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Code · REGISTER · 2005-08-22 · SECURITIES AND EXCHANGE COMMISSION · Proposed Rules

Proposed Rules. SECURITIES AND EXCHANGE COMMISSION

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BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52260; File No. SR-Amex-2005-082] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Extension of a Pilot Program That Increases Position and Exercise Limits for Equity Options and Options on the Nasdaq-100 Tracking Stock August 15, 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 August 11, 2005, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Amex.
The Exchange has filed the proposal as a “non-controversial” rule change pursuant to section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders it 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). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange seeks a six month extension of its pilot program increasing the standard position and exercise limits for options on the QQQQ and equity option classes traded on the Exchange (“Pilot Program”).
The text of the proposed rule change is available on the Amex's Web site ( *http://www.amex.com* ), at the Amex's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Amex included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change.
The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange is requesting to extend its current Pilot Program increasing the standard position and exercise limits for options on the QQQQ and equity option classes traded on the Exchange for six months, from August 24, 2005, through and including February 23, 2006.
The Exchange previously filed a proposed rule change, which was effective upon filing with the Commission, that increased standard position and exercise limits for options on the QQQQ and for equity option classes traded on the exchange on a pilot basis for a six month period. 5 Under the Pilot Program, position and exercise limits for options on the QQQQ and equity options classes traded on the Exchange were increased to the following levels: 6 5 The Pilot Program is set to expire on August 23, 2005. *See* Securities Exchange Act Release No. 51316 (March 3, 2005), 70 FR 12251 (March 11, 2005) (notice of filing and immediate effectiveness of File No.
SR-Amex-2005-029). 6 Except when the Pilot Program is in effect. Current equity option contract limit Pilot Program equity option contract limit 13,500 contracts 25,000 contracts. 22,500 contracts 50,000 contracts. 31,500 contracts 75,000 contracts. 60,000 contracts 200,000 contracts. 75,000 contracts 250,000 contracts. Current QQQQ Option Contract Limit Pilot Program QQQQ Option Contract Limit 300,000 contracts 900,000 contracts. The standard position limits were last increased on December 31, 1998. 7 Since that time there has been a steady increase in the number of accounts that:
(a)Approach the position limit;
(b)exceed the position limit; and
(c)are granted an exemption to the standard limit. Several member firms have petitioned the options exchanges to either eliminate position limits, or in lieu of total elimination, increase the current levels and expand the available hedge exemptions. A review of available data indicates that the majority of accounts that maintain sizable positions are in those option classes subject to the 60,000 and 75,000 tier limits. There also has been an increase in the number of accounts that maintain sizable positions in the lower three
(3)tiers. In addition, overall volume in the options market has continually increased over the past five
(5)years. The Exchange believes that the increase in options volume and lack of evidence of market manipulation occurrences over the past twenty years justifies the proposed increases in the position and exercise limits. 7 *See* Securities Exchange Act Release No. 40875 (December 31, 1998), 64 FR 1842 (January 12, 1999) (SR-Amex-98-22) (approval of increase in position limits and exercise limits). The Exchange has not encountered any problems or difficulties relating to the Pilot Program since its inception. The instant proposed rule change makes no substantive change to the Pilot Program other than to extend it for six months through February 23, 2006. 2. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) of the Act 8 in general and furthers the objective of section 6(b)(5) of the Act 9 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposed rule change would impose no burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received by the Exchange on this proposal. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing rule change does not:
(1)Significantly affect the protection of investors or the public interest;
(2)impose any significant burden on competition; and
(3)become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A) of the Act 10 and Rule 19b-4(f)(6) thereunder. 11 10 15 U.S.C. 78s(b)(3)(A). 11 17 CFR 240.19b-4(f)(6). A proposed rule change filed under 19b-4(f)(6) normally may not become operative prior to 30 days after the date of filing. 12 However, Rule 19b-4(f)(6)(iii) 13 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the five-day pre-filing notice requirement and the 30-day pre-operative delay. The Commission is exercising its authority to waive the five-day pre-filing requirement and believes that waiver of the 30-day pre-operative delay is consistent with the protection of investors and in the public interest. Waiving the five-day pre-filing requirement and 30-day pre-operative delay will allow the Pilot Program to continue uninterrupted. 14 12 17 CFR 240.19b-4(f)(6)(iii). 13 *Id.* 14 For the purposes only of waiving the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File No. SR-Amex-2005-082 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-9303. All submissions should refer to File No. SR-Amex-2005-082. 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, 100 F Street, NE., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of the Amex. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-Amex-2005-082 and should be submitted on or before September 12, 2005. 15 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 15 Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4551 Filed 8-19-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52264; File No. SR-BSE-2005-37] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Its Boston Options Exchange Trading Rules Regarding the Extension of a Pilot Program That Increases the Standard Position and Exercise Limits for Certain Options Traded August 15, 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 August 11, 2005, 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 and II below, which items have been prepared by BSE. The Exchange has filed the proposal as a “non-controversial” rule change pursuant to section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders it 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). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The BSE proposes to amend the rules of the Boston Options Exchange (“BOX”), an options trading facility of the BSE, to extend its current pilot program to increase the standard position and exercise limits for equity option contracts and options on the Nasdaq-100 Index Tracking Stock (“QQQQ”) (“Pilot Program”) for another six months, from September 4, 2005, to March 3, 2006. The text of the proposed rule change is available on the BSE's Web site *(http://www.bostonstock.com)* , at the BSE's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the BSE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to extend the Pilot Program, which includes changes to section 7 (Position Limits) and section 9 (Exercise Limits) of Chapter III of the BOX Rules. Section 7 of Chapter III of the BOX Rules subjects equity options to one of five different position limits depending on the trading volume and outstanding shares of the underlying security. Section 9 of Chapter III of the BOX Rules establishes exercise limits for the corresponding options at the same levels as the corresponding security's position limits. On March 3, 2005, the Exchange issued notice of the proposed rule change establishing the Pilot Program, which was effective upon filing with the Commission. 