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Code · REGISTER · 2005-04-28 · SECURITIES AND EXCHANGE COMMISSION · Notices

Notices. Notice

16,460 words·~75 min read·/register/2005/04/28/05-8532

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BILLING CODE 6325-43-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51597; File No. SR-BSE-2004-51] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change, and Amendment Nos. 1, 2, and 3 Thereto, by the Boston Stock Exchange, Inc. Relating to the Trading of Market Orders on the Boston Options Exchange April 21, 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 15, 2004, the Boston Stock Exchange, Inc.
(“BSE” 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 January 5, 2005, the Exchange filed Amendment No. 1 to the proposed rule change. On April 19, 2005, the Exchange filed Amendment No. 2 to the proposed rule change. 3 On April 21, 2005, the Exchange filed Amendment No. 3 to the proposed rule change. 4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 2 superseded and replaced the original filing and Amendment No. 1 in their entirety. 4 In Amendment No. 3, BSE made several conforming and technical changes to the proposed rule text.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the rules of the Boston Options Exchange (“BOX”) to allow market orders to trade on BOX. The text of the proposed rule change is set forth below. Italics indicate additions; brackets indicate deletions. 5 5 At the request of the BSE, the Commission staff has made several corrections to the rule text. Telephone conversation between Annah Kim, Chief Regulatory Officer, BOX, *et al.* , and Ira Brandriss, Assistant Director, Division of Market Regulation (“Division”), *et al.* , on April 21, 2004.
Rules of the Boston Stock Exchange Rules of the Boston Options Exchange Facility Trading of Options Contracts on BOX Chapter V. Doing Business on BOX Sec. 1 through Sec. 8 No change. Sec. 9 Opening the Market. The following rules are in effect until August 6, 2005:
(a)Pre-Opening Phase. For some period of time before the opening in the underlying security (as determined by BOXR but not less than one hour and distributed to all BOX Participants via regulatory circular from BOXR), the BOX Trading Host will accept orders and quotes. During this period, known as the Pre-Opening Phase, orders and quotes are placed on the BOX Book but do not generate trade executions. Complex Orders and contingency orders (except “Market-on-Opening”, Minimum Volume, and Fill and Kill orders) do not participate in the opening and are not accepted by the BOX Trading Host during this Pre-Opening Phase. BOX-Top Orders and Price Improvement Period orders are not accepted during the Pre-Opening Phase.
(b)Calculation of Theoretical Opening Price. From the time that the BOX Trading Host commences accepting orders and quotes at the start of the Pre-Opening Phase, the BOX Trading Host will calculate and provide the Theoretical Opening Price (“TOP”) for the current resting orders and quotes on the BOX Book during the Pre-Opening Phase. The TOP is that price at which the Opening Match would occur at the current time, if that time were the opening, according to the Opening Match procedures described in paragraph
(e)below. The quantity that would trade at this price is also calculated. The TOP is re-calculated and disseminated every time a new order or quote is received, modified or cancelled and where such event causes the TOP price or quantity to change. A TOP can only be calculated if an opening trade is possible. An opening trade is possible if:
(i)The BOX Book is crossed (highest bid is higher than the lowest offer) or locked (highest bid equals lowest offer), or ii) there are *Market or* Market-on-Opening Orders in the BOX Book and at least one order or quote on the opposite side of the market.
(c)Broadcast Information During Pre-Opening Phase. The BOX Trading Host will disseminate information to all BOX Participants about resting orders in the BOX Book that remain from the prior business day and any orders or quotes sent in before the Opening Match. This information will be disseminated in the usual BOX format of five best limits and associated quantity, aggregating all orders and quotes at each price level. This broadcast will also include the TOP and the quantity associated with the TOP. Any orders or quotes which are at a price better i.e. bid higher or offer lower) than the TOP, as well as all *Market and* Market-on-Opening orders will be shown only as a total quantity on the BOX Book at a price equal to the TOP.
(d)Market Maker Obligations During Pre-Opening Phase. BOX Market Makers holding an assignment on a given options class are obliged, as part of their obligations to ensure a fair and orderly market, to provide continuous two-sided quotes according to the BOX minimum standards commencing with the minute preceding the scheduled opening of the market for the underlying security.
(e)Opening Match.
(i)Complex Orders and contingency orders do not participate in the Opening Match or in the determination of the opening price. The BOX Trading Host will establish the opening price at the time of the Opening Match. The opening price is the TOP at the moment of the Opening Match. The BOX Trading Host will process the series of a class in a random order, starting at the first round minute after the opening for trading of the underlying security in the primary market, and at each round minute thereafter. If the opening of a particular class is to occur within 15 seconds of the next round minute, the opening of that class will take place at the next subsequent round minute after the round minute that is 15 or less seconds away (i.e. within 75 seconds). The TOP/opening price of a series is the “market-clearing” price which will leave bids and offers which cannot trade with each other. In determining the priority of orders to be filled, the BOX Trading Host will give priority *to Market Orders first, then* to Market-on-Opening orders [first], then to Limit Orders whose price is better than the opening price, and then to resting orders on the BOX Book at the opening price. One or more series of a class may not open because of conditions cited in paragraph
(f)of this Section 9.
(ii)The BOX Trading Host will determine a single price at which a particular option series will be opened. BOX will calculate the optimum number of options contracts that could be matched at a price, taking into consideration all the orders on the BOX Book.
(1)The opening match price is the price which will result in the matching of the highest number of options contracts.
(2)Should two or more prices satisfy the maximum quantity criteria, the price which will leave the fewest resting contracts in the BOX Book will be selected as the opening match price.
(3)Should there still be two or more prices which meet both criteria in subparagraphs
(1)and (2), the price which is closest to the previous day's closing price will be selected as the opening match price. For new classes in which there is no previous day's closing price, BOX will utilize the price assigned to the class by BOX at the time the class was created (“reference price”).
(f)As the Opening Match price is determined by series, the BOX Trading Host will proceed to move the series from the Pre-Opening Phase to the continuous or regular trading phase and disseminate to OPRA and to all Options Participants the opening trade price, if any. At this point, the BOX trading system is open for trading and all orders and quotes are accepted and processed according to the BOX trading rules. When the BOX Trading Host cannot determine an opening price, but none of the reasons exist for delaying an opening as outlined in paragraph
(g)of this Section 9, below, the series will nevertheless move from Pre-Opening Phase to the continuous trading phase.
(g)The BOX Trading Host will not open a series if one of the following conditions is met: i. The opening price is not within an acceptable range as determined by the MRC, and will be announced to all BOX Participants via the Trading Host. (In making this determination the MRC will consider, among other factors, all prices that exceed a variance greater than [of] either $.50 or 20% to the previous day's closing price.) ii. There is a *Market Order,* Market-on-Opening order or quote with no corresponding order or quote on the opposite side.
(h)If one of the conditions in paragraph
(g)of this Section 9 is met, the MRC will not open the series but will send a RFQ. MRC will delay the opening of the series until such time as responses to the RFQ from the BOX Market Makers assigned to the class, or other interested trading parties, have been received and booked by the BOX Trading Host and the consequent opening price is deemed compatible with an orderly market.
(i)MRC may order a deviation from the standard manner of the opening procedure, including delaying the opening in any option class, when it believes it is necessary in the interests of a fair and orderly market.
(j)The procedure described in this Section 9 may be used to reopen a class after a trading halt. Sec. 14 Order Entry
(a)through
(b)No change.
(c)The following types of orders may be submitted to the Trading Host: i. through iii. No change. *iv. Market Order. Market Orders submitted to BOX are executed at the best price obtainable for the total quantity available when the order reaches the BOX market. Any remaining quantity is executed at the next best price available for the total quantity available. This process continues until the Market Order is fully executed. Prior to execution at each price level, Market Orders are filtered pursuant to the procedures set forth in Chapter V, Section 16(b) of these Rules to avoid trading through the NBBO.* *At the opening, Market Orders have priority over Market-on-Opening Orders and Limit Orders. In the case where the lowest offer for any options contract is $.05, and an Options Participant enters a Market Order to sell that series, any such Market Order shall be considered a Limit Order to sell at a price of $.05.*
(d)Where no order type is specified, the Trading Host will reject the order. i. The following designations can be added to one or both of the order types referred to in paragraph
(c)above:
(1)through
(3)No change.
(4)Minimum Volume (MV). An MV designation can be added to [both] Limit Orders, [and] BOX Top Orders, *and Market Orders.* MV orders will only be executed if the specified minimum volume is immediately available to trade (at the specified price or better in the case of Limit Orders). If this is not the case the order will be automatically cancelled by the Trading Host. In the case of Limit Orders, where a volume equal to or greater than the specified minimum volume of an MV order trades, the residual volume will be filtered against trading through the NBBO according to the procedures set forth in Section 16(b) of this Chapter V and, if applicable, placed on the BOX Book. In the case of BOX-Top Orders, where a volume equal to or greater than the specified minimum volume of an MV order trades, the residual volume will be converted to a Limit Order at the price at which the BOX-Top Order was executed pursuant to Section 14(c)(ii) of this Chapter V and will be filtered against trading through the NBBO according to the procedures set forth in Section 16(b) of this Chapter V and, if applicable, placed on the BOX Book. In the case of Market Orders, where a volume equal to or greater than the specified minimum volume of an MV order trades, the residual volume will be filtered against trading through the NBBO according to the procedures set forth in Section 16(b) of this Chapter V and, if applicable, executed with any orders on the BOX Book.
