received from other sources, the Commission is undertaking steps intended to achieve four substantive objectives: 1. A self-regulatory program which assures that in regard to financial responsibility and related recordkeeping a broker-dealer will be examined by and report to only one self-regulatory organization; 2. The development and implementation of a key regulatory report for use by the Commission and the industry, incorporating uniform definitions and reporting periods. The form would replace a number of forms currently in use; 3. The establishment on a continuing basis of a Report Coordinating Group under the Federal Advisory Committee Act composed of knowledgeable persons from the securities industry, the accounting and legal professions, and elsewhere to advise the Commission regarding ways of providing for long term simplification and standardization in reporting by broker-dealers, to advise the Commission on proposed new reports and forms, and to advise and assist the Commission in the development of the key regulatory report. The members of this Group will be appointed by the Commission in the near future; and 4. The completion of a program already undertaken in cooperation with the state securities administrators and others to develop a uniform form for the registration of brokers and dealers for use by the states, the Commission, and the self-regulatory organizations, and the completion of the joint securities industry effort to develop a uniform form for the registration of principals and agents. Key Regulatory Report The Commission has undertaken on a priority basis the development of a key regulatory report. The Commission believes that the development and implementation of this report is the axial step in the process of simplifying and unifying the reporting process. It is anticipated that the report will be the foundation of the reporting system and will incorporate the concept of layering whereby greater increments of detail are required as the scope and complexity of a broker-dealer's operations increase. It is also anticipated that the report will emphasize exception reporting. As presently envisioned this report will be as broad in scope as feasible without impairing its usefulness. The Commission is specifically directing attention to replacing Form X-17A-5, Form X-17A11, Form X-17A-10, other annual income and expense reports, NÁSD Form Q, and the Joint Regulatory Report with the key regulatory report. The Commission has solicited the comments of the self-regulatory organizations and SIPC regarding the content and format of the key regulatory report. In the coming months the Commission expects to seek the advice of the Report Coordinating Group. Finally, the Commission will release the key regulatory report for public comment. Interested persons who believe they have comments in regard to the proposed key regulatory report which will be useful at the formative stage, however, are welcome to submit their comments in writing at this time. Proposed Rule 17a-18 It is apparent that to develop the key regulatory report as well as to accomplish the other objectives of the Commission set forth above, it is essential that the Commission have in its possession and subject to its review all reports, forms, questionnaires and similar reporting documents required of broker-dealers. The self-regulatory organizations have voluntarily agreed to supply all reports, forms and questionnaires presently in use and many of these have already been provided to the Commission. In regard to new forms, reports and questionnaires or substantive modifications of existing ones hereafter proposed, the Commission deems it advisable to provide a formal structure for their submission and, therefore, has under consideration proposed Rule 17a-18. Proposed Rule 17a-18 would require every national securities exchange and every registered national securities association to hereafter file with the Commission each proposed new form, report, questionnaire or similar document (collectively referred to hereinafter as "forms") or any substantive amendment to, or substantive modification of an existing form which it requires of its members or any class of members whether on a regular, one-time or "forcause" basis. Each new or amended form would be required to be filed with the Commission five weeks prior to its anticipated use. The rule specifically provides that in emergency circumstances a new or amended form may be filed with as much notice as circumstances permit, but must be accompanied by a written statement of the reason why timely filing was impractical. If any substantive change is made in a new or amended form after such form is filed with the Commission a new five week period would commence to run at the time the Commission receives notification of such change unless the change is made in conformity with a suggestion made by the Commission. 