5 5 *See* Securities Exchange Act Release No. 51317 (March 3, 2005), 70 FR 12254 (March 11, 2005) (notice and immediate effectiveness of File No. SR-BSE-2005-10). Standard Position and Exercise Limits The Exchange proposes to extend for BOX the Pilot Program for a period of six months during which the standard position and exercise limits for options on the QQQQ and for equity option classes traded on BOX would be increased to the following levels: 6 Current equity option contract limit Pilot Program equity option contract limit 13,500 contracts 25,000 contracts. 22,500 contracts 50,000 contracts. 31,500 contracts 75,000 contracts. 60,000 contracts 200,000 contracts. 75,000 contracts 250,000 contracts. Current QQQQ Option Contract Limit Pilot Program QQQQ Option Contract Limit 300,000 contracts 900,000 contracts. BOX's standard position limits have been in effect since BOX commenced trading in February 2004. These standard position limits are the same as the standard position limits at the other options exchanges at that time, which were last increased on December 31, 1998. 7 Since that time, there has been a steady increase in the number of accounts on the options exchanges that:
(a)Approach the position limit;
(b)exceed the position limit; and
(c)are granted an exemption to the standard limit. Several member firms have petitioned the options exchanges to either eliminate position limits, or in lieu of total elimination, increase the current levels and expand the available hedge exemptions. Currently all of the options exchanges are operating under a similar pilot program which increases the standard position and exercise limits for options on the QQQQ and for equity option classes. A review of available data indicates that the majority of accounts that maintain sizable positions are in those option classes subject to the 60,000 and 75,000 tier limits. There also has been an increase in the number of accounts that maintain sizable positions in the lower three tiers. In addition, overall volume in the options market has consistently increased over the past five years. The Exchange believes that the increase in options volume and lack of evidence of market manipulation occurrences during that same period justifies the proposed increases in the position and exercise limits. 6 Except when the Pilot Program is in effect. 7 *See* Securities Exchange Act Release No. 40875 (December 31, 1998), 64 FR 1842 (January 12, 1999) (SR-CBOE-98-25) (approval of increase in position limits and exercise limits). Manipulation The Exchange believes that position and exercise limits, at their current levels, no longer serve their stated purpose. The Commission has previously stated that: Since the inception of standardized options trading, the options exchanges have had rules imposing limits on the aggregate number of options contracts that a member or customer could hold or exercise. These rules are intended to prevent the establishment of options positions that can be used or might create incentives to manipulate or disrupt the underlying market so as to benefit the options position. In particular, position and exercise limits are designed to minimize the potential for mini-manipulations and for corners or squeezes of the underlying market. In addition such limits serve to reduce the possibility for disruption of the options market itself, especially in illiquid options classes. 8 8 *See* Securities Exchange Act Release No. 39489 (December 24, 1997), 63 FR 276 (January 5, 1998) (SR-CBOE-97-11) (approval of increase in position limits and exercise limits for OEX index options). The Exchange believes that the existing surveillance procedures and reporting requirements at BOX and other options exchanges and at the several clearing firms are capable of properly identifying unusual and/or illegal trading activity. In addition, the Exchange states that when the Commission reviewed BOX's regulatory program before allowing BOX to begin trading, the Commission did not uncover any material inconsistencies or shortcomings in the manner in which BOX Regulation's market surveillance of BOX would be conducted. These procedures utilize daily monitoring of market movements via automated surveillance techniques to identify unusual activity in both options and in underlying stocks. Furthermore, large stock holdings must be disclosed to the Commission by way of Schedules 13D or 13G. 9 Options positions are part of any reportable positions and, thus, cannot be legally hidden. In addition, section 10 of Chapter III of the BOX Rules, which requires members to file reports with the Exchange for any customer or member who held aggregate long or short positions of 200 or more option contracts of any single class for the previous day, will remain unchanged and will continue to serve as an important part of the Exchange's surveillance efforts. 9 17 CFR 240.13d-1. The Exchange believes that restrictive equity position limits prevent large customers, such as mutual funds and pension funds, from using options to gain meaningful exposure to individual stocks. This can result in lost liquidity in both the options market and the stock market. In addition, the Exchange has found that restrictive limits and narrow hedge exemption relief restrict member firms from adequately facilitating customer order flow and offsetting the risks of such facilitations in the listed options market. The fact that position limits are calculated on a gross rather than a delta basis also is an impediment. Financial Requirements The Exchange believes that the current financial requirements imposed by the Exchange and by the Commission adequately address concerns that a member or its customer may try to maintain an inordinately large unhedged position in an equity option. Current margin and risk-based haircut methodologies serve to limit the size of positions maintained by any one account by increasing the margin and/or capital that a member must maintain for a large position held by itself or by its customer. Also, the Commission's net capital rule, Rule 15c3-1 under the Act, 10 imposes a capital charge on members to the extent of any margin deficiency resulting from the higher margin requirement. 10 17 CFR 240.15c3-1. Finally, equity position limits have been gradually expanded from 1,000 contracts in 1973 to the current level of 75,000 contracts for options on the largest and most active underlying securities. To date, the Exchange believes that there have been no adverse affects on the market as a result of these past increases in the limits for equity option contracts. 2. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) of the Act, 11 in general, and furthers the objective of section 6(b)(5) of the Act, 12 in particular, in that it is designed to promote just and equitable principles of trade and to protect investors and the public interest. 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the forgoing rule change does not:
(1)Significantly affect the protection of investors or the public interest;
(2)impose any significant burden on competition; and
