Self-Regulatory Organizations; Order Granting Accelerated Approval of Proposed Rule Change by the American Stock Exchange, Inc., Relating to the Off-Site Storage of Customer Options Account Information

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34913; File No. SR-Amex-94-37]

Self-Regulatory Organizations; Order Granting Accelerated

Approval of Proposed Rule Change by the American Stock Exchange, Inc.,

Relating to the Off-Site Storage of Customer Options Account

Information

October 28, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ and Rule 19b-4 thereunder,\2\ on September 12, 1994, the

American Stock Exchange, Inc. (``Amex'' or ``Exchange'') submitted to

the Securities and Exchange Commission (``SEC'' or ``Commission'') a

proposal to amend paragraph (b), ``Maintenance of Customer Records,''

of Amex Rule 922, ``Supervision of Accounts,'' to provide that the

customer information and account statements currently maintained at the

principal supervisor office may be maintained at a location other than

the principal supervisory office if the documents and information are

readily accessible and promptly retrievable.\3\

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\1\15 U.S.C. 78s(b)(1) (1988).

\2\17 CFR 240.19b-4 (1993).

\3\On October 27, 1994, the Amex submitted a letter indicating

that ``readily accessible and promptly retrievable'' means that the

requested information will be available within 24 hours. See Letter

from Claire P. McGrath, Managing Director and Special Counsel,

Derivative Securities, Amex, to Michael Walinskas, Branch Chief,

Derivatives Regulation, Division of Market Regulation, Commission,

dated October 24, 1994 (``October 24 Letter'').

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The proposal was published for comment in the Federal Register in

Securities Exchange Act Release No. 34811 (October 7, 1994), 59 FR

52323 (October 17, 1994). No comments were received on the proposal.

Currently, Amex Rule 922(b) requires that background and financial

information of customers who have been approved for options

transactions be maintained at both the branch office servicing the

customer's account and at the principal supervisory office with

jurisdiction over the branch office. Amex Rule 922(b) also requires

that copies of account statements be maintained at both the branch

office supervising the accounts and at the principal supervisory office

with jurisdiction over the branch for the most recent six-month period.

The Amex proposes to amend Exchange Rule 922(b) to provide that the

customer information and account statements currently maintained at the

principal supervisory office may be maintained at a location other than

the principal supervisory office if the documents and information are

readily accessible and promptly retrievable.

The Amex states that the rules of all the options exchanges and the

National Association of Securities Dealers, Inc. (``NASD'') uniformly

require that both the branch office servicing an options customer's

account and the principal supervisory office having jurisdiction over

the branch office retain account statements and other financial and

background information for the account for supervisory purposes. With

the advances in data storage and retrieval capability available through

optical disks, fax machines, microfiche and computers, coupled with the

escalating costs of storing records on-site, many Amex member

organizations prefer to store documents away from their principal

supervisory offices. In this connection, an increasing number of member

organizations have asked and received permission from the self-

regulatory organizations (``SROs'') to store the required customer

option account documents off-site so long as they are readily

accessible and promptly retrievable. In view of the number of requests

received by the SROs to store customer options information off-site,

the Options Self-Regulatory Council (``OSRC'')\4\ has asked each of the

options exchanges and the NASD to consider amending their rules to

permit the principal supervisory office to store customer account

information off-site.

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\4\The OSRC is a committee comprised of representatives from

each of the options exchanges and the NASD.

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The Exchange believes that these off-site storage arrangements are

consistent with the record retention requirement rules, provided the

documents are readily accessible and promptly retrievable. In this

regard, the Amex states that the proposed rule will not compromise the

supervisory obligations of a member firm since the firm will still be

required to maintain customer option account documents and information

at the branch office servicing the customer's account. To ensure

compliance with the provisions of the rule, the Amex states that it

will periodically examine the document retrieval capabilities of member

firms using off-site document storage arrangements.

The Amex believes that the proposed rule change is consistent with

Section 6(b) of the Act, in general, and furthers the objectives of

Section 6(b)(5), in particular, in that it is designed to prevent

fraudulent and manipulative acts and practices, to promote just and

equitable principles of trade, to foster cooperation and coordination

with persons engaged in facilitating transactions in securities, and to

remove impediments to and perfect the mechanism of a free and open

market and a national market system.

The Commission believes that the proposed rule change is consistent

with the requirements of the Act and the rules and regulations

thereunder applicable to a national securities exchange, and, in

particular, the requirements of Section 6(b)(5) in that it is designed

to prevent fraudulent and manipulative acts and practices, to

facilitate transactions in securities, and to protect investors and the

public interest.\5\

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\5\15 U.S.C. 78f(b)(5) (1988).

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Specifically, by allowing off-site storage of customer account

information maintained at supervisory offices, the Commission believes

that the proposal should provide the Amex's members with a cost-

effective means to utilize computers, facsimile machines, optical

disks, and other technology to store the required customer account

information off-site while ensuring that member firms will continue to

have easy access to all of the customer account information necessary

to discharge their supervisory responsibilities. In this regard, the

proposal provides that options customer account information stored off-

site must be ``readily accessible and promptly retrievable,''\6\

thereby preserving the Exchange's ability to access and investigate

customer account records. The Commission notes that the Amex plans to

periodically examine the document retrieval capabilities of member

firms using off-site storage arrangements. Thus, the Commission

believes that the proposal strikes a reasonable balance between the

Amex's interest in allowing member organizations to reduce the cost of

storing customer account information and ensuring that the information

continues to be available for supervisory purposes.

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\6\See October 24 Letter, supra note 3.

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In addition, the Commission believes that it is reasonable for the

Amex to allow off-site storage of customer account information

maintained at supervisory offices, but not of account information

stored at branch offices, because branch offices are responsible for

the day-to-day administration of customer accounts and require

immediate access to account information. For example, by continuing to

require branch offices to store customer account information on-site,

the proposal facilitates broker compliance with the suitability

requirements applicable to options customers.

The Commission finds good cause for approving the Amex's proposal

prior to the thirtieth day after the date of publication of notice of

filing thereof in the Federal Register because the proposal is

identical to proposals submitted by the Chicago Board Options Exchange,

Inc. (``CBOE'') and the Philadelphia Stock Exchange, Inc., which were

subject to the full notice and comment period. The Commission received

no comments on those proposals, and the Commission has approved the

CBOE's proposal.\7\ Therefore, the Commission believes it is consistent

with Sections 6(b)(5) and 19(b)(2) of the Act to approve the Amex's

proposal on an accelerated basis.

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\7\See Securities Exchange Act Release No. 34899 (October 26,

1994) (order approving File No. SR-CBOE-94-30).

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It is therefore ordered, pursuant to Section 19(b)(2) of the

Act,\8\ that the proposed rule change (File No. SR-Amex-94-37) is

approved.

\8\15 U.S.C. 78s(b)(2) (1982).

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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) (1993).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-27359 Filed 11-3-94; 8:45 am]

BILLING CODE 8010-01-M