Notices. Notice of an application under section 6(c) of the Investment Company Act of 1940 (“Act”) for an exemption from section 15(a) of the Act and rule 18f-2 under the Act, as well as certain disclosure requirements
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BILLING CODE 7590-01-M SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon written request, copies available from: Securities and Exchange Commission Office of Filings and Information Services, Washington, DC 20549. Extension: Form N-8F; SEC File No. 270-136; OMB Control No. 3235-0157. Notice is hereby given that pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ) the Securities and Exchange Commission (“Commission”) is soliciting comments on the collections of information summarized below.
The Commission plans to submit this existing collection of information to the Office of Management and Budget (“OMB”) for extension and approval. Form N-8F (17 CFR 274.218) is the form prescribed for use by registered investment companies in certain circumstances to request orders of the Commission declaring that the registration of that investment company cease to be in effect. The form requests, from investment companies seeking a deregistration order, information about
(i)the investment company's identity,
(ii)the investment company's distributions,
(iii)the investment company's assets and liabilities,
(iv)the events leading to the request to deregister, and
(v)the conclusion of business. The information is needed by the Commission to determine whether an order of deregistration is appropriate. The Form takes approximately 3 hours on average to complete. It is estimated that approximately 261 investment companies file Form N-8F annually, so that the total annual burden for the form is estimated to be 783 hours. The estimate of average burden hours is made solely for the purposes of the Paperwork Reduction Act and is not derived from a comprehensive or even a representative survey or study. Written comments are requested on:
(a)Whether the collections of information are necessary for the proper performance of the functions of the Commission, including whether the information has practical utility;
(b)the accuracy of the Commission's estimate of the burdens of the collection of information;
(c)ways to enhance the quality, utility, and clarity of the information collected; and
(d)ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to R. Corey Booth, Director/Chief Information Officer, Office of Information Technology, Securities and Exchange Commission, 450 5th Street, NW., Washington, DC 20549. Dated: September 15, 2004. Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2289 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 26599; 812-12996] Atlas Assets, Inc. and Atlas Advisers, Inc.; Notice of Application September 16, 2004. AGENCY: Securities and Exchange Commission (“Commission”). ACTION: Notice of an application under section 6(c) of the Investment Company Act of 1940 (“Act”) for an exemption from section 15(a) of the Act and rule 18f-2 under the Act, as well as certain disclosure requirements. Summary of Application Applicants request an order that would permit them to enter into and materially amend subadvisory agreements without shareholder approval and would grant relief from certain disclosure requirements. *Applicants* : Atlas Assets, Inc. (the “Company”) and Atlas Advisers, Inc. (the “Adviser”). *Filing Dates* : The application was filed on August 1, 2003 and amended on September 8, 2004. Applicants have agreed to file an amendment during the notice period, the substance of which is reflected in this notice. *Hearing or Notification of Hearing* : An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary and serving applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on October 12, 2004, and should be accompanied by proof of service on the applicants, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons may request notification of a hearing by writing to the Commission's Secretary. ADDRESSES: Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Applicants, 794 Davis Street, San Leandro, CA 94577. FOR FURTHER INFORMATION CONTACT: Christine Y. Greenlees, Senior Counsel, at
(202)942-0581, or Mary Kay Frech, Branch Chief, at
(202)942-0564 (Division of Investment Management, Office of Investment Company Regulation). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 20549-0102 (tel.
(202)942-8090). Applicants' Representations 1. The Company, a Maryland corporation, is registered under the Act as an open-end management investment company. The Company currently is comprised of sixteen series (each a “Fund” and collectively, the “Funds”), each with a separate investment objective, policy and restrictions. 1 The Adviser is registered as an investment adviser under the Investment Advisers Act of 1940 (“Advisers Act”) and serves as investment adviser to the Funds pursuant to an investment advisory agreement (“Advisory Agreement”) with the Company. The Advisory Agreement has been approved by the Company's board of directors (the “Board”), including a majority of the directors who are not “interested persons,” as defined in section 2(a)(19) of the Act, of the Company or the Adviser (“Independent Directors”), as well as by the shareholders of each Fund. 1 Applicants also request relief with respect to future series of the Company and any other existing or future registered open-end management investment company or series thereof that:
(a)Is advised by the Adviser or a person controlling, controlled by, or under common control with the Adviser;
(b)uses the management structure described in the application; and
(c)complies with the terms and conditions of the application (included in the term “Funds”). The only existing registered open-end management investment company that currently intends to rely on the requested order is named as an applicant. All references to the term “Adviser” herein include
(a)the Adviser, and
(b)an entity controlling, controlled by, or under common control with the Adviser. If the name of any Fund contains the name of a Subadviser (as defined below), the name of the Adviser or the name of the entity controlling, controlled by, or under common control with the Adviser that serves as the primary adviser to the Fund will precede the name of the Subadviser. 2. Under the terms of the Advisory Agreement, the Adviser provides investment advisory services to each Fund, supervises the investment program for each Fund, and has the authority, subject to Board approval, to enter into investment subadvisory agreements (“Subadvisory Agreements”) with one or more subadvisers (“Subadvisers”). Each Subadviser is registered under the Advisers Act. The Adviser monitors and evaluates the Subadvisers and recommends to the Board their hiring, retention or termination. Subadvisers recommended to the Board by the Adviser are selected and approved by the Board, including a majority of the Independent Directors. Each Subadviser has discretionary authority to invest the assets or a portion of the assets of a particular Fund. The Adviser compensates each Subadviser out of the fees paid to the Adviser under the Advisory Agreement. 3. Applicants request an order to permit the Adviser, subject to Board approval, to enter into and materially amend Subadvisory Agreements without obtaining shareholder approval. The requested relief will not extend to any Subadviser that is an affiliated person, as defined in section 2(a)(3) of the Act, of the Company or of the Adviser, other than by reason of serving as a Subadviser to one or more of the Funds (“Affiliated Sub-Adviser”). 4. Applicants also request an exemption from the various disclosure provisions described below that may require a Fund to disclose fees paid by the Adviser to each Subadviser. An exemption is requested to permit the Company to disclose for each Fund (as both a dollar amount and as a percentage of each Fund's net assets):
(a)The aggregate fees paid to the Adviser and any Affiliated Subadvisers; and
(b)the aggregate fees paid to Subadvisers other than Affiliated Subadvisers (“Aggregate Fee Disclosure”). For any Fund that employs an Affiliated Subadviser, the Fund will provide separate disclosure of any fees paid to the Affiliated Subadviser. Applicants' Legal Analysis 1. Section 15(a) of the Act provides, in relevant part, that it is unlawful for any person to act as an investment adviser to a registered investment company except under a written contract that has been approved by the vote of a majority of the company's outstanding voting securities. Rule 18f-2 under the Act provides that each series or class of stock in a series company affected by a matter must approve such matter if the Act requires shareholder approval. 2. Form N-1A is the registration statement used by open-end investment companies. Item 15(a)(3) of Form N-1A requires disclosure of the method and amount of the investment adviser's compensation. 3. Rule 20a-1 under the Act requires proxies solicited with respect to an investment company to comply with Schedule 14A under the Securities Exchange Act of 1934 (“1934 Act”). Items 22(c)(1)(ii), 22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together, require a proxy statement for a shareholder meeting at which the advisory contract will be voted upon to include the “rate of compensation of the investment adviser,” the “aggregate amount of the investment adviser's fees,” a description of the “terms of the contract to be acted upon,” and, if a change in the advisory fee is proposed, the existing and proposed fees and the difference between the two fees. 4. Form N-SAR is the semi-annual report filed with the Commission by registered investment companies. Item 48 of Form N-SAR requires investment companies to disclose the rate schedule for fees paid to their investment advisers, including the Subadvisers. 5. Regulation S-X sets forth the requirements for financial statements required to be included as part of investment company registration statements and shareholder reports filed with the Commission. Sections 6-07(2)(a), (b), and
