Margaret Gross Senior Vice President Associate General Counsel Legal Department THE CHASE MANHATTAN BANK 270 Park Avenue New York, New York 10017 Tel 212-270-2097 December 27, 1996 Mr. Jonathan G. Katz Secretary Securities and Exchange Commission 450 Fifth Street N.W. Mail Stop 6-9 Washington, D.C. 20549 Re: File Number S7-27-96 (Books and Records Requirements for Brokers and Dealers) Dear Mr. Katz: I am pleased to submit these comments on behalf of The Chase Manhattan Corporation on the Commission's proposed changes to Rules 17a-3 and 17a-4 (the "Proposed Rule") under the Securities Exchange Act of 1934 (the "Exchange Act"). Chase also participated in the preparation of the comment letter of PSA The Bond Market Trade Association, and fully supports the comments made in that letter. The Chase Manhattan Corporation has a number of subsidiaries registered with the Commission as brokers or dealers. The largest of these are Chase Securities Inc. ("CSI"), which is a broker-dealer catering exclusively to clients who are institutions and very high net worth individuals, Chase Investment Services Corporation ("CISC"), which serves a retail customer base, clearing on a fully disclosed basis through an unaffiliated broker-dealer, and Brown & Company Securities Corporation (Brown & Co.), a so-called "deep discount" broker providing solely order-taking services and no research or trade recommendations. The Proposed Rule will create significant new regulatory burdens on all of these subsidiaries. Chase supports the Commission's efforts to maintain a uniform federal regime for regulating the books and records of broker-dealers. Such efforts are consistent with the goals of the National Securities Markets Improvement Act of 1996 (the "Improvement Act"), which prohibits state books and records requirements that are inconsistent with federal requirements. We note, however, that the purpose of the Improvement Act was to ease the regulatory and administrative burdens on broker-dealers wherever possible. The Proposed Rule is not consistent with that goal. It constitutes regulatory micro- management based on a retail cold-calling model that does not take into account the great variety of types of broker-dealers and the way they are organized and conduct business. It expands the types of records which a broker dealer must create, it establishes substantive requirements regarding suitability, including a requirement for an annual update of customer's investment objectives, and for the first time prescribes the particular manner in which broker-dealer firms must supervise their associated person, it expands the amount of time that records must be kept in a readily accessible place, and for the first time specifies that certain records must be maintained at local offices - and not merely at offices of supervisory jurisdiction ("OSJ's"). These changes will necessitate significant and costly systems changes at broker-dealer firms. The Commission has noted that the Proposed Rule is a response to certain concerns raised by members of the North American Securities Administrators Association ("NASAA"). The principal complaints of NASAA seem to be that state examinations have been hindered by (1) the absence of relevant records in local offices, (2) long delays in producing required records from a central location, and (3) poorly organized records. Consequently, the new requirements are intended to obligate broker- dealers to make and retain certain additional records that would be valuable to state regulators during examination and enforcement proceedings. Chase believes that the Proposed Rule, while convenient for NASAA, is not "necessary or appropriate in the public interest, for the protection of investors" within the meaning of the Exchange Act, as modified by the Improvement Act and goes substantially beyond what is necessary to address the legitimate concerns of NASAA. It creates new substantive requirements in the guise of a recordkeeping rule, and fails to distinguish between what is necessary, or even cost-effective, and what is convenient for state securities administrators and the plaintiff's bar. Instead of the approach taken by the Proposed Rule, Chase believes that the Commission should adopt a rule targeted to retail customers which addresses the manner in which existing records are kept and how quickly they must be produced for local regulators. I. General Comments on the Proposed Rule 1. Extending Recordkeeping Requirements to Local Offices One effect of the Proposed Rules is to require certain records to be maintained in "local offices" rather than in an Office of Supervisory Jurisdiction. The definition of "local office" includes any location where an employee solicits transactions or accounts for the member. Thus, it includes places which do not rise to the level of branch offices under the rules of the NASD. See NASD Rule 3010 and Notice to Members 92-18. For example, a place which is not held out to the public as a branch, but where one or more representatives might schedule meetings on an appointment-only basis for the purpose of soliciting business, would not be considered a branch office. Yet the location might be considered to be places where an associated