(e)through
(i)No change. Sec. 16 Execution and Price/Time Priority
(a)No change.
(b)Filtering of BOX In-Bound Orders to Prevent Trade-Throughs. i. No change. ii. If the order is a BOX-Top Order, the Trading Host will handle the order in the following manner:
(1)In the case where the best price on the BOX Book on the opposite side of the market from the BOX-Top order is equal to the NBBO, the BOX-Top Order will be executed for all the quantity available at this price. Any remaining quantity will be converted to a Limit Order at this execution price pursuant to Section 14(c)(ii) of this Chapter V and filtered as described in subparagraph b(iii) below.
(2)In the case where the best price on the BOX Book on the opposite side of the market from the BOX-Top Order is not equal to the NBBO, the BOX-Top Order will be converted to a Limit Order for its total quantity at the then current NBBO pursuant to Section 14(c)(ii) of this Chapter V and filtered as described in subparagraph b(iii) below. *If the Order is a Market Order, the Trading Host will handle the order in the following manner:* *(1) In the case where the best price on the BOX Book on the opposite side of the market is equal to the NBBO, the Market Order will be executed for all the quantity available at this price. Any remaining quantity will be filtered as described in subparagraph b(iii) below.* *(2) In the case where the best price on the BOX Book on the opposite side of the market from the Market Order is not equal to the NBBO, the Market Order will be filtered as described in subparagraph b(iii) below.* iii. The Trading Host will filter the relevant orders as follows: The filter will determine if the order is executable against the NBBO (an order is deemed “executable against the NBBO” when, in the case of an order to sell(buy), its limit price is equal to or lower(higher) than the best bid(offer) across all options exchanges. By definition, a BOX-Top Order *or a Market Order* is executable against the NBBO).
(1)If the order is not executable against the NBBO, the order will be placed on the BOX Book. However, if the order is a P or P/A Order, and not executable against the NBBO, it will be immediately cancelled pursuant to Chapter XII of these Rules.
(2)If the order is executable against the NBBO, the filter will determine whether there is a quote on BOX that is equal to the NBBO. a. If there is a quote on BOX that is equal to the NBBO, then the order will be executed against the relevant quote. Any remaining quantity of the order is exposed on the BOX Book at the NBBO for a period of three seconds. If the order is not executed during the three second exposure period, then the order will *be* handled by the Trading Host pursuant to subparagraph b(iii)(2)(c) below. Pursuant to Chapter XII, Section 2(c)-(d) of these Rules, in the case of a P/A Order, if the size of the P/A Order is larger than the Firm Customer Quote Size, or, in the case of a P Order, if the size of the P Order is larger than the Firm Principal Quote Size, and any quantity remains after execution against the relevant quote, then such remaining quantity is exposed on the BOX Book at the NBBO for a period of three seconds. Any quantity remaining on the BOX Book after the three second exposure period will be cancelled. BOX will inform the sending Participant Exchange of the amount of the order that was executed and the amount, if any, that was cancelled; or b. If there is not a quote on BOX that is equal to the NBBO, then the order is exposed on the BOX Book at the NBBO for a period of three seconds, unless such order is a P or P/A Order. If the order is a P or P/A order it will be immediately cancelled pursuant to the Chapter XII of these Rules. If the order is not executed during the three second exposure period, then the order will be handled by the Trading Host pursuant to subparagraph b(iii)(2)(c) below. c. At the end of the three second exposure period, any unexecuted quantity will be handled by the Trading Host in the following manner: 1. If the best BOX price is now equal to the NBBO, the remaining unexecuted quantity will be placed on the BOX Book and immediately executed against that quote. Any remaining quantity will be i) in the case of Public Customer orders, sent as P/A order(s) to the exchange displaying the NBBO, or ii) in the case of market maker or proprietary broker-dealer orders, returned to the submitting Options Participant; or 2. If the best BOX price is not equal to the NBBO, then any remaining unexecuted quantity will be
(i)in the case of Public Customer orders, sent as P/A Order(s) to the exchange displaying the NBBO, or
(ii)in the case of market maker or proprietary broker-dealer orders, returned to the submitting Options Participant. *iv. Notwithstanding the foregoing, if an Order is submitted while a PIP is in progress, and the Order is in the same series and on the opposite side of the Customer Order submitted to the PIP (the “PIP Order”), under the circumstances set forth in Section 18(i) of this Chapter V, the Order will be immediately executed against the PIP Order up to the lesser of
(a)the size of the PIP Order, or
(b)the size of the Order, at a price equal to either
(i)one penny better than the NBBO or
(ii)the NBBO. The remainder of the Order, if any, continues to be filtered as set forth in this Section 16(b).* Sec. 18 The Price Improvement Period (“PIP”)
(a)through
(d)No change.
(e)Options Participants, both OFPs and Market Makers, executing agency orders may designate BOX-Top *Orders, Market Orders,* and marketable limit Customer Orders for price improvement and submission to the PIP. Customer Orders designated for the PIP ( *PIP Orders* ) shall be submitted to BOX with a matching contra order, the “Primary Improvement Order”, equal to the full size of the [Customer] *PIP* Order. The Primary Improvement Order shall be on the opposite side of the market than that of the [Customer] *PIP* Order and represent a higher bid (lower offer) than that of the National Best Bid Offer
(NBBO)at the time of the commencement of the PIP. BOX will not permit a PIP to commence unless at least three
(3)Market Makers were quoting in the relevant series at the time an Options Participant submits a Primary Improvement Order to initiate a PIP. BOX will commence a PIP by broadcasting a message to Participants that
(1)states that a Primary Improvement Order has been processed;
(2)contains information concerning series, size, price and side of market, and;
(3)states when the PIP will conclude (“PIP Broadcast”). i. No change. ii. The Options Participant who submitted the Primary Improvement Order is not permitted to cancel or to modify the size of its Primary Improvement Order or the [Customer] *PIP* Order at any time during the PIP, and may modify only the price of its Primary Improvement Order by improving it. The subsequent price modifications to a Primary Improvement Order are treated as new Improvement Orders for the sake of establishing priority in the PIP process. Market Makers, except for a Market Maker that submits the relevant Primary Improvement Order, may:
(1)Submit competing Improvement Order(s) for any size up to the size of the [Customer] *PIP* Order;
(2)submit competing Improvement Order(s) for any price equal to or better than the Primary Improvement Order;
(3)improve the price of their Improvement Order(s) at any point during the PIP; and
(4)decrease the size of their Improvement Order(s) only by improving the price of that order. iii. At the conclusion of the PIP, the [Customer] *PIP* Order shall be matched against the best prevailing order(s) on BOX, in accordance with price/time priority as set forth in Section 16 of this Chapter V, whether Improvement Order(s), including CPO(s) and PPO(s), or unrelated order(s) received by BOX during the PIP *(excluding unrelated orders that were immediately executed during the interval of the PIP).* Such unrelated orders may include agency orders on behalf of Public Customers, market makers at away exchanges and non- *BOX* [Box] Participant broker-dealers, as well as non-PIP proprietary orders submitted by Options Participants. iv. No change.
(f)through
(h)No change.
(i)In cases where an [executable] unrelated order is submitted to BOX on the same side as the [Customer] *PIP* Order, such that it would cause an execution to occur prior to the end of the PIP, the PIP shall be deemed concluded and the [Customer] *PIP* Order shall be matched pursuant to paragraph (e)(iii) of this Section 18, above. *Specifically, the submission to BOX of a BOX-Top Order or Market Order on the same side as a PIP Order will prematurely terminate the PIP when, at the time of the submission of the BOX-Top Order or Market Order, the best Improvement Order is equal to or better than the NBBO. (If a BOX-Top Order or Market Order is a buy order, the best Improvement Order is better than the NBBO when the price of the best Improvement Order is lower than the National Best Offer. If a BOX-Top Order or a Market Order is a sell order, the best Improvement Order is better than the NBBO when the price of the best Improvement Order is higher than the National Best Bid.) Following the execution of the PIP Order, any remaining Improvement Orders are cancelled and the BOX-Top Order or Market Order is filtered pursuant to Section 16(b) of this Chapter V.* *In cases where an unrelated order is submitted to BOX on the opposite side of the PIP Order, such that it would cause an execution to occur prior to the end of the PIP as set forth below, the unrelated order shall be immediately executed against the PIP Order up to the lesser of
(a)the size of the PIP Order, or
(b)the size of the unrelated order, at a price equal to either
(i)one penny better than the NBBO, if the best BOX price on the opposite side of the market from the unrelated order is equal to the NBBO at the time of execution, or
(ii)the NBBO. The remainder of the unrelated order, if any, shall be filtered pursuant to Section 16(b) of this Chapter V. The remainder of the PIP Order, if any, shall be executed at the conclusion of the PIP auction pursuant to Paragraph (e)(iii) of this Section 18, above.* *Specifically, a BOX-Top Order or a Market Order on the opposite side of a PIP Order will immediately execute against the PIP Order when, at the time of the submission of the BOX-Top Order or Market Order, the best Improvement Order is equal to or better than the NBBO. (If a BOX-Top Order or Market Order is a buy order, the best Improvement Order is better than the NBBO when the price of the best Improvement Order is lower than the National Best Offer. If a BOX-Top Order or a Market Order is a sell order, the best Improvement Order is better than the NBBO when the price of the best Improvement Order is higher than the National Best Bid.)* It shall be considered conduct inconsistent with just and equitable principles of trade for any Participant to enter unrelated orders into BOX for the purpose of disrupting or manipulating the Improvement Period process.
