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Code · REGISTER · 2005-08-24 · SECURITIES AND EXCHANGE COMMISSION · Notices

Notices. Determination to allow for the provision of FAA Aviation Insurance

17,984 words·~82 min read·/register/2005/08/24/05-16790

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BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52297; File No. SR-Amex-2005-080] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval to Proposed Rule Change Relating to Fees in Connection With Merger Spreads and Short Stock Interest Spreads August 18, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 25, 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 Exchange.
The Commission is publishing this notice and order to solicit comments on the proposed rule change from interested persons and to approve the proposal on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Amex Options Fee Schedule to include “merger spreads” and “short stock interest spreads” as qualified spread transactions (“Spread Trades”).
The text of the proposed rule change is available from the Exchange's Web site ( *http://www.amex.com* ), at the principal office of the Exchange, 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 III 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend the Amex Options Fee Schedule to include “merger spreads” and “short stock interest spreads” in the definition of “Spread Trades,” which are subject to reduced transaction fees 3 for non-member market makers and non-member broker-dealers, and a $2,000 fee cap per trade, exclusive of any license fees, applicable to specialists, registered options traders (“ROTs”), member broker-dealers ( *i.e.* , Firms), non-member market makers, and non-member broker-dealers ( *i.e.* , Broker-Dealers). 4 In addition, the proposal would revise footnote 1 of the Options Fee Schedule to reflect the change of the symbol for the Nasdaq-100 Index Tracking Stock from “QQQ” to “QQQQ.” 5 Qualified Spread Trades currently include:
(a)Reversals and conversions,
(b)dividend spreads,
(c)box spreads, and
(d)butterfly spreads. 6 3 Transaction fees are comprised of options transaction fees, options comparison fees, and options floor brokerage fees. *See* Amex Options Fee Schedule. *See also* footnote 4, *infra* . 4 The Commission notes that clarifying changes were made to the purpose section of the proposed rule change. Telephone conversations between Jeffrey P. Burns, Associate General Counsel, Amex, Cyndi N. Rodriguez, Special Counsel, and Johnna B. Dumler, Attorney, Division of Market Regulation, Commission, on August 10 & 18, 2005. 5 On December 1, 2004, the Nasdaq-100 Index Tracking Stock transferred its listing from the Amex to the Nasdaq Stock Market, Inc. It now trades on Nasdaq under the symbol QQQQ. The Amex, pursuant to unlisted trading privileges, trades the QQQQ. 6 *See* Amex Options Fee Schedule, footnote 1. *See also* footnote 4, *supra* . The Amex currently imposes charges for transactions in options executed on the Exchange by specialists, ROTs, member broker-dealers, non-member market makers, and non-member broker-dealers. Current per-contract transaction fees for specialists, ROTs, member broker-dealers, non-member market makers, and non-member broker-dealers in equity options are $0.20, $0.20, $0.26, $0.30, and $0.26, respectively, per contract side. In connection with index options, current per-contract transaction fees for specialists, ROTs, member broker-dealers, non-member broker-dealers, and non-member market makers are $0.31, $0.31, $0.22, $0.22, and $0.31, respectively, per contract side. 7 7 *See* footnote 4, *supra* . A non-member broker-dealer or a non-member market maker that executes a Cabinet Trade or a qualified Spread Trade already would be subject to a fee rebate program. The options transaction fee, the options comparison fee, and the options floor brokerage fee are reduced by $0.03, $0.01, and $0.02, respectively. With respect to a Cabinet Trade or a qualified Spread Trade in a QQQQ option, the options transaction fee, the options comparison fee, and the options floor brokerage fee are reduced by $0.09, $0.01, and $0.02, respectively. In addition, a Cabinet Trade or a Spread Trade by a specialist, a ROT, a member broker-dealer, a non-member market maker, or a non-member broker-dealer also would be subject to a fee cap of $2,000 per trade, exclusive of the options licensing fee. 8 8 *Id.* A merger spread is defined as a transaction executed pursuant to a merger spread strategy involving the simultaneous purchase and sale of options of the same class and expiration date, but with different strike prices, followed by the exercise of the resulting long option position. Merger spreads are executed prior to the date that shareholders of record are required to elect their respective form of consideration ( *i.e.* , cash or stock). A short stock interest spread is defined as a spread that uses two deep in-the-money put options followed by the exercise of the resulting long position of the same class in order to establish a short stock interest arbitrage position. This strategy is used to capture short stock interest. The Exchange submits that merger spreads and short stock interest spreads should qualify as Spread Trades under the Amex Options Fee Schedule for the purpose of attracting additional order flow. The Exchange notes that merger spreads and short stock interest spreads are entered into by professionals with narrow profit margins and, therefore, believes that, by qualifying for reduced and capped fees, these professionals may find the Exchange an attractive venue to execute their trades. The Exchange further believes that qualifying merger spreads and short stock interest spreads as Spread Trades will increase the ability of the Exchange to compete with the other options exchanges for order flow in connection with these options strategies. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b)(4) of the Act 9 in that it provides for the equitable allocation of reasonable dues, fees, and other charges among members of the exchange and other persons using exchange facilities. 9 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change would 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 No written comments were solicited or received with respect to the proposed rule change. III. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change 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-2005-080 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 No. SR-Amex-2005-080. 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 No. SR-Amex-2005-080 and should be submitted on or before September 14, 2005. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change 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. 10 In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(4) of the Act, 11 which requires that the rules of the exchange provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using the exchange's facilities. Amending the Amex's Options Fee Schedule to include “merger spreads” and “short stock interest spreads” in the definition of “Spread Trades,” thereby rendering these types of trades eligible for reduced and capped fees, is a reasonable measure to improve the Exchange's competitiveness. The Commission notes that similar proposals to reduce and cap fees for certain trades, including those occurring as part of merger spreads and short stock interest spreads, have been adopted by other options exchanges. 