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Code · REGISTER · 2005-01-07 · Securities and Exchange Commission (“SEC” or “Commission”) · Notices

Notices. Notice of application for an order under Section 6(c) of the Investment Company Act of 1940, as amended (the “Act”) granting exemptions from the provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder

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BILLING CODE 7905-01-U SECURITIES AND EXCHANGE COMMISSION [Release No. IC-26716; File No. 812-13109] Principal Life Insurance Company, et al.; Notice of Application January 3, 2005. AGENCY: Securities and Exchange Commission (“SEC” or “Commission”). ACTION: Notice of application for an order under Section 6(c) of the Investment Company Act of 1940, as amended (the “Act”) granting exemptions from the provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder. *Applicants:* Principal Life Insurance Company (“Principal Life”), Principal Life Insurance Company Separate Account B (the “Account”), and Princor Financial Services Corporation (“Princor”) (collectively “Applicants”).
SUMMARY: Applicants seek an order to permit, under specified circumstances, the recovery of certain credits previously applied to purchase payments made under:
(i)Certain deferred variable annuity contracts, described herein, that Principal Life issues through the Account (the contracts, including certain data pages and endorsements, are collectively referred to as the “Contracts”), and
(ii)contracts that Principal Life may issue in the future through the Account, any of its other existing separate accounts, or any separate accounts that it may establish in the future (collectively, “Future Accounts”), which contracts are substantially similar in all material respects to the Contracts (the “Future Contracts”). Applicants also request that the order being sought extend to any other broker-dealer controlling, controlled by, or under common control with Principal Life, whether existing or created in the future, that serves as a distributor or principal underwriter of the Contracts or any Future Contracts offered through the Account or any Future Accounts (collectively, “Affiliated Broker-Dealers”). DATES: *Filing Date:* The application was filed on July 16, 2004, and amended on October 18, 2004. *Hearing or Notification of Hearing:* An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Secretary of the Commission and serving Applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on January 31, 2005, and should be accompanied by proof of service on Applicants in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the requester's interest, the reason for the request, and the issues contested. Persons who wish to be notified of a hearing may request notification by writing to the Secretary of the Commission. ADDRESSES: Secretary, SEC, 450 5th Street, NW., Washington, DC 20549-0609. Applicants, c/o Principal Financial Group, 711 High Street, Des Moines, Iowa 50392. FOR FURTHER INFORMATION CONTACT: Rebecca A. Marquigny, Senior Counsel, or Zandra Y. Bailes, Branch Chief, Office of Insurance Products, Division of Investment Management, at
(202)942-0670. SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained for a fee from the SEC's Public Reference Branch, 450 Fifth Street, NW., Washington, DC 20549 (tel.
(202)942-8090). Applicants' Representations 1. Principal Life was organized under the laws of Iowa in 1879. It is authorized to transact life insurance and annuity business in 50 states and the District of Columbia. Principal Life is a stock life insurance company and a wholly owned subsidiary of Principal Financial Group Inc. 2. The Account was established in 1970 by Principal Life as a separate account under Iowa law and is registered with the Commission as a unit investment trust under the Act (File No. 811-02091). The Account funds the benefits available under the Contracts and other variable annuity contracts issued by Principal Life. The offering of the Contracts by Principal Life is registered under the Securities Act of 1933 (the “1933 Act”) (File No. 333-116220). That portion of the assets of the Account that is equal to the reserves and other contract liabilities with respect to the Account is not chargeable with liabilities arising out of any other business of Principal Life. Any income, gains or losses, realized or unrealized, from assets allocated to the Account are, in accordance with the various contracts, credited to or charged against the Account without regard to other income, gains or losses of Principal Life. 3. Princor is an Iowa corporation controlled by Principal Financial Group, Inc., and is the principal underwriter of the Contracts. Princor is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, and is a member of NASD, Inc. Sales of the Contracts are made by registered representatives of broker-dealers authorized by Princor to sell the Contracts. Such registered representatives are also licensed insurance agents of Principal Life. 4. The Contracts are flexible purchase payment individual deferred combination fixed and variable annuity contracts. The Contracts may be issued either as tax-qualified contracts (“qualified Contracts”) or as non-tax-qualified contracts (“non-qualified Contracts”). 5. The minimum initial purchase payment is $5,000 for non-qualified Contracts and $2,000 for qualified Contracts. The minimum subsequent purchase payment is $500. Lesser minimums may apply in the case of certain retirement plans or payroll deduction or automated investment programs. Principal Life may limit total Contract purchase payments to $2,000,000. 6. At the time of issuance, a Contract owner may elect to purchase the Premium Payment Credit Rider (“Credit Rider”). If the Credit Rider is elected, Principal Life will add a 5% payment enhancement or credit to the owner's Contract upon receipt of each purchase payment from the Contract owner during the first contract year (the “Credit”). After the first contract year, additional purchase payments will not receive a Credit. Principal Life will fund Credits from its general account assets and will allocate Credits among investment options (excluding certain fixed benefit options used for dollar cost averaging) in the same proportion as the applicable purchase payment. Principal Life will recover Credits
(i)if the Contract owner returns the Contract for a refund during the “free look” period, and
(ii)if the Contract owner elects to receive annuity payments prior to the third contract anniversary. Principal Life will not seek to recover any Credit in connection with partial withdrawals or surrenders of a Contract. 7. The free look period is the 10-day period (or such longer period required by a state) during which a Contract owner may return a Contract after it has been delivered. Upon such return, the Contract owner generally will receive a full refund of the accumulated value of the Contract, less the amount of the Credits. The Contract owner will retain any net earnings attributable to the Credits or, if there has been a net decline in the value of the Credits, will bear the loss from such decline. Where applicable state law requires that the full amount of the purchase payment be refunded, the Contract owner will receive the greater of that amount or the Contract value less, in either case, the amount of the Credits. 8. The Contracts provide for the return of the Credit if the owner elects to receive annuity payments before the end of the third Contract year. The Contract owner will retain any net earnings attributable to the Credits or, if there has been a net decline in the value of the Credits, will bear the loss from the decline. 9. The Credits to be recovered will be taken from the sub-accounts under the Contract in which the Credits are invested in the same proportion that the accumulated value based on such sub-accounts bears to the accumulated value of the Contract. The recovery will be effected by redeeming the number of units from each sub-account that are necessary to fund that sub-account's share of the recovery. The number of units to be redeemed in each sub-account will be calculated based on the unit value for each sub-account determined at the time the withdrawal to recover the Credit is made. In the case of early annuitization, the withdrawal is made on the annuitization date, which is the date the accumulated value is applied to make annuity payments. 10. Contract owners may allocate their purchase payments among a fixed account, two different fixed, dollar cost averaging options (which will not be available to Contract owners who elect the Credit Rider), and a number of sub-accounts of the Account. Each sub-account invests in shares of a corresponding portfolio of an underlying mutual fund (“Underlying Fund”). Principal Life may, subject to compliance with applicable law, add other sub-accounts, eliminate or combine existing sub-accounts or transfer assets in one sub-account to another sub-account established by Principal Life. 11. The Contracts provide for the following charges:
(i)A withdrawal or contingent deferred sales charge (“CDSC”) as a percentage of amounts withdrawn attributable to purchase payments that have been in the Contract less than seven complete contract years, with the applicable percentage charge declining from a maximum of 6% for withdrawals attributable to purchase payments that have been in the Contract for completed contract years zero, one and two to 0.0% for contract year seven and thereafter; 1
(ii)an annual contract fee that is the lesser of $30 or 2% of the accumulated value (which may be waived under certain circumstances);
(iii)a daily mortality and expense risk charge in an amount equal on an annual basis to 1.25% of the value of each variable investment option, deducted from each sub-account; and
(iv)any applicable state or local premium taxes up to 3.5%, depending on the Contract owner's state of residence or the state in which the Contract was sold. Principal Life may impose a daily administrative charge in an amount not to exceed on an annual basis 0.15% of the value of each variable investment option, deducted from each sub-account. Principal Life imposes additional charges for an enhanced death benefit and other benefits provided by rider. It also reserves the right to impose a transaction fee for unscheduled withdrawals exceeding 12 in a contract year and a transfer fee for each unscheduled transfer. In addition, the Underlying Funds impose management, distribution and administrative fees which vary depending upon which Underlying Funds are selected. There is no withdrawal charge or CDSC made in connection with the annuitization of the Contract. 2 1 With respect to the seven-year withdrawal charge schedule, the CDSC is 6% for years zero, 1 and 2, 5% for year 3, 4% for year 4, 3% for year 5, 2% for year 6, and 0.0% for any year thereafter. There is never a withdrawal charge with respect to earnings accumulated in a Contract, certain other “free withdrawal” amounts or purchase payments that have been in the Contract for more than seven complete contract years. 2 The CDSC is not applied against Credits which, for this purpose, are considered investment earnings, not purchase payments. 12. If the Credit Rider is elected, the Contracts will provide for a higher CDSC, namely, a percentage of amounts withdrawn attributable to purchase payments that have been in the Contract less than nine complete contract years, with the applicable percentage charge declining from a maximum of 8% for withdrawals attributable to purchase payments that have been in the Contract for completed contract years zero and one, to 0.0% for contract year nine and thereafter. 3 In addition to the charges enumerated above, the Credit Rider provides for a charge payable for the first 8 contract years, in an amount equal on an annual basis to 0.60% of the value of each variable investment option, deducted from each sub-account. 3 3 With respect to the nine-year withdrawal charge schedule, the CDSC is 8% for years zero and one, 7% for year 2, 6% for year 3, 5% for year 4, 4% for year 5, 3% for year 6, 2% for year 7, 1% for year 8, and 0.0% for any year thereafter. There is never a withdrawal charge with respect to earnings accumulated in a Contract, certain other “free withdrawal” amounts or purchase payments that have been in the Contract more than nine complete contract years. 