(j)through
(k)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 allow Market Orders to trade on BOX. BSE notes that all of the other options exchanges trade market orders. 6 Currently, BOX has two order types which are similar to the proposed Market Order: Market-on-Opening Orders, which are valid only during the pre-opening and opening match phases, and BOX-Top Orders, which may be submitted only during the continuous trading phase. The majority of BOX's current (and prospective) order flow providers (“OFPs”) have requested the ability to trade market orders on BOX because their technology is designed for the use of market orders and their customers prefer market orders over BOX-Top Orders. BOX wishes to accommodate and attract order flow from these OFPs. Indeed, many OFPs are reluctant to send their Customer Orders to BOX without this order type, thereby depriving many investors of the possibility of price improvement through BOX's price improvement mechanism, formally referred to as the Price Improvement Period (“PIP”). 6 *See* American Stock Exchange Rule 950(b), Chicago Board Options Exchange Rule 6.53(a), International Securities Exchange Rule 715(a), Pacific Exchange Rule 6.62, and Philadelphia Stock Exchange Rule 1066(a). BOX's Market-on-Opening Orders are executed on the market opening at the best price available in the market until all volume (required to fill the order) on the opposite side of the market has been traded or the order quantity has been exhausted. Any residual volume left after part of a Market-on-Opening Order has been executed is automatically converted to a limit order at the price at which the original Market-on-Opening Order was executed. BOX-Top Orders are executed at the best price available in the market for the total quantity available from any contra bid (offer). In general, any residual volume left after part of a BOX-Top Order has been executed is automatically converted to a limit order at the price at which the original BOX-Top Order was executed. Similar to these order types, Market Orders would be executed at the best price available in the market for the total quantity available from any contra bid (offer). If the full quantity of a Market Order could not be executed at the initial execution price, the remaining quantity of the Market Order would then execute at the next best price available from any contra bid (offer), and so on, until the Market Order was fully executed. To avoid trading through the national best bid or offer (“NBBO”), Market Orders would be filtered prior to execution at each price level pursuant to the procedures set forth in Chapter V, Section 16(b) of the BOX Rules. During the opening, Market Orders will have priority over Market-on-Opening and Limit Orders. BSE wishes to clarify how Market Orders would be treated in the following situations: Market Order Entered When the Lowest Offer Is $.05 In the case where the lowest offer for any options contract is $.05, and a BOX participant enters a Market Order to sell that series, any such Market Order shall be considered a Limit Order to sell at a price of $.05. Market Order Designated as a Minimum Volume Order A Market Order could be designated as a minimum volume
(MV)order and would only be executed if the specified minimum volume is immediately available to trade. If a volume equal to or greater than the specified minimum volume of an MV order trades, the residual volume would be filtered against trading through the NBBO according to the procedures set forth in Section 16(b) of Chapter V of the BOX Rules and, if applicable, executed with any orders on the BOX Book. Market Order Entered During a PIP In general, the BOX PIP is a three-second auction starting at a price better than the current NBBO during which BOX Participants compete to participate in the execution of the Customer Order submitted to the PIP (“PIP Order”) by submitting specially designated orders called Improvement Orders in one penny increments that are valid only in the PIP process. If a Market Order is submitted to BOX during a PIP that is in the same series as the PIP Order, under certain circumstances the submission of the Market Order may prematurely terminate the PIP, or the Market Order may immediately execute against the PIP Order at the NBBO or better. In this regard, Market Orders are treated like BOX-Top Orders, and BSE is taking this opportunity to clarify in the BOX Rules the treatment of BOX-Top Orders in the same circumstances. Premature Termination The submission to BOX of a Market Order on the same side as a PIP Order will prematurely terminate the PIP when, at the time of the submission of the Market Order, the best Improvement Order is equal to or better than the NBBO. If a Market Order is a buy order, the best Improvement Order is better than the NBBO when the price of the best Improvement Order is lower than the National Best Offer. If a Market Order is a sell order, the best Improvement Order is better than the NBBO when the price of the best Improvement Order is higher than the National Best Bid. When the PIP is terminated, the PIP Order is matched against the best prevailing orders on BOX (whether Improvement Orders or unrelated orders received by BOX during the PIP 7 ), pursuant to Paragraph (e)(iii) of Section 18 of Chapter V of the BOX Rules. Then the Market Order is filtered pursuant to Paragraph
(b)of Section 16 of the BOX Rules. 7 Excluding unrelated orders that were immediately executed during the interval of the PIP, as described below. Under these circumstances, allowing the PIP to continue would violate BOX's priority rules. For example, assume the NBBO and the best BOX price in the relevant series is $2.00 bid—$2.10 offer and the PIP Order is a buy order for 20 contracts. The PIP starts at $2.09 (one penny better than the National Best Offer). During the PIP interval, Improvement Orders are submitted to the PIP until the price of the best Improvement Order is $2.07. Then a Market Order to buy 20 contracts is submitted to BOX. If the PIP continued, the Market Order would have been executed at $2.10, a price that would have violated BOX's priority rules because the best Improvement Order at $2.07 is at a better price than $2.10. On BOX, even though Improvement Orders may only execute against PIP Orders, the priority rules still apply, and no order can be executed at a price worse than the best price available to another order. Therefore, the PIP must terminate, the PIP Order must be executed in full, and any left over Improvement Orders must be cancelled immediately before the Market Order is executed. The result would be the same regardless if the Market Order was to buy 10 contracts or to buy 30 contracts. To demonstrate a different scenario, assume the NBBO and the best BOX price in the relevant series is $2.00 bid—$2.10 offer and the PIP Order is a buy order for 20 contracts. The PIP starts at $2.09 (one penny better than the National Best Offer). During the PIP interval, Improvement Orders are submitted to the PIP until the price of the best Improvement Order is $2.07. Then the NBBO changes to $2.00 bid—$2.05 offer, but the BBO stays the same. Then a Market Order to buy 20 contracts is submitted to BOX. Pursuant to BOX's NBBO filter, the Market Order would be exposed internally on BOX for three seconds at $2.05, and become the best BOX bid. Currently, there is no order on BOX that the Market Order could execute against, including the PIP Order, since they are on the same side. Therefore, the PIP may continue. However, if the price of the best Improvement Order had been $2.05 (or lower) when the NBBO changed, the submission of a Market Order would cause the PIP to prematurely terminate because the submission of any additional Improvement Orders at better prices would result in a trade-through of the best BOX bid (the exposed Market Order) when the PIP Order was executed at the end of the PIP. Immediate Execution A Market Order on the opposite side of a PIP Order will immediately execute against the PIP Order when, at the time of the submission of the Market Order, the best Improvement Order is equal to or better than the NBBO. If a Market Order is a buy order, the best Improvement Order is better than the NBBO when the price of the best Improvement Order is lower than the National Best Offer. If a Market Order is a sell order, the best Improvement Order is better than the NBBO when the price of the best Improvement Order is higher than the National Best Bid. The Market Order immediately executes against the PIP Order up to the lesser of
(a)the size of the PIP Order, or
(b)the size of the Market Order, at a price equal to either
(i)one penny better than the NBBO, if the best BOX price on the opposite side of the market from the Market Order is equal to the NBBO at the time of the execution, or
(ii)the NBBO. The remainder of the Market Order, if any, is filtered pursuant to Section 16(b) of Chapter V of the BOX Rules. The remainder of the PIP Order, if any, continues in the PIP process. 