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BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51337; File No. SR-Amex-2004-109] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment Nos. 1, 2 and 3 Thereto Relating to Split Price Priority March 9, 2005. 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 23, 2004, the American Stock Exchange LLC (“Amex” or the “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 Amex.
On February 4, 2005, the Amex amended the proposed rule change (“Amendment No. 1”). 3 On February 14, 2005, the Amex amended the proposed rule change (“Amendment No. 2”). 4 On March 8, 2005, the Amex amended the proposed rule change (“Amendment No. 3”). 5 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. In addition, the Commission is granting accelerated approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, the Amex restated the proposed rule change in its entirety. 4 In Amendment No. 2, the Amex corrected a reference to the Options Trading Committee in proposed Commentary .06(b) to Amex Rule 950-ANTE(d). 5 In Amendment No. 3, the Amex requested accelerated approval of the proposed rule change.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Amex seeks to amend Amex Rules 950 and 950—ANTE to permit a limited exception to the existing split price priority requirement. The text of the proposed rule change is set forth below. Proposed new language is in *italics* ; deletions are in [brackets]. Rule 950 Rules of General Applicability (a)-(c) No change.
(d)The provisions of Rule 126, with the exception of subparagraphs
(a)and
(b)thereof, shall apply to Exchange option transactions and the following additional commentary shall also apply: Commentary . . . .01-.04 No change. .05 *(a)* Purchase *or Sale* Priority. If a member purchases ( *sells* ) one or more option contracts of a particular series at a particular price or prices such member shall, at the next lower ( *higher* ) price at which a member other than [an Exchange] *a floor* [B] *b* roker or specialist representing a customer agency order entitled to priority pursuant to Rule 950(c), have priority in purchasing ( *selling* ) up to the equivalent number [(or a reasonably larger number)] of option contracts of the same series that he purchased ( *sold* ) at the higher ( *lower* ) price or prices, but only if his bid ( *offer* ) is made promptly and the purchase ( *sale* ) so effected represents the opposite side of a transaction with the same order or offer ( *bid* ) as the earlier purchase or purchases *(sale or sales). This paragraph only applies to transactions effected in open outcry.* [Sale Priority. If a member sells one or more option contracts of a particular series at a particular price or prices, he shall, at the next higher price at which a member other than an Exchange Broker or specialist representing a customer agency order entitled to priority pursuant to Rule 950(c), have priority in selling up to the equivalent number (or a reasonable larger number) of option contracts of the same series that he sold at the lower price or prices, but only if his offer is made promptly and the sale so effected represents the opposite side of a transaction with the same order or bid as the earlier sale or sales.] *(b) Purchase or sale priority for orders of 100 contracts or more. If a member purchases (sells) fifty or more options contracts of a particular series at a particular price or prices, such member shall, at the next lower (higher) price have priority in purchasing (selling) up to the equivalent number of option contracts of the same series that he purchased
(sold)at the higher (lower) price or prices, but only if his bid (offer) is made promptly and the purchase
(sale)so effected represents the opposite side of a transaction with the same order or offer
(bid)as the earlier purchase or purchases (sale or sales). The Options Trading Committee may increase the “minimum qualifying order size” above 100 contracts for all products under its jurisdiction. Announcements regarding changes to the minimum qualifying order size shall be made via Regulatory Circular. This paragraph only applies to transactions effected in open outcry.* *(c)* Two or more members entitled to priority. If the bids or offers of two or more members are both entitled to priority in accordance with paragraph
(a)or paragraph (b), it shall be afforded them insofar as practicable, on a pro-rata basis. *(d) Floor brokers are able to achieve split price priority in accordance with paragraphs
(a)and
(b)above. Provided, however, that a floor broker who bids (offers) on behalf of a non-market-maker Amex member broker-dealer (“Amex member BD”) must ensure that the Amex member BD qualifies for an exemption from Section 11(a)(1) of the Exchange Act or that the transaction satisfies the requirements of Exchange Act Rule 11a2-2(T), otherwise the floor broker must yield priority to orders for the accounts of non-members.* .06-.07 No change. (e)-(p) No change. Rule 950—ANTE Rules of General Applicability (a)-(c) No change.
(d)The provisions of Rule 126, with the exception of subparagraphs
(a)and
(b)of such Rule, shall apply to Exchange option transactions as modified by Commentaries .01 and .02 to Rule 950(c), and the following additional commentary shall also apply: Commentary . . . .01-.05 No change. .06
(a)Purchase *or Sale* Priority—For trades occurring outside the ANTE System only, if a member purchases ( *sells* ) one or more option contracts of a particular series at a particular price or prices such member shall, at the next lower ( *higher* ) price at which a member other than [an Exchange] *a floor* [B] *b* roker or specialist representing a customer agency order entitled to priority pursuant to Rule 950—ANTE(c), have priority in purchasing ( *selling* ) up to the equivalent number [(or a reasonably larger number)] of option contracts of the same series that he purchased ( *sold* ) at the higher ( *lower* ) price or prices, but only if his bid ( *offer* ) is made promptly and the purchase ( *sale* ) so effected represents the opposite side of a transaction with the same order or offer ( *bid* ) as the earlier purchase or purchases *(sale or sales). This paragraph only applies to transactions effected in open outcry.* [(b) *Sale Priority* —For trades occurring outside the ANTE System only, if a member sells one or more option contracts of a particular series at a particular price or prices, he shall, at the next higher price at which a member other than an Exchange Broker or specialist representing a customer agency order entitled to priority pursuant to Rule 950—ANTE(c), have priority in selling up to the equivalent number (or a reasonable larger number) of option contracts of the same series that he sold at the lower price or prices, but only if his offer is made promptly and the sale so effected represents the opposite side of a transaction with the same order or bid as the earlier sale or sales.] *
(b)Purchase or sale priority for orders of 100 contracts or more. If a member purchases (sells) fifty or more options contracts of a particular series at a particular price or prices, such member shall, at the next lower (higher) price have priority in purchasing (selling) up to the equivalent number of option contracts of the same series that he purchased
(sold)at the higher (lower) price or prices, but only if his bid (offer) is made promptly and the purchase
(sale)so effected represents the opposite side of a transaction with the same order or offer
(bid)as the earlier purchase or purchases (sale or sales). The Options Trading Committee may increase the “minimum qualifying order size” above 100 contracts for all products under its jurisdiction. Announcements regarding changes to the minimum qualifying order size shall be made via Regulatory Circular. This paragraph only applies to transactions effected in open outcry. * ( *c* ) Two or more members entitled to priority. If the bids or offers of two or more members are both entitled to priority in accordance with paragraph
(a)or paragraph (b), it shall be afforded them insofar as practicable, on a pro-rata basis. *(d) Floor brokers are able to achieve split price priority in accordance with paragraphs
(a)and
(b)above. Provided, however, that a floor broker who bids (offers) on behalf of a non-market-maker Amex member broker-dealer (“Amex member BD”) must ensure that the Amex member BD qualifies for an exemption from Section 11(a)(1) of the Exchange Act or that the transaction satisfies the requirements of Exchange Act Rule 11a2-2(T), otherwise the floor broker must yield priority to orders for the accounts of nonmembers.* .07 No change. (e)-(n) 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 Exchange included statements concerning the purpose of and basis for the proposed rule change, as amended, 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 III below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Amex Rules 950(d), Commentary .05 and 950—ANTE(d), Commentary .06 establish priority principles for split-price transactions. Generally, a member buying (selling) at a particular price shall have priority over other members in purchasing (selling) up to an equivalent number of contracts of the same order at the next lower (higher) price. Awarding split price priority serves as an inducement to members to bid (offer) more aggressively for an order that may require a split-price execution by giving them priority at the next lower (higher) price point. For example, assume the market is $1.00-$1.20, 300-up when a floor broker (“FB”) receives instructions from a customer that he/she would like to buy 500 options at a price or prices no higher than $1.20. The FB could attempt to execute the order in open outcry at a price better than the displayed market of $1.20. Assume a Specialist is willing to sell 250 contracts at $1.15 provided he/she can also sell the remaining 250 contracts at $1.20. Under current rules, that Specialist could offer $1.15 for 250 contracts and then, by virtue of the split price priority rule, he/she would have priority for the balance of the order (up to 250 contracts) over other crowd members. If executed, the resulting net price of $1.175 is better than the current displayed market of $1.20, which results in a better fill for the customers. 6 6 If successful, two trades will be reported (at $1.15 and $1.20) and the net price result to the customer will be $1.175. One limitation on the ability of crowd participants to use the split price priority rule is the rule's requirement that orders in the limit order book (“book”) have priority over the member attempting to fill the balance of the order at the split price. Using the example above, if the $1.20 price represented orders in the book, those orders would have priority over the Specialist at $1.20. This means that a Specialist who is willing to trade at $1.15 and $1.20 may be completely unwilling to trade at the better price of $1.15 if he/she cannot trade the balance of the order at $1.20 because of the requirement to yield to existing customer interest in the book. This jeopardizes the FB's ability to execute the first part of the order at a price of $1.15, thereby potentially making it difficult to achieve price improvement for the customer on the Amex. Instead, the order may trade at another exchange that has no impediments, *e.g.,* no customer interest at those price levels. Accordingly, the Exchange is proposing to adopt a limited exception to the existing priority requirement. Under newly-proposed paragraph
(b)to Rules 950(d), Commentary .05 and 950—ANTE(d), Commentary .06, a member with an order for at least 100 contracts who buys (sells) at least 50 contracts at a particular price shall have priority over all others in purchasing (selling) up to an equivalent number of contracts of the same order at the next lower (higher) price. 7 7 Orders for less than 100 contracts would be unaffected by this proposal. The Exchange also takes the opportunity to consolidate current paragraphs
(a)and
(b)of each of Commentary .05 to Amex Rule 950(d) and Commentary .06 to Amex Rule 950—ANTE(d) into one paragraph (paragraph
(a)in each). This consolidation would not effect the operation of the rule in any way; it simply would make the rule shorter. Using the above example, the Specialist trading at $1.15 would have priority over members and orders in the book at $1.20 to trade at $1.20 with the balance of the order in the trading crowd. The Exchange believes the proposal will lead to more aggressive quoting by Specialists, which in turn could lead to better executions. As indicated above, a Specialist may be willing to trade at a better price for a portion of an order if he/she is assured of trading with the balance of the order at the next pricing increment. As a result, FBs representing orders in the trading crowd may receive better-priced executions. As proposed, the Options Trading Committee (consisting of Floor Governors, Heads of the Specialist Association, FB Association, and the Options Market Maker Association) will have the ability to increase the minimum qualifying order size to a number larger than 100 contracts. Any changes, which must apply to all products under the committee's jurisdiction, will be announced to the membership via Regulatory Circular. The Amex believes it is reasonable to make a limited exception to the customer priority rule to allow split price trading. In this regard, the proposed exception is similar in operation to the limited priority exception that exists for complex orders (contained in Rules 950(d), Commentary .01 and 950—ANTE(d), Commentary .01). The complex order priority exception generally provides that a member affecting a qualifying complex order may trade ahead of the book on one side of the order provided the other side of the order betters the book. This exception was intended to facilitate the trading of complex orders, which by virtue of their multi-legged composition could be more difficult to trade without a limited exception to the priority rule for one of the legs. The purpose behind the proposed split-price priority exception is the same—to facilitate the execution of large orders, which by virtue of their size and the need to execute them at multiple prices operate in the same manner as the complex order exception by allowing a member affecting a trade that betters the market to have priority on the balance of that trade at the next pricing increment even if there are orders in the book at the same price. To address potential concerns regarding Section 11(a) of the Act, 8 the Amex proposes to adopt new subparagraph
(d)to Rules 950(d), Commentary .05 and 950—ANTE(d), Commentary .06. Section 11(a) generally prohibits members of national securities exchanges from effecting transactions for the member's own account, absent an exemption. With respect to the proposal, there could be situations where because of the limited exception to customer priority, orders on behalf of members could trade ahead of orders of nonmembers in violation of Section 11(a). The proposed rule text makes clear that FBs may avail themselves of the split-price priority rule, but that they will be obligated to ensure compliance with Section 11(a). In this regard, a FB that bids (offers) on behalf of a non-market-maker Amex member broker-dealer (“Amex member BD”) must ensure that the Amex member BD qualifies for an exemption from Section 11(a)(1) of the Act or that the transaction satisfies the requirements of Rule 11a2-2(T) under the Act. Otherwise, the FB must yield priority to orders for the accounts of non-members. 8 15 U.S.C. 78k(a). The Exchange further proposes to amend Amex Rule 905(d), Commentary .05(b) and Amex Rule 905—ANTE(d), Commentary .06(b) to remove the parenthetical “(or a reasonably larger number) ”. 9 9 *See* Amendment No. 1. The Exchange believes this language to be unnecessary to achieve the intent of the rule, which is to allow FBs to have priority for up to an equivalent number of contracts purchased or sold at the preceding price, as specified in the rule. Telephone conference on March 8, 2005, between Laura Clare, Assistant General Counsel, Amex and Ira Brandriss, Assistant Director, Division of Market Regulation, Commission. 2. Statutory Basis The Exchange believes that the proposed rule change, as amended, is consistent with Section 6(b) 10 of the Act in general and furthers the objectives of Section 6(b)(5) 11 in particular in that it is designed to perfect the mechanisms of a free and open market and the national market system, protect investors and the public interest and promote just and equitable principles of trade. 10 15 U.S.C. 78(f)(b). 11 15 U.S.C. 78(f)(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The proposed rule change, as amended, will impose no 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 by the Exchange on this proposal. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Amex-2004-109 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-2004-109. 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-2004-109 and should be submitted on or before April 6, 2005. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 12 In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act, 13 which requires, among other things, that the rules of an exchange be 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. The Commission believes that the proposed rule change should encourage more aggressive quoting by market makers in competition for large-sized orders, and, in turn, lead to better-priced executions. The Commission notes that the proposed rule change includes interpretive language that clarifies that floor brokers who avail themselves of the split priority rule are obligated to ensure compliance with Section 11(a) of the Act. 12 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 13 15 U.S.C. 78f(b). The Amex has requested that the Commission approve the proposed rule change prior to the thirtieth day after publication of notice thereof in the **Federal Register** . The Commission notes that granting accelerated approval of the proposal will allow the Amex to immediately implement a rule that is similar to rules already in place at other exchanges. 14 Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act, 15 for approving the proposed rule change prior to the thirtieth day after the date of publication of notice thereof in the **Federal Register** . 14 *See* Securities Exchange Act Release Nos. 51148 (February 8, 2005), 70 FR 7783 (February 15, 2005) (SR-CBOE-2004-67) and 51318 (March 4, 2005) (SR-PCX-2005-25). 15 15 U.S.C. 78s(b)(2). V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 16 that the proposed rule change (SR-Amex-2004-109), as amended, is hereby approved on an accelerated basis. 16 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 17 17 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1130 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51346; File No. SR-CBOE-2005-08] Self-Regulatory Organizations; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment No. 1 Thereto by the Chicago Board Options Exchange, Incorporated Relating to Listing Standards for Options on Narrow-Based Security Indexes March 9, 2005. 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 January 14, 2005, the Chicago Board Options Exchange, Incorporated (“CBOE” 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 CBOE. On March 3, 2005, the Exchange amended its proposal. 3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and is approving the proposal on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Amendment No. 1, dated March 3, 2005 (“Amendment No. 1”). In Amendment No. 1, the Exchange supplemented its description of the modified market capitalization methodology. Amendment No. 1 replaced the CBOE's original filing in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange is proposing to amend its rules regarding listing standards for options on narrow-based security indexes. The text of the proposed rule change is available on the CBOE's Web site ( *http://www.cboe.com* ), at the CBOE's Office of the Secretary, and at the Commission's Public Reference Room. 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 CBOE included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item III below. The CBOE has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The CBOE is proposing to amend CBOE Rule 24.2(b), which provides for generic listing standards that allow the Exchange to list and trade options on certain narrow-based stock indexes pursuant to Rule 19b-4(e) under the Act. 4 Rule 19b-4(e) provides that the listing and trading of a new derivatives securities product by a self-regulatory organization shall not be deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule 19b-4, 5 if the Commission has approved, pursuant to Section 19(b) of the Act, 6 the self-regulatory organization's trading rules, procedures, and listing standards for the product class that would include the new derivatives securities product, and the self-regulatory organization has a surveillance program for the product class. 7 Thus, CBOE Rule 24.2(b) allows the Exchange to list options on certain narrow-based securities indexes pursuant to Rule 19b-4(e) under the Act 8 without having to submit a formal rule change under Section 19(b) of the Act 9 as long as the stock indexes satisfy the requisite criteria provided for under CBOE Rule 24.2(b). 10 One of these criteria, provided for under CBOE Rule 24.2(b)(2), requires that the subject index be capitalization-weighted, price-weighted, or equal-dollar weighted and consist of ten or more component securities. 4 17 CFR 240.19b-4(e). 5 17 CFR 240.19b-4(c)(1). 6 15 U.S.C. 78s(b). 7 *See* Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 70952 (December 22, 1998). 8 17 CFR 240.19b-4(e). 9 15 U.S.C. 78s(b). 10 *See* Securities Exchange Act Release No. 41374 (May 5, 1999), 64 FR 25936 (May 13, 1999) (Order approving CBOE Rule 24.2(b)—Generic Narrow-Based Index Listing Criteria). The Exchange hereby proposes to amend CBOE Rule 24.2(b)(2) to include the modified capitalization-weighted methodology as an acceptable generic listing standard for options on a narrow-based index. 11 In addition to being a widely established method of weighting securities indexes, 12 the modified capitalization-weighted methodology is already an approved criterion under the Exchange's generic listing standards for micro narrow-based securities indexes, as provided under CBOE Rule 24.2(d)(2). 13 As such, the CBOE believes it is appropriate to adopt the modified capitalization-weighted methodology as a standard for listing options on narrow-based indexes that satisfy the Exchange's generic listing criteria for options on narrow-based securities indexes under CBOE Rule 24.2(b). 11 A modified capitalization weighted index is similar to a capitalization weighted index, where the components are weighted according to the total market value compared to the market value of the outstanding shares, except that an adjustment to the weighting of one or more of the components occurs. The general purposes for using this methodology are to:
(1)Retain the economic attributes of capitalization weighting;
(2)promote portfolio weight diversification;
(3)reduce index performance distortion by preserving the capitalization ranking of companies; and
(4)reduce market impact on the smallest underlying components from necessary weight rebalancing. 12 For example, indexes such as the Nasdaq-100 Index, KBW Bank Index, KBW Capital Markets Index, and the Goldman Sachs Technology Indexes are calculated using the modified capitalization-weighted methodology. 13 *See* Securities Exchange Act Release No. 49932 (June 28, 2004), 69 FR 40994 (July 7, 2004) (Order approving the CBOE's micro narrow-based securities index generic listing standards). 2. Statutory Basis The CBOE believes the proposed rule change, as amended, is consistent with Section 6(b) of the Act, 14 in general, and furthers the objectives of Section 6(b)(5), 15 in particular, in that it should 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. The CBOE believes that the adoption of the proposed rule change, as amended, also would enable the CBOE to act expeditiously in listing options on new narrow-based security indexes using standards that are currently applicable to options on micro narrow-based indexes listed on the Exchange. 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 believes that this proposed rule change, as amended, does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-CBOE-2005-08 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-CBOE-2005-08. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2005-08 and should be submitted by April 6, 2005. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange, 16 and, in particular, the requirements of Section 6(b)(5) thereunder. 17 The proposed rule change, as amended, would facilitate the listing and trading of options on certain types of narrow-based securities indexes on the Exchange for the benefit of its members and their customers, specifically those that are calculated using the modified capitalization-weighted methodology and otherwise meet all applicable generic listing standards under CBOE Rule 24.2(b). The Commission also notes that the modified capitalization-weighted methodology is an established method for calculating securities indexes, including the Nasdaq 100 index, and has been approved, pursuant to Rule 19b-4(e) under the Act, 18 as a generic listing standard for index-based securities. 19 Accordingly, the Commission believes that approving this proposed rule change, as amended, would promote a fair, orderly, and competitive options market. 16 In approving this rule, the Commission notes that it has considered its impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 17 15 U.S.C. 78f(b)(5). 18 17 CFR 240.19b-4(e). 19 *See* Securities Exchange Act Release Nos. 51256 (February 25, 2005), 70 FR 10447 (March 3, 2005); 49932 (June 28, 2004), 69 FR 40994 (July 7, 2004) (Order approving the CBOE's micro narrow-based securities index generic listing standards). The Exchange has requested that this proposed rule change, as amended, be given accelerated effectiveness pursuant to Section 19(b)(2) of the Act. 20 The Commission finds good cause for approving this proposed rule change, as amended, prior to the thirtieth day after the date of publication of notice thereof in the **Federal Register** . The Commission believes that accelerating the effectiveness of the proposed rule change, as amended, would facilitate the availability of additional investment choices to investors. In addition, the Commission notes that it has previously approved the modified market capitalization methodology in generic listing standards for other derivative products. Accordingly, the Commission believes that there is good cause, consistent with Sections 6(b)(5) and 19(b)(2) of the Act, 21 to approve the proposal, as amended, on an accelerated basis. 20 15 U.S.C. 78s(b)(2). 21 15 U.S.C. 78f(b)(5) and 78s(b)(2). V. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 22 that the proposed rule change, as amended, (SR-CBOE-2005-10) is hereby approved on an accelerated basis. 22 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 23 23 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1141 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51351; File No. SR-CBOE-2005-14] Self-Regulatory Organizations; Chicago Board Options Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to Transaction Fees for Options on the Mini-Nasdaq-100 Index and Options on the Nasdaq-100 Index March 9, 2005. 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 January 31, 2005, the Chicago Board Options Exchange, Incorporated (“CBOE” 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 CBOE. On March 2, 2005, CBOE amended the proposed rule change (“Amendment No. 1”). 3 The proposed rule change, as amended, has been filed by CBOE as a non-controversial filing 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. 