6 The rule provides that the failure to file as required would not effect the validity of any form or the validity of any action or omission to act by an exchange or association pursuant to and in connection with the form. The Commission expects Rule 17a-18 to serve objectives beyond subjecting proposed new forms or substantive revisions of existing forms to review and comment by the Commission. It would also serve as a data gathering and general monitoring device. Where filings are routine or do not appear to involve problems of duplication or significant questions of public policy, the proposed new form or modification of an existing form would not be commented upon by the Commission. At the same time, it is anticipated that all forms would be submitted to the Report Coordinating Group and would become part of the data base to which the Group would address itself. It should be noted that nothing in the rule would be deemed to affect the obligations of an exchange pursuant to Rule 17a-18 under the Securities Exchange Act of 1934 or the obligations of an association under Section 15A (j) of the Securities Exchange Act of 1934. Statutory Basis The rule would be adopted pursuant to Sections 17(a) and 23(a) of the Securities Exchange Act of 1934. For example, specialists or members which carry customers' accounts. The use of the term members includes member organizations. Text of the Proposed Rule Rule 17a-18 (a) Every national securities exchange and every registered national securities association shall file with the Commission three copies of each new form, report or questionnaire or substantive modification or amendment to any existing form, report or questionnaire which it requires or proposes to require of its members or of any class of members, whether on a one time, regular, or for-cause basis, not less than 5 weeks (or such shorter period as the Commission may authorize) prior to requiring its members or any class of members to file such new or amended form, report or questionnaire with the exchange or association; provided, however, that under emergency circumstances such form, report or questionnaire or substantive modification or amendment need not be filed as hereinabove provided, but in such case the exchange or association shall file three copies of such form, report or questionnaire or substantive modification or amendment giving the Commission as much notice as circumstances permit, together with a written statement of the reasons why the filing of the form, report or questionnaire or substantive modification or amendment as above provided was impractical. (b) If any change is made in a proposal after such proposal is filed with the Commission pursuant to Paragraph (a) of this rule, the 5 week period (or such shorter period as the Commission may authorize) will commence to run at the time the Commission receives notification of such change unless the change does not alter the substance of the proposal or the change is made in conformity with a suggestion by the Commission. (c) The failure on the part of an exchange or association to file a new form, report of questionnaire or substantive modification or amendment to an existing form, report or questionnaire as above provided shall not affect the validity, force or effect of that form, report or questionnaire, or of any action or omission to act by the exchange or association in connection with such form, report of questionnaire. Report Coordinating Group It is the intention of the Commission to submit the filings received pursuant to Rule 17a-18, if adopted, and other forms and reports to a Report Coordinating Group organized under the Federal Advisory Committee Act (86 Stat. 770 (1972)). It would be the function of this Group to review such forms, reports and questionnaires, and to provide expert advice to the Commission on such matters as uniformity of definitions and reporting formats, the extent of the anticipated administrative burden to be caused by any new form, and such other matters as may be appropriate to a program designed to streamline, unify, and improve the quality of the reporting system. The Group would advise the Commission as to areas where unnecessary or duplicative reports could appropriately be eliminated. In addition, the Group would advise the Commission on the development of a uniform state, federal, and industry form for the registration of brokerdealers and a uniform form for the registration of principals and agents. The Group would be asked at a later date to assist in development of the proposed key regulatory report. The Report Coordinating Group would not in any manner approve or disapprove forms, reports, questionnaires or any other matters submitted to it. Rather, it would act solely in an advisory capacity to the Commission. The Group will be composed of 13 persons who will be named by the Commission in the near future. The Group is constituted as an advisory committee under the Federal Advisory Committee Act and copies of its Charter will be filed in conformity with the Act. A copy also will be supplied to the Commission's Office of Public Information and will be available for public inspection. POSITION OF THE COMMISSION CONCERNING THE IMPACT OF THE SIPC DESIGNATIONS ON RESPONSIBILITIES OF THE SELF-REGULATORY ORGANIZATIONS Section 9(c) of the SIPC Act, provides, in part: INSPECTIONS. The self-regulatory organization of which a member of SIPC is a