person "regularly" solicits business. This extension of record-keeping requirements will be a substantial burden for bank affiliated broker-dealers who maintain offices that are "cubicles" or "kiosks" in bank branches, supermarkets and malls. Although Rule 17a-4(l)(3) offers some relief with respect to a single-agent office, it does not greatly alleviate the burden. It assumes that, once two agents use an office, someone has enough time to maintain books and records at the location, and the location has enough room for maintenance of substantial records. This is clearly not the case with a kiosk or a desk at a bank branch that is temporarily staffed. Proposed Rule 17a-3(a)((20), in conjunction with proposed Rule 17a-4(l)(1), will require all records concerning an associated person to be stored in the local office where the associated person conducts most of his or her business. Information required to be maintained at the local office that is not likely to be accessible by computer terminal connected to the home office includes Forms U-4 and U-5, employment contracts, a summary of the associated person's compensation agreement, copies of customer complaints, proof that the associated person has been informed of all changes in his or her registrations, employment applications, account forms, a correspondence relating to the business of the office, and copies of all compliance, supervisory and procedures manuals. This information contains some matter that is highly confidential, and other matter that is potentially voluminous. The requirement to maintain records in a local office will also be difficult for broker-dealers that conduct a substantial amount of their business via telephone, which may be directly linked to a particular local office. Although the "account" may have been opened at a particular office, the customer may not be (indeed, for some brokers, is not likely to be) serviced by the same associated person each time. The rule should make clear that, in such cases, the associated person is deemed to be located in the office where he or she takes the call, and not where the customer happens to be located. In addition, a large number of associated persons for bank-affiliated broker- dealers may "ride circuit" between branch locations. Thus, it is likely that the local office where the associated person conducts the "greatest portion" of his or her business will change from year to year. NASAA presumably believes that, in such case, all records previously stored in one local office should be moved to another local office. Chase believes that this is one of the best reasons for maintaining such records in a central location. The requirement to maintain these records in a local office will be extremely costly in some cases, and impossible in others. Accordingly, in the name of convenience for local securities regulators, firms will be forced to eliminate local offices designed for the convenience of customers. The proposing release indicates that the proposed requirement was developed to address the NASAA Committee's concern that storage of records in distant locations can be an impediment to some inspections and investments. Chase agrees that state securities administrators have a legitimate regulatory concern where books and records are maintained in an OSJ thousands of miles from the administrator's state. However, it is less clear why a firm with 25 "kiosk-style" local offices in Manhattan and a headquarters and OSJ that is not more than 4 miles from any of them should be required to establish costly "local" recordkeeping systems. As long as the records are "accessible" with respect to the activities of the local office, it is unclear why any records must be maintained for three years at the local office. We believe the proposed rule should be amended to eliminate the requirement to maintain records at a "local office" where the records are maintained in an office in (i) the same state, or (ii) another state at a place not more than 50 miles from the local regulator's state, as long as the records can be accessed for the local office. 2. Creating Substantive Standards Regarding Suitability for Institutional Customers The Proposed Rule would require a broker-dealer to maintain an account form for each customer, designating the customer's investment objectives. The NASD's suitability rule requires that broker-dealers obtain such information only from non- institutional customers. See NASD Rule 2310(b). We believe the Commission's rule should similarly be restricted to non-institutional customers. The Proposed Rule would for the first time require a broker-dealer to maintain a specification of the approximate percentage of investment capital that the customer would like to allocate to speculative investments. Both the associated person responsible for the account and a principal must sign or initial the account form. In its proposing release, the Commission states that "the requirements to designate a speculative percentage are not intended to create any monitoring obligation." (The Commission makes no similar statement with respect to authorized individuals, although we believe it should). Chase believes that the principal effect of requiring