6 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested parties. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, the Exchange changed the basis under Rule 19b-4 for filing the proposed rule change from paragraph (f)(2) to paragraph (f)(6) of Rule 19b-4 and made certain clarifying changes. 4 15 U.S.C. 78s(b)(3)(A). 5 17 CFR 240.19b-4(f)(6). 6 The Exchange requested the Commission to waive the five-day pre-filing notice requirement and the 30-day operative delay, as specified in Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change CBOE proposes to amend its Fee Schedule relating to transaction fees for options on the Mini-Nasdaq-100 Index (“MNX”) and the Nasdaq-100 Index (“NDX”). The text of the proposed rule change is available on the CBOE Web site ( *http://www.cboe.com* ), at the Office of the Secretary, CBOE, and at the Commission. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CBOE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. CBOE has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend its Fee Schedule to amend certain transaction fees for MNX and NDX options and to expand the application of the license fee that is currently charged to the MNX Designated Primary Market-Maker (“DPM”) and MNX market-makers. Specifically, the Exchange proposes to reduce public customer transaction fees to $.15 per contract for transactions in MNX and NDX options. Currently, MNX customer transaction fees are $.20 per contract and NDX customer transaction fees are $.45 if the premium is greater than or equal to $1 and $.25 if the premium is less than $1. Member firm proprietary transaction fees for MNX and NDX options are currently $.20 per contract for facilitation of customer orders and $.24 per contract for non-facilitation orders. The Exchange proposes to increase the transaction fee for facilitation of MNX and NDX customer orders to $.24 per contract, making it equivalent to the fee for non-facilitation orders. The facilitation transaction fee increase will help the Exchange offset the proposed fee reductions. Broker-dealer transaction fees for MNX and NDX options are currently $.45 per contract if the premium is greater than or equal to $1 and $.25 per contract if the premium is less than $1. The Exchange proposes to reduce MNX and NDX broker-dealer transaction fees to $.25 per contract regardless of the premium. The Exchange proposes to expand the application of the license fee that is currently charged to the MNX DPM and MNX market-makers. Currently, the Exchange charges the MNX DPM and MNX market-makers a license fee of $.10 per contract, in addition to the regular transaction fee of $.24 per contract, to assist the Exchange in offsetting some of the royalty fees that the Exchange must pay to the Nasdaq Stock Market (“Nasdaq”) for its license to trade the MNX product. The Exchange also has paid royalty fees to Nasdaq for its license to the trade the NDX product but to date has not imposed any license fee on the market participants who trade NDX. The Exchange proposes to assess the $.10 license fee to transactions of all market participants in MNX and NDX options except for public customers ( *i.e.* , CBOE and non-member market-maker, member firm and broker-dealer). The license fee would apply to linkage orders, except for Satisfaction Orders. 7 The Exchange notes that the proposed application of the license fee to linkage orders is similar to the surcharge imposed on certain linkage orders by the International Securities Exchange. Expanding the application of the license fee would further assist the Exchange in recovering some of its costs for its licenses to trade the MNX and NDX products, and is similar to surcharge fees charged by other exchanges. 8 7 Linkage order transaction fees are currently in effect as a pilot program that is due to expire on July 31, 2005. The Commission notes that in Amendment No. 1, the Exchange clarified that the MNX and NDX license fee as applied to linkage orders, except for Satisfaction Orders, is incorporated in CBOE's pilot program for linkage transaction fees that expires on July 31, 2005. 8 *See, e.g.* Securities Exchange Act Release No. 47564 (March 24, 2003), 68 FR 15256 (March 28, 2003) (SR-ISE-2003-13). The Exchange believes the proposed fee changes would help the Exchange to compete more effectively for order flow in these products. The Exchange intends to implement these fee changes on February 1, 2005. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, 9 in general, and furthers the objectives of Section 6(b)(4) of the Act 10 in particular, in that it is designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members and other persons using its facilities. 9 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition CBOE does not believe that the proposed rule change would impose any burden on competition that is not necessary or appropriate in furtherance of 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 proposed rule change, as amended, has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and Rule 19b-4(f)(6) thereunder 12 because the proposed 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 of filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest pursuant to Section 19(b)(3)(A) of the Act 13 and Rule 19b-4(f)(6) 14 thereunder. 11 15 U.S.C. 78s(b)(3)(A). 12 17 CFR 240.19b-4(f)(6). 13 15 U.S.C. 78s(b)(3)(A). 14 17 CFR 240.19b-4(f)(6). The Exchange has requested that the Commission waive the five-day pre-filing notice requirement and the 30-day operative delay. 15 The Commission is exercising its authority to waive the five-day pre-filing notice requirement and believes that the waiver of the 30-day operative delay is consistent with the protection of investors and the public interest. Acceleration of the operative delay would allow CBOE to implement as of February 1, 2005, new and revised fees applicable to MNX and NDX options that in the case of their application to linkage transactions is similar to those charged by another exchange. 16 In addition, accelerating the operative date should allow public customers to benefit promptly from the reduced transaction fees in these index option classes. For these reasons, the Commission designates the proposed rule change, as amended, to be effective upon filing with the Commission. 17 15 17 CFR 240.19b-4(f)(6)(iii). 16 *See supra* note 7. 17 For purposes of only accelerating the operative date of this proposal, the Commission has considered the rule's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). At any time within 60 days of the filing of the proposed rule change the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in the furtherance of the purposes of the Act. 18 18 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act, the Commission considers that period to commence on March 2, 2005, the date the Exchange filed Amendment No. 1 to the proposed rule change. *See* 15 U.S.C. 78s(b)(3)(C). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-CBOE-2005-14 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-CBOE-2005-14. 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. Copies of such filing also will be available for inspection and copying at the principal office of the CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2005-14 and should be submitted on or before April 6, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 19 19 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1153 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51355; File No. SR-FICC-2004-08] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Provide Interpretive Guidance to Members Regarding the Criteria Used To Place Members on Surveillance Status March 10, 2005. I. Introduction On March 29, 2004, the Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“Commission”) and on February 28, 2005, 1 and March 3, 2005, amended 2 proposed rule change SR-FICC-2004-08 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). 3 Notice of the proposal was published in the **Federal Register** on November 23, 2004. 4 No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change. 1 The February 28, 2005, amendment was withdrawn by FICC on March 3, 2005. 2 In the March 3, 2005, amendment, FICC elaborated on how it applies and monitors the matrix. The amendment did not modify the substance of the proposed rule change and therefore did not require republication of notice. 3 15 U.S.C. 78s(b)(1). 4 Securities Exchange Act Release No. 50671 (November 16, 2004), 69 FR 68200. II. Description FICC is seeking to provide interpretive guidance to members pertaining to the member surveillance rules of the Government Securities Division (“GSD”) and the Mortgage-Backed Securities Division (“MBSD”) of FICC. 1. Background Prior to the Commission's approval of SR-FICC-2003-03, 5 the GSD had the ability to place a member in a surveillance status class depending on whether the member satisfied one or more of the enumerated financial and operational criteria. Upon approval of SR-FICC-2003-03, FICC implemented new criteria for placing members on surveillance. Specifically, all domestic broker-dealers and banks that are GSD netting members and/or MBSD clearing members are now assigned a rating that is generated by entering financial data of the member into a risk assessment matrix (“Matrix”). The Matrix is used by FICC and its affiliated clearing agency, National Securities Clearing Corporation. Specifically, in order to run the Matrix, credit risk staff uses the financial data of each applicable FICC member and the financial data of each applicable member of NSCC. In this way, each applicable member of GSD, MBSD, and NSCC is rated against other applicable members of FICC and NSCC. Members who receive a low rating are placed on an internal “watch list” and are monitored more closely. All members that are not domestic banks or broker-dealers are not included in the Matrix process but are monitored by FICC's credit risk staff using financial criteria deemed relevant by FICC. 5 Securities Exchange Act Release No. 49158 (January 30, 2004), 69 FR 5624 (February 5, 2004). FICC will continually evaluate the methodology and its effectiveness and make such changes as it deems prudent and practicable within such time frame as is determined to be appropriate by FICC. FICC will update the Commission staff on its evaluations of the Matrix pursuant to a schedule developed by FICC, NSCC, and Commission staff. 2. Clarification of Rules Provisions In describing the process by which credit risk staff will implement the Matrix process and review members, FICC included in SR-FICC-2003-03 explanatory footnotes 2 and 3. FICC at this time wishes to clarify its procedures with regard to application of the Matrix. Credit risk staff approaches its analysis of members pursuant to the new procedures in the following manner. First, as mentioned above, domestic broker-dealers and domestic banks are run through the Matrix and assigned a rating. Low-rated members are placed on the watch list. At this point, credit risk staff may downgrade a particular member's score based on various qualitative factors. For example, one qualitative factor might be that the member in question received a qualified audit opinion on its annual audit. In order to protect FICC and its other members, it is important that credit risk staff maintain the discretion to downgrade a member's rating on the Matrix and thus subject the member to closer monitoring. All rated members, including those on the watch list, are monitored monthly or quarterly, depending upon the member's financial filing frequency, against basic minimum financial requirements and other parameters. All broker-dealer members included on the watch list are monitored more closely. This means that they are also monitored for various parameter breaks which may include but are not limited to such things as a defined decline in excess net capital over a one month or three month period, a defined period loss, a defined aggregate indebtedness/net capital ratio, a defined net capital/aggregate debit items ratio, and a defined net capital/regulatory net capital ratio. All bank members included on the watch list are also monitored more closely for watch list parameter breaks which may include but are not limited to such things as a defined quarter loss, a defined decline in equity, a defined tier one leverage ratio, a defined tier one risk-based capital ratio, and a defined total risk-based capital ratio. FICC wishes to make clear that monitoring for the above more stringent parameter breaks is only applicable to those members placed on the watch list. In addition, FICC would like to address footnote 5 of Amendment I to rule filing SR-FICC-2003-03. That footnote stated that credit risk staff would monitor those members not included in the Matrix process (this includes members that are not domestic banks and broker dealers) using the same criteria as those used for members included on the Matrix. FICC wishes to make clear that credit risk staff will not be using the same criteria to monitor these members but will use similar criteria. As stated in the narrative of SR-FICC-2003-03, these criteria may include but are not limited to such things as failure to meet minimum financial requirements, experiencing a significant decrease in equity or net asset value, or a significant loss. This class of members may be placed on the watch list based on credit risk staff's analysis of this information. III. Discussion Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to facilitate the safeguarding of securities and funds which are in its custody or control or for which it is responsible. 6 The Commission finds that FICC's proposed rule change is consistent with this requirement because it improves FICC's member surveillance process which should better enable FICC to safeguard the securities and funds which are in its custody or control or for which it is responsible. 6 15 U.S.C. 78q-1(b)(3)(F). IV. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular Section 17A of the Act and the rules and regulations thereunder. *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-FICC-2004-08) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1155 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51354; File No. SR-FICC-2004-18] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Granting Approval of a Proposed Rule Change To Clarify Certain Sections of the Loss Allocation Rule of Its Government Securities Division March 10, 2005. I. Introduction On October 1, 2004, the Fixed Income Clearing Corporation (“FICC”) filed with the Securities and Exchange Commission (“Commission”) and on October 27, 2004, amended proposed rule change File No. SR-FICC-2004-18 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 January 24, 2005. 2 No comment letters were received. For the reasons discussed below, the Commission is now granting approval of the proposed rule change. 1 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 51037 (January 13, 2005), 70 FR 3410. II. Description The purpose of this proposed rule change is to clarify certain sections of the loss allocation rule of the Government Securities Division (“GSD”) of FICC. If the GSD, upon liquidating a defaulting member's positions, incurs a loss due to the failure of the defaulting member to fulfill its obligations to the GSD, the GSD looks to the margin collateral deposited by that defaulting member to satisfy the loss. If the defaulting member's margin collateral is insufficient to cover the loss and if there are no other funds available from any applicable cross-margining and/or cross-guaranty arrangements, the GSD would have a “Remaining Loss” 3 and would institute its loss allocation process to cover such Remaining Loss. In doing so, the GSD would determine the types of transactions from which the Remaining Loss has arisen (such as direct transactions and member brokered transactions) and would allocate the Remaining Loss as set forth in Sections 8(d)(i) through
(v)of Rule 4 of the GSD Rules. 3 GSD Rules, Rule 4, Section 8(d). The allocations in Section 8(d)(ii) of Rule 4 to cover a Remaining Loss that is due to member brokered transactions distributes the loss between the affected broker, including repo brokers, and non-broker members that dealt with the defaulting member, are limited as an initial matter. Specifically, a broker netting member will not be subject to an allocation of loss, for any single loss-allocation event in an amount greater than $5 million, and a non-broker netting member will not be subject to an allocation of loss for any single loss-allocation event in an amount greater than the lesser of $5 million or five percent of the overall loss amount allocated to non-broker netting members. If the Remaining Loss from member brokered transactions is not covered due to these limitations on allocations, the uncovered loss will be reallocated as set forth in Section 8(e) of Rule 4. This section calls for a pro rata allocation to the netting membership in general based on each netting member's average daily required clearing fund deposit over the twelve-month period immediately prior to the insolvency. The rule change makes clear that the amounts allocated pursuant to Section 8(e) will be assessed to a netting member in addition to any loss amount allocated pursuant to Section 8(d)(ii). Therefore, a netting member may be subject to an aggregate allocation of loss that may exceed the applicable limitation set forth in Section 8(d)(ii). Even with the allocation pursuant to Section 8(e) of Rule 4, a broker netting member would not be subject to an aggregate loss allocation for any single loss allocation event in an amount greater than $5 million. In addition, what has been intended, but is not clear in the current rules, is that a non-broker netting member can terminate its GSD membership and thus cap any additional loss allocation obligation due to the application of Section 8(e) at the amount of its required clearing fund deposit. Therefore, FICC is making its GSD rules clear that any allocations to members resulting from the application of Section 8(e) of Rule 4 or another firm's failure to pay its assessed share are limited to the extent of a member's required clearing fund deposit if such member chooses to terminate its GSD membership. 4 4 If a member elects to terminate its membership in FICC, its liability for a loss allocation obligation is limited to the amount of its required clearing fund for the business day on which the notification of such loss allocation is provided to the member. In addition, FICC is making it clear that the ability to terminate and cap a loss allocation obligation at the amount of the clearing fund deposit is also applicable to a netting member (aside from the defaulting party) where an auction purchase is the reason for any Remaining Loss. In these instances, as in the instances described above, the netting member assessed a loss allocation obligation will have had no participation in the transaction which led to the Remaining Loss and therefore will be allowed to cap its total losses at the amount of the clearing fund deposit. 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. 5 The Commission finds that FICC's proposed rule change is consistent with this requirement because clarifying the GSD's rules and procedures with regard to loss allocation assessments to netting members in the event of a default provides enhanced protections to FICC and its members. 5 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, 6 that the proposed rule change (File No. SR-FICC-2004-18) be and hereby is approved. 6 15 U.S.C. 78s(b)(2). For the Commission by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1156 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51336; File No. SR-NASD-2005-026] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to TRACE Market Data Fees March 9, 2005. 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 February 11, 2005, the National Association of Securities Dealers, Inc. (“NASD”) 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 NASD. 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 NASD is proposing to amend NASD Rule 7010(k) relating to Transaction Reporting and Compliance Engine (“TRACE”) transaction data to:
(i)Terminate the Bond Trade Dissemination Service (“BTDS”) Internal Usage Authorization Fee and the BTDS External Usage Authorization Fee and, in lieu of both fees, establish a Vendor Real-Time Data Feed Fee;
(ii)define the term “Tax Exempt Organization,” and amend the defined term “Non-Professional” for purposes of NASD Rule 7010(k)(3); and
(iii)make other minor, technical amendments. The text of the proposed rule change is available on NASD's Web site ( *http://www.nasd.com* ), at NASD's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NASD included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it had received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. NASD has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose NASD seeks to amend NASD Rule 7010(k) to streamline market data services and fees for TRACE transaction data. Specifically, NASD proposes to replace two fees currently charged to receive delayed-time and real-time TRACE transaction data—the BTDS Internal Usage Authorization Fee of $500 per month per application and the BTDS External Usage Authorization Fee of $1,000 per month per application—with the Vendor Real-Time Data Feed Fee, a single monthly fee of $1,500 (subject to certain exceptions) for a feed of real-time TRACE transaction data that the recipient may use in multiple applications. In addition, NASD proposes to amend NASD Rule 7010(k) to define the term “Tax-Exempt Organization” for purposes of identifying the tax-exempt organizations that would qualify to receive a real-time TRACE transaction data feed for a reduced fee of $400 per month. Also, NASD proposes to amend the defined term “Non-Professional” in NASD Rule 7010(k) to make explicit NASD's current interpretation that a natural person who is a financial professional, or an employee of a financial services entity as specified in the rule, is considered a Non-Professional in those instances where the person accesses the TRACE transaction data to use it solely for personal, non-commercial uses ( *e.g.,* a registered associated person of a broker-dealer accesses the free TRACE data at home to obtain information about bonds held in his personal account). Finally, NASD is proposing other minor, technical amendments to NASD Rule 7010(k). Current TRACE Market Data Services and Fees Currently, under NASD Rule 7010(k)(3)(A)(iii), NASD charges a BTDS Internal Usage Authorization Fee of $500 per month per application or service. For this fee, a party is entitled to receive and use real-time and/or delayed-time TRACE transaction data, 3 for internal dissemination and use. 4 Under NASD Rule 7010(k)(3)(A)(iv), a party paying a BTDS External Usage Authorization Fee of $1,000 per month per application or service is entitled to use real-time and/or delayed time TRACE transaction data and repackage it for delivery and dissemination externally ( *i.e.,* outside the contracting party's organization), such as delivering indices or other products derived from the TRACE data. 3 NASD recently filed a rule change eliminating the fee it charges for use solely of delayed-time TRACE transaction data, the BTDS Professional Delayed-Time Data Display Fee pilot program ( *i.e.,* a $15 fee per month per terminal). The BTDS Professional Delayed-Time Data Display Fee pilot program will end on June 1, 2005. *See* Securities Exchange Act Release No. 50977 (January 6, 2005), 70 FR 2202 (January 12, 2005) (SR-NASD-2004-189) (notice of rule change for immediate effectiveness filed on December 28, 2004). *See also NASD Notice to Members* 05-05 (January 2005). In the current proposed rule change, NASD is proposing to eliminate the two remaining fees that are based partially on the receipt of delayed-time TRACE transaction data, and proposing a new fee, the Vendor Real-Time Data Feed Fee, that is based upon the receipt of real-time TRACE transaction data only. 4 Permitted internal uses include, but are not limited to, internal operational and processing systems, internal monitoring and surveillance systems, internal price validation, internal portfolio valuation services, internal analytical programs leading to purchase/sale or other trading decisions, and other related activities. Proposed Vendor Real-Time Data Feed Fee NASD proposes to eliminate the two current fees, the $500 BTDS Internal Usage Authorization Fee and the $1,000 BTDS External Usage Authorization Fee, and replace them with one consolidated fee, the Vendor Real-Time Data Feed Fee. The Vendor Real-Time Data Feed Fee would be $1,500 for most TRACE data recipients and $400 for certain qualifying Tax-Exempt Organizations that intend to use the data solely to provide access to TRACE data to Non-Professional users, such as individual investors, at no charge, as discussed in greater detail below. NASD would charge each person or organization that receives real-time TRACE data via any data feed (except certain qualifying Tax-Exempt Organizations) the Vendor Real-Time Data Feed Fee of $1,500 in proposed NASD Rule 7010(k)(3)(A)(ii), whether the data is received directly from NASD or from a vendor that redistributes TRACE transaction data in real time. As is currently the case, each organization or person receiving such data, whether from NASD or a vendor, would enter into an agreement with NASD. The data recipient would be entitled to use the TRACE transaction data in an unlimited number of internal and external applications, as described in proposed NASD Rule 7010(k)(3)(A)(ii), in contrast to the single-use or single-application limits that are in effect currently under either the $500 BTDS Internal Usage Authorization Fee or the $1,000 BTDS External Usage Authorization Fee. However, the Vendor Real-Time Data Feed Fee of $1,500 would not include NASD's monthly charge for each desktop or other interrogation display device receiving the real-time data. 5 5 Similarly, neither the BTDS Internal Usage Authorization Fee nor the BTDS External Usage Authorization Fee currently in effect includes the monthly charge for each desktop or interrogation display device receiving real-time data. NASD believes that introducing a single fee for any party that desires to be a vendor (or a third-party recipient) taking a real-time TRACE transaction data feed would better reflect NASD's administrative costs, allocate such costs appropriately among real-time TRACE transaction data recipients based upon use and misappropriation risk, and simplify the fee structure. Under the current BTDS TRACE transaction data fee structure, a vendor taking a real-time TRACE transaction data feed that uses the data only on a next-day basis does not pay NASD a fee. However, for such vendors, NASD is exposed to the same risk—the risk of misappropriation of TRACE data—that it bears in connection with vendors or third-party data recipients that pay to receive and use such data real-time. Currently, any vendor taking a real-time TRACE transaction data feed has the technical capability to use the real-time data wrongfully in violation of the terms of its service and fee agreement with NASD, such as redistributing real-time TRACE transaction data without appropriate authorization or failing to maintain proper controls or to adequately track data usage. To prevent or limit such misuse and misappropriation, NASD requires direct contractual relationships with anyone receiving a feed of real-time TRACE transaction data. These agreements, and the usage tracking that go along with them, result in NASD bearing the administrative cost for contract creation, management, and the monitoring of the usage of TRACE data through audits. NASD believes that the proposal to apply a single fee to *any* party desiring to receive a real-time TRACE transaction data feed would better reflect and allocate NASD's administrative costs. NASD believes that the single fee for all recipients of a real-time TRACE transaction data feed also simplifies the fee structure and eliminates many of the questions regarding permitted uses by vendors and other TRACE transaction data recipients. For example, the new Vendor Real-Time Data Feed Fee is based on per-organization usage, rather than per-application, and vendors of real-time TRACE transaction data (or recipients of such data through a vendor) would be better able to use the TRACE data in multiple internal or external applications without bearing additional costs. Reduced Vendor Real-Time Data Feed Fee for Tax-Exempt Organizations NASD is proposing in NASD Rule 7010(k)(3)(A)(iii) that the Vendor Real-Time Data Feed Fee be reduced to $400 per month for qualifying Tax-Exempt Organizations. By reducing the fee, NASD seeks to accommodate such organizations that intend to use the TRACE transaction data solely for distribution to Non-Professionals at no charge. In proposed NASD Rule 7010(k)(3)(C)(ii), NASD proposes to define “Tax-Exempt Organization” for purposes of NASD Rule 7010(k)(3) to mean “an organization that is described in Section 501(c) of the Internal Revenue Code (26 U.S.C. § 501(c)); has received recognition of the exemption from federal income taxes from the Internal Revenue Service; and obtains and uses real-time TRACE transaction data solely for redistribution to Non-Professionals, as defined for purposes of Rule 7010(k)(3), at no charge.” Tax-exempt organizations that wish to obtain a real-time TRACE transaction data feed, but do not intend to provide access or redistribute data exclusively to Non-Professionals as defined under proposed NASD Rule 7010(k)(3)(C)(ii) at no charge would be required to pay the Vendor Real-Time Data Feed Fee of $1,500 per month. Similarly, tax-exempt organizations that intend to obtain a real-time TRACE transaction data feed and use it not only for providing access or redistributing the TRACE data to Non-Professionals, but also for other uses, would be required to pay the $1,500 fee per month. NASD believes that the fee reduction for qualifying Tax-Exempt Organizations providing TRACE information to Non-Professionals at no charge furthers an NASD goal of making TRACE transaction information more accessible to individual investors. Also, NASD believes that the proposed $400 Vendor Real-Time Data Feed Fee for qualifying Tax-Exempt Organizations would appropriately reduce the costs of obtaining the data when the data would be used exclusively for the benefit of Non-Professionals (primarily, individual investors). “Non-Professional” NASD is proposing to amend NASD Rule 7010(k)(3)(C)(ii) to clarify the definition of “Non-Professional” and renumber the provision as NASD Rule 7010(k)(3)(C)(i). NASD believes that the current definition of “Non-Professional” is unclear as to whether a natural person who is registered in one of several capacities as a securities or commodities professional, or performs similar functions but is not required to be registered due to an exemption, or is an employee of certain financial services businesses, 6 may be a Non-Professional if the natural person uses TRACE transaction information solely for personal, non-commercial uses. NASD currently interprets the term Non-Professional to include any natural person who obtains access to TRACE transaction data and uses it for his or her personal, non-commercial use, even if such natural person is registered personnel or otherwise an employee of a financial services entity ( *e.g.,* broker-dealer or investment adviser), or is himself or herself registered or qualified in some capacity with the Commission, or another federal or state agency that regulates and monitors financial services business activities and the individuals engaged in such businesses, as specified in current NASD Rule 7010(k)(3)(C)(ii), subparagraphs
