Notices. SECURITIES AND EXCHANGE COMMISSION

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BILLING CODE 7905-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50291; File No. PCAOB-2004-04] Public Company Accounting Oversight Board; Order Approving Proposed Rules Relating To Oversight of Non-U.S. Registered Public Accounting Firms August 30, 2004. I. Introduction On June 18, 2004, the Public Company Accounting Oversight Board (the “PCAOB”) filed with the Securities and Exchange Commission (the “Commission”) proposed rules pursuant to section 107 of the Sarbanes-Oxley Act of 2002 (the “Act”) and section 19(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), relating to oversight of non-U.S. registered public accounting firms.

Notice of the proposed rules was published in the **Federal Register** on July 26, 2004, 1 and the period for public comment ended on August 16, 2004. The Commission received five comment letters relating to these rules. For the reasons discussed below, the Commission is granting approval of the proposed rules. 1 Release No. 34-50047 (July 20, 2004); 69 FR 44555 (July 26, 2004). II. Description The Act directs the PCAOB to conduct a continuing program of inspections of registered public accounting firms and to investigate alleged violations of the Act, related securities laws, and auditing and related professional practice standards.

Under the Act, non-U.S. registered public accounting firms are subject to PCAOB inspections and investigations to the same extent as U.S. registered public accounting firms. 2 The PCAOB's proposed rules provide that, in conducting its inspections and investigations of non-U.S. firms, the PCAOB, in appropriate circumstances, may rely on the work of non-U.S. oversight systems, based on the PCAOB's analysis of the independence and rigor of that home country oversight system. The proposed rules supplement, rather than replace or supersede, the PCAOB's existing rules with respect to inspections and investigations of registered public accounting firms, which apply to both domestic and foreign registered public accounting firms. 2 Section 106(a) of the Act.

With respect to inspections, the proposed rules establish a cooperative framework that uses a “sliding scale” approach, in which the degree of reliance the PCAOB will place on a firm's home country oversight system will vary depending on the PCAOB's analysis of that system. The PCAOB will determine the degree, if any, to which it may rely on an inspection conducted pursuant to a non-U.S. firm's home country oversight system. After making that determination, the PCAOB, to the extent consistent with its responsibilities under the Act, will conduct its own inspection of the firm in question in a manner that relies on the non-U.S. oversight system to the degree the PCAOB has determined to be appropriate.

In making its determination, the PCAOB will evaluate information concerning the home country oversight system's level of independence and rigor, including

