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2005-09. This file 
number should be included on the subject line if e-mail is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro/shtml
). 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 Section, 100 F Street, 
NE., Washington, DC 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the NYSE. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submission should refer to File Number SR-NYSE-2005-09 and should be 
submitted on or before October 23, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\9\
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    \9\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
 [FR Doc. E6-16112 Filed 9-29-06; 8:45 am]

BILLING CODE 8010-01-P