(a)through (c). 6 *See* NASD Rule 7010(k)(3)(C)(ii), subparagraph (a), regarding a natural person “registered” or “qualified in any capacity with the Commission, the Commodity Futures Trading Commission, any state securities agency, any securities exchange or association, or any commodities or futures contract market or association”; subparagraph (b), regarding a natural person “engaged as an ‘investment adviser’ as that term is defined in Section 202(a)(11) of the Investment Advisers Act of 1940 (whether or not registered or qualified under that Act)”; and subparagraph (c), regarding a natural person “employed by a bank, insurance company or other organization exempt from registration under federal or state securities laws to perform functions that would require registration or qualification if such functions were performed for an organization not so exempt.” NASD proposes to make clear that such professionals and other employees in the financial services industry may be considered Non-Professionals when they are accessing and using the TRACE transaction data solely for personal, non-commercial uses. For example, under proposed NASD Rule 7010(k)(3)(C)(i), subparagraph (c), a natural person who is engaged as an investment adviser and accesses TRACE data to review transaction pricing in TRACE-eligible bonds in his personal account would be considered using the data solely for his personal, non-commercial use and during that access and use would be a Non-Professional. Also, NASD proposes to clarify in subparagraph
(d)of proposed NASD Rule 7010(k)(3)(C)(i) that, in addition to persons employed by a bank, insurance company, or other organization exempt from registration under federal or state securities laws to perform functions that ordinarily would require registration, other employees of such organizations who use TRACE transaction information solely for their personal, non-commercial use, would be Non-Professionals. NASD also proposes to make other technical, clarifying amendments to the definition of “Non-Professional” and to NASD Rule 7010(k). NASD would announce the effective date of the proposed rule change in a *Notice to Members* to be published no later than 60 days following Commission approval if the Commission approves the proposed rule change. The effective date would be no later than 45 days following publication of the *Notice to Members* announcing Commission approval. 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act, 7 which requires, among other things, that NASD rules must be 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, and Section 15A(b)(5) of the Act, 8 which requires, among other things, that NASD rules provide for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system that NASD operates or controls. 7 15 U.S.C. 78o-3(b)(6). 8 15 U.S.C. 78o-3(b)(5). NASD believes that providing a reduced TRACE data fee for qualifying Tax-Exempt Organizations and clarifying the term Non-Professional would foster the continued dissemination of TRACE data for the protection of investors and in furtherance of the public interest. NASD believes that consolidating the two TRACE data fees into one fee and providing a reduced TRACE data fee for qualifying Tax-Exempt Organizations would equitably allocate fees among subscribers of TRACE data that desire TRACE transaction data for commercial use or benefit, or redistribution to Non-Professionals, and would not adversely affect the use and distribution of TRACE data, for the protection of investors and in furtherance of the public interest. B. Self-Regulatory Organization's Statement on Burden on Competition NASD does not believe that the proposed rule change could result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. 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 NASD consents, the Commission will:
(A)By order approve such proposed rule change; or
(B)institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-NASD-2005-026 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-NASD-2005-026. 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 NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make publicly available. All submissions should refer to File Number SR-NASD-2005-026 and should be submitted on or before April 6, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 9 9 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1129 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51356; File No. SR-NASD-2004-159] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto To Allow NASD, on a Pilot Basis, To Review Denial of Access Complaints Related to the Alternative Display Facility March 10, 2005. On October 22, 2004, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to allow NASD, on a pilot basis, to review denial of access complaints related to the Alternative Display Facility (“ADF”). On January 11, 2005, NASD filed Amendment No. 1 to the proposed rule change. 3 The proposed rule change, as amended, was published in the **Federal Register** on February 4, 2005. 4 The Commission received no comments on the proposal. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, the NASD clarified the scope of authority it and the Market Regulation Committee would have to review denials of access. 4 *See* Securities Exchange Act Release No. 51092 (January 28, 2005), 70 FR 6061. The proposed rule change would establish on a pilot basis new NASD Rule 4400A, which would give NASD the authority to receive and review complaints against an NASD Market Participant alleging denial of direct or indirect access of the NASD Market Participant's quotations in the ADF that the NASD Market Participant is required to provide pursuant to NASD Rule 4300A. In addition, proposed NASD Rule 4400A would set forth procedures for reviewing such complaints and would delegate authority to NASD's Market Regulation Committee to review denial of access determinations rendered in accordance with Rule 4400A. The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association. 5 In particular, the Commission finds that the proposed rule change is consistent with Section 15A(b)(6) of the Act, 6 which requires, among other things, that the rules of an association be 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. 5 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 6 15 U.S.C. 78o-3(b)(6). New NASD 4400A affords some due process to a party claiming that an NASD Market Participant quoting ADF has denied it access to the NASD Market Participant's system. Establishing such a process should help deter improper denials of access. The Commission believes that it is reasonable and consistent with the Act for NASD to deter such denials by requiring an NASD Market Participant to respond to a complaint in the manner set forth in the new rule. Furthermore, where such deterrence is not effective, NASD will have the authority to direct the NASD Market Participant to restore the complainant's access promptly, which should help minimize any market disruption caused by an improper denial of access. *It is therefore ordered,* pursuant to section 19(b)(2) of the Act, 7 that the proposed rule change (SR-NASD-2004-159), as amended, be hereby approved. 7 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 8 8 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1157 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51322, File No. SR-NYSE-2004-20] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, 3, 4, 5, 6, and 7 Thereto by the New York Stock Exchange, Inc., To Amend Its Original and Continued Quantitative Listing Standards March 8, 2005. 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 April 13, 2004, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On May 20, 2004, NYSE submitted Amendment No. 1 to the proposed rule change. 3 The proposed rule change, as amended, was published for comment in the **Federal Register** on July 2, 2004. 4 On August 31, 2004, NYSE submitted Amendment No. 2 to the proposed rule change. 5 On November 29, 2004, NYSE submitted Amendment No. 3 to the proposed rule change. 6 On December 17, 2004, NYSE withdrew Amendment No. 3. On December 17, 2004, NYSE submitted Amendment No. 4 to the proposed rule change. 7 On January 25, 2005, NYSE submitted Amendment No. 5 to the proposed rule change. 8 On February 17, 2005, NYSE submitted Amendment No. 6 to the proposed rule change. 9 On March 4, 2005, NYSE submitted Amendment No. 7 to the proposed rule change. 10 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 Amendment No. 1 replaced and superseded the original filing in its entirety. 4 *See* Securities Exchange Act Release No. 49917 (June 25, 2004), 69 FR 40439. 5 Amendment No. 2 replaced and superseded the original filing in its entirety. 6 Amendment No. 3 replaced and superseded the original filing in its entirety. 7 Amendment No. 4 replaced and superseded the original filing in its entirety. 8 Amendment No. 5 replaced and superseded the original filing in its entirety. 9 Amendment No. 6 partially amended Sections 802.01B, 802.02, and 802.03 of the proposed rule text. 10 Amendment No. 7 partially amended Sections 802.03 of the proposed rule text. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The NYSE is proposing to amend Sections 102.01C, 103.01B, 802.01A, 802.01B, 802.01C, 802.02, and 802.03 of the NYSE's Listed Company Manual regarding the minimum numerical original and continued listing standards. Proposed new language is *italicized;* deletions are bracketed. 11 11 NYSE amended the proposed rule change to make technical corrections to Exhibit 5 of the proposed rule change. E-mail from Annemarie Tierney, Assistant General Counsel, and Glenn Tyranski, Vice President, Financial Compliance, NYSE, dated February 24, 2005. 102.00 Domestic Companies 102.01C A company must meet one of the following financial standards.
(I)Earnings Test
(1)Pre-tax earnings from continuing operations and after minority interest, amortization and equity in the earnings or losses of investees, [as] adjusted [(E)] for items specified in (2)(a) through *(2)*
(i)below [(F)] must total at least[.] [$2,500,000 in the latest fiscal year together with $2,000,000 in each of the preceding two years; or $6,500,000] *$10,000,000* in the aggregate for the last three fiscal years together with a minimum of $[4,5] *2,0* 00,000 in *each of* the *two* most recent fiscal year *s* , and positive amounts [for] *in all* [each of the preceding two] *three* years.
(2)Adjustments *(E)(F)* that must be included in the calculation of the amounts required in paragraph
(1)are as follows:
(a)Application of Use of Proceeds[.]—If a company is in registration with the SEC and is in the process of an equity offering, adjustments should be made to reflect the net proceeds of that offering, and the specified intended application(s) of such proceeds to:
(i)Pay off existing debt[.]: The adjustment will include elimination of the actual historical interest on debt being retired with offering proceeds of all relevant periods. If the event giving rise to the adjustment occurred during a time-period such that pro forma amounts are not set forth in the SEC registration statement (typically, the pro forma effect of repayment of debt will be provided in the current registration statement only with respect to the last fiscal year plus any interim period in accordance with SEC rules), the company must prepare the relevant adjusted financial data to reflect the adjustment to its historical financial data, and its outside audit firm must provide a report of having applied agreed-upon procedures with respect to such adjustments. Such report must be prepared in accordance with the standards established by the American Institute of Certified Public Accountants.
(ii)Fund an acquisition:
(1)The adjustments will include those applicable with respect to acquisition(s) to be funded with the proceeds. Adjustments will be made that are disclosed as such in accordance with Rule 3-05 “Financial Statements of Business Acquired or to be Acquired” and Article 11 of Regulation S-X. Adjustments will be made for all the relevant periods for those acquisitions for which historical financial information of the acquiree is required to be disclosed in the SEC registration statement; and
(2)Adjustments applicable to any period for which pro forma numbers are not set forth in the registration statement shall be accompanied by the relevant adjusted financial data to combine the historical results of the acquiree (or relevant portion thereof) and acquiror, as disclosed in the company's SEC filing. Under SEC rules, the number of periods disclosed depends upon the significance level of the acquiree to the acquiror. The adjustments will include those necessary to reflect
(a)the allocation of the purchase price, including adjusting assets and liabilities of the acquiree to fair value recognizing any intangibles (and associated amortization and depreciation), and
(b)the effects of additional financing to complete the acquisition. The company must prepare the relevant adjusted financial data to reflect the adjustment to its historical financial data, and its outside audit firm must provide a report of having applied agreed-upon procedures with respect to such adjustments. Such report must be prepared in accordance with the standards established by the American Institute of Certified Public Accountants[.] *;*
(b)Acquisitions and Dispositions[:]—In instances other than acquisitions (and related dispositions of part of the acquiree) funded with the use of proceeds, adjustments will be made for those acquisitions and dispositions that are disclosed as such in a company's financial statements in accordance with Rule 3-05 “Financial Statements of Business Acquired or to be Acquired” and Article 11 of Regulation S-X. If the disclosure does not specify pre-tax earnings from continuing operations, minority interest, and equity in the earnings or losses of investees, then such data must be prepared by the company's outside audit firm for the Exchange's consideration. In this regard, the audit firm would have to issue an independent accountant's report on applying agreed-upon procedures in accordance with the standards established by the American Institute of Certified Public Accountants[.] *;*
(c)Exclusion of Merger or Acquisition Related Costs Recorded under Pooling of Interests *;*
(d)Exclusion of Charges or Income Specifically Disclosed in the Applicant's SEC Filing for the Following[:]—
(i)In connection with exiting an activity for the following:
(1)Costs of severance and termination benefits
(2)Costs and associated revenues and expenses associated with the elimination and reduction of product lines
(3)Costs to consolidate or relocate plant and office facilities
(4)Loss or gain on disposal of long-lived assets
(ii)Environmental clean-up costs
(iii)Litigation settlement[.];
(e)Exclusion of Impairment Charges on Long-lived Assets (goodwill, property, plant, and equipment, and other long-lived assets);
(f)Exclusion of Gains or Losses Associated with Sales of a Subsidiary's or Investee's Stock;
(g)Exclusion of In-Process Purchased Research and Development Charges;
(h)Regulation S-X Article 11 Adjustments—Adjustments will include those contained in a company's pro forma financial statements provided in a current filing with the SEC pursuant to SEC rules and regulations governing Article 11 “Pro forma information of Regulation S-X Part 210—Form and Content of and Requirements for Financial Statements[.] *;* ”
(i)Exclusion of the Cumulative Effect of Adoption of New Accounting Standards (APB Opinion No. 20) *.* *OR*
(II)Valuation/Revenue Test Companies listing under this standard may satisfy either
(a)the Valuation/Revenue with Cash Flow Test or
(b)the Pure Valuation/Revenue Test. *(a) Valuation/Revenue with Cash Flow Test* —[A Company with]
(1)[not less than] *at least* $500,000,000 *in global* market capitalization *,* [and]
(2)*at least* $100,000,000 in revenues during the most recent 12-month period *,* [must] *and*
(3)[demonstrate from the operating activity section of its cash flow statement that its cash flow, which represents net income adjusted to
(a)reconcile such amounts to cash provided by operating activities, and
(b)exclude changes in operating assets and liabilities, is] at least $25,000,000 [in the] aggregate *cash flows* for the last three fiscal years [and each year is reported as a] *with* positive amounts *in all three years, as* adjusted [(E)(F)] pursuant to Para *s* . 102.01C (I)(2)(a) and
(b)*,* as applicable. *A Company must demonstrate cash flow based on the operating activity section of its cash flow statement. Cash flow represents net income adjusted to
(a)reconcile such amounts to cash provided by operating activities, and
(b)exclude changes in operating assets and liabilities.* With respect to reconciling amounts pursuant to this Paragraph, all such amounts are limited to the amount included in the company's income statement. *In the case of companies listing in connection with an IPO, the company's underwriter (or, in the case of a spin-off, the parent company's investment banker or other financial advisor) must provide a written representation that demonstrates the company's ability to meet the $500,000,000 global market capitalization requirement based upon the completion of the offering (or distribution).* *(b) Pure Valuation/Revenue Test* —
(1)*at least $750,000,000 in global market capitalization, and*
(2)*at least $75,000,000 in revenues during the most recent fiscal year.* *In the case of companies listing in connection with an IPO, the company's underwriter (or, in the case of a spin-off, the parent company's investment banker or other financial advisor) must provide a written representation that demonstrates the company's ability to meet the $750,000,000 global market capitalization requirement based upon the completion of the offering (or distribution). For all other companies, market capitalization valuation will be determined over a six-month average.* [OR
(III)For companies with not less than $1 billion in total worldwide market capitalization and with not less than $100 million revenues in the recent fiscal year, there are no additional financial requirements. For such companies listing in connection with an IPO, the market capitalization valuation must be demonstrated by written representation from the underwriter (or, in the case of a spin-off, by a written representation from the parent company's investment banker or other financial advisor) of the total market capitalization of the company upon completion of the offering (or distribution). For all other such companies, the market capitalization valuation will be determined over a six-month average.] *OR* *(III) Affiliated Company Test* *(1) at least $500,000,000 in global market capitalization;* *(2) at least 12 months of operating history (although a company is not required to have been a separate corporate entity for such period); and* *(3) the company's parent or affiliated company is a listed company in good standing (as evidenced by written representation from the company or its financial advisor excluding that portion of the balance sheet attributable to the new entity); and* *(4) the company's parent or affiliated company retains control of the entity or is under common control with the entity.* *In the case of companies listing in connection with an IPO, the company's underwriter (or, in the case of a spin-off, the parent company's investment banker or other financial advisor) must provide a written representation that demonstrates the company's ability to meet the $500,000,000 global market capitalization requirement based upon the completion of the offering (or distribution).* * “Control” for purposes of the Affiliated Company Test will mean having the ability to exercise significant influence over the operating and financial policies of the listing company, and will be presumed to exist where the parent or affiliated company holds 20% or more of the listing company's voting stock directly or indirectly. Other indicia that may be taken into account when determining whether control exists include board representation, participation in policy making processes, material intercompany transactions, interchange of managerial personnel, and technological dependency. The Affiliated Company Test is taken from and intended to be consistent with generally accepted accounting principles regarding use of the equity method of accounting for an investment in common stock.*
(E)Only adjustments arising from events specifically so indicated in the company's SEC filing(s) as to both categorization and amount can and must be made. Any such adjustment applies only in the year in which the event occurred except with regard to the use of proceeds or acquisitions and dispositions. Any company for which the Exchange relies on adjustments in granting clearance must include all relevant adjusted financial data in its listing application as specified in Section 702.04, and disclose the use of adjustments by including a statement in a press release
(i)that additional information is available upon which the NYSE relied to list the company and is included in the listing application and
(ii)that such information is available to the public upon request. *This press release must be issued concurrently with any listing announcement issued by the company or, if a listing announcement is not issued, within 30 days from the date the company lists on the NYSE.*
(F)[The above-referenced adjustments are measured and recognized] *Interested parties should apply the list of adjustments* in accordance with any relevant accounting literature, such as that published by the Financial Accounting Standards Board (“FASB”), the Accounting Principles Board (“APB”), the Emerging Issues Task Force (“EITF”), the American Institute of Certified Public Accountants (“AICPA”), and the SEC. Any literature is intended to guide issuers and investors regarding the affected adjustment listed. If successor interpretations (or guidelines) are published with respect to any particular adjustment, the most recent relevant interpretations (or guidelines) should be consulted. [(IV) Affiliated Company Standard
(1)Market capitalization of $500,000,000 million or greater (as evidenced by written representation from the underwriter, company, or its investment advisor);
(2)Minimum of 12 months of operations (although it is not required to have been a separate corporate entity for such period);
(3)Parent or affiliated company is a listed company in good standing (as evidenced by written representation from the company or its financial advisor excluding that portion of the balance sheet attributable to the new entity); and
(4)Parent/affiliated company retains control* of the entity or is under common control* with the entity. * “Control” for these purposes will mean the ability to exercise significant influence over operating and financial policies, and will be presumed to exist when the parent involved holds directly or indirectly 20% or more of the entity's voting stock. Other indicia that may be taken into account for this purpose include board representation, participation in policy making processes, material intercompany transactions, interchange of managerial personnel, and technological dependency. This test is taken from and intended to be consistent with generally accepted accounting principles regarding use of the equity method of accounting for an investment in common stock.] 103.00 Non-U.S. Companies 103.01 Minimum Numerical Standards—Non-U.S. Companies—Equity Listings Distribution 103.01B A company must meet one of the following financial standards:
(I)Earnings Test
(1)Pre-tax earnings from continuing operations and after minority interest, amortization and equity in the earnings or losses of investees, adjusted [(C)(D)] for items specified in Section 102.01C(I)(2)(a) through
(i)above, and 103.01 *B* (I)(2) below, must total at least[:] $100,000,000 in the aggregate for the last three fiscal years [together] with a minimum of $25,000,000 in each of the most recent two *fiscal* years.
