Recordkeeping and Reporting Requirements for Trading Systems Operated by Brokers and Dealers; Delegation of Authority — SEC — US

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200 and 240

[Release No. 34-35775; File No. S7-3-94]

Recordkeeping and Reporting Requirements for Trading Systems Operated by Brokers and Dealers; Delegation of Authority

AGENCY: Securities and Exchange Commission.

ACTION: Final rule; change of effective date.

SUMMARY: The Securities and Exchange Commission (“Commission”) is postponing the effective date that registered broker-dealer sponsors of certain automated trading systems (as defined in Rule 17a-23) (“Broker-Dealer Trading Systems”) must comply with the recordkeeping requirements of Rule 17a-23 under Section 17 of the Securities Exchange Act of 1934 from June 1, 1995 to July 1, 1995, in order to facilitate the process of conversion to a standard trade settlement time frame of three business days after the trade date. In addition, the Commission is amending its regulation concerning Organization and Program Management1 to delegate authority to the Director of the Division of Market Regulation (“Division”) to grant exemptions to any sponsor, or class of sponsors, of a Broker-Dealer Trading System or Systems from any or all of the provisions of Rule 17a-23, either unconditionally or on specified terms and conditions, if the Director of the Division determines that such exemption is consistent with the public interest or the protection of investors.

[1]17 CFR 200.30-3.

EFFECTIVE DATE: The effective date for Sec. 240.17a-23(c), which was published on December 28, 1994, 59 FR 66702, is postponed until July 1, 1995. The effective date for the delegation of authority (Sec. 200.30-3(a)(60)) will be June 2, 1995.

FOR FURTHER INFORMATION CONTACT: Sheila C. Slevin, Assistant Director, 202/942-0796, or Elaine M. Darroch, Staff Attorney, 202/942-0798, Office of Automation and International Markets, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street NW., Mail Stop 5-1, Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION:

I. Introduction and Background

The Commission today announced that it is changing the date for registered broker-dealer sponsors of certain automated systems to comply with recordkeeping requirements of Rule 17a-232 under Section 17 of the Act from June 1, 1995 to July 1, 1995; and (2) amending the Commission's regulation concerning Organization and Program Management to delegate to the Director of the Division the authority to grant exemptions from the requirements of Rule 17a-23.

[2]17 CFR 240.17a-23.

Effective June 1, 1995, Rule 17a-23 and Form 17A-23 establish recordkeeping and reporting requirements for registered brokers and dealers that operate certain automated trading systems (“Broker-Dealer Trading System” or “BDTS”).3 Under Rule 17a-23, registered broker-dealers that sponsor BDTSs are required to maintain participant, volume, and transaction records. In addition, Rule 17a-23 and Form 17A-23 require system sponsors to submit three reports to the Commission and, under certain circumstances, to an appropriate self-regulatory agency: (1) An initial system description (Part I of Form 17A-23), updated as necessary to reflect material changes (Part IA of Form 17A-23); (2) quarterly volume summaries (Part II of Form 17A-23); and (3) notice of ceasing to operate the system (Part III of Form 17A-23). At final adoption, the Commission modified Rule 17a-23 to allow sponsors of Broker-Dealer Trading Systems currently operating on June 1, 1995 to submit the information required by Part I of Form 17A-23 no later than July 1, 1995 (one month following the effective date). Due to extenuating circumstances, the Division has determined that system sponsors also should be allowed to delay compliance with the recordkeeping provisions of Rule 17a-23(c) until July 1, 1995.

[3]Securities Exchange Act Release No. 35124 (December 20, 1994), 59 FR 66702.

II. Extension of Deadline for Recordkeeping Requirements

The Commission is extending the deadline for complying with recordkeeping requirements of Rule 17a-23 from June 1, 1995 to July 1, 1995. The effective date for provisions of Rule 17a-23 other than Rule 17a-23(c) remains June 1, 1995, unless otherwise noted in the final rule published December 28, 1994 (59 FR 66702). As noted previously, at final adoption the Commission modified the Rule to allow sponsors of BDTSs currently operating on June 1 to delay compliance with the reporting requirements of Rule 17a-23(d) until July 1, 1995. BDTS sponsors have requested that the Commission similarly delay effectiveness of the recordkeeping requirements of the Rule.

