Document ID: SEC-2007-1275-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Financial Industry Regulatory Authority, Inc.
Posted Date: 2007-09-13T04:00Z

[Federal Register: September 13, 2007 (Volume 72, Number 177)]
[Notices]               
[Page 52414-52416]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13se07-90]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56373; File No. SR-FINRA-2007-005]

 
Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing 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

September 7, 2007.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on August 8, 2007, Financial 
Industry Regulatory Authority, Inc. (``FINRA'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change described in Items I, II, and III below, which items have been 
prepared by FINRA. The Commission is publishing this notice to solicit 
comments from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend 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. Below is the text of the 
proposed rule change. Proposed new language is italicized; proposed 
deletions are in [brackets].
11000. UNIFORM PRACTICE CODE
11870. Customer Account Transfer Contracts
    (a) No Change.
    (b) Transfer Procedures
    (1) Upon receipt from the customer of an authorized broker-to-
broker transfer instruction form (``TIF'') to receive such customer's 
securities account assets in whole or in specifically designated part, 
from the carrying member, the receiving member must immediately submit 
such instruction to the carrying member. The carrying member must, 
within [three] one business day[s] following receipt of such 
instruction, or receipt of a TIF received directly from the customer 
authorizing the transfer of assets in specifically designated part: (A) 
Validate the transfer instruction to the receiving member (with an 
attachment reflecting all positions and money balances to be 
transferred as shown on its books); or (B) take exception to the 
transfer instruction for reasons other than securities positions or 
money balance discrepancies and advise the receiving member of the 
exception taken. The time frame(s) set forth in this paragraph will 
change, as determined from time-to-time in any publication, relating to 
the ACATS facility, by the National Securities Clearing Corporation 
(NSCC).
    (2) No Change.
    (c) and (d) No Change.
    (e) Completion of the Transfer
    Within three business days following the validation of a transfer 
instruction, the carrying member must complete the transfer of the 
customer's security account assets to the receiving member. The 
receiving member and the carrying member must immediately establish 
fail-to-receive and fail-to-deliver contracts at then-current market 
values upon their respective books of account against the long/short 
positions that have not been delivered/received and the receiving/
carrying member must debit/credit the related money amount. The 
customer's security account assets shall thereupon be deemed 
transferred. The time frame(s) set forth in this paragraph will change, 
as determined from time-to-time in any publication, relating to the 
ACATS facility, by the NSCC.
    (f) through (n) No Change.
* * * * *
Rule 412. Customer Account Transfer Contracts
    (a) No Change.
    (b)
    (1) Upon receipt from the customer of an authorized broker-to-
broker transfer instruction form (``TIF'') to receive such customer's 
securities account assets in whole or in specifically designated part, 
the receiving organization will immediately submit such instruction to 
the carrying organization. The carrying organization must, within 
[three (3)] one business day[s] following receipt of such instruction, 
or receipt of a TIF

[[Page 52415]]

received directly from the customer authorizing the transfer of assets 
in specifically designated part: (i) Validate the transfer instruction 
(with an attachment reflecting all positions and money balances to be 
transferred as shown on its books) to the receiving organization or 
(ii) take exception to the transfer instruction for reasons other than 
securities positions or money balance discrepancies and advise the 
receiving organization of the exception taken. The time frame(s) set 
forth in this paragraph will change, as determined from time-to-time in 
any publication, relating to the ACATS facility, by the National 
Securities Clearing Corporation (NSCC).
    (2) No Change.
    (3) Within three [(3)] business days following the validation of a 
transfer instruction, the carrying organization must complete the 
transfer of the customer's securities account assets to the receiving 
organization. The carrying organization and the receiving organization 
must establish fail to receive and fail to deliver contracts at then 
current market values upon their respective books of account against 
the long/short positions (including options) that have not been 
delivered/received and the receiving/carrying organization must debit/
credit the related money amount. The customer's securities account 
assets shall thereupon be deemed transferred. The time frame(s) set 
forth in this paragraph will change, as determined from time-to-time in 
any publication, relating to the ACATS facility, by the NSCC.
    (c) through (f) No Change.
    Supplementary Material .10 through .30 No Change.

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

    In its filing with the Commission, FINRA 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. FINRA has prepared summaries, set forth in sections (A), 
(B), and (C) below, of the most significant aspects of these 
statements.