(2)Additional Adjustment *(C)(D)* Available for Foreign Currency Devaluation. Non-operating adjustments when associated with translation adjustments representing a significant devaluation of a country's currency ( *e.g.* , the currency of a company's country of domicile devalues by more than 10 percent against the U.S. dollar within a six-month period). Adjustments may not include those associated with normal currency gains or losses.
(3)Reconciliation to U.S. GAAP of the third year back would only be required if the Exchange determines that reconciliation is necessary to demonstrate that the aggregate $100,000,000 threshold is satisfied. OR
(II)Valuation/Revenue Test *Companies listing under this standard may satisfy either
(a)the Valuation/Revenue with Cash Flow Test or
(b)the Pure Valuation/Revenue Test.* *(a) Valuation/Revenue with Cash Flow Test* —[A Company with]
(1)[not less than] *at least* $500,000,000 *in global* market capitalization, [and]
(2)*at least* $100,000,000 *in* revenues during the most recent 12-month period *,* [must] *and*
(3)[demonstrate from the operating activity section of its cash flow statement that its operating cash flow excluding changes in operating assets and liabilities is] at least $100,000,000 [in the] aggregate *cash flows* for the last three fiscal year *s* where each of the two most recent years is reported at a minimum of $25,000,000 *,* [as] adjusted *in accordance with* (C)(D) [for] Section 102.01C(I)(2)(a) and (b). *A Company must demonstrate cash flow based on the operating activity section of its cash flow statement. Cash flow represents net income adjusted to
(a)reconcile such amounts to cash provided by operating activities, and
(b)exclude changes in operating assets and liabilities. With respect to reconciling amounts pursuant to this Paragraph, all such amounts are limited to the amount included in the company's income statement.* *In the case of companies listing in connection with an IPO, the company's underwriter (or, in the case of a spin-off, the parent company's investment banker or other financial advisor) must provide a written representation that demonstrates the company's ability to meet the $500,000,000 global market capitalization requirement based upon the completion of the offering (or distribution).* Reconciliation to U.S. GAAP of the third *fiscal* year back would only be required if the Exchange determines that reconciliation is necessary to demonstrate that the [aggregate] $100,000,000 *aggregate cash flow* threshold is satisfied. *(b) Pure Valuation/Revenue Test* —
(1)*at least $750,000,000 in global market capitalization, and*
(2)*at least $75,000,000 in revenues during the most recent fiscal year.* *In the case of companies listing in connection with an IPO, the company's underwriter (or, in the case of a spin-off, the parent company's investment banker or other financial advisor) must provide a written representation that demonstrates the company's ability to meet the $750,000,000 global market capitalization requirement upon completion of the offering (or distribution). For all other companies, market capitalization valuation will be determined over a six-month average.* [OR
(III)For companies with not less than $1 billion in total worldwide market capitalization and with not less than $100 million revenues in the recent fiscal year, there are no additional financial requirements. For such companies listing in connection with an IPO, the market capitalization valuation must be demonstrated by a written representation from the underwriter (or, in the case of a spin-off, by a written representation from the parent company's investment banker, other financial advisor or transfer agent) of the total market capitalization of the company upon completion of the offering (or distribution). For all other such companies, the market capitalization valuation will be determined over a six-month average.] *OR*
(III)Affiliated Company Test
(1)*at least $500,000,000 in global market capitalization;*
(2)*at least 12 months of operating history (although a company is not required to have been a separate corporate entity for such period); and*
(3)*the company's parent or affiliated company is a listed company in good standing (as evidenced by written representation from the company or its financial advisor excluding that portion of the balance sheet attributable to the new entity); and*
(4)*the company's parent or affiliated company retains control of the entity or is under common control with the entity.* *In the case of companies listing in connection with an IPO, the company's underwriter (or, in the case of a spin-off, the parent company's investment banker or other financial advisor) must provide a written representation that demonstrates the company's ability to meet the $500,000,000 global market capitalization requirement based upon the completion of the offering (or distribution).* * “Control” for purposes of the Affiliated Company Test will mean having the ability to exercise significant influence over the operating and financial policies of the listing company, and will be presumed to exist where the parent or affiliated company holds 20% or more of the listing company's voting stock directly or indirectly. Other indicia that may be taken into account when determining whether control exists include board representation, participation in policy making processes, material intercompany transactions, interchange of managerial personnel, and technological dependency. The Affiliated Company Test is taken from and intended to be consistent with generally accepted accounting principles regarding use of the equity method of accounting for an investment in common stock. *
(C)Only adjustments arising from events specifically so indicated in the company's SEC filing(s) as to both categorization and amount can and must be made. Any such adjustments apply only in the year in which the event occurred except with regard to the use of proceeds or acquisitions and dispositions. Any company for which the Exchange relies on adjustments in granting clearance must include all relevant adjusted financial data in its listing application as specified in Section 702.04, and disclose the use of adjustments by including a statement in a press release
(i)that additional information is available upon which the NYSE relied to list the company and is included in the listing application and
(ii)that such information is available to the public upon request. *This press release must be issued concurrently with any listing announcement issued by the company or, if a listing announcement is not issued, within 30 days from the date the company lists on the NYSE.*
(D)Interested parties should apply the list of adjustments in accordance with any relevant accounting literature, such as that published by the Financial Accounting Standards Board (“FASB), the Accounting Principles Board (“APB”), the Emerging Issues Task Force (“EITF”), the American Institute of Certified Public Accountants (“AICPA”), and the SEC. Any literature is intended to guide issuers and investors regarding the affected adjustment listed. If successor interpretations (or guidelines) are published with respect to any particular adjustment, the most recent relevant interpretations (or guidelines) should be consulted. [(IV) Affiliated Company Standard
(1)Market capitalization of $500 million or greater (as evidenced by written representation from the underwriter, company, or its investment advisor);
(2)Minimum of 12 months of operations (although it is not required to have been a separate corporate entity for such period);
(3)Parent or affiliated company is a listed company in good standing (as evidenced by written representation from the company or its financial advisor excluding that portion of the balance sheet attributable to the new entity); and
(4)Parent/affiliated company retains control* of the entity or is under common control* with the entity. * “Control” for these purposes will mean the ability to exercise significant influence over operating and financial policies, and will be presumed to exist when the parent involved holds directly or indirectly 20% or more of the entity's voting stock. Other indicia that may be taken into account for this purpose include board representation, participation in policymaking processes, material intercompany transactions, interchange of managerial personnel, and technological dependency. This test is taken from and intended to be consistent with generally accepted accounting principles regarding use of the equity method of accounting for an investment in common stock.] 802.00 Continued Listing 802.01 Continued Listing Criteria The Exchange would normally give consideration to *the prompt initiation of suspension* and delisting *procedures with respect to* a security *of* either a domestic or non-U.S. issuer when: 802.01A. Distribution Criteria for Capital or Common Stock— • Number of total stockholders *(A)* is less than—400 *OR* • Number of total stockholders *(A)* is less than—1,200 and • Average monthly trading volume is less than—100,000 shares (for most recent 12 months) *OR* • Number of publicly-held shares ([A] *B)* is less than—600,000([B] *C* ) *(A)* The number of beneficial holders of stock held in the name of Exchange member organizations will be considered in addition to holders of record. ([A] *B* ) Shares held by directors, officers, or their immediate families and other concentrated holdings of 10% or more are excluded in calculating the number of publicly-held shares. ([B] *C* ) If the unit of trading is less than 100 shares, the requirement relating to the number of shares publicly held shall be reduced proportionately. 802.01B Numerical Criteria for Capital or Common Stock [If] *A* [a] company *that* falls below [any of the following] *the* criteria *applicable to the standard under which it originally listed will be considered to be below compliance* [, it is subject to the procedures outlined in Paras. 802.02 and 802.03:]. *Notwithstanding items
(I)to
(IV)below, the Exchange will promptly initiate suspension and delisting procedures with respect to a company if that company is determined to have average global market capitalization over a consecutive 30 trading-day period of less than $25,000,000, regardless of the original standard under which it listed. A company is not eligible to follow the procedures outlined in Sections 802.02 and 802.03 with respect to this criteria.* *(I) A company that qualified to list under the Earnings Test set out in Section 102.01C(I) or in Section 103.01B(I) will be considered to be below compliance standards if* [(i) A]average global market capitalization over a consecutive 30 trading-day period is less than [$50,000,000] *$75,000,000* and *, at the same time,* total stockholders' equity is less than [$50,000,000] *$75,000,000* [(C); or
(ii)Average global market capitalization over a consecutive 30 trading-day period is less than $15,000,000; or] *(II) A company that qualified to list under the Valuation/Revenue with Cash Flow Test set out in Section 102.01C(II)(a) or Section 103.01B(II)(a) will be considered to be below compliance standards if* : *(i) Average global market capitalization over a consecutive 30 trading-day period is less than $250,000,000 and, at the same time, total revenues are less than $20,000,000 over the last 12 months (unless the company qualifies as an original listing under one of the other original listing standards); or* *(ii) Average global market capitalization over a consecutive 30 trading-day period is less than $75,000,000.* [(iii) For companies that qualified for original listing under the “global market capitalization” standard:] *(III) A company that qualified to list under the Pure Valuation/Revenue Test set out in Section 102.01C(II)(b) or Section 103.01B(II)(b) will be considered to be below compliance standards if:* *(i)* [A]average global market capitalization over a consecutive 30 trading-day period is less than [$500,000,000] *$375,000,000* and *, at the same time,* total revenues are less than [$20,000,000] *$15,000,000* over the last 12 months (unless the [resultant entity] *company* qualifies as an original listing under one of the other original listing standards) [(D)]; or *(ii)* average global market capitalization over a consecutive 30 trading-day period is less than $100,000,000. *(IV) A company that qualified to list under the Affiliated Company Test set out in Section 102.01C(III) or Section 103.01B(III) will be considered to be below compliance standards if:* *(i) the listed company's parent/affiliated company ceases to control the listed company, or the listed company's parent/affiliated company itself falls below the continued listing standards applicable to the parent/affiliated company, and:* *(ii) average global market capitalization over a consecutive 30 trading-day period is less than $75,000,000 and, at the same time, total stockholders' equity is less than $75,000,000.* When applying the market capitalization test in any of the above [three] *four* standards, the Exchange will generally look to the total common stock outstanding (excluding treasury shares) as well as any common stock that would be issued upon conversion of another outstanding equity security. The Exchange deems these securities to be reflected in market value to such an extent that the security is a “substantial equivalent” of common stock. In this regard, the Exchange will only consider securities
(1)publicly traded (or quoted), or
(2)convertible into a publicly traded (or quoted) security. For partnerships, the Exchange will analyze the creation of the current capital structure to determine whether it is appropriate to include other publicly traded securities in the calculation. [Affiliated Companies—Will not be subject to the $50,000,000 average global market capitalization and stockholders' equity test unless the parent/affiliated company no longer controls the entity or such parent/affiliated company itself falls below the continued listing standards described in this section.] *The Exchange will promptly initiate suspension and delisting procedures with respect to* Funds, REITs and Limited Partnerships [—will be subject to immediate suspension and delisting procedures] if the average market capitalization *of the entity* over 30 consecutive trading days is below [$15,000,000] $ *25,000,000* [or (2)] *. In addition, the Exchange will promptly initiate suspension and delisting procedures with respect to* [in the case of] a Fund[,] it ceases to maintain its closed-end status.[, and in the case of a] *The Exchange will promptly initiate suspension and delisting procedures with respect to a* REIT[,] it fails to maintain its REIT status (unless the resultant entity qualifies for an original listing as a corporation). The Exchange will notify the Fund, REIT or limited partnership if the average market capitalization falls below [$25,000,000] *$35,000,000* and *will* advise the Fund, REIT or limited partnership of the delisting standard. Funds, REITs and limited partnerships are not [subject] *eligible* to *follow* the procedures outlined in Sections 802.02 and 802.03. *The Exchange will promptly initiate suspension and delisting procedures with respect to* Bonds[—] *if:*
(i)[(•T] *t* he aggregate market value or principal amount of publicly-held bonds is less than $1,000,000 *, or*
(ii)[(•T] *t* he issuer is not able to meet its obligations on the listed debt securities. *Bonds are not eligible to follow the procedures outlined in Sections 802.02 and 802.03.* *The Exchange will promptly initiate suspension and delisting procedures with respect to* Preferred Stock, Guaranteed Railroad Stock and Similar Issues[—] *if:*
(i)[•] *the* [A] *a* ggregate market value of publicly-held shares is less than $2,000,000 *, or*
(ii)[•] *the number of* [P] *p* ublicly-held shares is less than 100,000. *These types of securities are not eligible to follow the procedures outlined in Paras. 802.02 and 802.03.* [(C) To be considered in conformity with continued listing standards pursuant to Paras. 802.02 and 802.03, a company that is determined to be below this continued listing criterion must do one of the following:
(i)Reestablish both its market capitalization and its stockholders' equity to the $50,000,000 level, or
(ii)Achieve average global market capitalization over a consecutive 30 trading-day period of at least $100,000,000, or
(iii)Achieve average global market capitalization over a consecutive 30 trading-day period of $60,000,000, with either
(x)stockholders' equity of at least $40,000,000, or
(y)an increase in stockholders' equity of at least $40,000,000 since the company was notified by the Exchange that it was below continued listing standards.