12 10 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 11 15 U.S.C. 78f(b)(4). 12 Most of the proposals by other options exchanges were filed as pilot programs pursuant to Section 19(b)(3)(A) of the Act, rendering the proposals effective upon filing with the Commission. *See* Securities Exchange Act Release Nos. 51468 (April 1, 2005), 70 FR 17742 (April 7, 2005) (SR-CBOE-2005-18); 51596 (April 21, 2005), 70 FR 22381 (April 29, 2005) (SR-Phlx-2005-19); 51657 (May 5, 2005), 70 FR 24851 (May 11, 2005) (SR-Phlx-2005-22); 51787 (June 6, 2005), 70 FR 34174 (June 13, 2005) (SR-PCX-2005-65); and 51828 (June 13, 2005), 70 FR 35475 (June 20, 2005) (SR-CBOE-2005-42). However, one proposal to make the fee cap applicable to short stock interest spread transactions retroactive to January 1, 2005 was filed with and approved by the Commission pursuant to Section 19(b)(2) of the Act. *See* Securities Exchange Act Release No. 52083 (July 20, 2005), 70 FR 43733 (July 28, 2005) (SR-PCX-2005-67). The Amex has requested that the Commission approve the proposed rule change prior to the thirtieth day after publication of notice thereof in the **Federal Register** . Granting accelerated approval of the proposal will allow the Amex to immediately implement a fee change that is similar to arrangements already in place at other option exchanges. Furthermore, the Commission believes that granting accelerated approval of the proposed rule change will allow the Amex to implement reasonable fee reductions to various market participants without undue delay. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act, 13 for approving the proposed rule change prior to the thirtieth day after the publication of notice thereof in the **Federal Register** . 13 15 U.S.C. 78s(b)(2). V. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, that the proposed rule change (SR-Amex-2005-080), is hereby approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 14 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4626 Filed 8-23-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52296; File No. SR-BSE-2005-30] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 2 Thereto Relating to the Removal of Unreliable Quotes From the Exchange's Calculation of the National Best Bid or Offer August 18, 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 July 27, 2005, the Boston Stock Exchange, Inc. (“BSE”) 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 BSE. The BSE filed Amendment No. 1 to the proposed rule change on August 5, 2005 and withdrew Amendment No. 1 on August 12, 2005. The BSE filed Amendment No. 2 to the proposed rule change on August 12, 2005. 3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Form 19b-4 dated August 12, 2005 (“Amendment No. 2”). Amendment No. 2 added clarifying language and corrected typographical and technical errors. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The BSE is proposing to add subsection
(e)of Section 3 of Chapter XII of the Boston Options Exchange (“BOX”) Rules to add provisions for declaring an away market's quote(s) in a particular class of option(s) unreliable, and to thereby exclude quote(s) from BOX's NBBO determination when an away market:
(1)Is disconnected from the Intermarket Option Linkage (“Linkage”);
(2)disseminates non-firm quotes; or
(3)has other quoting problems. The text of the proposed rule change is available on the BSE's Web site ( *http://www.bostonstock.com* ), at the BSE's Office of the Secretary, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the 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 BSE 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 BOX to exclude an away market's quote(s) from BOX's NBBO determination in a particular option class(es) when that away market's quote(s) are unreliable. The BOX Trading Host, pursuant to obligations to avoid trade-throughs under the Intermarket Option Linkage Plan, in general, filters certain orders to either trade on BOX if the best BOX price is at the NBBO, or if the best BOX price is not at the NBBO, to access the best price for such order through Linkage. In certain circumstances, away markets disseminate unreliable or inaccessible quotes in a particular option class(es) to OPRA. BOX proposes to eliminate such away market unreliable or inaccessible quote(s) in a particular class(es) in BOX's NBBO determination, thereby only including in BOX's NBBO determination market quotes that are reliable and accessible to investors. BOX seeks only to exclude an away market's unreliable quote(s) in a particular class(es) from BOX's NBBO determination for such time that the quote(s) remain unreliable. Utilizing only reliable accessible quotes in the NBBO determination provides for a more appropriate NBBO determination and a significantly more efficient marketplace. The procedure for declaring an away market's quote(s) unreliable would be for the Market Operations Center (“MOC”) to either:
(a)Receive a message from the away market, OPRA, or the OLA Administrator; or
(b)confirm with the affected market, that the away market's particular quote(s) in a class(es) are unreliable. Then the MOC would request the Options Official declare the away market's quote(s) in a particular class(es) unreliable. Upon a declaration that the away market's quote(s) is unreliable, the MOC will both remove the quote(s) from BOX's NBBO determination and promptly notify the affected away market. Additionally, the MOC will continue to monitor the reliability of the affected away market's quote(s) and resume inclusion of the affected away market's quote(s) in BOX's NBBO determination at the end of the trading day or once the quote(s) is confirmed to be reliable, whichever occurs first. Quotes of an away market are confirmed to be reliable once:
(a)A message stating a quote(s) in a particular option class is reliable has been received from the affected away market, OPRA, or the OLA Administrator; or
(b)the MOC has verbally received confirmation of such from the affected away market. 2. Statutory Basis The basis under the Act for this proposed rule change is that BOX believes that its proposal is consistent with Section 6(b) of the Act, 4 and furthers the objectives of Section 6(b)(5) of the Act 5 in that the proposed rule change is designed to perfect the mechanism of a free and open market and a national market system, protect investors and the public interest, and promote just and equitable principles of trade. Excluding unreliable quotes from BOX's determination of the NBBO would help BOX provide better executions to customers. Currently, the execution of customer orders is delayed when another market appears to be at the NBBO but such market's quotes are inaccessible. 4 15 U.S.C. 78f(b). 5 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The BSE does not believe 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 BSE 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 BSE 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-BSE-2005-30 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-BSE-2005-30. 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 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 Number SR-BSE-2005-30 and should be submitted on or before September 14, 2005. 