(c)of Regulation S-X require that investment companies include in their financial statements information about investment advisory fees. 6. Section 6(c) of the Act provides that the Commission may exempt any person, security, or transaction or any class or classes of persons, securities, or transactions from any provisions of the Act, or from any rule thereunder, if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants state that their requested relief meets this standard for the reasons discussed below. 7. Applicants assert that the shareholders are relying on the Adviser's experience to select one or more Subadvisers best suited to achieve a Fund's investment objectives. Applicants assert that, from the perspective of the investor, the role of the Subadvisers is comparable to that of the individual portfolio managers employed by traditional investment company advisory firms. Applicants state that requiring shareholder approval of each Subadvisory Agreement would impose costs and unnecessary delays on the Funds, and may preclude the Adviser from acting promptly in a manner considered advisable by the Board. Applicants note that the Advisory Agreement and any Subadvisory Agreement with an Affiliated Subadviser will remain subject to section 15(a) of the Act and rule 18f-2 under the Act. 8. Applicants assert that some Subadvisers use a “posted” rate schedule to set their fees. Applicants state that while Subadvisers are willing to negotiate fees that are lower than those posted on the schedule, they are reluctant to do so where the fees are disclosed to other prospective and existing customers. Applicants submit that the requested relief will encourage potential Subadvisers to negotiate lower subadvisory fees with the Adviser, the benefits of which are passed on to Fund shareholders. Applicants' Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: 1. Before a Fund may rely on the order requested in the application, the operation of the Fund in the manner described in the application will be approved by a majority of the Fund's outstanding voting securities, as defined in the Act, or, in the case of a Fund whose public shareholders purchase shares on the basis of a prospectus containing the disclosure contemplated by condition 2 below, by the sole initial shareholder before offering the Fund's shares to the public. 2. The prospectus for each Fund will disclose the existence, substance, and effect of any order granted pursuant to the application. Each Fund will hold itself out to the public as employing the management structure described in the application. The prospectus will prominently disclose that the Adviser has ultimate responsibility (subject to oversight by the Board) to oversee the Subadvisers and recommend their hiring, termination, and replacement. 3. Within 90 days of the hiring of a new Subadviser, the affected Fund shareholders will be furnished all information about the new Subadviser that would be included in a proxy statement, except as modified to permit Aggregate Fee Disclosure. This information will include Aggregate Fee Disclosure and any change in such disclosure caused by the addition of the new Subadviser. To meet this obligation, the Fund will provide shareholders within 90 days of the hiring of a new Subadviser with an information statement meeting the requirements of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the 1934 Act, except as modified by the order to permit Aggregate Fee Disclosure. 4. The Adviser will not enter into a Subadvisory Agreement with any Affiliated Subadviser without that agreement, including the compensation to be paid thereunder, being approved by the shareholders of the applicable Fund. 5. Each Fund will comply with the fund governance standards that the Commission adopted in Investment Company Act Release No. 26520 (July 27, 2004) by the compliance date set forth in that Release (“Compliance Date”). Prior to the Compliance Date, a majority of the Board will be Independent Directors, and the nomination of new or additional Independent Directors will be at the discretion of the then existing Independent Directors. 6. When a Subadviser change is proposed for a Fund with an Affiliated Subadviser, the Board, including a majority of the Independent Directors, will make a separate finding, reflected in the applicable Board minutes, that such change is in the best interests of the Fund and its shareholders and does not involve a conflict of interest from which the Adviser or the Affiliated Subadviser derives an inappropriate advantage. 7. Independent counsel, as defined in rule 0-1(a)(6) under the Act, will be engaged to represent the Independent Directors. The selection of such counsel will be within the discretion of the then existing Independent Directors. 8. The Adviser will provide the Board, no less frequently than quarterly, with information about the profitability of the Adviser on a per-Fund basis. The information will reflect the impact on profitability of the hiring or termination of any Subadviser during the applicable quarter. 9. Whenever a Subadviser is hired or terminated, the Adviser will provide the Board with information showing the expected impact on the profitability of the Adviser. 10. The Adviser will provide general management services to each Fund, including overall supervisory responsibility for the general management and investment of the Fund's assets, and, subject to review and approval of the Board, will:
(a)Set each Fund's overall investment strategies,
(b)evaluate, select and recommend Subadvisers to manage all or a part of a Fund's assets,
(c)when appropriate, allocate and reallocate a Fund's assets among multiple Subadvisers;
(d)monitor and evaluate the performance of Subadvisers, and
(e)implement procedures reasonably designed to ensure that the Subadvisers comply with each Fund's investment objective, policies and restrictions. 11. No director or officer of the Company, or director or officer of the Adviser, will own directly or indirectly (other than through a pooled investment vehicle that is not controlled by such person), any interest in a Subadviser, except for:
(a)Ownership of interests in the Adviser or any entity that controls, is controlled by, or is under common control with the Adviser, or
(b)ownership of less than 1% of the outstanding securities of any class of equity or debt of a publicly traded company that is either a Subadviser or an entity that controls, is controlled by, or is under common control with a Subadviser. 12. Each Fund will disclose in its registration statement the Aggregate Fee Disclosure. 13. The requested order will expire on the effective date of rule 15a-5 under the Act, if adopted. For the Commission, by the Division of Investment Management, under delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2288 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50375; File No. S7-24-89] Joint Industry Plan; Order Granting Approval of Amendment No. 13C to the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis; Submitted by the Pacific Exchange, Inc., the National Association of Securities Dealers, Inc., the American Stock Exchange LLC, the Boston Stock Exchange, Inc., the Chicago Stock Exchange, Inc., the Cincinnati Stock Exchange, Inc., and the Philadelphia Stock Exchange, Inc. September 14, 2004. I. Introduction On April 22, 2004, the Pacific Exchange, Inc. (“PCX”), on behalf of itself and the National Association of Securities Dealers, Inc. (“NASD”), the American Stock Exchange LLC (“Amex”), the Boston Stock Exchange, Inc. (“BSE”), the Chicago Stock Exchange, Inc. (“CHX”), the Cincinnati Stock Exchange, Inc. (“CSE”), 1 and the Philadelphia Stock Exchange, Inc. (“PHLX”) (hereinafter referred to as “Participants”), 2 as members of the Operating Committee 3 of the Plan submitted to the Securities and Exchange Commission (“Commission”) a proposal to amend the Plan (“Amendment 13C”) pursuant to Rule 11Aa3-2 4 and Rule 11Aa3-1 5 under the Securities Exchange Act of 1934 (“Act”). Amendment 13C 6 reflects several changes unanimously adopted by the Committee. On May 7, 2004, the Commission summarily put into effect Amendment 13C upon publication in the **Federal Register** on a temporary basis not to exceed 120 days. 7 Amendment 13C was published for comment in the **Federal Register** on May 18, 2004. 8 The Commission received no comment letters on Amendment 13C. This order approves the changes made in Amendment 13C on a permanent basis. 1 The Commission notes that the CSE changed its name to the National Stock Exchange, Inc. *See* Securities Exchange Act Release No. 48774 (November 12, 2003), 68 FR 65332 (November 19, 2003) (File No. SR-CSE-2003-12). 2 PCX and its subsidiary the Archipelago Exchange were elected co-chairs of the operating committee (“Operating Committee” or “Committee”) for the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privilege Basis (“Nasdaq UTP Plan” or “Plan”) by the Participants. 3 The Operating Committee is made up of all the Participants. 4 17 CFR 240.11Aa3-2. 5 17 CFR 240.11Aa3-1. 6 At the time Amendment 13C was approved by the Committee, Amendment 13A had been published in the **Federal Register** . *See* Securities Exchange Act Release No. 49137 (January 28, 2004), 69 FR 5217 (February 3, 2004). Amendment 13A has since been approved by the Commission. *See* Securities Exchange Act Release No. 49711 (May 14, 2004), 69 FR 29339 (May 21, 2004). The Operating Committee adopted Amendment 13B, but agreed to hold the amendment pending resolution of the current status of the SIP selection process. Amendment 13B has not been filed with the Commission. The Operating Committee had reserved Amendment 14 for significant future modifications to the Plan that would, among other things, reflect changes in preparation for implementation of the new SIP. Accordingly, this Amendment is numbered 13C. 7 *See* Securities Exchange Act Release No. 49669 (May 7, 2004), 69 FR 28182 (May 18, 2004). 8 *Id.* II. Plan Background The Plan governs the collection, consolidation, and dissemination of quotation and transaction information for The Nasdaq Stock Market, Inc. (“Nasdaq”) National Market (“NNM”) and Nasdaq SmallCap securities listed on Nasdaq or traded on an exchange pursuant to unlisted trading privileges (“UTP”). 9 The Plan provides for the collection from Plan Participants and the consolidation and dissemination to vendors, subscribers, and others of quotation and transaction information in “eligible securities.” 10 9 Section 12 of the Act generally requires an exchange to trade only those securities that the exchange lists, except that Section 12(f) of the Act permits UTP under certain circumstances. 15 U.S.C. 78 *l* (f). For example, Section 12(f) of the Act, among other things, permits exchanges to trade certain securities that are traded over-the-counter pursuant to UTP, but only pursuant to a Commission order or rule. For a more complete discussion of the Section 12(f) requirement, *see* November 1995 Extension Order, *infra* note 11. 10 Section III.B. of the Plan defines “Eligible Security” as any NNM or Nasdaq SmallCap security, as defined in NASD Rule 4200:
(i)As to which UTP have been granted to a national securities exchange pursuant to Section 12(f) of the Act or which become eligible for such trading pursuant to order of the Commission; or