(A) Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NASD Rule 11870 and NYSE Rule 412 regulate the transfer of customer 
accounts from one member (the ``carrying firm'') to another (the 
``receiving firm''). Such transfers generally occur through ACATS, an 
electronic transfer system developed by NSCC to automate and 
standardize the transfer of accounts. Currently, based on the time 
frames established in ACATS, NASD Rule 11870(b) and NYSE Rule 412(b)(1) 
require carrying members to validate or 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, and 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 proposing to amend NASD Rule 11870(b) and (e) and NYSE 
Rule 412(b)(1) and (b)(3) to make the time frames in those rules 
consistent with the time frames established in ACATS by the NSCC for 
these processes. The effect of this rule change will be 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. FINRA will 
announce any such changes in those time frames to its members in a 
Regulatory Notice and other appropriate communications.
    FINRA is filing this rule change in anticipation of a reduction in 
these time frames in approximately October 2007 as recently announced 
by NSCC.\2\ FINRA understands that NSCC is planning to seek regulatory 
approval from the Commission to eliminate two business days from the 
validation period for both full and partial transfers.
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    \2\ See NSCC ``Important Notice'' A6317, 
P&S5887 dated October 19, 2006, ``Important Notice'' 
A6367, P&S5937 dated December 22, 2006, 
``Important Notice'' A6425, P&S5995 dated March 
27, 2007, and NSCC ``Important Notice'' A6457, 
P&S6027 dated May 23, 2007.
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    FINRA members recognize the benefit to customers of shortening the 
time it takes to transfer account assets. However, introducing brokers 
have expressed serious concerns about the effect on their business 
relationships with their customers of shortening the time permitted for 
validating or taking exception to a transfer instruction. They have 
noted that a representative who decides to move to another firm may 
have all of his or her customers sign a TIF well in advance of the 
anticipated move, thereby effectuating a mass movement of customers to 
the new firm. Under the current ACATS time frames, if the carrying firm 
timely notifies the introducing firm of the transfer requests, the 
introducing firm has up to three business days to contact its customers 
regarding the reasons for their transfer requests, thereby giving the 
introducing firm an opportunity to contact its customers to discuss why 
its customers have chosen to move their accounts. Some FINRA member 
firms also were concerned that shortening the time permitted for 
validating or taking exception to a transfer instruction could provide 
a competitive advantage to self-clearing firms because they would have 
more immediate notice of transfer requests and would be in a better 
position to employ efforts to retain the accounts. Although FINRA 
believes that shortening the customer account transfer process is in 
the best interest of public customers, who have often expressed 
dissatisfaction with the transfer process, FINRA requests that the 
Commission seek comment on the effect of the proposed rule change, 
particularly on introducing firms' business relationships.
    As noted in Item 2 of this filing, FINRA is coordinating 
implementation of the shortened time frames to the ACATS transfer cycle 
with NSCC. NSCC has announced that it plans to implement changes to the 
ACATS transfer cycle in October 2007 (contingent upon the Commission's 
approval of the proposed changes). Members will be advised of the 
implementation date for any such modification of the ACATS transfer 
cycle time frames through a Regulatory Notice and other communications, 
as appropriate. A specific, coordinated effective date would be 
communicated to members through a Regulatory Notice and other 
communications, as appropriate, and would take into consideration the 
need for members to make internal systems changes to accommodate the 
revised time frames.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of section 15A(b)(6) of the Act,\3\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, 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, respectively,

[[Page 52416]]

thereby creating greater efficiency in the account transfer process and 
improving customers' experience with the account transfer process.
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    \3\ 15 U.S.C. 78o-3(b)(6).
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(B) Self-Regulatory Organization's Statement on Burden on Competition

    FINRA 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

    Written comments were neither solicited nor received.

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

    Within thirty-five 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 ninety 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, including whether the proposed rule 
change is consistent with the Act.\4\ Comments may be submitted by any 
of the following methods:
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    \4\ The Commission also seeks comment on the effect of the 
proposed rule change on the business relationships of introducing 
firms.
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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-FINRA-2007-005 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-FINRA-2007-005. 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 Room, 100 F. Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of such filing also will be available for 
inspection and copying at the principal office of FINRA and on FINRA's 
Web site at http://www.finra.org/web/groups/rules_regs/documents/rule_filing/p036409.pdf.
 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-FINRA-2007-005 and should be submitted on or before October 4, 2007.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-18075 Filed 9-12-07; 8:45 am]

BILLING CODE 8010-01-P