federal register /vol. 64, no. 7/tuesday, january 12, 1999 ...€¦ · federal register/vol. 64,...

1735Federal Register / Vol. 64, No. 7 / Tuesday, January 12, 1999 / Rules and Regulations

1 15 U.S.C. 78o–552 15 U.S.C. 78o–5(a)(2).3 63 FR 53326 (October 5, 1998).4 17 CFR 240.17a–5.5 Securities Exchange Act Release No. 34–40162,

(July 2, 1998), 63 FR 37668 (July 13, 1998).

6 Securities Exchange Act Release No. 34–39724(March 5, 1998) 63 FR 12057 (March 12, 1998).

7 Id.

Appendix A and B [Removed]

6. By amending § 229.102 by revisingthe term ‘‘industry segment(s)’’ in theintroductory paragraph to read‘‘segment(s), as reported in the financialstatements,’’.

PART 240—GENERAL RULES ANDREGULATIONS, SECURITIESEXCHANGE ACT OF 1934

7. The authority citation for part 240continues to read in part as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j,77s, 77z–2, 77eee, 77ggg, 77nnn, 77sss, 77ttt,78c, 78d, 78f, 78i, 78j, 78j–1, 78k, 78k–1, 78l,78m, 78n, 78o, 78p, 78q, 78s, 78u–5, 78w,78x, 78ll(d), 78mm, 79q, 79t, 80a–20, 80a–23,80a–29, 80a–37, 80b–3, 80b–4 and 80b–11,unless otherwise noted.

§ 240.14a–101 [Amended]

8. By amending § 240.14a–101(Schedule 14A) in Item14(b)(2)(ii)(A)(3)(i) by revising thephrase ‘‘industry segments’’ to read‘‘segments’’.

PART 249—FORM, SECURITIESEXCHANGE ACT OF 1934

9. The authority citation for part 249continues to read in part as follows:

Authority: 15 U.S.C. 78a, et seq., unlessotherwise noted:

* * * * *

§ 249.220f (Form 20–F) [Amended]

10. By amending Form 20–F(referenced in § 249.220f) by removingthe term ‘‘SFAS 14’’ from Instruction 3to Item 17 and inserting the term ‘‘SFASNo. 131’’ in its place.

Note: The text of Form 20–F does not, andthe amendment will not, appear in the Codeof Federal Regulations.

By the Commission.Dated: January 5, 1999.

Margaret H. McFarland,Deputy Secretary.[FR Doc. 99–589 Filed 1–11–99; 8:45 am]BILLING CODE 8010–01–P

DEPARTMENT OF THE TREASURY

17 CFR Part 405

RIN 1505–AA74

Office of the Assistant Secretary forFinancial Markets; GovernmentSecurities Act Regulations: Reportsand Audit

AGENCY: Office of the AssistantSecretary for Financial Markets,Treasury.ACTION: Final rule.

SUMMARY: The Department of theTreasury (‘‘Department’’ or ‘‘Treasury’’)is publishing an amendment to thereporting requirements in § 405.2 of theregulations issued under theGovernment Securities Act of 1986(‘‘GSA’’), as amended.1 17 CFR 405.2 ofthe GSA regulations requires entitiesregistered with the Securities andExchange Commission (‘‘SEC’’) asspecialized government securitiesbrokers and dealers (‘‘registeredgovernment securities brokers anddealers’’) under section 15C(a)(2) of theSecurities Exchange Act of 1934 (the‘‘Exchange Act’’) 2 to comply with therequirements of section 240.17a–5 of theExchange Act (SEC Rule 17a–5). On July13, 1998, the SEC issued an amendmentto SEC Rule 17a–5 that requires generalpurpose broker-dealers to file tworeports regarding their year 2000(‘‘Y2K’’) readiness. The Departmentthen published proposed Y2K reportingrules on October 5, 1998, thatessentially parallel the SEC’s Y2Kreporting rules.3EFFECTIVE DATE: February 11, 1999.ADDRESSES: This final rule is availablefor downloading from the Bureau of thePublic Debt’s Internet site at thefollowing address:www.publicdebt.treas.gov. It is alsoavailable for public inspection andcopying at the Treasury DepartmentLibrary, FOIA Collection, Room 5030,Main Treasury Building, 1500Pennsylvania Avenue, NW, Washington,DC 20220. To visit the library, call (202)622–0990 for an appointment.FOR FURTHER INFORMATION CONTACT:Kerry Lanham (Acting Director) orChuck Andreatta (Senior FinancialAdvisor), (202) 219–3632, GovernmentSecurities Regulations Staff, Bureau ofthe Public Debt, 999 E Street, NW, Room315, Washington, DC 20239–0001.SUPPLEMENTARY INFORMATION:

I. BackgroundOn July 13, 1998, the SEC issued an

amendment to SEC Rule 17a–5 4 thatrequires general purpose broker-dealersto file two reports regarding their year2000 (‘‘Y2K’’) readiness.5 Each report isto be filed with the SEC and theappropriate designated examiningauthority.

In developing its amendment, the SECidentified six stages involved inpreparing for the year 2000: (1)awareness of potential Y2K problems;

(2) assessment of what steps the broker-dealer must take to avoid Y2K problems;(3) implementation of the steps neededto avoid Y2K problems; (4) internaltesting of software designed to avoidY2K problems; (5) integrated orindustry-wide testing of softwaredesigned to avoid Y2K problems(including testing with other broker-dealers, other financial institutions, andcustomers); and (6) implementation oftested software that will avoid Y2Kproblems.6 The reports require broker-dealers to address these six stages ofpreparation.

For purposes of its amendment, theSEC identified ‘‘year 2000 problems’’basically as problems arising from: (1)computer software incorrectly readingthe date ‘‘01/01/00’’ as being the year1900 or another incorrect year; (2)computer software incorrectlyidentifying a date in the year 1999 orany year thereafter; (3) computersoftware failing to detect that the year2000 is a leap year; or (4) any othercomputer software error that is directlyor indirectly caused by (1), (2), or (3). Afailure by the securities industry toprevent or minimize these types oferrors could endanger the nation’scapital markets and place at risk theassets of millions of investors.

The reports will enable the SEC tomonitor the steps broker-dealers aretaking to manage and avoid Y2Kproblems. The reports will also: (1)enable the SEC staff to report toCongress in 1998 and 1999 regarding theindustry’s preparedness; (2) supplementthe SEC’s examination module for year2000 issues; (3) help the SEC coordinateself-regulatory organizations onindustry-wide testing, implementation,and contingency planning; and (4) helpincrease broker-dealer awareness thatthey should be taking specific steps nowto prepare for the year 2000.7

Treasury’s final Y2K rules incorporatethe SEC’s final rules at § 240.17a–5(e)(5), with minor modifications. Thesame report (Form BD–Y2K, Parts I andII) required under the SEC’s rules is alsorequired under Treasury’s rules. Thisreport is required to be submitted to theSEC and to the broker-dealer’sdesignated examining authority. Inaddition, the Department requests that acopy of the report be provided directlyto the Government SecuritiesRegulations Staff.

1736 Federal Register / Vol. 64, No. 7 / Tuesday, January 12, 1999 / Rules and Regulations

8 Letter from Paula H. Simpkins, Vice Presidentand Assistant General Counsel, The Bond MarketAssociation, to Kerry Lanham, Acting Director,Government Securities Regulations Staff, datedNovember 4, 1998. The letter can be downloadedfrom the Bureau of the Public Debt’s website atwww.publicdebt.treas.gov. It is also available forinspection and copying at the Treasury DepartmentLibrary at the address provided earlier in the rule.

9 Securities Exchange Act Release No. 34–40164,(July 2, 1998) 63 FR 37709 (July 13, 1998).

10 Securities Exchange Act Release No. 34–40608,(October 28, 1998) 63 FR 59208 (November 3, 1998).

11 17 CFR 240.17a–33.12 63 FR 12056, 12059 (March 12, 1998) and 63

FR 37668 (July 13, 1998).13 17 CFR 240.17a–11.14 See supra note 8.