(1)the adequacy and integrity of the oversight system,

(2)the independence of the system's operation from the auditing profession,

(3)the nature of the system's source of funding,

(4)the transparency of the system, and

(5)the system's historical performance. The rules contain examples of the criteria the PCAOB might apply in determining the appropriate level of reliance to place on a non-U.S. oversight system. The rules also provide that the PCAOB's evaluation of the appropriate degree of reliance to place on a non-U.S. oversight system will be based on its discussions with the appropriate oversight authority within that system, including discussions concerning the specific inspection work program proposed for the firm in question. With respect to investigations of conduct that may violate laws in both the United States and a foreign jurisdiction, the proposed rules provide that, in appropriate circumstances, the PCAOB may rely on a non-U.S. oversight authority's investigation or sanction of that firm. The PCAOB's reliance would depend in part on its assessment of the independence and rigor of the non-U.S. oversight system and also may depend on the oversight authority's willingness to update the PCAOB regarding the investigation on a regular basis and its authority and willingness to share relevant evidence with the PCAOB. The PCAOB's proposed rules also provide that the PCAOB may, as it deems appropriate, provide assistance to non-U.S. oversight authorities that are conducting inspections or investigations of U.S. registered public accounting firms pursuant to a non-U.S. oversight system. The rules provide that, in determining the extent of the assistance it will provide, the PCAOB may consider the independence and rigor of the non-U.S. oversight system that has requested the PCAOB's assistance. III. Discussion The Commission received five comment letters regarding the PCAOB's proposed rules for oversight of non-U.S. registered accounting firms. 3 The commenters generally supported the PCAOB's willingness to rely, to the extent possible, on inspections and investigations of non-U.S. firms by their home country oversight bodies. Several commenters also recognized that the PCAOB already had made modifications to respond to certain of the comments the PCAOB received during its development of the proposed rules. 3 The comments were submitted by two accounting firms, a professional association of non-U.S. accountants and two non-U.S. governmental authorities. Three of the commenters expressed concern with the PCAOB statement that, in determining the degree of reliance it would place on another oversight system, it would consider the background, qualifications and independence of the persons involved in that oversight system. The PCAOB has stated, however, that it would consider a variety of factors with no single factor being determinative, and that its level of reliance will not depend on how similar the oversight system is to the PCAOB. One of these commenters also disagreed with the PCAOB's decision not to permit appeals of its determinations about reliance on other oversight systems, but welcomed the PCAOB's statement that it would discuss its determinations with the home country oversight body. One commenter expressed concern that the PCAOB-designated “expert” on U.S. accounting and auditing matters might not be able to obtain full access to audit workpapers, due to conflicts with non-U.S. laws. That commenter encouraged the PCAOB to wait until it had more experience in working with non-U.S. oversight bodies before requiring that such an expert participate in each inspection, in order to avoid duplication of effort. The PCAOB's view is that using “experts” will help ensure that inspections of non-U.S. firms by foreign oversight bodies address compliance with U.S. requirements. Two commenters expressed concern with PCAOB participation in non-U.S. oversight activities and argued for mutual recognition of other oversight systems if the U.S. and non-U.S. systems are equivalent. The PCAOB considered the possibility of instituting a mutual recognition system, but rejected that idea in favor of a system that gives the PCAOB more flexibility to determine how best to carry out its responsibilities under the Act. One of these commenters also noted the risk of multiple inspections and investigations of “internationally active” companies and the risk that such companies could be subject to duplicative sanctions for the same offense, but also welcomed the PCAOB's commitment to continued discussions of potential legal conflicts and its willingness to consider reciprocal assistance to other oversight