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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35298; File Nos. SR-NYSE-94-48 and SR-PSE 94-37]

Self-Regulatory Organizations; Notice of Filing and Order

Granting Accelerated Approval of Proposed Rule Change by the New York

Stock Exchange, Inc. and the Pacific Stock Exchange, Inc., Relating to

the Off-Site Storage of Customer Options Account Information

January 30, 1995.

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

(``Act''),\1\ notice is hereby given that on December 20, 1994, the New

York Stock Exchange, Inc. (``NYSE''),\2\ and on December 23, 1994, the

Pacific Stock Exchange, Inc. (``PSE'') (together, the ``Exchanges''),

submitted to the Securities and Exchange Commission (``SEC'' or

``Commission'') the proposed rule changes as described in Items I and

II below, which Items have been prepared by the Exchanges. The

Commission is publishing this notice to solicit comments on the

proposed rule changes from interested persons.

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

\2\On January 27, 1995, the NYSE submitted a letter requesting

accelerated approval of its proposal. See Letter from James E. Buck,

Senior Vice President and Secretary, NYSE, to Glenn Barrentine, Team

Leader, Division of Market Regulation, Commission, dated January 27,

1995.

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I. Self-Regulatory Organizations' Statement of the Terms of Substance

of the Proposed Rule Changes

Currently, paragraph (c), ``Maintenance of Customer Records,'' of

NYSE Rule 722, ``Supervision of Accounts,'' and paragraph (d)(3),

``Maintenance of Customer Records,'' of PSE Rule 9.18, ``Doing a Public

Business in Options,'' require that background and financial

information of customers be maintained at both the branch office

servicing the customer's account and at the principal supervisory

office with jurisdiction over the branch office. NYSE Rule 722(c) and

PSE Rule 9.18(d)(3) also require that copies of account statements of

options customers be maintained at both the branch office supervising

the accounts and at the principle supervisory office with jurisdiction

over that branch for the most recent six-month period. The Exchanges

propose to amend their rules 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 text of the proposed rule changes is available at the Office of

the Secretary, NYSE, at the Office of the Secretary, PSE, and at the

Commission.

II. Self-Regulatory Organizations' Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Changes

In their filings with the Commission, the self-regulatory

organizations included statements concerning the purpose of and basis

for the proposed rule changes and discussed any comments they received

on the proposed rule changes. The text of these statements may be

examined at the places specified in Item IV below. The self-regulatory

organizations have prepared summaries, set forth in Section (A), (B),

and (C) below, of the most significant aspects of such statements.

(A) Self-Regulatory Organizations' Statements of the Purpose of, and

Statutory Basis for, the Proposed Rule Changes

Currently, the rules of the NYSE and the PSE require that both the

branch [[Page 7090]] 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 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, member organizations increasingly are

storing their records away from their principal supervisory offices.

According to the NYSE, NYSE members have obtained no-action

positions from the Options Self-Regulatory Council (``OSRC'')\3\ on a

case-by-case basis when moving their operational facilities off-site.

The OSRC has determined that these arrangements are consistent with the

record retention requirement rules so long as the documents are readily

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

received by the options self-regulatory organizations (``SROs''), the

OSRC has asked each of the options exchanges and NASD to consider

amending their rules to permit the principal supervisory office to

store customer account information off-site.

\3\The ORSC is a committee comprised of representatives from

each of the options exchanges and the National Association of

Securities Dealers, Inc. (``NASD''). The OSRC was created pursuant

to the plan submitted by the options SROs under Rule 17d-2 of the

Act (``17d-2 Plan''). The 17d-2 Plan was adopted to reduce

regulatory duplication relative to options-related sales practice

matters for a large number of firms which are currently members of

two or more SROs. The purpose of the OSRC is: (1) to administer the

17d-2 Plan; and (2) to address options-related sales practice

matters in a common forum.

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The Exchanges propose to amend their rules accordingly. The

Exchanges believe that the off-site storage arrangements are consistent

with the record retention requirement rules, provided the documents are

readily accessible and promptly retrievable.\4\ In addition, the

Exchanges do not believe that the supervisory obligations of member

organizations will be compromised by the proposal since members will

continue to 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 rules, the Exchanges

state that they will periodically examine the document retrieval

capabilities of member firms using off-site document storage

arrangements.