II. Comments Received in Response toProposed Rules

The Department received onecomment letter in response to itsproposed amendments, from The BondMarket Association (‘‘Association’’).8The Association supports theDepartment’s proposals. TheAssociation, however, asked forclarification regarding the proposedexemption provided to a specializedgovernment securities broker-dealer(‘‘15C firm,’’ i.e., registered with theSEC under Section 15C of the ExchangeAct) that has an affiliated registeredbroker-dealer that files reports under theSEC’s Y2K reporting rules. Theproposed rule said that such 15C firmswould be exempt from the Department’sY2K rules if the affiliate’s reportsencompass Y2K issues that include the15C firm’s transactions in, and holdingsof, government securities. Specifically,the Association was concerned abouthow the SEC and Treasury would knowif a 15C firm was relying on theexemption. The Association thereforerecommended that Treasury considerrequiring 15C firms relying on theexemption to write a letter to the SEC,Treasury and their designatedexamining authority stating theirreliance on the exemption, the name ofthe affiliate that filed the reportencompassing the information ongovernment securities transactions, andthe date the report was filed. This finalrule basically adopts thisrecommendation.

The Association also asked for furtherclarification on which firms wouldqualify for this exemption. Specifically,the Association said that firms areconcerned whether the reports alreadyfiled in August 1998 under the SEC’sY2K reporting rules would be deemedsufficient to satisfy the conditions of theexemption. Such reports would bedeemed sufficient by the Department. Ifthe affiliated firm filed a Form BD–Y2Kprior to the August 31, 1998 SECdeadline (either Part I or both Parts Iand II) and the report encompassed the15C firm’s government securitiestransactions and holdings, that 15C firmis exempt from the Department’s Y2Kreporting rules and will only berequired to submit a letter as discussedabove. If the 15C firm does not havesuch an affiliate that has already filed a

Y2K report with the SEC, then the 15Cfirm must complete Form BD–Y2Kunder the Department’s Y2K reportingrules.

In a footnote to its comment letter,The Bond Market Association informedthe Department of its understanding thatsome 15C firms have already completedand filed their Y2K readiness reportseven though they were not required todo so under the SEC’s Y2K reportingrules. Any such 15C firms will beviewed by the Department as havingfiled their reports and will not have tofile again. However, such firms shouldsubmit a letter to the SEC and theirdesignated examining authority statingthe date that the reports were submitted.

Finally, the Associationrecommended that Treasury considerfinalizing and publishing its final rulein the Federal Register before November15, 1998. The principal concern wasthat it would be difficult to report ‘‘asof’’ a date that was prior to thepublication date in the Federal Register.To avoid this problem, the Departmentis requiring the reports to be filed byFebruary 28, 1999, to reflect the statusof a firm’s Y2K readiness as of January15, 1999.

III. Additional AnalysisAt the same time that the SEC

published its final Y2K reporting rulesfor general-purpose broker-dealers, italso issued a companion release tosolicit comments on the feasibility ofhaving an independent publicaccountant perform an ‘‘agreed-uponprocedures engagement.’’ The proposedengagement would follow certainestablished procedures as anindependent check on a broker-dealer’sassertions in its second filing of FormBD–Y2K, which is due April 30, 1999.9The SEC subsequently adopted theproposed amendment for engagement ofan independent public accountant, withsome modifications.10

Although the Department reserves theright to require that Y2K reports besubmitted again sometime during 1999,at this time the reports will be requiredto be filed only once, by the February28, 1999 deadline, with no independentaccountant involvement. TheDepartment would expect, however,that an independent public accountant’srequired ‘‘material inadequacies’’ letterwould include a discussion of Y2Kissues if any potential problems in thisregard were to be found.

Copies of Form BD–Y2K are availablein the SEC’s Public Reference Room at

450 Fifth Street, NW, Washington, DC20549, or copies can be obtained fromthe SEC’s Internet website at thefollowing address: www.sec.gov.

IV. Notice Regarding Current Booksand Records Requirements

Section 404.2 of the GSA regulationsrequires registered governmentsecurities broker-dealers, with certainmodifications, to comply with SEC Rule17a–3. This SEC rule requires registeredbroker-dealers to make and keep currentcertain books and records relating to thebroker-dealer’s business.11 In thepreambles to its proposed and finalrules, the SEC warned that a broker-dealer with computer systems that haveY2K problems may be deemed not tohave accurate and current records andin violation of Rule 17a–3.12 TheDepartment reiterates this advisory. TheSEC also reminded broker-dealers thatits Rule 17a–11 13 requires every broker-dealer to promptly notify the SEC of itsfailure to make and keep current booksand records.14 The Department remindsregistered government securities broker-dealers that they have this samerequirement under § 405.3 of the GSAregulations.

