Notices. SECURITIES AND EXCHANGE COMMISSION

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BILLING CODE 8010-01-M SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50406; File No. SR-NASD-2004-119] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Regarding Fees for Orders and Quotes Executed in the Nasdaq Closing Cross September 16, 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 10, 2004, the National Association of Securities Dealers, Inc.

(“NASD”), through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), submitted to 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 Nasdaq. On August 23, 2004, Nasdaq amended the proposed rule change. 3 On September 13, 2004, Nasdaq amended the proposed rule change. 4 Nasdaq has designated the proposed rule change as “establishing or changing a due, fee, or other charge” under Section 19(b)(3)(A) of the Act, 5 and Rule 19b-4(f)(2) thereunder, 6 which renders the proposal effective upon filing with the Commission.

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 Mary M. Dunbar, Vice President and Deputy General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), Commission, dated August 20, 2004 (“Amendment No. 1”). In Amendment No. 1, Nasdaq restated the proposed rule change in its entirety. 4 *See* letter from Mary M.

Dunbar, Vice President and Deputy General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division, Commission, dated September 10, 2004 (“Amendment No. 2”). In Amendment No. 2, Nasdaq restated the proposed rule change in its entirety. 5 15 U.S.C. 78s(b)(3)(A). 6 17 CFR 240.19b-4(f)(2). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Nasdaq is filing this proposed rule change to establish fees for quotes and orders executed in the Nasdaq Closing Cross.

The text of the proposed rule change is set forth below. Proposed new language is in *italics* ; proposed deletions are in [brackets]. 7 7 The proposed rule language is marked to show changes to Rule 7010(i) as currently reflected in the NASD Manual available at *www.nasd.com,* as amended by SR-NASD-2004-076 (filed May 5, 2004 and amended on July 2, 2004 and July 23, 2004), Securities Exchange Act Release No. 50074 (July 23, 2004); 69 FR 49866 (July 30, 2004), and SR-NASD-2004-106, Securities Exchange Act Release No. 50038 (July 19, 2004); 69 FR 44699 (July 27, 2004).

Amendment 2 to SR-NASD-2004-076, filed on July 23, 2004, inadvertently omitted modifications to the language of Rule 7010(i) that were made effective on July 12, 2004 by SR-NASD-2004-106. Amendment 1 to SR-NASD-2004-119, filed on August 23, 2004, then omitted to reflect the changes effected by Amendment 2 to SR-NASD-2004-076. This amendment is marked to reflect the changes to Rule 7010(i) from SR-NASD-2004-076 and to ensure that the language of Rule 7010(i) is properly reflected in the NASD manual.

Rule 7010. System Services (a)-(h) No Change.

(i)Nasdaq Market Center order execution)

(1)and

(2)No Change.

(3)[Pilot—] Closing Cross [For a period of three months commencing on the date Nasdaq implements its Closing Cross (as described in Rule 4709) members shall not be charged Nasdaq Market Center execution fees, or receive Nasdaq Market Center liquidity provider credits, for those quotes and orders executed in the Nasdaq Closing Cross.] *Market-on-Close and Limit-on-executed: $0.0005 per share.* *Close orders executed in the Nasdaq Closing Cross* . *All other quotes and orders executed in the Nasdaq Closing Cross: No charge for execution.* (j)-(u) No change. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq 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. Nasdaq 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 Commission recently approved the Nasdaq Closing Cross, which is a new process for determining the Nasdaq Official Closing Price for the most liquid Nasdaq stocks. 8 The Nasdaq Closing Cross is designed to create a more robust close that allows for price discovery, and an execution that results in an accurate, tradable closing price. Nasdaq established a pilot program, commencing with the launch of the Closing Cross, during which no execution charges were charged, and no liquidity provider credits were offered, for those quotes and orders executed in the Nasdaq market center as part of the Nasdaq Closing Cross. 9 8 Securities Exchange Act Release No. 49406 (March 11, 2004); 69 FR 12879 (March 18, 2004)(SR-NASD-2004-173). 9 Securities Exchange Act Release No. 49576 (April 16, 2004); 69 FR 22112 (April 23, 2004)(SR-NASD-2004-048). Nasdaq has determined to end the pilot program and establish the following pricing for the Nasdaq Closing Cross. Nasdaq will assess a fee of $0.0005 per share executed during the Nasdaq Closing Cross for all Market-on-Close and Limit-on-Close orders. At this time, Nasdaq will assess no fees and offer no rebates for quotations and other orders executed during the Nasdaq Closing Cross. 10 Nasdaq will monitor the effectiveness of the proposed pricing schedule in preserving and enhancing the success of the Nasdaq Closing Cross to date. 10 In the event Nasdaq determines to assess such fees, Nasdaq will file a rule proposal with the Commission. 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of Section 15A of the Act, 11 in general, and with Section 15A(b)(5), 12 in particular, in that it provides for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system that NASD operates or controls. Nasdaq believes that the proposed fees for Market-on-Close and Limit-on-Close orders are consistent with the statute in that they are designed to result in an execution charge approximating the execution charge for quotes and orders entered and executed in the Nasdaq Market Center throughout the trading day. Nasdaq believes that assessing no fee and offering no rebate for quotations and other orders executed during the Nasdaq Closing Cross is consistent with the statute because it is designed to encourage the entry of Imbalance Only orders to minimize imbalances resulting from the Closing Cross algorithm, and to preserve the Closing Cross liquidity provided by quotations and orders from the continuous market. 11 15 U.S.C. 78 *o* -3. 12 15 U.S.C. 78 *o* -3(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition Nasdaq does not believe that the proposed rule change will result in 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 were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The proposed rule change has become immediately effective pursuant to Section 19(b)(3)(A)(ii) of the Act, 13 and subparagraph (f)(2) of Rule 19b-4 thereunder, 14 because it establishes or changes a due, fee, or other charge imposed by Nasdaq. At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 15 13 15 U.S.C. 78s(b)(3)(A)(ii). 14 17 CFR 240.19b-4(f)(2). 15 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change, as amended, under Section 19(b)(3)(C) of the Act, the Commission considers the period to commence on September 15, 2004, the date Nasdaq filed Amendment No. 2. *See* 15 U.S.C. 78s(b)(3)(C). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change 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-NASD-2004-119 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-NASD-2004-119. 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 Room. Copies of such filing also will be available for inspection and copying at the principal office of the NASD. 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-NASD-2004-119 and should be submitted on or before October 14, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 16 16 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2348 Filed 9-22-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50405; File No. SR-NASD-2004-071] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Improved Nasdaq Opening Process September 16, 2004. I. Introduction On April 23, 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 improve the opening process for Nasdaq securities. On May 27, 2004, Nasdaq amended the proposed rule change. 3 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 (“Division”), Commission, dated May 26, 2004 (“Amendment No. 1”). In Amendment No. 1, Nasdaq restated the proposed rule change in its entirety. The proposed rule change, as amended by Amendment No. 1, was published for comment in the **Federal Register** on June 17, 2004. 4 The Commission received two comment letters on the proposal, as amended. 5 Nasdaq submitted a response to the comment letters. 6 On September 15, 2004, Nasdaq amended the proposed rule change. 7 This order approves the proposed rule change, as amended. 4 *See* Securities Exchange Act Release No. 49842 (June 9, 2004), 69 FR 33971. 5 *See* letter from James P. Selway III, Managing Director, White Cap Trading LLC, to Jonathan G. Katz, Secretary, Commission, dated July 7, 2004 (“White Cap Letter”); and letter from Kim Bang, President and Chief Executive Officer, Bloomberg Tradebook LLC, to Jonathan G. Katz, Secretary, Commission, dated July 13, 2004 (“Bloomberg Letter”). 6 *See* letter from Jeffrey Davis, Associate General Counsel, Nasdaq, to Katherine England, Division of Market Regulation, Commission, dated July 21, 2004 (“Nasdaq Response Letter”). 7 *See* letter from Mary M. Dunbar, Vice President and Deputy General Counsel, Nasdaq, to Katherine A. England, Assistant Director, Division, Commission, dated September 15, 2004 (“Amendment No. 2”). In Amendment No. 2, Nasdaq revised the language of Rule 4706(a)(1)(B)(xiii) to reflect changes made by File No. SR-NASD-2004-076. *See* Securities Exchange Act Release No. 50074 (July 23, 2004), 69 FR 45866 (July 30, 2004). This was a technical amendment and is not subject to notice and comment. II. Description of Proposed Rule Change The proposed rule change is intended by Nasdaq to improve the pre-open trading environment for Nasdaq-listed securities, and to create two new voluntary opening processes that would together constitute the beginning of the trading day for all Nasdaq-listed securities. The changes to the pre-open environment would eliminate the Trade-or-Move process contained in NASD Rule 4613(e), create pre-opening eligible order types, and open all market participant quotes at 9:25 a.m. rather than 9:29:30 a.m. The new 9:30 a.m. opening process would take one of two forms: The Nasdaq Opening Cross or the Modified Nasdaq Opening. Certain Nasdaq-listed stocks would be designated to participate in the Nasdaq Opening Cross, which Nasdaq has designed to complement the recently implemented Nasdaq Closing Cross. There would be three components of the Nasdaq Opening Cross:

(1)The creation of On Open and Imbalance Only order types;

(2)the dissemination of an order imbalance indicator via a Nasdaq proprietary data feed; and

