Document ID: SEC-2007-1480-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2007-10-25T04:00Z

[Federal Register: October 25, 2007 (Volume 72, Number 206)]
[Notices]               
[Page 60699-60700]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr25oc07-109]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56677; File No. SR-FINRA-2007-005]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Order Granting Approval of a Proposed Rule Change 
Relating to NASD Rule 11870 (Customer Account Transfer Contracts) and 
NYSE Rule 412 (Customer Account Transfer Contracts) To Make the Time 
Frames in the Rules for Validating or Taking Exception to an 
Instruction To Transfer a Customer's Securities Account Consistent With 
the Time Frames in the Automated Customer Account Transfer Service

October 19, 2007.

I. Introduction

    On August 8, 2007, Financial Industry Regulatory Authority, Inc. 
(``FINRA'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change 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 September 13,

[[Page 60700]]

2007.\2\ The Commission received four comment letters in response to 
the proposed rule change.\3\ For the reasons discussed below, the 
Commission is approving the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ Securities Exchange Act Release No. 56373 (September 7, 
2007), 72 FR 52414.
    \3\ Deirdre B. Koerick, Chief Compliance Officer, Lincoln 
Investment Planning, Inc. (October 2, 2007); Ron Marino, President, 
Customer Account Transfer Division, Securities Industry and 
Financial Markets Association (October 4, 2007); Kristie Thompson, 
Group Leader, Customer Account Transfer, Edward D. Jones & Co., LP 
(October 5, 2007); and R. Clements (October 17, 2007).
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II. Description

    FINRA is amending National Association of Securities Dealers, Inc. 
(``NASD'') Rule 11870 (``Customer Account Transfer Contracts'') and New 
York Stock Exchange (``NYSE'') Rule 412 (``Customer Account Transfer 
Contracts'') to make the time frames in the rules for validating or 
taking exception to an instruction to transfer a customer's securities 
account assets and for completing the transfer of the assets consistent 
with the time frames in the National Securities Clearing Corporation's 
(``NSCC'') Automated Customer Account Transfer Service (``ACATS'') 
transfer cycle.\4\
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    \4\ In a companion rule filing, NSCC is eliminating two business 
days from the validation period for both full and partial transfers. 
Securities Exchange Act Release No. 56678 (October 19, 2007) (order 
approving proposed rule change) [File No. SR-NSCC-2007-13].
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    NASD Rule 11870 and NYSE Rule 412 regulate the transfer of customer 
accounts from one member (``carrying firm'') to another (``receiving 
firm''). Such transfers generally occur through ACATS, an electronic 
transfer system developed by NSCC to automate and standardize the 
transfer of accounts. Currently, NASD Rule 11870(b) and NYSE Rule 
412(b)(1) require carrying members to validate or to take exception to 
an instruction to transfer securities account assets within three 
business days following receipt of a Transfer Initiation Form (``TIF'') 
or transfer instruction. NASD Rule 11870(e) and NYSE Rule 412(b)(3) 
require carrying members to complete the transfer within three business 
days following the validation of a transfer instruction.
    FINRA is amending NASD Rule 11870(b) and (e) and NYSE Rule 
412(b)(1) and (b)(3) to reduce the validation period from three 
business days to one business day and to provide that the time frames 
in NASD Rule 11870(b) and (e) and NYSE Rule 412(b)(1) and (b)(3) will 
change if and when NSCC modifies those requirements in the future.\5\ 
FINRA will also announce any such future changes in time frames to its 
members in a Regulatory Notice and other appropriate communications.
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    \5\ Should FINRA need to change the time frames because of a 
change in NSCC Rules, FINRA will file a proposed rule change to make 
such change.
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III. Comment Letters

    The Commission received four comment letters in response to the 
proposed rule change.\6\ Two of the comment letters supported the 
proposed rule change and one comment letter, while not specifically 
opposing the proposed change, did not believe that the proposed changes 
would alone be sufficient to reduce delays in the account transfer 
process. A fourth comment letter supported the proposed rule change 
while also suggesting that further action be taken to reduce other 
delays in the account transfer process.
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    \6\ Supra note 3.
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    Two of the supporting comment letters, written on behalf of the 
Customer Account Transfer Division of the Securities Industry and 
Financial Markets Association (``SIFMA'') and Edward D Jones & Co., LP 
(``Edward Jones'') both expressed the belief that the proposed 
reduction to the account transfer time frame by two business days will 
significantly improve the experience of investors when transferring 
assets. The SIFMA letter also addressed the concerns reported by FINRA 
of some introducing brokers to the proposed rule change. SIFMA 
expressed its view that based on its experience working with members of 
the Customer Account Transfer Division on the proposed changes to 
ACATS, the changes would not result in hardship of any one group of 
clients or member firms.
    The comment letter written on behalf of Lincoln Investment 
Planning, Inc. expressed doubt that reducing the validation period 
alone will alleviate delays in the transfer of securities. Rather, the 
commenter states that such a reduction should be accompanied by 
specific time frames by which customers are informed by their receiving 
firms of exceptions taken in the transfer process so that such 
exceptions can be rectified consistent with firms' obligation to 
``promptly'' resolve any exceptions.\7\ The comment letter from R. 
Clements expressed support for the reduced account transfer time frame 
but also suggests that further action be taken to reduce the amount of 
time for delivering firms to transfer proceeds from sales of account 
assets that are liquidated rather than transferred through ACATS.
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    \7\ See NASD Rule 11870(b)(2) and NYSE Rule 412(b)(2).
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IV. Discussion

    Section 15A(b)(6) of the Act \8\ requires, among other things, that 
FINRA rules must be designed to foster cooperation and coordination 
with persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The proposed rule change is 
designed to accomplish these ends by making the time frames in NASD 
Rule 11870(b) and (e) and NYSE Rule 412(b)(1) and (b)(3) consistent 
with the time frames established by NSCC for validating or taking 
exception to an account transfer instruction and for completing the 
transfer thereby creating greater efficiency in the securities account 
transfer process. The rule change, therefore, takes an important step 
to improving the account transfer process.
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    \8\ 15 U.S.C. 78o-3(b)(6).
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V. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposed rule change is consistent with the requirements of the Act and 
in particular Section 15A of the Act and the rules and regulations 
thereunder.\9\
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    \9\ In approving the proposed rule change, the Commission 
considered the proposal's impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-FINRA-2007-005) be and 
hereby is approved.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-20988 Filed 10-24-07; 8:45 am]

BILLING CODE 8011-01-P