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. E5-4628 Filed 8-23-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52295; File No. SR-CFE-2005-01] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by CBOE Futures Exchange, LLC Relating to Its Listing Standards for Security Futures Products August 18, 2005. Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 1 (“Act”) and Rule 19b-7 under the Act, 2 notice is hereby given that on July 26, 2005, CBOE Futures Exchange, LLC (“CFE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change described in Items I, II and III below, which Items have been prepared by CFE. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. CFE also filed the proposed rule change with the Commodity Futures Trading Commission (“CFTC”), together with a written certification under Section 5c(c) of the Commodity Exchange Act (“CEA”) 3 on July 25, 2005. 1 15 U.S.C. 78s(b)(7). 2 17 CFR 240.19b-7. 3 7 U.S.C. 7a-2(c). I. Self-Regulatory Organization's Description of the Proposed Rule Change 4 4 With the consent of the CFE, the Commission has made minor clarifications to the text of the descriptions in this Part I and to the statement of purpose in Part II.A below. Telephone call between David Doherty, Attorney, CFE, and Ira Brandriss, Special Counsel, and Nathan Saunders, Special Counsel, Division of Market Regulation, Commission, August 9, 2005. CFE is proposing to adopt rules regarding listing standards for security futures contracts (“Eligibility and Maintenance Criteria”) to comply with the requirements under Section 6(h)(3) 5 of the Act and the criteria under Section 2(a)(1)(D)(i) of the CEA. 6 The text of the proposed rule change is available on CFE's Web site *(http://cfe.cboe.com)* , at CFE's principal office, and at the Commission's Public Reference Room. The CFE Listing Standards 7 are, for the most part, identical to the sample listing standards (“Sample Listing Standards”) included in the Commission's Staff Legal Bulletin No. 15 (“SLB 15”), 8 except that the CFE Listing Standards: 5 15 U.S.C. 78f(h)(3). 6 7 U.S.C. 2(a)(1)(D)(i). 7 The CFE Listing Standards are set forth in proposed Policy and Procedure VIII, Eligibility and Maintenance Criteria for Security Futures. 8 SEC, Division of Market Regulation, Staff Legal Bulletin No. 15: Listing Standards for Trading Security Futures Products (September 5, 2001) (available at *http://www.sec.gov/interps/legal/mrslb15.htm* ). • Reflect the modifications to the statutory listing standards requirements jointly adopted by the Commission and the CFTC with respect to shares of exchange-traded funds (“ETFs”), trust-issued receipts (“TIRs”), shares of registered closed-end management investment companies (“Closed-End Fund Shares”), and American Depositary Receipts (“ADRs”); 9 9 *See* Joint Order Granting the Modification of Listing Standards Requirements Securities Exchange Act Release No. 46090 (June 19, 2002), 67 FR 42760 (June 25, 2002) (ETFs, TIRs and Closed-End Fund Shares); Joint Order Granting the Modification of Listing Standards Requirements, Securities Exchange Act Release No. 44725 (August 20, 2001) (ADRs). • Establish an approximately equal dollar-weighting methodology for physically-settled futures based on narrow-based security indices (all narrow-based security index futures are referred to hereafter as “NBI futures”), 10 which
(i)requires the number of shares or receipts of each component security to be rounded up or down to the nearest multiple of 100 in the course of the determination of the initial index composition and any subsequent rebalancing;
(ii)contemplates mandatory annual rebalancing of such indices under specified circumstances, complemented by CFE's ability to rebalance indices on an interim basis if it so elects; and
(iii)ensures that outstanding contracts will not be affected by any rebalancing; and 10 CFE Policy and Procedures VIII(C) and VIII(D) contain listing requirements that relate to the initial eligibility criteria and maintenance standards, respectively, for approximately equal dollar-weighted, physically-settled narrow-based security indices. • Contain certain provisions that reflect rule changes that have been filed by other security futures exchanges since the adoption of SLB 15, which vary from the Sample Listing Standards set forth in SLB 15. CFE is also filing herewith CFE Rules 215, 403, 412-415, 417, 501, 601-605, 610-615, 1801-1806, and 1901-1906, all of which remain unchanged from the CFE Rulebook filed with the Commission as part of CFE's notice registration on Form 1-N. These rules are being filed herewith because they relate to the listing standard requirements set forth in Section 6(h)(3) of the Act 11 as further described below. CFE Rule 517 and CFE Policy and Procedure VII, while also referenced in Item II below, are not filed in this proposed rule change because they were the subjects of a separate filing by CFE on SEC Form 19b-4. 12 11 15 U.S.C. 78f(h)(3). 12 *See* File No. SR-CFE-2005-02 (filed July 27, 2005). II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change CFE has prepared statements concerning the purpose of, and basis for, the proposed rule change, burdens on competition, and comments received from its members, participants, and others. The text of these statements may be examined at the places specified in Item IV below. These statements are set forth in Sections A, B, and C below. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, Proposed Rule Change Section 6(h)(3) of the Act 13 sets forth a number of requirements for listing standards applicable to security futures products. Among other things, that Section provides that such listing standards must
(i)be no less restrictive than comparable listing standards for options traded on a national securities exchange 14 and
(ii)require that trading in security futures products not be readily susceptible to manipulation of the price of such products or of the underlying securities or options on such securities. 15 13 15 U.S.C. 78f(h)(3). 14 15 U.S.C. 78f(h)(3)(C). 15 15 U.S.C. 78f(h)(3)(H). 1. CFE Listing Standards Commission staff published SLB 15, including the Sample Listing Standards (which were derived from typical listing standards used by exchanges trading options based on securities or security indices), to provide guidance as to how an exchange can comply with the foregoing requirements. SLB 15 also noted that different listing standards could also be consistent with the Act. The CFE Listing Standards follow the Sample Listing Standards, subject to the additional modifications relating to ETFs, TIRs, Closed-End Fund Shares, and ADRs; the establishment of an additional weighting methodology for certain physically-settled NBI futures described under Item I above; and certain other rule changes that were filed with the Commission and the CFTC by OneChicago, LLC (“OneChicago”) 16 which pertained to OneChicago's listing standards for security futures. Therefore, the CFE Listing Standards as set forth herein do not contain any listing standards that have not already been reviewed by the Commission. The CFE Listing Standards permit CFE to trade both cash-settled and physically-settled NBI futures on the following types of indices: capitalization-weighted, modified capitalization-weighted, price-weighted, and equal dollar-weighted. The modifications to SLB 15, including the modifications that permit CFE to list approximately equal-dollar weighted, physically-settled NBI futures, are explained in further detail below. 