(ii)which also is listed on a national securities exchange. The Commission originally approved the Plan on a pilot basis on June 26, 1990. 11 The parties did not begin trading until July 12, 1993, accordingly, the pilot period commenced on July 12, 1993. The Plan has since been in operation on an extended pilot basis. 12 11 *See* Securities Exchange Act Release No. 28146, 55 FR 27917 (July 6, 1990). 12 *See* Securities Exchange Act Release Nos. 34371 (July 13, 1994), 59 FR 37103 (July 20, 1994); 35221 (January 11, 1995), 60 FR 3886 (January 19, 1995); 36102 (August 14, 1995), 60 FR 43626 (August 22, 1995); 36226 (September 13, 1995), 60 FR 49029 (September 21, 1995); 36368 (October 13, 1995), 60 FR 54091 (October 19, 1995); 36481 (November 13, 1995), 60 FR 58119 (November 24, 1995) (“November 1995 Extension Order”); 36589 (December 13, 1995), 60 FR 65696 (December 20, 1995); 36650 (December 28, 1995), 61 FR 358 (January 4, 1996); 36934 (March 6, 1996), 61 FR 10408 (March 13, 1996); 36985 (March 18, 1996), 61 FR 12122 (March 25, 1996); 37689 (September 16, 1996), 61 FR 50058 (September 24, 1996); 37772 (October 1, 1996), 61 FR 52980 (October 9, 1996); 38457 (March 31, 1997), 62 FR 16880 (April 8, 1997); 38794 (June 30, 1997) 62 FR 36586 (July 8, 1997); 39505 (December 31, 1997) 63 FR 1515 (January 9, 1998); 40151 (July 1, 1998) 63 FR 36979 (July 8, 1998); 40896 (December 31, 1998), 64 FR 1834 (January 12, 1999); 41392 (May 12, 1999), 64 FR 27839 (May 21, 1999); 42268 (December 23, 1999), 65 FR 1202 (January 6, 2000); 43005 (June 30, 2000), 65 FR 42411 (July 10, 2000); 44099 (March 23, 2001), 66 FR 17457 (March 30, 2001); 44348 (May 24, 2001), 66 FR 29610 (May 31, 2001); 44552 (July 13, 2001), 66 FR 37712 (July 19, 2001); 44694 (August 14, 2001), 66 FR 43598 (August 20, 2001); 44804 (September 17, 2001), 66 FR 48299 (September 19, 2001); 45081 (November 19, 2001), 66 FR 59273 (November 27, 2001); 44937 (October 15, 2001), 66 FR 53271 (October 19, 2001); 46139 (June 28, 2001), 67 FR 44888 (July 5, 2002); 46381 (August 19, 2002), 67 FR 54687 (August 23, 2002); 46729 (October 25, 2002), 67 FR 66685 (November 1, 2002); 48318 (August 12, 2003), 68 FR 49534 (August 18, 2003); 48882 (December 4, 2003), 68 FR 69731 (December 15, 2003); 49669 (May 7, 2004), 69 FR 28182 (May 18, 2004); and 49711 (May 14, 2004), 69 FR 29339 (May 21, 2004). III. Description and Purpose of the Amendment As a result of aberrant pricing in trading of shares on December 5, 2003, the Division of Market Regulation (“Division”) requested the Participants to provide better coordination among the self-regulatory organization (“SRO”) trading markets concerning SRO trading halts. 13 The NASD, acting through its subsidiary, Nasdaq, proposed Amendment 13C to address changes to the Plan related to the coordination of instituting and lifting SRO trading halts. Amendment 13C to the Plan reflects changes to the regulatory halt section that were unanimously approved by the Operating Committee. The following is a summary of the changes to the Plan made in Amendment 13C. 13 *See* letter from Annette L. Nazareth, Director, Division, Commission, to Bridget Farrell and Michael Roundtree, Co-Chairpersons, Nasdaq UTP Operating Committee, dated December 9, 2003. 1. Section III.T. of the Plan provides for the definition of Regulatory Halt. Amendment 13C added to the definition of Regulatory Halt an “Extraordinary Market Regulatory Halt,” which is a trading halt due to extraordinary market activity as a result of system misuse or malfunction as further described in a Section X.E.1. of the Plan. 2. Section X of the Plan previously provided that the Primary Market 14 declared Regulatory Halts. Amendment 13C replaced Primary Market with “Listing Market,” which is defined as the Participant's Market on which a security is listed. In the case of dual listings, the Listing Market is the Participant's Market on which the Eligible Security is listed, which also has the highest number of the average of reported transactions and reported share volume for the preceding 12-month period as determined at the beginning of each calendar quarter. 14 The Plan defined “Primary Market” as Nasdaq, provided that if for any 12-month period the number of reported transactions and amount of reported share volume in any other Participant's market exceeded 50% of the aggregated reported transactions and share volume, then that Participant's market would have been the Primary Market for such Eligible Security. 3. Amendment 13C clarified that “Participant” for purposes of Section X includes Nasdaq despite the fact that Nasdaq is not currently a signatory to the Plan. 4. Amendment 13C added Section X.E., which established communication procedures to coordinate communication among Plan Participants in the instance of a trading halt. Specifically, Amendment 13C introduced the use of the “Hoot-n-Holler” for communicating real-time information among Participants. Furthermore, the Amendment requires continuous monitoring of the Hoot-n-Holler by all Participants during market hours. The procedures in the instance of a Participant(s) experiencing extraordinary market activity in an Eligible Security include: a. Best efforts to provide immediate notification over the Hoot-n-Holler system; b. Best efforts to determine the source of the extraordinary market activity; c. Best efforts by the Participant(s) in determining whether to prevent, and actually preventing, quotes from a direct or indirect market participant from being transmitted to the Processor; d. If the problem is not rectified, the Participant(s) will cease transmitting quotes to the Processor in the affected security; and e. If within five minutes the problem is not rectified from the initial notification over the Hoot-n-Holler, or if decided earlier through unanimous approval from all Participants actively trading the affected security, the Listing Market based on facts and circumstances may declare over the Hoot-n-Holler an Extraordinary Market Regulatory Halt. 5. Amendment 13C amended the Plan to add Section X.F. to clarify procedures for the resumption of trading after a Regulatory Halt. This includes a requirement that all Participants will use best efforts to indicate their intentions with respect to canceling or modifying trades within fifteen minutes of the declaration of the halt. Furthermore, the Amendment clarified that Participants will disseminate information regarding canceled or modified trades as soon as possible before the resumption of trading. Lastly, the Listing Market will notify Participants over the Hoot-n-Holler when trading may resume. IV. Discussion and Commission Findings The Commission previously determined, pursuant to Rule 11Aa3-2(c)(4) under the Act, 15 to summarily put into effect the amendments detailed above in Amendment 13C on a temporary basis not to exceed 120 days beyond May 18, 2004. After careful consideration of Amendment 13C to the Plan, the Commission finds that approving Amendment 13C on a permanent basis is consistent with the requirements of the Act and the rules and regulations thereunder, and, in particular, Section 11A(a)(1) 16 of the Act and Rules 11Aa3-1 and 11Aa3-2(c)(2) thereunder. 17 Section 11A of the Act directs the Commission to facilitate the development of a national market system for securities, “having due regard for the public interest, the protection of investors, and the maintenance of fair and orderly markets,” and cites as an objective of that system the “fair competition * * * between exchange markets and markets other than exchange markets.” 18 Rule 11Aa3-2(c)(2) requires the Commission to approve a plan or amendment “if it finds that such plan or amendment is necessary or appropriate in the public interest, for the protection of investors, and the maintenance of fair and orderly markets, to remove impediments to, and perfect the mechanisms of, a national market system, or otherwise in furtherance of the purposes of the Act.” 19 15 17 CFR 240.11Aa3-2(c)(4). 16 15 U.S.C. 78k-1(a)(1). 17 17 CFR 240.11Aa3-1 and 17 CFR 240.11Aa3-2(c)(2). 18 15 U.S.C. 78k-1(a). 19 17 CFR 240.11Aa3-2(c)(2). The Commission finds that approving Amendment 13C is appropriate in the public interest and otherwise in furtherance of the purposes of the Act. The Commission believes that the changes made in Amendment 13C enhance investor protection, further the maintenance of fair and orderly markets, and remove impediments to, and perfect the mechanisms of, a national market system by:
(1)Improving the coordination among SROs when instituting and lifting trading halts;
(2)making necessary changes to the terms and definitions contained within the Plan related to trading halts;
(3)establishing clear procedures to coordinate communication among Plan Participants before and during the instance of a trading halt; and
(4)clarifying procedures for the resumption of trading after a trading halt. V. Conclusion *It is therefore ordered* , pursuant to Section 11A of the Act 20 and paragraph (c)(2) of Rule 11Aa3-2 21 thereunder, that Amendment 13C to the Plan be, and hereby is, approved. 20 15 U.S.C. 78k-1. 21 17 CFR 240.11Aa3-2(c)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 22 22 17 CFR 200.30-3(a)(27). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2314 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50376] Order Granting Exemption to National Association of Securities Dealers, Inc. From Certain Reporting Requirements Under Section 31 of the Exchange Act September 14, 2004. I. Introduction Section 36 of the Securities Exchange Act of 1934 (“Exchange Act”) 1 authorizes the Securities and Exchange Commission (“Commission”)—by rule, regulation, or order—to conditionally or unconditionally exempt any person, security, transaction (or any class or classes of persons, securities, or transactions) from any provision or provisions of the Exchange Act or any rule or regulation thereunder, to the extent such exemption is necessary or appropriate in the public interest and is consistent with the protection of investors. By this Order, the Commission is exempting the National Association of Securities Dealers, Inc. (“NASD”) from certain reporting requirements, described below, that are imposed by Rules 31 and 31T and Form R31, 2 which implement Section 31 of the Exchange Act. 3 1 15 U.S.C. 78mm. 2 17 CFR 240.31, 240.31T, and 249.11. The Commission established Rules 31 and 31T and Form R31 in June 2004. *See* Securities Exchange Act Release No. 49928 (June 28, 2004), 69 FR 41060 (July 7, 2004) (“Rule 31 Adopting Release”). 3 15 U.S.C. 78ee. II. Background Section 31, among other things, requires NASD to pay the Commission fees based on the aggregate dollar amount of certain sales of securities. Rules 31 and 31T and Form R31 established a procedure for the calculation and collection of Section 31 fees on the “covered sales” of NASD and the national securities exchanges. 4 Paragraph (b)(1) of Rule 31 requires NASD to submit a completed Form R31 for each month by the tenth business day of the following month. NASD must provide on Form R31 the aggregate dollar amount of its covered sales having a “charge date” 5 in the month of the report. The first Form R31 required by Rule 31 covers the month of July 2004 and was due on August 13, 2004. Paragraph