13. Because of the higher charges applicable to a Contract with the Credit Rider, the prospectus description of the Rider will include a statement to the effect that the amount of the Credits may be more than offset by the fees and charges associated with the Credit Rider. The prospectus also will state that there may be circumstances in which a Contract owner may be worse off for having the Credit Rider because of the higher charges. In addition, the prospectus will state that a purchaser of a Contract will be worse off with the Credit Rider if, at the time of recapture of the Credit, the Contract has experienced a negative investment performance. This is because the Credit recovered by Principal Life will not reflect the adverse performance attributable to the Credit, as a result of which the Contract value will be less than the value it would otherwise have been had the Credit not been made. Applicants' Legal Analysis 1. Section 6(c) of the Act authorizes the Commission to exempt any person, security or transaction, or any class or classes of persons, securities or transactions from the provisions of the Act and the rules promulgated thereunder if and to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants request that the Commission, pursuant to Section 6(c) of the Act, grant the exemptions requested below with respect to the Contracts, and any Future Contracts funded by the Account or Future Accounts, that are issued by Principal Life and underwritten or distributed by Princor or Affiliated Broker-Dealers. Applicants undertake that Future Contracts will be substantially similar in all material respects to the Contracts. Applicants believe that the requested exemptions are appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policies and provisions of the Act. 2. Applicants previously have received exemptive relief to permit, with respect to an earlier class of contracts, the recapture of a credit in connection with exercise of a free look right. 4 That order encompassed relief for “future contracts,” contracts substantially similar in all material respects to the earlier class of contracts. Applicants assert that the Contracts described in the current application and amended application differ from the prior class of contracts by providing more investment options and certain enhanced guaranteed benefits available by rider. In addition to the Credit Rider, the new class of Contracts may also be combined with the Investment Protector Plus Rider or the Enhanced Death Benefit Rider, options not available to the old class of contracts. 5 Because of the substantial differences between the old class of contracts and the new class of Contracts (depending on the riders selected for the new class), Applicants represent that they do not believe the new Contracts fall within the scope of “future contracts” as contemplated under the prior order granting relief to recapture a credit. Consequently, Applicants are seeking the relief set forth below. 4 *Principal Life Insurance Company, et al.* , Investment Company Act Release Nos. 24725 (Nov. 2, 2000) (Notice) and 24752 (Nov. 28, 2000) (Order) (SEC File No. 812-12136). 5 The Investment Protector Plus Rider provides a guaranteed minimum withdrawal benefit regardless of the Contract's surrender value, subject to various conditions including a bar on the use of certain sub-accounts. The Enhanced Death Benefit Rider provides an optional death benefit that pays the greater of the standard death benefit (determined in the same manner as under the old class of contracts) or a death benefit that has as a floor premiums paid plus interest at 5% per annum with an adjustment for partial withdrawals. 3. Applicants seek exemption pursuant to Section 6(c) from Sections 2(a)(32), 22(c), and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder to the extent deemed necessary to permit Principal Life to recover Credits previously applied to purchase payments under the Contracts or Future Contracts if a Contract owner returns the Contract or Future Contract for a refund during the free look period or annuitizes the Contract prior to the end of the third contract year. The Commission previously has granted similar exemptive relief to permit the recovery of certain bonus credit amounts previously credited. 4. Subsection
(i)of Section 27 of the Act provides that Section 27 does not apply to any registered separate account funding variable insurance contracts, or to the sponsoring insurance company and principal underwriter of such account, except as provided in paragraph
(2)of the subsection. Paragraph
(2)provides that it shall be unlawful for such a separate account or sponsoring insurance company to sell a contract funded by the registered separate account unless such contract is a redeemable security. Section 2(a)(32) defines a “redeemable security” as any security, other than short-term paper, under the terms of which the holder, upon presentation to the issuer, is entitled to receive approximately his or her proportionate share of the issuer's current net assets, or the cash equivalent thereof. 5. Applicants submit that the recovery of Credits in the circumstances set forth in the application does not deprive a Contract owner of his or her proportionate share of the issuer's current net assets. Applicants state that a Contract owner's interest in the Credits allocated to the accumulated value of his or her Contract is not fully vested until after the end of the third contract year. Applicants submit that until this period has expired and the Credits have fully vested, Principal Life retains the rights and interests described herein. Therefore, Applicants represent that when Principal Life recovers any Credits, it is merely retrieving its own assets; the Contract owner is not deprived of a proportionate share of the Account's assets because the Contract owner's interest in such Credit has not vested in all respects. 6. Under the Credit Rider, Principal Life provides Credits from its general account on a guaranteed basis. Applicants assert that in undertaking this financial obligation, Principal Life contemplates that a Contract owner will retain a Contract over an extended period, consistent with the long-term nature of the Contracts. Applicants assert that Principal Life designed its product so that it would recover its costs (including the Credit) over an anticipated duration while a Contract is in force. Applicants further assert that permitting a Contract owner to retain Credits upon an early annuitization could serve to encourage such annuitizations and the series of early withdrawals associated therewith in a manner inconsistent with the durations assumed in the design of the Contract. In addition, Applicants submit that permitting a Contract owner to retain Credits upon the exercise of the free look return could encourage the purchase of Contracts for a quick profit rather than with the intention of making a long-term investment. 7. Applicants submit that the exemptive relief requested is consistent with and serves the stated purpose of the National Securities Markets Improvement Act of 1996 (“NSMIA”) in amending the Act to “provide more effective and less burdensome regulation.” Sections 26(e) and 27(i) were added to the Act to implement the purposes of NSMIA and Congressional intent. Applicants assert that the application of Credits to purchase payments under the Contracts should not raise any questions as to Principal Life's compliance with the provisions of Section 27(i). However, Applicants represent that to avoid any uncertainty as to full compliance with the Act, they request an exemption from Sections 2(a)(32) and 27(i)(2)(A) of the Act, to the extent deemed necessary, to permit the recovery of Credits under the circumstances described in the application with respect to Contracts and Future Contracts, without the loss of relief from Section 27 provided by Section 27(i). 8. Section 22(c) of the Act authorizes the Commission to make rules and regulations applicable to registered investment companies and to principal underwriters of, and dealers in, the redeemable securities of any registered investment company to accomplish the same purposes as contemplated by Section 22(a). Rule 22c-1 thereunder prohibits a registered investment company issuing a redeemable security, a person designated in such issuer's prospectus as authorized to consummate transactions in any such security, and a principal underwriter of, or dealer in, such security, from selling, redeeming, or repurchasing any such security except at a price based on the current net asset value of such security which is next computed after receipt of a tender of such security for redemption or of an order to purchase or sell such security. Principal Life's recovery of Credits as described herein might arguably be viewed as involving the redemption of redeemable securities for a price other than one based on the current net asset value. Applicants believe that the recovery of Credits does not violate Section 22(c) and Rule 22c-1. Applicants assert that such recovery does not involve either of the harms that Rule 22c-1 was intended to eliminate or reduce, namely:
(i)The dilution of the value of outstanding redeemable securities of registered investment companies through their sale at a price below net asset value or repurchase at a price above it, and
(ii)other unfair results, including speculative trading practices. These harms resulted from the practice of basing the price of a mutual fund share on the net asset value per share determined as of the close of the market on the previous day. Such backward pricing allowed investors to take advantage of increases or decreases in net asset value that were not yet reflected in the price, thereby diluting the value of outstanding fund shares. 9. Applicants submit that the recovery of Credits as described in the application and amended application does not pose such a threat of dilution. In effecting such recoveries, Principal Life will redeem accumulation units from the sub-accounts in which premiums have been invested on the basis of the net asset value determined at the time the withdrawal to recover the Credit is made. Under these circumstances, in Applicants' view, the recovery of the Credits does not involve dilution. Applicants also submit that the second harm that Rule 22c-1 was designed to address, namely speculative trading practices calculated to take advantage of backward pricing, will not occur as a result of the recovery of the Credits. Applicants argue that because neither of the harms that Rule 22c-1 was meant to address are found in the recovery of Credits, Rule 22c-1 and Section 22(c) should not be construed as applicable thereto. However, Applicants submit that to avoid any uncertainty in this regard, they request an exemption from the provisions of Section 22(c) and Rule 22c-1 to the extent deemed necessary to permit them to recover Credits under the Contracts and Future Contracts as described in the application and amended application. 10. Applicants submit that their request for an order that applies to Future Accounts and Future Contracts that are substantially similar in all material respects to the Contracts and underwritten or distributed by Princor or Affiliated Broker-Dealers is appropriate in the public interest. Applicants assert that such an order would promote competitiveness in the variable annuity market by eliminating the need to file redundant exemptive applications, thereby reducing administrative expenses and maximizing the efficient use of Applicants' resources. Applicants state that investors will not receive any benefit or additional protection if Applicants are required repeatedly to seek exemptive relief presenting no issue under the Act that has not already been addressed. Having Applicants file additional applications would impair Applicants' ability to effectively take advantage of business opportunities as they arise. Applicants undertake that Future Contracts funded by the Account or Future Accounts which seek to rely on the order issued pursuant to the application will be substantially similar in all material respects to the Contracts. *Conclusion:* Section 6(c) of the Act, in pertinent part, provides that the Commission, by order upon application, may conditionally or unconditionally exempt any person, security or transaction, or any class or classes of persons, securities or transactions, from any provision or provisions of the Act, or any rule or regulation thereunder, to the extent that such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Applicants submit, for the reasons stated above, that their exemptive request meets the standards set out in Section 6(c) of the Act and that an order should, therefore, be granted. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Jill M. Peterson, Assistant Secretary. [FR Doc. E5-18 Filed 1-6-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50953; File No. SR-Amex-2004-104] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by the American Stock Exchange LLC Relating to Regulation SHO December 30, 2004. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on December 13, 2004, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in items I and II below, which items have been prepared by the Exchange. On December 22, 2004, the Exchange filed Amendment No. 1 to the proposed rule change. 3 The Amex has filed the proposal as a “non-controversial” rule change pursuant to section 19(b)(3)(A) of the Act 4 and Rule 19b-4(f)(6) thereunder, 5 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* Amendment No. 1 to the proposed rule change (December 22, 2004). Amendment No. 1 replaced the Exchange's original filing in its entirety. 4 15 U.S.C. 78s(b)(3)(A). 5 17 CFR 240.19b-4(f)(6). For the purposes of determining the effective date and calculating the sixty-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act, the Commission considers that period to commence on December 22, 2004, the date that the Exchange filed Amendment No. 1 to the proposed rule change. *See* 15 U.S.C. 78s(b)(3)(C). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Amex proposes to amend Rules 7, 27, 108, 111, 118, 205, 208, 590, 783, 784 and 957 and eliminate obsolete Rules 792, 794 and 795 to conform its rules to the requirements of Regulation SHO 6 under the Act. The text of the proposed rule change is available for viewing at the places specified in item IV below. 6 *See* Securities Exchange Act Release No. 50103 (July 28, 2004), 69 FR 48008 (August 6, 2004) (the “Adopting Release”), and accompanying orders: Securities Exchange Act Release No. 50104 (July 28, 2004), 69 FR 48032 (August 6, 2004) (the “Pilot Order”), and Securities Exchange Act Release No. 50747 (November 29, 2004), 69 FR 70480 (December 6, 2004) (the “Second Pilot Order”). The Adopting Release, the Pilot Order and the Second Pilot Order are hereinafter collectively referred to as “Regulation SHO.” II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange 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. The Amex 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The Commission has adopted Regulation SHO under the Act, thereby establishing new requirements relating to short sales. 7 Among other things, Regulation SHO