bodies. A third commenter also suggested that the PCAOB take greater account of international law conflicts, which in some jurisdictions may prohibit or restrict the PCAOB from entering the jurisdiction to inspect or investigate local entities, unless there is an agreement with or cooperation from local authorities. We understand that the PCOAB is discussing these matters with its foreign counterparts. Under the proposed rules the PCAOB has broad discretion in determining the extent to which, in carrying out its statutory authority to inspect and investigate registered public accounting firms, it will rely on the work of non-U.S. oversight systems, and the extent to which it will provide assistance to non-U.S. oversight systems. Many of the issues relating to implementation of the proposed cooperative framework will be negotiated by the PCAOB on a case-by-case basis with non-U.S. oversight bodies in those jurisdictions where such an oversight body exists. Like the United States, other jurisdictions also are in the process of developing or strengthening their own systems for auditor oversight. We encourage the PCAOB to continue its discussions with non-U.S. oversight bodies and to consider ways it can work cooperatively with its foreign counterparts to carry out its responsibilities under the Act. IV. Conclusion On the basis of the foregoing, the Commission finds that the proposed rules are consistent with the requirements of the Act and the securities laws and are necessary and appropriate in the public interest and for the protection of investors. *It is therefore ordered,* pursuant to section 107 of the Act and section 19(b)(2) of the Exchange Act, that the proposed rules governing oversight of non-U.S. registered public accounting firms (File No. PCAOB-2004-04) be and hereby are approved. By the Commission. Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2072 Filed 9-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50292; File No. SR-CBOE-2004-39] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Board Options Exchange, Inc. Relating to Extending a Limited Pilot Program for Maximum Bid/Ask Differentials August 31, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 7, 2004, the Chicago Board Options Exchange, Inc. (“CBOE” or “Exchange”) submitted with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On August 19, 2004, the Exchange filed Amendment No. 1 to the proposed rule change. 3 In Amendment No. 1, CBOE changed the filing from a proposed rule change filed under Section 19(b)(2)of the Act 4 to one filed under Section 19(b)(3)(A) of the Act. 5 Specifically, the Exchange designated its filing as non-controversial pursuant to Section 19(b)(3)(A)(iii) of the Act 6 and to Rule 19b-4(f)(6). 7 Accordingly, the proposed rule change became effective upon filing Amendment No. 1 on August 19, 2004. The Commission is publishing this notice, as amended, to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* letter from Angelo Evangelou, Senior Attorney, CBOE, to Kelly M. Riley, Assistant Director, Division of Market Regulation, Commission, dated August 19, 2004 (“Amendment No. 1”). In Amendment No. 1, the Exchange submitted a new Form 19b-4, which replaced and superseded the original filing in its entirety. 4 15 U.S.C. 78s(b)(2). 5 15 U.S.C. 78s(b)(3)(A). 6 15 U.S.C. 78s(b)(3)(A)(iii). 7 7 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its rules to extend a limited pilot program relating to maximum bid/ask differentials. 8 The text of the proposed rule change, as amended, is available at the offices of the Exchange and the Commission's Public Reference Room. 8 *See* Securities Exchange Act Release No. 48471 (September 10, 2003), 68 FR 54251 (September 16, 2003) (SR-CBOE-2003-08). II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CBOE included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. CBOE has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is proposing to extend a limited pilot exemption to the Market-Maker bid/ask differential requirements contained in CBOE Rule 8.7(b)(iv). As part of accommodating compliance with the Linkage Plan, 9 the Exchange introduced an “autofade” functionality which causes one side of CBOE's disseminated quote to move to an inferior price when the quote is required to fade pursuant to the terms of the Linkage Plan and/or when the size associated with the quote has been depleted by the Retail Automatic Execution System (“RAES”) (of both Linkage orders and non-Linkage orders). 