Document ID: SEC-2006-1340-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Association of Securities Dealers, Inc.
Posted Date: 2006-10-16T04:00Z

[Federal Register: October 16, 2006 (Volume 71, Number 199)]
[Notices]               
[Page 60784-60786]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16oc06-111]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54566; File No. SR-NASD-2006-066]

 
Self-Regulatory Organizations; National Association of Securities 
Dealers, Inc.; Notice of Filing of Proposed Rule Change To Allow 
Certain Institutional Customers To Elect Not To Receive Account 
Statements

 October 3, 2006.
    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 May 23, 2006, the National Association of Securities Dealers, Inc. 
(``NASD'') 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 NASD. On August 
17, 2006, NASD filed Amendment No. 1 to the proposed rule change.\3\ 
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, NASD proposed additional changes to the 
text of proposed amended Rule 2340, which are incorporated in the 
proposed rule text below.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASD is proposing to amend NASD Rule 2340 to relieve members from 
the requirement to send quarterly account statements to customer 
accounts that are carried solely for the purpose of execution on a 
delivery versus payment and receive versus payment (``DVP/RVP'') basis, 
provided certain conditions are met.\4\ Below is the text of the 
proposed rule change.\5\ Proposed new language is in italic; proposed 
deletions are in [brackets].\6\
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    \4\ The proposed rule change is similar to a rule change 
proposed by the New York Stock Exchange, Inc. (now known as New York 
Stock Exchange LLC). See Securities Exchange Act Release No. 53826 
(May 18, 2006), 71 FR 30211 (May 25, 2006).
    \5\ The text includes minor technical changes to proposed 
paragraph (b)(4) pursuant to a telephone conversation between 
Shirley Weiss, Associate General Counsel, NASD, and Brice Prince, 
Special Counsel, Division of Market Regulation, Commission, on 
October 3, 2006.
    \6\ The changes to Rule 2340 proposed in this rule filing are 
marked to the current version of the rule text as recently amended 
in SR-NASD-2004-171. See Securities Exchange Act Release No. 54411 
(Sept. 7, 2006), 71 FR 54105 (Sept. 13, 2006).
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* * * * *

[[Page 60785]]

2300. TRANSACTIONS WITH CUSTOMERS
* * * * *
2340. Customer Account Statements
    (a) General
    (1) Except as otherwise provided by paragraph (b), [E]each general 
securities member shall, with a frequency of not less than once every 
calendar quarter, send a statement of account (``account statement'') 
containing a description of any securities positions, money balances, 
or account activity to each customer whose account had a security 
position, money balance, or account activity during the period since 
the last such statement was sent to the customer.
    (2) No change in text.
    (b) Delivery Versus Payment/Receive Versus Payment (DVP/RVP) 
Accounts
    Quarterly account statements need not be sent to a customer 
pursuant to paragraph (a) of this Rule if:
    (1) the customer's account is carried solely for the purpose of 
execution on a DVP/RVP basis;
    (2) all transactions effected for the account are done on a DVP/RVP 
basis in conformity with Rule 11860;
    (3) the account does not show security or money positions at the 
end of the quarter (provided, however that positions of a temporary 
nature, such as those arising from fails to receive or deliver, errors, 
questioned trades, dividend or bond interest entries and other similar 
transactions, shall not be deemed security or money positions for the 
purpose of this paragraph (b));
    (4) the customer consents to the suspension of such statements in 
writing, and the member maintains such consents in a manner consistent 
with Rule 3110 and SEC Rule 17a-4;
    (5) the member undertakes to provide any particular statement or 
statements to the customer promptly upon request; and
    (6) the member undertakes to promptly reinstate the delivery of 
such statements to the customer upon request.
    Nothing in this Rule shall be seen to qualify or condition the 
obligations of a member under SEC Rule 15c3-2 concerning quarterly 
notices of free credit balances on statements.
    [(b)] (c) No change in text.
    [(c)] (d) Definitions
    For purposes of this Rule, the following terms will have the stated 
meanings:
    (1)-(5) No change in text.
    (6) a ``DVP/RVP account'' is an arrangement whereby payment for 
securities purchased is made to the selling customer's agent and/or 
delivery of securities sold is made to the buying customer's agent in 
exchange for payment at time of settlement, usually in the form of 
cash.
    [(d)] (e) Exemptions
    Pursuant to this Rule 9600 Series, [the Association] NASD may 
exempt any member from the provisions of this Rule for good cause 
shown.
* * * * *

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

    In filing the proposed rule change and Amendment No. 1 with the 
Commission, NASD 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. 
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