(i)requires broker-dealers to mark sales of all equity securities as “long,” “short” or “short exempt,” specifying the standards for each,
(ii)provides for the establishment of a pilot program under which short sales in specific securities will take place without application of the “tick” test or any other price test,
(iii)requires short sellers in all equity securities to locate securities to borrow before selling, and
(iv)imposes additional delivery requirements on broker-dealers for securities in which a substantial number of failures to deliver have occurred. 8 The Commission has requested each SRO to review its rules and submit rule filings where necessary to conform its rules to the requirements of Regulation SHO. In order to accomplish this objective, the Exchange proposes to amend the following rules. The Exchange believes that these proposed rule changes are non-controversial and, in a number of instances, simply consist of incorporating by reference Regulation SHO or certain of its provisions or adding appropriate provisions to address the new “short exempt” order marking requirement. The operative date of the proposed rule change will be January 3, 2005, which is the operative date of the applicable provisions of Regulation SHO. 7 *See* the Adopting Release. 8 *Id.* Rule 7. Short Sales Rule 7 is the Exchange's primary rule that applies an Exchange-based “tick” test to short sales effected on the Exchange. The Exchange proposes to amend Rule 7 to incorporate by reference all appropriate exceptions and exemptions provided by the Commission, including those under Regulation SHO and any Commission orders issued pursuant thereto, such as the exemption for Exchange-listed securities designated as part of the Regulation SHO pilot program. 9 Commentary .01 to Rule 7 currently reproduces the complete text of the Commission's short sale regulation, Rule 10a-1, 10 for the convenience of members and member organizations. Rather than add the new text of Regulation SHO to this already lengthy Commentary, the Exchange proposes simply to reference Rule 10a-1 and Regulation SHO (including any Commission orders issued pursuant to Regulation SHO) in Commentary .01 and take this opportunity to condense the Rule by deleting the text of Rule 10a-1. The Exchange believes this is appropriate, given the opportunities that exist today for members to access the text of the Commission's rules electronically if necessary. Including the text of the Commission's regulation in the Exchange's Commentary is unusual, and it has the additional disadvantage of requiring the Exchange to submit a rule filing each time there is a change in the Commission's rule. 9 *See* the Pilot Order and the Second Pilot Order. 10 *See* 17 CFR 240.10a-1. Rule 27. Allocations Committee Paragraph
(f)of Rule 27 specifies situations under which the Exchange's Allocation Committee shall be convened to reallocate securities from one specialist to another. Paragraphs
(g)and
(h)of the Rule outline the procedures for the reallocation. Rule 203(b)(3) of Regulation SHO imposes a buy-in requirement with respect to certain “threshold securities” that have extended delivery failures, and there is also a pre-borrowing requirement for additional short sales of a “threshold security” if the buy-in is not completed within the time period specified in Regulation SHO. 11 These provisions of Regulation SHO do not provide for a specialist/market maker exception. 12 Consequently, the Exchange proposes to modify paragraphs
(f)and
(h)of Rule 27 to provide for a reallocation in the event that a specialist in a stock, ETF or other security becomes subject to a pre-borrowing requirement on short sales with respect to one of its specialty securities or, in the case of an options specialist, with respect to the underlying security, and for the restoration of the security to the original specialist if that specialist is no longer subject to a pre-borrowing requirement. Rule 108. Priority and Parity at Openings Rule 111. Commentary .04. Restrictions on Registered Traders Rule 118. Trading in Nasdaq National Market Securities Rule 205. Manner of Executing Odd-Lot Orders 11 *See* the Adopting Release. 12 *Id.* Rule 208. Bunching of Odd-Lot Orders Rule 590. Part 1 General Rule Violations Rule 957. Accounts, Orders and Records of Registered Traders, Specialists and Associated Persons The foregoing rules all require very minor and obvious changes to conform to Regulation SHO. Several of these changes involve the addition of provisions related to “short exempt” orders. In the case of Rule 118, a provision involving odd-lot orders in Nasdaq National Market securities that allows such orders to be marked “short” is being revised because it would directly conflict with the provision of Regulation SHO requiring orders that are exempt from the “tick” test to be marked “short exempt.” 13 In the case of Rule 957, a reference to Rule 200 of Regulation SHO will be substituted for a reference to Rule 3b-3 under the Act (which is being eliminated). 13 *Id.* Rule 783. Normal Buy-Ins Rule 784. Mandatory Closing of Fails Rule 783 provides the procedures for normal buy-ins of securities traded on the Exchange, and Rule 784 provides the procedures for the mandatory closing of fails for Exchange-traded securities. The time periods and certain other provisions in these two Rules (such as the ability of a Floor Official to defer the execution of a normal buy-in under Rule 783 and the ability of the Exchange to temporarily suspend the mandatory closing in Rule 784 under unusual circumstances) are incompatible with the buy-in requirements for “threshold securities” under Regulation SHO. Consequently, the Exchange proposes to incorporate by reference the provisions of Regulation SHO into these two Rules where appropriate, making it explicit that Regulation SHO governs in the event of a conflict. Rule 792. Securities Transferring Out of Town Rule 794. “Buy-Ins” on Securities Located Out of Town Rule 795. “Buy-Ins” Where Securities in Transfer Rules 792, 794 and 795 all contain buy-in provisions that, as with Rules 783 and 784, may be in conflict with the buy-in provisions of Regulation SHO under certain circumstances. However, rather than modify each of these rules through incorporation by reference of the provisions of Regulation SHO, as proposed above for Rules 783 and 784, the Exchange has determined that these three rules are obsolete and no longer in use, and we instead propose that these rules be eliminated in their entirety. 2. Statutory Basis The proposed rule change is consistent with Section 6(b) of the Act 14 in general and furthers the objectives of Section 6(b)(5) of the Act 15 in particular in that it is designed to prevent fraudulent and manipulative acts and practices and to promote just and equitable principles of trade. 14 15 U.S.C. 78f(b). 15 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change, as amended, has been filed by the Exchange pursuant to section 19(b)(3)(A) of the Act 16 and subparagraph (f)(6) of Rule 19b-4 thereunder. 17 The Exchange requests that the Commission waive the 5-day notice and 30-day pre-operative requirements contained in Rule 19b-4(f)(6)(iii) 18 because the proposed rule change does not
(i)significantly affect the protection of investors or the public interest;
(ii)impose any significant burden on competition; or
(iii)become operative for 30 days from the date on which it was filed, or such shorter time frame as the Commission may designate. The Exchange believes that good cause exists to grant such waivers because of the importance of short sale regulation to the protection of investors. The Exchange will implement the proposed rule change immediately so that they will be in effect on the operative date of the applicable provisions of Regulation SHO. 16 15 U.S.C. 78s(b)(3)(A). 17 17 CFR 240.19b-4(f)(6). 18 17 CFR 240.19b-4(f)(6)(iii). The Commission believes that waiving the 5-day notice and 30-day pre-operative delay is consistent with the protection of investors and the public interest. The Commission notes that proposed rule change being made herein simply conforms the Exchange's rules to the requirements of Regulation SHO under the Act. No new rules, policies or procedures are being proposed other than as required by Regulation SHO. The Commission believes that accelerating the operative date of the proposed rule change does not raise any new regulatory issues, significantly affect the protection of investors or the public interest, or impose any significant burden on competition. For these reasons, the Commission designates the proposed rule change as effective and operative immediately. At any time within 60 days of the filing of such proposed rule change pursuant to section 19(b)(3)(A) of the Act, 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. 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-Amex-2004-104 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-Amex-2004-104. 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 Amex. 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-Amex-2004-104 and should be submitted on or before January 28, 2005. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 19 19 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E5-20 Filed 1-6-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50952; File No. SR-CHX-2004-42] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, Incorporated Relating to Short Sales of Securities December 30, 2004. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on December 21, 2004, the Chicago Stock Exchange, Incorporated (“CHX” or “Exchange”) filed with the Securities and Exchange Commission (the “Commission” or the “SEC”) the proposed rule change as described in items I and II below, which Items have been prepared by the CHX. 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. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The CHX proposes to amend its rules to eliminate and modify provisions relating to short sales of securities, where those provisions are inconsistent with, or different from, the requirements of Regulation SHO. 3 The text of the proposed rule change is available for viewing at the places specified in item IV below. 3 *See* Release No. 34-50103, File No. S7-23-03, 69 FR 48008 (August 6, 2004) (the “Adopting Release”), and accompanying orders: Release No. 34-50104 (July 28, 2004), 69 FR 48032 (August 6, 2004) and Release No. 34-50747 (November 29, 2004), 69 FR 70480 (December 6, 2004). II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the CHX included statements concerning the purpose of and basis for the proposed rule changes and discussed any comments it received regarding the proposal. The text of these statements may be examined at the places specified in item IV below. The CHX 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 Changes 1. Purpose The Commission has adopted new Regulation SHO, which provides new comprehensive regulation of short sales. 4 Among other things, this new series of rules provides new definitions, sets out uniform locate and delivery requirements for broker-dealers and establishes a procedure to allow the Commission to suspend temporarily the operation of the current “tick” test or short sale price test for specified securities. 5 4 *See* the Adopting Release. 5 *See* Rule 200 (definitions); Rule 203 (uniform locate and delivery requirements) and Rule 202T (allowing the suspension of short sale rules in specified securities) set forth in the Adopting Release. Because of the new comprehensive regulation provided by Regulation SHO, the Exchange believes that it is important to delete, from its rules, provisions that regulate the short selling of securities. 6 Specifically, the Exchange seeks to delete, from its rules:
(1)Sections
(b)and
(c)of Article IX, Rule 17 (relating to locate and delivery requirements and the “bona fide” market making exemption from the short sale rule); and
(2)Rules 11 and 12 of Article XXI (relating to long sales and mandatory stock borrowing). By deleting these rules, the Exchange seeks to ensure that its regulation of short sales is not inconsistent with, or different from, the provisions of Regulation SHO. Indeed, these rule changes would leave one primary provision relating to short sales in the Exchange's own rules—a provision that requires members to effect short sales in accordance with the SEC's short sale rules. 7 6 The Exchange has not sought to amend the substantive requirements of a provision relating to short sales of odd-lots, except to add an interpretation confirming that the rule does not apply when the SEC has suspended the application of the rule as permitted by Regulation SHO. In the coming months, the Exchange plans to study the scope of this rule and to determine what changes, if any, should be made to its requirements. 7 The Exchange seeks to amend the current rule text of this provision to specifically refer to Regulation SHO. *See* Article IX, Rule 17(a). 2. Statutory Basis The CHX believes the proposal is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of section 6(b) of the Act. 8 In particular, the proposed changes are consistent with section 6(b)(5) of the Act, because they would promote just and equitable principles of trade, remove impediments to, and perfect the mechanism of, a free and open market and a national market system, and, in general, protect investors and the public interest by providing for a uniform set of rules to regulate the short selling of securities. 8 15 U.S.C. 78(f)(b). B. Self-Regulatory Organization's Statement of Burden on Competition The Exchange does not believe that the proposed rule changes will impose any inappropriate burden on competition with respect to the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments Regarding the Proposed Rule Changes Received From Members, Participants or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Changes and Timing for Commission Action The foregoing proposed rule change has been filed with the CHX pursuant to section 19(b)(3)(A) of the Act 9 and subparagraph (f)(6) of Rule 19b-4 thereunder. 10 The CHX requests that the Commission waive both the 5-day notice and the 30-day pre-operative requirements contained in Rule 19b-4(f)(6)(iii). 11 The CHX has designated the proposed rule change as one that:
(i)Does not significantly affect the protection of investors or the public interest;
(ii)does not impose any significant burden on competition; and
(iii)does not become operative for 30 days from the date it was filed, or such shorter time as the Commission may designate. The CHX believes good cause exists to grant such waivers because of the importance of short sale regulation to the protection of investors. The CHX will implement the foregoing proposed rule change immediately. 9 15 U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b-4(f)(6). 11 Under subparagraph (f)(6)(iii) of Rule 19b-4, the proposal may not become operative for 30 days after the date of its filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, and the self-regulatory organization must file notice of its intent to file the proposed rule change at least five business days beforehand. See 17 CFR 240.19b-4(f)(6)(iii). The Commission believes that waiving the 5-day notice and the 30-day pre-operative delay is consistent with the protection of investors and the public interest. The Commission believes that accelerating the operative date does not raise any new regulatory issues, significantly affect the protection of investors or the public interest or impose any significant burden on competition. For these reasons, the Commission designates the proposed rule change as effective and operative immediately. At any time within 60 days of the filing of a rule change pursuant to section 19(b)(3)(A) of the Act, the Commission may summarily abrogate the 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. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal 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 No. SR-CHX-2004-42 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File No. SR-CHX-2004-42. 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 changes between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of the CHX. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-CHX-2004-42 and should be submitted on or before January 28, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 12 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E5-22 Filed 1-6-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50955; File No. SR-FICC-2004-05] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Granting Approval of a Proposed Rule Change To Amend Rules Relating to the Participants Fund Deposit Requirements of Its Mortgage-Backed Securities Division January 3, 2005. I. Introduction On March 3, 2004, the Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“Commission”) and on March 11, 2004, amended proposed rule change File No. SR-FICC-2004-05 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). 1 Notice of the proposed rule change was published in the **Federal Register** on November 22, 2004. 2 No comment letters were received. For the reasons discussed below, the Commission is now granting approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 50665 (November 15, 2004), 69 FR 67972. II. Description The proposed rule change amends the rules of FICC's Mortgage-Backed Securities Division (“MBSD”) to eliminate the basic deposit component of the Participants Fund deposit requirement for participants that are registered with the Commission as registered investment companies (“RICs”) pursuant to the Investment Company Act of 1940. 3 3 15 U.S.C. 80a-1. In 2003, FICC received a no-action letter 4 from the Commission's Division of Investment Management (“IM”) stating that IM would not recommend to the Commission enforcement action under Section 17(f) of the Investment Company Act of 1940 against any RIC or its custodian if the RIC or its custodian placed the RIC's cash and/or securities in the custody of the MBSD for purposes of meeting the Participants Fund requirements imposed by the MBSD. IM's no-action letter was based upon the fact that the main portions of the MBSD's Participants Fund, the “minimum market margin differential deposit” and the “market margin differential deposit,” are intended to benefit the non-defaulting participants of the MBSD because these portions are intended to provide assurances that each participant's contributions to the Participants Fund will be adequate to satisfy all open commitments recorded with the MBSD. In contrast, the remaining portion of the Participants Fund, the “basic deposit,” is designed to protect FICC by ensuring that each participant's fees owing to the MBSD will be paid if the participant is unable to meet such fee obligations. 4 No-Action Letter under the Investment Company Act of 1940—Section 17(f) and Rule 17f-4, to Fixed Income Clearing Corporation (March 13, 2003). In granting no-action relief to FICC, IM staff relied upon FICC's representation that RICs would be exempt from the basic deposit requirement. FICC determined that this representation would not subject it to undue risk because the basic deposit is a relatively minimal amount and because this exemption affects very few participants. 5 The management of FICC returned the basic deposits posted by its RIC clearing members under perceived authority given to it under Article IV, Rule 1, Section 3 of its Rules. FICC nonetheless believes it would be prudent to expressly state in the MBSD Rules that RICs are exempt from the basic deposit requirement. 6 5 Currently, the basic deposit is determined semiannually and is the greater of
(a)$1,000 or
(b)the participant's average monthly bill (per account) with a maximum of $10,000. The MBSD currently has only two RIC clearing members. 6 FICC will also state in the MBSD's Schedule of Charges that the basic deposit does not apply to RICs. III. Discussion Section 17A(b)(3)(F) of the Act requires among other things that the rules of a clearing agency be designed to assure the safeguarding of securities and funds in its custody or control or for which it is responsible. 7 The Commission finds that FICC's proposed rule change is consistent with this requirement because by exempting RICs from its basic deposit requirement, FICC is enabling RICs to become participants while still doing so in a manner that allows FICC to safeguard the securities and funds in its custody or control or for which it is responsible. 7 15 U.S.C. 78q-1(b)(3)(F). IV. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular Section 17A of the Act and the rules and regulations thereunder. *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 8 that the proposed rule change (File No. SR-FICC-2004-05) be and hereby is approved. 8 15 U.S.C. 78s(b)(2). For the Commission by the Division of Market Regulation, pursuant to delegated authority. 9 9 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E5-32 Filed 1-6-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50949; File No. SR-NSCC-2004-10] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change Relating to Regulatory Reporting Transmission Agreements With Self-Regulatory Organizations December 30, 2004 Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on December 16, 2004, National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) and on December 27, 2004, amended the proposed rule change as described in Items I, II, and III below, which items have been prepared primarily by NSCC. The Commission is publishing this notice and order to solicit comments on the proposed rule change from interested persons and to grant accelerated approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would permit NSCC to provide one or more data transmission services to permit members and others to meet regulatory reporting requirements imposed by self-regulatory organizations. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NSCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. NSCC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of such statements. 2 2 The Commission has modified the text of the summaries.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Since 1995, NSCC has provided, as an accommodation to its members, a service which permits its members to submit trade data for forwarding to the Municipal Securities Rulemaking Board (“MSRB”) in order to permit its members to meet MSRB regulatory requirements. To date, NSCC's rules have been silent with respect to the service. The MSRB has asked NSCC to expand the service and to provide qualifying non-members with the ability to be able to submit data to NSCC for forwarding to the MSRB to meet regulatory requirements. With the introduction of a service for non-members of NSCC, NSCC believes that it is important to clarify in its rules that NSCC is providing these services on a non-exclusive basis as an accommodation to the industry to alleviate costs. As such, NSCC is proposing to add new Rule 63 that would cover the existing service, the requested expansion of the service, and any other similar service requested of NSCC by any other self-regulatory organization. 3 3 Rule 63, SRO Regulatory Reporting, reads as follows: The Corporation may provide one or more data transmission services to permit members and others to meet regulatory reporting requirements imposed by self-regulatory organizations, as defined in the Securities Exchange Act of 1934. To the extent that members or others use any such service they shall be bound by the terms of any agreement between the Corporation and any self-regulatory organization with respect to each such service. Entities which are not members shall be required to enter into such agreements as determined by the Corporation in order to use such services. NSCC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act and the rules and regulations thereunder because it sets forth the terms that will govern arrangements whereby NSCC enters into an agreement with a self-regulatory organization to facilitate regulatory reporting by industry participants to meet requirements imposed by self-regulatory organizations. As such, the proposed rule change is designed to
(i)promote the prompt and accurate clearance and settlement of securities transactions,
(ii)protect investors and the public interest, and
(iii)assure the safeguarding of securities and funds for which NSCC is in control.