16 *See* SR-OC-2002-04 (Securities Exchange Act Release No. 47114 (December 31, 2002), 68 FR 837 (January 7, 2003)) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change by OneChicago, LLC Relating to Listing Standards for Security Futures Products); *see also* SR-OC-2003-01 (Securities Exchange Act Release No. 47356 (February 12, 2003), 68 FR 8064 (February 19, 2003)); SR-OC-2003-04 (Securities Exchange Act Release No. 47445 (March 5, 2003), 68 FR 11595 (March 11, 2003)); SR-OC-2003-06 (Securities Exchange Act Release No. 48191 (July 17, 2003), 68 FR 43555 (July 23, 2003)); SR-OC-2003-08 (Securities Exchange Act Release No. 48660 (October 20, 2003), 68 FR 61027 (October 24, 2003)); and SR-OC-2004-02 (Securities Exchange Act Release No. 50373 (September 14, 2004), 69 FR 56470 (September 21, 2004)). 2. Modifications of SLB 15 a. *Modification of SLB 15 I(A)(i).* The modifications set forth in the CFE listing standards that relate to shares of ETFs, TIRs, Closed-End Fund Shares, and ADRs reflect the modifications to the statutory listing standards requirements adopted by the Commission and the CFTC subsequent to the publication of SLB 15. 17 These standards are reflected in Section A(1)(i) of CFE Policy and Procedure VIII. 17 *See supra* note 9. b. *Modification of SLB 15 III(A)(ii).* The modifications that relate to narrow-based security indices are intended to allow CFE to provide for an additional weighting methodology, called an “approximately equal dollar-weighted” methodology, that would be available only for physically-settled NBI futures, and accordingly, are limited in application to such physically-settled contracts. These modifications are designed to enhance the usefulness and effectiveness of physically-settled NBI futures in connection with hedging, arbitrage and other investment strategies. The proposed approximately equal dollar-weighted methodology contemplates narrow-based security indices consisting of component securities in increments that are no less than 100 shares or receipts, which corresponds to customary increments for transactions in the markets for those securities. For this reason, rounding will be a necessary step in the determination of the initial index composition and any subsequent rebalancing. The underlying index of a physically-settled NBI future that uses an approximately equal dollar-weighted methodology would be rebalanced annually, but only if the aggregate value of the security position with the highest value is two or more times greater than the aggregate value of the security position with the lowest value in the index for a specified time period. CFE will also have the ability to rebalance any approximately equal dollar-weighted narrow-based security index on an interim basis (but no more frequently than quarterly) should this become necessary as a result of exceptional changes in the relative values of the component securities. As CFE plans to list only physically-settled NBI futures contracts expiring on the next two quarterly expiration dates and the nearest two serial monthly expiration dates that are not quarterly expiration dates, CFE will be able to phase in contracts that are based on a rebalanced narrow-based security index, and thereby replace contracts with open interest that are based on the previous narrow-based security index composition within a short period of time. CFE also believes that investors in approximately equal dollar-weighted NBI futures contracts should be able to rely on the number of shares or receipts evidencing each component security remaining unchanged for the duration of those contracts. Therefore, the CFE Listing Standards state that outstanding contracts overlying approximately equal dollar-weighted narrow-based security indices will not be affected by any rebalancing. The proposed listing standards for approximately equal dollar-weighted narrow-based security indices are identical to the listing standards for approximately equal dollar-weighted narrow-based security indices that were set forth in the OneChicago rules prior to a recent filing of an immediately effective proposed rule change by OneChicago. 18 In addition, the contents of the CFE Listing Standards, including the approximately equal dollar-weighting methodology described above, will be publicly available and fully disclosed. These standards are reflected in Sections C(1)(ii) and D(1)(ii) of CFE Policy and Procedure VIII. 18 *See* SR-OC-2005-02 (Securities Exchange Act Release No. 52180 (July 29, 2005), 70 FR 45464 (August 5, 2005)). c. *Modification of SLB 15 I(A)(vi).* CFE is adopting the initial listing standard implemented by OneChicago in SR-OC-2004-02, 19 which would permit CFE to list a single stock future on an underlying security that had trading volume of at least 2,400,000 shares in the preceding 12 months. This standard is reflected in Section A(1)(vi) of CFE Policy and Procedure VIII. 19 *See supra* note 16. d. *Modification of SLB 15 I(A)(vii).* CFE is adopting the initial listing standards implemented by OneChicago in SR-OC-2003-01, 20 which would permit a single stock future to be listed on a security that is a “covered security” as defined under Section 18(b)(1)(A) of the Securities Act of 1933 21 if the market price of the underlying security has been at least $3.00 for the five consecutive business days prior to the date on which CFE submits a certificate to The Options Clearing Corporation (“OCC”) for listing and trading the futures contract. The market price of the underlying security would be measured by the closing price reported in the primary market in which the underlying security is traded. CFE rules would also require that an underlying security that is not a “covered security” meet the price requirement that it have a market price of at least $7.50 for the majority of the business days for the three calendar months preceding selection. These standards are reflected in Sections A(1)(viii) and A(1)(ix) of CFE Policy and Procedure VIII. 20 *See id.* 21 15 U.S.C. 77r(b)(1)(A). e. *Modification of SLB 15 II(A)(iv).* CFE is adopting the maintenance standard implemented by OneChicago in SR-OC-2003-04 22 (as amended by SR-OC-2003-08), 23 pursuant to which CFE would not open for trading a new delivery month for a single stock future trading on CFE if the market price per share of the underlying security closed below $3.00 on the previous trading day to the expiration day of the nearest expiring contract on the underlying security. The market price per share of the underlying security would be determined by the closing price reported in the primary market in which the underlying security is traded. This standard is reflected in Section B(1)(v) of CFE Policy and Procedure VIII. 22 *See supra* note 16. 23 *See id.* 3. Section 6(h)(3) Requirements Section 6(h)(3) of the Act 24 contains detailed requirements for listing standards and conditions for trading applicable to security futures products. Set forth below is a summary of each such requirement or condition, followed by a brief explanation of how CFE will comply with it, whether by particular provisions in the CFE Listing Standards or otherwise. 24 15 U.S.C. 78f(h)(3). Clause
(A)of Section 6(h)(3) of the Act 25 requires that any security underlying a security future be registered pursuant to Section 12 of the Act. 26 This requirement is addressed in Sections A(1)(ii), B(1)(i), C(1)(ii)(b), and D(1)(ii)(a) of CFE Policy and Procedure VIII. 25 15 U.S.C. 78f(h)(3)(A). 26 15 U.S.C. 78 *l* . Clause