(3)become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A) of the Act 13 and Rule 19b-4(f)(6) thereunder. 14 13 15 U.S.C. 78s(b)(3)(A). 14 17 CFR 240.19b-4(f)(6). A proposed rule change filed under 19b-4(f)(6) normally may not become operative prior to 30 days after the date of filing. 15 However, Rule 19b-4(f)(6)(iii) 16 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the five-day pre-filing notice requirement and the 30-day pre-operative delay. The Commission is exercising its authority to waive the five-day pre-filing requirement and believes that waiver of the 30-day pre-operative delay is consistent with the protection of investors and in the public interest. Waiving the five-day pre-filing requirement and 30-day pre-operative delay will allow the Pilot Program to continue uninterrupted. 17 15 17 CFR 240.19b-4(f)(6)(iii). 16 *Id.* 17 For the purposes only of waiving the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form *(http://www.sec.gov/rules/sro.shtml)* ; or • Send an e-mail to *rule-comments@sec.gov.* Please include File No. SR-BSE-2005-37 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-9303. All submissions should refer to File No. SR-BSE-2005-37. 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, 100 F Street, NE., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of the BSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-BSE-2005-37 and should be submitted on or before September 12, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 18 18 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4552 Filed 8-19-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52262; File No. SR-CBOE-2005-61] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Extension of a Pilot Program That Increases the Standard Position and Exercise Limits for Certain Options Traded on the Exchange August 15, 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 August 11, 2005, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the CBOE. The Exchange has filed the proposal as a “non-controversial” rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders it 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). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The CBOE proposes to extend an existing pilot program that increases the standard position and exercise limits for certain options traded on the Exchange (“Pilot Program”). The text of the proposed rule change is available on the CBOE's Web site ( *http://www.cboe.com* ), at the CBOE's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the CBOE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item 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 Pilot Program, as previously approved by the Commission, provides for an increase to the standard position and exercise limits for equity option contracts and for options on QQQQs for a six month period. 5 Specifically, the Pilot Program increased the applicable position and exercise limits for equity options and options on the QQQQ in accordance with the following levels: 6 5 The Pilot Program, which the Commission approved on February 23, 2005, is set to expire on August 23, 2005. *See* Securities Exchange Act Release No. 51244 (February 23, 2005), 70 FR 10010 (March 1, 2005) (order approving SR-CBOE-2003-30, as amended) (“Pilot Program Order”). 6 Except when the Pilot Program is in effect. Current equity option contract limit Pilot Program equity option contract limit 13,500 contracts 25,000 contracts. 22,500 contracts 50,000 contracts. 31,500 contracts 75,000 contracts. 60,000 contracts 200,000 contracts. 75,000 contracts 250,000 contracts. Current QQQQ Option Contract Limit Pilot Program QQQQ Option Contract Limit 300,000 contracts 900,000 contracts. The purpose of the proposed rule change is to extend the Pilot Program for an additional six-month period. The Exchange believes that extending the Pilot Program for six months is warranted due to the positive feedback from members and for the reasons cited in the original rule filing that proposed the adoption of the Pilot Program. 7 Also, the Exchange has not encountered any problems or difficulties relating to the Pilot Program since its inception. For these reasons, the Exchange requests that the Commission extend the Pilot Program for an additional six months. 7 *See* Pilot Program Order, *supra* note 5. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements provided under Section 6(b)(5) of the Act that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and, in general, to protect investors and the public interest. B. Self-Regulatory Organization's Statement on Burden on Competition The CBOE does not believe that the proposed rule change will impose any 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 solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the forgoing rule change does not:
(1)Significantly affect the protection of investors or the public interest;
(2)impose any significant burden on competition; and
(3)become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 8 and Rule 19b-4(f)(6) thereunder. 9 8 15 U.S.C. 78s(b)(3)(A). 9 17 CFR 240.19b-4(f)(6). A proposed rule change filed under 19b-4(f)(6) normally may not become operative prior to 30 days after the date of filing. 10 However, Rule 19b-4(f)(6)(iii) 11 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange provided the Commission with written notice of its intent to file this proposed rule change at least five business days prior to the date of filing the proposed rule change. In addition, the Exchange has requested that the Commission waive the 30-day pre-operative delay. The Commission believes that waiving the 30-day pre-operative delay is consistent with the protection of investors and in the public interest because it will allow the Pilot Program to continue uninterrupted. 12 10 17 CFR 240.19b-4(f)(6)(iii). 11 *Id.* 12 For the purposes only of waiving the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File No. SR-CBOE-2005-61 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-9303. All submissions should refer to File No. SR-CBOE-2005-61. 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, 100 F Street, NE., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of the CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-CBOE-2005-61 and should be submitted on or before September 12, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 13 13 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4558 Filed 8-19-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52265; File No. SR-ISE-2005-39] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Extension of a Pilot Period To Increase Position Limits and Exercise Limits for Equity Options and Options on the Nasdaq-100 Tracking Stock August 15, 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 August 10, 2005, the International Securities Exchange, Inc. (“ISE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in items I and II below, which items have been prepared by the ISE. The Exchange has filed the proposal as a “non-controversial” rule change pursuant to section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders it 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). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The ISE proposes to extend the time period for the ISE Rule 412 and ISE Rule 414 position and exercise limits pilot program for equity option contracts and options on the Nasdaq-100 Index Tracking Stock (“QQQQ”) (“Pilot Program”). The text of the proposed rule change is available on the ISE's Web site ( *http://www.iseoptions.com* ), at the ISE's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the ISE 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 Pilot Program provides for an increase to the standard position and exercise limits for equity option contracts and for options on QQQQs for a six month period. 5 Specifically, the Pilot Program increased the applicable position and exercise limits for equity options and options on the QQQQ to the following levels: 6 5 The Pilot Program is set to expire on August 23, 2005. *See* Securities Exchange Act Release No. 51295 (March 2, 2005), 70 FR 11292 (March 8, 2005) (notice of filing and immediate effectiveness of File No. SR-ISE-2005-14) (“Pilot Program Notice”). 6 Except when the Pilot Program is in effect. Current equity option contract limit Pilot Program equity option contract limit 13,500 contracts 25,000 contracts. 22,500 contracts 50,000 contracts. 31,500 contracts 75,000 contracts. 60,000 contracts 200,000 contracts. 75,000 contracts 250,000 contracts. Current QQQQ Option Contract Limit Pilot Program QQQQ Option Contract Limit 300,000 contracts 900,000 contracts. The purpose of the proposed rule change is to extend the Pilot Program for an additional six month period. The Exchange believes that extending the Pilot Program for six months is warranted due to the positive feedback from members and for the reasons cited in the original rule filing that proposed the adoption of the Pilot Program. 7 Additionally, the Exchange represents that it has not experienced any problems or difficulties relating to the Pilot Program since its inception. For these reasons, the Exchange requests that the Commission extend the Pilot Program for an additional six month period. 7 *See* Pilot Program Notice, *supra* note 5. 2. Statutory Basis The Exchange believes that its proposal is consistent with section 6(b) of the Act 8 in general, and furthers the objective of section 6(b)(5) of the Act 9 in particular, in that it is designed to promote just and equitable principles of trade and to protect investors and the public interest. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The proposed rule change does not impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the forgoing rule change does not:
(1)Significantly affect the protection of investors or the public interest;
(2)impose any significant burden on competition; and
(3)become operative for 30 days after the date of this filing, or such shorter time as the Commission may designate, it has become effective pursuant to section 19(b)(3)(A) of the Act 10 and Rule 19b-4(f)(6) thereunder. 11 10 15 U.S.C. 78s(b)(3)(A). 11 17 CFR 240.19b-4(f)(6). A proposed rule change filed under 19b-4(f)(6) normally may not become operative prior to 30 days after the date of filing. 12 However, Rule 19b-4(f)(6)(iii) 13 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the five-day pre-filing notice requirement and the 30-day pre-operative delay. The Commission is exercising its authority to waive the five-day pre-filing requirement and believes that waiver of the 30-day pre-operative delay is consistent with the protection of investors and in the public interest. Waiving the five-day pre-filing requirement and 30-day pre-operative delay will allow the Pilot Program to continue uninterrupted. 14 12 17 CFR 240.19b-4(f)(6)(iii). 13 *Id.* 14 For the purposes only of waiving the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File No. SR-ISE-2005-39 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-9303. All submissions should refer to File No. SR-ISE-2005-39. 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, 100 F Street, NE., Washington, DC 20549. Copies of such filing will also be available for inspection and copying at the principal office of the ISE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-ISE-2005-39 and should be submitted on or before September 12, 2005. 15 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 15 Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4550 Filed 8-19-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52259; File No. SR-NYSE-2004-64] Self-Regulatory Organizations; New York Stock Exchange, Inc., Notice of Filing of Proposed Rule Change and Amendments No. 1 and 2 Thereto Relating to Proposed Changes to Exchange Rule 342 (“Offices—Approval, Supervision and Control”) August 15, 2005. Pursuant to section 19(b)(1) 1 of the Securities Exchange Act of 1934 (“Exchange Act” or “Act”), 2 and Rule 19b-4 thereunder, 3 notice is hereby given that on November 2, 2004, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in items I, II and III below, which items have been prepared by the NYSE. On July 11, 2005, the NYSE filed Amendment No. 1 to the proposed rule change (“Amendment No. 1”). 4 On August 12, 2005, the NYSE filed Amendment No. 2 to the proposed rule change (“Amendment No. 2”). 5 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b-4. 4 In Amendment No. 1, which supplemented the original filing, the Exchange added its proposed Interpretive Handbook Interpretations 342.30(d)/01 and 342.30(e)/01 for purposes of clarifying issues related to the designation of a Chief Compliance Officer and the Annual Certification, respectively. The text of interpretations 342.30(d)/01 and 342.30(e)/01 is available on the NYSE's Web site ( *http://www.NYSE.com* ), at the NYSE's principal office, and at the Commission's Public Reference Room. 5 In Amendment No. 2, which supplemented the original filing, the Exchange modified interpretation 342.30(e)/01 in order to clarify the obligations of member organizations in the preparation of annual certifications. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed amendment to NYSE Rule 342.30 (“Annual Reports”) would: require each member organization (“Member Organization”) and each member not associated with a member organization (“Member”) to file with the Exchange the annual reports (“Annual Reports”) it is currently required to prepare, and in the case of a Member Organization, to submit to its Chief Executive Officer (“CEO”); add to the Annual Reports a required discussion of compliance efforts regarding anti-money laundering; require each Member Organization to designate a principal officer or general partner as Chief Compliance Officer (“CCO”); and require each Member and the CEO of each Member Organization to file a yearly statement confirming the adequacy of their compliance processes and procedures. The text of the proposed rule change is available on the NYSE's Web site ( *http://www.NYSE.com* ), at the NYSE's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the NYSE included statements concerning the purpose of and basis for the proposed rule changes. The text of these statements, as amended, may be examined at the places specified in item IV below. The NYSE 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 a. Background NYSE Rule 342 requires supervision of the offices, departments and business activities of Members and Member Organizations. NYSE Rule 342.30, which was adopted on May 27, 1988, requires Members and Member Organizations to prepare an Annual Report addressing specified compliance issues by April 1 of each year. Currently, Member Organizations are required to submit this report only to their CEO or managing partner and Members are required only to prepare the report. b. Provisions of the Proposed Rule Change The proposed rule change makes the following changes relating to the Annual Reports: • The Annual Reports must be filed with the Exchange by April 1 of each year. • The anti-money laundering compliance programs required by Exchange Rule 445 6 have been added to the list of specific areas of compliance that must be discussed in the Annual Reports. • Member Organizations must designate a principal officer or general partner as CCO. 7 6 NYSE Rule 445 requires Members and Member Organizations to develop and implement written anti-money laundering programs consistent with the Bank Secrecy Act (31 U.S.C. 5311, *et seq.* and Treasury Regulation 31 CFR 103.120). 7 The SEC recently approved a similar requirement in NASD's new Rule 3013. Securities Exchange Act Release No. 50347 (September 10, 2004), 69 FR 56107 (September 17, 2004) (SR-NASD-2003-176). • Each Member, and the CEO (or equivalent) of each Member Organization, must submit a certification attesting to the adequacy of their organization's compliance policies and procedures. 8 8 The SEC recently approved a similar requirement in NASD's new Rule 3013. *See id* . c. Regulatory Purpose of Proposed Rule Change's Provisions
(i)Submission of Annual Reports to the Exchange Filing the Annual Reports with the Exchange will provide timely information about the compliance efforts of Members and Member Organizations, thereby strengthening and making more efficient the Exchange's regulatory oversight, and facilitating the required annual certifications (see below). Because submission of the Annual Reports to the Exchange was previously not required, the reports were typically provided to the Exchange at the time of, or in connection with, examinations of Member Organizations and Members. 9 Consequently, the Exchange did not always receive important information in a timely, efficient manner. Providing the reports to Exchange staff at annual intervals will afford the Exchange a timely picture of the Members' and Member Organizations' compliance issues from the preceding year, a tool for planning surveillance and examinations, and more comprehensive information for evaluation of compliance systems and programs and identification of potential regulatory problems. 9 Some Member Organizations already submit the Annual Reports to the Exchange and/or make them available to Exchange examiners.