(b)of temporary Rule 31T requires NASD to submit a completed Form R31 for each of the months September 2003 to June 2004, inclusive; these forms also were due on August 13, 2004. Based on the data provided by NASD, the Commission will calculate the amount of Section 31 fees owed and send a bill to NASD. 4 For NASD, a covered sale is the sale of a security (other than an exempt sale or a sale of a security future) that occurs by or through any NASD member otherwise than on a national securities exchange, if the security is registered on a national securities exchange or is subject to prompt last sale reporting pursuant to NASD rules. *See* 15 U.S.C. 78ee(c); 17 CFR 240.31(a)(6). 5 The charge date is the date on which a covered sale occurs for purposes of determining the liability of a national securities exchange or national securities association pursuant to Section 31 of the Exchange Act. *See* 17 CFR 240.31(a)(3). For NASD, the charge date for most covered sales is the trade date (rather than the settlement date). 6 NASD has requested, however, that it be permitted to use a charge date other than the trade date for certain covered sales that are reported on an “as-of” basis. 7 NASD rules generally require its members, during normal market hours, to report securities transactions within 90 seconds after execution. There are situations in which a member fails to report a transaction on the trade date during normal market hours, although NASD trade reporting systems were open, and the member was obligated to do so within 90 seconds. These trades are reported as “as-of” trades. 8 NASD considers such “as-of” trades to be late and in violation of NASD rules. 9 An “as-of” report also could result when a trade is executed when NASD trade reporting systems are not open. The trade, therefore, must be reported on the next business day when NASD systems re-open. NASD trade reporting rules allow for the next-day reporting of these transactions; NASD does not consider these trades to be reported late or in violation of NASD rules. NASD reviewed the “as-of” trades reported by its members over a selected period and found that, during the review period, the percentage of trades reported “as-of” was relatively consistent on a month-to-month basis, and the vast majority of “as-of” trades were reported to NASD in the same month that the trades occurred. 10 6 The only covered sales for which NASD does not incur liability based on the trade date are those resulting from the exercise of options that are not listed or registered on a national securities exchange, in which case the charge date is the exercise date. *See* 17 CFR 240.31(a)(3)(ii). 7 *See* letter from Marc Menchel, Executive Vice President and General Counsel, NASD, to Margaret McFarland, Deputy Secretary, Commission, dated August 11, 2004. 8 An “as-of” trade is a trade that is reported to NASD after the date that the actual trade occurred. 9 *See* NASD Rules 4632, 4642, 5430, 6420, 6550, 6620, and related interpretive material. 10 *See* letter from Patrice M. Gliniecki, Senior Vice President and Deputy General Counsel, NASD, to Margaret McFarland, Deputy Secretary, Commission, dated August 18, 2004. NASD also found that, during the review period, the number of “as-of” trades represented a *de minimus* percentage of the total number of trades. NASD has stated that it considered making adjustments to its internal systems to track “as-of” covered sales by trade date but determined that it could not do so prior to August 13, 2004. Even if NASD could make these changes, another problem would arise: a previously submitted Form R31 would be rendered inaccurate if an “as-of” trade were reported in a month different from the month in which the trade was actually effected. 11 Therefore, NASD has requested relief to be permitted to report “as-of” covered sales based on the report date rather than the trade date, as would otherwise be required. 11 For instance, assume that an “as-of” covered sale is effected in July 2004 but not reported to NASD until December 2004. In the absence of this Section 36 exemption, the July 2004 Form R31 would no longer contain an accurate tabulation of NASD's aggregate dollar amount of covered sales for that month. NASD also has requested relief from the requirement, for the months September 2003 to June 2004, to report on Form R31 covered sales with a price substantially unrelated to the current market price. 12 Rules 31 and 31T and Form R31 require NASD to include the aggregate dollar amount of such “away-from-the-market” covered sales in Part III of its Form R31. NASD's rules 13 currently do not require members to report such trades to the Automated Confirmation Transaction Service (“ACT”). 14 Because away-from-the-market covered sales are not captured in ACT, the only way that NASD could obtain data on them would be to require its members to report them manually. 12 *See* letter from Marc Menchel, Executive Vice President and General Counsel, NASD, to Annette L. Nazareth, Director, Division of Market Regulation, Commission, dated August 5, 2004. 13 *See* NASD Rules 4632(e)(5), 4642(e)(4), 6420(e)(5), and 6920(e)(2). 14 ACT is the automated system owned and operated by the Nasdaq Stock Market which compares trade information entered by ACT participants and submits “locked-in” trades to National Securities Clearing Corporation for clearance and settlement; transmits reports of the transactions automatically to the National Trade Reporting System, if required, for dissemination to the public and the industry; and provides participants with monitoring and risk management capabilities to facilitate participation in a “locked-in” trading environment. *See* NASD Rule 6110(d). ACT is a “trade reporting system” as defined in Rule 31(a)(18), 17 CFR 240.31(a)(18). Presently, NASD does not require its members to manually report data on away-from-the-market covered sales, and NASD members do not have practices and procedures in place for collecting such data. NASD argues that, in the absence of such practices and procedures and in light of an earlier Commission interpretation with respect to away-from-the-market covered sales, 15 requesting historical information from NASD member firms on away-from-the-market covered sales for the period from September 2003 to June 2004—which would enable NASD to carry out its reporting obligations under temporary Rule 31T—would be unduly burdensome. NASD believes that the number of away-from-the-market covered sales is *de minimis,* while the cost associated with requiring all member firms to search for such historical data would be high. Therefore, NASD has requested relief from the obligation imposed by Rule 31T to report the aggregate dollar amount of away-from-the-market covered sales on its Form R31 submissions for the months September 2003 to June 2004. 15 In a 1996 release wherein the Commission adopted amendments to prior Rule 31-1 under the Exchange Act, the Commission stated that “no transaction fee will arise from transactions where the buyer and the seller have agreed to trade at a price substantially unrelated to the current market price for the securities, *e.g.* , to enable the seller to make a gift.” Securities Exchange Act Release No. 38073 (December 23, 1996), 61 FR 68590, 68592 n.27 (December 30, 1996). With respect to its ongoing obligations under Rule 31, NASD has represented that it will promptly amend its “self-reporting” form 16 to solicit information from NASD member firms on away-from-the-market covered sales prospectively. However, NASD has stated that its members would not be able to provide data on away-from-the-market covered sales for the July 2004 reporting period before August 13, 2004. NASD has represented, however, that it will report away-from-the-market covered sales occurring in July 2004 on its August 2004 Form R31. 17 Therefore, NASD also has requested relief from the obligation to report the aggregate dollar amount of its away-from-the-market covered sales occurring in July 2004 in its Form R31 for that month, and instead to report such covered sales along with its August 2004 Part III covered sales in its August 2004 Form R31. 16 NASD currently uses this form to collect data from its members on covered sales that:
(1)occur in odd lots ( *i.e.* , for less than 100 shares), where the trade is not captured by ACT; or
(2)result from the exercise of non-exchange-traded options that settle by physical delivery of the underlying securities. Because these two types of covered sales are not captured in a trade reporting system, NASD must include the aggregate dollar amount of such trades in Part III of Form R31. 17 The August 2004 Form R31 is due to the Commission by September 15, 2004, the tenth business day of September. III. Discussion After careful consideration, the Commission believes that exercising its exemptive authority under Section 36 of the Exchange Act to grant NASD the relief it has requested is necessary or appropriate in the public interest and consistent with the protection of investors. As discussed below, the Commission believes that, in view of the structure of the over-the-counter (“OTC”) markets, using the report date rather than the trade date for “as-of” covered sales is a practical solution that should have no net impact on the Commission's ability to collect the appropriate amount of Section 31 fees from NASD. While some OTC trading occurs through NASD's facilities (such as the Nasdaq Stock Market), other trading activity results from direct negotiation between NASD members or their customers. NASD must rely on its members to report these trades in a timely fashion. While the Commission expects NASD to zealously enforce its trade reporting rules to minimize the instances of late reporting by members, sometimes late reporting will occur. Based on the NASD representations noted above, the Commission believes that, in most instances, using the report date rather than the trade date as the charge date of these “as-of” covered sales will not affect the aggregate dollar amount of NASD's covered sales reported on Form R31 in a given month. 18 In the limited circumstances when the trade date and the report date are not in the same month, the aggregate dollar amounts of covered sales reported by NASD in the affected months will change, but the Commission will still collect the same amount of Section 31 fees unless there is a fee rate change in the intervening period. 19 Furthermore, the Commission believes that, in the very limited circumstances when a fee rate change occurs between the trade date and the report date, allowing NASD to report “as-of” trades using report date should not materially affect the amount of Section 31 fees that the Commission collects. 20 On this basis, the Commission believes that granting NASD's request for an exemption with respect to “as-of” covered sales is necessary or appropriate in the public interest and consistent with the protection of investors. 18 For example, assume that an OTC covered sale is effected on May 3 but is reported “as-of” to NASD on May 13 and there is no fee rate change in the intervening period. The Commission will collect exactly the same amount of Section 31 fees from NASD because NASD's aggregate dollar amount of covered sales for the month of May is unchanged. 19 For example, assume that the covered sale occurs on May 13 but is reported “as-of” to NASD on June 13 and that no fee rate change occurs in the intervening period. Although the dollar amount of this “as-of” covered sale will be included in the June rather than the May Form R31 figures, the fees due in the billing period will be unchanged because May and June are in the same billing period. *See* 17 CFR 240.31(a)(2). 20 NASD has reported that, in a sample period, the number of “as-of” trades reported to ACT is relatively consistent on a month-to-month basis. Therefore, the “as-of” covered sales that are “lost” to a future period where a different fee rate applies ( *i.e.* , the trade is effected in the current period but the “as-of” report to NASD is not made until the next period) should be roughly offset by the “as-of” trades “gained” from a previous period ( *i.e.