(B)Self-Regulatory Organization's Statement on Burden on Competition NSCC does not believe that the proposed rule change would have any impact or impose any burden on competition.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments relating to the proposed rule change have not yet been solicited or received. NSCC will notify the Commission of any written comments received by NSCC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible. 4 The proposed rule change, by clarifying the rights and obligations of NSCC and the users of any of its regulatory reporting data transmission services, is designed to protect NSCC and its members from any unnecessary financial risks. Accordingly, the proposed rule change should help to assure the safeguarding of securities and funds which are in NSCC's custody or control or for which it is responsible. 4 15 U.S.C. 78q-1(b)(3)(F). NSCC has requested that the Commission find good cause for approving the proposed rule change prior to the thirtieth day after publication of the notice of filing. The Commission recently approved two proposed rule changes filed by the MSRB that permit the MSRB to require dealers to submit transaction reports within 15 minutes of the time of trade. 5 This requirement will become effective in January 2005 and will be facilitated by NSCC. The Commission finds good cause for approving the proposed rule change prior to the thirtieth day after publication because by so approving NSCC will be able to provide data transaction trade submission services to non-members of NSCC by the MSRB's January 2005 implementation date. 5 Securities Exchange Act Release Nos. 50294 (August 31, 2004), 69 FR 54170 (September 7, 2004) (Order approving a proposed rule change relating to amendments to the MSRB's Rule G-12(f) on Automated Comparison and G-14 on Transaction Reporting and relating to the implementation of a facility for real-time transaction reporting and price dissemination) and 50820 (December 8, 2004), 69 FR 74553 (December 14, 2004) [File No. SR-MSRB-2004-06] (Order approving a proposed rule change to create a real-time transaction price service and to propose an annual subscription fee). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ) or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-NSCC-2004-10 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-NSCC-2004-10. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of NSCC and on NSCC's Web site at *http://www.nscc.com.* All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NSCC-2004-10 and should be submitted on or before January 28, 2005. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 6 6 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E5-19 Filed 1-6-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50942; File No. SR-NYSE-2004-63] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto by the New York Stock Exchange, Inc. To Amend Exchange Rules Relating to the Return of Membership Certificates, Notice and Return of Exchange-Issued Identification Cards, and Minor Violations of Rules December 29, 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 November 1, 2004, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On December 15, 2004, the Exchange filed Amendment No. 1 to the proposed rule change. 3 On December 23, 2004, the Exchange filed Amendment No. 2 to the proposed rule change. 4 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* Form 19b-4 dated December 15, 2004 (“Amendment No. 1”). In Amendment No 1, the Exchange included current rule text that was omitted from the original rule filing and made technical changes to the rule text. Amendment No. 1 replaced the original filing in its entirety. 4 *See* Partial Amendment dated December 23, 2004 (“Amendment No. 2”). In Amendment No. 2, the Exchange:
(i)Submitted the proposed rule text changes in an Exhibit 4, which was inadvertently omitted from Amendment No. 1;
(ii)changed “reassignment” to “re-assignment” in proposed NYSE Rule 35.80(3); and
(iii)corrected typographical errors made in the original rule filing and Amendment No. 1 with respect to current rule text. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to:
(1)Delete the requirement in NYSE Rule 343(d) to return certificates of membership upon termination of customer offices or status as a member organization;
(2)add NYSE Rule 35.80 to require members and member organizations to notify the Exchange's Security Office and surrender Exchange-issued identification cards within 24 hours of all employee terminations, re-assignments to non-Floor duties, or cancellations of such identification cards;
(3)rescind NYSE Rule 412(g), which currently allows the Exchange to impose fees of up to $100 per securities account per day for violations of NYSE Rule 412; and
(4)enable violations of proposed new NYSE Rule 35.80 to be administered through the Exchange's minor rule violation plan (NYSE Rule 476A). The text of the proposed amendments is set forth below. Brackets indicate deletions; italics indicate additions. Rule 343 Offices—Sole Tenancy, Hours, Display of Membership Certificates
(a)to
(c)unchanged
(d)Members and member organizations maintaining customers' offices are required to display in each such office a certificate of membership provided by the Exchange. Such certificate shall be at all times the property of the Exchange[, and every such certificate shall be returned upon termination of the office or of the status as a member organization]. Rule 35 Floor Employees To Be Registered No employee of a member or member organization shall be admitted to the Floor unless he is registered with, qualified by and approved by the Exchange, and upon compliance of both the employer and employee with such requirements as the Exchange may determine. Supplementary Material (Rule 35.10 through 35.70 unchanged) .80 Notifications to Security Office and Return of Exchange-Issued Identification Cards *In the event of:* *(1) A Floor member's or employee's termination, or* *(2) Cancellation of a member's or employee's Exchange-issued identification card prior to expiration, or* *(3) A member or member organization's re-assignment of a Floor member or employee to non-Floor functions* *Members and member organizations must notify the Exchange's Security Office of the termination, cancellation, or re-assignment, and must surrender the member's or employee's Exchange-issued identification card to the Exchange's Security Office, within 24 hours of the termination, cancellation, or re-assignment.* Rule 412 Customer Account Transfer Contracts
(a)to
(f)unchanged [(g) Unless an exemption has been granted pursuant to paragraph
(f)of this rule, the Exchange may impose upon a member organization a fee of up to $100 per securities account for each day such member organization fails to adhere to the time frames or procedures required by this rule and related published interpretations.] Rule 476A Imposition of Fines for Minor Violation(s) of Rules
(a)to
(e)unchanged. Supplementary Material: List of Exchange Rule Violations and Fines Applicable Thereto Pursuant to Rule 476A • Rule 15 (ITS and Pre-Opening Applications) and Rule 15A (ITS “Trade-Throughs” and “Locked-Markets” and ITS Block Trade Policy) • Rule 35 requirement that employees of members and member organizations be registered with, qualified by, and approved by the Exchange before being admitted to the Trading Floor. • *Failure to notify the Exchange's Security Office and surrender Exchange-issued identification cards within 24 hours of Floor members' or employees' termination or re-assignment, or cancellation of such identification cards, as required by Rule 35.80* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange 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. The Exchange 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 Proposed Amendment to NYSE Rule 343(d) NYSE Rule 343 lists certain procedures that must be followed to, among other things, avoid confusion regarding the Membership affiliation of persons conducting a securities or commodities business with the public. NYSE Rule 343(d) requires a member or member organization that maintains a customer office to display in such office a certificate of membership provided by the Exchange, and requires such certificate to be returned to the Exchange upon termination of the office or the organization's membership status. In practice, these certificates are frequently not returned, and the Exchange believes that the consequences of disregarding this provision of the rule have been negligible. The Exchange believes that rules that are widely violated and not enforced detract from the integrity of all Exchange rules, and the difficulty of enforcing the requirement that certificates be returned outweighs any minimal benefit of its enforcement. Therefore, the Exchange proposes to eliminate in NYSE Rule 343(d) the requirement to return a certificate of membership upon termination of the customer office or the organization's membership status. Proposed Amendment to NYSE Rule 35 (Adding NYSE Rule 35.80) The Exchange's Floor Official Manual requires the membership to notify the Security Office of the Exchange within 24 hours of a Floor member's or employee's termination, and to surrender such member's or employee's Exchange-issued identification card to the Security Office within five business days of termination, or upon the cancellation of the member's or employee's card prior to expiration. A member's or member organization's reassignment of a Floor member or employee to non-Floor functions is also subject to these requirements. 5 5 Telephone conversation between Ronald Rubin, Senior Special Counsel, NYSE, and Kim Allen, Attorney, Division of Market Regulation (“Division”), Commission, on December 28, 2004. The Exchange believes that the increase in potential security risks since September 11, 2001, necessitates shortening the time allowed for surrendering Exchange-issued identification cards from five days to one day. Codifying the aforementioned requirements in the Exchange's rules would enable the Exchange to enforce those requirements. Thus, the Exchange proposes in proposed NYSE Rule 35.80 to require a member or member organization to notify the Exchange's Security Office, and surrender any Exchange-issued identification card, within 24 hours of a Floor member or employee termination or re-assignment to non-Floor functions, or cancellation of a member's or employee's Exchange-issued identification card prior to expiration. Proposed Amendment to NYSE Rule 476A NYSE Rule 476A provides that the Exchange, subject to specified requirements, may impose a fine, not to exceed $5,000, on any member, member organization, allied member, approved person, or registered or non-registered employee of a member or member organization for a minor violation of specified Exchange rules. The purpose of the NYSE Rule 476A procedure is to provide a meaningful sanction for a rule violation when the initiation of full disciplinary proceedings under NYSE Rule 476 is not warranted by the minor nature of the violation, or when the violation calls for a stronger regulatory response than an admonition letter would convey. NYSE Rule 476A preserves due process rights, identifies those rule violations that may be the subject of summary fines, and includes a schedule of fines. In SR-NYSE-84-27, 6 which initially set forth the provisions and procedures of NYSE Rule 476A, the Exchange indicated that it would amend the list of rules from time to time, as it considered appropriate, in order to phase-in the implementation of Rule 476A as experience with it was gained. Because of the possible range of severity of a member's or member organization's failure to notify the Exchange's Security Office and surrender an Exchange-issued identification card within 24 hours of a Floor member's or employee's termination or re-assignment to non-Floor functions or cancellation of such identification card, as required by proposed NYSE Rule 35.80, an amendment to NYSE Rule 476A would allow the Exchange to sanction the members' and member organizations' less serious instances of delinquency pursuant to the minor violation fine provisions of NYSE Rule 476A. The Exchange believes that the addition of proposed NYSE Rule 35.80 to the list of rule violations in NYSE Rule 476A would not compromise the Exchange's ability to bring appropriate formal disciplinary actions for more serious violations of NYSE Rule 35.80. 6 *See* Securities Exchange Act Release No. 21688 (January 25, 1985), 50 FR 5025 (February 5, 1985) (SR-NYSE-84-27). Proposed Amendment to NYSE Rule 412 (Rescinding NYSE Rule 412(g)) NYSE Rule 412 mandates several time frames and procedures that must be followed when transferring customer accounts between member organizations. NYSE Rule 412(g) currently allows the Exchange to impose upon a member organization a fee of up to $100 per securities account for each day the organization fails to adhere to the requirements of NYSE Rule 412. NYSE Rule 476A also provides for the imposition of minor fines for such violations. The Exchange's Special Review of the Consistency of Informal Disciplinary Actions recommended the establishment of guidelines to clearly indicate which NYSE Rule 412 violations should be penalized pursuant to NYSE Rule 412(g) and which should be sanctioned by the imposition of minor fines pursuant to NYSE Rule 476A. 7 7 Rule 476A provides for individuals to be fined $1,000 for first-time offenses, $2,500 for second-time offenses, and $5,000 for subsequent offenses, and for member organizations to be fined $2,500 for first-time offenses and $5,000 for subsequent offenses. NYSE Rule 412(g) was proposed in 1984, prior to the adoption of NYSE Rule 476A in March 1985. 