(B)of Section 6(h)(3) of the Act 27 requires that a market on which a physically-settled security futures product is traded have arrangements in place with a registered clearing agency for the payment and delivery of the securities underlying the security futures product. CFE has entered into an arrangement with OCC, which is a registered clearing agency, relating to the clearing of security futures products. By virtue of OCC having in place arrangements with the National Securities Clearing Corporation for the delivery of securities underlying physically-settled security futures products, CFE believes that the payment and delivery of the securities underlying CFE's security futures products in accordance with the statutory requirements should be ensured. 27 15 U.S.C. 78f(h)(3)(B). Clause
(C)of Section 6(h)(3) of the Act 28 provides that listing standards for security futures products must be no less restrictive than comparable listing standards for options traded on a national securities exchange or national securities association registered pursuant to Section 15A(a) of the Act. 29 For the reasons discussed under Item II.A.1 above, notwithstanding specified differences between the Sample Listing Standards and the CFE Listing Standards, CFE believes that the latter are no less restrictive than comparable listing standards for exchange-traded options. 28 15 U.S.C. 78f(h)(3)(C). 29 15 U.S.C. 78 *o* -3(a). Clause
(D)of Section 6(h)(3) of the Act 30 requires that each security future be based on common stock or such other equity securities as the Commission and the CFTC jointly determine appropriate. This requirement is addressed in Sections A(1)(i), C(1)(ii)(c), and D(1)(ii)(b) of CFE Policy and Procedure VIII. 30 15 U.S.C. 78f(h)(3)(D). Clause
(E)of Section 6(h)(3) of the Act 31 requires that each security futures product be cleared by a clearing agency that has in place provisions for linked and coordinated clearing with other clearing agencies that clear security futures products, which permits the security futures product to be purchased on one market and offset on another market that trades such product. CFE notes that pursuant to Section 6(h)(7) of the Act, 32 the foregoing requirement is deferred until the “compliance date” (as defined therein). CFE expects OCC will have in place procedures complying with the requirements of clause
(E)upon and after such compliance date. 31 15 U.S.C. 78f(h)(3)(E). 32 15 U.S.C. 78f(h)(7). Clause
(F)of Section 6(h)(3) of the Act 33 requires that only a broker or dealer subject to suitability rules comparable to those of a national securities association registered pursuant to Section 15A(a) of the Act 34 may effect transactions in a security futures product. This requirement is addressed by CFE Rule 605, Sales Practice Rules. CFE Rule 605 requires each Trading Privilege Holder (including its Related Parties) to comply with the sales practice rules applicable to such Trading Privilege Holder from time to time promulgated by the National Futures Association or the National Association of Securities Dealers, both of which are national securities associations. 33 15 U.S.C. 78f(h)(3)(F). 34 15 U.S.C. 78 *o* -3(a). Clause
(G)of Section 6(h)(3) of the Act 35 requires that each security futures product be subject to the prohibition against dual trading in Section 4j of the CEA 36 and the rules and regulations thereunder or the provisions of Section 11(a) of the Act 37 and the rules and regulations thereunder. Trading Privilege Holders and their Related Parties trading on CFE will be subject to the aforementioned statutory and regulatory prohibitions against dual trading by virtue of CFE Rule 604, Adherence to Law, which requires them to comply with all applicable law. CFE Rules 610 through 613 contain customary provisions relating to the priority of customers' orders, trading against customers' orders, withholding orders and disclosing orders, consistent with CFTC Regulations §§ 155.2 through 155.4 38 under the CEA. CFE notes, however, that the prohibition of dual trading in security futures products as set forth in CFTC Regulation § 41.27 39 adopted pursuant to Section 4j(a) of the CEA 40 by its terms only applies to a contract market operating an electronic trading system if such market provides participants with a time or place advantage or the ability to override a predetermined algorithm. 41 Since those conditions do not exist on CFE, CFE has no specific rule prohibiting dual trading. 35 15 U.S.C. 78f(h)(3)(G). 36 7 U.S.C. 6j. 37 15 U.S.C. 78k(a). 38 17 CFR 155.2-155.4. 39 17 CFR 41.27. 40 7 U.S.C. 6j(a). 41 17 CFR 41.27(b)(2). Clause
(H)of Section 6(h)(3) of the Act 42 requires that trading in a security futures product not be readily susceptible to manipulation of the price of such security futures product, nor to causing or being used in the manipulation of the price of any underlying security, option on such security, or option on a group or index including such securities. As discussed above, the eligibility and maintenance criteria for security futures products contained in the CFE Listing Standards have been designed to ensure that the products that will be listed on CFE and the underlying securities will not be readily susceptible to price manipulation. In addition, CFE Rules 415, Block Trading, 603, Market Manipulation, 614, Pre-Arranged Trades, and 615, Simultaneous Buying and Selling Orders, either prohibit market manipulation outright (for example, CFE Rule 603 forbids generating unnecessary volatility or creating a condition where prices do not or will not reflect fair market values) or contain standards and limitations that are designed to prevent market manipulation. 42 15 U.S.C. 78f(h)(3)(H). CFE's position limit standards set forth in CFE Rule 412, Position Limits, are designed to prevent market manipulation with respect to physically-settled NBI futures through the adoption of the position limits established under CFTC Regulation § 41.25. 43 With respect to cash-settled NBI futures, CFE Rule 1902(e), Speculative Position Limits, adopts the position limit standards set forth in OneChicago Rule 1002(e)(2) and applies those standards to all cash-settled NBI futures traded on CFE. 44 Under CFE Rule 1902(e), CFE calculates two numbers: the Market Cap Position Limit and the SSF Position Limit. The Market Cap Position Limit is based on the market capitalization of each NBI future and the notional value compared to the market capitalization of the Chicago Mercantile Exchange Inc. (“CME”) position limit for its futures contract on Standard & Poor's (“S&P” 500 Index. The SSF Position Limit is based on the current position limit permitted for single stock futures under CFTC Regulation § 41.25. 45 CFE imposes a position limit on each cash-settled NBI future equal to the lower of the Market Cap Position Limit and the SSF Position Limit, rounded to the nearest multiple of 1,000 contracts; provided, however, that if the lower of the two limits is less than 500 but not less than 400, the position limit for such future is rounded up to 1,000 contracts. 43 17 CFR 41.25. 44 Consistent with CFTC Regulation 41.25, position limits apply to positions in any cash-settled NBI future held during the last five trading days of an expiring contract. 