this information on the account form is precisely to put the broker-dealer on notice of the information. As the Commission itself recognizes in the proposing release, the designated percentage will be "useful in assessing the suitability of recommendations made by a broker-dealer. It is probably safe to say that plaintiffs' lawyers will argue that the designated percentage should be dispositive. Accordingly, the existence of a percentage will mandate that broker-dealers develop the systems to monitor and comply with the percentage. The Proposed Rule thus effectively shifts to broker-dealers the burden of ensuring that all trades of institutional customers are suitable for the customer. This shift runs counter to the institutional suitability rule recently adopted by the NASD and approved by the Commission. See Release No. 34-37588 (August 20, 1996). Chase believes that any such shift in responsibilities raises substantial public policy considerations and should only be adopted by Congress, not mandated by the Commission in the guise of a simple record-keeping rule. II. Specific Comments on the Proposed Rule Rule 17a-3 1. Designating Trades as Solicited or Unsolicited. New paragraph (a)(6) requires a memorandum of each brokerage order to show whether a purchase or sale order was solicited or unsolicited. This is not a requirement of the existing rule and Chase's subsidiaries do not currently record this information. Consequently, the proposed rule will require a systems change. The concept of a "solicited" order is unclear in the investment grade debt markets, where securities are sold on the basis of yield and credit rating. Moreover, Chase does not believe that whether a trade was solicited is meaningful. For example, our discount broker, Brown & Co. engages in substantial advertising to encourage customers to execute their trades through Brown & Co. However, Brown & Co. is purely a discount broker. It does not offer investment advice or make recommendations. Accordingly, it has no suitability obligations under the NASD's rules. Nor does it engage in cold-calling, which is clearly one of the targets of NASAA. If the purpose of this requirement is to establish an audit trail with respect to information on suitability, then whether the purchase order was solicited or unsolicited is less relevant than whether the security was recommended by the broker-dealer. If the purpose is to create an audit trails with respect to transactions that resulted from cold- calling, then the required information should be whether the transaction resulted from a cold call. 2. Account Forms. New paragraph (a)(16)(ii) requires brokers and dealers to have an "account form" for every customer account which is sent to the customer for review no later than 30 days after the date of the first transaction. This requirement applies to both retail and institutional customers. The information required includes (1) the customer's educational level, and (2) if speculation or a high-risk objective is among the customer's investment objective, the approximate percentage or range of percentage to be dedicated to speculation. Chase broker-dealer subsidiaries, as NASD or NYSE members, are required to maintain certain information about each customer. Information currently required does not include either the customer's education level or a designation of the percentage of investment capital which the customer wishes to dedicate to speculation. Information about the customer's education level is not objectionable in principle. However, it is clearly not necessary to a determination of whether a particular investment is suitable for the customer. Thus, it is another example of the Commission substituting its own judgment of what is required for a suitability determination in place of the judgment of broker-dealer firms. We believe the determination of necessary information should be left to each firm. Chase does not object to asking customers to state whether speculation is one of their investment objectives. However, we strongly object to the designation of a percentage or range of percentage of "investment capital", since we believe that customers will then expect broker-dealers to monitor any level they identify. Even retail customers, however, often maintain brokerage accounts with several different broker-dealers. Consequently, it is almost impossible to ascertain the percentage of the customer's total investment assets represented by investments held by a particular broker-dealer. The situation is even more difficult to assess with respect to institutional investors. A position that might seem speculative to some may actually be hedging a position held at another broker-dealer. Moreover, we believe it is impossible to develop a single definition of the term "speculation", since what is "speculative" depends on the situation of the investor. What is speculative for one investor may constitute a bona fide long-term growth objective for another investor. A 30-year Treasury bond is not a speculative instrument for a single 25-year old planning for retirement, but may be speculative for a 35-year old with children approaching college age and is probably speculative for a 65-year old with immediate cash needs. Indeed, an investor who purchases a fixed rate fixed income security of a AAA- rated issuer is speculating that interest rates will not rise. Paragraph (a)(16)(ii)(C) requires a broker-dealer who provides a definition of speculation or a similar high-risk objective to state that "such investments involve a high risk of loss that may exceed the losses in general market averages on any specific day or over a longer period of time." Chase believes that this definition applies to all investments below the median in market averages on any given day, many of which would not generally be thought of are speculative. Accordingly, the proposed requirement should be eliminated. 