1. Purpose
    NASD Rule 2340 requires any member that conducts a general 
securities business and also carries customer accounts or holds 
customer funds or securities, at least once each calendar quarter, to 
send a statement of account containing a description of any securities 
positions, money balances, or account activity to each customer whose 
account had a security position, money balance, or account activity 
during the time since the last statement was sent.
    In a DVP/RVP arrangement, payment for securities purchased is made 
to the selling customer's agent and/or delivery of securities sold is 
made to the buying customer's agent in exchange for payment at time of 
settlement, usually in the form of cash. Because transactions in DVP/
RVP accounts (chiefly institutional accounts) are settled directly with 
the agent on a transaction-by-transaction basis, account statements 
sent by general securities firms to customers with DVP/RVP accounts 
generally do not reflect any cash balance or security position at the 
end of a quarter. Rather than using the information provided in 
quarterly statements, DVP/RVP customers generally rely on trade runs or 
customer confirmations issued pursuant to Rule 10b-10 under the Act for 
transaction-related information.
    The proposed rule change to Rule 2340 would relieve members from 
the obligation to send quarterly statements to customers with DVP/RVP 
accounts if: (1) The customer's account is carried solely for the 
purpose of execution on a DVP/RVP basis; (2) all transactions in the 
account are handled on a DVP/RVP basis in conformity with Rule 11860; 
\7\ (3) there are no securities or cash positions in the account at the 
end of the quarter (other than positions of a temporary nature, such as 
those arising from fails to receive or deliver, errors, questioned 
trades, dividend or bond interest entries and other similar 
transactions); (4) the customer consents to the suspension in writing; 
(5) the member undertakes to provide any particular statement or 
statements to the customer promptly upon request; and (6) the member 
undertakes to promptly reinstate the delivery of such statements to the 
customer upon request. The proposed rule change specifies that Rule 
2340 does not qualify or condition the obligations of a member under 
SEC Rule 15c3-2 concerning quarterly notices of free credit balances on 
statements. The proposed rule change would also define ``DVP/RVP 
account'' for purposes of Rule 2340.\8\
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    \7\ Prior to accepting an order in a DVP/RVP account, a member 
must comply with Rule 11860, which requires, among other things, 
that the member obtain certain information from the customer, 
including the name and address of the agent and the account number 
of the customer on file with the agent.
    \8\ Proposed Rule 2340(d)(6) would define a ``DVP/RVP account'' 
as ``an arrangement whereby payment for securities purchased is made 
to the selling customer's agent and/or delivery of securities sold 
is made to the buying customer's agent in exchange for payment at 
time of settlement, usually in the form of cash.''
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    By requiring the customer's affirmative consent, the customer's 
ability to receive quarterly statements is preserved, and the member is 
precluded from unilaterally terminating delivery of customer 
statements. In addition, customers would be able to promptly receive 
particular account statements upon request, and promptly reinstate the 
delivery of account statements upon request.
    The proposed rule change also includes a technical amendment that 
would replace the reference to ``the Association'' in paragraph (e) of 
Rule 2340 with ``NASD,'' because NASD no longer refers to itself using 
its full corporate name, ``the Association,'' or ``the NASD.'' Instead, 
NASD uses ``NASD'' unless otherwise appropriate for corporate or 
regulatory reasons.

[[Page 60786]]

2. Statutory Basis
    NASD believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act, which requires, among other 
things, that NASD rules must be designed to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, and, in general, to protect investors and the public 
interest. NASD believes that the proposed rule change is designed to 
facilitate transactions in securities and to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to transactions in securities by 
giving members a mechanism to allow certain customers that utilize 
alternative sources of information to keep track of their trading to 
opt out of receiving unwanted account statements. NASD also believes 
that the conditions of the proposed amended rule are designed to 
promote just and equitable principles of trade and, in general, to 
protect investors and the public interest by requiring that consents to 
the suspension of account statements under the amended rule be in 
writing, and by requiring members to undertake to promptly provide any 
particular account statement upon request and to promptly reinstate 
delivery of account statements upon request.

B. Self-Regulatory Organization's Statement on Burden on Competition

    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.

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

    NASD 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

    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.
    NASD will announce the effective date of the proposed rule change 
in a Notice to Members to be published no later than 60 days following 
Commission approval. The effective date of the proposed rule change 
will be 30 days following publication of the Notice to Members 
announcing Commission approval.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the 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-NASD-2006-066 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-NASD-2006-066. 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 NASD. 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 
submissions should refer to File Number SR-NASD-2006-066 and should be 
submitted on or before November 6, 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. E6-17064 Filed 10-13-06; 8:45 am]

BILLING CODE 8011-01-P