(D)A company that is determined to be below this continued listing criterion must reestablish both its market capitalization and its revenues to be considered in conformity with continued listing standards pursuant to paras. 802.02 and 802.03.] 802.01C Price Criteria for Capital or Common Stock [—] *A Company will be considered to be below compliance standards if the* [A] *a* verage closing price of a security is less than $1.00 over a consecutive 30-trading-day period [(E)]. [(E)] Once notified, the company must bring its share price and average share price back above $1.00 by six months following receipt of the notification. [If this is the only criteria that makes the company below the Exchange's continued listing standards, the procedures outlined in Paras. 802.02 and 802.03 do not apply.] *A company is not eligible to follow the procedures outlined in Paras. 802.02 and 802.03 with respect to this criteria.* 802.00 Continued Listing 802.02 Evaluation and Follow-Up Procedures for Domestic Companies The following procedures shall be applied by the Exchange to domestic companies [which] *that* are identified as being below the Exchange's continued listing criteria. Notwithstanding the above, when the Exchange deems it necessary for the protection of investors, trading in any security can be suspended immediately, and application made to the SEC to delist the security. Once the Exchange identifies, through internal reviews or notice (a press release, news story, company communication, etc.), a company as being below the continued listing criteria set forth in Section 802.01( and not able to otherwise qualify under an original listing standard), the Exchange will notify the company by letter of its status within 10 business days. This letter will also provide the company with an opportunity to provide the Exchange with a plan (the “Plan”) advising the Exchange of definitive action the company has taken, or is taking, that would bring it into conformity with continued listing standards within 18 months of receipt of the letter. Within 10 business days after receipt of the letter, the company must contact the Exchange to confirm receipt of notification, discuss any possible financial data of which the Exchange may be unaware, and indicate whether or not it plans to present a Plan; otherwise, suspension and delisting procedures will commence. If the company submits a Plan, it must identify specific quarterly milestones against which the Exchange will evaluate the company's progress. The company has 45 days from the receipt of the letter to submit its Plan to the Exchange for review; otherwise, suspension and delisting procedures will commence. If the company is determined to be below the criteria listed in Section 802.01B[(i) or 802.01B(iii)], the Plan it presents must demonstrate how it will *return to compliance with the applicable continued listing standard by the end of the Plan period* [reestablish both its market capitalization and stockholders' equity (or revenues, as applicable, to the levels specified in such clauses]. In any event, all companies submitting a Plan must include quarterly financial projections, details related to any strategic initiatives the company plans to complete, and market performance support. Exchange staff will evaluate the Plan, including any additional documentation that supports the Plan, and make a determination as to whether the company has made a reasonable demonstration in the Plan of an ability to come into conformity with the relevant standard(s) within 18 months. The Exchange will make such determination within 45 days of receipt of the proposed Plan, and will promptly notify the company of its determination in writing. The company also has 45 days from receipt of the letter to issue a press release disclosing the fact that it has fallen below the continued listing standards of the Exchange. If the company fails to issue this press release during the allotted 45 days, the Exchange will issue the requisite press release. If the Exchange does not accept the Plan, the Exchange will promptly initiate suspension and delisting procedures and issue a press release disclosing the forthcoming suspension and application to the SEC [for] *to* delist[ing of] the company's securities. If the Exchange accepts the Plan, the Exchange will review the company on a quarterly basis for compliance with the Plan. If the company fails to meet the material aspects of the Plan or any of the quarterly milestones, the Exchange will review the circumstances and variance, and determine whether such variance warrants commencement of suspension and delisting procedures. Should the Exchange determine to proceed with suspension and delisting procedures, it may do so regardless of the company's continued listing status at that time. The Exchange will deem the Plan period over prior to the end of the 18 months if a company is able to demonstrate returning to compliance with the applicable continued listing standards, or achieving the ability to qualify under an original listing standard, for a period of two consecutive quarters. [This early Plan termination will not be available to a company based on satisfying the alternative criteria specified in clauses
(ii)or
(iii)of footnote C to Para. 802.01B.] In any event, if the company does not meet continued listing standards [(including the criteria specified in footnote C to Section 802.01B, if applicable)] at the end of the 18-month period, the Exchange promptly will initiate suspension and delisting procedures. If the company, within twelve months of the end of the Plan period [(including any early termination of the Plan period under the procedures described above)], is again determined to be below continued listing standards, the Exchange will examine the relationship between the two incidents of falling below continued listing standards and re-evaluate the company's method of financial recovery from the first incident. It will then take appropriate action, which, depending upon the circumstances, may include truncating the procedures described above or immediately initiating suspension and delisting procedures. 802.03 Continued Listing Evaluation and Follow-up Procedures for Non-U.S. Companies The following procedures shall be applied by the Exchange to non-U.S. companies [who] *that* are identified as being below the Exchange's continued listing criteria. Notwithstanding the above, when the Exchange deems it necessary for the protection of the investors, trading in any security can be suspended immediately, and application made to the SEC to delist the security. Once the Exchange identifies, through internal reviews or notice (a press release, news story, company communication, etc.), a company as being below the continued listing criteria set forth in Section 802.01(and not able to otherwise qualify under an original listing standard), the Exchange will notify the company by letter of its status within 10 business days. This letter will also provide the company with an opportunity to provide the Exchange with a plan (the “Plan”) advising the Exchange of definitive action the company has taken, or is taking, that would bring it into conformity with the standards within 18 month of receipt of the letter. Within 30 business days after receipt of the letter, the company must contact the Exchange to confirm receipt of notification, discuss any possible financial data of which the Exchange may be unaware, and indicate whether or not it plans to present a Plan; otherwise, suspension and delisting procedures will commence. If the company submits a Plan, it must identify specific semi-annual milestones against which the Exchange will evaluate the company's progress. The company has 90 days from the receipt of the letter to submit its Plan to the Exchange for review; otherwise, suspension and delisting procedures will commence. If the company is determined to be below the criteria listed in Section 802.01B [(i) or 802.01B(iii)], the Plan it presents must demonstrate how it will *return to compliance with the applicable continued listing standard by the end of the Plan period* [reestablish both its market capitalization and stockholders' equity (or revenues, as applicable, to the levels specified in such clauses]. In any event, all companies submitting a Plan must include quarterly financial projections, details related to any strategic initiatives the company plans to complete, and market performance support. Exchange staff will evaluate the Plan, including any additional documentation that supports the Plan, and make a determination as to whether the company has made a reasonable demonstration in the Plan of an ability to come into conformity with the relevant standard(s) within 18 months. The Exchange will make such determination within 45 days of receipt of the proposed Plan, and will promptly notify the company of its determination in writing. The company also has 90 days from receipt of the letter to issue press release disclosing the fact that it has fallen below the continued listing standards of the Exchange. If the company fails to issue this press release during the allotted 90 days, the Exchange will issue the requisite press release. If the Exchange does not accept the Plan, the Exchange will promptly initiate suspension and delisting procedures and issue a press release disclosing the forthcoming suspension and application to the *SEC to* delist[ing of] the company's securities. If the Exchange accepts the Plan, the Exchange will review the company on a semi-annual basis for compliance with the Plan. If the company fails to meet the material aspects of the Plan or any of the semi-annual milestones, the Exchange will review the circumstances and variance, and determine whether such variance warrants commencement of suspension and delisting procedures. Should the Exchange determine to proceed with suspension and delisting procedures, it may do so regardless of the company's continued listing status at that time. The Exchange will deem the Plan period over prior to the end of the 18 months if a company is able to demonstrate returning to compliance with the applicable continued listing standards, or achieving the ability to qualify under an original listing standard, for a period of two consecutive quarters. [This early Plan termination will not be available to a company based on satisfying the alternative criteria specified in clauses
(ii)or
(iii)of footnote C to Para. 802.01B.] In any event, *the Exchange will promptly initiate suspension and delisting procedures with respect to* [if the] *a* company *that* does not meet *the* continued listing standards [(including the criteria specified in footnote C to Para. 802.01B, if applicable)] at the end of the 18-month period[, the Exchange promptly will initiate suspension and delisting procedures.] If the company, within twelve months of the end of the Plan period [(including any early termination of the Plan period under the procedures described above)], is again determined to be below continued listing standards, the Exchange will examine the relationship between the two incidents of falling below continued listing standards and re-evaluate the company's method of financial recovery from the first incident. It will then take appropriate action, which, depending upon the circumstances, may include truncating the procedures described above or immediately initiating suspension and delisting procedures. 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 The Exchange is proposing amendments to certain of its minimum numerical standards for the listing and continued listing of equity securities on the NYSE. On January 29, 2004, the Commission approved these proposed amendments sought by the NYSE on a pilot program basis (the “Pilot Program”). 12 The Pilot Program provided a transition period for companies that were below compliance under the previous continued listing standards at the time the Pilot Program was approved, granting them an opportunity to present an additional business plan advising the Exchange of definitive action the company has taken, or is taking, that would bring the company into conformity with the Pilot Program requirements within 12 months of the end of their previous plan. No transition period was provided, however, for companies that were in compliance with the previous standards but not in compliance with the Pilot Program standards at the time the Pilot Program was approved. 12 *See* Securities Exchange Act Release No. 49154 (January 29, 2004), 69 FR 5633 (February 5, 2004) (approving File No. SR-NYSE-2003-43). Due to the fact that the Exchange requested the Commission approve the Pilot Program on an accelerated basis, there was no opportunity for listed companies to review and comment on the Pilot Program requirements prior to the date compliance was required. The NYSE notes that a number of the listed companies that did not comply with the Pilot Program standards as of the date of approval expressed significant dismay at the automatic application of the new continued listing standards. 13 In order to address these concerns, the Exchange suspended the portions of the Pilot Program relating to the continued listing standards of Section 802.01B of the NYSE's Listed Company Manual. 14 In File No. SR-NYSE-2004-15, the Exchange noted its intention to publish the requirements of the Pilot Program relating to Section 802.01B for public comment on a non-accelerated timeframe. 15 File No. SR-NYSE-2004-15 did not, however, amend the Pilot Program with respect to Sections 102.01C and 103.01B of the NYSE's Listed Company Manual concerning original minimum listing standards or the Pilot Program's non-substantive change to the language of Section 802.01C. 16 13 *See* letters from Kenneth A. Hoogstra, von Briesen & Roper, s.c., to Jonathan G. Katz, Secretary, Commission, dated February 25, 2004, and W. Randy Eaddy, Kilpatrick Stockton LLP, to Jonathan G. Katz, Secretary, Commission, dated March 11, 2004, (commenting on File No. SR-NYSE-2003-43). 14 *See* Securities Exchange Act Release No. 49443 (March 18, 2004), 69 FR 13929 (March 24, 2004) (File No. SR-NYSE-2004-15). 15 *See id.* 16 *See id.* In this filing, File No. SR-NYSE-2004-20, the Exchange now seeks permanent approval for the Pilot Program currently in effect with respect to the Exchange's original minimum listing standards and approval of the continued minimum listing standards as initially proposed in File No. SR-NYSE-2003-43. File No. SR-NYSE-2004-20, as amended, by Amendment No. 1 was published in the **Federal Register** on July 2, 2004. 17 The Exchange also seeks approval for continued minimum listing standards, with changes to that proposed in File No. SR-NYSE-2003-43 that are responsive to public comments submitted to the Commission. The Exchange represents that it maintains an ongoing dialog with knowledgeable practitioners at investment banks, broker-dealers, and venture capital firms, and adjusts its listing standards periodically to ensure that the standards recognize and reflect current market conditions and to allow the Exchange to continue to attract quality companies. The Exchange represents, furthermore, that such changes are proposed only after detailed analysis by Exchange staff of how the proposed standards would affect the NYSE list. The NYSE asserts that the proposed amendments will strengthen certain aspects of the minimum original and continued listing standards, while modestly easing the pre-Pilot Program “Market-Cap/Revenue Test” to enable the NYSE to list somewhat younger companies that still meet substantial quantitative thresholds over their operating history. According to the NYSE, Exchange staff monitored the modest number of companies over the last two years that would have met the “Market-Cap/Revenue Test” as the Exchange proposes to modify it and found that those companies have performed to a standard that would be appropriate for inclusion on the NYSE list. The Exchange represents that its standard in this respect remains far higher than any other U.S. marketplace. 17 *See* supra note 4. Prior to the Pilot Program, Section 102.01C of the Listed Company Manual provided that a company must meet one of four specified financial standards in order to qualify to have its equity securities listed. The Exchange is proposing permanent approval of amendments to three of these four standards that have been in effect under the Pilot Program. 18 The Exchange is also proposing permanent approval of amendments to Section 103.01B(III), which provides a corresponding numerical standard applicable to international companies and have also been in effect under the Pilot Program. 18 The “Earnings Test,” the “Valuation/Revenue Test” (incorporating in one section the pre-Pilot Program Valuation/Revenue with Cash Flow Test and in another section the Pure Valuation/Revenue Test), or the “Affiliated Company Test.” *See supra* note 11 (approving File No. SR-NYSE-2003-43). Prior to the Pilot Program, Section 102.01C(I) required that a company demonstrate pre-tax earnings of $6.5 million in aggregate for the last three fiscal years, with either a minimum of:
(a)$2.5 million in earnings in the most recent fiscal year and $2 million in each of the preceding two years; or
(b)$4.5 million in earnings in the most recent fiscal year, with positive earnings in each of the preceding two years. Pursuant to the Pilot Program, the “Earnings Test” requires that companies demonstrate pre-tax earnings of $10 million in aggregate for the last three fiscal years. It also requires that the company demonstrate positive results in all three of the years tested with a minimum of $2.0 million in earnings in each of the preceding two years. The Exchange believes that these changes strengthen the “Earnings Test” standard and also simplify it by eliminating the current two-tiered structure. Prior to the Pilot Program, Section 102.01C(II) of the Listed Company Manual required that a company demonstrate market capitalization of at least $500 million and revenues of at least $100 million over the most recent 12-month period. Provided that these thresholds were met, a company with operating cash flows of at least $25 million in aggregate for the last three fiscal years and positive amounts in each of the three fiscal years would have qualified for listing. Section 102.01C(III) required that an issuer demonstrate
(a)market capitalization of at least $1 billion and
(b)revenues of at least $100 million in the most recent fiscal year. Because both of these tests are valuation and revenue-based, the Exchange now seeks permanent approval to consolidate them into one test with two alternative subsections. One of the sections of the current Pilot Program, the “Valuation/Revenue Test,” incorporates the pre-Pilot Program requirements of Section 102.01C(II) as the “Valuation/Revenue with Cash Flow Test” with no change to the previous thresholds. The other section incorporates the pre-Pilot Program requirements of Section 102.01C(III) as the “Pure Valuation/Revenue Test.” In addition, the Exchange is proposing to permanently approve the amendments to the thresholds of Section 102.01C(III) that require that companies demonstrate
(a)market capitalization of at least $750 million and
(b)revenues of at least $75 million during the most recent fiscal year. As noted above, the Exchange represents that its staff has monitored the modest number of companies over the last two years that would have met the Pilot Program's “Pure Valuation/Revenue Test” and found that those companies performed to a standard that is appropriate for inclusion on the NYSE list. The Exchange is also proposing permanent approval of corresponding restructuring changes to Section 103.01B of the Listed Company Manual, which sets out minimum numerical standards for non-U.S. issuers. The Exchange is also proposing permanent approval of changes to the numeric thresholds of Section 103.01B(III) in accordance with changes to Section 102.01C(III). In addition, the Exchange seeks permanent approval of its suspended Pilot Program restructuring and amending the numerical continued listing standards. Section 802.01B of the Listed Company Manual currently applies to companies that fall below any of the following criteria:
(i)Average global market capitalization over a consecutive 30 trading-day period is less than $50 million and total stockholders' equity is less than $50 million; or
(ii)average global market capitalization over a consecutive 30-trading-day period is less than $15 million; or
(iii)for companies that qualified for original listing under the “global market capitalization” standard,
(a)average global market capitalization over a consecutive 30 trading-day period is less than $500 million and total revenues are less than $20 million over the last 12 months (unless the resultant entity qualifies as an original listing under one of the other original listing standards), or
(b)average global market capitalization over a consecutive 30 trading-day period is less than $100 million. The Exchange proposes to amend these thresholds and to specifically relate the continued listing standards of Section 802.01B of the Listed Company Manual to the original listing standards of Section 102.01C used to qualify a company for listing. In addition, the Exchange proposes to add a minimum continued listing standard applicable to all companies regardless of original listing standard. This standard would require that all companies maintain average global market capitalization over a consecutive 30 trading-day period of at least $25,000,000 or be subject to suspension and delisting (the “Minimum Continued Listing Standard”). 19 19 This requirement is in substance identical to the proposal in File No. SR-NYSE-2003-43, but it restates the standard in a manner the Exchange believes is more readily understandable. In a substantive change from the current provisions and from the proposals as published for public comment, companies that fall below this minimum threshold would not be afforded the opportunity to submit a plan and “cure” their noncompliance over a plan period. In addition, companies that list under the Affiliated Company Test would be subject to the proposed $25,000,000 threshold, regardless of the status of their parent company. Companies that list under the Pilot Program “Earnings Test” or its predecessor test will be considered to be below compliance if average global market capitalization over a consecutive 30 trading-day period is less than $75,000,000 and, at the same time, total stockholders' equity is less than $75,000,000. This level has been increased in the proposal to reflect marketplace expectations of those companies deemed suitable for continued listing. The current alternate threshold for the Earnings Test that resulted in a company being below compliance if average global market capitalization over a consecutive 30 trading-day period is less than $15,000,000 is proposed to be eliminated as a result of the proposed $25,000,000 Minimum Continued Listing Standard. Issuers that list under the Pilot Program's “Valuation/Revenue with Cash Flow Test” or its predecessor test would be considered to be below compliance standards if:
(a)Average global market capitalization over a consecutive 30 trading-day period is less than $250 million and, at the same time, total revenues are less than $20 million over the last 12 months (unless the company qualifies as an original listing under one of the other original listing standards); 20 or
(b)average global market capitalization over a consecutive 30 trading-day period is less than $75 million. 20 These levels are lower than the existing “global market capitalization” standard. Issuers that list under the Pilot Program's “Pure Valuation/Revenue Test” or its predecessor test would be considered to be below compliance standards if:
(a)Average global market capitalization over a consecutive 30 trading-day period is less than $375 million and, at the same time, total revenues are less than $15 million over the last 12 months (unless the company qualifies as an original listing under one of the other original listing standards); or
(b)average global market capitalization over a consecutive 30 trading-day period is less than $100 million. The Exchange also proposes to clarify that, in circumstances where a listed company's parent or affiliated company no longer controls the listed company or such listed company's parent or affiliated company falls below the continued listing standards applicable to the parent or affiliated company, the continued listing standards applicable to the Pilot Program's “Earnings Test” would apply to companies that originally listed under the Affiliated Company Standard. Amendments are also proposed to make clear that companies that list under the Affiliated Company Standard are subject to the Minimum Continued Listing Standard, regardless of the status of the listed company's parent. In addition, the Exchange proposes to increase the continued listing criteria for closed-end funds, REITs, and limited partnerships from $15 million to $25 million with a corresponding increase to the notification threshold from $25 million to $35 million. Companies that fall below the foregoing minimum standards could be permitted a period of time to return to compliance, in accordance with the procedures specified in Sections 802.02 and 802.03 of the Listed Company Manual. As a general matter, companies must reestablish the level of market capitalization (and, if applicable, shareholder's equity) specified in the continued listing standard below which the company fell. However, with respect to the current requirements of Section 802.01B(I) that a company reestablish both its market capitalization and its stockholders' equity to the $50 million level, footnote
(C)to Section 802.01B provides several alternatives. Currently, the footnote specifies that, to return to conformity, a company must do one of the following:
(a)Reestablish both its market capitalization and its stockholders' equity to the $50 million level;
(b)achieve average global market capitalization over a consecutive 30-trading-day period of at least $100 million; or
(c)achieve average global market capitalization over a consecutive 30-trading-day period of $60 million, with either
(x)stockholders' equity of at least $40 million, or
(y)an increase in stockholders' equity of at least $40 million, since the company was notified by the Exchange that it was below continued listing standards. Likewise, with respect to the current requirements of Section 802.01B(iii) relating to companies that listed under the current global market capitalization standard, footnote
(D)states that companies must reestablish both market capitalization and revenues in conformity with continued listing standards. In a change from the proposals as originally published for comment, the Exchange proposes to eliminate footnotes
(C)and
(D)to Section 802.01B of the Listed Company Manual, and, instead proposes to amend Sections 802.02 and 802.03 to provide that a listed company's plan to regain compliance need only demonstrate how the company will cease to trigger the applicable Section 802.01B continued listing standard at the end of the allowable recovery period. For example, a company that listed under the proposed Earnings Test would be required to submit a plan that demonstrates how the company will exceed either the $75,000,000 market capitalization or shareholders' equity threshold, rather than be required to exceed both thresholds to regain compliance. It has been the Exchange's experience over the last five years that the sustained restoration of one component of the continued listing standard thresholds is evidence of a company's recovery. Due to the fact that a company would not be deemed below compliance unless it fell below both thresholds at the same time, the Exchange believes that the proposed amendment provides companies with a more rational basis for returning to compliance. This proposed change eliminates the potential for certain anomalies in situations where, for example, a company's stockholders' equity may never have been above the minimum and a decrease in market capitalization below the required threshold triggers non-compliance. Since it is the fact that market capitalization also dropped below the required threshold that results in a deficiency despite no change to stockholders' equity, the Exchange proposes to only require that the company recover market capitalization in order to regain compliance. The Exchange represents that it has considered how to transition the above-described changes to the continued listing standards and intends to provide a period of 30 trading days from the date of any Commission approval of the proposed amendments until such amendments would become effective. Sections 802.02 and 802.03 of the Listed Company Manual provide that, with respect to a company which is determined to be below continued listing standards a second time within 12 months of successful recovery from previous non-compliance, the Exchange will examine the relationship between the two incidents of falling below continued listing standards and re-evaluate the company's method of financial recovery from the first incident. The Exchange may then take appropriate action, which, depending upon the circumstances, may include truncating the normal procedures for reestablishing conformity with the continued listing standards or immediately initiating suspension and delisting procedures. For those companies that are within such a 12-month period and that would be deemed to be below continued listing standards as a direct result of the approval of the amendments proposed in this filing, the Exchange would not intend to truncate or immediately initiate suspension and delisting solely on the basis of the proposed increase to the current continued listing standards. The Exchange would take into consideration all of the facts and circumstances relating to the company in determining whether to allow such company an opportunity to submit a second plan. With respect to an issuer currently below the continued listing standards now in force, the Exchange intends to allow it to complete its applicable follow-up procedures and plan for return to compliance as provided in Sections 802.02 and 802.03 of the Listed Company Manual. If, at the end thereof, the issuer is compliant with the continued listing standards about which it was originally notified, but below the increased requirements set forth above, the Exchange would grant it an opportunity to present an additional business plan advising the Exchange of definitive action the issuer has taken, or is taking, that would bring it into conformity with the increased requirements within a further 12 months. In addition, if an issuer were to complete its currently applicable follow-up procedures and plan and were not compliant at that time with the continued listing standards about which it was originally notified, but is above the increased requirements set forth above, the Exchange would consider that issuer to be in conformity with the continued listing standards. For an issuer that is in compliance with the continued listing standards now in force, but that might be below the continued listing standards proposed herein, the proposed 30-day measurement period prior to effectiveness would allow the Exchange sufficient time to provide early warnings to any issuer that would potentially be below compliance at the end of that period. If, at the end of the 30-trading-day measurement period, an issuer is below the increased requirements set forth above, the Exchange would formally notify the issuer of such non-compliance and provide it with an opportunity to present a business plan within 45 days of that notification advising the Exchange of definitive action the issuer would take to bring it into conformity with the increased requirements within an 18-month period. Finally, the Exchange is proposing minor technical and conforming changes to Sections 102.02C, 103.01B, 802.01A, 802.01B, and 802.01C of the Listed Company Manual. 2. Statutory Basis The Exchange believes that the proposed rule change satisfies the requirement under Section 6(b)(5) of the Act 21 that the Exchange's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 21 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The NYSE does not believe that the proposed rule change would 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 The NYSE did not solicit or receive written comments on the proposed rule change. 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, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-NYSE-2004-20 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-2004-20. 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 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-2004-20 and should be submitted on or before April 6, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 22 22 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1132 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51350; File No. SR-OCC-2004-19] Self-Regulatory Organizations; The Options Clearing Corporation; Order Approving a Proposed Rule Change Relating to Clearing Member Trade Assignment Processing March 9, 2005. On November 1, 2004, the Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change (File No. SR-OCC-2004-19) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934. 1 Notice of the proposal was published in the **Federal Register** on February 7, 2005. 2 No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 51120 (Feb. 1, 2005), 70 FR 6486. I. Description The proposed rule change will add new clearing member trade assignment (“CMTA”) processing requirements to OCC's By-Laws and Rules. Specifically, OCC will modify Article I (“Definitions”) of its By-Laws and Rules 401 and 403 to require clearing members that are parties to a CMTA arrangement involving CMTA customers to register with OCC certain customer identifiers that the clearing members use to process the CMTA transactions. The new rules will provide that an exchange transaction executed on behalf of a CMTA customer that is to be transferred by CMTA processing for clearance and settlement will be identified by a special indicator called a Customer CMTA Indicator in the matching trade information submitted with respect to that transaction. 3 For each transaction marked with the Customer CMTA Indicator, the matching trade information will also contain a “CMTA Customer Identifier,” which provides identification information about the CMTA customer on whose behalf a transaction was executed, and an “IB Identifier,” which provides identification information about the introducing broker that executed or arranged for the execution of such transaction. 4 3 The same indicator will be used by all options exchanges. OCC made various system changes to process this indicator and other information to be supplied with respect to CMTA customers' transactions. Matching trade information submitted by the options exchanges will need to include this information that requires changes to the exchanges' systems. 4 If the “introducing broker” is also the “executing clearing member,” a separate IB Identifier will still be required. If a transaction is marked with the CMTA Indicator, OCC's systems will verify against a database of registered identifiers that the CMTA Customer Identifier and the IB Identifier supplied as a part of the trade information match registered identifiers for purposes of the CMTA arrangement between the carrying clearing member and executing clearing member. This verification step will be in addition to the other verifications performed by OCC's systems for CMTA processing. If a transaction is marked with a Customer CMTA Indicator but either the CMTA Customer Identifier or the IB Identifier is incomplete, inaccurate, or missing, OCC's systems will treat the transaction as a failed CMTA and will cause the transaction to be cleared in the executing clearing member's designated or default account in accordance with OCC Rule 403. Under the terms of a model agreement, which was developed by a working group of clearing members, options exchanges, and OCC, the firms will identify each CMTA covered customer. Each clearing member will then assign identifiers to their CMTA customers and introducing brokers. One clearing member will then register the assigned identifiers with OCC. OCC's systems will require the other clearing member to approve the identifiers before they are submitted to OCC for registration. Identifiers will be effectively registered when they are accepted by OCC's systems, subject to OCC's right to reject an already registered identifier. 5 OCC will retain the right to specify criteria applicable to the characters used to form identifiers for systemic reasons. 5 Carrying and executing clearing members will be responsible to update their respective registrations of CMTA Customer Identifiers and IB Identifiers including registering any changes or deletions with respect thereto. II. Discussion Section 17A(b)(3)(F) of the Act 6 requires that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions. The Commission finds that the proposed rule change is consistent with OCC's obligations under Section 17A(b)(3)(F) because including identifying information about the CMTA customer and introducing broker to a transaction will make CMTA processing more transparent and should increase the regulatory and legal certainties with respect thereto. Specifically, the amendment to CTMA processing should better enable OCC members to make sure that transactions are properly sent to their accounts for clearing. 6 15 U.S.C. 78q-1(b)(3)(F). III. Conclusion On the basis of the foregoing, the Commission finds that the proposal is consistent with the requirements of the Act and in particular with the requirements of Section 17A of the Act 7 and the rules and regulations thereunder. 7 15 U.S.C. 78q-1. *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-OCC-2004-19) be, and hereby is, approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 8 8 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1143 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51352; File No. SR-Phlx-2005-03] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto by the Philadelphia Stock Exchange, Inc. Relating to System Changes to the Exchange's Automated Options Market (AUTOM) System March 9, 2005. 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 January 10, 2005, the Philadelphia Stock Exchange, Inc. (“Phlx” 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 March 9, 2005, the Exchange filed Amendment No. 1 to the proposed rule change. 3 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 March 8, 2005 (“Amendment No. 1”). In Amendment No. 1, the Exchange clarified the proposed new functionality of the AUTOM System. Amendment No. 1 replaced the original filing in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend certain Exchange rules relating to system changes to the Philadelphia Stock Exchange Automated Options Market (“AUTOM”) System. 4 The text of the proposed rule change is included below. Italics indicate new text; brackets indicate deletions. 4 AUTOM is the Exchange's electronic order delivery, routing, execution and reporting system, which provides for the automatic entry and routing of equity option and index option orders to the Exchange trading floor. Orders delivered through AUTOM may be executed manually, or certain orders are eligible for AUTOM's automatic execution features, AUTO-X, Book Sweep and Book Match. Equity option and index option specialists are required by the Exchange to participate in AUTOM and its features and enhancements. Option orders entered by Exchange members into AUTOM are routed to the appropriate specialist limit order book on the Exchange trading floor. *See* Exchange Rule 1080. Rule 1080. Philadelphia Stock Exchange Automated Options Market (AUTOM) and Automatic Execution System (AUTO-X) (a)-(b) No change.