8 Once NYSE Rule 476A became operative, the Exchange had another effective method of enforcing NYSE Rule 412, and the sanctions of NYSE Rule 412(g) became superfluous. Historically, the Exchange's practice in most, if not all, cases of minor violations of NYSE Rule 412 has been to assess summary fines under NYSE Rule 476A rather than fees under NYSE Rule 412(g). Therefore, rather than establish guidelines for choosing between NYSE Rule 476A and NYSE Rule 412(g), the Exchange believes it would be more appropriate to simply rescind NYSE Rule 412(g) and continue to sanction violations of NYSE Rule 412 through the assessment of fines pursuant to NYSE Rule 476A. 8 The amendment adding NYSE Rule 412(g) was adopted in November 1985. Telephone conversation between Ronald Rubin, Senior Special Counsel, NYSE, and Kim Allen, Attorney, Division, Commission, on December 28, 2004. 2. Statutory Basis The Exchange believes that the proposal, as amended, is consistent with Section 6(b) of the Act 9 in general, and Section 6(b)(5) of the Act 10 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and, in general, to protect investors and the public interest by making the Exchange's rules more consistent with membership and Exchange practices and strengthening the Exchange's security procedures. The Exchange also believes that the proposed rule change is consistent with Section 6(b)(6) 11 of the Act, which requires the rules of the Exchange to provide for its members and persons associated with its members to be appropriately disciplined for violations of those rules through fitting sanctions, including the imposition of fines. 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(5). 11 15 U.S.C. 78f(b)(6). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposal would not impose any burden on competition 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 Exchange 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 e-mail to *rule-comments@sec.gov.* Please include File Number SR-NYSE-2004-63 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-NYSE-2004-63. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro/shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written 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, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of the NYSE. 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-NYSE-2004-63 and should be submitted by January 28, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 12 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E5-21 Filed 1-6-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50951; File No. SR-OCC-2004-22] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Clearing Fees for Securities Option Contracts December 30, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on December 10, 2004, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change described in Items I, II, and III below, which items have been prepared primarily by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties. 1 15 U.S.C. 78s(b)(1). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The purpose of the proposed rule change is to continue the effectiveness of fee reductions specified in OCC rule filing SR-OCC-2004-12 until further action by OCC's Board of Directors. 2 2 Securities Exchange Act Release No. 50080 (July 30, 2004), 69 FR 45873. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of these statements. 3 3 The Commission has modified the text of the summaries prepared by OCC.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The purpose of this rule change is to continue in effect the July 1, 2004, reduction in clearing fees for securities option contracts until OCC's Board of Directors determines otherwise. As a result, effective January 1, 2005, OCC's clearing fees will continue to be as follows: Contracts per trade Per contract fee effective January 1, 2005 0-500 $0.07 501-1000 0.06 1,001-2,000 0.05 >2,000
(1)95.00 1 Capped. The continued fee reduction recognizes the strong volume in securities options in 2004. OCC believes that this fee reduction will financially benefit clearing members and other market participants without adversely affecting OCC's ability to meet its expenses and maintain an acceptable level of retained earnings. OCC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 4 and the rules and regulations thereunder applicable to OCC because it allows for the equitable allocation of reasonable dues, fees, and other charges among OCC's members. 4 15 U.S.C. 78q-1.
(B)Self-Regulatory Organization's Statement on Burden on Competition OCC does not believe that the proposed rule change would impose any burden on competition.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were not and are not intended to be solicited with respect to the proposed rule change, and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(ii) of the Act 5 and Rule 19b-4(f)(2) 6 thereunder because the proposed rule establishes or changes a due fee, or other charge. At any time within sixty days of the filing of such rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 5 15 U.S.C. 78s(b)(3)(A)(ii). 6 17 CFR 240.19b-4(f)(2). 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-OCC-2004-22 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-OCC-2004-22. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 450 Fifth Street, NW., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC's Web site at *http://www.optionsclearing.com* . All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-OCC-2004-22 and should be submitted on or before January 28, 2005. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E5-23 Filed 1-6-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50948; File No. SR-PCX-2004-128] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the Pacific Exchange, Inc. Relating to the Phase-In of PCX Plus December 29, 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 December 29, 2004, the Pacific Exchange, Inc. (“PCX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the PCX. The 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. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change PCX proposes to amend PCX Rule 6.90, governing PCX Plus, in order to extend the system phase-in period from December 31, 2004 until March 31, 2005. Below is the text of the proposed rule change. Proposed new language is *italicized* ; proposed deletions are bracketed. Rules of the Board of Governors of the Pacific Exchange, Inc. Rule 6—Options Trading PCX Plus Rule 6.90(a)—No Change.
(b)System Phase-In and Applicability of the Rules. The PCX estimates that the rules applicable to PCX Plus will be implemented gradually on an issue-by-issue basis beginning October 6, 2003, and will become completely operative and applicable to all options issues by [December 31, 2004] *March 31, 2005* . At that time, the rules relating to PCX Plus will supersede existing rule that are inapplicable to the new trading environment. (c)—(h)—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, the PCX 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. The PCX has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend PCX Rule 6.90 governing the PCX Plus system 3 phase-in date. PCX Plus is the Exchange's electronic order delivery, execution and reporting system for designated option issues through which orders and Quotes with Size 4 are consolidated for execution and/or display. The trading system includes an electronic communications network that enables registered Market Makers to enter orders/Quotes with Size and execute transactions from remote locations or the trading floor. As proposed, the Exchange seeks to extend the date by which it expects to have PCX Plus completely operative and applicable to all options issues from December 31, 2004 until March 31, 2005. The Exchange represents that this extension is warranted to afford the PCX sufficient time to address any capacity issues the system may have as a result of phasing in issues currently traded on the Exchange and adding new issues to be traded on the Exchange. 3 Securities Exchange Act Release No. 47838 (May 13, 2003), 68 FR 27129 (May 19, 2003) (Order Approving Proposal for PCX Plus). 4 *See* PCX Rule 6.1(b)(33) (definition of Quotes with Size). 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, 5 in general, and furthers the objectives of Section 6(b)(5), 6 in particular, in that it is designed to facilitate transactions in securities, to promote just and equitable principles of trade, to enhance competition and to protect investors and the public interest. 5 15 U.S.C. 78f(b). 6 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments on the proposed rule change were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 7 and subparagraph (f)(3) of Rule 19b-4 8 thereunder because it is concerned solely with the administration of the Exchange. At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 7 15 U.S.C. 78s(b)(3)(A)(iii). 8 17 CFR 240.19b-4(f)(3). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments: • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an E-mail to *rule-comments@sec.gov* . Please include File Number SR-PCX-2004-128 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-PCX-2004-128. 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 Exchange. 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-PCX-2004-128 and should be submitted on or before January 28, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 9 9 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E5-26 Filed 1-6-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-50947; File No. SR-Phlx-2004-82] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment 1 Thereto by the Philadelphia Stock Exchange, Inc. Relating to Short Sales December 29, 2004. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 , and Rule 19b-4 2 thereunder, notice is hereby given that on December 3, 2004, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) 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 the Phlx. On December 28, 2004, the Phlx filed Amendment No. 1 to the proposed rule change. 3 The proposed rule change, as amended, was filed by the Phlx as a non-controversial filing under Rule 19b-4(f)(6) of the Act. 4 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* Amendment No. 1 to the proposed rule change (December 28, 2004). Amendment No. 1 replaced the Exchange's original filing in its entirety. 4 17 CFR 240.19b4(f)(6). For purposes of determining the effective date and calculating the sixty-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act, the Commission considers that period to commence on December 28, 2004, the date the Exchange filed Amendment No. 1. *See* 15 U.S.C. 78s(b)(3)(C). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Phlx, pursuant to Section 19(b)(1) and Rule 19b-4 thereunder, 5 proposes to amend Exchange Rules: 455, Short Sales; 203, Agreement of Specialists; 225, Odd-Lot Orders in Securities Which the Exchange Is the Primary Market; 785, Automated Submission of Trading Data; and 786, Periodic Reports. The text of amended Exchange Rules 455, 203, 225, 785 and 786 is set forth below. New text is italicized; deleted text is bracketed. 5 17 CFR 240.19b-4. Rule 455. Short Sales *No member or member organization shall effect a sell order or sale of any security unless such sell order or sale is effected in compliance with Securities and Exchange Commission Rule 10a-1 promulgated under the Securities Exchange Act of 1934.* [(a)(1) Except as provided in subsection
(d)hereof, no member or member organization shall for his or its own account or for the account of any other person, effect on the Exchange a short sale of any security for which traders are reported pursuant to a consolidated transaction reporting system operated in accordance with a plan declared effective under Securities Exchange Act Rule 17a-15 (a “consolidated system”)
(i)below the price at which the last sale thereof, regular way, was reported in such consolidated system, or
(ii)at the last sale price unless such price is above the next preceding different price at which a sale of such security, regular way, was reported in such consolidated system.
(2)Except as provided in subsection
(d)hereof, no member or member organization shall for his or its own account, or for the account of any other person, effect on the Exchange a short sale of any security not covered by paragraph
(1)of this subsection
(i)below the price at which the last sale of such security, regular way, was effected on the Exchange, or
(ii)at the last sale price unless such price is above the next preceding different price at which a sale of such security, regular way, was effected on the Exchange.