9 The Plan for the Purpose of Creating and Operating an Intermarket Options Linkage (“Linkage Plan”) was originally approved on July 28, 2000. *See* Securities Exchange Act Release No. 43086, 65 FR 48023 August 4, 2000). Linkage orders are generally Immediate or Cancel limit orders priced at the national best bid or offer (“NBBO”) that must be acted upon within 15 seconds. The Linkage Plan provides several instances in which a Participant receiving a linkage order must fade its quote. For example, if a Participant receives a Principal Acting as Agent (“PA”) order for a size greater than the Firm Customer Quote Size and does not execute the entirety of the PA Order within 15 seconds, the Participant is required to fade its quote. CBOE's autofade functionality automates the fading process to ensure that members (and the Exchange) are in full compliance with this aspect of the Linkage Plan. Autofade moves CBOE's quote to a price that is 1-tick inferior to the NBBO. 10 This ensures that the Exchange will not immediately receive additional linkage orders to allow the member to refresh the quote (either manually or through an autoquote update). 10 The only exception is when CBOE's NBBO quote (or next best quote) is represented by a customer order in the book. In such cases, the Exchange does not fade a booked order (it would have to be traded). As mentioned above, autofade also applies anytime an automatic execution (of any order) via RAES has depleted the size of CBOE's quote. Once a quote is exhausted, autofade moves the quote to a price that is 1-tick inferior to the NBBO (as described above). Autofade is only necessary for classes that are not on the Exchange Hybrid System. Thus, this exemption is only needed until the full rollout of the Hybrid System is completed. For equity option classes that are not trading on the Hybrid System, the CBOE quote is generally derived from an autoquote system that is maintained by the Designated Primary Market-Maker (“DPM”). Certain DPMs utilize an Exchange-provided autoquote system while others employ proprietary autoquote systems. In either case, the autoquote system calculates bid and ask *prices* that are transmitted to the Exchange for dissemination to the Options Price Reporting Authority (“OPRA”). The DPM and the trading crowd separately input the *size* associated with the bid/ask prices. When an automatic execution occurs through the RAES system, the size associated with the quote is decremented until it is exhausted. However, because the autoquote system is only calculating prices and not quote sizes, the autoquote system is not aware that the size has been exhausted (or in the case of a remaining balance on a Linkage order, that the quote needs to fade in order to comply with the Linkage Plan). Therefore, the autofade functionality was built to override autoquote and move the quote price to 1-tick inferior to the NBBO. The “override” period only lasts for 30 seconds. However, the override can be overridden during that 30-second time period if the quote is manually updated by a trader or if the autoquote system transmits new bid/ask pricing to the Exchange. The exemption is for limited instances where the autofade functionality moves the quote in a manner that causes the quote width to widen beyond the bid/ask parameters provided pursuant to CBOE Rule 8.7(b)(iv). CBOE seeks to extend on a pilot basis the temporary exception to the requirements of CBOE Rule 8.7(b)(iv) in cases where *autofade* causes a quote that exceeds the quote width parameters of that rule. The proposed exemption period lasts for a maximum of 30 seconds after any given autofade that caused a wider quote than allowed under CBOE Rule 8.7(b)(iv). Thus, to the extent a quote remained outside of the maximum width after the 30-second time period, the responsible broker or dealer disseminating the quote would be deemed in violation of CBOE Rule 8.7(b)(iv) for regulatory purposes. CBOE proposes that the pilot run until February 17, 2006 (for 18 months) when all multiply listed classes are trading on CBOE's Hybrid Trading System. 2. Statutory Basis The Exchange represents that the proposed rule change, as amended, will, among other things, allow the Exchange to more easily comply with the requirements of the Linkage Plan. Accordingly, the Exchange believes the proposed rule change, as amended, is consistent with Section 6(b) of the Act 11 in general and furthers the objectives of Section 6(b)(5) 12 in particular in that it promotes just and equitable principles of trade, serves to remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest. 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule has become effective pursuant to Section 19(b)(3)(A) of the Act 13 and Rule 19b-4(f)(6) thereunder 14 because the foregoing proposed rule does not:

(i)Significantly affect the protection of investors or the public interest;

(ii)impose any significant burden on competition; and

(iii)become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, provided that the self-regulatory organization has given the Commission written notice of its intent to file the proposed rule change at least five business days prior to the filing date of the proposed rule change. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 15 13 15 U.S.C. 78s(b)(3)(A). 14 17 CFR 240.19b-4(f)(6). 15 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act, the Commission considers that period to commence on August 19, 2004, the date CBOE filed Amendment No. 1 to the proposed rule change. *See* 15 U.S.C. 78s(b)(3)(C). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-CBOE-2004-39 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-CBOE-2004-39. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal offices of CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2004-39 and should be submitted on or before September 28, 2004. 16 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 16 Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2079 Filed 9-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50279; File No. SR-DTC-2004-08] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to the Investor's Voluntary Redemptions and Sales Service August 27, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on August 2, 2004, The Depository Trust Company (“DTC”) filed a proposed rule change with the Securities and Exchange Commission (“Commission”) as described in Items I, II, and III below, which Items have been prepared primarily by DTC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change will enhance DTC's Investor's Voluntary Redemptions and Sales (“IVORS”) service to allow for the communication and processing of unit investment trust (“UIT”) rollover instructions. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, DTC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. DTC has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. 2 2 The Commission has modified the text of the summaries prepared by DTC. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change Prior to this rule change, DTC participants holding expired UITs could only redeem such assets for cash or receive securities by book-entry and sell back to the UIT's sponsor in exchange for a cash payment. 3 The flow of instructions and confirmations typically occurs outside DTC using faxes or e-mails between the participant and the sponsor or sponsor's agent. Settlement of the transaction was usually accomplished by the submission of deposit/withdrawal at custodian (“DWAC”) instructions. This process was very manual and labor intensive and exposed participants, agents, and sponsors to risk and expense. 3 Upon maturity (and in some cases earlier), most UITs allow a shareholder to take the redemption value of their holding and roll it over into a new series of UITs. These instructions are submitted prior to the deadline established by the transfer agent or sponsor. Under this proposed rule change, DTC will enhance its IVORS service to allow participants to rollover their current UIT into any of up to ten new UITs that the transfer agent or sponsor may have designated as being eligible for the rollover. Under the new procedures, the UIT transfer agent or sponsor will announce the details of an eligible UIT rollover using IVORS. Once announced, DTC will create a new communication code that will include the deadline for submitting rollover instructions thereby enabling participants to submit rollover instructions to their current UIT. As with the current IVORS redemption function, prior to the transaction settlement date of the transaction, the transfer agent or sponsor enters the settlement details into IVORS. In the case of rollovers, these details will include the redemption price of the surrendered UIT, any accrued dividends that are payable, the purchase price of the new UIT, and any concession fee that may be payable. On settlement date, IVORS processes the necessary entries to debit the surrendered UITs and credit participants with the new UITs and any associated cash-in-lieu or other payments. All of this is accomplished within the IVORS system, eliminating the need to process faxed instructions and DWAC entries. DTC's proposed rule is designed to eliminate unnecessary certificate movements, reduce and simplify cash movements, and synchronize the decisions of all parties involved in the rollover of UITs. The proposed rule change is consistent with the requirements of Section 17A of the Act and the rules and the regulations thereunder applicable to DTC in that it promotes efficiencies in the prompt and accurate clearance and settlement of securities transactions. B. Self-Regulatory Organization's Statement on Burden on Competition DTC does not believe that the proposed rule change will impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others DTC has not solicited nor received written comments on the proposed rule change. DTC will inform the Commission of any written comments it receives. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(iii) 4 of the Act and Rule 19b-4(f)(4) 5 thereunder because it effects a change in an existing service of DTC that does not adversely affect the safeguarding of securities or funds in DTC's control or for which DTC is responsible and does not significantly affect DTC's or its participants' respective rights or obligations. At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 4 4 15 U.S.C. 78s(b)(3)(A)(iii). 5 5 17 CFR 240.19b-4(f)(4). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-DTC-2004-08 on the subject line. Paper Comments: • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-DTC-2004-08. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml)* . Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at DTC's principal office and on DTC's Web site at *http://www.dtc.org* . All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-DTC-2004-08 and should be submitted on or before September 28, 2004. 6 17 CFR 200.30-3(a)(12). For the Commission by the Division of Market Regulation, pursuant to delegated authority. 