8 8 BSE believes these execution prices are consistent with BOX's priority rules. When the best BOX price on the opposite side of the market from the Market Order is equal to the NBBO at the time of execution, executing the Market Order at the NBBO would violate the time priority of the order on the BOX book with the best BOX price. Under these circumstances, allowing the PIP to continue without immediately executing the Market Order against the PIP Order would violate BOX's priority rules. For example, assume the NBBO and the best BOX price in the relevant series is $2.00 bid—$2.10 offer and the PIP Order is a buy order for 20 contracts. The PIP starts at $2.09 (one penny better than the National Best Offer). During the PIP interval, Improvement Orders are submitted to the PIP until the price of the best Improvement Order is $2.07. Then, assume a Market Order to sell 20 contracts is submitted to BOX. If the Market Order did not immediately execute against the PIP Order, it would have been executed at $2.00 with the best BOX bid which would violate BOX's priority rules because the PIP Order, not the best BOX bid, has priority for the best price. Furthermore, the Market Order would not be available to execute against the PIP Order at the end of the PIP. The PIP Order could have missed the opportunity to receive an execution at $2.01. Assume the same situation as described above, except that a Market Order to sell 30 contracts is submitted to BOX. The Market Order would be partially executed against the PIP Order at $2.01 and the remainder of the Market Order (10 contracts) would be filtered pursuant to Section 16(b) of Chapter V of the BOX Rules. If the Market Order was a Market Order to sell 10 contracts, the Market Order would be executed in full against the PIP Order at $2.01, and the remainder of the PIP Order would continue in the PIP process. To demonstrate a different scenario, assume the NBBO in the relevant series is $2.05 bid—$2.10 offer, the best BOX price is $2.00 bid—$2.10 offer and the PIP Order is a buy order for 20 contracts. The PIP starts at $2.09 (one penny better than the National Best Offer). During the PIP interval, Improvement Orders are submitted to the PIP until the price of the best Improvement Order is $2.07. Then, assume a Market Order to sell 20 contracts is submitted to BOX. If the Market Order did not immediately execute against the PIP Order, it would have been exposed internally on BOX for three seconds at $2.05. If the Market Order was executed at $2.05 during this three second exposure period against any order other than the PIP Order, this would violate BOX's priority rules because the PIP Order has priority and is entitled to the better price. Therefore, the Market Order immediately executes against the PIP Order at $2.05. However, if the price of the best Improvement Order is $2.04, the option of immediately executing the Market Order against the PIP Order at $2.05 is not available because the PIP Order is already guaranteed a better execution at $2.04, pursuant to the best Improvement Order, and therefore the PIP continues. Related Amendments Currently, the BOX Rules address the treatment of unrelated orders on the same side as a PIP Order, but do not address the treatment of unrelated orders on the opposite side of a PIP Order. BSE proposes to add subparagraph (b)(iv) to Section 16 of Chapter V of the BOX Rules and to amend Paragraph
(i)of Section 18 of Chapter V of the BOX rules to address the treatment of unrelated orders on the opposite side of a PIP Order, as described above. BSE also proposes to eliminate the term “executable” from Paragraph
(i)of Section 18 of Chapter V of the BOX rules because this term is not clearly defined. BSE proposes to specify when a Market Order (or BOX-Top Order) would immediately execute against a PIP Order, or cause the PIP to prematurely terminate. 9 9 BSE intends to file a proposal to clarify when Limit Orders would immediately execute against a PIP Order, or cause the PIP to prematurely terminate. Paragraph
(b)of Section 16 of Chapter V of the BOX Rules describes how inbound orders to BOX are filtered to avoid trading-through the NBBO. BOX proposes to add subparagraph
(iv)to clarify that at each step in the filtering process, under certain circumstances if an order (including a Market Order) is an unrelated order on the opposite side of a PIP Order, the order will be immediately executed against the PIP Order as described above, and that any remaining quantity will continue in the filtering process as set forth in Paragraph
(b)of Section 16 of Chapter V of the BOX Rules. BSE also proposes to amend Paragraph (e)(iii) of Section 18 of Chapter V of the BOX Rules to specifically exclude unrelated orders that were immediately executed during the interval of a PIP from the list of orders that PIP Orders are matched against at the conclusion of the PIP. 2. Statutory Basis The Exchange believes that the proposal, as amended, is consistent with the requirements of Section 6(b) of the Act, 10 in general, and Section 6(b)(5) of the Act, 11 in particular, in that the proposal is designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, 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. 10 15 U.S.C. 78f(b). 11 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition 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 Exchange has neither solicited nor received 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 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-BSE-2004-51 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-BSE-2004-51. 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 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-BSE-2004-51 and should be submitted on or before May 19, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 12 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-2044 Filed 4-27-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51590; File No. SR-CBOE-2005-10] Self-Regulatory Organizations; Chicago Board Options Exchange, Inc.; Order Approving Proposed Rule Change To Revise Certain Membership Rules Related to the Testing and Orientation Requirements for Nominees of Member Organizations Approved Solely as Clearing Members April 21, 2005. On January 25, 2005, the Chicago Board Options Exchange, Inc. (“CBOE” or “Exchange”) 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 revise membership rules related to the testing and orientation requirements for certain members and to make other non-substantive changes. The proposed rule change was published for comment in the **Federal Register** on March 17, 2005. 3 The Commission received no comments on the proposal. This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 51361 (March 11, 2005), 70 FR 13058. Pursuant to the proposed rule change, the Exchange will revise Exchange Rule 3.8(a)(iii) to provide that nominees of a member organization approved solely as a Clearing Member are not required to have an authorized trading function. The effect of the rule change is to eliminate the requirement that nominees of Clearing Members attend the Exchange's Member Orientation Program and pass the Exchange's Trading Member Qualification Exam. Clearing Members who wish to engage in trading activities on the Exchange will still be required to designate a nominee who has an authorized trading function. The proposed rule change also makes certain other technical changes to internal Exchange procedures for categorizing its members. The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange and, in particular, the requirements of Section 6(b)(5) of the Act, 4 which requires that the rules of the 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 finds that removing the requirements that nominees of member organizations approved solely as Clearing Members attend the Exchange's Member Orientation Program and pass the Exchange's Trading Member Qualification Exam is consistent with the requirements of Section 6(b)(5) of the Act because the exemption only applies to the nominees of member organizations that are not engaged with trading with the public. 4 15 U.S.C. 78f(b)(5). *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 5 that the proposed rule change (SR-CBOE-2005-10) be, and it hereby is, approved. 5 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 6 6 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-2042 Filed 4-27-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51598; File No. SR-NASD-2004-185] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto by the National Association of Securities Dealers, Inc. To Establish a Unitary Fee Schedule for Distribution of Real Time Data Feed Products Containing Nasdaq Market Center Data April 21, 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 14, 2004, the National Association of Securities Dealers, Inc. (“NASD”), through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq. On February 17, 2005, Nasdaq filed Amendment No. 1 to the original filing. 3 Nasdaq filed Amendment No. 2 on April 14, 2005. 4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 replaced and superseded the original proposed rule change in its entirety. 4 Amendment No. 2 replaced and superseded the original proposed rule change, as amended. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Nasdaq is filing a proposed rule change to modify NASD Rule 7010 to establish a unitary fee schedule for the distribution of Nasdaq Market Center real time data feed products. The text of the proposed rule change is below. 5 Proposed new language is *italicized* ; proposed deletions are in [brackets]. 6 5 With the permission of Nasdaq, the Commission made a typographical, non-substantive correction to the text of the proposed rule change. *See* telephone conversation between Jeff Davis, Associate General Counsel, Nasdaq, and Raymond Lombardo, Attorney, Division of Market Regulation, Commission, April 21, 2005. 6 The proposed changes are marked from NASD Rule 7010 as it appears in the NASD Manual available at *www.nasd.com.* Rule 7010. System Services (a)-(k) No change
(l)Market Data Distributor [or Vendor Annual Administrative] Fee *s* *(1)* Nasdaq Market Data Distributors [or Vendors] shall be assessed the following annual administrative fee: Delayed distributor $250[.00] 0-999 real-time terminals 500[.00] 1,000-4,999 real-time terminals 1,250[.00] 5,000-9,999 real-time terminals 2,250[.00] 10,000+ real-time terminals 3,750[.00] The Association may waive all or part of the foregoing charges. *(2) The charge to be paid by Distributors of the following Nasdaq market center real time data feeds shall be:* Monthly direct access fee Monthly internal distributor fee Monthly external distributor fee Issue Specific Data: Dynamic Intraday $2,500 $1,000 $2,500 Total View Open View Daily 500 0 500 MFQS Market Summary Statistics: Intraday 500 50 1,500 Real Time Index *(3) A “distributor” of Nasdaq data is any entity that receives a feed or data file of Nasdaq data directly from Nasdaq or indirectly through another entity and then distributes it either internally (within that entity) or externally (outside that entity). All distributors shall execute a Nasdaq distributor agreement. Nasdaq itself is a vendor of its data feed(s) and has executed a Nasdaq distributor agreement and pays the distributor charge.* *(4) “Direct Access” means a telecommunications interface with Nasdaq for receiving Nasdaq data via a Nasdaq-operated website, system or application, the MCI Financial Extranet, or via an Extranet access provider or other such provider that is fee-liable under Rule 7010(v), but does not include Nasdaq Workstation II/API Service that is fee liable under Rule 7010(f)(1).* (m)-(p) No Change.
(q)Nasdaq TotalView
(1)TotalView Entitlement. The TotalView entitlement allows a subscriber to see all individual Nasdaq Market Center participant orders and quotes displayed in the system as well as the aggregate size of such orders and quotes at each price level in the execution functionality of the Nasdaq Market Center, including the NQDS feed.