member shall inspect or examine such member for compliance with applicable financial responsibility rules, except that if a member of SIPC is a member of more than one self-regulatory organization, SIPC shall designate one of such self-regulatory organizations to inspect or examine such member of SIPC for compliance with applicable financial responsibility rules. Earlier this year, pursuant to this section, SIPC designated an examining authority for each member of SIPC which is a member of more than one self-regulatory organization, effective June 30, 1973. The Midwest Stock Exchange at that time raised the question of whether a non-designated exchange would be in derogation of its responsibilities under the Securities Exchange Act of 1934 if it deferred, in regard to examinations for financial responsibility, to the designated examining authority in any particular case. As a matter of statutory interpretation of the SIPC Act and interpretation of Congressional intent, as well as from a public policy standpoint, the Commission believes that there should be established a system whereby, in regard to financial responsibility and recordkeeping, a broker-dealer would be examined by and report to a single self-regulatory organization which would be directly subject to oversight review by the Commission. Accordingly, the Commission took the position, under the circumstances described in the correspondence below, that a nondesignated exchange would not be in derogation of its responsibilities under the Securities Exchange Act of 1934 if it deferred to the designated self-regulatory body in any particular case for examination in regard to applicable financial responsibility rules which in the opinion of the Commission includes related recordkeeping rules. The Commission is of the opinion that, while the matter was not addressed in this correspondence, a registered national securities association also would not be in derogation of its responsibilities under Section 15A of the Securities Exchange Act of 1934 under similar circumstances and conditions. 7 Which, in the case of members of more than one self-regulatory organization would be the organization designated as principal examining authority by SIPC. It should be carefully noted that the present interpretation reaches only the question of inspection and examination in regard to "applicable financial responsibility rules" (as described in the correspondence) and related recordkeeping. Moreover, it in no way relieves a nondesignated exchange or association of the duty to take appropriate action-including the notification of the SIPC-designated examining authority, SIPC, and the Commission-of facts within its knowledge or of which it reasonably should be aware, because of its other responsibilities, which indicate a failure of a member firm to comply with applicable financial responsibility rules. Text of the Correspondence Commissioner HUGH F. OWENS, Securities and Exchange Commission, DEAR MR. OWENS: As you know, the Securities Investor Protection Corporation (SIPC) has been engaged in a review of the problems. presented by the directive to SIPC embodied in Section 9(c) of the 1970 Securities Investor Protection Act. We concur with the concept of designating examining authorities as described in SIPC's most recent letter to the various regulatory bodies on May 24, 1973. Moreover, to the extent feasible, we believe duplicatory examinations of broker-dealers should be discontinued. However, a major concern of ours is whether such action would be consistent with the requirements set forth in the Securities Exchange Act of 1934, and the related questions concerning potential civil liability. Based on this query, we request confirmation of the fact that a self-regulatory organization which does not examine a member firm for compliance with its financial responsibility rules but rather, defers for this purpose to another self-regulatory organization which has been designated as examining authority for this particular dual member would not, by this reliance, be in derogation of its responsibilities under the [Securities Exchange] Act. Since SIPC desires to institute its program July 1st of this year, we would appreciate your response as soon as possible. Thank you for your consideration. Respectfully yours, MICHAEL E. TOBIN, MICHAEL E. TOBIN, President. President, Midwest Stock Exchange, Inc., DEAR MR. TOBIN: This is in response to your letter of June 25, 1973, concerning designations by the Securities Investor Protection Corporation ("SIPC") pursuant to Securities Investor Protection. Act ("SIPA") Section 9(c), 15 U.S.C. 78iii (c). Under that section, SIPC is authorized to designate one self-regulatory organization to inspect or examine a SIPC member for compliance with applicable financial responsibility rules if the SIPC member is a member of more than one self-regulatory organization. In your letter, you inquire whether an exchange which is not designated by SIPC as the examining authority for a particular member firm would be in derogation of its responsibilities under the Securities Exchange Act of 1934, presumably Sections 6 and 19 of that Act, 15 |