6 Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2077 Filed 9-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50294; File No. SR-MSRB-2004-02] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Approving Proposed Rule Change Relating to Amendments to the MSRB's Rule G-12(f) on Automated Comparison and G-14 on Transaction Reporting, and to the Implementation of a Facility for Real-Time Transaction Reporting and Price Dissemination August 31, 2004. On June 2, 2004, the Municipal Securities Rulemaking Board (“MSRB” or “Board”), filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change relating to the MSRB's implementation of real-time transaction reporting and price dissemination. The proposed rule change was published for comment in the **Federal Register** on June 29, 2004. 3 The Commission received one comment letter on the proposal. 4 This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 49902 (June 22, 2004), 69 FR 38925 (June 29, 2004) (“Notice”). 4 *See* letter to Jonathan G. Katz, Secretary, Commission, from Leslie M. Norwood, Vice President and Assistant General Counsel, The Bond Market Association (“TBMA”), dated July 20, 2004 (“TBMA Letter”). I. Description of the Proposed Rule Change The MSRB's proposed rule change relates to Rule G-12(f), on automated comparison, Rule G-14, on transaction reporting, and the implementation of a facility for real-time transaction reporting and price dissemination (the “Real-Time Transaction Reporting System” or “RTRS”). The purpose of the proposed rule change is to increase transparency in the municipal securities market and to enhance the surveillance database and audit trail of transaction data used by enforcement agencies. The proposed rule change to Rule G-14 would require brokers, dealers, and municipal securities dealers (“dealers”) to report transactions in municipal securities to RTRS within 15 minutes of the time of trade execution instead of by midnight on trade date, as is currently required. Upon receipt of this transaction data, RTRS would immediately perform automated error checking and would electronically disseminate prices, providing the municipal securities market with real-time transaction price transparency. The MSRB expects the proposed RTRS facility for real-time collection and dissemination of transaction prices will become operational in January 2005, at which time MSRB would begin to disseminate transaction data electronically in real time. MSRB expects to make a second filing on the RTRS facility in the future, stating the date of effectiveness, describing the technical means of data dissemination, and proposing fees to be charged for RTRS data products. The proposed RTRS facility would replace the existing Transaction Reporting System (TRS), which currently receives and disseminates transaction data in an overnight batch process. The proposed amendments to Rules G-12 and G-14 require dealer participation in RTRS and are designed to ensure that transactions are reported to RTRS in a timely manner. II. Summary of Comments The Commission received one comment letter addressing the proposed rule change. 5 The TBMA Letter expressed support for the MSRB's goals, but expressed reservations regarding the proposal in its current form. 6 Specifically, TBMA believes that all trades on the first day of trading in a new issue should be exempt from the requirement to report within 15 minutes of trade execution ( *i.e.* real-time reporting). 7 In addition, TBMA states that they “continue to express liquidity concerns for immediate dissemination of trades of bonds rated “BBB” or below in sizes over $1 million.” 8 5 *See supra* note 4. 6 *See* TBMA Letter, at 2. 7 *See* TBMA Letter, at 3. 8 *See* TBMA Letter, at 4. A. New Issue Reporting The proposed rule change generally would require dealers to report trades to the MSRB within 15 minutes, with certain limited exceptions. First, syndicate managers, syndicate members, and selling group members that effect trades in new issues on the first day of trading at the list offering price would be required to report such trades by the end of the first day of trading in the issue. Second, on a temporary basis, a dealer would be required to report trades within three hours of the time of trade if the CUSIP number and indicative data of the issue traded are not in the dealer's securities master file, the dealer has not traded the issue in the previous year, and the dealer is not a syndicate manager or syndicate member for the issue. This provision would sunset automatically one year after RTRS implementation. In its comment letter, TBMA reiterated its suggestion made in previous comment letters to the MSRB that all trades on the first day of a new issue be exempt from 15-minute reporting and, be submitted no later than end of day. 9 In the proposed rule change, MSRB acknowledged that the existing information dissemination services in the municipal securities market may not, in some cases, be capable of providing a dealer with such indicative information in a sufficiently timely manner for the dealer to update its securities master file, process the transaction, and then report the transaction in real-time. 10 Therefore, the proposed rule change provides that when a dealer has not traded an issue within the past year, a three-hour trade reporting requirement will apply rather than a 15-minute reporting requirement. 9 *See* TBMA Letter, at 2 and 3. 10 *See supra* note 3, at 38937. The proposed rule change also states that on the first day of trading in a new issue, the three-hour exception will be available to most dealers because they will be trading the issue for the first time. 11 However, by the terms of the three-hour exception, it is not available to dealers in the underwriting group ( *i.e.* , the syndicate manager and syndicate members). 12 TBMA disagrees with this decision and states “we feel the exception is not adequate because it does not cover trades by a syndicate manager or syndicate member and sunsets after one year.” 13 In the Notice, the MSRB stated that they intentionally made the three-hour exception temporary to help ensure that dealers, trade associations and information vendors will use the one-year period to respond to the need for more automated and timely updating of indicative data and that industry practice will evolve so that the purposes of real-time price transparency can be more fully realized for trades on the first day of trading in a new issue. 