(ii)Addition of Anti-Money Laundering Discussion to Annual Report The USA Patriot Act 10 substantially expanded federal anti-money laundering regulations, and led to the enhancement of Exchange anti-money laundering requirements through the adoption of NYSE Rule 445 in April 2002. The Exchange considers anti-money laundering compliance programs to be important enough to warrant consideration and discussion in the Annual Reports, and so the proposed rule change adds these programs to the list of specific areas of compliance that must be discussed in the Annual Reports. 10 Pub. L. 107-56, 115 Stat. 272 (2001). The addition of anti-money laundering compliance programs to the aforementioned list continues the Exchange's practice of incrementally supplementing the list to reflect changes in the evolving regulatory environment. A similar augmentation recently occurred through NYSE Rule 342.23, which added Members' and Member Organizations' internal controls to the Annual Report's list of required compliance discussions. 11 11 *See* Securities Exchange Act Release No. 49882 (June 17, 2004), 69 FR 35108 (June 23, 2004) SR-NYSE-2002-36).
(iii)Designation of CCO The Exchange strongly believes that Member Organizations' compliance with Federal laws and Exchange regulations should be of the utmost priority. In furtherance of that belief, the Exchange previously addressed the critically important role of the compliance function by requiring the Series 14 (NYSE Compliance Official) examination and registration, which are intended to ensure the qualifications of key compliance professionals. 12 12 The Series 14 Examination is a qualification examination intended to ensure that the individuals designated as having day-to-day compliance responsibilities for their respective firms, or who supervise ten or more people engaged in compliance activities, have the knowledge necessary to carry out their job responsibilities. NYSE Rule 342.13(b) requires Members' and Member Organizations' compliance supervisors to pass the Series 14 Examination. *See* Securities Exchange Act Release No. 25763 (May 27, 1988), 53 FR 20925 (June 7, 1988). In further recognition of the increasing importance of the compliance function, the proposed rule change requires each Member Organization to formally designate a principal executive officer or general partner of the Member Organization as its CCO. This requirement is consistent with NYSE Rule 311(b)(5), which mandates that “principal executive officers” exercise responsibility over each of the prescribed business areas of a Member Organization ( *e.g.* , compliance). Currently, each principal executive officer and general partner is generally required to pass an examination acceptable to the Exchange that pertains to knowledge of his or her functional responsibility. 13 Based on the type of business that individual conducts, and the structure of his or her organization, acceptable examinations include the Series 9/10 (General Securities Sales Supervisor), Series 14, Series 24 (General Securities Principal), Series 27 (Financial and Operations Principal), or Series 28 (Introducing Broker/Dealer Financial and Operations Principal). 14 13 *See NYSE Interpretation Handbook,* Rule 304A(a), (c)/01. 14 In interpretations 342.30(d)/01 and 342.30(e)/01, the Exchange also proposes guidance regarding: the designation of CCOs; the interaction between CCOs and other executives during preparation of Annual Reports; the scope and subjects of the Annual Reports; and the reporting and certification process. The text of interpretations 342.30(d)/01 and 342.30(e)/01 is available on the NYSE's Web site ( *http://www.NYSE.com* ), at the NYSE's principal office, and at the Commission's Public Reference Room. The CCO designation requirement does not apply to Members, because such members, whose activities are limited to interaction with other members on the Floor of the Exchange, generally lack the organizational infrastructure or scope of business activities that would necessitate designation of a CCO. 15 15 This exemption is consistent with other provisions of NYSE Rule 342. For example, under certain circumstances, some compliance officials at Member Organizations are exempt from the Series 14 requirement. *See NYSE Interpretation Handbook,* Rule 342(a)(b)/02.
(iv)CEO Certification The proposed rule change's CEO certification requirement reflects the Exchange's belief that Member Organizations' senior executives, particularly CEOs, should focus the highest degree of attention and resources on the compliance function. While subordinates with supervisory responsibility for specific business lines remain accountable for the discharge of compliance policies and written supervisory procedures, the Exchange considers CEOs ultimately to be accountable for the compliance and supervision of their Member Organizations. 16 In keeping with those principles, the CEO certification requirement is intended to promote and expand dialogue between Member Organization CEOs and their officers who are responsible for compliance with Federal laws and Exchange regulations. 17 16 Attestations similar to the yearly CEO certification requirement proposed herein are also required by Exchange Rule 351(f), which calls for annual confirmation of compliance with Exchange Rule 472 (“Communications with the Public”). *See* Securities Exchange Act Release No. 45908 (May 10, 2002), 67 FR 34968 (May 16, 2002) (SR-NYSE-2002-09). 17 The proposed rule change's CEO certification requirement corresponds in substance to NASD Rule 3013, which the SEC favorably described as seeking “to provide a mechanism to compel substantial and purposeful interaction between senior management and compliance personnel to enhance the quality of members' supervisory and compliance systems.” Securities Exchange Act Release No. 50347 (September 10, 2004), 69 FR 56107 (September 17, 2004) (SR-NASD-2003-176). The required annual certification consists of four elements:
(i)Each Member or each Member Organization's CEO (or equivalent officer) must certify that processes are in place to: establish and maintain policies and procedures designed to achieve compliance with Exchange rules and applicable federal securities laws and regulations; modify such policies and procedures as business, regulatory and legislative changes dictate; and test the effectiveness of such policies and procedures on a periodic basis. This requirement goes to the essential nature of compliance, and assures an appropriately heightened attention to its details.