* , the trade was effected in a prior period but was reported to NASD “as-of” in the current period). With respect to away-from-the-market covered sales, NASD previously has not obtained data on such trades, and NASD members do not have practices and procedures to provide NASD with such data. The Commission believes that, based on NASD's representations, 21 the minimal aggregate dollar amount of such covered sales—and the correspondingly limited Section 31 fees on such covered sales—does not justify the substantial cost of collecting the historical data from NASD (through its members). Therefore, the Commission believes that granting NASD's request for relief from the requirements of Rules 31 and 31T and Form R31 with respect to away-from-the-market covered sales occurring between September 2003 and June 2004 is necessary or appropriate in the public interest and consistent with the protection of investors. The Commission further believes that reporting July 2004 away-from-the-market covered sales along with NASD's August 2004 data is a practical solution. NASD will have additional time to obtain this information from its members, and the delayed reporting of one month's worth of this data will not affect the amount of Section 31 fees that NASD will owe the Commission. 22 Therefore, the Commission believes that granting NASD's request for relief from the requirements of Rules 31 and 31T and Form R31 with respect to away-from-the-market covered sales occurring in July 2004 is necessary or appropriate in the public interest and consistent with the protection of investors. After August 2004, NASD must report away-from-the-market covered sales occurring in a given month in the Form R31 due by the tenth business day of the following month, as required by Rule 31. 21 *See supra* note 12. 22 July 2004 and August 2004 are in the same billing period and the same fee rate applies to covered sales occurring in these months. IV. Conclusion It is hereby ordered, pursuant to section 36 of the Exchange Act, that NASD:
(1)May use the report date rather than the trade date as the charge date of any covered sale reported to NASD “as-of”;
(2)is not required to include in its Form R31 submissions for the months September 2003 to July 2004, inclusive, the aggregate dollar amount of any away-from-the-market covered sales; and
(3)may report in its August 2004 Form R31 the aggregate dollar amount of away-from-the-market covered sales that occurred in July 2004 and August 2004. By the Commission. Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2290 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50399; File No. SR-DTC-2004-09] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the By-Laws of The Depository Trust Company September 16, 2004. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on September 7, 2004, the Depository Trust Company (“DTC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change 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 parties. 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 consists of changes to the By-Laws of The Depository Trust Company (“DTC”) to provide for indemnity for non-director members of DTC board committees. 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 these 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 Statutory Basis for, the Proposed Rule Change In order to help assure the fair representation of the users of DTC, the DTC board of directors has delegated significant responsibilities to the DTC Equity Operations and Planning Committee, the DTC Fixed Income Operations and Planning Committee, and the DTC Membership and Risk Management Committee and has appointed to these committees, in addition to directors, non-director DTC-user representatives. 3 3 The changes to the DTC By-Laws are modeled on the current indemnification provisions contained in the By-Laws of both the Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation. The National Securities Clearing Corporation has filed a proposed rule change similar to this proposed rule change. Securities Exchange Act Release No. 50398 (September 16, 2004) (File No. SR-NSCC-2004-05). The purpose of the proposed rule change is to revise DTC's By-Laws to specify that non-director members of DTC board committees will be indemnified in the same manner as DTC directors and officers. DTC believes that the proposed rule change is consistent with the requirements of section 17A of the Act 4 and the rules and regulations thereunder applicable to DTC because the proposed change strengthens DTC's board committee structure and thereby helps DTC provide its participants with fair representation in the administration of its affairs. 4 15 U.S.C. 78q-1.
(B)Self-Regulatory Organization's Statement on Burden on Competition DTC perceives no impact on competition by reason of the proposed rule change.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments from DTC participants or others have not been solicited or received on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to section 19(b)(3)(A)(iii) of the Act 5 and Rule 19b-4(f)(3) 6 thereunder because the proposed rule is concerned solely with the administration of DTC. At any time within 60 days of the filing of such 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. 5 15 U.S.C. 78s(b)(3)(A)(iii). 6 17 CFR 240.19b-4(f)(3). 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-2004-09 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-2004-09. 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 DTC 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-2004-09 and should be submitted on or before October 13, 2004. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2291 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50392; File No. SR-FICC-2003-14] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving a Proposed Rule Change Relating to Amending Impractical or Inconsistent Rules and Adding Rules To Protect the Clearing Corporation and Its Members September 15, 2004. On November 17, 2003, the Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 (File No. SR-FICC-2003-14) and on January 15, 2004, and March 3, 2004, amended the proposed rule change. Notice of the proposal was published in the **Federal Register** on March 23, 2004. 2 No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 49421 (Mar. 16, 2004), 69 FR 13604. I. Description The proposed rule change will eliminate and amend certain of FICC's Government Securities Division (“GSD”) and Mortgage-Backed Securities Division (“MBSD”) rules that are inconsistent with current practice. 1. Remove the term “Clearing Agent Bank Member” and corresponding references to it in GSD's rules. This category of GSD membership no longer has any practical meaning and is not used. Entities that are clearing agent banks that wish to join the netting service would become bank netting members. 3 3 GSD Rule 1. 2. Amend GSD's Rules to remove outdated eligibility qualifications for comparison-only members. Prior to this rule change, GSD's rules provided for the following types of entities to be eligible to become a comparison-only member:
(i)A registered government securities broker or dealer,
(ii)a clearing agent bank, or (iii), if neither
(i)nor (ii), an entity that has demonstrated to FICC that its business and capabilities are such that it could reasonably expect material benefit from direct access to FICC's services. 4 4 GSD Rule 2, Section 1. FICC believes that GSD's comparison system provides a riskless service whose use should be advantageous to any entity regardless that is an active market participant regardless of the entity's legal or regulatory structure. Accordingly, FICC believes that a better approach to the eligibility criteria for comparison-only entities which would also be consistent with the way that FICC's management views the purpose of comparison-only membership, would be to replace
(i)and
(ii)with the requirement that a comparison-only applicant be a legal entity that is eligible to apply to be a GSD netting member. FICC would maintain the current
(iii)renumbered as (ii). 3. Clarify GSD's rule on voluntary termination of membership. The proposed change will modify the language in GSD Rule 2, Section 11, to provide that:
(i)a member must provide 10 days written notice of terminating its membership but GSD can accept such notice of termination within a shorter period,
(ii)the requested termination of membership would not be effective until accepted by GSD, and
(iii)GSD's acceptance would be evidenced by a notice to all members announcing the termination date of such member. Paragraphs
(ii)and
(iii)are new. 4. Add a provision to GSD's Rules to permit it to have access to the books and records of members. Prior to this rule change, GSD's rules permited GSD to access an applicant's books and records but not a member's books and records. Extending GSD's authority to review member's books and records is consistent with other clearing agencies' rules such as those of the National Securities Clearing Corporation. 5 5 New Section 13 of GSD Rule 2. 5. Add a provision to MBSD's Rules to provide for the confidential treatment of documents submitted by applicants as part of the application process. This rule change will provide appropriate comfort to applicants and will make MBSD's rules consistent with GSD's rules. 6 6 New Section 11 of MBSD Rules, Article III, Rule 1. 6. Add a new provision to MBSD's Rules that provides that at the request of FICC a non-domestic participant must provide an update of the legal opinion submitted by the foreign member or a written status report on FICC's rights under the relevant non-domestic law and add a similar new provision to GSD Rules. 7 7 New language to subsection
(g)of GSD Rule 2, Section 3; proposed new subsection