BDTSs have informed the Commission that reconfiguring their automated systems to comply with the recordkeeping requirements of Rule 17a-23(c) by June 1, 1995 would be difficult, because a significant portion of their automation resources are committed to implementing system changes necessary to comply with Rule 15c6-14 by June 7, 1995. Rule 15c6-1 establishes the standard settlement time frame to be three business days after the trade date (“T+3”). In some cases, sponsors have informed the Commission that compliance with Rule 17a-23(c) recordkeeping requirements by June 1, 1995 may delay or adversely affect the broker-dealers' implementation of system changes necessary to comply with T+3. In recognition of the importance of T+3 in reducing settlement risk, and in reducing the liquidity risk among the derivatives and the cash markets, and because the conversion to T+3 will affect a substantial portion of the securities industry, the Commission believes it is important to allow the T+3 conversion to take place in an orderly fashion.

[4]17 CFR 240.15c6-1.

Accordingly, the Commission is postponing the effective date for Rule 17a-23(c) until July 1, 1995.

III. Delegation of Authority to the Director of the Division of Market Regulation

The Commission currently has the authority under Rule 17a-23(i)5 to grant exemptions to any sponsor of a Broker-Dealer Trading System from any or all of the provisions of Rule 17a-23, either unconditionally or on specified terms and conditions, if the Commission determines that the exemption is consistent with the public interest and the protection of investors. The Commission has determined it should revise its rules to delegate this authority to the Director of the Division of Market Regulation.

[5]17 CFR 240.17a-23(i).

Accordingly, the Commission announced today an amendment to Rule 30-3 of its regulation concerning Organization and Program Management by adding paragraph (a)(60), which authorizes the Director of the Division, pursuant to Rule 17a-23(i),6 to grant exemptions to any sponsor, or class of sponsors, of a Broker-Dealer Trading System or Systems from any or all of the provisions of Rule 17a-23, either unconditionally or on specified terms and conditions, if the Director of the Division determines that such exemption is consistent with the public interest or the protection of investors.

[6]17 CFR 240.17a-23(i).

The delegation of this authority will conserve the resources of the Commission and the Division, by providing for the Division to handle exemption requests rather than requiring exemption requests to be handled by the Commission itself. In any particular case where the Director of the Division believes it appropriate, the Director of the Division may submit a request for an exemption to the Commission for review.

The Commission finds, in accordance with Section 553(b)(A) of the Administrative Procedures Act,7 that the amendment to Rule 30-3 relates solely to agency organization, procedure, or practice, and does not relate to a substantive rule. Accordingly, requirements for notice, opportunity for public comment, and publication of the amendment prior to its effective date would not apply in these circumstances.

[7]5 U.S.C. 553(b)(A).

List of Subjects in 17 CFR Part 200

Administrative practice and procedure, Authority delegation (Government agencies), Organization and functions (Government agencies).

Text of Amendment

In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is amended as follows:

PART 200—ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND

REQUESTS

Subpart A—Organization and Program Management

The authority citation for part 200, subpart A, continues to read in part as follows:

Authority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 79t, 77sss, 80a-37, 80b-11, unless otherwise noted. * * * * *

Section 200.30-3 is amended by adding paragraph (a)(60) to read as follows:

Sec. 200.30-3 Delegation of authority to Director of Division of Market Regulation.

(a) * * *

(60) To grant exemptions from Rule 17a-23 (Sec. 240.17a-23 of this chapter), pursuant to Rule 17a-23(i) (Sec. 240.17a-23(i) of this chapter). * * * * *

Dated: May 26, 1995.

By the Commission. Margaret H. McFarland, Deputy Secretary.

[FR Doc. 95-13465 Filed 6-1-95; 8:45 am]

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