(A)No Change. [(B) Distributors of individual participant data in the TotalView Entitlement shall pay a charge of $7,500 per month. Distributors of only the aggregate data in the TotalView Entitlement shall pay a charge of $1,000 per month.] ( *B* [C]) 30-Day Free-Trial Offer. Nasdaq shall offer all new individual subscribers and potential new individual subscribers a 30-day waiver of the *user* fees for TotalView. This waiver shall not include the incremental fees assessed for the NQDS-only service, which are $30 for professional users and $9 for non-professional users per month. This fee waiver period shall be applied on a rolling basis, determined by the date on which a new individual subscriber or potential individual subscriber is first entitled by a distributor to receive access to TotalView. A distributor may only provide this waiver to a specific individual subscriber once. For the period of the offer, the TotalView fee of $[3] *4* 0 per professional user and $5 per non-professional user per month shall be waived.
(2)[Definitions.
(A)]A “controlled device” is any device that a distributor of the Nasdaq data entitlement package(s) permits to:
(i)access the information in the Nasdaq data entitlement package(s); or
(ii)communicate with the distributor so as to cause the distributor to access the information in the Nasdaq data entitlement package(s). If a controlled device is part of an electronic network between computers used for investment, trading or order routing activities, the burden shall be on the distributor to demonstrate that the particular controlled device should not have to pay for an entitlement. For example, in some display systems the distributor gives the end user a choice to see the data or not; a user that chooses not to see it would not be charged. Similarly, in a non-display system, users of controlled devices may have a choice of basic or advanced computerized trading or order routing services, where only the advanced version uses the information. Customers of the basic service then would be excluded from the entitlement requirement. [(B) A “distributor” of a Nasdaq data feed is any firm that receives a Nasdaq data feed directly from Nasdaq or indirectly through another vendor and then distributes it either internally or externally. All distributors shall execute a Nasdaq distributor agreement. Nasdaq itself is a vendor of its data feed(s) and has executed a Nasdaq distributor agreement and pays the distributor charge.]
(3)No Change.
(4)No Change. (r)-(w) No Change. Rule 7030. Special Options Receive only printer $100/month. Local Posting Permits subscriber to use Nasdaq Level 3 terminals to enter quotations simultaneously into an internal computer system $10/month. Dual Keyboard $15/month. [Nasdaq Market Index] [Permits vendor to process Nasdaq Level I and Last Sale data feeds solely for the purpose of supplying subscribers with distribute real-time calculations of the Nasdaq market indexes to all of its subscribers, including those that do not otherwise subscribe to real-time Nasdaq Level 1 or NQDS services.] [2,000/month] Non-Continuous Access to Nasdaq Level 1 and Last Sale Information Permits vendor to process and distribute Nasdaq Level 1 and Last Sale information to its subscribers on a non-continuous or query-response basis $.005/query. Rule 7060. Partial Month Charges *Distributors may elect to have* [T] *t* he charges for the month of commencement or termination of service [will] be *billed on a full month basis or* prorated based on the number of trade days in that month. Rule 7090. Mutual Fund Quotation Service (a)-(d) No change. [(e) Distributors receiving MFQS shall pay a monthly fee of $1,000. For the purposes of this subsection only, the term “distributor” shall refer to any firm that receives the MFQS data feed and distributes it to third parties. All such firms must execute a Nasdaq Distributor Agreement.] II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Nasdaq offers various data products that firms may purchase and redistribute either within their own organizations or to outside parties. Nasdaq assesses “distributor fees” that are designed to encourage broad distribution of the data, and allow Nasdaq to recover the relatively high fixed costs associated with supporting connectivity and contractual relationships with distributors. Because the data products and associated fees were established over many years, the method of calculating such fees must be updated. Nasdaq is proposing to establish a revised monthly distributor pricing structure for its real time data feed products that it believes will allocate equitably data fees across the customer base of data distributors and consumers of Nasdaq market data. Specifically, the current proposal would establish a distributor fee pricing structure for four real time data feed products: TotalView, OpenView, Mutual Fund Quotation Service (“MFQS”), and Real Time Index. The proposed fees will be assessed to distributors of these real time data feed products, those vendors that receive the real time data feeds that can be re-transmitted in an uncontrolled format. The distributor fees do not apply to Nasdaq's web-based historical data products, which are governed by NASD Rule 7010(p), and they do not apply to data feeds that are produced pursuant to the national market system plan governing Nasdaq stocks (“Nasdaq UTP Plan”). The proposed distributor pricing is also distinct from any per display device or per user population fees for data products such as TotalView. The proposed pricing structure is comprised of two components for each Nasdaq real time data feed product:
(1)a Direct Access Fee, and
(2)either an Internal Distribution Fee or an External Distribution Fee. The Direct Access Fee will apply to any organization that receives a real time data product directly from Nasdaq via a data feed. Distributors receiving Nasdaq real time data indirectly ( *i.e.,* via re-transmission from another entity) are not liable for the Direct Access Fee. This fee allows Nasdaq to recover the fixed costs of establishing and maintaining relationships with direct access distributors. The Internal Distribution Fee will apply to any organization that receives a real time data feed product (either directly from Nasdaq or through a vendor) and distributes the data solely within its own organization. The External Distribution Fee will apply to any organization that receives a real time data feed product (either directly from Nasdaq or through a vendor) and distributes the data outside its own organization. The External Distribution Fee is higher than the Internal Distribution Fee because external distributors typically have broader distribution of the data than internal distributors. An organization that receives real time data directly from Nasdaq will pay the Direct Access Fee plus the higher of either the Internal Distribution or External Distribution Fee but not both. An organization that only receives real time data feeds indirectly and distributes it within its organization will pay the Internal Distribution Fee; an organization that receives data indirectly and distributes it outside its organization will pay the External Distribution Fee, and an organization that receives real time data feeds indirectly and distributes it both internally and externally will pay the External Distribution Fee. Nasdaq real time data feed products that are available for distribution would be divided into two categories and each will have a Direct Access Fee, Internal Distribution Fee, and External Distribution Fee assigned. Nasdaq Total View, OpenView, and MFQS will be labeled as “Issuer Specific Data” and Nasdaq Real Time Index will be labeled as “Market Summary Statistics.” Currently, there is no monthly distribution fee for OpenView and the monthly distribution fee for Nasdaq TotalView (set forth at Rule 7010(q)) is based on whether the data distributor receives the TotalView data in an aggregate or detailed form. The monthly fee for TotalView data in aggregate form is $1,000 per distributor and in detailed form is $7,500 per distributor. Under the proposed fee structure, TotalView and OpenView, whether in aggregate or detailed form, will be labeled as “Issue Specific Data-Dynamic Intraday” data for which the proposed monthly fees are $2,500 for Direct Access, $1,000 for Internal Distribution, and $2,500 for External Distribution. 7 Organizations that currently purchase detailed TotalView information, particularly internal distributors and non-direct connection recipients, will pay less in the future; organizations that currently purchase aggregate TotalView data, particularly those that access the data directly, will pay higher fees. 7 Nasdaq believes that because OpenView provides the same depth and scope of information for exchange-listed securities as TotalView does for Nasdaq-listed securities, and entails similar costs, it is appropriate to put into place the same distribution fee structure for OpenView at this time. Telephone conversation between Bill O'Brien, Senior Vice President, Market Data Distribution, Nasdaq, and Ira Brandriss, Assistant Director, Division of Market Regulation, Commission, April 21, 2005. The current monthly fee for distribution of the MFQS is $1,000 for each external distributor. Under the new fee structure, MFQS data will be labeled as “Issue Specific Data—Daily” data for which the proposed monthly fees are $500 for Direct Access, $500 for External Distribution, and no charge for Internal Distribution. The proposed pricing will benefit external distributors that do not take their data directly from Nasdaq. Organizations that take their data directly from Nasdaq but only distribute it internally will pay the Direct Access Fee. Under the current monthly fee structure set forth in NASD Rule 7030, the fee for Real-Time Index data is $2,000 for external distributors. Under the proposed fee structure, Real-Time Index data will be labeled as “Market Summary Statistics—Intraday.” The proposed monthly fees for Market Summary Statistics will involve a Direct Access fee of $500, an Internal Distribution Fee of $50, and an External Distribution fee of $1,500. The proposed pricing will decrease the costs of non-direct connection external distributors, but increase them for organizations that distribute the data internally. Nasdaq is also proposing a more flexible policy for distributor reporting of, and payment for, market data usage. NASD Rule 7060 currently provides that such reporting be based on a pro-rated accounting of the specific installation and termination dates for service. Because some data distributors prefer to report data usage on a “full-month” basis, Nasdaq proposes to offer its market data distributors the option of reporting and paying based on either a pro-rated or full-month basis. The selection of pro-rated or full-month reporting will be the business decision of each market data distributor based on its needs and the needs of its customers. 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of Section 15A of the Act, 8 in general and with Section 15A(b)(5) of the Act, 9 in particular, in that the revised and updated fee schedule provides for the equitable allocation of reasonable charges among the persons distributing and purchasing Nasdaq real time market center data. The proposed pricing structure will enable Nasdaq to respond more rapidly to customer requests for additional or varied dissemination of information. Nasdaq believes that encouraging the redistribution of the Nasdaq real time market center data will improve transparency and thereby benefit the investing public. 