(3)opening cross processing in the Nasdaq Market Center at 9:30 a.m. that would execute the maximum number of shares at a single, representative price that would be the Nasdaq Official Opening Price. Upon initial implementation, Nasdaq plans to apply the Nasdaq Opening Cross to securities included in the Nasdaq 100 Index, the S&P 500 Index, and the Nasdaq Biotech Index, although Nasdaq would have the authority to apply the Nasdaq Opening Cross to any and all Nasdaq securities. Nasdaq designed the proposal to create a more robust opening that allows for price discovery, and executions that result in an accurate, tradable opening price. For those Nasdaq securities that do not participate in the Nasdaq Opening Cross, the Modified Nasdaq Opening would integrate quotes and orders entered during pre-market hours with orders designated for execution during the normal trading day (9:30 a.m. to 4 p.m.), create an unlocked inside bid and offer in the Nasdaq Market Center, and facilitate an orderly process for opening trading at 9:30 a.m. These securities would continue to have their Nasdaq Official Opening Price calculated as today. III. Comment Summary The White Cap Letter supported Nasdaq's proposed rule change. In particular, the White Cap Letter stated that the Nasdaq Opening Cross would remedy a long-standing problem with Nasdaq's market structure: *i.e.* , the lack of a formalized and transparent opening process. White Cap stated that, based on its experience with the Nasdaq Closing Cross over the preceding three months, it believed that the Nasdaq Opening Cross would afford market participants the opportunity to enter on-open orders for execution at a single price, to view indicated prices and volumes as well as any imbalances, and to interact with such indications on a competitive basis. White Cap acknowledged the fact that order-delivery electronic communication networks (“ECNs”) would not participate in the Nasdaq Opening Cross as a consequence of technological concerns and competitive realities. White Cap believed that, because the Nasdaq Opening Cross would be directly accessible to all interested and qualified parties, its benefits should redound to the marketplace regardless of the fact that certain quotes do not participate. The Bloomberg Letter objected to the requirement that trading interest be subject to automatic execution in order to take part in the Nasdaq Opening Cross, which it said would effectively eliminate participating ECNs from the process. The Bloomberg Letter opined that, because the Nasdaq Opening Cross would exclude trades, and therefore liquidity, in Nasdaq securities that occur on ECNs that have elected order delivery rather than automatic execution, the opening price likely would be inaccurate, incomplete and misleading, harm participating ECNs and their investor participants, and make it more difficult for broker-dealers participating in SuperMontage to meet their best execution obligations. Bloomberg stated that Nasdaq had offered no legitimate basis for excluding ECNs from the Nasdaq Opening Cross. The Bloomberg Letter also argued that the amendments to the pre-opening process would effectively mean that the Nasdaq market would open at 9:25 a.m., and that Nasdaq had not explained this in the proposed rule change. The Bloomberg Letter opined that mixing firm quotes of ECNs with the indicative quotations of market makers in an undifferentiated data stream would not be in the public interest. The Bloomberg Letter stated that Nasdaq has “buried secret rules in its technical specification,” that should have been the subject of public disclosure and public comment. Finally, the Bloomberg Letter commented that the proposed rule change would violate Section 15A(b)(6) of the Act, 8 which requires that the rules of a national securities association not be designed to permit unfair discrimination between customers, issuers, brokers or dealers, and would constitute a constructive denial of access to ECNs, which would constitute, in turn, an unnecessary or inappropriate burden on competition in violation of Section 15A(b)(8) of the Act. 9 8 15 U.S.C. 78 *o* -3(b)(6). 9 15 U.S.C. 78 *o* -3(b)(8). In its response letter, Nasdaq acknowledged the White Cap Letter and spoke to the comments raised in the Bloomberg Letter. Nasdaq stated that Bloomberg's business decision to execute orders internally within Bloomberg's book rather than offering automatic execution on SuperMontage should not impede Nasdaq from proceeding with a market enhancement. Nasdaq suggested that there are multiple options that Bloomberg could pursue to satisfy its customers' interest in participating fully in the Nasdaq Opening Cross, such as

(1)by participating in the Opening Cross on an automatic execution basis;

(2)by routing standing limit orders through another participant that participates on an automatic execution basis, or

(3)by discussing with Nasdaq the possibility of establishing a second market participant identifier for the entry of orders eligible to participate in the Nasdaq Opening Cross. Moreover, Nasdaq stated that the Opening Cross is inherently a “match”—matching interest of buyers and sellers at a single instant in time—and is not conducive to an iterative order delivery process, which would create substantial technical difficulties for Nasdaq and unwarranted risk for other market participants. Nasdaq pointed out that participation in the Nasdaq Opening Cross is completely voluntary and that Bloomberg is effectively excluding itself from the process. Nasdaq stated that Bloomberg misunderstood the proposed rule change with respect to the pre-opening process, saying that Nasdaq is modifying the pre-opening process in order to improve and emphasize the official open at 9:30 a.m., and that the 9:25 a.m. opening of quotes would dramatically improve the 9:30 a.m. open, not replace it. Nasdaq also pointed out that, with respect to Nasdaq's “buried secret rules,” Nasdaq has a practice of making its technical specifications publicly available far in advance of its proposed launch dates and has a natural interest in having the document widely scrutinized and used by market participants. 10 10 Nasdaq published the technical specifications on June 17, 2004. Nasdaq stated that the Closing Cross has performed as it was designed and, overall has improved the Nasdaq closing process. Thus, Nasdaq believes that the Nasdaq Opening Cross will provide similar benefits to the opening process. IV. Discussion and Commission's Findings After careful consideration of the proposed rule change, the comment letters, and Nasdaq's response to the comment letters, 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. 11 The Commission believes that the proposed rule change is consistent with Section 15A(b) of the Act, 12 in general, and furthers the objectives of Section 15A(b)(6), 13 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. 11 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). 12 15 U.S.C. 78 *o* -3(b). 13 15 U.S.C. 78 *o* -3(b)(6). The Commission believes that Nasdaq has adequately addressed the comments raised in the comment letters. The Commission also believes that the proposed rule change, as amended, should provide useful information to market participants and increase transparency and order interaction at the open. In addition, the Commission believes that the proposed rule change, as amended, should result in the public dissemination of information that more accurately reflects the trading in a particular security at the open. V. Conclusion 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. 14 14 15 U.S.C. 78 *o* -3(b). It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 15 that the proposed rule change (SR-NASD-2004-071), as amended, is approved. 15 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 16 16 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2349 Filed 9-22-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50403; File No. SR-NASD-2004-110] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by National Association of Securities Dealers, Inc. Relating to Divestiture of American Stock Exchange September 16, 2004. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 16, 2004, the National Association of Securities Dealers, Inc. (“NASD”), filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in items I, II, and III below, which items have been prepared by NASD. On August 10, 2004, NASD amended the proposal. 3 NASD further amended the proposal on August 25, 2004, 4 and on September 3, 2004. 5 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* letter from Barbara Z. Sweeney, Senior Vice President and Corporate Secretary, NASD, to Katherine A. England, Assistant Director, Division of Market Regulation (“Division”), Commission, dated August 10, 2004 (“Amendment No. 1”). Amendment No. 1 replaced NASD's original filing in its entirety. 4 *See* letter from Barbara Z. Sweeney, Senior Vice President and Corporate Secretary, NASD, to Katherine A. England, Assistant Director, Division, Commission, dated August 25, 2004 (“Amendment No. 2”). Amendment No. 2 replaced NASD's earlier amended filing in its entirety. 5 *See* letter from Barbara Z. Sweeney, Senior Vice President and Corporate Secretary, NASD, to Katherine A. England, Assistant Director, Division, Commission, dated September 2, 2004 (“Amendment No. 3”). Amendment No. 3 modified Exhibit 1 and made certain technical corrections to the proposal. Amendment No. 3 replaced NASD's earlier amended filing in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change NASD is proposing to amend provisions of its By-Laws to reflect NASD's pending divestiture of its ownership interest in the American Stock Exchange LLC (“Amex”). NASD is also proposing to make parallel changes to the definitional and conflict-of-interest provisions of the By-Laws of NASD Regulation, Inc. (“NASD Regulation”) and NASD Dispute Resolution, Inc. (“Dispute Resolution”), to terminate certain undertakings NASD assumed when it acquired Amex in 1998, and to make certain other clarifying amendments. Below is the text of the proposed rule change. Proposed new language is in italics; proposed deletions are in brackets. Proposed Revisions to By-Laws of National Association of Securities Dealers, Inc. Article I Definitions

(n)“Industry Director” means a Director of the NASD Regulation Board or NASD Dispute Resolution Board (excluding the Presidents) who:

(1)Is or has served in the prior three years as an officer, director, or employee of a broker or dealer, excluding an outside director or a director not engaged in the day-to-day management of a broker or dealer;

(2)is an officer, director (excluding an outside director), or employee of an entity that owns more than ten percent of the equity of a broker or dealer, and the broker or dealer accounts for more than five percent of the gross revenues received by the consolidated entity;

(3)owns more than five percent of the equity securities of any broker or dealer, whose investments in brokers or dealers exceed ten percent of his or her net worth, or whose ownership interest otherwise permits him or her to be engaged in the day-to-day management of a broker or dealer;

(4)provides professional services to brokers or dealers, and such services constitute 20 percent or more of the professional revenues received by the Director or 20 percent or more of the gross revenues received by the Director's firm or partnership;