(3)Notwithstanding paragraph
(1)of this subsection (a), the Floor Procedure Committee, in its discretion, may determine that it is necessary or appropriate in the public interest or for the protection of investors that short sales in any security for which trades are reported in a consolidated system be subject to the rule set forth in paragraph
(2)hereof. Following any such designation of any such security by the Floor Procedure Committee, compliance with the terms of paragraph
(2)shall constitute compliance with this subsection (a). Marked “Long” or “Short”
(b)No member or member organization of the Exchange shall, by the use of any facility of the Exchange, execute any sell order unless such order is marked either “long” or “short”. Marking Orders
(c)No member or member organization of the Exchange shall mark a sell order “long” unless
(1)the security to be delivered after sale is carried in the account for which the sale is to be effected, or
(2)such member or member organization is informed that the seller owns the security ordered to be sold, and as soon as is possible without undue inconvenience or expense, will deliver the security owned to the account for which the sale is to be effected. Exceptions
(d)The provisions of subsection
(a)hereof shall not apply to:
(1)Any sale by any person, for an account in which he has an interest, if such person owns the security sold and intends to deliver such security as soon as possible without undue inconvenience or expense;
(2)Any member or member organization in respect of a sale, for an account in which it has no interest, pursuant to an order to sell which is marked “long”;
(3)Any sale of a security for which trades are reported in a consolidated system (except a sale to a stabilizing bid complying with Securities Exchange Act Rule 10b-7) by a specialist in such security for its own account
(i)effected at a price equal to or above the last sale reported for such security in such consolidated system; or
(ii)effected at a price equal to the most recent offer communicated for the security if such offer, when communicated, was equal to or above the last sale, regular way, reported for such security pursuant to an effective transaction reporting plan; provided, however, this exemption shall not be available for securities covered by paragraph
(3)of subsection
(a)hereof.
(4)Any sale by a specialist to offset odd lot orders of customers;
(5)Any sale by a specialist to liquidate a long position which is less than a round lot, provided such sale does not change the position of such specialist by more than the unit of trading;
(6)Any sale of a security for which trades are not reported in a consolidated system (except a sale to a stabilizing bid complying with Securities Exchange Act Rule 10b-7) effected with the approval of the Exchange which is necessary to equalize the price of such security on the Exchange with the current price of such security on another national securities exchange which is the principal exchange market for such security;
(7)Any sale of a security for a special arbitrage account by a person who then owns another security by virtue of which he is, or presently will be, entitled to acquire an equivalent number of securities of the same class as the securities sold, provided such sale, or the purchase which such sale offsets, is effected for the bona fide purpose of profiting from a current difference between the price of the security sold and the security owned and that such right of acquisition was originally attached to or represented by another security or was issued to all the holders of any class of securities of the issuer;
(8)Any sales of a security on the Exchange effected for a special international arbitrage account for the bona fide purpose of profiting from a current difference between the price of such security on a securities market not within or subject to the jurisdiction of the United States and on the Exchange provided the seller at the time of such sale knows or, by virtue of information currently received, has reasonable grounds to believe that an offer enabling him to cover such sale is then available to him in such foreign securities market and intends to accept such offer immediately;
(9)Any sale of a security effected in accordance with a special offering plan declared effective by the Securities and Exchange Commission pursuant to paragraph
(d)of Securities Exchange Act Rule 10b-2; or
(10)Any sale by an underwriter, or any member of a syndicate or group participating in the distribution of a security, in connection with an over-allotment of securities, or any lay-off sale by such a person in connection with a distribution of securities through rights pursuant to Securities and Exchange Act Rule 10b-8 or a standby underwriting commitment.
(11)Any sale of a security for which, trades are reported in a consolidated system (except a sale to a stabilizing bid complying with Securities Exchange Act Rule 10b-7) by any broker or dealer, for his own account or for the account of any other person, effected at a price equal to the most recent offer communicated by such broker or dealer to the Exchange in an amount less than or equal to the quotation size associated with such offer, if such offer when communicated was
(i)above the price at which the last sale, regular way, for such security was reported pursuant to an effective transaction reporting plan; or
(ii)at such last sale price, if such last sale price is above the next preceding different price at which a sale of such security, regular way, was reported pursuant to an effective transaction reporting plan; provided however, this exemption shall not be available for securities covered by paragraph
(3)of subsection
(a)hereof. For the purpose of paragraph
(8)of this subsection
(d)a depository receipt for a security shall be deemed to be the same security as the security represented by such receipt.
(12)Any sale by any person in Nasdaq/NM securities as defined in Securities Exchange Act Rule 11Aa3-1 except for those Nasdaq/NM securities for which transaction reports are collected, processed, and made available pursuant to the plan originally submitted to the Securities and Exchange Commission pursuant to Securities Exchange Act Rule 17a-15 (subsequently amended and redesignated as Securities Exchange Act Rule 11Aa3-1), which plan was declared effective as of May 17, 1974. * * * Supplementary Material .01 This Rule 455 shall not prohibit any transaction or transactions which the Commission, upon written request or upon its motion, exempts, either unconditionally or on specified terms and conditions.] Rule 203. Agreement of Specialists (a)-(d) No change. (e)(i) At an opening, all market orders, (whether entrusted to or left with the specialist or represented by a broker or brokers in the Trading Crowd) including at the opening market orders, shall have precedence over limit orders and shall be executed at one price.
(ii)In connection with an opening:
(A)A limited price order to buy which is at a higher price than the price at which the security is to be opened, and a limited price order to sell which is at a lower price than the price at which the security is to be opened, are to be treated as market orders.
(B)A market order to sell short is not to be treated as other market orders, but is to be treated as a limited price order to sell at the price of the first permissible short sale. A limited price order to sell short which is at a lower price than the price at which the security is to be opened, is to be treated as a limited price order to sell at the price of the first permissible short sale. Such orders are to be treated as market orders only if the opening price is higher than the first permissible short sale price. *This subsection
(B)does not apply to market orders or limited price orders that are marked “sell short exempt”.* Rule 225. Odd-Lot Orders in Securities for Which the Exchange Is the Primary Market
(a)Odd-lot orders in securities for which the Exchange is the primary market shall be executed subject to the provisions of Rules 203 and 205 and in the manner prescribed below: Order to buy at market
(i)An order to buy at the market shall be executed on the next round-lot transaction of the security, plus the differential if any is charged. Order to sell at market
(ii)An order to sell at the market marked “long” *or “sell short exempt”* shall be executed on the next round-lot transaction of the security, minus the differential if any is charged. An order to sell at the market marked “short” *(but not marked “sell short exempt”)* shall be executed at the price of the next round-lot transaction which is higher than the last different round-lot price, minus the differential if any is charged. Order to buy at limit
(iii)The effective transaction for a limited order to buy shall be the next round-lot transaction which is either at or below the specified limit by the amount of any differential if charged or by a greater amount. The order shall be filled at the price of the effective transaction, plus the differential if any is charged. Order to sell at limit “long”
(iv)The effective transaction for a limited order to sell marked “long” *or “sell short exempt”* shall be the next round-lot transaction which is either at or above the specified limit by the amount of any differential if charged by a greater amount. The order shall be filled at the price of the effective transaction, minus the differential if any is charged. Order to sell at limit “short” The effective transaction for a limited order to sell marked “short” *(but not “sell short exempt”)* shall be the next round-lot transaction which is either at or above the specified limit by the amount of any differential if charged, or by a greater amount, and which is also higher than the last different round-lot transaction (a “plus” or “zero-plus” tick). The order shall be filled at the price of the effective transaction, minus the differential if any is charged. Buy stop order
(v)A buy stop order shall become a market order when a round-lot transaction takes place at or above the stop price. The order shall then be filled at the price of the next transaction, plus the differential if any is charged. Sell stop order marked “long”
(vi)A sell stop order marked “long” *or “sell short exempt”* shall become a market order when a round-lot transaction takes place at or below the stop price. The order shall then be filled at the price of the next transaction, minus the differential if any is charged. Sell stop order marked “short” A sell stop order marked “short” *(but not “sell short exempt”)* shall become a market order when a round-lot transaction takes place at or below the stop price. The order shall then be filled at the price of the next transaction, which is higher than the last different round-lot price, minus the differential if any is charged. Buy stop limited order
(vii)A buy stop limited order shall become a limited order when a round-lot transaction takes place at or above the stop price. The order shall then be filled in the manner prescribed for handling a limited order to buy. Sell stop limited order marked “long”
(viii)A sell stop limited order marked “long” *or “sell short exempt”* shall become a limited order when a round-lot transaction takes place at or below the stop price. The order shall then be filled in the manner prescribed for handling a limited order to sell, marked “long.” Sell stop limited order marked “short” A sell stop limited order marked “short” *(but not “sell short exempt”)* shall become a limited order when a round-lot transaction takes place at or below the stop price. The order shall then be filled in the manner prescribed for handling a limited order to sell, marked “short.” Buy on offer
(ix)An order to buy on the offer shall be filled at the round-lot offer price prevailing at the time the specialist receives the order, plus the differential if any is charged. Sell on bid
(x)An order to sell on the bid marked “long” *or “sell short exempt”* shall be filled at the round-lot bid price prevailing at the time the specialist receives the order, minus the differential if any is charged. An order to sell on the bid marked “short” *(but not “sell short exempt”)* shall not be accepted. Buy “on close”
(xi)An order to buy “on close” shall be filled at the price of the closing round-lot offer, plus the differential if any is charged. Sell “on close”
(xii)An order to sell “on close” marked “long” *or “sell short exempt”* shall be filled at the price of the closing round-lot bid, minus the differential if any is charged. An order to sell “on close” marked “short” *(but not “sell short exempt”)* shall not be accepted. Limited order to buy marked “or at market on close”
(xiii)A limited order to buy marked “or at the market on close” which remains unfilled at the close of business on the Exchange, shall be filled at a price equal to the closing round-lot offer, plus the differential if any is charged. Limited order to sell marked “long” and “or at market on close”
(xiv)A limited order to sell marked “long” *or “sell short exempt”* and marked “or at market on close” which remains unfilled at the close of business on the Exchange, shall be filled at a price equal to the closing round-lot bid, minus the differential if any is charged. A limited order to sell marked “short” ( *but not “sell short exempt”* ) and marked “or at market on close” shall not be accepted. Limited order to buy on the offer
(xv)A limited order to buy on the offer shall be filled at a price equal to the round-lot offer price prevailing at the time the specialist receives the order, plus the differential if any is charged, but only if the offer price plus the differential if any is charged, is at or below the limit of the order. If the order cannot be filled forthwith, it shall be canceled and the originating member or member organization shall be informed regarding the quotation and the cancellation. Limited order to sell on the bid marked “long”
(xvi)A limited order to sell on the bid marked “long” *or* “ *sell short exempt* ” shall be filled at a price equal to the round-lot bid price prevailing at the time the specialist receives the order, minus the differential if any is charged, but only if the bid price minus the differential if any is charged, is at or above the limit of the order. If the order cannot be filled forthwith, it shall be cancelled and the originating member or member organization shall be informed regarding the quotation and the cancellation. Limited order to buy marked “immediate or cancel”
(xvii)A limited order to buy marked “Immediate or Cancel” shall be handled in the manner specified in
(xv)above for the handling of a limited order to buy on the offer. A limited order to sell marked “Immediate or Cancel” shall be handled in the manner specified in
(xvi)above for the handling of a limited order to sell on the bid. Buy or sell on closing bid or offer (xviii) At the request of a customer an order may be filled after the close at a price based on the closing round-lot bid or offer provided that the order was received prior to the close and could have been filled, in the case of a buy order, if a sale had occurred at the offer price and, in the case of a sell order, if a sale had occurred at the bid price; the request is made within a reasonable time after the close; and nothing has occurred after the close which could affect the market value of the stock. A buy order shall be filled at the price of the closing round-lot offer, plus the differential if any is charged. A sell order marked “long” *or* “ *sell short exempt* ” shall be filled at the price of the closing round-lot bid, minus the differential if any is charged. A sell order marked “short” ( *but not “sell short exempt”* ) may not be accepted for filling after the close. “Cash” or “seller's option”
(xix)Odd-lot orders for “cash” or “seller's option” may be filled only by agreement between customer and odd-lot dealer. “Delayed sale” or “sold sale”
(xx)When a “delayed sale” or “sold sale” occurs (printed on the ticker tape followed by the symbol “SLD”), the specialist shall make every effort to ascertain the approximate time the transaction took place. If there is some doubt as to whether or not this transaction in any way effects the execution of an odd-lot order, the firm that entered the order should be notified, informed of the circumstances, and given the opportunity to accept or reject a report based on the transaction. Rule 785. Automated Submission of Trading Data A member or member organization shall submit such of the following trade data elements specified below in such automated format as may be prescribed by the Exchange from time to time, in regard to such transaction or transactions as may be subject of a particular request for information made by the Exchange:
(a)If the transaction was a proprietary transaction effected or caused to be effected by the member or member organization for any account in which such member or member organization, or any member, allied member, approved person, partner, officer, director, or employee thereof, is directly or indirectly interested, such member or member organization shall submit or cause to be submitted the following information: (1)-(4) No Change.