45 17 CFR 41.25. To calculate the Market Cap Position Limit, CFE determines the market capitalization of the S&P 500 Index (as of the selection date for the component securities in the index underlying the NBI future), then calculates the notional value of a position at the limit of CME's S&P 500 Index futures contract (“S&P 500 Notional Value Limit”) 46 and divides the first amount by the second to determine the market capitalization ratio (“Market Cap Ratio”). 47 CFE then determines the market capitalization of the index underlying the NBI future (“Stock Index Market Cap”) 48 and the notional value of the index underlying the NBI future (“Notional Value”). 49 To calculate the Market Cap Position Limit, CFE divides the Stock Index Market Cap by the Notional Value multiplied by the Market Cap Ratio. 50 46 The speculative position limit for the CME's S&P 500 Index futures contract is 20,000 contracts (in all months combined) and the contract multiplier is $250. Thus, S&P 500 Notional Value Limit = Level of the S&P 500 Index * 20,000 * 250. 47 Market Cap Ratio = Market Capitalization of the S&P 500 Index / S&P 500 Notional Value Limit. 48 The Stock Index Market Cap is calculated by adding the market capitalizations of each stock comprising the underlying narrow-based security index. 49 Notional Value = Level of the index underlying the NBI future * contract multiplier. 50 Market Cap Position Limit = Stock Index Market Cap / (Notional Value * Market Cap Ratio). To calculate the SSF Position Limit for an NBI future, CFE first calculates its Notional Value in the same manner as described above. 51 Then, for each component security in the index underlying the NBI future, CFE multiplies the index weight of the component security 52 by the Notional Value to determine the security's proportion of the NBI future (“Share Weighting”). CFE then divides each security's Share Weighting by its price to calculate the number of shares of that security represented in the NBI futures contract (“Implied Shares”). CFE then, for each component security in the index underlying the NBI future, divides its Implied Shares by 100 to obtain the implied number of 100-share contracts of such component security in each NBI futures contract. CFE then divides the applicable single stock futures contract speculative position limit permitted under CFTC Regulation § 41.25(a)(3) 53 (either 13,500 or 22,500 contracts) for each component security by the number of implied 100-share contracts. This equals the number of NBI futures contracts that could be held without exceeding the speculative position limit on a futures contract on that component security (“Implied SSF Speculative Limit”). If a component security qualified for position accountability under CFTC Regulation 41.25(a)(3), 54 that security would be ignored for purposes of this calculation. After calculating the Implied SSF Speculative Limit for each security in the index underlying the NBI future, CFE identifies the lowest Implied SSF Speculative Limit as the SSF Position Limit for that NBI future. 51 *See supra* note 49. 52 Index weight of the component security = (assigned shares * price) of the component security / the sum of (assigned shares * price) for each component security. 53 17 CFR 41.25(a)(3). 54 *Id.* CFE Rules 413(b), Price Limits; Final Settlement Prices, and 417, Regulatory Halts, implement the requirements contained in Rule 6h-1 under the Act 55 relating to settlement and regulatory halts with respect to security futures products. 55 17 CFR 240.6h-1. With respect to final settlement prices, CFE Rule 1902(i), Settlement Price, establishes how the final settlement price is determined for cash-settled NBI futures. Under CFE Rule 1902(i), a special opening quotation of the relevant index underlying the NBI future will be derived from the sum of the opening prices 56 of each component stock. When all of the component stocks have opened, the final special opening quotation will be calculated and disseminated. 56 Consistent with 17 CFR 41.1(j), CFE Rule 1902(i)(II)(C)(1) defines “opening price” as follows: “Opening price” means the official price at which a security opened for trading during the regular trading session of the national securities exchange or national securities association that lists the security. If the security is not listed on a national securities exchange or a national securities association, then “opening price” shall mean the price at which a security opened for trading on the primary market for the security. Under this provision, if a component security is an [ADR] traded on a national securities exchange or national securities association, the opening price for the ADR would be derived from the national securities exchange or national securities association that lists it. If the price of one or more of the component securities is not readily available 57 on the day scheduled for determination of the final settlement price, the price of the component security or securities shall be based on the next available opening price of that security, unless the President of the Exchange or his designee for such purposes (“Designated Officer”) determines that one or more component securities are not likely to open within a reasonable time. If the Designated Officer makes such a determination, the price of the relevant component security or securities for purposes of calculating the final settlement price will be the last trading price of the security or securities during the most recent regular trading session for such security or securities. 57 Under CFE Rule 1902(i)(II)(C)(4), the price of a security is “not readily available” if the underlying market does not open on the date set for determination of the final settlement price, or if the security does not trade on the securities exchange or national securities association that lists the security during regular trading hours. CFE Rule 1902(i) also provides that the Rule shall not be used to calculate the final settlement price of an NBI future if OCC fixes the final settlement price of the NBI future in accordance with OCC's rules and by-laws and as permitted under the Commission's Rule 6h-1(b)(3) 58 and CFTC Regulation 41.25(b)(3). 59 58 17 CFR 240.6h-1(b)(3). 59 17 CFR 41.25(b)(3). Clause
(I)of Section 6(h)(3) of the Act 60 requires that procedures be in place for coordinated surveillance among the market on which a security futures product is traded, any market on which any security underlying the security futures product is traded, and other markets on which any related security is traded to detect manipulation and insider trading. The relevant provisions are CFE Rules 601, 602 and 603, which prohibit fraudulent acts, fictitious transactions and market manipulation, respectively. CFE notes that it is an affiliate member of the Intermarket Surveillance Group (“ISG”) and has executed
(1)an Agreement to Share Market Surveillance and Regulatory Information between CFE and the full members of ISG;
(2)the Agreement to Share Market Surveillance and Regulatory Information between CFE and the affiliate members of ISG; and
(3)the Addendum for Security Futures Products to agreements between the full members of ISG and the affiliate members of ISG trading security futures products (including CFE). CFE Rule 215, Regulatory Cooperation, permits CFE to enter into these and other agreements for the exchange of information and other forms of mutual assistance with domestic or foreign self-regulatory organizations, associations, boards of trade and their respective regulators. Under CFE Rule 215, CFE is authorized to provide information to any such organization, association, board of trade or regulator that is a party to an information sharing agreement with CFE, in accordance with the terms and subject to the conditions set forth in such agreement. Additional provisions related to coordinated surveillance are contained in Sections A(1)(x)(a), C(1)(ii)(g), and D(1)(ii)(f) of CFE Policy and Procedure VIII. 60 15 U.S.C. 78f(h)(3)(I). Clause