(iii)of MBSD Article III, Rule 1, Section 14. FICC believes that the old language of this MBSD rule is ambiguous and potentially burdensome for members. FICC believes that a better approach would be to provide that if FICC is alerted to a change in circumstances or to an issue of law that brings into question the reliability of the legal opinion previously submitted by a non-domestic participant, FICC will have the right to require the participant to revisit its legal opinion and to provide an update as to the status of FICC's rights under the relevant non-domestic law. FICC will add this provision to GSD's Rules as well. II. Discussion Section 17A(b)(3)(F) of the Act 8 requires that the rules of a clearing agency be designed to assure the safeguarding of securities and funds in its custody or control or for which it is responsible. The Commission finds that the proposed rule change is consistent with FICC's obligations under Section 17A(b)(3)(F) because clarifying FICC's rules relating to membership, books and records, and legal opinions will provide greater certainty as to FICC's participants' rights and obligations and will enhance FICC's ability to mitigate legal risk posed by non-domestic participants. 8 15 U.S.C. 78q-1(b)(3)(F). III. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act 9 and the rules and regulations thereunder. 9 15 U.S.C. 78q-1. *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-FICC-2003-14) be, and hereby is, approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 10 10 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2287 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50389; File No. SR-FICC-2003-06] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to the Assessment of Funds-Only Settlement Obligations September 15, 2004. I. Introduction On July 11, 2003, Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change SR-FICC-2003-06 pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). 1 Notice of the proposal was published in the **Federal Register** on February 23, 2004. 2 No comment letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 49242 (February 12, 2004), 69 FR 8251. II. Description The proposed rule change for the most part eliminates the complex manual adjustments currently made by FICC's Operations Department with regard to the forward margin debit obligations and credit entitlements of repo broker members of the Government Securities Division (“GSD”) of FICC. 3 When GSD initially implemented its blind-brokered repurchase agreement (“repo”) service, it operated a system whereby the majority of members submitted trade data in a single batch file at the end of each day. The batch file submission process made it virtually impossible for repo brokers, that expect to net out of their position as middlemen in brokered repos, to timely determine the existence of trades on which they had positions, contact the appropriate counterparties, and correct trade details. As a result, any erroneous submissions on the part of a dealer counterparty resulted in a forward margin assessment to the repo broker. Realizing that a repo broker should always be flat from a net-settlement position perspective, FICC granted repo brokers relief from the forward margining process by providing a look through to the dealer counterparties for purposes of assessing forward margin obligations. 4 However, the look through involves a manual adjustment process that requires complex calculations inconsistent with FICC's overall management policy. 5 3 Forward margin is a component of a netting member's daily funds-only settlement obligation. Forward margin is a mark-to-market payment on forward-settling positions. It is passed through in the form of cash from the debit side to the credit side. The amounts are reversed on the following day with interest collected from the credit side and paid through to the debit side. 4 FICC, in a prior rule filing, amended its rules to allow management to look through brokered repo transactions in order that repo brokers were not left with debit or credit obligations caused by erroneous submissions on behalf of the dealers. Securities Exchange Act Release No. 38603 (May 9, 1997), 62 FR 27088 (May 16, 1997) (File No. SR-GSCC-96-12). In accordance with FICC's risk strategy at the time, the risk management process worked most effectively if a repo broker was netted out of its positions as a middleman. However, with the advent of real time trade matching and the ready ability of brokers to rectify dealer submission errors, GSD believes that risk management initiatives are better served by using the parameters outlined in this filing. 5 On each business day, the Operations Division routinely adjusts the overall funds-only settlement obligation of a repo broker that has a forward margin debit or credit. If the repo broker has an overall credit forward margin, GSD will reduce its aggregate funds-only credit obligation or increase its aggregate funds-only debit entitlement by an amount equal to the forward margin credit. Conversely, if the repo broker is in an overall debit forward margin position, GSD will reduce its aggregate funds-only debit obligation or increase its funds-only credit entitlement by an amount equal to the debit; however, it then will apply that amount to the uncompared dealer (the dealer who failed to submit or submitted erroneously). FICC has determined that it will no longer provide a look through to relieve repo brokers from forward margin obligations. Subsequent to the events of September 11, 2001, FICC decided to eliminate all operations functions that require complex manual adjustment or input as a way to reduce risk in all operations processes. In addition, almost all repo broker activity is now submitted to FICC on an interactive, real-time basis that allows brokers to readily rectify any outstanding data submission errors during the day. For these reasons, FICC is proposing to modify the forward margin adjustment process to require the repo brokers to satisfy their forward margin obligations including both paying forward margin debits and receiving forward margin credits. Going forward, FICC will apply the following parameters with respect to the forward margin obligations of repo brokers. Debits and credits up to a predetermined dollar amount cap will be automatically collected or paid as applicable by the repo brokers as is the case for all other netting members. 6 Debits and credits in excess of the cap will be subject to hybrid processing, whereby the dollar amount up to the cap will always be collected or paid in its entirety by the broker, amounts over the cap (“excess debits” or “excess credits”) will be financed by GSD at the discretion of FICC. 6 The FICC Membership and Risk Management Committee will determine, based on historical data and risk considerations, what the debit and credit cap will be for forward margin debits and credits. The Committee has approved an initial cap of $2 million. The following is an example of hybrid processing for a broker with an excess debit. First, the Operations Department will request that the affected repo broker pay the excess debit to FICC. In the event that the repo broker is unable to pay the excess debit, the Operations Department, in consultation with the Credit Risk Department, will determine whether it is appropriate for FICC to finance the excess debit. If FICC finances the excess debit, the broker will be charged a financing fee, representing the interest amount that FICC will be charged by the clearing bank, and the member will be subject to an administrative fee. 7 GSD will collect the calculated interest amount from the repo broker on the subsequent business day. GSD will also reserve the right in certain situations to assess the forward margin amounts in excess of the dollar amount cap by looking through to the dealer, as is done by the current manual process. 8 All extensions of financing by FICC will be secured by the clearing fund deposit of the repo broker. 7 This fee will be designed to cover FICC's cost of arranging financing and will be filed before implementation. 8 FICC will continue to look through to the dealer counterparty for purposes of assessing forward margin obligations in cases of a systemic outage where any non-submission by one counterparty versus a repo broker exceeds $1 billion. In applying the hybrid processing to excess credits, the Operations Department in consultation with the Credit Risk Department will determine whether it is appropriate to pass through the excess credit to the repo broker. To the extent that GSD does not pass through to the broker all or a portion of its calculated excess credit, GSD will calculate an interest amount tied to the rate of interest earned by GSD on its overnight cash investment on such unpaid excess credit and will pay this interest amount to the repo broker on the subsequent business day. The proposed rule change will require some manual adjustments when the hybrid approach is used, but these instances will occur infrequently and will not rise to the complexity of the current process. III. Discussion Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions. 9 FICC's look-through rule was established to eliminate the forward margin debits and credits of repo broker members of GSD when their dealer counterparties failed to timely submit trade data or submitted incorrect data. The transition to real time trade submission from end of day batch trade submission has significantly reduced the likelihood that repo brokers will be assessed forward margin and in FICC's view has rendered the look-through rule and its attendant manual adjustments unnecessary. Under the proposed rule change, forward margin will be collected from repo brokers or financed by GSD, but FICC will retain the right to look-through to the dealer counterparties when necessary. Accordingly, by significantly reducing the amount of manual processing with regard to forward margin debit obligations and credit entitlements without affecting FICC's ability to collect forward margin, the proposed rule change should help FICC to devote more resources to promoting the prompt and accurate clearance and settlement of securities transactions. 9 15 U.S.C. 78q-1(b)(3)(F). IV. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular with the requirements of section 17A of the Act and the rules and regulations thereunder applicable. *It is therefore ordered,* pursuant to section 19(b)(2) of the Act, that the proposed rule change (File No. SR-FICC-2003-06) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 10 10 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2296 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50391; File No. SR-NASD-2004-090] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to the Nasdaq Closing Cross September 15, 2004. On June 9, 2004, the National Association of Securities Dealers, Inc. (“NASD”), through its subsidiary, the Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“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 to establish auxiliary procedures for administering the Nasdaq Closing Cross on certain significant trading days. On July 23, 2004, Nasdaq amended the proposed rule change. 3 The proposed rule change, as amended, was published for comment in the **Federal Register** on August 2, 2004. 4 The Commission received no comments on the proposal. This order approves the proposed rule change, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* letter from Mary M. Dunbar, Vice President and Deputy General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation, Commission, dated July 22, 2004 (“Amendment No. 1”). In Amendment No. 1, Nasdaq restated the proposed rule change in its entirety. 4 *See* Securities Exchange Act Release No. 50087 (July 26, 2004), 69 FR 46195. The proposed rule change would establish auxiliary procedures for administering the Nasdaq Closing Cross on days when significant trading volume is expected (“significant trading days”). There are three components of the Nasdaq Closing Cross:
(1)The creation of Market On Close (“MOC”), Limit on Close (“LOC”) and Imbalance Only (“IO”) order types;
(2)the dissemination of an order imbalance indicator; and
(3)Closing Cross processing in the Nasdaq Market Center at 4 p.m. that executes the maximum number of shares at a single, representative price that is the Nasdaq Official Closing Price. On significant trading days, the proposed auxiliary procedures would permit Nasdaq:
(i)To set earlier times for the end of the order entry periods for IO, MOC, and LOC orders set forth in NASD Rule 4709(a);
(ii)to set an earlier time for the order modification and cancellation periods for IO, MOC, and LOC orders set forth in NASD Rule 4709(a);
(iii)to set an earlier time for the dissemination times and frequencies for the order imbalance indicator set forth in NASD Rule 4709(b); and
