December 9, 1998 Jonathan G. Katz Secretary U.S. Securities and Exchange Commission Room 6148, Stop 6-9 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Release No. 34-40518; File No. S7-26-98; Proposed Amendments to the Broker/Dealer Books and Records Requirements under the Securities Exchange Act of 1934 Dear Mr. Katz: This letter is in response to the Commission's request for comments to its reproposed amendments to broker-dealer books and records Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934 (the Exchange Act") contained in Exchange Act Release No. 34-40518 (the "Reproposal"). PNMR Securities, Inc. ("PNMR") is a registered broker-dealer under the Exchange Act, a member of the National Association of Securities Dealers, Inc. and an affiliate of SAFECO Life Insurance Company. PNMR's broker-dealer activities are generally limited to the sale of mutual funds and variable insurance products through approximately 350 independent contractors who are located throughout the United States. Although PNMR did not comment on the original 1996 proposal, it concurred with the comments submitted on behalf of insurance-affiliated broker-dealers by the American Council of Life Insurance. And, like many other broker-dealers, PNMR is troubled that, notwithstanding many strongly worded comment letters from the broker-dealer community, the Commission apparently dismissed without comment many of the industry's suggestions and concerns regarding the original proposal and that many of the provisions of the Reproposal that are most burdensome to the industry remain relatively unchanged. Although PNMR expects to join in and endorse the comment letter which we understand will be submitted by the American Council of Life Insurance, PNMR is separately commenting on the provisions in the Reproposal requiring (1) maintenance of records at local offices or state record depositories; and (2) that customer account information be furnished to the customer every 36 months. Maintenance of Records at Local Offices or State Record Depositories PNMR conducts its securities business through 1) its home office, located in Seattle Washington; (2) five additional Offices of Supervisory Jurisdiction located in New Mexico, Pennsylvania, Illinois, Washington and Georgia; (3) five non-OSJ branch offices located in Illinois, Washington, California, and Georgia; and (4) more than 339 additional non-branch offices located in various states, only 29 of which would come within the definition of "local office" as defined in the Reproposal. Because PNMR's retail sales force is comprised of geographically dispersed independent contractors, PNMR has developed a centralized approach to maintaining required books and records in order to enhance control, efficiency, quality, accuracy, and availability. For the most part, PNMR maintains its records at its home office using a combination of systems and paper based-recordkeeping that is adequate given the nature and volume of the business it transacts. In order to comply with the provisions regarding "local office" records, new records would have to be created and paper records would have to be copied, sent to, and maintained at non-branch offices. The cost to PNMR of creating new or duplicate records and maintaining them in non-branch offices would be substantial and such records would have no business purpose. In addition, most of PNMR's non-branch offices do not have the capability of displaying and reproducing documents electronically stored in PNMR's home office and, since PNMR registered representatives who work out of non-branch offices are independent contractors, PNMR can neither require such representatives to purchase the hardware or software necessary to access records from PNMR's home office, nor afford to provide such hardware or software to them. Moreover, since PNMR has no employees or facilities in most states, it cannot realistically utilize a "state record depository" as defined by the Reproposal in any states other than those where it has branch offices (currently six states). As a result, if the Reproposal were adopted without change, PNMR would be required to maintain the required records in each of the 339 non-branch locations in which one or more retail representatives are located. Although PNMR supports reasonable books and records requirements that permit federal and state regulatory authorities to carry out their responsibility to protect the investing public, PNMR believes that the provisions dealing with retention of records at "local offices" or "state record depositories" significantly increase administrative burdens and compliance costs without providing any substantial enhancement of customer protection. We do not agree with the justification put forward by state regulators, which apparently has been accepted by the Commission at face value, that state regulators cannot adequately protect the public unless actual documentation or electronically available information is located within their jurisdiction. Rather, PNMR is in agreement with other commenters who suggested that a much more reasonable and cost-effective approach would be to permit broker-dealers to maintain records at a central location and enact an access rule which would require broker-dealers to respond to reasonable requests for information within a reasonable amount of time, with sanctions for failure to comply. Customer Account Record Requirements Proposed Rule 17a-3(a)(16) would require broker-dealers to update customer account records at least once every 36 months through a copy of the customer's account record or an alternate document with all information required by paragraph 17(a)(16)(i)(A). The intent of this requirement is to provide customers with the opportunity to verify and update the information in their records. PNMR believes this requirement is unduly rigid and burdensome for all but the largest, most technologically advanced broker-dealers. The intent of the rule could be accomplished through a modification of SRO rules to require members to maintain "current" customer account information. And, to ensure that all customers know that they should contact their registered representative if any changes occur, a separate statement could be inserted along with other customer communications on an annual basis. Summary Requiring broker-dealers to create and maintain duplicative records in "local offices" or "state record depositories" or confirm customer account information on an artificially mandated schedule runs counter to the traditional approach that requires broker-dealers to supervise and conduct their operations in a manner that is reasonably designed to promote regulatory compliance but allows sufficient flexibility for each firm to develop policies and procedures appropriate to its size, structure and business. Accordingly, we urge the Commission to carefully consider industry concerns before adopting the proposed amendments. Sincerely, /s/ Leslie A. Harrison Senior Corporate Counsel PNMR Securities, Inc. 601 Union Street, Suite 610 Seattle, Washington 98101