8 15 U.S.C. 78o-3. 9 15 U.S.C. 78o-3(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition Nasdaq does not believe that the proposed rule change will impose any inappropriate burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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 Nasdaq 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-NASD-2004-185 on the subject line. Paper Comments: • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. All submissions should refer to File Number SR-NASD-2004-185. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASD-2004-185 and should be submitted on or before May 19, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 10 10 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-2041 Filed 4-27-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51599; File No. SR-NASD-2005-048] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the National Association of Securities Dealers, Inc. To Modify Pricing for NASD Members Using Nasdaq's Brut Facility April 22, 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 8, 2005, the National Association of Securities Dealers, Inc. (“NASD”), through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq. Nasdaq has designated this proposal as one establishing or changing a due, fee or other charge imposed by the self-regulatory organization under Section 19(b)(3)(A)(ii) 3 of the Act and Rule 19b-4(f)(2) thereunder, 4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b-4(f)(2). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change Nasdaq proposes to modify the pricing for NASD members using Nasdaq's Brut Facility (“Brut”). Nasdaq states that it will implement the proposed rule change on April 11, 2005. The text of the proposed rule change is available on the NASD's Web site ( *http://www.nasd.com* ), at the NASD'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, Nasdaq included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. Nasdaq has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Nasdaq's proposed rule change contains two modifications to the fees applicable to transactions in exchange-listed securities. Nasdaq currently charges a fee of $0.004 per share executed with respect to any order to buy or sell exchange-listed securities that is routed by Brut to an exchange using such exchange's proprietary order delivery system (such as the New York Stock Exchange's (“NYSE”) SuperDOT system). This proposed rule change would reduce this fee for some orders and eliminate it entirely for others. Under the proposal, the fee for orders to buy or sell exchange-listed securities (assuming such securities are subject to the Consolidated Quotations Service and Consolidated Tape Association Plans and are not Exchange Traded Funds listed on the American Stock Exchange) that are routed by Brut to an exchange using the exchange's proprietary order delivery system would be reduced to $0.0004 per share executed. This fee would only be charged, however, if the orders to which it otherwise applies are routed outside Brut and the Nasdaq Market Center (“NMC”) without first attempting to execute within Brut or the NMC. If an order to which this fee would otherwise apply first attempts to execute against the book maintained by Brut or the NMC, then this fee would no longer be applicable. By lowering (and eliminating in many cases) the routing fees for certain orders for exchange-listed securities received by Brut, Nasdaq states that it seeks to continue to improve Brut's competitiveness in attracting buy and sell orders for exchange-listed securities. Nasdaq believes that its participants would benefit from the increased liquidity in exchange-listed securities that the proposal is designed to stimulate. Furthermore, Nasdaq states that all investors would benefit from increased competition in this area. Finally, Nasdaq believes that the distinction for fee purposes between orders that check the Brut (or NMC) book before routing and those that are designated for routing regardless of available prices in such book would encourage orders to check the Brut book, which it believes would benefit both the particular investor (who, as a result, may find a better execution) and the market as a whole. At the same time, the proposed rule change seeks to establish a new fee designed to recover the commissions billed by NYSE specialists to Brut for certain types of limit orders. According to Nasdaq, generally, NYSE specialists charge Brut for executions of limit orders that remained unexecuted on the specialists' books for more than 5 minutes. While the specialists' fee schedules vary, Nasdaq states that the proposed Brut fee of $0.009 per share is generally designed to recover for Brut some of the associated cost. 5 5 Such orders could also incur the $0.0004 per share fee discussed above if they are routed outside Brut and the NMC without first attempting to execute within Brut or the NMC. Telephone conversation between Alex Kogan, Associate General Counsel, Nasdaq, John Roeser, Assistant Director, Division of Market Regulation (“Division”), Commission, and David Liu, Attorney, Division, Commission, on April 20, 2005. The new fee would apply when a limit order is delivered to the NYSE via the NYSE's proprietary order delivery system and the time to execute such an order exceeds five minutes (measured as the difference between the time of the NYSE's electronic acknowledgment of the order and the time of execution). The new fee would not apply, however, to day orders executed in the specialists' opening and to good-till-cancelled orders if executed in the opening on the day when they were entered. The new fee would also not apply to any on-close orders or market orders. This filing applies only to fees charged to NASD members. Nasdaq has submitted a separate filing to make the proposed rule changes contained in this filing applicable to non-members. 6 6 *See* SR-NASD-2005-049. 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of Section 15A of the Act, 7 in general, and with Section 15A(b)(5) of the Act, 8 in particular, in that the proposed rule change provides for the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other persons using any facility or system which the NASD operates or controls. 7 15 U.S.C. 78 *o* -3. 8 15 U.S.C. 78 *o* -3(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Nasdaq states that written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The forgoing rule change is subject to Section 19(b)(3)(A)(ii) of the Act 9 and subparagraph (f)(2) of Rule 19b-4 10 thereunder because it establishes or changes a due, fee, or other charge imposed by the self-regulatory organization. Accordingly, the proposal is effective upon Commission receipt of the filing. At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 11 9 15 U.S.C. 78s(b)(3)(A)(ii). 10 17 CFR 240.19b-4(f)(2). 11 15 U.S.C. 78s(b)(3)(C). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-NASD-2005-048 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-2005-048. 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 NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASD-2005-048 and should be submitted on or before May 19, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 12 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-2043 Filed 4-27-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51600; File No. SR-NSCC-2005-01] Self-Regulatory Organizations; National Securities Clearing Corporation; Order Granting Approval of a Proposed Rule Change To Amend Its Operational Capability Requirement for Membership April 22, 2005. I. Introduction On January 19, 2005, the National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change File No. SR-NSCC-2005-01 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 March 17, 2005. 2 No comment letters were received. For the reasons discussed below, the Commission is now granting approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 51363 (March 11, 2005), 70 FR 13060. II. Description The proposed rule change amends Section I.A.3. of Addendum B, Section I.A.3. of Addendum I, Section I.3. of Addendum Q, and Section I.2. of Addendum R of NSCC's Rules and Procedures concerning the operational capability requirements of applicants for membership. NSCC's current rules specify that an applicant must “have adequate personnel capable of handling transactions with the Corporation [NSCC] and adequate physical facilities, books and records and procedures to fulfill anticipated commitments to and to meet the operational requirements of the Corporation [NSCC] * * *.” NSCC believes that these provisions may be interpreted to impose upon NSCC an obligation to make determinations with respect to these particular aspects of applicants' and members' operational capability. NSCC ordinarily leaves such determinations to the applicants' and members' designated examining authorities. The operational capability that NSCC ordinarily focused upon during the application process is the applicant's ability to appropriately communicate with NSCC; that is, the applicant's ability to input data to NSCC and to receive output from NSCC on a timely and accurate basis. NSCC believes that it is appropriate to clarify these sections of its Rules and Procedures so that they reflect the practices of NSCC and so that there will be no misunderstandings as to their meaning. The text of the above-referenced sections of NSCC's Rules and Procedures will be amended to delete references to adequate personnel and adequate facilities, books, and records that are extraneous to the ability of applicants to communicate with NSCC. In place, these sections will state that an applicant must “be able to satisfactorily communicate with the Corporation [NSCC] * * *.” NSCC will continue to retain the right to examine any aspect of an applicant's or member's business pursuant to the provisions of NSCC Rule 15. 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. 3 The Commission finds that NSCC's proposed rule change is consistent with this requirement because it eliminates a potential misunderstanding with regard to its membership requirements and therefore helps NSCC better protect itself and its members from undue risk. 3 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, 4 that the proposed rule change (File No. SR-NSCC-2005-01) be and hereby is approved. 4 15 U.S.C. 78s(b)(2). For the Commission by the Division of Market Regulation, pursuant to delegated authority. 5 5 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-2003 Filed 4-27-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-51593; File Nos. SR-NYSE-2004-24; SR-NASD-2004-141] Self-Regulatory Organizations; Order Approving Proposed Rule Changes by the New York Stock Exchange, Inc., and the National Association of Securities Dealers, Inc., To Prohibit Participation by a Research Analyst in a Road Show Related to an Investment Banking Services Transaction and To Require Certain Communications About an Investment Banking Services Transaction To Be Fair, Balanced and Not Misleading April 21, 2005. I. Introduction Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act” or “Act”) 1 and Rule 19b-4 thereunder, 2 on April 22, 2004 the New York Stock Exchange (“NYSE” or the “Exchange”), and on September 20, 2004, the National Association of Securities Dealers, Inc. (“NASD”), filed with the Securities and Exchange Commission (“SEC” or “Commission”) proposed rule changes including proposals to prohibit participation by a research analyst in a road show related to an investment banking services transaction and to require certain communications about an investment banking services transaction to be fair, balanced and not misleading. On February 11, 2005, NYSE filed Amendment No. 1 to its proposed rule change, which replaced the original rule filing in its entirety. On February 4, 2005, NASD filed Amendment No. 1 to its proposed rule change, which replaced the original rule filing in its entirety. 