(ii)Each Member Organization's CEO (or equivalent officer) must certify that he or she has conducted one or more meetings with the CCO during the preceding 12 months, during which they discussed and reviewed the matters described in the certification. Such meetings, which must entail discussion and review of the Member Organization's compliance efforts as of that date, should aid in the identification and resolution of significant ongoing and future compliance problems.
(iii)Each Member Organization's CEO (or equivalent officer) must certify that his or her Member Organization's compliance processes are evidenced in a written report that was reviewed by the Member Organization's CEO, CCO, and such other officers as the Member Organization deems necessary, and submitted to the Member Organization's board of directors and audit committee, if any. The report must be produced prior to the execution of the proposed certification, must describe the manner in which the compliance processes are administered, and must identity the officers and supervisors who are responsible for its administration. 18 18 *See* interpretation 342.30(e)/01.
(iv)Each Member Organization's CEO (or equivalent officer) must certify that he or she has consulted with the CCO, such other officers of the Member Organization as the Member Organization deems necessary, and, to the extent the Member Organization's CEO (or equivalent officer), CCO and such other officers deem appropriate in order to attest to the statements in the certification, outside consultants, lawyers and accountants. This requirement recognizes that the CCO's expertise in the matters underlying the certification make his or her role in the process critical, and make the CCO an indispensable party to the CEO's certification. The sentence “[I]f any of these areas do not apply to the member or member organization, the report should so state,” which currently concludes Rule 342.30, has been repositioned in the amended rule text to avoid the ambiguity that otherwise would have resulted from the addition of Rules 342.30(d) and 342.30(e). 2. Statutory Basis The NYSE believes that the proposed rule change is consistent with section 6(b) 19 of the Act in general and section 6(b)(5) of the Act 20 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 in that it facilitates the Exchange's review of the Membership's regulatory programs, strengthens Member Organizations' oversight of their compliance processes and procedures, and promotes increased involvement of Member Organization CEOs in their firms' compliance matters. 19 15 U.S.C. 78f(b) 20 15 U.S.C. 78f(b)(5) B. Self-Regulatory Organization's Statement on Burden on Competition The NYSE does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The NYSE has not solicited but has received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the self-regulatory organization consents, the Commission will:
(A)By order approve the proposed rule change, or
(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send e-mail to *rule-comments@sec.gov* . Please include File Number SR-NYSE-2004-64 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-9303. All submissions should refer to File Number SR-NYSE-2004-64. 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 NYSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2004-64 and should be submitted on or before September 12, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 21 21 17 CFR 200.30-3(a)(12) Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4547 Filed 8-19-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52243; File No. SR-PCX-2005-91] Self-Regulatory Organizations; Pacific Exchange, Inc; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto Relating to the Continuing Education Regulatory Element Requirement August 11, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 29, 2005, the Pacific Exchange, Inc. (“PCX” or “Exchange”) through its wholly its wholly owned subsidiary PCX Equities, Inc. (“PCX”) 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 August 9, 2005, the Exchange filed Amendment No. 1 to the proposed rule change. 3 The PCX has filed the proposal as a “non-controversial” rule change pursuant to Section 19(b)(3)(A) of the Act 4 and Rule 19b-4(f)(6) thereunder, 5 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, the Exchange made minor edits to PCX Rule 9.27(c). 4 15 U.S.C. 78s(b)(3)(A). 5 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The PCX proposes to amend PCXE Rule 9.27 to eliminate the “Grandfather” exemption to the regulatory element of the Continuing Education (“CE”) Program. Below is the text of the proposed rule change. Proposed new language is in *italics* . Rules PCX Equities, Inc. Rule 9 Rule 9.27(a)-(b)—No Change. Rule 9.27(c)—No ETP Holder shall permit any registered person to continue to, and no registered person shall continue to, perform duties as a registered person, unless such person has complied with the continuing education requirements of this Rule 9.27(c). Each registered person shall complete the Regulatory Element of the continuing education program *beginning with the occurrence of their second registration anniversary date, and every three years thereafter,* [on three occasions, after the occurrence of their second, fifth and tenth registration anniversary dates,] or as otherwise prescribed by the Corporation. On each [of these three] occasion[s], the Regulatory Element must be completed within one hundred twenty days after the person's registration anniversary date. *A person's initial registration date, also known as the “base date”, shall establish the cycle anniversary dates for purposes of this Rule.* The content of the Regulatory Element of the program shall be [prescribed] *determined* by the Corporation *for each registration category of persons subject to the Rule.*
(1)*Reserved.* [Registered person who have been continuously registered for more than ten years as of the effective date of this Rule shall be exempt from participation in the Regulatory Element of the continuing education program, provided such persons have not been subject to any disciplinary action within the last ten
(10)years as enumerated in subsection (c)(3)(A)-(B) of this Rule. Persons who have been currently registered for ten
(10)years or less as of the effective date of this Rule shall initially participate in the Regulatory Element of the continuing education program within one hundred twenty days
(120)after the occurrence of the second, fifth or tenth registration anniversary date, whichever anniversary date first applies, and on the applicable registered anniversary date(s) thereafter. Such persons will have satisfied the requirements of the Regulatory Element of the program after participation on the tenth registration anniversary. All registered persons who have satisfied the requirements of the Regulatory Element shall be exempt from further participation in the Regulatory Element of the program, subject to re-entry into the program as set forth in subsection (c)(3) of this Rule.]
(2)Failure to Complete—Unless otherwise determined by the Corporation, any registered persons who have not completed the Regulatory Element of the program within the prescribed time frames will have their registration deemed inactive until such time as the requirements of the program have been satisfied. Any person whose registration has been deemed inactive under this Rule shall cease all activities as a registered person and shall be prohibited from performing any duties and functioning in any capacity requiring registration. The Corporation may, upon application and a showing of good cause, allow for additional time for a registered person to satisfy the program requirements.