(6)has a consulting or employment relationship with or provides professional services to the NASD, NASD Regulation, NASD Dispute Resolution, [Nasdaq,] or [Amex (and any predecessor)] *a market for which NASD provides regulation* , or has had any such relationship or provided any such services at any time within the prior three years;

(o)“Industry Governor” or “Industry committee member” means a Governor (excluding the Chief Executive Officer of the NASD and the President of NASD Regulation) or committee member who:

(1)Is or has served in the prior three years as an officer, director or employee of a broker or dealer, excluding an outside director or a director not engaged in the day-to-day management of a broker or dealer;

(4)provides professional services to brokers or dealers, and such services constitute 20 percent or more of the professional revenues received by the Governor or committee member or 20 percent or more of the gross revenues received by the Governor's or committee member's firm or partnership;

(5)provides professional services to a director, officer, or employee of a broker, dealer, or corporation that owns 50 percent or more of the voting stock of a broker or dealer, and such services relate to the director's, officer's, or employee's professional capacity and constitute 20 percent or more of the professional revenues received by the Governor or committee member or 20 percent or more of the gross revenues received by the Governor's or committee member's firm or partnership; [(6) is a Floor Governor,] or ([7] *6* ) has a consulting or employment relationship with or provides professional services to the NASD, NASD Regulation, NASD Dispute Resolution, [Nasdaq or Amex (and any predecessor)] *or a market for which NASD provides regulation* , or has had any such relationship or provided any such services at any time within the prior three years;

(bb)“Non-Industry Director” means a Director of the NASD Regulation Board or NASD Dispute Resolution Board (excluding the Presidents of NASD Regulation and NASD Dispute Resolution) who is:

(1)a Public Director;

(2)an officer or employee of an issuer of securities listed on [Nasdaq or Amex, or] *a market for which NASD provides regulation;

(3)an officer or employee of an issuer of unlisted securities that are* traded in the over-the-counter market; or ([3] *4* ) any other individual who would not be an Industry Director;

(cc)“Non-Industry Governor” or “Non-Industry committee member” means a Governor (excluding the Chief Executive Officer and any other officer of the NASD, the President of NASD Regulation)[, any Floor Governor, and the Chief Executive Officer of Amex)] or committee member who is:

(1)A Public Governor or committee member;

(2)an officer or employee of an issuer of securities listed on [Nasdaq or Amex, or] *a market regulated by NASD;

(3)an officer or employee of an issuer of unlisted securities that are* traded in the over-the-counter market; or ([3] *4* ) any other individual who would not be an Industry Governor or committee member;

(ee)“Public Director” means a Director of the NASD Regulation Board or NASD Dispute Resolution Board who has no material business relationship with a broker or dealer or the NASD, NASD Regulation, NASD Dispute Resolution, or [Nasdaq] a *market for which NASD provides regulation;*

(ff)“Public Governor” or “Public committee member” means a Governor or committee member who has no material business relationship with a broker or dealer or the NASD, NASD Regulation, NASD Dispute Resolution, or [Nasdaq] *a market for which NASD provides regulation;* [(ii) “Floor Governor” or “Amex Floor Governor” means a Floor Governor of Amex elected pursuant to Article II, Section .01(a) of the Amex By-Laws;

(jj)“Amex” means American Stock Exchange LLC; and

(kk)“Amex Board” means the Board of Governors of Amex.] Article VII Board of Governors Composition and Qualifications of the Board Sec. 4.

(a)The Board shall consist of no fewer than [17] *15* nor more than [27] *25* Governors, comprising

(i)the Chief Executive Officer of the NASD,

(ii)if the Board of Governors determines, from time to time, in its sole discretion, that the appointment of a second officer of the NASD to the Board of Governors is advisable, a second officer of the NASD,

(iii)the President of NASD Regulation,

(iv)the Chair of the National Adjudicatory Council, [(v) the Chief Executive Officer and one Floor Governor of Amex,] and [(vi)] *(v)* no fewer than 12 and no more than 22 Governors elected by the members of the NASD. The Governors elected by the members of the NASD shall include a representative of an issuer of investment company shares or an affiliate of such an issuer, a representative of an insurance company, a representative of a national retail firm, a representative of a regional retail or independent financial planning member firm, a representative of a firm that provides clearing services to other NASD members, and a representative of an NASD member having not more than 150 registered persons. The number of Non-Industry Governors shall exceed the number of Industry Governors. If the number of Industry and Non-Industry Governors is [15 to 17] *13 to 15* , the Board shall include at least four Public Governors. If the number of Industry and Non-Industry Governors is [18 to 19] *16-17* , the Board shall include at least five Public Governors. If the number of Industry and Non-Industry Governors is [20-25] *18-23* , the Board shall include at least six Public Governors. Term of Office of Governors Sec. 5.

(a)The Chief Executive Officer and, if appointed, the second officer of the NASD, *and* the President of NASD Regulation[, and the Chief Executive Officer of Amex] shall serve as Governors until a successor is elected, or until death, resignation, or removal (or, in addition, in the case of a second officer of the NASD, until the Board of Governors, in its sole discretion, determines that such appointment is no longer advisable).

(b)The Chair of the National Adjudicatory Council shall serve as a Governor for a term of one year, or until a successor is duly elected and qualified, or until death, resignation, disqualification, or removal. A Chair of the National Adjudicatory Council may not serve more than two consecutive one-year terms as a Governor, unless a Chair of the National Adjudicatory Council is appointed to fill a term of less than one year for such office. In such case, the Chair of the National Adjudicatory Council may serve an initial term as a Governor and up to two consecutive one-year terms as a Governor following the expiration of such initial term. After serving as a Chair of the National Adjudicatory Council, an individual may serve as a Governor elected by the members of the NASD. [(c) The Amex Floor Governor shall serve as a Governor for a term of two years, or until a successor is duly elected and qualified, or until death, resignation, disqualification, or removal. An Amex Floor Governor may not serve more than three consecutive two-year terms as a Governor, unless such Amex Floor Governor is appointed to fill a term of less than one year for such office. In such case, the Amex Floor Governor may serve that initial term as a Governor and up to three consecutive two-year terms as a Governor following the expiration of the initial term.] ( *c* [d]) The Governors elected by the members of the NASD shall be divided into three classes and hold office for a term of no more than three years, such term to be fixed by the Board at the time of the nomination or certification of each such Governor, or until a successor is duly elected and qualified, or until death, resignation, disqualification, or removal. A Governor elected by the members of the NASD may not serve more than two consecutive terms. If a Governor is elected by the Board to fill a term of less than one year, the Governor may serve up to two consecutive terms following the expiration of the Governor's initial term. The term of office of Governors of the first class shall expire at the January 1999 Board meeting, of the second class one year thereafter, and of the third class two years thereafter. At each annual election, commencing January 1999, Governors shall be elected for a term of three years to replace those whose terms expire. Article IX Committees Executive Committee Sec. 4.

(a)The Board may appoint an Executive Committee, which shall, to the fullest extent permitted by the General Corporation Law of the State of Delaware and other applicable law, have and be permitted to exercise all the powers and authority of the Board in the management of the business and affairs of the NASD between meetings of the Board, and which may authorize the seal of the NASD to be affixed to all papers that may require it.

(b)The Executive Committee shall consist of no fewer than [six] *five* and no more than [nine] *eight* Governors. The Executive Committee shall include the Chief Executive Officer of the NASD, *and* at least one Director of NASD Regulation *.* [, at least one Governor of Amex, and at least two Governors who are not members of either the NASD Regulation Board, or the Amex Board.] The Executive Committee shall have a percentage of Non-Industry committee members at least as great as the percentage of Non-Industry Governors on the whole Board and a percentage of Public committee members at least as great as the percentage of Public Governors on the whole Board.

(c)An Executive Committee member shall hold office for a term of one year.

(d)At all meetings of the Executive Committee, a quorum for the transaction of business shall consist of a majority of the Executive Committee, including not less than 50 percent of the Non-Industry committee members. In the absence of a quorum, a majority of the committee members present may adjourn the meeting until a quorum is present. Article XV Limitation of Powers Conflicts of Interest Sec. 4.

(a)A Governor or a member of a committee shall not directly or indirectly participate in any adjudication of the interests of any party if such Governor or committee member has a conflict of interest or bias, or if circumstances otherwise exist where his or her fairness might reasonably be questioned. In any such case, the Governor or committee member shall recuse himself or herself or shall be disqualified in accordance with the Rules of the Association.