V. Special AnalysesThis rule does not meet the criteria for

a ‘‘significant regulatory action’’ underExecutive Order 12866.

In the preamble to the proposed rules,regarding the requirement under theRegulatory Flexibility Act (5 U.S.C. 601,et seq.), the Department certified thatthis amendment would not have asignificant economic impact on asubstantial number of small entities.Accordingly, a regulatory flexibilityanalysis was not prepared.

The collection of information underthis final amendment consists of thecompletion of Form BD–Y2K. Thiscollection of information has beenreviewed and approved by OMB andassigned control number 3235–0511.

List of Subjects in 17 CFR Part 405Brokers, Government securities,

Reporting and recordkeepingrequirements.

For the reasons set out in thepreamble, 17 CFR Part 405 is amendedas follows:

PART 405—REPORTS AND AUDIT

1. The authority citation for Part 405continues to read as follows:


Authority: 15 U.S.C. 78o–5(b)(1)(B),(b)(1)(C), (b)(2), (b)(4).

2. Section 405.2 is amended byredesignating paragraphs (a)(11) and(a)(12) as paragraphs (a)(15) and (a)(16),respectively, and adding newparagraphs (a)(11) through (a)(14) toread as follows:

§ 405.2 Reports to be made by registeredgovernment securities brokers and dealers.

(a) * * *(11) Section 240.17a–5(e)(5)(ii) is

modified to read as follows:‘‘(ii) No later than February 28, 1999,

every registered government securitiesbroker or dealer shall file Part I of FormBD–Y2K (§ 249.618 of this title)prepared as of January 15, 1999.’’.

(12) Section 240.17a–5(e)(5)(iii) ismodified to read as follows:

‘‘(iii)(A) No later than February 28,1999, every registered governmentsecurities broker or dealer required tomaintain minimum liquid capitalpursuant to § 402.2(b)(1) or (b)(2) of thistitle as of January 15, 1999, shall filePart II of Form BD–Y2K (§ 249.618 ofthis title). Part II of Form BD–Y2K shall

address each topic in § 240.17a-5(e)(5)(iv) as of January 15, 1999.

‘‘(B) No later than April 30, 1999,every registered government securitiesbroker or dealer that was not required tofile Part II of Form BD–Y2K underparagraph (e)(12)(iii)(A) of this sectionbut was required to maintain minimumliquid capital pursuant to § 402.2(b)(1)or (b)(2) of this title at any time betweenJanuary 16, 1999, and March 15, 1999,shall file Part II of Form BD–Y2K. PartII of Form BD–Y2K shall address eachtopic in § 240.17a-5(e)(5)(iv) as of March15, 1999.

‘‘(C) Any registered governmentsecurities broker or dealer that has anaffiliated registered broker or dealer thatfiles Form BD–Y2K subject to 17 CFR240.17a–5(e)(5) will be exempted fromparagraphs (e)(11) and (12) of thissection, provided the affiliate’s reportencompasses the registered governmentsecurities broker’s or dealer’stransactions in, and holdings of,government securities. Any suchregistered government securities brokeror dealer shall submit a letter stating its

reliance on the exemption, the name ofthe affiliated registered broker or dealerthat filed the report encompassing itsgovernment securities transactions andholdings, and the date the report wasfiled. The letter shall be filed with theSEC’s principal office in Washington,D.C. and with the broker’s or dealer’sdesignated examining authority.’’.

(13) The report by an independentpublic accountant described in§ 240.17a-5(e)(5)(vi) of this title,concerning a broker’s or dealer’s processfor addressing year 2000 problems, isnot required.

(14) References to Form BD–Y2Kmean Form BD–Y2K in § 249.618 of thistitle.* * * * *

Dated: December 28, 1998.Gary Gensler,Assistant Secretary for Financial Markets.

Note: Form BD–Y2K does not appear in theCode of Federal Regulations. Form BD–Y2Kis attached as Appendix A to this documentas follows:

BILLING CODE 4810–39–P


[FR Doc. 99–654 Filed 1–11–99; 8:45 am]BILLING CODE 4810–39–C

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