(c)AUTO-X. (i)-(iii) No change.
(iv)Except as otherwise provided in this Rule, in the following circumstances, an order otherwise eligible for automatic execution will instead be manually handled by the specialist:
(A)The Exchange's disseminated market is crossed ( *i.e.* , 2[−1/8] *.10* bid, 2 offer), or crosses the disseminated market of another options exchange;
(B)The AUTOM System is not open for trading when the order is received (which is known as a pre-market order);
(C)The disseminated market is produced during an opening or other rotation;
(D)When the specialist posts a bid or offer that is better than the specialist's own bid or offer (except with respect to orders eligible for “Book Sweep” as described in Rule 1080(c)(iii) above, and “Book Match” as described in Rule 1080(g)(ii) below);
(E)If the Exchange's bid or offer is not the NBBO;
(F)When the price of a limit order is not in the appropriate minimum trading increment pursuant to Rule 1034; *and* (G[) When the bid price is zero respecting sell orders; and (H]) Respecting non-Streaming Quote Options, when the number of contracts automatically executed within a 15 second period in an option (subject to a Pilot program through April 30, 2005) exceeds the specified disengagement size, a 30 second period ensues during which subsequent orders are handled manually. If the Exchange's disseminated size exceeds the specified disengagement size and an eligible order is delivered for a number of contracts that is greater than the specified disengagement size, such an order will be automatically executed up to the disseminated size, followed by an AUTO-X disengagement period of 30 seconds. If the specialist revises the quotation in such an option prior to the expiration of such 30-second period, eligible orders in such an option shall again be executed automatically. The Exchange's systems are designed and programmed to identify the conditions that cause inbound orders to be ineligible for automatic execution. Once it is established that inbound orders are ineligible for automatic execution, Exchange staff has the ability to determine which of the above conditions occurred. *(v) In situations in which the Exchange receives a market order that is not eligible for automatic execution because of any of the conditions described in Rule 1080(c)(iv), such market order, if not already executed manually by the specialist, will nonetheless be executed automatically when:
(A)a limit order resting on the limit order book or a quotation that was not priced at the NBBO at the time such market order was received, becomes priced at the NBBO; or
(B)an inbound limit order or quotation priced at or better than the NBBO is received before the specialist has manually executed such market order. In each case, the AUTOM System will automatically execute the market order against such resting limit order or quotation, or against such inbound limit order or quotation, at or better than the NBBO price.* *(vi) When the Exchange's disseminated quotation is not the NBBO (and, pursuant to Rule 1080(c)(iv)(E), inbound orders otherwise eligible for automatic execution are instead handled manually by the specialist):* *(A)
(1)Marketable public customer limit orders will be exposed to the trading crowd and to participants in Phlx XL for a period of three seconds following receipt. At the end of the three-second exposure period:
(a)If the Exchange's disseminated price is not the NBBO, any unexecuted contracts remaining in such an order will be automatically sent as a P/A Order through the Intermarket Option Linkage to any other exchange whose disseminated price is the NBBO, subject to the provisions contained in Rules 1083-1087; or
(b)if the Exchange's disseminated price is the NBBO, any unexecuted contracts remaining in such an order will be automatically executed up to the Exchange's disseminated size. Any remaining contracts will be sent as P/A Order(s) to the exchange(s) displaying the NBBO.* *(2) For each option in which a specialist is assigned, such specialist shall submit to the Exchange prior written instructions for the routing of any P/A orders the specialist may send through AUTOM to the Intermarket Option Linkage in accordance with Rules 1083-1087. The Exchange's AUTOM System will route P/A Orders on the basis of these written instructions.* *(B) Marketable limit orders for the proprietary account(s) of a broker-dealer, or any account in which a broker-dealer or an associated person of a broker-dealer has any direct or indirect interest, will be automatically cancelled, and a message indicating the cancellation will be automatically sent to the sender of the order.* (d)-(h) No change.
(i)[RESERVED] *Zero-bid option series. The AUTOM System will convert market orders to sell a particular option series that are received when the bid price in such option series is zero, to limit orders to sell with a limit price of $.05. Such orders will be automatically placed on the limit order book in price-time priority.* (j)-(k) No change. Commentary: 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 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 The purpose of the proposed rule change is to establish rules to reflect system changes to AUTOM that are intended to increase the number of orders that are handled and executed automatically on the Exchange. Automatic Sending of P/A Orders The Exchange proposes to adopt new rules for the automated handling of inbound limit orders when the Exchange's disseminated price is not the National Best Bid or Offer (“NBBO”). Currently, Exchange Rule 1080(g)(ii)(B) states that inbound marketable orders will be automatically executed against a limit order on the book or specialist, Remote Streaming Quote Trader (“RSQT”) 5 and/or Streaming Quote Trader (“SQT”) 6 electronic quotes at the disseminated price where:
(1)The Exchange's disseminated size includes limit orders on the book and/or electronic quotes at the disseminated price; and
(2)the disseminated price is the NBBO. This feature is called Book Match. Book Match will not automatically execute inbound orders against limit orders resting on the limit order book under the circumstances listed in Exchange Rule 1080(c)(iv). Specifically, Exchange Rule 1080(c)(iv)(E) provides that orders otherwise eligible for automatic execution are handled manually by the specialist when the Exchange's bid or offer is not the NBBO. The specialist is currently responsible for handling an order manually when it would otherwise be eligible for automatic execution and, with respect to customer limit orders received when the Exchange's best bid or offer is not the NBBO, may send via the Intermarket Option Linkage (“Linkage”), a Principal Acting as Agent (“P/A”) Order 7 pursuant to the Plan for the Purpose of Creating and Operating an Intermarket Option Linkage (“Linkage Plan”) 8 to the options exchange disseminating the NBBO. 5 An RSQT is an Exchange Registered Options Trader (“ROT”) that is a member or member organization of the Exchange with no physical trading floor presence who has received permission from the Exchange to generate and submit option quotations electronically through AUTOM in eligible options in which such RSQT has been assigned. An RSQT may only submit such quotations electronically from off the floor of the Exchange. An RSQT may only trade in a market making capacity in classes of options in which he is assigned. *See* Exchange Rule 1014(b)(ii)(B). 6 An SQT is an ROT who has received permission from the Exchange to generate and submit option quotations electronically through AUTOM in eligible options to which such SQT is assigned. *See* Exchange Rule 1014(b)(ii)(A). 7 A P/A Order is an order for the principal account of a specialist (or equivalent entity on another Participant Exchange that is authorized to represent Public Customer orders), reflecting the terms of a related unexecuted Public Customer order for which the specialist is acting as agent. *See* Exchange Rule 1083(k)(i). 8 *See* Securities Exchange Act Release Nos. 44482 (June 27, 2001), 66 FR 35470 (July 5, 2001) (Amendment to Linkage Plan to Conform to the Requirements of Securities Exchange Act Rule 11Ac1-7; 43573 (November 16, 2000), 65 FR 70851 (November 28, 2000) (Notice of Phlx Joining the Linkage Plan); and 43086 (July 28, 2000), 65 FR 48023 (August 4, 2000) (Approval of the Linkage Plan). Proposed Exchange Rule 1080(c)(vi)(A)(1) would address the manner in which the AUTOM System handles inbound marketable public customer limit orders when the Exchange's disseminated price is not the NBBO. Specifically, proposed Exchange Rule 1080(c)(vi)(A)(1)(a) would provide that, when the Exchange's disseminated quotation is not the NBBO (and, pursuant to Exchange Rule 1080(c)(iv)(E), inbound orders otherwise eligible for automatic execution are instead handled manually by the specialist), marketable public customer limit orders would be exposed to the trading crowd and to participants in Phlx XL for a period of three seconds following receipt. At the end of the three-second exposure period, if the Exchange's disseminated price is not the NBBO, any unexecuted contracts remaining in such an order would be automatically sent as a P/A Order through the Linkage to any other exchange whose disseminated price is the NBBO, subject to the provisions contained in Exchange Rules 1083-1087, which generally govern the handling of orders sent and received via the Linkage. Proposed Exchange Rule 1080(c)(vi)(A)(1)(b) would address the situation where, at the end of the three-second period, the Exchange's disseminated price is the NBBO. In such a circumstance, any unexecuted contracts remaining in the marketable public customer limit order would be automatically executed 9 up to the Exchange's disseminated size. Any remaining contracts would be sent as P/A Order(s) to the exchange(s) displaying the NBBO. If the marketable public customer limit order is canceled during the three-second period, no P/A Order would be sent, nor would the marketable public customer limit order be executed. The Exchange believes that the three-second exposure period should provide Exchange specialists and ROTs sufficient opportunity to execute such orders at a price that is at or better than the NBBO during the three-second period following receipt of the marketable public customer limit order. The Exchange further believes that this change to the AUTOM System should result in more automated handling of inbound marketable public customer limit orders, and should help achieve the best execution of customer orders on the Exchange and through the Linkage. 9 The Exchange notes that another options exchange handles inbound customer orders received when the exchange is not disseminating the NBBO in a similar fashion, including the situation in which that exchange's disseminated price is the NBBO at the end of the three-second period. *See* Boston Options Exchange Rules, Chapter V, Section 16(b)(iii)(2)(b) and (c). The specialist is required to act with due diligence with regard to the interests of orders entrusted to him/her and fulfill other duties of an agent, including, but not limited to, ensuring that such orders, regardless of their size or source, receive proper representation and timely execution in accordance with the terms of the orders and the rules of the Exchange. To enable the specialist to carry out his/her agency responsibilities with respect to P/A Orders submitted through the Linkage, the Exchange, pursuant to proposed Exchange Rule 1080(c)(vi)(A)(2), would require that a specialist submit prior written instructions to the Exchange regarding the routing of any P/A Orders that the specialist would send through the Linkage. The AUTOM System would route P/A Orders on behalf of the specialist according to these instructions three seconds after receipt of the marketable public customer limit order if such order is not executed or is partially executed during the three-second period and the Exchange's disseminated price at the end of the three-second period is not the NBBO. In the case of a partial execution during the three-second period, the P/A Order that is routed to the market disseminating the NBBO would be for the size that is equal to the number of contracts remaining in the order. Each execution received from an away exchange would result in the automatic generation of a trade execution on the Exchange between the original marketable public customer limit order and the specialist. The Exchange believes that the specialist's instructions should ensure that such specialist is ultimately responsible for decisions regarding the routing of P/A Orders and exercises appropriate discretion over such orders. While the AUTOM System may carry out the mechanics of routing such orders, the specialist assigned in the particular issue that is the subject of a P/A Order would be responsible for providing the Exchange with instructions on how and where to route a P/A Order. The Exchange believes that the proposed rule requiring the specialist to provide routing instructions to the Exchange should ensure that P/A Orders will be handled in accordance with the Linkage Plan. Broker-Dealer Orders Marketable limit orders for the proprietary account(s) of a broker-dealer (or any account in which a broker-dealer or an associated person of a broker-dealer has any direct or indirect interest) received when the Exchange's disseminated quotation is not the NBBO would be automatically cancelled by the AUTOM System. A message indicating the cancellation would be automatically sent to the sender of the order. The purpose of this proposal is to avoid trading through a better away market when the Exchange's disseminated price is not the NBBO. Unlike marketable public customer limit orders, which enable the specialist to generate and forward a P/A Order to the exchange disseminating the NBBO through the Linkage, an order for the proprietary account of a broker-dealer (or any account in which a broker-dealer or an associated person of a broker-dealer has any direct or indirect interest) does not enable the specialist to generate a P Order on behalf of the broker-dealer. The cancellation of such an order when the Exchange's disseminated price is not the NBBO, and the message to the sender of such an order that the order has been cancelled, should enable the sender to decide to route a new order to the exchange disseminating the NBBO. Market Orders to Sell When the Exchange's Bid Price is Zero Exchange Rule 1080(c)(iv)(G) currently provides that sell orders received in a particular series in which the disseminated bid price is zero 10 are handled manually by the specialist. The proposal would delete Exchange Rule 1080(c)(iv)(G) and adopt new Exchange Rule 1080(i) concerning the automated handling of market orders to sell when the bid price is zero. Under the proposal, the AUTOM system would automatically convert market orders to sell when the bid price is zero to limit orders to sell with a limit price of $.05. Such market orders to sell, as well as limit orders to sell, would be placed on the limit order book in price-time priority. The purpose of this provision is to establish the time priority of market orders to sell when the bid price in the particular series is zero (and thus no execution could occur). In the event that the bid price in the particular series becomes $.05 or greater, thus establishing a bid price that makes the booked limit orders to sell marketable, such orders to sell at the $.05 limit price or better would be executed in the order in which they were received ( *i.e.* , price-time priority). The Exchange believes that this proposed rule should reduce the manual handling of such orders and automate the processing of market orders to sell when the Exchange's bid price is zero. 10 A bid price of zero typically occurs in situations where there is no intrinsic value in the series quoted ( *i.e.* , where an option series is out-of-the-money by a relatively large amount and such series is close to expiration). Market Orders Received That Are Not Eligible for Automatic Execution Proposed Exchange Rule 1080(c)(v) would address the situation in which the Exchange receives a market order that is not eligible for automatic execution because of any of the conditions described in Exchange Rule 1080(c)(iv). The proposed rule would provide that such market order, if not already executed manually by the specialist, would nonetheless be executed automatically in two situations. In one situation, such a market order, if not already executed manually by the specialist, would be automatically executed against a limit order resting on the limit order book or a quotation that was not priced at the NBBO at the time such market order was received, if the resting limit order or quotation becomes priced at the NBBO. Alternatively, the AUTOM System would automatically execute a market order that is being handled manually by the specialist when an inbound limit order or quotation priced at or better than the NBBO is received before the specialist has manually executed such market order. The Exchange believes that this proposed change to the AUTOM System would eliminate the need for the specialist to match the market order manually against quotes or limit orders if an execution is possible at the NBBO while the specialist is handling the market order. The Exchange believes that proposed Exchange Rule 1080(c)(v) should result in more timely executions, and enhance the specialist's ability to provide the best execution on behalf of market orders entrusted to him/her, by automating the process currently carried out by the specialist. Rule Change To Reflect Decimalization As a housekeeping matter, the Exchange proposes to amend Exchange Rule 1080(c)(iv)(A) to reflect decimal pricing in the parenthetical example of a crossed market. 2. Statutory Basis The Exchange believes that the proposed rule change 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 prevent fraudulent and manipulative acts, and, in general, to protect investors and the public interest, by implementing changes to the AUTOM System that result in a greater number of orders that are handled and executed automatically. 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 The Exchange has neither solicited nor received written comments on the proposed rule change. 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 the proposed rule change, or
(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-Phlx-2005-03 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-2005-03. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the 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-Phlx-2005-03 and should be submitted on or before April 6, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 13 13 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-1131 Filed 3-15-05; 8:45 am] BILLING CODE 8010-01-P DEPARTMENT OF TRANSPORTATION Maritime Administration Voluntary Intermodal Sealift Agreement AGENCY: Maritime Administration, DOT. ACTION: Notice of Voluntary Intermodal Sealift Agreement (VISA). SUMMARY: The Maritime Administration (MARAD) announces the extension of the Voluntary Intermodal Sealift Agreement
(VISA)until September 30, 2005, pursuant to provision of the Defense Production Act of 1950, as amended. The purpose of the VISA is to make intermodal shipping services/systems, including ships, ships' space, intermodal equipment and related management services, available to the Department of Defense as required to support the emergency deployment and sustainment of U.S. military forces. This is to be accomplished through cooperation among the maritime industry, the Department of Transportation and the Department of Defense. FOR FURTHER INFORMATION CONTACT: Taylor E. Jones II, Director, Office of Sealift Support, Room 7304, Maritime Administration, 400 Seventh Street SW., Washington, DC 20590,
(202)366-3423, Fax
(202)366-3128. SUPPLEMENTARY INFORMATION: Section 708 of the Defense Production Act of 1950, as amended, (50 U.S.C. App. 2158), as implemented by regulations of the Federal Emergency Management Agency (44 CFR Part 332), “Voluntary agreements for preparedness programs and expansion of production capacity and supply”, authorizes the President, upon a finding that conditions exist which may pose a direct threat to the national defense or its preparedness programs, “* * * to consult with representatives of industry, business, financing, agriculture, labor and other interests * * *” in order to provide the making of such voluntary agreements. It further authorizes the President to delegate that authority to individuals who are appointed by and with the advice and consent of the Senate, upon the condition that such individuals obtain the prior approval of the Attorney General after the Attorney General's consultation with the Federal Trade Commission. Section 501 of Executive Order 12919, as amended, delegated this authority of the President to the Secretary of Transportation (Secretary), among others. By DOT Order 1900.9, the Secretary delegated to the Maritime Administrator the authority under which the VISA is sponsored. Through advance arrangements in joint planning, it is intended that participants in VISA will provide capacity to support a significant portion of surge and sustainment requirements in the deployment of U.S. military forces during war or other national emergency. The text of the VISA was first published in the **Federal Register** on February 13, 1997, to be effective for a two-year term until February 13, 1999. The VISA document has been extended and subsequently published in the **Federal Register** every two years. The last extension was published on February 25, 2003. The text of the VISA herein is identical to the text previously published in the **Federal Register** . The text published herein will now be implemented. Copies will be made available to the public upon request. Text of the Voluntary Intermodal Sealift Agreement: Voluntary Intermodal Sealift Agreement
(VISA)9 December 1996 Table of Contents Abbreviations Definitions Preface I. Purpose II. Authorities A. MARAD B. USTRANSCOM III. General A. Concept B. Responsibilities C. Termination of Charter, Leases and Other Contractual Arrangements D. Modification/Amendment of This Agreement E. Administrative Expenses F. Record Keeping G. MARAD Reporting Requirements IV. Joint Planning Advisory Group V. Activation of VISA Contingency Provisions A. General B. Notification of Activation C. Voluntary Capacity D. Stage I E. Stage II F. Stage III G. Partial Activation VI. Terms and Conditions A. Participation B. Agreement of Participant C. Effective Date and Duration of Participation D. Participant Termination of VISA E. Rules and Regulations F. Carrier Coordination Agreements G. Enrollment of Capacity (Ships and Equipment) H. War Risk Insurance I. Antitrust Defense J. Breach of Contract Defense K. Vessel Sharing Agreements VII. Application and Agreement Figure 1—VISA Activation Process Diagram Abbreviations “AMC”—Air Mobility Command “CCA”—Carrier Coordination Agreements “CDS”—Construction Differential Subsidy “CFR”—Code of Federal Regulations “CONOPS”—Concept of Operations “DoD”—Department of Defense “DOJ”—Department of Justice “DOT”—Department of Transportation “DPA”—Defense Production Act “EUSC”—Effective United States Control “FAR”—Federal Acquisition Regulations “FEMA”—Federal Emergency Management Agency “FTC”—Federal Trade Commission “JCS”—Joint Chiefs of Staff “JPAG”—Joint Planning Advisory Group “MARAD”—Maritime Administration, DOT “MSP”—Maritime Security Program “MSC”—Military Sealift Command “MTMC”—Military Transportation Management Command “NCA”—National Command Authorities “NDRF”—National Defense Reserve Fleet maintained by MARAD “ODS”—Operating Differential Subsidy “RRF”—Ready Reserve Force component of the NDRF “SecDef”—Secretary of Defense “SecTrans”—Secretary of Transportation “USCINCTRANS”—Commander in Chief, United States Transportation Command “USTRANSCOM”—United States Transportation Command (including its sealift transportation component, Military Sealift Command) “VISA”—Voluntary Intermodal Sealift Agreement “VSA”—Vessel Sharing Agreement *Definitions* —For purposes of this agreement, the following definitions apply: *Administrator* —Maritime Administrator. *Agreement* —Agreement (proper noun) refers to the Voluntary Intermodal Sealift Agreement (VISA). *Attorney General* —Attorney General of the United States. *Broker* —A person who arranges for transportation of cargo for a fee. *Carrier Coordination Agreement (CCA)* —An agreement between two or more Participants or between Participant and non-Participant carriers to coordinate their services in a Contingency, including agreements to:
(i)Charter vessels or portions of the cargo-carrying capacity of vessels;
(ii)share cargo handling equipment, chassis, containers and ancillary transportation equipment;
(iii)share wharves, warehouse, marshaling yards and other marine terminal facilities; and
(iv)coordinate the movement of vessels. *Chairman* —FTC—Chairman of the Federal Trade Commission (FTC). *Charter* —Any agreement or commitment by which the possession or services of a vessel are secured for a period of time, or for one or more voyages, whether or not a demise of the vessel. *Commercial* —Transportation service provided for profit by privately owned (not government owned) vessels to a private or government shipper. The type of service may be either common carrier or contract carriage. *Contingency* —Includes, but is not limited to a “contingency operation” as defined at 10 App. U.S.C. 101(a)(13), and a JCS-directed, NCA-approved action undertaken with military forces in response to:
(i)Natural disasters;
(ii)terrorists or subversive activities; or
(iii)required military operations, whether or not there is a declaration of war or national emergency. *Contingency contracts* —DoD contracts in which Participants implement advance commitments of capacity and services to be provided in the event of a Contingency. *Contract carrier* —A for-hire carrier who does not hold out regular service to the general public, but instead contracts, for agreed compensation, with a particular shipper for the carriage of cargo in all or a particular part of a ship for a specified period of time or on a specified voyage or voyages. *Controlling interest* —More than a 50-percent interest by stock ownership. *Director* —FEMA—Director of Federal Emergency Management Agency (FEMA). *Effective U.S. Control (EUSC)* —U.S. citizen-owned ships which are registered in certain open registry countries and which the United States can rely upon for defense in national security emergencies. The term has no legal or other formal significance. U.S. citizen-owned ships registered in Liberia, Panama, Honduras, the Bahamas and the Republic of the Marshall Islands are considered under effective U.S. control. EUSC registries are recognized by the Maritime Administration after consultation with the Department of Defense. (MARAD OPLAN 001A, 17 July 1990) *Enrollment Contract* —The document, executed and signed by MSC, and the individual carrier enrolling that carrier into VISA Stage III. *Foreign flag vessel* —A vessel registered or documented under the law of a country other than the United States of America. *Intermodal equipment* —Containers (including specialized equipment), chassis, trailers, tractors, cranes and other materiel handling equipment, as well as other ancillary items. *Liner—* Type of service offered on a definite, advertised schedule and giving relatively frequent sailings at regular intervals between specific ports or ranges. *Liner throughput capacity* —The system/intermodal capacity available and committed, used or unused, depending on the system cycle time necessary to move the designated capacity through to destination. Liner throughput capacity shall be calculated as: static capacity (outbound from CONUS) X voyage frequency X.5. *Management services* —Management expertise and experience, intermodal terminal management, information resources, and control and tracking systems. *Ocean Common carrier* —An entity holding itself out to the general public to provide transportation by water of passengers or cargo for compensation; which assumes responsibility for transportation from port or point of receipt to port or point of destination; and which operates and utilizes a vessel operating on the high seas for all or part of that transportation. (As defined in 46 App. U.S.C. 1702, 801, and 842 regarding international, interstate, and intercoastal commerce respectively.) *Operator* —An ocean common carrier or contract carrier that owns or controls or manages vessels by which ocean transportation is provided. *Organic sealift* —Ships considered to be under government control or long-term charter—Fast Sealift Ships, Ready Reserve Force and commercial ships under long-term charter to DoD. *Participant* —A signatory party to VISA, and otherwise as defined within Section VI of this document. *Person* —Includes individuals and corporations, partnerships, and associations existing under or authorized by the laws of the United States or any state, territory, district, or possession thereof, or of a foreign country. *SecTrans* —Secretary of Transportation. *Service contract* —A contract between a shipper (or a shipper's association) and an ocean common carrier (or conference) in which the shipper makes a commitment to provide a certain minimum quantity of cargo or freight revenue over a fixed time period, and the ocean common carrier or conference commits to a certain rate or rate schedule, as well as a defined service level (such as assured space, transit time, port rotation, or similar service features), as defined in the Shipping Act of 1984. The contract may also specify provisions in the event of nonperformance on the part of either party. *Standby period* —The interval between the effective date of a Participant's acceptance into the Agreement and the activation of any stage, and the periods between deactivation of all stages and any later activation of any stage. *U.S. Flag Vessel* —A vessel registered or documented under the laws of the United States of America. *USTRANSCOM* —The United States Transportation Command and its component commands (AMC, MSC and MTMC). *Vessel Sharing Agreement
(VSA)Capacity* —Space chartered to a Participant for carriage of cargo, under its commercial contracts, service contracts or in common carriage, aboard vessels shared with another carrier or carriers pursuant to a commercial vessel sharing agreement under which the carriers may compete with each other for the carriage of cargo. In U.S. foreign trades the agreement is filed with the Federal Maritime Commission
(FMC)in conformity with the Shipping Act of 1984 and implementing regulations. *Volunteers* —Any vessel owner/operator who is an ocean carrier and who offers to make capacity, resources or systems available to support contingency requirements. Preface The Administrator, pursuant to the authority contained in Section 708 of the Defense Production Act of 1950, as amended (50 App. U.S.C. 2158)(Section 708)(DPA), in cooperation with the Department of Defense (DoD), has developed this Agreement [hereafter called the Voluntary Intermodal Sealift Agreement (VISA)] to provide DoD the commercial sealift and intermodal shipping services/systems necessary to meet national defense Contingency requirements. USTRANSCOM procures commercial shipping capacity to meet requirements for ships and intermodal shipping services/systems through arrangements with common carriers, with contract carriers and by charter. DoD (through USTRANSCOM) and Department of Transportation
(DOT)(through MARAD) maintain and operate a fleet of ships owned by or under charter to the Federal Government to meet the logistic needs of the military services which cannot be met by existing commercial service. Ships of the Ready Reserve Force
(RRF)are selectively activated for peacetime military tests and exercises, and to satisfy military operational requirements which cannot be met by commercial shipping in time of war, national emergency, or military Contingency. Foreign-flag shipping is used in accordance with applicable laws, regulations and policies. The objective of VISA is to provide DoD a coordinated, seamless transition from peacetime to wartime for the acquisition of commercial sealift and intermodal capability to augment DoD's organic sealift capabilities. This Agreement establishes the terms, conditions and general procedures by which persons or parties may become VISA Participants. Through advance joint planning among USTRANSCOM, MARAD and the Participants, Participants may provide predetermined capacity in designated stages to support DoD Contingency requirements. VISA is designed to create close working relationships among MARAD, USTRANSCOM and Participants through which Contingency needs and the needs of the civil economy can be met by cooperative action. During Contingencies, Participants are afforded maximum flexibility to adjust commercial operations by Carrier Coordination Agreements (CCA), in accordance with applicable law. Participants will be afforded the first opportunity to meet DoD peacetime and Contingency sealift requirements within applicable law and regulations, to the extent that operational requirements are met. In the event VISA Participants are unable to fully meet Contingency requirements, the shipping capacity made available under VISA may be supplemented by ships/capacity from non-Participants in accordance with applicable law and by ships requisitioned under Section 902 of the Merchant Marine Act, 1936 (as amended) (46 App. U.S.C. 1242). In addition, containers and chassis made available under VISA may be supplemented by services and equipment acquired by USTRANSCOM or accessed by the Administrator through the provisions of 46 CFR Part 340. The Secretary of Defense (SecDef) has approved VISA as a sealift readiness program for the purpose of Section 909 of the Merchant Marine Act, 1936, as amended (46 App. U.S.C. 1248). Voluntary Intermodal Sealift Agreement I. Purpose A. The Administrator has made a determination, in accordance with Section 708(c)(1) of the Defense Production Act
(DPA)of 1950, that conditions exist which may pose a direct threat to the national defense of the United States or its preparedness programs and, under the provisions of Section 708, has certified to the Attorney General that a standby agreement for utilization of intermodal shipping services/systems is necessary for the national defense. The Attorney General, in consultation with the Chairman of the Federal Trade Commission, has issued a finding that dry cargo shipping capacity to meet national defense requirements cannot be provided by the industry through a voluntary agreement having less anticompetitive effects or without a voluntary agreement. B. The purpose of VISA is to provide a responsive transition from peace to Contingency operations through pre-coordinated agreements for sealift capacity to support DoD Contingency requirements. VISA establishes procedures for the commitment of intermodal shipping services/systems to satisfy such requirements. VISA will change from standby to active status upon activation by appropriate authority of any of the Stages, as described in Section V. C. It is intended that VISA promote and facilitate DoD's use of existing commercial transportation resources and integrated intermodal transportation systems, in a manner which minimizes disruption to commercial operations, whenever possible. D. Participants' capacity which may be committed pursuant to this Agreement may include all intermodal shipping services/systems and all ship types, including container, partial container, container/bulk, container/roll-on/roll-off, roll-on/roll-off (of all varieties), breakbulk ships, tug and barge combinations, and barge carrier (LASH, SeaBee). II. Authorities A. MARAD 1. Sections 101 and 708 of the DPA, as amended (50 App. U.S.C. 2158); Executive Order 12919, 59 FR 29525, June 7, 1994; Executive Order 12148, 3 CFR 1979 Comp., p. 412, as amended; 44 CFR Part 332; DOT Order 1900.8; 46 CFR Part 340. 2. Section 501 of Executive Order 12919, as amended, delegated the authority of the President under Section 708 to SecTrans, among others. By DOT Order 1900.8, SecTrans delegated to the Administrator the authority under which VISA is sponsored. B. USTRANSCOM 1. Section 113 and Chapter 6 of Title 10 of the United States Code. 2. DoD Directive 5158.4 designating USCINCTRANS to provide air, land, and sea transportation for the DoD. III. General A. Concept 1. VISA provides for the staged, time-phased availability of Participants' shipping services/systems to meet NCA-directed DoD Contingency requirements in the most demanding defense oriented sealift emergencies and for less demanding defense oriented situations through prenegotiated Contingency contracts between the government and Participants (see Figure 1). Such arrangements will be jointly planned with MARAD, USTRANSCOM, and Participants in peacetime to allow effective, and efficient and best valued use of commercial sealift capacity, provide DoD assured Contingency access, and minimize commercial disruption, whenever possible. a. Stages I and II provide for prenegotiated contracts between the DoD and Participants to provide sealift capacity against all projected DoD Contingency requirements. These agreements will be executed in accordance with approved DoD contracting methodologies. b. Stage III will provide for additional capacity to the DoD when Stages I and II commitments or volunteered capacity are insufficient to meet Contingency requirements, and adequate shipping services from non-Participants are not available through established DoD contracting practices or U.S. Government treaty agreements. 2. Activation will be in accordance with procedures outlined in Section V of this Agreement. 3. Following is the prioritized order for utilization of commercial sealift capacity to meet DoD peacetime and Contingency requirements: a. U.S. Flag vessel capacity operated by a Participant and U.S. Flag Vessel Sharing Agreement
(VSA)capacity of a Participant. b. U.S. Flag vessel capacity operated by a non-Participant. c. Combination U.S./foreign flag vessel capacity operated by a Participant and combination U.S./foreign flag VSA capacity of a Participant. d. Combination U.S./foreign flag vessel capacity operated by a non-Participant. e. U.S. owned or operated foreign flag vessel capacity and VSA capacity of a Participant. f. U.S. owned or operated foreign flag vessel capacity and VSA capacity of a non-Participant. g. Foreign-owned or operated foreign flag vessel capacity of a non-Participant. 4. Under Section VI.F. of this Agreement, Participants may implement CCAs to fulfill their contractual commitments to meet VISA requirements. B. Responsibilities 1. The SecDef, through USTRANSCOM, shall: a. Define time-phased requirements for Contingency sealift capacity and resources required in Stages I, II and III to augment DoD sealift resources. b. Keep MARAD and Participants apprised of Contingency sealift capacity required and resources committed to Stages I and II. c. Obtain Contingency sealift capacity through the implementation of specific prenegotiated DoD Contingency contracts with Participants. d. Notify the Administrator upon activation of any stage of VISA. e. Co-chair (with MARAD) the Joint Planning Advisory Group (JPAG). f. Establish procedures, in accordance with applicable law and regulation, providing Participants with necessary determinations for use of foreign flag vessels to replace an equivalent U.S. Flag capacity to transport a Participant's normal peacetime DoD cargo, when Participant's U.S. Flag assets are removed from regular service to meet VISA Contingency requirements. g. Provide a reasonable time to permit an orderly return of a Participant's vessel(s) to its regular schedule and termination of its foreign flag capacity arrangements as determined through coordination between DoD and the Participants. h. Review and endorse Participants' requests to MARAD for use of foreign flag replacement capacity for non-DoD government cargo, when U.S. Flag capacity is required to meet Contingency requirements. 2. The SecTrans, through MARAD, shall: a. Review the amount of sealift resources committed in DoD contracts to Stages I and II and notify USTRANSCOM if a particular level of VISA commitment will have serious adverse impact on the commercial sealift industry's ability to provide essential services. MARAD's analysis shall be based on the consideration that all VISA Stage I and II capacity committed will be activated. This notification will occur on an annual basis upon USCINCTRANS' acceptance of VISA commitments from the Participants. If so advised by MARAD, USTRANSCOM will adjust the size of the stages or provide MARAD with justification for maintaining the size of those stages. USTRANSCOM and MARAD will coordinate to ensure that the amount of sealift assets committed to Stages I and II will not have an adverse, national economic impact. b. Coordinate with DOJ for the expedited approval of CCAs. c. Upon request by USCINCTRANS and approval by SecDef to activate Stage III, allocate sealift capacity and intermodal assets to meet DoD Contingency requirements. DoD shall have priority consideration in any allocation situation. d. Establish procedures, pursuant to Section 653(d) of the Maritime Security Act (MSA), for determinations regarding the equivalency and duration of the use of foreign flag vessels to replace U.S. Flag vessel capacity to transport the cargo of a Participant which has entered into an operating agreement under Section 652 of the MSA and whose U.S. Flag vessel capacity has been removed from regular service to meet VISA contingency requirements. Such foreign flag vessels shall be eligible to transport cargo subject to the Cargo Preference Act of 1904 (10 U.S.C. 2631), P.R. 17 (46 App. U.S.C. 1241-1), and P.L. 664 (46 App. U.S.C. 1241(b)). However, any procedures regarding the use of such foreign flag vessels to transport cargo subject to the Cargo Preference Act of 1904 must have the concurrence of USTRANSCOM before it becomes effective. e. Co-chair (with USTRANSCOM) the JPAG. f. Seek necessary Jones Act waivers as required. To the extent feasible, participants with Jones Act vessels or vessel capacity will use CCAs or other arrangements to protect their ability to maintain services for their commercial customers and to fulfill their commercial peacetime commitments with U.S. Flag vessels. In situations where the activation of this Agreement deprives a Participant of all or a portion of its Jones Act vessels or vessel capacity and, at the same time, creates a general shortage of Jones Act vessel(s) or vessel capacity on the market, the Administrator may request that the Secretary of the Treasury grant a temporary waiver of the provisions of the Jones Act to permit a Participant to charter or otherwise utilize non-Jones Act vessel(s) or vessel capacity, with priority consideration recommended for U.S. crewed vessel(s) or vessel capacity. The vessel(s) or vessel capacity for which such waivers are requested will be approximately equal to the Jones Act vessel(s) or vessel capacity chartered or under contract to the DoD, and any waiver that may be granted will be effective for the period that the Jones Act vessel(s) or vessel capacity is on charter or under contract to the DoD plus a reasonable time for termination of the replacement charters as determined by the Administrator. C. Termination of Charters, Leases and Other Contractual Arrangements 1. USTRANSCOM will notify the Administrator as soon as possible of the prospective termination of charters, leases, management service contracts or other contractual arrangements made by the DoD under this Agreement. 2. In the event of general requisitioning of ships under 46 App. U.S.C. 1242, the Administrator shall consider commitments made with the DoD under this Agreement. D. Modification/Amendment of This Agreement 1. The Attorney General may modify this Agreement, in writing, after consultation with the Chairman-FTC, SecTrans, through his representative MARAD, and SecDef, through his representative USCINCTRANS. Although Participants may withdraw from this Agreement pursuant to Section VI.D, they remain subject to VISA as amended or modified until such withdrawal. 2. The Administrator, USCINCTRANS and Participants may modify this Agreement at any time by mutual agreement, but only in writing with the approval of the Attorney General and the Chairman-FTC. 3. Participants may propose amendments to this Agreement at any time. E. Administrative Expenses Administrative and out-of-pocket expenses incurred by a participant shall be borne solely by the participant. F. Record Keeping 1. MARAD has primary responsibility for maintaining carrier VISA application records in connection with this Agreement. Records will be maintained in accordance with MARAD Regulations. Once a carrier is selected as a VISA Participant, a copy of the VISA application form will be forwarded to USTRANSCOM. 2. In accordance with 44 CFR 332.2(c), MARAD is responsible for the making and record maintenance of a full and verbatim transcript of each JPAG meeting. MARAD shall send this transcript, and any voluntary agreement resulting from the meeting, to the Attorney General, the Chairman-FTC, the Director-FEMA, any other party or repository required by law and to Participants upon their request. 3. USTRANSCOM shall be the official custodian of records related to the contracts to be used under this Agreement, to include specific information on enrollment of a Participant's capacity in VISA. 4. In accordance with 44 CFR 332.3(d), a Participant shall maintain for five
(5)years all minutes of meetings, transcripts, records, documents and other data, including any communications with other Participants or with any other member of the industry or their representatives, related to the administration, including planning related to and implementation of Stage activations of this Agreement. Each Participant agrees to make such records available to the Administrator, USCINCTRANS, the Attorney General, and the Chairman-FTC for inspection and copying at reasonable times and upon reasonable notice. Any record maintained by MARAD or USTRANSCOM pursuant to paragraphs 1, 2, or 3 of this subsection shall be available for public inspection and copying unless exempted on the grounds specified in 5 U.S.C 552(b) or identified as privileged and confidential information in accordance with Section 708(e). G. MARAD Reporting Requirements MARAD shall report to the Director-FEMA, as required, on the status and use of this agreement. IV. Joint Planning Advisory Group A. The JPAG provides USTRANSCOM, MARAD and VISA Participants a planning forum to: 1. Analyze DoD Contingency sealift/intermodal service and resource requirements. 2. Identify commercial sealift capacity that may be used to meet DoD requirements, related to Contingencies and, as requested by USTRANSCOM, exercises and special movements. 3. Develop and recommend Concepts of Operations (CONOPS) to meet DoD-approved Contingency requirements and, as requested by USTRANSCOM, exercises and special movements. B. The JPAG will be co-chaired by MARAD and USTRANSCOM, and will convene as jointly determined by the co-chairs. C. The JPAG will consist of designated representatives from MARAD, USTRANSCOM, each Participant, and maritime labor. Other attendees may be invited at the discretion of the co-chairs as necessary to meet JPAG requirements. Representatives will provide technical advice and support to ensure maximum coordination, efficiency and effectiveness in the use of Participants' resources. All Participants will be invited to all open JPAG meetings. For selected JPAG meetings, attendance may be limited to designated Participants to meet specific operational requirements. 1. The co-chairs may establish working groups within JPAG. Participants may be assigned to working groups as necessary to develop specific CONOPS. 2. Each working group will be co-chaired by representatives designated by MARAD and USTRANSCOM. D. The JPAG will not be used for contract negotiations and/or contract discussions between carriers and the DoD; such negotiations and/or discussions will be in accordance with applicable DoD contracting policies and procedures. E. The JPAG co-chairs shall: 1. Notify the Attorney General, the Chairman-FTC, Participants and the maritime labor representative of the time, place and nature of each JPAG meeting. 2. Provide for publication in the **Federal Register** of a notice of the time, place and nature of each JPAG meeting. If the meeting is open, a **Federal Register** notice will be published reasonably in advance of the meeting. If a meeting is closed, a **Federal Register** notice will be published within ten