(iv)to adjust the threshold values set forth in NASD Rule 4709(c)(2)(D) to no greater than twenty percent. The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association. 5 The Commission believes that the proposed rule change is consistent with section 15A(b) of the Act, 6 in general, and furthers the objectives of section 15A(b)(6), 7 in particular, in that it is 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 securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest. The Commission believes that the proposed auxiliary procedures will allow Nasdaq greater flexibility in the administration of the Nasdaq Closing Cross and help Nasdaq maintain a fair and orderly market during the close on significant trading days. 5 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 6 15 U.S.C. 78 *o* -3(b). 7 15 U.S.C. 78 *o* -3(b)(6). For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and rules and regulations thereunder applicable to a national securities association, and, in particular, section 15A(b) of the Act. 8 8 15 U.S.C. 78 *o* -3(b). It is therefore ordered, pursuant to section 19(b)(2) of the Act, 9 that the proposed rule change (SR-NASD-2003-090), as amended by Amendment No. 1, is approved. 9 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 10 10 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2295 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50398; File No. SR-NSCC-2004-05] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending the By-Laws of the National Securities Clearing Corporation September 16, 2004. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on September 7, 2004, the National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change described in items I, II, and III below, which items have been prepared primarily by NSCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties. 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 consists of changes to the By-Laws of the National Securities Clearing Corporation (“NSCC”) to provide for indemnity for non-director members of NSCC board committees. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NSCC 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. NSCC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of these statements. 2 2 The Commission has modified the text of the summaries prepared by NSCC.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In order to help assure the fair representation of the users of NSCC, the NSCC board of directors has delegated significant responsibilities to the NSCC Equity Operations and Planning Committee, the NSCC Fixed Income Operations and Planning Committee, and the NSCC Membership and Risk Management Committee and has appointed to these committees, in addition to directors, non-director NSCC-user representatives. 3 3 The changes to the NSCC By-Laws are modeled on the current indemnification provisions contained in the By-Laws of both the Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation. The Depository Trust Company has filed a proposed rule change similar to this proposed rule change. Securities Exchange Act Release No. 50399 (September 16, 2004) (File No. SR-DTC-2004-09). The purpose of the proposed rule change is to revise NSCC's By-Laws to specify that non-director members of NSCC board committees will be indemnified in the same manner as NSCC directors and officers. NSCC believes that the proposed rule change is consistent with the requirements of section 17A of the Act 4 and the rules and regulations thereunder applicable to NSCC because the proposed change strengthens NSCC's board committee structure and thereby helps NSCC provide its participants with fair representation in the administration of its affairs. 4 15 U.S.C. 78q-1.
(B)Self-Regulatory Organization's Statement on Burden on Competition NSCC perceives no adverse impact on competition by reason of the proposed rule change.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments from NSCC participants or others have not been solicited or received on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to section 19(b)(3)(A)(iii) of the Act 5 and Rule 19b-4(f)(3) 6 thereunder because the proposed rule is concerned solely with the administration of NSCC. At any time within 60 days of the filing of such 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. 5 15 U.S.C. 78s(b)(3)(A)(iii). 6 17 CFR 240.19b-4(f)(3). 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-NSCC-2004-05 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-NSCC-2004-05. 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 NSCC and on NSCC's Web site at *http://www.nscc.com/legal.* 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-NSCC-2004-05 and should be submitted on or before October 13, 2004. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2292 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50395; File No. SR-NSCC-2003-09] Self-Regulatory Organizations; National Securities Clearing Corporation; Order Approving Proposed Rule Change To Amend the Procedure for Determining Intraday Mark-to-the-Market Payments September 16, 2004. I. Introduction On May 20, 2003, the National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change SR-NSCC-2003-09 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). 1 On October 20, 2003, NSCC filed an amendment to the proposed rule change. Notice of the proposal was published in the **Federal Register** on March 8, 2004. 2 No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 49353 (March 2, 2004), 69 FR 10789. II. Description NSCC is amending Procedure XV (Clearing Fund Formula and Other Matters) to give NSCC more flexibility in determining the intraday mark-to-the market amount it will collect from its members. NSCC Rule 15 (Financial Responsibility and Operational Capability) provides that NSCC may obtain such adequate assurances of a member's financial responsibility and operational capability as NSCC may at any time or from time to time deem necessary or advisable in order to protect NSCC, Settling Members, Municipal Comparison Only Members, Fund Members, Insurance Carrier Members, creditors, or investors. Currently, Procedure XV describes the criteria for determining which positions in high risk/volatile issues NSCC will require additional mark-to-the-market payments for and provides specific formulas that are used to determine additional deposit amounts. Generally, NSCC assesses on an intraday basis an additional mark-to-the-market charge to a member when the member maintains a position in a security where the intraday exposure to NSCC is in excess of 10% of the member's excess net capital. In addition, with respect to illiquid unsettled positions, NSCC may request additional collateral if the member's net unsettled position in any one security is greater than 25% of the security's average daily volume. NSCC is replacing the formulas currently reflected in its procedures with a more generalized provision to give NSCC the flexibility to determine what amount, if any, should be collected based on conditions that exist at that time. 3 In addition, the reference to NSCC's authority to make such charges is being corrected to reflect NSCC Rule 15, Section 4. 3 Additional factors that NSCC may use in determining intraday mark-to-the-market requirements include but are not limited to
(1)Percent of total security float,
(2)average daily security volume,
(3)position size (quantity and value),
(4)portfolio concentration, and
(5)industry/sector concentration. III. Discussion Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to assure the safeguarding of funds and securities for which it is responsible. 4 The Commission finds that NSCC's proposed rule change is consistent with this requirement because it should permit the safeguarding of funds and securities for which NSCC is responsible by permitting NSCC to more appropriately collect collateral to cover its exposure from its members' unsettled positions. 4 15 U.S.C. 78q-1(b)(3)(F). IV. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular Section 17A of the Act and the rules and regulations thereunder. *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-NSCC-2003-09) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 5 5 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2294 Filed 9-21-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50374; File No. SR-PCX-2004-63] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the Pacific Exchange, Inc. Relating to a Proposed Listing Fee Schedule for Exchange Traded Funds and Closed-End Funds September 14, 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 August 9, 2004, the Pacific Exchange, Inc. (“PCX” or “Exchange”) 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 by the PCX. The PCX submitted Amendment No. 1 to the proposal on September 3, 2004. 3 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). 2 17 CFR 240.19b-4. 3 *See* letter from Tania Blanford, Regulatory Policy, PCX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated September 1, 2004, and accompanying Form 19b-4 (“Amendment No. 1”). Amendment No. 1 replaced the original filing in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The PCX, through its wholly-owned subsidiary PCX Equities, Inc. (“PCXE”), is proposing to amend its Schedule of Fees and Charges (“Schedule”) in order to adopt new listing fees specifically for listing Exchange-Traded Funds (“ETFs”) and Closed-End Funds (“CEFs”) (collectively, “Funds”) on the PCXE and trading on the Archipelago Exchange (“ArcaEx”), a facility of the PCXE. 4 The PCX proposes to implement these fees effective for listings, and listing applications pending, as of June 21, 2004. The text of the proposed rule change appears below; proposed additions are *italicized* . 4 ETFs include unit investment trusts, portfolio depository receipts and trust issued receipts designed to track the performance of the broad stock or bond market, stock industry sector, and U.S. Treasury and corporate bonds, among other things. CEFs are a type of Investment Company registered under the Investment Company Act of 1940 that offers a fixed number of shares. Their assets are professionally managed in accordance with the CEF's investment objectives and policies, and may be invested in stocks, fixed income securities or a combination of both. Schedule of Fees and Charges for Exchange Services [PCX equities: listing fees] Administrative Listing Fees: * Application Processing Fee $500.00 *Funds* * $500.00 for all applications to list Fund(s) submitted at the same time by a Fund issuer or “family,” regardless of the number of Funds to be listed 1 * Company Name Change $250.00 Change in Par Value $250.00 Original Listing Fees: ** Common Stock, dually listed with the NYSE, AMEX or Nasdaq NM $10,000.00 Common Stock, not dually listed $20,000.00 Additional Classes of Common Stock $2,500.00 Preferred Stock, Warrants, Debit Instruments, Purchase Rights, Units $2,500.00 *Funds* *$20,000 for the first Fund listed by a Fund issuer or “family;” no fee for subsequent additional Funds listed by the same Fund issuer or “family”.