(b)No contract or transaction between the NASD and one or more of its Governors or officers, or between the NASD and any other corporation, partnership, association, or other organization in which one or more of its Governors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason if:

(i)The material facts pertaining to such Governor's or officer's relationship or interest and the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Governors, even though the disinterested governors be less than a quorum; or

(ii)the material facts are disclosed or become known to the Board or committee after the contract or transaction is entered into, and the Board or committee in good faith ratifies the contract or transaction by the affirmative vote of a majority of the disinterested Governors even though the disinterested governors be less than a quorum. Only disinterested Governors may be counted in determining the presence of a quorum at the portion of a meeting of the Board or of a committee that authorizes the contract or transaction. This subsection shall not apply to any contract or transaction between the NASD and NASD Regulation, Nasdaq, *or* NASD Dispute Resolution[, or Amex]. Proposed Revisions to By-Laws of NASD Regulation, Inc. Article I Definitions

(q)“Industry Director” or “Industry member” means a Director (excluding the President of NASD Regulation and the Chief Executive Officer of NASD) or a National Adjudicatory Council or committee member who

(1)is or has served in the prior three years as an officer, director, or employee of a broker or dealer, excluding an outside director or a director not engaged in the day-to-day management of a broker or dealer;

(4)provides professional services to brokers or dealers, and such services constitute 20 percent or more of the professional revenues received by the Director or member or 20 percent or more of the gross revenues received by the Director's or member's firm or partnership;

(6)has a consulting or employment relationship with or provides professional services to the NASD, NASD Regulation, [Nasdaq,] NASD Dispute Resolution, or [Amex (and any Predecessor),] *a market for which NASD provides regulation,* or has had any such relationship or provided any such services at any time within the prior three years;

(y)“Non-Industry Director” or “Non-Industry member” means a Director (excluding the President of NASD Regulation and the Chief Executive Officer of NASD) or a National Adjudicatory Council or committee member who is

(1)a Public Director or Public member;

(2)an officer or employee of an issuer of securities listed on [Nasdaq or Amex,] *a market for which NASD provides regulation;

(3)an officer or employee of an issuer of unlisted securities that are* traded in the over-the-counter market; or [(3)]( *4* ) any other individual who would not be an Industry Director or Industry member;

(aa)“Public Director” or “Public member” means a Director or National Adjudicatory Council or committee member who has no material business relationship with a broker or dealer or the NASD, NASD Regulation, or [Nasdaq;] *a market for which NASD provides regulation;* [(dd) “Floor Governor” or “Amex Floor Governor” means a Floor Governor of Amex elected pursuant to Article I, Section 01(a) of the Amex By-Laws;

(ee)“Nasdaq-Amex” means Nasdaq-Amex Market Group, Inc.;

(ff)“Amex” means American Stock Exchange LLC;

(gg)“Amex Board” means the Board of Governors of Amex;] Article IV Board of Directors Sec. 4.14

(a)Conflicts of Interest; Contracts and Transactions Involving Directors Sec. 4.14

(a)A Director or a National Adjudicatory Council or committee member shall not directly or indirectly participate in any adjudication of the interests of any party if that Director or National Adjudicatory Council or committee member has a conflict of interest or bias, or if circumstances otherwise exist where his or her fairness might reasonably be questioned. In any such case, the Director or National Adjudicatory Council or committee member shall recuse himself or herself or shall be disqualified in accordance with the Rules of the Association.

(b)No contract or transaction between NASD Regulation and one or more of its Directors or officers, or between NASD Regulation and any other corporation, partnership, association, or other organization in which one or more of its Directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason if:

(i)the material facts pertaining to such Director's or officer's relationship or interest and the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Directors;

(a)“Act” means the Securities Exchange Act of 1934, as amended; [(b) “Amex” means American Stock Exchange LLC;] *(b)* [(c)] “Board” means the Board of Directors of NASD Dispute Resolution; *(c)* [(d)] “broker” shall have the same meaning as in Section 3(a)(4) of the Act; *(d)* [(e)] “Commission” means the Securities and Exchange Commission; *(e)* [(f)] “day” means calendar day; *(f)* [(g)] “dealer” shall have the same meaning as in Section 3(a)(5) of the Act; *(g)* [(h)] “Delaware law” means the General Corporation Law of the State of Delaware; *(h)* [(i)] “Delegation Plan” means the “Plan of Allocation and Delegation of Functions by NASD to Subsidiaries” as approved by the Commission, and as amended from time to time; *(i)* [(j)] “Director” means a member of the Board, excluding the Chief Executive Officer of the NASD; *(j)* [(k)] “Executive Representative” means the executive representative of an NASD member appointed pursuant to Article IV, Section 3 of the NASD By-Laws; *(k)* [(l)] “Industry Director” or “Industry member” means a Director (excluding the President) or a committee member who

(6)has a consulting or employment relationship with or provides professional services to the NASD, NASD Regulation, [Nasdaq,] NASD Dispute Resolution, or [Amex (and any predecessor),] *a market for which NASD provides regulation,* or has had any such relationship or provided any such services at any time within the prior three years; *(l)* [(m)] “NASD” means the National Association of Securities Dealers, Inc.; *(m)* [(n)] “NASD Board” means the NASD Board of Governors; *(n)* [(o)] “NASD Dispute Resolution” means NASD Dispute Resolution, Inc.; *(o)* [(p)] “NASD member” means any broker or dealer admitted to membership in the NASD; *(p)* [(q)] “NASD Regulation” means NASD Regulation, Inc.; *(q)* [(r)] “Nasdaq” means The Nasdaq Stock Market, Inc.; [(s) “Nasdaq-Amex” means Nasdaq-Amex Market Group, Inc.;] *(r)* [(t)] “National Nominating Committee” means the National Nominating Committee appointed pursuant to Article VII, Section 9 of the NASD By-Laws; *(s)* [(u)] “Non-Industry Director” or “Non-Industry member” means a Director (excluding the President) or committee member who is

(1)a Public Director or Public member;

(2)an officer or employee of an issuer of securities listed on [Nasdaq or Amex, or] *a market for which NASD provides regulation;

(3)an officer or employee of an issuer of unlisted securities that are* traded in the over-the-counter market; or [(3)] *(4)* any other individual who would not be an Industry Director or Industry member; *(t)* [(v)] “person associated with a member” or “associated person of a member” means:

(1)A natural person registered under the Rules of the Association; or

(2)a sole proprietor, partner, officer, director, or branch manager of a member, or a natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with the NASD under these By-Laws or the Rules of the Association; *(u)* [(w)] “Public Director” or “Public member” means a Director or committee member who has no material business relationship with a broker or dealer or the NASD, NASD Regulation, [Nasdaq,] *a market for which NASD provides regulation,* or NASD Dispute Resolution; *(v)* [(x)] “Rules of the Association” or “Rules” means the numbered rules set forth in the NASD Manual beginning with the Rule 0100 Series, as adopted by the NASD Board pursuant to the NASD By-Laws, as hereafter amended or supplemented. Article IV Board of Directors Conflicts of Interest; Contracts and Transactions Involving Directors Sec. 4.14(a) A Director or a committee member shall not directly or indirectly participate in any determinations regarding the interests of any party if that Director or committee member has a conflict of interest or bias, or if circumstances otherwise exist where his or her fairness might reasonably be questioned. In any such case, the Director or committee member shall recuse himself or herself or shall be disqualified in accordance with the Rules of the Association.

(b)No contract or transaction between NASD Dispute Resolution and one or more of its Directors or officers, or between NASD Dispute Resolution and any other corporation, partnership, association, or other organization in which one or more of its Directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason if:

(i)The material facts pertaining to such Director's or officer's relationship or interest and the contract or transaction are disclosed or are known to the Board or the committee, and the Board or committee in good faith authorizes the contract or transaction by the affirmative vote of a majority of the disinterested Directors;

(iii)the material facts pertaining to the Director's or officer's relationship or interest and the contract or transaction are disclosed or are known to the stockholder entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholder. Only disinterested Directors may be counted in determining the presence of a quorum at the portion of a meeting of the Board or of a committee that authorizes the contract or transaction. This subsection shall not apply to a contract or transaction between NASD Dispute Resolution and the NASD, NASD Regulation, *or* Nasdaq[, Nasdaq-Amex, or Amex]. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NASD 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. NASD 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 proposed rule change will reverse a number of changes that NASD made to the By-Laws of NASD, NASD Regulation, and Dispute Resolution in 1998, when NASD acquired Amex. In addition, NASD proposes to withdraw certain representations it made in 1998 regarding its relationship with Amex following the Amex acquisition. Finally, NASD proposes to make certain other clarifying changes. Proposed NASD By-Law Revisions The proposed NASD By-Law changes are discussed briefly below. Where noted, parallel changes will be made to the By-Laws of NASD Regulation and Dispute Resolution. Article I (Definitions) The amendments will eliminate references to both Amex and Nasdaq from the definitions of “Industry Director” and “Industry Governor,” “Non-Industry Director” and “Non-Industry Governor,” “Public Director” and “Public Governor.” The current references to Nasdaq and Amex will be replaced with references to “a market for which NASD provides regulation.” For example, the definition of “Industry Governor” currently includes persons with a consulting or employment relationship with NASD, NASD Regulation, NASD Dispute Resolution, Nasdaq, or Amex. Under the proposed amendments, the “Industry Governor” definition will include persons with a consulting or employment relationship with “a market regulated by NASD,” a term that embraces markets with which NASD has entered a contract to provide regulatory services, but in which NASD does not necessarily have an ownership interest. Because NASD has entered into a regulatory services agreement with Amex, and continues to provide regulatory services to Nasdaq, for example, the amended definition of “Industry Governor” will continue to encompass individuals who have a consulting or employment relationship with Amex or Nasdaq. NASD believes that, given the difficulty and expense involved in amending the NASD By-Laws when regulatory clients are added or deleted, substituting “a market regulated by NASD” is preferable to identifying such clients by name in the By-Laws. In addition, clarifying amendments are proposed for the definitions of “Non-Industry Director” and “Non-Industry Governor,” which currently include an officer or employee of an issuer of securities “traded in the over-the-counter market.” Historically, NASD has interpreted this provision as applying only to officers and employees of unlisted securities traded in the over-the-counter market; NASD has never applied the provision to include officers and employees of listed securities that were traded off-exchange. However, since both listed and unlisted securities may be traded in the over-the-counter market, Article I, Sections