3. Obligation to Verify and Update Customer Information. New paragraph (a)(16)(ii) requires the information described above to be obtained upon the opening a new account, sent to the customer for verification, and updated "if required" on an annual basis thereafter. We understand that many retail broker-dealers currently send account forms to customers. We do not believe this practice is followed for institutional customers. In the case of CSI, we believe we would need to hire several additional clerks to comply with these new requirements. Moreover, we question whether it is useful with respect to institutional customers. The promulgating release indicates that the Commission estimates that only 10% of customer accounts of a typical broker-dealer would need to be updated each year, and that it should require approximately five minutes to update its customer account records. This estimate ignores the fact that a broker-dealer will have to poll all of its customers to determine whether it is necessary to update the customer form. Such a poll will take substantially more time. Some broker-dealers will be able to delegate this responsibility to associated persons as part of their normal customer relations duties. Associated persons at most of our broker-dealers do not have assigned customers. Accordingly, the updating task will have to be performed centrally by sending a questionnaire to customers, and then analyzing the responses and inputting the information provided. The promulgating release recognizes that the annual updating requirement presents "potential burdens" and solicits suggestions of less burdensome alternatives that would nevertheless provide broker-dealers and regulators with a reasonably current indication of each customer's investment objectives. Chase believes there are two ways in which the updating requirement could be made less burdensome. First, broker-dealers whose customers are solely institutions and high net worth individuals, and "order-taking only" broker-dealers who make no recommendations and thus have no suitability obligations, should be exempted from the rule requiring customer account forms. Second, the requirement should be for a 5-year updating, unless the firm has reason to believe that there has been a change in the customer's investment objectives. 4. Phase-In of Account Form Requirement to Existing Customers. Because the rule's requirements regarding account forms contain a number of items not currently required by the NASD, and it will be difficult as a practical matter for broker-dealers to prepare the required account forms for existing customers, the Commission proposes to delay effectiveness of the rule with respect to existing customers for a one-year period from the date of adoption. We believe a 2-year phase-in period would be more realistic. For example, if each customer of all of our broker-dealer subsidiaries returned a new account form, the filing and computer inputting job would be massive, and it would be difficult to handle using solely overtime of existing employees. If institutional customers are not exempted, and respond to a customer account form by sending copies of their investment statutes, investment guidelines, trust agreements or prospectuses, at least two years will be required. 5. Memorandum of Customer Neglect. New paragraph (a)(16)(iii) recognizes that not all customers will provide the information required above. It therefore excuses the broker- dealer from obtaining the information as long as it maintains "a written memorandum of such customer's neglect, refusal or inability to provide the required information". The requirement for the written memorandum is unclear. Must the written memorandum be placed in the file of each customer who has not responded, or is it enough to maintain lists of customers who have not responded? A requirement to place a "memorandum" in each customers file would be extremely burdensome, and seems designed solely for the convenience of NASAA without any benefit in terms of customer protection. As a matter of regulatory enforcement, it should be sufficient for the broker-dealer to demonstrate that it has requested the required information. 