14 Furthermore, the MSRB noted that the three-hour exception should not be necessary for the syndicate manager and syndicate members because they do have, or should have, timely access to information on a new issue that they are underwriting. 15 11 *Id.* 12 *Id.* 13 *See* TBMA Letter, at 2. 14 *See supra* note 3, at 38937. 15 Although the three-hour exception is not available to dealers in the underwriting group, the proposed rule change provides another exception from the real-time reporting requirement for list-price transactions by syndicate and selling group members. Such trades are likely to be voluminous and all executed in a short period of time, so that a 15-minute reporting deadline could present substantial operational challenges. Because of the operational difficulties and because the price information (the list price of the issue) is generally already available in the market at the time of trade execution, the proposed rule change allows these transactions to be reported at end-of-day. Trades that are not at list price, however, do not qualify for this exception and will have to be reported within 15 minutes unless another exception is available. *See supra* note 3, at 38937. TBMA also noted that on “the first day trades are executed for a new issue, which is the day of formal award for a new issue, there will likely be trades reflecting that day's market environment, in addition to trades reflecting the booking of tickets at the prices agreed to by the original buyers days before.” 16 TBMA argues that by mixing the two types of trade reports together, the prices would “not be any more or less informative if all trades in new issue were subject to end-of-day reporting.” 17 With respect to the specific issue of “mixing” prices, the MSRB notes that syndicate and selling group trades done at the list price will be marked as such when they are disseminated. 18 Consequently, there should be no confusion about what these prices represent. In addition, the MSRB has stated that it is reviewing general market practices with respect to new issue offerings, including issues related to pre-award orders and the use of conditional trading commitments made before the time of formal award trade. As part of this process, the MSRB recently published a “Notice Requesting Comment on Draft Amendments to Rule G-34 to Facilitate Real-Time Transaction Reporting and Explaining Time of Trade for Reporting New Issue Trades.” 19 16 *See* TBMA Letter, at 3. 17 *Id.* 18 *See supra* note 3, at 38937. 19 *See* MSRB Notice 2004-18 (June 18, 2004), available at *http://www.msrb.org* . B. Liquidity Concerns Finally, TBMA states “we continue to express liquidity concerns for immediate dissemination of trades of bonds rated “BBB” or below in sizes over $1 million.” 20 TBMA suggests further study of this market segment to assess effects on liquidity before disseminating trade prices in real-time. 21 The MSRB noted in its filing that comment on this particular issue was mixed and that some investors expressed strong support for full transparency, specifically to include the market segment identified by TBMA. 22 In light of these comments, the MSRB has weighed the potential for liquidity problems against the potential for transparency benefits and has concluded that any liquidity problems that may occur with respect to the issues in question are likely to be temporary and will resolve over time as market participants make adjustments in response to the more transparent environment. 23 The MSRB also believes that the potential for transparency benefits, such as more accurate pricing, lower transaction costs for investors and increased investor confidence, outweighs the potential for short-term liquidity problems. 24 20 *See* TBMA Letter, at 4. 21 *See* TBMA Letter, at 3 and 4. 22 *See supra* note 3, at 38939. 23 *Id* . 24 *Id* . III. Discussion and Commission Findings The Commission has carefully reviewed the proposed rule change and comment letter, and finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to the MSRB 25 and, in particular, the requirements of Section 15B(b)(2)(C) of the Act and the rules and regulations thereunder. 26 Section 15B(b)(2)(C) of the Act requires, among other things, that the MSRB's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in municipal securities, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and, in general, to protect investors and the public interest. 25 In approving this rule the Commission notes that it has considered the proposed rule's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 26 15 U.S.C. 78o-4(b)(2)(C). In particular, the Commission finds that the proposed rule change will provide the market with more efficient pricing information, enhance the surveillance database and audit trail of transaction data used by enforcement agencies, and enhance investor confidence in the market. The Commission believes that real-time price transparency will enhance investor confidence by providing, for the first time, a comprehensive and contemporaneous view of the municipal securities market to any interested party. The Commission also believes that the open availability of market prices should instill greater confidence that pricing mechanisms in the municipal securities market are fair, open, and efficient. IV. Conclusion *It Is Therefore Ordered* , pursuant to Section 19(b)(2) of the Act, 27 that the proposed rule change (SR-MSRB-2004-02) be, and hereby is, approved. 27 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 28 28 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2076 Filed 9-3-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50280; File No. SR-OCC-2004-13] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Borrowing Against the Clearing Fund August 27, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on June 23, 2004, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which items have been prepared primarily by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would amend Article VIII (Clearing Fund), Section 5 (Application of the Clearing Fund), paragraph