(bb)and

(cc)have been amended to reflect NASD's historical interpretation of the definitions. The proposed amendments make no substantive change to the definitions; rather, the amendments simply seek to clarify that (renumbered) Subsections 3 of the “Non-Industry Director” and “Non-Industry Governor” definitions include an officer or employee of only an issuer of unlisted securities that are traded exclusively in the over-the-counter market. Finally, the definitions of and references to “Floor Governor,” “Amex,” and “Amex Board” have been eliminated. Parallel changes are proposed for the definitional provisions of the NASD Regulation and Dispute Resolution By-Laws. Article VII (Board of Governors) The proposed amendments will eliminate two seats on the NASD Board that have been reserved for the Chief Executive of Amex and an Amex Floor Governor. The elimination of these seats will permit NASD to reduce the overall size of the Board. The current authorized size of the Board is between 17 and 27 members. With the elimination of the Amex seats, the authorized size of the Board will be reduced to between 15 and 25. The proposed amendments will leave unchanged the existing requirement that the NASD Board include a minimum of four to six Public Governors. However, the numeric thresholds for these minimums will be adjusted downward to reflect the smaller overall Board size. For example, the By-Laws currently require a minimum of four Public Governors when the combined number of Industry and Non-Industry Governors is 15 to 17; under the proposed amendments, a minimum of four Public Governors will be required when the combined number of Industry and Non-Industry Governors is 13 to 15. No change is proposed to the existing requirement that the number of Non-Industry Governors exceed the number of Industry Governors. Under Delaware law, the NASD Board determines how many of the authorized seats should be filled. Because smaller boards tend to function more efficiently than larger boards, NASD has repeatedly stated a preference to avoid filling all authorized seats if the compositional requirements set forth in the By-Laws can be met without the maximum permissible number of Governors. In addition, the proposed amendments will eliminate from Section 5 of Article VII the provision that sets the maximum permissible term of the Amex Floor Governor. Article IX (Committees) Article IX establishes the NASD Executive Committee, which is authorized to act on behalf of the NASD Board between meetings of the NASD Board. Currently, the committee must include six to nine members, at least one of whom must be an Amex representative, but at least two of whom may not be members of the boards of either NASD Regulation or the Amex. The proposed amendments will reduce the authorized size range of the committee by one, and eliminate the requirement that an Amex representative be included on the committee. The proposed amendments also will eliminate the current requirement that at least two members of the committee be members of neither the Amex nor NASD Regulation boards. NASD notes that requiring at least two NASD-only members of the Executive Committee appears to have responded to concerns that arose when there were multiple subsidiaries (at various times Nasdaq, Amex, and/or NASD Regulation) that were entitled to representation on both the NASD Board and the Executive Committee. 6 6 In 1997, NASD made extensive modifications to its corporate documents in response to the Report of the Select Committee on Structure and Governance to the NASD Board of Governors (“Select Committee Report”) and the Commission's 1996 Report Pursuant to Section 21(a) of the Act (“Section 21(a) Report”). Among other things, Article IX, Section 4 was amended to authorize the appointment of the Executive Committee. The 1997 amendments included requirements that:

(i)Nasdaq and NASD Regulation be represented on the committee; and

(ii)at least two of the committee members not be affiliated with those subsidiaries. *See* Exchange Act Release No. 39326 (November 14, 1997), 62 FR 62385 (November 21, 1997). Following the acquisition of Amex in 1998, Amex was added to the entities entitled to representation on the Committee. *See* Exchange Act Release No. 40622 (October 30, 1998), 63 FR 59819 (November 5, 1998). Nasdaq's right to representation on the committee was terminated in 2001. *See* Exchange Act Release No. 44280 (May 8, 2001), 66 FR 26892 (May 15, 2001). NASD notes that avoiding possible domination of NASD affairs by market interests, and a corresponding diminution of NASD's performance of its regulatory responsibilities, has represented a primary consideration in NASD corporate governance since the Select Committee Report was issued in 1995. 7 With the elimination of “status” seats reserved for Nasdaq and Amex representatives, however, NASD believes concerns that these markets could dominate NASD decision-making also are eliminated. 7 Telephone conversation between Anne H. Wright, Associate Vice President and Associate General Counsel, NASD and Rebekah C. Liu, Special Counsel, Division, Commission, on September 13, 2004. The elimination of mandatory market representation on the Executive Committee will leave NASD Regulation as the sole remaining subsidiary entitled to be represented on the committee. Under the proposed rule change, NASD Regulation will continue to be entitled to at least one representative on the Executive Committee. However, because NASD believes the possibility that regulatory interests could improperly dominate NASD decision making would not raise the same concerns as the possibility of market-interest domination, the proposed amendments do not specify any minimum number of NASD-only Governors who must be included on the Executive Committee. NASD believes that the proposed changes to the Executive Committee composition are consistent with the Select Committee Report and the Section 21(a) Report. Article XV (Limitation of Powers) Subsection 4(b) of Article XV governs participation in transactions in which Governors have a conflict of interest. The subsection currently does not apply to contracts or transactions between NASD and NASD Regulation, Nasdaq, NASD Dispute Resolution, or Amex. The proposed amendments will eliminate Amex from this exemptive provision. As a result of this change, an Amex-affiliated Governor could no longer be counted as disinterested for purposes of determining the presence of a quorum at the portion of a meeting of the Board that authorizes a contract or transaction with Amex. Parallel changes are proposed for the conflict-of-interest provisions of the NASD Regulation and Dispute Resolution By-Laws. 1998 Undertakings Regarding NASD-Amex Relationship In 1998, NASD articulated certain principles that would guide the organization in fulfilling its responsibilities as parent company of Amex with ultimate responsibility for Amex's compliance with its statutory responsibilities as a self-regulatory organization (“SRO”). 8 Upon completion of NASD's divestiture of its ownership interest in Amex, these principles will no longer be applicable. Instead, the NASD-Amex relationship will be governed by the regulatory services agreement into which the organizations have entered. Because the Commission approved the 1998 undertakings as NASD rules, 9 NASD now seeks the Commission's approval of the withdrawal of the undertakings. 8 Among other things, NASD represented that it would exercise its powers and its managerial influence to ensure that Amex fulfilled its self-regulatory obligations by directing Amex to take action necessary to effectuate its purposes and functions as a national securities exchange operating pursuant to the Act, and ensuring that Amex had and appropriately allocated such financial, technological, technical, and personnel resources as may be necessary or appropriate to meet its obligations under the Act. NASD also committed to refraining from taking any action with respect to Amex that would impede efforts by Amex to carry out its SRO obligations. *See* Exchange Act Release No. 40443 (September 16, 1998), 63 FR 51108 (September 24, 1998) (File No. SR-NASD-98-67—Policies Regarding Authority Over American Stock Exchange LLC and Composition of Board of Governors of American Stock Exchange LLC). 9 *See* Exchange Act Release No. 40622 (October 30, 1998), 63 FR 59819 (November 5, 1998) (describing NASD's undertakings regarding Amex). 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of section 15A(b)(4) of the Act 10 which requires, among other things, that NASD's rules assure a fair representation of its members in the selection of its directors and administration of its affairs and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of NASD, broker or dealer. NASD also believes the proposed rule change is consistent with section 15A(b)(6) of the Act, 11 which requires that NASD's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and protect investors and the public interest. 10 15 U.S.C. 78 *o* -3(b)(4). 11 15 U.S.C. 78 *o* -3(b)(6). B. Self-Regulatory Organization's Statement on Burden on Competition NASD does not believe that the proposed rule change, as amended, will result in 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 were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change 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 self-regulatory organization consents, the Commission will: A. By order approve such proposed rule change, 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 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-NASD-2004-110 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-NASD-2004-110. 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 the NASD. 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-NASD-2004-110 and should be submitted on or before October 14, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 12 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2354 Filed 9-22-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50404; File No. SR-NYSE-2004-33] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto To Amend Exchange Rule 345A (“Continuing Education for Registered Persons”) September 16, 2004. On June 28, 2004, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) a proposed rule change, pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 to rescind all currently effective exemptions from required participation in the Regulatory Element programs. On August 4, 2004, the Exchange submitted Amendment No. 1 to the proposed rule change. 3 The proposed rule change, as amended, was published for comment in the **Federal Register** on August 17, 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 Darla Stuckey, Corporate Secretary, NYSE, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated August 3, 2004 (“Amendment No. 1”). In Amendment No. 1, the NYSE made technical corrections and clarifications to the filing. 4 *See* Securities Exchange Act Release No. 50177 (August 10, 2004), 69 FR 51134 (August 17, 2004). NYSE Rule 345A currently provides, in part, that no member or member organization shall permit any registered person to continue to, and no registered person shall continue to, perform duties as a registered person, unless such person has complied with the Regulatory Element of the continuing education requirement set forth in this Rule. 5 The Regulatory Element component of NYSE Rule 345A requires each registered person to complete a standardized, computer-based, interactive continuing education program within 120 days of their second registration anniversary date and every three years thereafter, or as otherwise prescribed by the Exchange. Persons who fail to complete the Regulatory Element are deemed inactive and may not perform in any capacity or be compensated in any way requiring registration. 5 *See* NYSE Rule 345A(a). Currently, registered persons who were continuously registered, without a serious disciplinary action, 6 for more than ten years as of the Rule's effective date ( *i.e.* , July 1, 1995) were initially, and continue to be, exempt from Regulatory Element requirements under NYSE Rule 345A. The “graduated” exemption, although discontinued as of July 1998, 7 continues to apply to registered persons who were “graduated” 8 prior to the discontinuation of the exemption. 6 For purposes of NYSE Rule 345A, a “disciplinary action” includes statutory disqualification as defined in Section 3(a)(39) of the Act; suspension or imposition of a fine of $5,000 or more; or being subject to an order from a securities regulator to re-enter the Regulatory Element program. *See* Rule 345A(a)(3)(i)-(iii). 7 *See* Securities Exchange Act Release No. 39712 (March 3, 1998), 63 FR 11939 (March 11, 1998)(SR-NYSE-97-33). 8 Once the tenth anniversary program requirement was satisfied, the registered person became exempt from Regulatory Element requirements going forward (absent a serious disciplinary event). However, in response to recommendations made by the Securities Industry/Regulatory Council on Continuing Education (the “Council”), the NYSE submitted a proposed rule change to rescind all currently effective exemptions from required participation in Regulatory Element programs. 9 The Council believes that there is great value in exposing all registered industry participants to the full benefit of Regulatory Element programs. 9 The Council recommended at its December 2003 meeting that SRO Rules ( *e.g.* , NYSE Rule 345A) be amended to eliminate existing exemptions from the Regulatory Element and to require all “grandfathered” and “graduated” persons to fully participate in future standardized continuing education programs, according to the Rule's prescribed schedule. *See* proposed NYSE Rule 345A(a)(1). Note that the proposed amendments renumber existing paragraphs of the Rule; the Rule's prescribed schedule is currently found in NYSE Rule 345A(a). Proposed amendments are expected to become effective on April 4, 2005, due to changes that would have to be made to the CRD System. Should the necessary CRD System changes be delayed, the effective date would be within 30 days of the implementation of such changes. NYSE membership will be notified via an Information Memo. The Commission finds that the proposed rule change, as amended, is consistent with the requirements of section 6 of the Act, 10 and the rules and regulations thereunder applicable to a national securities exchange. 11 In particular, the Commission finds that the proposed rule change is consistent with section 6(b)(5) of the Act, 12 which requires, among other things, that the Exchange's rules be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and, in general, to protect investors and the public interest. The Commission believes that the proposed rule change should help to ensure that all registered persons are kept up-to-date on regulatory, compliance, and sales practice-related industry issues. Further, the Commission believes that the proposed rule change will reinforce the importance of compliance with just and equitable principles of trade by exposing all registered industry participants to the full benefits of the Regulatory Element programs, which include a new Regulatory Element module that focuses specifically on ethics. 10 15 U.S.C. 78f(6). 11 In approving the proposed rule change, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 12 15 U.S.C. 78f(b)(5). *It is therefore ordered* , pursuant to section 19(b)(2) of the Act, 13 that the proposed rule change (SR-NYSE-2004-33), as amended, is approved. 13 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 14 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2353 Filed 9-22-04; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50401; File No. SR-Phlx-2004-39] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Order Granting Approval to Proposed Rule Change and Amendment No. 1 Thereto Relating to Retroactive Application of Permit Holder Fees and Billing Policies September 16, 2004. On June 30, 2004, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change to:

(1)Apply retroactively a recent amendment to its schedule of fees and charges (“Fee Schedule”) that adopted a permit fee category, designated as “Other,” for permit holders who did not fit within any other permit fee categories;

(2)apply retroactively a billing policy that set the date of notification for terminating a permit as the date that permit fee billing would cease; and

(3)assess retroactively only one monthly permit fee in certain limited situations where two monthly permit fees otherwise would be imposed. 3 The proposal would apply these Fee Schedule changes and billing policies retroactively to February 2, 2004, the date that the permit fees were first imposed. On July 12, 2004, Phlx filed Amendment No. 1 to the proposed rule change. 4 The proposed rule change, as amended, was published for comment in the **Federal Register** on August 6, 2004. 5 The Commission received no comments on the proposal. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Phlx previously adopted these changes to its Fee Schedule and billing policies in a rule change that was effective on May 3, 2004, the date it was filed with the Commission. *See* Securities Exchange Act Release No. 49856 (June 15, 2004), 69 FR 3441 (June 21, 2004) (SR-Phlx-2004-32). 4 *See* letter from Murray L. Ross, Phlx, to Nancy Sanow, Assistant Director, Division of Market Regulation, SEC, dated July 9, 2004 (“Amendment No. 1”). In Amendment No. 1, the Exchange removed references in the Fee Schedule to the proposed date that the retroactive fees would take effect. 5 *See* Securities Exchange Act Release No. 50129 (July 30, 2004), 69 FR 47970. 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 exchange 6 and, in particular, the requirements of section 6(b) of the Act 7 and the rules and regulations thereunder. The Commission finds specifically that the proposed rule change, as amended, is consistent with section 6(b)(5) of the Act, 8 which requires that the rules of the Exchange provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities. The proposed rule change would apply recent amendments to the Exchange's Fee Schedule and billing policies retroactively to February 2, 2004, the date that permit fees were first imposed by the Exchange in connection with its recent demutualization. 9 The proposed rule change is intended to remedy the fact that a few permit holders did not fit into any of the permit fee categories initially established by the Exchange and thus were not subject to permit fees as of February 2, 2004. Thus, the proposed rule change is intended to apply the Exchange's permit fees and permit fee billing practices in an even-handed manner to all Exchange member organizations since the introduction of the permit fees on February 2, 2004. 6 In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 7 15 U.S.C. 78f(b). 8 15 U.S.C. 78f(b)(5). 9 *See* Securities Exchange Act Release No. 49098 (January 16, 2004), 69 FR 3974 (January 27, 2004) (Order approving the demutualization of Phlx). *It is therefore ordered,* pursuant to section 19(b)(2) of the Act, 10 that the proposed rule change (SR-Phlx-2004-39), as amended, be, and hereby is, approved. 10 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E4-2350 Filed 9-22-04; 8:45 am] BILLING CODE 8010-01-P DEPARTMENT OF STATE [Public Notice 4836] Bureau of Educational and Cultural Affairs

(ECA)Request for Grant Proposals: International Education Training Program *Announcement Type:* Cooperative Agreement. *Funding Opportunity Number:* ECA/A/S/A-05-12. *Catalog of Federal Domestic Assistance Number:* 00.000. *Dates:* None. *Application Deadline:* November 12, 2004. *Executive Summary:* Public and private non-profit organizations meeting the provisions described in Internal Revenue Code section 26 U.S.C. 501(c)(3), including consortia, may submit proposals to train international education professionals from accredited U.S. colleges and universities throughout the United States to work effectively with international students, scholars, international exchange programs, and U.S. study abroad programs and to enhance community involvement with participants in these programs. Funded activities must be open to staff from any accredited U.S. institution of higher education. I. Funding Opportunity Description *Authority:* Overall grant making authority for this program is contained in the Mutual Educational and Cultural Exchange Act of 1961, Public Law 87-256, as amended, also known as the Fulbright-Hays Act. The purpose of the Act is “to enable the Government of the United States to increase mutual understanding between the people of the United States and the people of other countries * * *; to strengthen the ties which unite us with other nations by demonstrating the educational and cultural interests, developments, and achievements of the people of the United States and other nations * * * and thus to assist in the development of friendly, sympathetic and peaceful relations between the United States and the other countries of the world.” The funding authority for the program above is provided through legislation. *Purpose:*

(1)To support the training and development of international educational exchange professionals based at U.S. institutions of higher learning who assist international students and scholars studying in the U.S. and American students seeking to study overseas.