6. Customer Complaint Files. New paragraph (a)(17) of the rule deals with customer complaint files. Although Rule 17a-3 has not previously addressed customer complaints, the subject is covered by the rules of the NASD [see Rule IM 3110(d)]. The proposed rule contains several new requirements (1) it requires that information on customer complaints (a copy of the complaint and the response) be maintained at the local office of the broker-dealer, rather than the OSJ, (2) it requires that information be maintained by associated person, (3) it requires the complete complaint file (which need not be maintained at the local office) to contain not only a copy of the written complaint, the correspondence connected with the complaint, and the action taken by the member, but also all other documents received or generated in connection with the complaint, (4) it requires a written memorandum of certain oral complaints, and (5) it requires broker- dealers to advise customers that they should put their complaints in writing. Chase believes that these additional requirements are unnecessary and are detrimental to the legitimate interests of broker-dealers. a. Location of Complaint Files. The NASD rule currently requires that there be maintained, at the office of supervisory jurisdiction, either a separate file of all written customer complaints (and actions taken by the member, if any) or a separate record of the complaints and a reference to the files containing the correspondence connected with the complaint. Chase believes that it is common for the OSJ to maintain a record of the complaints and a reference to the fact that all correspondence in connection with the complaint is maintained in the Legal or Compliance Department. There are good reasons why many broker-dealer have decided to centralize the customer complaint function with Legal or Compliance. First, the resolution of complaints by a non-involved person is an important "separation of duties" control. Second, the rules of the NASD prohibit associated persons from sharing in the profits or losses in customer accounts. Accordingly, associated persons who attempt to settle complaints on their own are subject not only to internal discipline but also censure and fine by the NASD. Any new requirement to maintain copies of the complaint and the response or resolution at the local office as well as the OSJ will necessitate duplicating records that are now maintained at the OSJ, and we believe this extra work is unjustified. b. Sorting by Associated Person. NASAA would like all broker-dealers to maintain complaint information by associated person, in order to aid in identifying problem employees. Chase believes that, in the case of wholesale broker-dealers, order-taking only broker-dealers, and small broker-dealers, it is unnecessary to require such sorting of complaints. For example, CSI and Brown & Co. now maintain their customer complaint files in chronological order. However, the number of complaints is small enough that any pattern of misconduct is readily identifiable. Accordingly, we believe that the expense of the necessary system and filing changes is not warranted. Offices of supervisory jurisdiction are already required to maintain files (ours are chronological) of complaints and the action taken with respect to those complaints. See NASD Rule 3110(d). c. All other documents connected to a complaint. A fair reading of the NASD rule is that only correspondence with the complaining customer is required. The proposed rule would require all communications between the broker-dealer and all documents and memoranda generated by Legal or Compliance. This appears to be a blatant attempt to turn what would otherwise be attorney-client privileged documents or attorney work-product (documents prepared in reasonable anticipation of potential litigation) into documents maintained in the ordinary course of business to which no privilege would attach. Chase maintains that there is no reasonable justification for such an attack on the legal rights of broker-dealers. d. Memoranda of Oral Complaints. New Paragraph 17(ii) requires for the first time that certain oral complaints be noted in a memorandum. We disagree with the decision to require memorialization of oral complaints, since we believe that the distinction between oral and written complaints is useful in gauging the seriousness of the problem. If the memorialization requirement is adopted, we believe it should be modified. The proposal requires that the memorandum must be prepared by a branch manager, principal or compliance department employee even if such employee was not the recipient of the oral complaint. We believe any such memorandum should be prepared by the person who listened to the complaint, and reviewed and initialed by the branch manager, a principal, or an officer in the compliance or legal department. e. Advising Customers to File Written Complaints. The proposed rule requires every broker-dealer to notify its customers in a prominent notice on its customer account statements that customers should put their complaints in writing. If this requirement is designed to address the problem that certain broker-dealers have discouraged customers from making written complaints, the presence of a prominent notice on the account statement of the address where written complaints can be filed should be sufficient. 