(5)Number of shares, or quantity of bonds or options contracts for each specific transaction and whether each transaction was a purchase, sale, short sale, *exempt short sale* , and if an options contract whether open long or short or close long or short; (6)-(8) No Change. (b)-(d) No Change. Rule 786. Periodic Reports Member organizations shall submit, as required by the Exchange, periodic reports with respect to short positions in securities. * * * Supplementary Material .01 Short Positions—Member organizations for which the Exchange is the designated examining authority (“DEA”) are required to report short positions, including odd-lots, in each stock or warrant traded on the Exchange, and in each other stock or warrant not traded on the Exchange for which short positions are not otherwise reported to another United States securities exchange or association, using such automated format and methods as prescribed by the Exchange. Such reports must include customer and proprietary positions and must be made at such times and covering such time period as may be designated by the Exchange. Member organizations whose short positions have properly been reported to, and are carried by, a non-member clearing organization will be in compliance with this rule if adequate arrangements have been made providing for the clearing organization to properly report such positions to the Exchange or to another United States securities exchange or association. “Short” positions to be reported are those resulting from “short” sales as defined in Securities and Exchange Commission [Regulation 3b-3] *Rule 200 of Regulation SHO,* but excluding [positions resulting from sales specified in clauses (1), (6), (7), (8),
(9)and
(10)of paragraph
(e)of Regulation 10a-1] *sales marked “sell short exempt” pursuant to Rule 200(g) of Regulation SHO.* Also, to be excluded are “short” positions carried for other members and member organizations reporting for themselves. Only one report should be made for each stock or warrant which there is a short position, if more than one “account” has a short position in the same stock or warrant, the combined aggregate should be reported. Member organizations for which the Exchange is not the DEA must report short positions to its DEA if such DEA has a requirement for such reports. If the DEA does not have such a reporting requirement, then such member organization must comply with the provisions of this rule. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Phlx 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. The Phlx 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 purpose of the proposed rule change is to update the Exchange's rules as they pertain to short sales in view of recent Commission actions in the area of short sale regulation. On July 28, 2004 the Commission published two releases making changes to the Commission's rules governing short sales. In the first release, the Commission adopted new Regulation SHO under the Act, replacing SEC Rules 3b-3 6 and 10a-2. 7 SEC Rule 10a-1 8 was also amended. In the second release, the Commission, by order, suspended the tick test provision of Rule 10a-1, and any short sale price test of any exchange or national securities association, with respect to certain securities, for a period of approximately one year (the “Short Sale Pilot Program”) beginning on January 3, 2005, which beginning date the Commission extended to May 2, 2005 by order of November 29, 2004. 9 In view of these developments in the area of short sale regulation, the Exchange is proposing a number of amendments to Phlx rules related to short sales. 6 17 CFR 240.3b-3. 7 17 CFR 240.10a-2. 8 17 CFR 240.10a-1. 9 Although the Commission's order resets the Short Sale Pilot Program to commence on May 2, 2005 and end on April 28, 2006, all other terms of the pilot program remain unchanged. *See* Securities Exchange Act Release No. 50747 (November 29, 2004). *Rule 455, Short Sales.* Existing Rule 455 is proposed to be deleted in its entirety. New, more general language which simply prohibits effecting a sell order or sale unless it is effected in compliance with Rule 10a-1, the Commission's short sale rule, would be substituted in its place. The proposed language is identical to Article IX, Rule 17(a) of the Chicago Stock Exchange rules. 10 The proposal is intended to simplify and streamline the Exchange's short sale rule to be no more burdensome than that imposed by the Commission, and to provide additional flexibility to the Exchange in the event the Commission determines to further liberalize Rule 10a-1. Additionally, some of existing Rule 455's provisions conflict with new Regulation SHO. For example, Rules 455(b) and
(c)track old SEC Rules 10a-1(c) and (d), which Regulation SHO deletes, and conflict with comparable provisions in new SEC Rule 200(g). 10 *See* Securities Exchange Act Release No. 40990 (January 28, 1999), 64 FR 5696 (February 4, 1999) (approving SR-CHX-98-24). *Rule 203, Agreement of Specialists.* Rule 203 currently provides that a market order to sell short at the opening is not to be treated as other market orders, but is to be treated as a limited price order to sell at the price of the first permissible short sale. The proposed amendment would make clear that this provision of Rule 203 does not apply to orders marked “sell short exempt” because such orders are not subject to Rule 10a-1's “tick test” restrictions. *Rule 225, Odd-Lot Orders in Securities Which the Exchange Is the Primary Market.* Rule 225 currently prescribes the manner in which various types of odd-lot orders in securities for which the Exchange is the primary market are to be executed. The proposed amendments take into account that certain orders are now to be marked “sell short exempt” and are intended to clarify that orders that are marked “short sale exempt” are to be executed like long sale orders as opposed to short sale orders. *Rule 785, Automated Submission of Trading Data.* Rule 785 requires members and member organizations to submit certain trade data elements in such automated format as may be prescribed by the Exchange from time to time, including whether each transaction was a purchase, sale, or short sale. The proposed amendment adds “exempt short sale” to these three categories of data elements. *Rule 786, Periodic Reports.* Rule 786 requires member organizations to submit, as required by the Exchange, periodic reports with respect to short positions in securities. The proposed amendment would substitute a reference to new Rule 200 of Regulation SHO for old Commission Rule 3b-3, which the Commission has deleted. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 11 in general, and furthers the objectives of Section 6(b)(5) of the Act 12 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and to perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. Specifically, the proposed rule change simplifies Rule 455 and conforms Exchange rules to new Commission rules relating to short sales. 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any inappropriate burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has designated the proposed rule change as a “non-controversial” rule change pursuant to Section 19(b)(3)(A) of the Act 13 and subparagraph (f)(6) of Rule 19b-4 thereunder. 14 Consequently, because the foregoing rule change:
(1)Does not significantly affect the protection of investors or the public interest;
(2)does not impose any significant burden on competition; and
(3)does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, it has become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-4(f)(6) thereunder. The Exchange requests that the Commission waive the 30-day pre-operative requirements contained in Rule 19b-4(f)(6)(iii), 15 so that the proposed rule change may become operative on January 3, 2005, the compliance date for Regulation SHO. 13 15 U.S.C. 78s(b)(3)(A). 14 17 CFR 240.19b-4(f)(6). 15 Under subparagraph (f)(6)(iii) of Rule 19b-4, the proposal may not become operative for 30 days after the date of its filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. 17 CFR 240.19b-4(f)(6)(iii). The Commission believes that waiving the 30-day pre-operative delay is consistent with the protection of investors and the public interest. The Commission believes that accelerating the operative date does not raise any new regulatory issues, significantly affect the protection of investors or the public interest, or impose any significant burden on competition. For these reasons, the Commission designates the proposed rule change as effective and operative immediately. At any time within 60 days of the filing of a rule change pursuant to Section 19(b)(3)(A) of the Act, the Commission may summarily abrogate the 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. 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-Phlx-2004-82 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-Phlx-2004-82. 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 the filing also will be available for inspection and copying at the principal office of the Phlx. 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-Phlx-2004-82 and should be submitted on or before January 28, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 16 16 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. 05-309 Filed 1-6-05; 8:45 am]
Connectionstraces to 6
4 references not yet in our index
  • 17 CFR 240.19
  • 17 CFR 240.10
  • 15 USC 78(f)(b)
  • 17 CFR 240.3
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Notices
Notice of application for an order under Section 6(c) of the Investment Company Act of 1940, as amended (the “Act”) granting exemptions from the provisions of Sections 2(a)(32), 22(c) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder
U.S.C.§ 78s
U.S.C.§ 78f
U.S.C.§ 552
C.F.R.§ 200.30-3
U.S.C.§ 80a–1
U.S.C.§ 78q–1
Cite17 CFR 240.19
Cite17 CFR 240.10
Cite15 USC 78(f)(b)
Cite17 CFR 240.3
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