(2)To support the involvement of international students with the U.S. institutions and local communities where they study and live. Through programs that enable foreign students and scholars to achieve a better understanding of the United States during their time in this country and that encourage them to help Americans learn more about the world outside our borders, the potential of foreign students to contribute to international understanding is enhanced. *Overview:* International educational exchanges advance the mutual understanding and cooperation of people in the United States with the rest of the world. A growing number of international education professionals work with international students and scholars, American students, international exchange programs, and U.S. study abroad programs on U.S. campuses and in the communities served by these institutions. The work of these international education professionals complements the efforts undertaken by the State Department through its Public Affairs Sections as well as through bi-national Fulbright Commissions, helping to provide the basis for managing educational exchanges professionally and for ensuring that these exchanges benefit the students and scholars who participate in them. International education professionals need specific skills and tools in order to manage and expand their institutions' international exchange agendas. The training of these professionals should be designed to strengthen the programs and services offered by their institutions. When international education professionals receive up-to-date training in their field, international students and scholars gain a more well-rounded U.S. experience and a broader appreciation of U.S. academic and community values, while U.S. students become engaged more frequently in study abroad programs and learn more about how the U.S. relates to the rest of the world than they could learn at home. The issues confronted by international exchange professionals are more complex than they had been prior to September 11, 2001. There are new laws and regulations governing visa processing, and new, security-related procedures for the entry and exit of foreign nationals. A new information processing system—SEVIS (the Student and Exchange Visitor Information System)—has been established to screen students and scholars before their entry into the United States and to monitor their status after they arrive. Responsible officials at educational institutions must be familiar with the system and how to use it. New visa application procedures add time to the academic application process, and new regulations require closer tracking of students during their stay in the U.S. At the same time, other countries have increased their attempts to attract international students, and U.S. institutions must now compete with other countries for talented international students just as they compete for the best U.S. students. While in recent years the number of U.S. students who study and travel abroad has increased, they still represent only a small fraction of the total number of U.S. students at U.S. institutions of higher education. U.S. institutions continue to struggle to engage more U.S. students in study abroad programs. This RFGP invites proposals to train international educational exchange professionals in U.S. higher education in ways that will equip them to improve the capacity of their institutions to participate effectively in international exchanges of scholars and students. The Bureau encourages applicant organizations to propose a program designed to address creatively the current challenges faced by U.S. educational institutions in the development and administration of their international programs. The program proposed must include the following initiative: • Training for U.S. international education professionals with eligibility for participation open to staff from any accredited U.S. institution of higher education. The training programs should encourage and reinforce cooperation among professionals in this field by ensuring that they have up-to-date knowledge of current issues in international education and that they are equipped to provide the human resources that are required to administer international programs on their campuses. U.S. Department of State sponsorship will be recognized at all training events, and appropriate ECA representatives should be invited to attend. The proposed program could include the following optional components: • Cooperative grants to institutions participating in international education training to enhance the involvement of international students in the U.S. with American life and culture on their campuses. These grants should be given to institutions for substantive, high impact activities. • Publications, materials, and workshops that promote international education and educational exchange at U.S. institutions of higher education and that contribute to the internationalization of U.S. post-secondary education. II. Award Information *Type of Award:* Cooperative Agreement. *Fiscal Year Funds:* FY 2005. *Approximate Total Funding:* $535,000. *Approximate Number of Awards:* One. *Approximate Average Award:* $535,000. *Anticipated Award Date:* Pending availability of funds, January 1, 2005. *Anticipated Project Completion Date:* December 31, 2005. *Additional Information:* Pending successful implementation of this program and the availability of funds in subsequent fiscal years, the Bureau of Educational and Cultural Affairs may renew this cooperative agreement for two additional fiscal years before openly competing it again. III. Eligibility Information III.1. Eligible Applicants Applications may be submitted by public and private non-profit organizations meeting the provisions described in Internal Revenue Code section 26 U.S.C. 501(c)(3). Both single institutions and consortia may apply. III.2. Cost Sharing or Matching Funds There is no minimum or maximum percentage required for this competition. However, the Bureau encourages applicants to provide maximum levels of cost sharing and funding in support of its programs. When cost sharing is offered, it is understood and agreed that the applicant must provide the amount of cost sharing as stipulated in its proposal and later included in an approved grant agreement. Cost sharing may be in the form of allowable direct or indirect costs. For accountability, you must maintain written records to support all costs that are claimed as your contribution, as well as costs to be paid by the Federal government. Such records are subject to audit. The basis for determining the value of cash and in-kind contributions must be in accordance with OMB Circular A-110, (Revised), Subpart C.23—Cost Sharing and Matching. In the event you do not provide the minimum amount of cost sharing as stipulated in the approved budget, ECA's contribution will be reduced in like proportion. III.3. Other Eligibility Requirements

(a)Bureau grant guidelines require that organizations with less than four years experience in conducting international exchanges be limited to $60,000 in Bureau funding. ECA anticipates awarding one cooperative agreement, in an amount up to $535,000 to support program and administrative costs required to implement this exchange program. Therefore, organizations with less than four years experience in conducting international exchanges are ineligible to apply under this competition. The Bureau encourages applicants to provide maximum levels of cost sharing and funding in support of its programs.

(b)Technical Eligibility: All proposals must comply with the following: proposals must address the requirements listed in this Request for Grant Proposals and the technical eligibility requirements outlined in the accompanying Proposal Submission Instructions

(PSI)document. In addition, proposals must develop a program open to all accredited U.S. institutions of higher education or they will be declared technically ineligible and given no further consideration in the review process. IV. Application and Submission Information Note: Please read the complete **Federal Register** announcement before sending inquiries or submitting proposals. Once the RFGP deadline has passed, Bureau staff may not discuss this competition with applicants until the proposal review process has been completed. IV.1. Contact Information To Request an Application Package Please contact the Educational Information and Resources Branch of the Global Educational Programs Office, ECA/A/S/A, Room 349, U.S. Department of State, SA-44, 301 4th Street, SW., Washington, DC 20547, telephone number 202-619-5434 and fax number 202-401-1433, e-mail address *frisbiejz@state.gov* to request a Solicitation Package. Please refer to the Funding Opportunity Number ECA/A/S/A-05-12 located at the top of this announcement when making your request. The Solicitation Package contains the Proposal Submission Instruction

(PSI)document that consists of required application forms and standard guidelines for proposal preparation. It also contains the Project Objectives, Goals and Implementation

(POGI)document, which provides specific information, award criteria and budget instructions tailored to this competition. Please specify Bureau Program Officer Jean Frisbie and refer to the Funding Opportunity Number ECA/A/S/A-05-12 located at the top of this announcement on all other inquiries and correspondence. IV.2. To Download a Solicitation Package Via Internet The entire Solicitation Package may be downloaded from the Bureau's Web site at *http://exchanges.state.gov/education/rfgps/menu.htm* . Please read all information before downloading. IV.3. Content and Form of Submission Applicants must follow all instructions in the Solicitation Package. The original and six copies of the application should be sent per the instructions under IV.3e. “Submission Dates and Times section” below. *IV.3a.* You are required to have a Dun and Bradstreet Data Universal Numbering System

(DUNS)number to apply for a grant or cooperative agreement from the U.S. Government. This number is a nine-digit identification number, which uniquely identifies business entities. Obtaining a DUNS number is easy and there is no charge. To obtain a DUNS number, access *http://www.dunandbradstreet.com* or call 1-866-705-5711. Please ensure that your DUNS number is included in the appropriate box of the SF-424 which is part of the formal application package. *IV.3b.* All proposals must contain an executive summary, proposal narrative and budget. Please refer to the solicitation package. It contains the mandatory Proposal Submission Instructions

(PSI)document and the Project Objectives, Goals and Implementation

(POGI)document for additional formatting and technical requirements. *IV.3c.* You must have nonprofit status with the IRS at the time of application. If your organization is a private nonprofit which has not received a grant or cooperative agreement from ECA in the past three years, or if your organization received nonprofit status from the IRS within the past four years, you must submit the necessary documentation to verify nonprofit status as directed in the PSI document. Failure to do so will cause your proposal to be declared technically ineligible. *IV.3d. Diversity, Freedom and Democracy Guidelines.* Pursuant to the Bureau's authorizing legislation, programs must maintain a non-political character and should be balanced and representative of the diversity of American political, social, and cultural life. “Diversity” should be interpreted in the broadest sense and encompass differences including, but not limited to ethnicity, race, gender, religion, geographic location, socio-economic status, and disabilities. Applicants are strongly encouraged to adhere to the advancement of this principle both in program administration and in program content. Please refer to the review criteria under the ‘Support for Diversity’ section for specific suggestions on incorporating diversity into your proposal. Public Law 104-319 provides that “in carrying out programs of educational and cultural exchange in countries whose people do not fully enjoy freedom and democracy,” the Bureau “shall take appropriate steps to provide opportunities for participation in such programs to human rights and democracy leaders of such countries.” Public Law 106-113 requires that the governments of the countries described above do not have inappropriate influence in the selection process. Proposals should reflect advancement of these goals in their program contents, to the full extent deemed feasible. *IV.3d.1. Program Monitoring and Evaluation.* Proposals must include a plan to monitor and evaluate the project's success, both as the activities unfold and at the end of the program. The Bureau recommends that your proposal include a draft survey questionnaire or other technique plus a description of a methodology to use to link outcomes to original project objectives. The Bureau expects that the grantee will track participants or partners and be able to respond to key evaluation questions, including satisfaction with the program, learning as a result of the program, changes in behavior as a result of the program, and effects of the program on institutions (institutions in which participants work or partner institutions). The evaluation plan should include indicators that measure gains in mutual understanding as well as substantive knowledge. Successful monitoring and evaluation depend heavily on setting clear goals and outcomes at the outset of a program. Your evaluation plan should include a description of your project's objectives, your anticipated project outcomes, and how and when you intend to measure these outcomes (performance indicators). The more that outcomes are “smart” (specific, measurable, attainable, results-oriented, and placed in a reasonable time frame), the easier it will be to conduct the evaluation. You should also show how your project objectives link to the goals of the program described in this RFGP. Your monitoring and evaluation plan should clearly distinguish between program *outputs* and *outcomes* . *Outputs* are products and services delivered, often stated as an amount. Output information is important to show the scope or size of project activities, but it cannot substitute for information about progress towards outcomes or the results achieved. Examples of outputs include the number of people trained or the number of seminars conducted. *Outcomes* , in contrast, represent specific results a project is intended to achieve and is usually measured as an extent of change. Findings on outputs and outcomes should both be reported, but the focus should be on outcomes. We encourage you to assess the following four levels of outcomes, as they relate to the program goals set out in the RFGP (listed here in increasing order of importance): 1. *Participant satisfaction* with the program and exchange experience. 2. *Participant learning* , such as increased knowledge, aptitude, skills, and changed understanding and attitude. Learning includes both substantive (subject-specific) learning and mutual understanding. 3. *Participant behavior* , concrete actions to apply knowledge in work or community; greater participation and responsibility in civic organizations; interpretation and explanation of experiences and new knowledge gained; continued contacts between participants, community members, and others. 4. *Institutional changes* , such as increased collaboration and partnerships, policy reforms, new programming, and organizational improvements. Please note: Consideration should be given to the appropriate timing of data collection for each level of outcome. For example, satisfaction is usually captured as a short-term outcome, whereas behavior and institutional changes are normally considered longer-term outcomes. Overall, the quality of your monitoring and evaluation plan will be judged on how well it

(1)specifies intended outcomes;

(2)gives clear descriptions of how each outcome will be measured;

(3)identifies when particular outcomes will be measured; and

(4)provides a clear description of the data collection strategies for each outcome ( *i.e.* , surveys, interviews, or focus groups). (Please note that evaluation plans that deal only with the first level of outcomes [satisfaction] will be deemed less competitive under the present evaluation criteria.) Grantees will be required to provide reports analyzing their evaluation findings to the Bureau in their regular program reports. All data collected, including survey responses and contact information, must be maintained for a minimum of three years and provided to the Bureau upon request. Describe your plans for: sustainability, overall program management, staffing, and coordination with ECA. *IV.3e.* Please take the following information into consideration when preparing your budget: *IV.3e.1.* Applicants must submit a comprehensive budget for the entire program. There must be a summary budget as well as breakdowns reflecting both administrative and program budgets. Applicants may provide separate sub-budgets for each program component, phase, location, or activity to provide clarification. *IV.3e.2.* Allowable costs for the program include the following:

(1)Salaries and benefits.