(3)*Disciplinary Actions* [Re-entry into Program]—Unless otherwise determined by the SRO, a registered person will be required to [re-enter] *re-take* the Regulatory Element and satisfy all of its requirements in the event such person:
(A)becomes subject to any statutory disqualification as defined in Section (3)(a)(39) of the Securities Exchange Act of 1934;
(B)becomes subject to suspension or to the imposition of a fine of $5,000 or more for violation of any provision of any securities law or regulation, or any agreement with or rule of standard of conduct of any securities governmental agency, securities self-regulatory organization, or as imposed by any such regulatory or self-regulatory organization in connection with a disciplinary proceeding; or
(C)is ordered as a sanction in a disciplinary action to [re-enter] *re-take* the [continuing education program] *Regulatory Element* by any securities governmental agency or securities self-regulatory organization. [Re-entry] *A re-taking of the Regulatory Element* shall commence with [the initial] participation within 120 days of the registered person becoming subject to the statutory disqualification, in the case of
(A)above, or the disciplinary action becoming final, in the case of
(B)or
(C)above[, and on three additional occasions thereafter, at intervals of two, five and ten years after reentry, notwithstanding that such person has completed all or part of the program requirements based on length of time as a registered person or completion of ten years of participation in the program]. *The date that the disciplinary action becomes final will be deemed the person's new base date for purposes of this Rule.* Rule 9.27(d)—Commentary .02—No Change. Rule 9.27 Commentary .03— *Revised.* [A registered person who has been continuously registered for more than ten
(10)years as of the date of implementation of this Rule who has been subject to a disciplinary action as enumerated in subsections (c)(3)(A)-(B) of the Rule within the last ten years, will be required to satisfy the requirements of the Regulatory Element of the continuing education program by participation for the period from the date of implementation of this Rule to ten years after the occurrence of the disciplinary action.] Rule 9.27 Commentary .04—Any registered person who has terminated association with a registered broker or dealer and who has, within two years of the date of termination, become reassociated in a registered capacity with a registered broker or dealer shall participate in the Regulatory Element of the continuing education program *at such intervals that apply (second registration anniversary and every three years thereafter) based on the new base date, rather than based on the date of reassociation in registered capacity.* [on three occasions, after the occurrence of their second, fifth and tenth anniversary date, rather than based on the date of reassociation in a registered capacity]. Any former registered person who becomes reassociated in a registered capacity with a registered broker or dealer more than two years after termination as such will be required to satisfy the program's requirements in their entirety [on three occasions,] based on the most recent registration date. Rule 9.27 Commentary .05—No Change. *Rule 9.27 Commentary .06—Any registered member who is an ETP Holder who is also a member of another self-regulatory organization (“SRO”) shall be subject to the other SRO's implementation date for the elimination of the exceptions to the Regulatory Element section of the continuing education program, if that date is earlier than September 30, 2005.* 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 PCS has prepared summaries, set forth in Sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend PCXE Rule 9.27 to eliminate all exemptions from the Exchange Continuing Education Regulatory Element Program for registered representatives to conform its PCXE Rule 9.27 with applicable rules of other SROs. Currently, PCXE Rule 9.27 sets for the rules governing the requirements for registered representatives to participate in the Continuing Education Regulatory Element Program (the “Regulatory Element”). 6 The Regulatory Element is a computer-based education program administered by the National Association of Securities Dealers (“NASD”) to help ensure that registered persons are kept up-to-date on regulatory, compliance and sales practices in the industry. PCXE Rule 9.27 specifies the CE requirements for registered persons subsequent to their initial qualification and registration with the PCXE. Unless exempt, each registered person is required to complete the Regulatory Element within 120 days after the person's second anniversary date and, thereafter within 120 days after every third registration anniversary date. There are three Regulatory Element programs: the S201 Supervisor Program for registered principals and supervisors, the S106 Series 6 Program for Series 6 representatives, and the S101 General Program for Series 7 and all other registrations. 6 The continuing Education Program also has a “Firm Element.” *See* PCXE Rule 9.27(d). The Exchange Firm Element of the Continuing Education Program applies to any person registered with an NASD member firm who has direct contact with customers in the conduct of the member's securities sales, trading and investment banking activities, any person registered as a research analyst pursuant to NASD Rule 1050, and to the immediate supervisors of such persons (collectively called “covered registered persons”). The requirement stipulates that each member firm must maintain a continuing and current education program for its covered registered persons to enhance their securities knowledge, skill and professionalism. Each firm has the requirement to annually conduct a training needs analysis, develop a written training plan, and implement the plan. According to the NASD, approximately 135,000 registered persons are exempt from the Regulatory Element. These include registered persons who, when the CE Program was adopted in 1995, had been registered for at least ten years and who did not have a significant disciplinary action 7 in the CRD record for the previous ten years (so-called “grandfathered” persons). These also include those persons who had “graduated” from the Regulatory Element by satisfying their tenth anniversary requirement before July 1998, when PCXE Rule 9.27 was amended and the graduation provision eliminated, and who did not have a significant disciplinary action in their CRD record for the previous ten years. 8 7 For purposes of PCXE Rule 9.27(c), a significant disciplinary action generally means a statutory disqualification, a suspension or imposition of a fine of $5,000 or more, or being subject to an order from a securities regulator to re-take the Regulatory Element. *See* PCXE Rule 9.27(c)(3). 