(e)of OCC's By-Laws, which authorizes OCC to borrow against the clearing fund in specified situations. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and

(C)below, of the most significant aspects of such statements. 2 2 The Commission has modified parts of these statements.

(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Article VIII, Section 5(e) of OCC's By-Laws authorizes OCC to take possession of and pledge as security for a loan cash and securities in its clearing fund under the following circumstances:

(1)If a clearing member is suspended and OCC is unable to obtain prompt delivery of or convert promptly to cash any asset credited to any of the clearing member's accounts; and as a result OCC deems it necessary or advisable to borrow funds to meet obligations arising out of the suspension or

(2)If OCC sustains a loss due to the failure of a bank or another clearing organization, and elects to borrow funds in lieu of immediately charging the loss to the clearing fund. In either case, OCC must first determine that it cannot borrow the necessary funds on an unsecured basis and must use the proceeds from the borrowing solely for the purposes above. Such use of clearing fund assets are limited to a maximum of 30 days. After 30 days, the amount of the loan must be charged against the clearing fund. In the event of a clearing member default, OCC may need immediate liquidity even before it has made the decision to suspend the clearing member. Historically, defaults tend to occur at 9 a.m.

(CT)when clearing members' accounts are debited for options premiums, exercise settlement payments, and mark-to-market payments. 3 Although OCC may be able to make settlement by using its own cash or by borrowing against its unsecured credit lines, which are currently $20 million, it is possible that those resources would not be sufficient. 3 9 a.m.

(CT)is also the time when members' accounts are debited for margin deficiencies; but margin payments, unlike premium, exercise settlement, and mark-to-market payments, are not pass-through payments. In order to borrow against its secured lines of credit, which are currently $150 million and are in the process of being doubled, using a defaulting member's clearing fund contributions or collateral OCC would have to

(i)suspend the clearing member and

(ii)have difficulty in obtaining or liquidating the defaulting clearing member's collateral. If a default is not quickly remedied, OCC will likely suspend the defaulting clearing member. However, OCC believes that it should not have to make the decision to suspend as a precondition to borrowing against the clearing fund. Similarly, OCC believes that it should not be a precondition to such use of the clearing fund that OCC is unable to obtain “prompt” delivery of, or convert “promptly” to cash, any asset credited to an account of a defaulting clearing member. OCC interprets “prompt” and “promptly” in this context as meaning “in sufficient time to enable OCC to use the proceeds to meet its obligations.” However, OCC does not believe that its ability to such use of the clearing fund should turn on questions of interpretation. Accordingly, OCC is proposing to amend Article VIII, Section 5(e) of its By-Laws to eliminate the requirements that OCC

(i)suspend a defaulting clearing member and

(ii)be unable to obtain prompt delivery of collateral or be unable to convert it promptly to cash as preconditions to use of the clearing fund. As amended, Section 5(e) would allow OCC to use clearing fund assets as collateral for loans whenever OCC deems such borrowings to be necessary or advisable in order to meet obligations arising out of the default or suspension of a clearing member or any action taken by OCC in connection therewith. OCC believes that the proposed rule change is consistent with Section 17A of the Act and the regulations thereunder because it enhances OCC's ability to respond to and manage clearing member defaults in a manner that increases the protection of investors and persons facilitating transactions by and acting on behalf of investors and because it limits systematic risk.

(B)Self-Regulatory Organization's Statement on Burden on Competition OCC does not believe that the proposed rule change would impose any burden on competition.

(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were not and are not intended to be solicited with respect to the proposed rule change, and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty five days of the date of publication of this notice in the **Federal Register** or within such longer period

(i)as the Commission may designate up to ninety days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or

(ii)as to which the self-regulatory organization consents, the Commission will:

(a)By order approve the proposed rule change or

(b)Institute proceedings to determine whether the proposed rule change should be disapproved. VI. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ) or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-OCC-2004-13 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-OCC-2004-13. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC's Web site at *http://www.optionsclearing.com* . All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-OCC-2004-13 and should be submitted on or before September 28, 2004. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 4 4 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2078 Filed 9-3-04; 8:45 am] BILLING CODE 8010-01-P SMALL BUSINESS ADMINISTRATION [Declaration of Disaster #P044] Commonwealth of the Northern Mariana Islands (Amendment #1) In accordance with a notice received from the Department of Homeland Security—Federal Emergency Management Agency, effective August 23, 2004, the above numbered Public Assistance declaration is hereby amended to include the islands of Agrigan, Alamagan, and Pagan located within the Commonwealth of Northern Mariana Islands as disaster areas due to damages caused by flooding, high surf, high winds, and wind driven rain associated with Typhoon Tingting occurring on June 27-29, 2004. All other information remains the same, *i.e.* , the deadline for filing applications for physical damage is September 27, 2004. (Catalog of Federal Domestic Assistance Program Nos. 59008) Dated: August 27, 2004. Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. 04-20181 Filed 9-3-04; 8:45 am]

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