\4\The NYSE defines ``readily accessible and promptly

retrievable'' to mean that the requested information will be

available by noon of the next business day. The PSE defines

``readily accessible and promptly retrievable'' to mean that the

requested information can be returned to the principal supervisory

office generally within 24 hours.

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The Exchanges believe that the proposed rule changes are consistent

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

Section 6(b)(5), in particular, in that they are 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 and in general to protect investors

and the public interest.

Additionally, the NYSE believes that the proposal will promote the

maintenance of fair and orderly markets because it will provide member

organizations with the opportunity to discharge their supervisory

responsibilities in a more cost-effective manner, thereby improving the

efficiency of NYSE member organizations, and, in turn, benefitting

investors in the marketplace. Moreover, because the NYSE does not

believe that the proposal will compromise the ability of members to

satisfy their supervisory obligations, the NYSE believes the proposal

is consistent with the protection of investors.

(B) Self-Regulatory Organizations' Statement on Burden on Competition

The Exchanges do not believe that the proposed rule changes will

impose any burden on competition that are not necessary or appropriate

in furtherance of the purposes of the Act.

(C) Self-Regulatory Organizations' Statement on Comments on the

Proposed Rule Changes Received From Members, Participants or Others.

No written comments were either received or requested.

III. Date of Effectiveness of the Proposed Rule Changes and Timing for

Commission Action

The Exchanges have requested that the proposed rule changes be

given accelerated effectiveness pursuant to Section 19(b)(2) of the

Act.

The Commission believes that the proposed rule changes are

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 they

are designed to prevent fraudulent and manipulative acts and practices,

to facilitate transactions in securities, and to protect investors and

the public interest.\5\

\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 Exchanges' 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

proposals provide that options customer account information stored off-

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

thereby preserving the ability of the Exchanges to access and

investigate customer account records. The Commission notes that the

Exchanges plan to periodically examine the document retrieval

capabilities of member firms using off-site storage arrangements. Thus,

the Commission believes that both proposals strike a reasonable balance

between the Exchanges' 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.

\6\See note 4, supra.

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

Exchanges 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 Exchanges'

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

notice of filing thereof in the Federal Register because the proposals

are identical to previously approved proposals submitted by the Chicago

Board Options Exchange, Inc. (``CBOE''), the Philadelphia Stock

Exchange, Inc. (``PHLX'') and the American Stock Exchange, Inc.

[[Page 7091]] (``Amex'').\7\ The CBOE and PHLX proposals were subject

to the full notice and comment period and the Commission received no

comments on those proposals. Therefore, the Commission believes it is

consistent with Sections 6(b)(5) and 19(b)(2) of the Act to approve the

Exchanges' proposals on an accelerated basis.

\7\See Securities Exchange Act Release Nos. 34899 (October 26,

1994), 59 FR 54929 (November 2, 1994) (order approving File No. SR-

CBOE-94-30); 34909 (October 27, 1994), 59 FR 55144 (November 3,

1994) (order approving File No. SR-PHLX-94-35); and 34913 (October

28, 1994), 59 FR 55300 (November 4, 1994) (order approving File No.

SR-Amex-94-37).

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IV. Solicitation of Comments

Interested persons are invited to submitt written data, views and

arguments concerning the foregoing. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549.

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 at the

Commission's Public Reference Section, 450 Fifth Street, NW.,

Washington, DC. Copies of each filing will also be available for

inspection and copying at the principal office of the respective above-

mentioned self-regulatory organization. All submissions should refer to

the file number in the caption above and should be submitted by

February 24, 1995.

It Is Therefore Ordered, pursuant to Section 19(b)(2) of the

Act,\8\ that the proposed rule changes (File Nos. SR-NYSE-94-48 and SR-

PSE-94-37) are 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\

\9\17 CFR 200.30-3(a)(12) (1994).

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Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-2751 Filed 2-3-95; 8:45 am]

BILLING CODE 8010-01-M