(2)Office supplies and expenses, including communications, postage, and shipping.

(3)Other direct and indirect costs. Please refer to the Solicitation Package for complete budget guidelines and formatting instructions. *IV.3f. Submission Dates and Times: Application Deadline Date:* Friday, November 12, 2004. *Explanation of Deadlines:* In light of recent events and heightened security measures, proposal submissions must be sent via a nationally recognized overnight delivery service ( *i.e.* , DHL, Federal Express, UPS, Airborne Express, or U.S. Postal Service Express Overnight Mail, etc.) and be shipped no later than the above deadline. The delivery services used by applicants must have in-place, centralized shipping identification and tracking systems that may be accessed via the Internet and delivery people who are identifiable by commonly recognized uniforms and delivery vehicles. Proposals shipped on or before the above deadline but received at ECA more than seven days after the deadline will be ineligible for further consideration under this competition. Proposals shipped after the established deadlines are ineligible for consideration under this competition. It is each applicant's responsibility to ensure that each package is marked with a legible tracking number and to monitor/confirm delivery to ECA via the Internet. ECA will *not* notify you upon receipt of application. Delivery of proposal packages *may not* be made via local courier service or in person for this competition. Faxed documents will not be accepted at any time. Only proposals submitted as stated above will be considered. Applications may not be submitted electronically at this time. Applicants must follow all instructions in the Solicitation Package. Important note: When preparing your submission please make sure to include one extra copy of the completed SF-424 form and place it in an envelope addressed to “ECA/EX/PM”. The original and six copies of the application should be sent to: U.S. Department of State, SA-44, Bureau of Educational and Cultural Affairs, Ref.: ECA/A/S/A-05-12, Program Management, ECA/EX/PM, Room 534, 301 4th Street, SW., Washington, DC 20547. Along with the Project Title, all applicants must enter the above Reference Number in Box 11 on the SF-424 contained in the mandatory Proposal Submission Instructions

(PSI)of the solicitation document. *IV.3g.* Intergovernmental Review of Applications: Executive Order 12372 does not apply to this program. V. Application Review Information V.1. Review Process The Bureau will review all proposals for technical eligibility. Proposals will be deemed ineligible if they do not fully adhere to the guidelines stated herein and in the Solicitation Package. All eligible proposals will be reviewed by the program office, as well as the Public Diplomacy section overseas, where appropriate. Eligible proposals will be subject to compliance with Federal and Bureau regulations and guidelines and forwarded to Bureau grant panels for advisory review. Proposals may also be reviewed by the Office of the Legal Adviser or by other Department elements. Final funding decisions are at the discretion of the Department of State's Assistant Secretary for Educational and Cultural Affairs. Final technical authority for grants resides with the Bureau's Grants Officer. Review Criteria Technically eligible applications will be competitively reviewed according to the criteria stated below. These criteria are not rank ordered and all carry equal weight in the proposal evaluation: 1. *Quality of the Program Idea:* Proposals should exhibit originality, substance, precision, and relevance to the Bureau's mission. Proposals must be responsive to the objectives stated in this document. 2. *Program Planning:* Detailed agenda and relevant work plan should demonstrate substantive undertakings and logistical capacity. Agenda and plan should adhere to the program overview and guidelines described above. 3. *Ability to Achieve Program Objectives:* Objectives should be reasonable, feasible, and flexible. Proposals should clearly demonstrate how the institution will meet the program's objectives and plan. The timeline for programs should be realistic and appropriate. 4. *Multiplier Effect/Impact:* Proposed programs should strengthen long-term mutual understanding, including maximum sharing of information. 5. *Support of Diversity:* Proposals should demonstrate substantive support of the Bureau's policy on diversity. Achievable and relevant features should be cited in both program administration (selection of participants, program venue and program evaluation) and program content (orientation and wrap-up sessions, program meetings, resource materials and follow-up activities). 6. *Institutional Capacity:* Proposed personnel and institutional resources should be adequate and appropriate to achieve the program or project's goals. 7. *Institution's Record/Ability:* Proposals should demonstrate an institutional record of successful exchange programs, including responsible fiscal management and full compliance with all reporting requirements for past Bureau grants as determined by Bureau Grants Staff. The Bureau will consider the past performance of prior recipients and the demonstrated potential of new applicants. 8. *Follow-on Activities:* Proposals should provide a plan for continued follow-on activity (without Bureau support) ensuring that Bureau supported programs are not isolated events. 9. *Project Evaluation:* Proposals should include a plan to evaluate the activity's success, both as the activities unfold and at the end of the program. A draft survey questionnaire or other technique plus description of a methodology to use to link outcomes to original project objectives is recommended. 10. *Cost-effectiveness:* The overhead and administrative components of the proposal, including salaries and honoraria, should be kept as low as possible. All other items should be necessary and appropriate. 11. *Cost-sharing:* Proposals should maximize cost-sharing through other private sector support as well as institutional direct funding contributions. VI. Award Administration Information VI.1a. Award Notices Final awards cannot be made until funds have been appropriated by Congress, allocated and committed through internal Bureau procedures. Successful applicants will receive an Assistance Award Document

(AAD)from the Bureau's Grants Office. The AAD and the original grant proposal with subsequent modifications (if applicable) shall be the only binding authorizing document between the recipient and the U.S. Government. The AAD will be signed by an authorized Grants Officer, and mailed to the recipient's responsible officer identified in the application. Unsuccessful applicants will receive notification of the results of the application review from the ECA program office coordinating this competition. VI.2. Administrative and National Policy Requirements Terms and Conditions for the Administration of ECA agreements include the following: Office of Management and Budget Circular A-122, “Cost Principles for Nonprofit Organizations” Office of Management and Budget Circular A-21, “Cost Principles for Educational Institutions” OMB Circular A-87, “Cost Principles for State, Local and Indian Governments” OMB Circular No. A-110 (Revised), Uniform Administrative Requirements for Grants and Agreements with Institutions of Higher Education, Hospitals, and other Nonprofit Organizations. OMB Circular No. A-102, Uniform Administrative Requirements for Grants-in-Aid to State and Local Governments OMB Circular No. A-133, Audits of States, Local Government, and Non-profit Organizations Please reference the following Web sites for additional information: *http://www.whitehouse.gov/omb/grants.* , *http://exchanges.state.gov/education/grantsdiv/terms.htm#articleI* VI.3. Reporting Requirements You must provide ECA with a hard copy original plus two copies of the following reports:

(1)A final program and financial report no more than 90 days after the expiration of the award;

(2)Quarterly financial reports and quarterly program reports that contain descriptions and evaluations of activities carried on during that period. Grantees will be required to provide reports analyzing their evaluation findings to the Bureau in their regular program reports. (Please refer to IV. Application and Submission Instructions (IV.3.d.3) above for Program Monitoring and Evaluation information. All data collected, including survey responses and contact information, must be maintained for a minimum of three years and provided to the Bureau upon request. All reports must be sent to the ECA Grants Officer and ECA Program Officer listed in the final assistance award document. VII. Agency Contacts For questions about this announcement, contact: Program Officer Jean Frisbie, Educational Information and Resources Branch, Global Educational Programs Office, Room 349, ECA/A/S/A, U.S. Department of State, SA-44, 301 4th Street, SW., Washington, DC 20547, telephone 202-619-5434 and fax 202-401-1433, *frisbiejz@state.gov.* All correspondence with the Bureau concerning this RFGP should reference the above title and number ECA/A/S/A-05-12. Please read the complete **Federal Register** announcement before sending inquiries or submitting proposals. Once the RFGP deadline has passed, Bureau staff may not discuss this competition with applicants until the proposal review process has been completed. VIII. Other Information *Notice:* The terms and conditions published in this RFGP are binding and may not be modified by any Bureau representative. Explanatory information provided by the Bureau that contradicts published language will not be binding. Issuance of the RFGP does not constitute an award commitment on the part of the Government. The Bureau reserves the right to reduce, revise, or increase proposal budgets in accordance with the needs of the program and the availability of funds. Awards made will be subject to periodic reporting and evaluation requirements per section VI.3 above. Dated: September 14, 2004. C. Miller Crouch, Principal Deputy Assistant Secretary, Bureau of Educational and Cultural Affairs, Department of State. [FR Doc. 04-21385 Filed 9-22-04; 8:45 am]

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