8 When PCXE Rule 9.27 was first adopted in 1995, the Regulatory Element required registered persons to satisfy the Regulatory Element on the second, fifth, and tenth anniversary of their initial securities registration. After satisfying the tenth anniversary requirement, a person was “graduated” from the Regulatory Element. A graduated person who was not a principal re-entered if he or she acquired a principal registration or incurred a significant disciplinary action. At its December 2003 meeting, the Securities Industry/Regulatory Council on Continuing Education (“Council”) discussed the current exemptions from the Regulatory Element and agreed unanimously to recommend that the SROs repeal the exemptions and require all registered persons to participate in the Regulatory Element. In reaching this conclusion, the Council was of the view that there is great value in exposing all industry participants to the benefits of the Regulatory Element, in part because of the significant regulatory issues that have emerged over the past few years. The Regulatory Element programs include teaching and training content that is continuously updated to address current regulatory concerns as well as new products and trading strategies. Exempt persons presently do not have the benefit of this material. In addition, the council will introduce a new content module to the Regulatory Element programs that will specifically address ethics and will require participants to recognize ethical issues in given situations. Participants will be required to make decisions in the context of, for example, peer pressure, the temptation to rationalize, or a lack of clear-cut guidelines from existing rules or regulations. The Council strongly believes that all registered persons, regardless of their years of experience in the industry, should have the benefit of this training. Consistent with the Council's recommendation, the proposed rule change, as amended, would eliminate the current Regulatory Element exemptions. The other SRO members of the Council also support eliminating the exemptions and either have already or are pursuing amendments to their respective rules. The effective date of the proposed rule change, as amended, will be September 30, 2005. 9 PCXE will announce the effective date of the proposed rule change in the PCXE Weekly Bulletin following the effective date of the proposed rule change. 9 To eliminate any confusion, the Exchange has confirmed in the proposed rule change, as amended, that an Exchange participant who is also a member of another SRO must comply with the rules of the other SRO which eliminated these exceptions as of an earlier date. *See* Securities Exchange Act Release Nos. 50404 (September 16, 2004), 69 FR 57126 (September 23, 2004); 50456 (September 27, 2004), 69 FR 59285 (October 4, 2004); 50630 (November 3, 2004), 69 FR 65232 (November 10, 2004); and 50651 (November 10, 2004), 69 FR 67374 (November 17, 2004). Moreover, following the effective date of the proposed rule change, implementation will be based on the application of the existing requirements of the Regulatory Element to all registered persons. The way in which the Web Central Registration Depository (“Web CRD”), which is administered by the NASD, applies these requirements is as follows. Web CRD establishes a “base date” for each registered person and calculates anniversaries from that date. Usually, the base date is the person's initial securities registration. However, the base date may be revised to be the effective date of a significant disciplinary action in accordance with PCXE Rule 9.27 or the date on which a formerly registered person re-qualifies for association with a PCXE ETP Holder by qualification exam. Using the base date, Web CRD creates a Regulatory Element requirement on the second anniversary of the base date and then every three years thereafter. Registered persons formerly exempt from the Regulatory Element requirement must satisfy this requirement that occurs on an anniversary or after the effective date of the proposed rule change. It is noted that a person's base date may be revised to be the effective date of a significant disciplinary action in accordance with PCXE Rule 9.27. The Exchange proposes to amend PCXE Rule 9.27 to clarify that a person subject to a significant disciplinary action would be required to “re-take” rather than “re-enter” the Regulatory Element. 10 A person's base date may also be revised to be the date on which a formerly registered person re-qualifies for association with an ETP Holder. 10 This requirement would apply to all registered persons that are subject of a significant disciplinary action, and not only to currently exempt persons. 2. Statutory Basis The Exchange believes that the proposed rule change, as amended, is consistent with Section 6(b) 11 of the Act, in general, and furthers the objectives of Section 6(b)(5), 12 in particular, in that it is designed to facilitate transactions in securities, to promote just and equitable principles of trade, to foster competition, and to protect investors and the public interest. The Exchange believes that the proposed rule change is designed to accomplish these ends by ensuring that all registered persons are kept up-to-date on industry rules, regulations, and practices. 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). Additionally, under Section 6(c)(3)(B) of the Act, 13 the Exchange may bar a natural person from becoming a member or person associated with a member, if such natural person does not meet such standards of training, experience, and competence as prescribed by the rules of the Exchange. Pursuant to this statutory obligation, the Exchange is rescinding all exemptions from the requirement to complete the Regulatory Element of the Continuing Education Program as prescribed by PCXE Rule 9.27. 13 15 U.S.C. 78f(c)(3)(B). 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 Written comments on the proposed rule change were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change:
(1)Does not significantly affect the protection of investors or the public interest;
(2)does not impose any significant burden on competition; and
(3)does not become operative for 30 days from the date on which it was filed, or such shorter time as the commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 14 and Rule 19b-4(f)(6) thereunder. 15 14 15 U.S.C. 78s(b)(3)(A). 15 17 CFR 240.19-4(f)(6). Rule 19b-4(f)(6) also requires that the exchange give the Commission written notice of its intent to file the proposed rule change along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing the proposed rule change. The Exchange satisfied this requirement. At any time within 60 days of the filing of such proposed rule change, as amended, 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. 16 16 For purposes of calculating the 60-day abrogation period, the commission considers the proposal to have been filed on August 9, 2005, the date the Exchange filed Amendment No. 1. 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-PCX-2005-91 on the subject line. Paper Comments: • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, Station Place, 100 F Street NE., Washington, DC 20549-9303. All submissions should refer to File Number SR-PCX-2005-91. 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 offices of the PCX. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-PCX-2005-91 and should be submitted on or before September 12, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 17 17 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. 05-16558 Filed 8-19-05; 8:45 am]
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6 references not yet in our index
  • 17 CFR 240.19
  • 17 CFR 240.13
  • 17 CFR 240.15
  • 31 CFR 103.120
  • Pub. L. 107-56
  • 17 CFR 240.19-4(f)(6)
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cites case law
Proposed Rules
SECURITIES AND EXCHANGE COMMISSION
U.S.C.§ 78s
U.S.C.§ 78f
U.S.C.§ 78c
U.S.C.§ 552
C.F.R.§ 200.30-3
U.S.C.§ 78a
U.S.C.§ 5311
Stat.Public Law 107–55
Cite17 CFR 240.19
Cite17 CFR 240.13
Cite17 CFR 240.15
Cite31 CFR 103.120
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