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84-45 Request for Comments on a Proposed New Section to the Uniform Practice Code Concerning Customer Account Transfers
OFFICERS, PARTNERS AND PROPRIETORS
TO: All NASD Members and Other Interested Persons
COMMENTS MUST BE RECEIVED BY OCTOBER 1, 1984
The National Association of Securities Dealers, Inc. (the "Association" or "NASD") is publishing for comment a proposed new Section 65 to the Association's Uniform Practice Code which would establish procedures for customer account transfers between member firms. Comments on the proposed new section are invited from members and other interested persons. After the comment period has expired, the Association's Uniform Practice Committee and the Board of Governors will review the proposal taking into consideration the comments received. The proposal will thereafter be filed with the Securities and Exchange Commission for approval. The text of proposed new Section 65 is attached to this notice. A discussion of the background and explanation of the rule appear below.
BACKGROUND AND EXPLANATION OF NEW SECTION 65
In September 1982, the New York Stock Exchange proposed amendments to NYSE Rule 412, Customer Account Transfer Contract. The amendments were recommended to the Exchange by the Ad Hoc Rule 412 Industry Committee which consisted of individuals responsible for processing transfers of customer accounts at member firms and representatives from the various regulatory agencies. The purpose of the amendments was to strengthen existing Rule 412 by specifying the procedures to be used in transferring customer accounts, by establishing a specified timeframe for completing the transfer and by requiring that fails to receive/deliver be established at the end of that period. Additionally, the amendments provided a procedure for processing the transfer of financial service accounts which support checking account and/or credit card privileges.
The Association's Uniform Practice Committee reviewed the proposed Rule 412 amendments and in November 1982, the NASD sent a comment letter to the Exchange generally supporting the proposal. The proposed amendments to NYSE Rule 412 have not as yet been declared effective.
Also, on the basis of its review of the NYSE proposal, the Uniform Practice Committee recommended to the NASD Board that the Association adopt a comparison rule comparable to the proposed NYSE Rule 412 to cover the more than 4,000 NASD members that do not belong to the Exchange. In formulating its proposal, the Committee determined to parallel closely the New York Stock Exchange's proposal to promote uniform industry standards and to minimize conflicts wherever possible.
The following is a brief description of major provisions of proposed new Uniform Practice Code Section 65.
- Paragraph (b) would require the carrying broker, upon receipt of transfer instructions to validate or reject said instructions within five (5) business days of receipt. Further, Section 65 would require the actual transfer of all security and money balances to take place within ten (10) business days after validation, with no subsequent extension of time. If the transfer of the account(s) has not been accomplished by the tenth business day, both members would be required to establish fail contracts at current market value.
- Paragraph (d) would give the Association the authority to exempt from the provisions of this rule any member where special circumstances exist.
- Paragraph (f) would allow the carrying member, where Financial Service Account(s) which support check writing privileges and/or charge card(s) are involved, to delay the account transfer until such checks and/or cards are returned or destroyed.
- Paragraph (g) would provide that if one or both of the members involved in an account transfer is not a member of a registered clearing agency, fails must be established on an "ex-clearing house" basis.
Proposed Section 65 closely parallels the proposed amendments to NYSE Rule 412 with one exception. In subsection (b), ten (10) business days are provided for completion of the transfer of security or money balances with no extension of time permitted (the NYSE proposal would allow an additional five (5) days via an extension of time.)
All comments relating to proposed Section 65 should be sent to James M. Cangiano, Secretary, NASD, 1735 K Street, N.W., Washington, D.C. 20006, and received by October 1, 1984. Any questions concerning this notice should be directed to Donald Catapano, Uniform Practice Department, at (212) 839-6255.
John T. Wall
Executive Vice President
Member and Market Services
PROPOSED NEW SECTION TO THE UNIFORM PRACTICE CODE
Customer Account Transfer Contracts
Within ten (10) business days following the validation of a transfer instruction, the carrying member must complete the transfer of the account(s) to the receiving member. At the termination of the ten (10) business day period, 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 security positions in the customer's account(s) and the receiving member must charge the related money amount (after properly considering the debit or credit balance in the customer's account(s) to the carrying member through a registered clearing agency. Simultaneously, short security positions in the customer's account(s), including options, must be delivered by the receiving member to the carrying member and the customer's account(s) shall thereupon be deemed transferred.