(10)days after the meeting and will include the reasons for closing the meeting. 3. Establish the agenda for each JPAG meeting and be responsible for adherence to the agenda. 4. Provide for a full and complete transcript or other record of each meeting and provide one copy each of transcript or other record to the Attorney General, the Chairman-FTC, and to Participants, upon request. F. Security Measures—The co-chairs will develop and coordinate appropriate security measures so that Contingency planning information can be shared with Participants to enable them to plan their commitments. V. Activation of VISA Contingency Provisions A. General VISA may be activated at the request of USCINCTRANS, with approval of SecDef, as needed to support Contingency operations. Activating voluntary commitments of capacity to support such operations will be in accordance with prenegotiated Contingency contracts between DoD and Participants. B. Notification of Activation 1. USCINCTRANS will notify the Administrator of the activation of Stages I, II, and III. 2. The Administrator shall notify the Attorney General and the Chairman-FTC when it has been determined by DoD that activation of any Stage of VISA is necessary to meet DoD Contingency requirements. C. Voluntary Capacity 1. Throughout the activation of any Stages of this Agreement, DoD may utilize voluntary commitment of sealift capacity or systems. 2. Requests for volunteer capacity will be extended simultaneously to both Participants and other carriers. First priority for utilization will be given to Participants who have signed Stage I and/or II contracts and are capable of meeting the operational requirements. Participants providing voluntary capacity may request USTRANSCOM to activate their prenegotiated Contingency contracts; to the maximum extent possible, USTRANSCOM, where appropriate, shall support such requests. Volunteered capacity will be credited against Participants' staged commitments, in the event such stages are subsequently activated. 3. In the event Participants are unable to fully meet Contingency requirements, or do not voluntarily offer to provide the required capacity, the shipping capacity made available under VISA may be supplemented by ships/capacity from non-Participants. 4. When voluntary capacity does not meet DoD Contingency requirements, DoD will activate the VISA stages as necessary. D. Stage I 1. Stage I will be activated in whole or in part by USCINCTRANS, with approval of SecDef, when voluntary capacity commitments are insufficient to meet DoD Contingency requirements. USCINCTRANS will notify the Administrator upon activation. 2. USTRANSCOM will implement Stage I Contingency contracts as needed to meet operational requirements. E. Stage II 1. Stage II will be activated, in whole or in part, when Contingency requirements exceed the capability of Stage I and/or voluntarily committed resources. 2. Stage II will be activated by USCINCTRANS, with approval of SecDef, following the same procedures discussed in paragraph D above. F. Stage III 1. Stage III will be activated, in whole or in part, when Contingency requirements exceed the capability of Stages I and II, and other shipping services are not available. This stage involves DoD use of capacity and vessels operated by Participants which will be furnished to DoD when required in accordance with this Agreement. The capacity and vessels are allocated by MARAD on behalf of SecTrans to USCINCTRANS. 2. Stage III will be activated by USCINCTRANS upon approval by SecDef. Upon activation, DoD SecDef will request SecTrans to allocate sealift capacity based on DoD requirements, in accordance with Title 1 of DPA, to meet the Contingency requirement. All Participants' capacity committed to VISA is subject to use during Stage III. 3. Upon allocation of sealift assets by SecTrans, through its designated representative MARAD, USTRANSCOM will negotiate and execute Contingency contracts with Participants, using pre-approved rate methodologies as established jointly by SecTrans and SecDef in fulfillment of Section 653 of the Maritime Security Act of 1996. Until execution of such contract, the Participant agrees that the assets remain subject to the provisions of Section 902 of the Merchant Marine Act of 1936, Title 46 App. U.S.C. 1242. 4. Simultaneously with activation of Stage III, the DoD Sealift Readiness Program
(SRP)will be activated for those carriers still under obligation to that program. G. Partial Activation As used in this Section V, activation “in part” of any Stage under this Agreement shall mean one of the following: 1. Activation of only a portion of the committed capacity of some, but not all, of the Participants in any Stage that is activated; or 2. Activation of the entire committed capacity of some, but not all, of the Participants in any Stage that is activated; or 3. Activation of only a portion of the entire committed capacity of all of the Participants in any Stage that is activated. VI. Terms and Conditions A. Participation 1. Any U.S. Flag vessel operator organized under the laws of a State of the United States, or the District of Columbia, may become a “Participant” in this Agreement by submitting an executed copy of the form referenced in Section VII, and by entering into a VISA Enrollment Contract with DoD which establishes a legal obligation to perform and which specifies payment or payment methodology for all services rendered. 2. The term “Participant” includes the entity described in VI.A.1 above, and all United States subsidiaries and affiliates of the entity which own, operate, charter or lease ships and intermodal equipment in the regular course of their business and in which the entity holds a controlling interest. 3. Upon request of the entity executing the form referenced in Section VII, the term “Participant” may include the controlled non-domestic subsidiaries and affiliates of such entity signing this Agreement, provided that the Administrator, in coordination with USCINCTRANS, grants specific approval for their inclusion. 4. Any entity receiving payments under the Maritime Security Program (MSP), pursuant to the Maritime Security Act of 1996
(MSA)(Pub. L. 104-239), shall become a “Participant” with respect to all vessels enrolled in MSP at all times until the date the MSP operating agreement would have terminated according to its original terms. The MSP operator shall be enrolled in VISA as a Stage III Participant, at a minimum. Such participation will satisfy the requirement for an MSP participant to be enrolled in an emergency preparedness program approved by SecDef as provided in Section 653 of the MSA. 5. A Participant shall be subject only to the provisions of this Agreement and not to the provisions of the SRP. 6. MARAD shall publish periodically in the **Federal Register** a list of Participants. B. Agreement of Participant 1. Each Participant agrees to provide commercial sealift and/or intermodal shipping services/systems in accordance with DoD Contingency contracts. USTRANSCOM will review and approve each Participant's commitment to ensure it meets DoD Contingency requirements. A Participant's capacity commitment to Stages I and II will be one of the considerations in determining the level of DoD peacetime contracts awarded with the exception of Jones Act capacity (as discussed in paragraph 4 below). 2. DoD may also enter into Contingency contracts, not linked to peacetime contract commitments, with Participants, as required to meet Stage I and II requirements. 3. Commitment of Participants' resources to VISA is as follows: a. Stage III: A carrier desiring to participate in DoD peacetime contracts/traffic must commit no less than 50% of its total U.S. Flag capacity into Stage III. Carriers receiving DOT payments under the MSP, or carriers subject to Section 909 of Merchant Marine Act of 1936, as amended, that are not enrolled in the SRP will have vessels receiving such assistance enrolled in Stage III. Participants' capacity under charter to DoD will be considered “organic” to DoD, and does not count towards the Participant's Contingency commitment during the period of the charter. Participants utilized under Stage III activation will be compensated based upon a DoD pre-approved rate methodology. b. Stages I and II: DoD will annually develop and publish minimum commitment requirements for Stages I and II. Normally, the awarding of a long-term ( *i.e.* , one year or longer) DoD contract, exclusive of charters, will include the annual predesignated minimum commitment to Stages I and/or II. Participants desiring to bid on DoD peacetime contracts will be required to provide commitment levels to meet DoD-established Stage I and/or II minimums on an annual basis. Participants may gain additional consideration for peacetime contract cargo allocation awards by committing capacity to Stages I and II beyond the specified minimums. If the Participant is awarded a contract reflecting such a commitment, that commitment shall become the actual amount of a Participant's U.S. Flag capacity commitment to Stages I and II. A Participant's Stage III U.S. Flag capacity commitment shall represent its total minimum VISA commitment. That Participant's Stage I and II capacity commitments as well as any volunteer capacity contribution by Participant are portions of Participant's total VISA commitment. Participants activated during Stages I and II will be compensated in accordance with prenegotiated Contingency contracts. 4. Participants exclusively operating vessels engaged in domestic trades will be required to commit 50% of that capacity to Stage III. Such Participants will not be required to commit capacity to Stages I and II as a consideration of domestic peacetime traffic and/or contract award. However, such Participants may voluntarily agree to commit capacity to Stages I and/or II. 5. The Participant owning, operating, or controlling an activated ship or ship capacity will provide intermodal equipment and management services needed to utilize the ship and equipment at not less than the Participant's normal efficiency, in accordance with the prenegotiated Contingency contracts implementing this Agreement. C. Effective Date and Duration of Participation 1. Participation in this Agreement is effective upon execution by MARAD of the submitted form referenced in Section VII, and approval by USTRANSCOM by execution of an Enrollment Contract, for Stage III, at a minimum. 2. VISA participation remains in effect until the Participant terminates the Agreement in accordance with paragraph D below, or termination of the Agreement in accordance with 44 CFR Sec. 332.4. Notwithstanding termination of VISA or participation in VISA, obligations pursuant to executed DoD peacetime contracts shall remain in effect for the term of such contracts and are subject to all terms and conditions thereof. D. Participant Termination of VISA 1. Except as provided in paragraph 2 below, a Participant may terminate its participation in VISA upon written notice to the Administrator. Such termination shall become effective 30 days after written notice is received, unless obligations incurred under VISA by virtue of activation of any Contingency contract cannot be fulfilled prior to the termination date, in which case the Participant shall be required to complete the performance of such obligations. Voluntary termination by a carrier of its VISA participation shall not act to terminate or otherwise mitigate any separate contractual commitment entered into with DoD. 2. A Participant having an MSP operating agreement with SecTrans shall not withdraw from this Agreement at any time during the original term of the MSP operating agreement. 3. A Participant's withdrawal, or termination of this Agreement, will not deprive a Participant of an antitrust defense otherwise available to it in accordance with DPA Section 708 for the fulfillment of obligations incurred prior to withdrawal or termination. 4. A Participant otherwise subject to the DoD SRP that voluntarily withdraws from this Agreement will become subject again to the DoD SRP. E. Rules and Regulations Each Participant acknowledges and agrees to abide by all provisions of DPA Section 708, and regulations related thereto which are promulgated by the Secretary, the Attorney General, and the Chairman-FTC. Standards and procedures pertaining to voluntary agreements have been promulgated in 44 CFR Part 332. 46 CFR Part 340 establishes procedures for assigning the priority for use and the allocation of shipping services, containers and chassis. The JPAG will inform Participants of new and amended rules and regulations as they are issued in accordance with law and administrative due process. Although Participants may withdraw from VISA, they remain subject to all authorized rules and regulations while in Participant status. F. Carrier Coordination Agreements
(CCA)1. When any Stage of VISA is activated or when DoD has requested volunteer capacity pursuant to Section V.B. of VISA, Participants may implement approved CCAs to meet the needs of the DoD and to minimize the disruption of their services to the civil economy. 2. A CCA for which the parties seek the benefit of Section 708(j) of the DPA shall be identified as such and shall be submitted to the Administrator for approval and certification in accordance with Section 708(f)(1)(A) of the DPA. Upon approval and certification, the Administrator shall transmit the Agreement to the Attorney General for a finding in accordance with Section 708(f)(1)(B) of the DPA. Parties to approved CCAs may avail themselves of the antitrust defenses set forth in Section 708(j) of the DPA. Nothing in VISA precludes Participants from engaging in lawful conduct (including carrier coordination activities) that lies outside the scope of an approved Carrier Coordination Agreement; but antitrust defenses will not be available pursuant to Section 708(j) of the DPA for such conduct. 3. Participants may seek approval for CCAs at any time. G. Enrollment of Capacity (Ships and Equipment) 1. A list identifying the ships/capacity and intermodal equipment committed by a Participant to each Stage of VISA will be prepared by the Participant and submitted to USTRANSCOM within seven days after a carrier has become a Participant. USTRANSCOM will maintain a record of all such commitments. Participants will notify USTRANSCOM of any changes not later than seven days prior to the change. 2. USTRANSCOM will provide a copy of each Participant's VISA commitment data and all changes to MARAD. 3. Information which a Participant identifies as privileged or business confidential/proprietary data shall be withheld from public disclosure in accordance with Section 708(h)(3) and Section 705(e) of the DPA, 5 App. U.S.C. 552(b), and 44 CFR Part 332. 4. Enrolled ships are required to comply with 46 CFR Part 307, Establishment of Mandatory Position Reporting System for Vessels. H. War Risk Insurance 1. Where commercial war risk insurance is not available on reasonable terms and conditions, DOT shall provide non-premium government war risk insurance, subject to the provisions of Section 1205 of the Merchant Marine Act, 1936, as amended (46 App. U.S.C. 1285(a)). 2. Pursuant to 46 CFR 308.1(c), the Administrator (or DOT) will find each ship enrolled or utilized under this agreement eligible for U.S. Government war risk insurance. I. Antitrust Defense 1. Under the provisions of DPA Section 708, each carrier shall have available as a defense to any civil or criminal action brought under the antitrust laws (or any similar law of any State) with respect to any action taken to develop or carry out this Agreement, that such act was taken in the course of developing or carrying out this Agreement and that the Participant complied with the provisions of DPA Section 708 and any regulation thereunder, and acted in accordance with the terms of this Agreement. 2. This defense shall not be available to the Participant for any action occurring after termination of this Agreement. This defense shall not be available upon the modification of this Agreement with respect to any subsequent action that is beyond the scope of the modified text of this Agreement, except that no such modification shall be accomplished in a way that will deprive the Participant of antitrust defense for the fulfillment of obligations incurred. 3. This defense shall be available only if and to the extent that the Participant asserting it demonstrates that the action, which includes a discussion or agreement, was within the scope of this Agreement. 4. The person asserting the defense bears the burden of proof. 5. The defense shall not be available if the person against whom it is asserted shows that the action was taken for the purpose of violating the antitrust laws. 6. As appropriate, the Administrator, on behalf of SecTrans, and DoD will support agreements filed by Participants with the Federal Maritime Commission that are related to the standby or Contingency implementation of VISA. J. Breach of Contract Defense Under the provisions of DPA Section 708, in any action in any Federal or State court for breach of contract, there shall be available as a defense that the alleged breach of contract was caused predominantly by action taken by a Participant during an emergency (including action taken in imminent anticipation of an emergency) to carry out this Agreement. Such defense shall not release the party asserting it from any obligation under applicable law to mitigate damages to the greatest extent possible. K. Vessel Sharing Agreements
(VSA)1. VISA allows Participants the use of a VSA to utilize non-Participant U.S. Flag or foreign-owned and operated foreign flag vessel capacity as a substitute for VISA Contingency capability provided: a. The foreign flag capacity is utilized in accordance with cargo preference laws and regulations. b. The use of a VSA, either currently in use or a new proposal, as a substitution to meet DoD Contingency requirements is agreed upon by USTRANSCOM and MARAD. c. The Participant carrier demonstrates adequate control over the offered VSA capacity during the period of utilization. d. Service requirements are satisfied. e. Participant is responsible to DoD for the carriage or services contracted for. Though VSA capacity may be utilized to fulfill a Contingency commitment, a Participant's U.S. Flag VSA capacity in another Participant's vessel shall not act in a manner to increase a Participant's capacity commitment to VISA. 2. Participants will apprise MARAD and USTRANSCOM in advance of any change in a VSA of which it is a member, if such changes reduce the availability of Participant capacity provided for in any approved and accepted Contingency Concept of Operations. 3. Participants will not act as a broker for DoD cargo unless requested by USTRANSCOM. VII. Application and Agreement The Administrator, in coordination with USCINCTRANS has adopted the form on page 31 (“Application to Participate in the Voluntary Intermodal Sealift Agreement”) on which intermodal ship operators may apply to become a Participant in this Agreement. The form incorporates, by reference, the terms of this Agreement. United States of America, Department of Transportation, Maritime Administration. Application To Participate in the Voluntary Intermodal Sealift Agreement The applicant identified below hereby applies to participate in the Maritime Administration's agreement entitled “Voluntary Intermodal Sealift Agreement.” The text of said Agreement is published in _____ **Federal Register** _____, _____, 19__. This Agreement is authorized under Section 708 of the Defense Production Act of 1950, as amended (50 App. U.S.C. 2158). Regulations governing this Agreement appear at 44 CFR Part 332 and are reflected at 49 CFR Subtitle A. The applicant, if selected, hereby acknowledges and agrees to the incorporation by reference into this Application and Agreement of the entire text of the Voluntary Intermodal Sealift Agreement published in _____ **Federal Register** _____, _____, 19__, as though said text were physically recited herein. The Applicant, as a Participant, agrees to comply with the provisions of Section 708 of the Defense Production Act of 1950, as amended, the regulations of 44 CFR Part 332 and as reflected at 49 CFR Subtitle A, and the terms of the Voluntary Intermodal Sealift Agreement. Further, the applicant, if selected as a Participant, hereby agrees to contractually commit to make specifically enrolled vessels or capacity, intermodal equipment and management of intermodal transportation systems available for use by the Department of Defense and to other Participants as discussed in this Agreement and the subsequent Department of Defense Voluntary Intermodal Sealift Agreement Enrollment Contract for the purpose of meeting national defense requirement. Attest: (Corporate Secretary) (CORPORATE SEAL) Effective Date: (Secretary)
(SEAL)(Applicant-Corporate Name) (Signature) (Position Title) United States of America, Department of Transportation, Maritime Administration. By: Maritime Administrator By Order of the Maritime Administrator. Dated: March 11, 2005. Joel C. Richard, Secretary, Maritime Administration. EN16MR05.001 [FR Doc. 05-5186 Filed 3-15-05; 8:45 am]
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U.S. Code
- Registration, responsibilities, and oversight of self-regulatory organizations§ 78s
- Trading by members of exchanges, brokers, and dealers§ 78k
- Public information; agency rules, opinions, orders, records, and proceedings§ 552
- Definitions and application§ 78c
- National securities exchanges§ 78f
- National system for clearance and settlement of securities transactions§ 78q–1
- Exemption from tax on corporations, certain trusts, etc.§ 501
- Registered securities associations§ 78o–3
- Preference for United States vessels in transporting supplies by sea§ 2631
register
13 references not yet in our index
- 17 CFR 240.19
- 15 USC 78(f)(b)
- 15 USC 78(f)(b)(5)
- 1 USC 78s(b)(1)
- 44 CFR 332
- 46 CFR 340
- 3 CFR 1979
- 44 CFR 332.2(c)
- 44 CFR 332.3(d)
- Pub. L. 104-239
- 44 CFR 332.4
- 46 CFR 307
- 46 CFR 308.1(c)
Citation graph
cites case law
Notices
Notice of Voluntary Intermodal Sealift Agreement (VISA)
Cite17 CFR 240.19
Cite15 USC 78(f)(b)
Cite15 USC 78(f)(b)(5)
Cites 25 · showing 12Cited by 0 across 0 sources