* * This is a non-refundable, fixed charge for review of listing applications. Issues approved for listing will have this charge credited towards the Original Listing Fee *or, if the Fund issuer of “family” is not subject to an original listing fee, towards the applicable annual maintenance fee(s) due for the Fund or Funds listed.* 1 *Fund “families” are those with a common investment advisor or investment advisors, which are “affiliated persons” as defined under the securities laws. A “family” also includes trust-issued receipts such as Holding Company Depositary Receipts (known as HLDRS* SM ) *that have a common initial depositor or initial depositors that are “affiliated persons” as defined under the securities laws.* ** The Initial Listing fees are fixed and are not charged by the number of shares listed. Additional Shares Listing Fee: 2 Per share $.0025 Minimum charge (per application) $500.00 Maximum charge (per application) $7500.00 Maximum charge (per year) $15,000.00 Annual Listing Maintenance Fee (Payable January of each year following): For one issue, dually listed with the NYSE, AMEX or Nasdaq NM $1,000.00 For each additional issue $500.00 Minimum (per year) $1,000.00 Maximum (per year) $5,000.00 *For Funds:* *Aggregate Total Shares Outstanding* *Annual Maintenance Fee* *Less than 10 million* *$5,000* *10 million to less than 30 million* *$10,000* *30 million to less than 50 million* *$15,000* *50 million to less than 100 million* *$20,000* *100 million to less than 250 million* *$30,000* *250 million to less than 500 million* *$40,000* *500 million to less than 750 million* *$50,000* *750 million to less than One billion* *$60,000* *Greater than One billion* *$80,000* 2 *This fee does not apply to Funds.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the PCX included statements concerning the purpose of and basis for the proposed modifications to the fee schedule. The text of these statements may be examined at the places specified in Item IV below. The PCX 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 PCX proposes to adopt new listing fees specifically for Funds. The proposed fees include a non-refundable application processing fee, a one-time original listing fee per Fund issuer or “family,” 5 as defined, and an annual maintenance fee based on the aggregate total shares outstanding of the Funds listed by the same Fund issuer or “family.” The remaining portions of the current Schedule would continue to apply to Funds, except for the additional shares listing fee. 5 Fund “families” are those with a common investment advisor or investment advisors that are “affiliated persons” as defined under the securities laws. A “family” also includes trust-issued receipts such as Holding Company Depositary Receipts (known as HLDRS SM ) which have a common initial depositor or initial depositors which are “affiliated persons” as defined under the securities laws. The PCX believes there are several reasons to adopt listing fees specifically for Funds. First, PCXE's current Schedule does not explicitly provide for listing fees for these types of securities. Accordingly, the PCX believes the amended Schedule would provide guidance and clarity to issuers and the public regarding the appropriate applicable fees for Funds. Second, the PCX believes, in most cases, proposed fees would substantially decrease the listing fees that Fund issuers and Fund “families” would otherwise pay under the current Schedule. As such, the PCX believes the proposed fees would enable PCXE to compete more effectively for listings. The PCX also believes the lower proposed fees would also be beneficial for issuers. Finally, the PCX believes reduced listing fees for Funds would remove the financial impediment to listing created by high fees, thus providing Fund issuers and Fund “families” with a greater choice of listing venues. Summary of Current and Proposed Fee Changes
(a)Application Processing Fees Currently, the Schedule provides for a $500 application processing fee, which applies generally to all listings applications including Funds. While this fee is non-refundable, it is credited towards the original listing fee upon approval for listing. PCX proposes to create an application processing fee specifically for Funds, which would allow a single application fee of $500 for applications submitted at the same time by a Fund issuer or Fund “family,” regardless of the number of Funds to be listed. Thus, a Fund issuer or Fund “family” which seeks to list multiple Funds at the same time would incur a total application fee of $500. Subsequent applications from the same Fund issuer or “family” to list one or more Funds would incur a separate $500 application fee at that time. Similar to the general application processing fee, the application processing fee for Funds would be non-refundable and credited towards the original listing fee, if any, upon approval of the listing, or, if the Fund issuer or “family” is not subject to an original listing fee, towards the applicable annual maintenance fee(s) due for the Fund or Funds listed.
(b)Original Listing Fees Currently, the original listing fee is based on whether a Fund or “family” is dually listed on the New York Stock Exchange, Inc. (“NYSE”), the American Stock Exchange LLC (“Amex”), or Nasdaq National Market (“NNM”). Thus, if a Fund is dually listed, the original listing fee would be $10,000 per Fund; otherwise, the original listing fee would be $20,000 per Fund. This fee would apply to each individual Fund listed, regardless of the timing or number of Funds listed by an individual Fun issuer or “family” of funds. The PCX proposes a one-time original listing fee of $20,000 specifically for the first Fund listed by a Fund issuer or Fund “family”—including those with one or more Funds listed as of June 21, 2004—would not incur an original listed fee, regardless of whether one or more previously listed Funds are no longer listed on PCXE. This proposed fee would apply regardless of whether the Fund(s) lists in conjunction with an initial public offering, transfers from another marketplace, concurrently lists on another marketplace, or is listed on another exchange or market.
(c)Annual Maintenance Fees Currently, the annual maintenance fees are fixed and based on whether the Fund is dually listed on the NYSE, Amex, or NNM. If a Fund is dually listed, the maintenance fee would be $1,000 per Fund; otherwise, the maintenance fee would be $2,000 per Fund. These fees apply regardless of the number of Funds listed by the issuer. Moreover, annual maintenance fees are not incurred in the year of listing; rather, they are payable beginning in the first full calendar year following the year of listing. The PCX proposes to adopt annual maintenance fees specifically for Funds based on the aggregate total shares outstanding of the Funds listed by the same Fund issuer or Fund “family,” as follows: Aggregate total shares outstanding Annual maintenance fee Less than 10 million $5,000 10 million to less than 30 million 10,000 30 million to less than 50 million 15,000 50 million to less than 100 million 20,000 100 million to less than 250 million 30,000 250 million to less than 500 million 40,000 500 million to less than 750 million 50,000 750 million to less than One billion 60,000 Greater than One billion 80,000 As previously stated, annual maintenance fees would be assessed beginning in the first full calendar year following the year of listing. The aggregate total shares outstanding would be calculated based on the total shares outstanding as reported by the Fund issuer or Fund “family” in its most recent periodic filing with the Commission or other publicly available information. For example, if a single Fund issuer or “family” listed ten Funds during calendar year 2001 with an aggregate of 120 million shares outstanding, and subsequently listed a single Fund in 2002 with 130 million shares outstanding, then listed a single Fund in 2003 with 400 million shares outstanding, that issuer would not incur an annual maintenance fee for 2001, but would incur annual maintenance fees of $30,000 for 2002 (based on an aggregate of 120 million total shares outstanding), $40,000 for 2003 (based on an aggregate of 250 million total shares outstanding) and $50,000 for 2004 (based on an aggregate of 650 million total shares outstanding). Annual maintenance fees would not be pro-rated or reduced for Funds that delist for any reason. The annual maintenance fees would apply regardless of whether any of these Funds are listed elsewhere.
(d)Implementation The PCX proposes that these proposed fees become effective retroactive for all listings, and listing applications pending, as of June 21, 2004. 2. Statutory Basis The Exchange believes that the proposal, as amended, is consistent with Section 6(b) of the Act, 6 in general, and Section 6(b)(4) of the Act, 7 in particular, in that it provides for the equitable allocation of reasonable dues, fees and other charges among its members and other persons using its facilities. 6 15 U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change, as amended, will 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 Written comments on the proposed rule change were neither solicited nor received. III. Date of Effectiveness of the Proposed Fee Schedule Modifications and Timing for Commission Action Within 35 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 90 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 Exchange consents, the Commission will: A. By order approve the proposed modifications, or B. Institute proceedings to determine whether the proposed rule change should be disapproved. 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 e-mail to *rules-comments@sec.gov.* Please include File No. SR-PCX-2004-63 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 No. SR-PCX-2004-63. 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 communication 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 Room, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of such filing will also be available for inspection and copying at the principal office of the PCX. 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 No. SR-PCX-2004-63 and should be submitted on or before October 13, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 8 8 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. 04-21276 Filed 9-21-04; 8:45 am]
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U.S. Code
- Purposes§ 3501
- National market system for securities; securities information processors§ 78k–1
- General exemptive authority§ 78mm
- Transaction fees§ 78ee
- Registration, responsibilities, and oversight of self-regulatory organizations§ 78s
- National system for clearance and settlement of securities transactions§ 78q–1
- Public information; agency rules, opinions, orders, records, and proceedings§ 552
- Definitions and application§ 78c
- National securities exchanges§ 78f
3 references not yet in our index
- 17 CFR 240.11
- 15 USC 78
- 17 CFR 240.19
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Notice of an application under section 6(c) of the Investment Company Act of 1940 (“Act”) for an exemption from section 15(a) of the Act and rule 18f-2 under the Act, as well as certain disclosure requirements
Cite17 CFR 240.11
Cite15 USC 78
Cite17 CFR 240.19
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