7. Commissions. Paragraph (a)(18) would require certain information about commissions, overrides and other compensation. It appears to be tailored to retail brokerage, where commissions are paid on a security-by-security basis. Although the rule recognizes that compensation may be based on factors other than remuneration per trade, it does not adequately make provision for systems such as ours where sales credits for selling are only one part of the compensation, and managers have a great deal of latitude to assess such factors as teamwork and compliance with policies and procedures. Chase believes the rule, if adopted, should make clear that the requirement to "document the method by which the compensation paid was earned" will not result in a set formula. 8. Reports of Exceptional Numerical Occurrences. Paragraph (a)(19) for the first time requires a particular method of supervision of employees: generating reports of exceptional numerical occurrences. Although we currently can generate reports to trade corrections or cancelled transactions, we would have to make system changes before we could run reports of frequent trading in customer accounts, unusually high commissions. Since none of our broker-dealer subsidiaries has investment discretion over customer accounts, we do not believe that frequent trading in customer accounts is indicative of behavior on the part of our associated persons. Similarly, we do not believe that high commissions (or sales credits) is indicative of improper behavior in connection with institutional salespersons, many of whom have customers who trade very large positions. Even though the rule would allow broker-dealers to develop their own criteria for trading frequency and "unusually large" commissions, we do not believe that the resulting reports would give us significantly more information about associated persons than information we currently possess. Therefore, we believe the Commission should eliminate this new requirement, or apply it only to retail broker-dealers who have investment discretion over customer accounts. 9. Requirement to Notify Associated Person of Each Change. Paragraph (a)(20) requires a broker-dealer to maintain proof that, upon every change in licensing affecting an associated person, the associated person has been notified. While we agree that associated persons are entitled to such notice, we currently give such notice on a periodic basis, and not after each change in licensing. We believe that such periodic notice is fair and sufficient, and that the rule should allow for it. (In most cases, an employee is consulted before a change in registration is processed.) Rule 17a-4 10. Record Retention in an accessible place. The Commission believes that advances in record-storage technologies and decreased reliance on paper records have made it possible for broker-dealer firms to maintain all of their records in an easily accessible place. We believe this assumption is incorrect. It is true that many blotters and trading records are maintained on computers. Nevertheless, a substantial amount of broker-dealer records are still maintained in hard- copy form. This includes all correspondence, customer account agreements, agreements with third parties (such as vendors of software and office supplies and equipment), employee-specific information such as U-4's, U-5's, employment contracts and compensation records. While the technology exists to store such documents on CD-ROM disks (and we have begun experimenting with such technology), Chase does not believe that the current cost and quality of computer imaging is worth the benefit of computer- imaging. Even where records are maintained on mainframe computers belonging to Chase, our storage capacity is not limitless. We normally back up computer records to tape every day and store the tapes. Although our broker-dealers currently have the ability to keep two years' information on a hard drive, we believe that the growth of the retail business is likely to limit our ability to maintain all records on a mainframe. Back-up tapes are not currently maintained in branch offices, but rather in a data processing center. To access a tape, it is necessary to have a technician mount it on a tape drive and play it. Moreover, as a result of mergers and systems upgrades, we have changed our systems a number of times. That creates difficulties in accessing old files, since the new operating system will not always read old files; thus the old operating system must also be mounted. Accordingly, in many cases, the requirement immediately to make available 5- or 6-year old records in local offices is impossible to comply with. Consequently, Chase believes that the Commission should retain the existing requirement that records be maintained for only 2 years in an easily accessible place. 11. Requirement to maintain documents at local office. We have discussed in our general comments above and in our comments on customer complaint files our objections to maintaining documents in a local office. We also have a number of specific objections to the proposal. (a) Many of the documents required to be maintained are highly confidential and are better kept in the headquarters office. This includes U-4's and U-5's, employment contracts, summaries of compensation, and detailed correspondence regarding customer complaints. We therefore believe that the rule should focus on requirements to make available copies of such records at a location in or near the securities regulatory authority's office in the state. (b) Where a number of employees are covered by the same remuneration or bonus arrangement, the firm should not be obligated to keep a copy of the agreement in the personnel file of each covered employee or to maintain a compensation summary form for each covered employee. 