3 The proposed rule changes, as amended, were published for comment in the **Federal Register** on March 17, 2005. 4 The comment period expired on April 7, 2005. The Commission received one comment letter in response to the Notice, which supported the proposed rule changes. 5 This order approves the proposed rule changes, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 On March 9, 2005, NASD filed with the Commission Amendment No. 2 to its proposed rule change, which clarified that Amendment No. 1 replaced the original filing in its entirety. 4 *See* Securities Exchange Act Release No. 51358 (March 10, 2005), 70 FR 13061 (the “Notice”). 5 *See* Letter to Jonathan G. Katz, Secretary, Commission, from the Ohio Public Employees Retirement System (April 1, 2005). II. Background On May 10, 2002, the Commission approved rule changes filed by the NYSE and NASD (the “SROs”) governing research analyst conflicts of interest. 6 Those rules took considerable steps towards promoting greater independence of research analysts and significantly enhanced the disclosure of actual and potential conflicts of interest to investors. On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002 (“SOA”), which required, among other things, that the Commission, or upon authorization and direction of the Commission, a registered securities association or national securities exchange, adopt rules governing analyst conflicts. 7 Certain of the SOA's mandates were satisfied by NASD and NYSE rule provisions existing at the time of the enactment of the SOA. Other of the SOA's mandates necessitated amendments to the then existing rules. Thus, the Commission directed the NASD and NYSE to amend their analyst conflicts rules to fulfill the mandates of the SOA. 8 The Commission approved these rules on July 29, 2003. 9 6 *See* Securities Exchange Act Release No. 45908, 67 FR 34968 (May 16, 2002) (the “Round I” rules). 7 *See* Pub. L. 107-204, 116 Stat. 745 (2002). The SOA amended the Exchange Act by adding Section 15D. *See* 15 U.S.C. 78a *et seq.* ; 15 U.S.C. 78 *o* -6. 8 *See* Letter from Annette Nazareth, Director, Division of Market Regulation, Commission, to Mary Schapiro, Vice Chairman and President, Regulatory Policy and Oversight, NASD, and Richard Grasso, Chairman and Chief Executive Officer, NYSE (March 13, 2003). 9 *See* Securities Exchange Act Release No. 48252, 68 FR 45875 (August 4, 2003) (the “Round II” rules). In the order approving the Round I rules, the Commission directed the SROs to prepare a report on the operation and effectiveness of the rules by November, 2003. The Commission later postponed requiring the SROs to submit the report in light of the SOA and the approval of the Round II rules. 10 The Round II rules have now been fully implemented since April 26, 2004 and the SROs have been instructed to jointly submit a report on the operation and effectiveness of all of the analyst rules by November 4, 2005. 11 It is possible that the report may indicate additional areas for rulemaking. 10 *Id.* 11 *See* Letter from Annette Nazareth, Director, Division of Market Regulation, Commission, to Mary Schapiro, Vice Chairman and President, Regulatory Policy and Oversight, NASD, and Richard Ketchum, Chief Regulatory Officer, NYSE (April 8, 2005). On April 28, 2003, the Commission, along with other regulators, announced a global settlement of enforcement actions against certain investment firms that followed joint investigations by regulators of allegations of undue influence of investment banking interests on securities research at brokerage firms. 12 The Global Settlement was approved by the court on October 31, 2003. On September 24, 2004, the court approved amendments to the Global Settlement, which, among other things, amended the Addendum to provide additional, more specific guidelines relating to analyst communications with members of a settling firm's sales force and prospective investors in the context of certain investment banking transactions, and were intended to avoid research analysts becoming, or being perceived as, part of the investment banking team or otherwise promoting a particular transaction. 13 12 The terms of the settlement are available at *http://www.sec.gov/litigation/litreleases/finaljudgadda.pdf* (“Global Settlement”). 13 The SROs note that the proposed rule changes are similar in certain aspects to provisions found in the Global Settlement. The SROs have stated that the proposed rule changes have not been proposed for the purpose of conforming to the Global Settlement, or addressing differences between the Global Settlement and SRO rules. Rather, the SROs believe that the proposed rules are appropriate in that they would facilitate the goal of more objective and reliable research. A. Current NYSE and NASD Rules Governing Disclosure of Conflicts of Interest The SROs' research analyst conflicts of interest rules were designed to foster greater public confidence in securities research and to protect the objectivity and independence of securities analysts. The rules contain a number of elements, including: • Structural reforms to increase analyst independence, including a prohibition on investment banking personnel supervising analysts or approving research reports and limiting the compensatory evaluation of analysts to officials employed by the broker or dealer who are not engaged in investment banking activities; • A prohibition on tying analyst compensation to a specific investment banking services transaction; • Restrictions on personal trading by analysts; • A prohibition on retaliation by members and employees of members involved with investment banking activities against analysts as a result of an adverse, negative, or otherwise unfavorable research report or public appearance; and • A prohibition on offering favorable research to induce investment banking business. B. Proposed Changes to NYSE and NASD Rules The proposed SRO rule changes further define the types of communications that are inappropriate for research analysts and investment banking personnel. Thus the rules further insulate analysts from investment banking pressure, thereby promoting the integrity of, not only research reports and public appearances, but all communications by research analysts to customers as well as internal personnel. The Commission provides here a general overview of the proposed rule changes. First, the proposals would prohibit a research analyst from directly or indirectly participating in a road show related to an investment banking services transaction, or otherwise communicating with customers in the presence of investment banking personnel or company management about an investment banking services transaction. Therefore, such “three-way” communications between research, customers and banking, as well as those involving research, customers and issuers, are prohibited. Second, the proposals would prohibit investment banking personnel from directly or indirectly directing a research analyst to engage in sales and marketing efforts or other communications with a current or prospective customer related to an investment banking services transaction. Finally, the proposals would require that research analyst written and oral communications relating to an investment banking services transaction with a current or prospective customer or with internal personnel, must be fair, balanced and not misleading, taking into consideration the overall context in which the communication is made. Thus, the proposals preserve the ability of research analysts to educate investors and internal personnel about investment banking services transactions, provided such communications are fair, balanced and not misleading, considering the overall context in which the communication is made. III. Discussion The Commission received one comment letter on the proposed rule changes, which supported the approval of the proposals. After careful review, the Commission finds, as discussed more fully below, that the proposed rule changes, as amended, are consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to the NYSE and NASD. 14 In particular, the Commission believes that the proposals are consistent with Sections 6(b)(5) and 6(b)(8) of the Exchange Act, 15 and Sections 15A(b)(6) and 15A(b)(9) of the Exchange Act. 16 14 *See* 15 U.S.C. 78c(f). 15 15 U.S.C. 78f(b)(5) and (b)(8). 16 15 U.S.C. 78 *o* -3(b)(6) and (b)(9). Section 6(b)(5) 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 free trade, to remove impediments to and perfect the mechanism of a free and open market, and to protect investors and the public interest. Section 6(b)(5) also requires that the rules of an exchange not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. Section 6(b)(8) of the Exchange Act prohibits the rules of an exchange from imposing any burden on competition not necessary or appropriate in furtherance of the purposes of the statute. Section 15A(b)(6) requires that the rules of a registered national securities association be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. Section 15A(b)(9) requires that the rules of an association not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. Section 3(f) of the Exchange Act directs the Commission to consider, in addition to the protection of investors, whether approval of a rule change will promote efficiency, competition, and capital formation. 17 In approving the proposed rule changes, the Commission has considered their impact on efficiency, competition, and capital formation. 17 15 U.S.C. 78c(f). The Commission believes the rule changes, as amended, promote the independence of research analysts and the objectivity of the views analysts communicate to customers and internal personnel. A. Prohibition on Research Analyst Participation in Road Shows and Certain Three-Way Communications [NASD Rule 2711(c)(5) and NYSE Rule 472(b)(6)(i)] The proposals prohibit research analysts from participating in road shows related to investment banking services transactions, or otherwise communicating with customers in the presence of investment banking personnel or company management about an investment banking services transaction. NASD believes that by prohibiting research analyst participation in road shows, the proposed rule change will further reduce the pressure on research analysts to give an overly optimistic assessment of a particular transaction. Further, NYSE believes that the proposed provisions to prohibit analysts from engaging in any communication regarding investment banking services with current or prospective customers in the presence of investment banking personnel or company management also will reduce the pressure on research analysts to give overly optimistic assessments of investment banking services transactions. We believe that it is appropriate that the SROs prohibit research analysts from participating in road shows, as well as from engaging in communications with investors in the presence of investment banking personnel or issuer management. In addition, we believe that the prohibition on research analyst communications with customers in the presence of investment banking or company management will guard against research analysts being, or being perceived as, part of the sales and marketing team for a transaction, rather than as independent sources of information. We also note that the Round II rules included a prohibition on research analyst involvement in efforts to solicit investment banking, which were designed to further the goals of research objectivity and investor confidence by eliminating all participation by research analysts in solicitation efforts, which could suggest a promise of favorable research in exchange for underwriting business. Likewise, the proposed prohibition on research analyst participation in road shows would seek to provide for greater analyst objectivity and guard against analysts becoming part of the investment banking team for a transaction. The Commission finds that the rule changes to prohibit research analyst involvement in road shows related to investment banking transactions and three way communications between research, customers, and issuers or investment banking personnel, are consistent with the Exchange Act, particularly Sections 6(b)(5), 6(b)(8), 15A(b)(6), and 15A(b)(9). B. Investment Banking Directed Communications With Customers [NASD Rule 2711(c)(6) and NYSE Rule 472(b)(6)(ii)] The proposals would prohibit investment banking department personnel from directing a research analyst to engage in sales or marketing efforts and any other communication with a current or prospective customer about an investment banking services transaction. NASD believes this proposal is important to eliminate attempts by investment banking personnel to pressure a research analyst to engage in communications related to an investment banking services transaction, thereby further insulating research analysts from influences that could affect their objectivity. Further, the NYSE believes the proposal preserves the traditional function of research analysts (providing analysis of securities and transactions), while placing further limitations on the ability of investment banking personnel to influence and/or compromise the objectivity of research analyst analyses. The NYSE believes that it is important for investor protection that research analyst views be objective, unbiased, and not the result of pressure on an analyst. The Commission believes it is appropriate for the SROs to prohibit investment banking personnel from directing research analysts to engage in sales and marketing efforts or to engage in customer communications relating to an investment banking services transaction. We believe that these provisions will further insulate research analysts from investment baking pressure by cutting off the ability of investment banking personnel to directly, or indirectly ( *e.g.* through other parties), direct research analysts to engage in sales or marketing efforts, or otherwise communicate with customers about a transaction. Thus, we believe the proposals would promote analyst objectivity and independence and find that the proposed rules are consistent with the Exchange Act, particularly Sections 6(b)(5), 6(b)(8), 15A(b)(6), and 15A(b)(9). C. Fair and Balanced Requirement [NASD Rule 2711(c)(7) and NYSE Rule 472(b)(6)(iii)] The proposed rule changes require that all research analyst communications (written and oral) with current or prospective customers or with internal personnel relating to an investment banking services transaction, must be fair, balanced and not misleading, taking into consideration the overall context in which the communications are made. NASD believes that the primary role of a research analyst is to provide unbiased analysis of companies and transactions and to value securities accurately. Therefore, NASD and NYSE note that the proposed rule changes permit research analysts to educate investors and member personnel about investment banking services transactions, so long as such permissible communications to investors and internal personnel are fair, balanced and not misleading, taking into account the overall context in which such communications are made. Thus, NYSE notes that, while the proposed rule should insulate research analysts from potential undue influence of investment bankers and company management, it would not interfere with legitimate activities. The Commission believes that the SRO proposals are designed to promote the objectivity and independence of research analysts by explicitly requiring that all research analyst written and oral communications with customers, as well as with internal firm personnel, must be fair, balanced and not misleading, considering the context of the communications. These requirements build on existing SRO standards for research analyst communications with the public and provide additional safeguards for research communications with personnel within the broker-dealer. 18 The Commission further believes that the SROs' determination to require that such communications be fair, balanced and not misleading is consistent with Sections 6(b)(5), 6(b)(8), 15A(b)(6) and 15A(b)(9). 18 See NASD Rule 2210 (“Communications with the Public”) and NYSE Rule 472 (“Communications with the Public”). D. Implementation The SROs suggest that the proposed rule changes become effective 45 days after approval by the Commission and the Commission believes that this is reasonable. IV. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Exchange Act, 19 that the proposed rule changes (SR-NYSE-2004-24; SR-NASD 2004-141), as amended, are approved. 19 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 20 Margaret H. McFarland, Deputy Secretary. 20 17 CFR 200.30-3(a)(12). [FR Doc. E5-2002 Filed 4-27-05; 8:45 am] BILLING CODE 8010-01-P OFFICE OF SPECIAL COUNSEL Agency Information Collection Activities; Request for Comment AGENCY: Office of Special Counsel. ACTION: Notice. SUMMARY: In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), and implementing regulations at 5 CFR part 1320, the U.S. Office of Special Counsel (OSC), plans to request approval from the Office of Management and Budget
(OMB)for use of a previously approved information collection consisting of a customer survey form. OSC is required by law to conduct an annual survey of those who seek its assistance. The information collection is used to carry out that mandate. The current OMB approval for this collection of information expires on July 31, 2005. Current and former Federal employees, employee representatives, other Federal agencies, state and local government employees, and the general public are invited to comment on this information collection. Comments are invited on:
(a)whether the proposed collection of information is necessary for the proper performance of OSC functions, including whether the information will have practical utility;
(b)the accuracy of OSC's estimate of the burden of the proposed collections of information;
(c)ways to enhance the quality, utility, and clarity of the information to be collected; and
(d)ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. DATES: Comments should be received by June 27, 2005. ADDRESSES: Roderick Anderson, Director of Management and Budget, U.S. Office of Special Counsel, 1730 M Street, N.W., Suite 218, Washington, DC 20036-4505. FOR FURTHER INFORMATION CONTACT: Roderick Anderson, Director of Management and Budget at the address shown above; by facsimile at
(202)254-3715. The survey form for the collection of information is available for review by calling OSC, or on OSC's Web site, at http://www.osc.gov/reading.htm. SUPPLEMENTARY INFORMATION: OSC is an independent agency responsible for, among other things,
(1)investigation of allegations of prohibited personnel practices defined by law at 5 U.S.C. 2302(b), protection of whistleblowers, and certain other illegal employment practices under titles 5 and 38 of the U.S. Code, affecting current or former Federal employees or applicants for employment, and covered state and local government employees; and
(2)the interpretation and enforcement of Hatch Act provisions on political activity in chapters 15 and 73 of title 5 of the U.S. Code. OSC is required to conduct an annual survey of individuals who seek its assistance. Section 13 of Public Law 103-424 (1994), codified at 5 U.S.C. 1212 note, states, in part: “[T]he survey shall--(1) determine if the individual seeking assistance was fully apprised of their rights;
(2)determine whether the individual was successful either at the Office of Special Counsel or the Merit Systems Protection Board; and
(3)determine if the individual, whether successful or not, was satisfied with the treatment received from the Office of Special Counsel.” The same section also provides that survey results are to be published in OSC's annual report to Congress. Copies of prior years' annual reports are available on OSC's Web site, at http://www.osc.gov/library.htm (at the “Annual Reports to Congress” link), or by calling OSC at
(202)254-3600. OSC plans to enhance the effectiveness of this survey by revising the questions asked, adding a section dealing with the Uniform Services Employment and Reemployment Rights Act (USERRA), limiting questions asked to only those areas where an individual had rights before the MSPB under 5 U.S.C. 1212, and by converting to an online survey. The form has been edited to make the survey clearer (e.g., by re-ordering questions and possible answers). The estimated response time has been reduced due to the survey's automation. *Title of Collection:* OSC Survey--Prohibited Personnel Practice or Other Prohibited Activity (Agency Form Number OSC-48a; OMB Control Number 3255-0003) *Type of Information Collection Request:* Approval of a previously approved collection of information that expires on July 31, 2005, with revisions. *Affected public:* Current and former Federal employees, applicants for Federal employment, state and local government employees, and their representatives, and the general public. *Respondent's Obligation:* Voluntary. *Estimated Annual Number of Respondents:* 600. *Frequency:* Annual. *Estimated Average Amount of Time for a Person to Respond:* 12 minutes. *Estimated Annual Burden:* 120 hours. *Abstract:* This form is used to survey current and former Federal employees and applicants for Federal employment who have submitted allegations of possible prohibited personnel practices or other prohibited activity for investigation and possible prosecution by OSC, and whose matter has been closed or otherwise resolved during the prior fiscal year, on their experience at OSC. Specifically, the survey asks questions relating to whether the respondent was:
(1)apprised of his or her rights;
(2)successful at the OSC or at the Merit Systems Protection Board; and
(3)satisfied with the treatment received at the OSC. Dated: April 20, 2005. Scott J. Bloch, Special Counsel. [FR Doc. 05-8532 Filed 4-27-05; 8:45 am]
Connectionstraces to 11
5 references not yet in our index
  • 17 CFR 240.19
  • 15 USC 78
  • Pub. L. 107-204
  • 5 CFR 1320
  • Pub. L. 103-424
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Notices
Notice
U.S.C.§ 78s
U.S.C.§ 78f
U.S.C.§ 552
C.F.R.§ 200.30-3
U.S.C.§ 78o–3
U.S.C.§ 78q–1
Stat.Public Law 107–203
U.S.C.§ 78a
U.S.C.§ 78c
Cite17 CFR 240.19
Cite15 USC 78
Pub. L.Pub. L. 107-204
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