12. Maintaining copies of all communications sent by an Associated Person. Rule 17a- 4(b)(4) would require the broker-dealer to maintain copies of all communications sent by the member relating to its business, along with proof that it has been approved by a principal. We believe that this proposal is far too broad, and runs counter to recent SRO and Commission initiatives regarding supervisory review of correspondence using electronic means such as e-mail. See SEC Release No. 33-7288 (May 9, 1996). We also believe that prior principal approval of many types of factual information (e.g. yield spreads sent to institutional customers) is unnecessary. Prior approval of material that constitutes advertising and sales literature should be sufficient. 13. Advertising and Marketing Materials. Rule 17a-4(b)(10) requires that a member retain all records used to offer or sell any security. This requirement, including the requirement that internal communications be approved by a principal and that a record of such approval be maintain, goes well beyond any existing law or rule and would be extremely burdensome. As in the case of the rule regarding communications, it runs counter to the approach currently being taken by the SROs. 14. Basis for recommending a security underwritten or traded as principal. Paragraph 17a-4(b)(11) would require a broker-dealer to preserve any information relating to the basis for a recommendation of a security that the dealer underwrites or trades as principal. This rule is clearly over-broad. It would require the broker-dealer to preserve every newspaper article about a company that a research analyst read before making a recommendation, and transcripts or tapes of all conversations with the issuer. We believe maintenance of information the broker-dealer deems sufficient to support its recommendation should be more than adequate. 15. Special Examination Reports. Paragraph 17a-4(c)(5) would require a broker-dealer to preserve all audit or examination reports completed by a party other than the broker dealer. Chase believes that regular audit or examination reports by the broker-dealer's independent outside auditors should be available to securities regulatory authorities. However, two other classes of third-party reports should be exempt. First, many bank- affiliated broker-dealers are examined by bank regulators. These reports are prohibited by law from being disclosed. See 12 CFR 261.11(g). Accordingly, a securities regulator who wishes access to such a report should seek it from the bank regulator. Second, we believe that self-evaluative reports prepared by either inside or outside counsel should be protected from regulatory scrutiny. In certain cases, such reports prepared by lawyers have been held to be privileged. See, e.g. In re Woolworth Corp. Securities Class Action Litigation, 1996 WL 306576 (SDNY 1996, not reported in F. Supp.). Whether or not they are entitled to legal protection as privileged documents, we believe the rules of the Commission should encourage dealer self-regulation by affording them protection. 16. Compliance Manuals at Local Offices. Paragraph 17a-4(e)(6) would require the broker-dealer to maintain, at a local office, for three years after termination of use thereof, all compliance manuals pertaining to the operation of the office. For the reasons set forth above, this requirement is very onerous with respect to local offices that are not offices of supervisory jurisdiction. Although we are moving toward an environment where Compliance Manuals and other policies and procedures are posted on electronic bulletin boards, our plan is to post only the most current manuals and policies, in order to avoid confusion. Therefore, Chase believes that the rule should allow any superseded manual to be kept at the headquarters branch, provided that it is made available promptly upon request. 17. Principals Familiar with Records. Paragraphs (j)(1) and (k) require, respectively, "an" individual and "a principal" to explain or approve records. Chase believes that the Commission should clarify that these tasks may be performed by one or more principals or individuals, since it is unlikely in a large and diversified firm that a single individual will be familiar with all documents. 18. Immediate Document Production. Paragraph (j)(2) requires the "immediate" production of documents that are located in the office where the request is made. Chase believes that the requirement for "immediate" production is unrealistic, since retrieval takes time, even when the records are on the premises. Consequently, we believe broker- dealers should be given a reasonable time to produce records, taking into account the number and types of files (e.g. computer printouts or paper files) requested. Very truly yours, Marjorie E. Gross