(J)of Section 6(h)(3) of the Act 61 requires that a market on which a security futures product is traded have in place audit trails necessary or appropriate to facilitate the coordinated surveillance referred to in the preceding paragraph. The audit trail capability provided by CBOE *direct* , CFE's trade matching engine, will create and maintain an electronic transaction history database that contains information with respect to all orders, whether executed or not, and resulting transactions on CFE. The information recorded with respect to each order includes: time received, terms of the order, order type, instrument and contract month, price, quantity, account type, account designation, user code and clearing firm. This information will enable CFE to trace each order back to the clearing firm by or through which it was submitted. If any question or issue arises as to the source of an order prior to submission by or through a clearing firm, CFE will request that the clearing firm provide an electronic or other record of the order. 61 15 U.S.C. 78f(h)(3)(J). For orders that cannot be immediately entered into CFE systems, and therefore will not be recorded electronically by CBOE *direct* at the time they are placed, CFE Rule 403(b), Order Entry, requires that the Clearing Member or, if applicable, the Trading Privilege Holder or the Authorized Trader receiving such order must prepare an order form in a non-alterable written medium, which must be time-stamped and include the account designation, date and other required information (including order terms, order type, instrument and contract month, price, and quantity). Each such form must be retained for at least five years from the time it is prepared. In addition, CFE Rule 501, Books and Records, establishes a general recordkeeping requirement pursuant to which each Clearing Member and Trading Privilege Holder must keep all books and records required to be kept by it pursuant to the CEA, CFTC regulations, the Act, regulations under the Act, and CFE Rules. CFE Rule 501 also requires that such books and records be made available to CFE upon request. Current CFTC regulations require books and records to be maintained for a period of five years. 62 62 17 CFR 1.31(a)(1). Pursuant to CFE Rule 415, Block Trading, block trades will be entered in CBOEdirect by CFE's operations management after they are verbally reported by designated individuals at the Clearing Member for the selling party. At the time of each such verbal report, a trade identification number will be assigned and provided to the caller. Both the buyer and the seller in each trade will then follow up the verbal report by submitting a block trade reporting form via facsimile or email to CFE. The same procedures generally apply to exchange of future for related position (“EFP”) transactions as provided in CFE Rule 414. Since block trades and EFP transactions involve orders that cannot be immediately entered into CFE's systems, the Clearing Members or, if applicable, CFE Trading Privilege Holders or CFE Authorized Traders, must comply with the recordkeeping procedures specified in the preceding paragraph. Clause
(K)of Section 6(h)(3) of the Act 63 requires that a market on which a security futures product is traded have in place procedures to coordinate trading halts between such market and any market on which any security underlying the security futures product is traded and other markets on which any related security is traded. CFE Rule 417, Regulatory Halts, provides for trading in a security future to be halted at all times that a regulatory halt has been instituted for the relevant underlying security or securities. 63 15 U.S.C. 78f(h)(3)(K). Clause
(L)of Section 6(h)(3) of the Act 64 requires that the margin requirements for a security futures product comply with the regulations prescribed pursuant to Section 7(c)(2)(B) of the Act. 65 CFE believes that its proposed CFE Rule 517, Customer Margin Requirements for Contracts That Are Security Futures, and CFE Policy and Procedure VII, Security Futures Market Maker Registration Policy and Procedures, which have been filed with the Commission 66 pursuant to Section 19(b)(2) of the Act, 67 together with a written certification under Section 5c(c) of the CEA 68 regarding customer margin, are consistent with the requirements of the Act. 64 15 U.S.C. 78f(h)(3)(L). 65 15 U.S.C. 78g(c)(2)(B). 66 *See* File No. SR-CFE-2005-02 (filed July 27, 2005). 67 15 U.S.C. 78s(b)(2). 68 7 U.S.C. 7a-2(c). CFE Rules 1801-1806 and 1901-1906 set forth the contract rule specifications that relate to single stock futures and NBI futures, respectively. The contract rule specifications contain information that is specific to the trading of those products on CFE and some of the specification provisions provide additional detail with respect to issues addressed by rule provisions noted above. For the reasons discussed above, CFE submits that the CFE Listing Standards satisfy the requirements set forth in Section 6(h)(3) of the Act. 69 69 15 U.S.C. 78f(h)(3). Statutory Basis CFE has filed these proposed rules pursuant to Section 19(b)(7) of the Act. 70 CFE believes the CFE Listing Standards are authorized by, and consistent with, Section 6(b)(5) of the Act 71 because they are designed to promote just and equitable principles of trade. 70 15 U.S.C. 78s(b)(7). 71 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition CFE 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. Since this rule change in conjunction with other related regulatory filings being made by CFE will permit CFE to become authorized to provide a trading venue for security futures, this rule change serves to enhance and promote competition by allowing an additional exchange to list and trade security futures. 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 Pursuant to Section 19(b)(7)(B) of the Act, 72 the proposed rule change became effective on July 26, 2005. 73 Within 60 days of the date of effectiveness of the proposed rule change, the Commission, after consultation with the CFTC, may summarily abrogate the proposed rule change and require that the proposed rule change be re-filed in accordance with the provisions of Section 19(b)(1) of the Act. 74 72 15 U.S.C. 78s(b)(7)(B). 73 CFE filed the proposed rule change with the CFTC, together with a written certification under Section 5c(c) of the Commodity Exchange Act CEA, on July 25, 2005. CFE's written certification requested that the proposed rule change become effective on July 26, 2005, the date that the proposed rule change was filed with the Commission. 74 15 U.S.C. 78s(b)(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 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-CFE-2005-01 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. All submissions should refer to File Number SR-CFE-2005-01. 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 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-CFE-2005-01 and should be submitted on or before September 14, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 75 75 17 CFR 200.30-3(a)(75). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4624 Filed 8-23-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52290; File No. SR-MSRB-2005-02] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of Proposed Rule Change Relating to Amendments to MSRB Rule G-20, on Gifts and Gratuities, and MSRB Rule G-8, on Recordkeeping August 18, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on January 13, 2005, the Municipal Securities Rulemaking Board (“MSRB” or “Board”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the MSRB. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The MSRB is filing with the Commission a proposed rule change consisting of amendments to Rule G-20, on gifts and gratuities, and the related recordkeeping requirements of Rule G-8. 3 The text of the proposed rule change is available on the MSRB's Web site ( *http://www.msrb.org* ), at the MSRB's principal office, and at the Commission's Public Reference Room. 3 The New York Stock Exchange, Inc. (“NYSE”) has a pending rule filing with the Commission on gifts and gratuities that is currently being reviewed. The MSRB has agreed to consider filing further amendments to Rule G-20 or other rules, as necessary, to make its rules on gifts and gratuities consistent with future rule changes made by other self-regulatory organizations
(SROs)overseen by the Commission. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the MSRB 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 MSRB 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 MSRB Rule G-20 prohibits dealers from directly or indirectly giving or permitting to be given any thing or service of value in excess of $100 per year to any person other than an employee or partner of the dealer in relation to the municipal securities activities of the recipient's employer. The rule provides certain exemptions from the $100 annual limit for “normal business dealings,” including
(i)occasional gifts of meals or tickets to theatrical, sporting and other entertainment;
(ii)sponsoring legitimate business functions that are recognized by the IRS as deductible business expenses; and
(iii)gifts of reminder advertising. However, such gifts must not be so frequent or excessive as to raise a suggestion of unethical conduct. MSRB Rule G-20 currently does not mandate specific requirements with respect to non-cash sales incentives, although the general fair practice principles of Rule G-17 apply. 4 The MSRB has interpreted Rule G-17 in the context of municipal fund securities to provide that a dealer may violate the rule by engaging in marketing activities that result in a customer being treated unfairly, or by engaging in any deceptive, dishonest or unfair practice in connection with such marketing activities. 5 Further, depending on the particular facts and circumstances, a dealer may violate Rule G-17 if it acts in a manner that is reasonably likely to induce another dealer to violate the principles of Rule G-17 or other MSRB customer protection rules. 6 In contrast, NASD Rules 2710(i), 2820(g)(4) and 2830(l)(5) establish specific requirements with respect to the payment of non-cash compensation in connection with offerings of corporate securities, variable contracts and mutual funds. 4 Rule G-17 provides that “In the conduct of its municipal securities activities, each broker, dealer and municipal securities dealer shall deal fairly with all persons and shall not engage in any deceptive, dishonest, or unfair practice.” 5 MSRB Notice on “Application of Fair Practice and Advertising Rules to Municipal Fund Securities,” May 14, 2002, reprinted in the *MSRB Rule Book* (July 1, 2004) at page 151. Municipal fund securities are municipal securities issued by an issuer that, but for the application of Section 2(b) of the Investment Company Act of 1940, as amended, would constitute an investment company within the meaning of that Act. The most common forms of municipal fund securities sold by dealers consist of interests in trusts established by states as qualified tuition programs under Section 529 of the Internal Revenue Code (“529 college savings plans”), and interests in local government investment pools. 6 *Id.* The MSRB has determined that similar treatment across the securities markets is appropriate and would facilitate dealer understanding of, and compliance with, requirements relating to sales incentives and non-cash compensation. Thus, the proposed amendments are intended to more fully conform Rule G-20 to NASD requirements relating to gifts and gratuities, and to add new provisions governing non-cash compensation and sales incentives in connection with municipal fund securities and other primary offerings of municipal securities, based on NASD requirements for non-cash compensation and sales incentives. The proposed amendments would result in the following changes to Rule G-20: • Modify the existing provision in Rule G-20 that permits occasional gifts of meals or sports and entertainment tickets, and sponsorship of business functions outside of the $100 per year limitation by requiring that dealer personnel host (accompany) such meals, entertainment and business functions in conformity with NASD gift rule limitations, and further modify the language of the requirement to incorporate NASD language to the effect that such occasional gifts must not call into question the dealer's ethical standards. 7 7 The NASD language with respect to this exception from the $100 annual gift limitation appears in an interpretive letter relating to NASD Rule 3060. *See* interpretive letter, dated June 10, 1999, from R. Clark Hooper, Executive Vice President, NASD, to Henry H. Hopkins, Director, and Sarah McCafferty, Vice President, T. Rowe Price Investment Services, Inc. • The existing Rule G-20 language relating to “gifts of reminder advertising” is retained in the proposed amendments without change even though such language does not exist under NASD rules. • Clarify that NASD interpretations apply to comparable MSRB provisions, unless the MSRB specifically provides otherwise. • Incorporate definitions of “non-cash compensation,” “cash compensation” and “offeror” based on language in NASD Rules 2710, 2820 and 2830, and expand the definition of offeror to include, with respect to securities held as assets underlying municipal fund securities, any person considered an offeror under relevant NASD rules. • Treat non-cash sales incentives relating to municipal fund securities and other primary offerings of municipal securities ( *i.e.* , bonds and notes) in a manner similar to NASD's treatment of non-cash sales incentives relating to mutual funds, variable contracts, and corporate debt and equity offerings, including, among other things, permitting gifts that do not exceed $100 per individual per year and are not preconditioned on achievement of a sales target; and permitting the giving and receipt of occasional gifts of meals or tickets to theatrical, sporting and other entertainment, but only if such occasional gifts are not preconditioned on achievement of a sales target. • Limit the circumstances under which dealers or offerors may pay or reimburse costs of training or education, based on NASD rules, including ensuring that attendance at, and payment for, such meetings is not preconditioned on achievement of a sales target; reimbursement is not applied to expenses of associated persons' guests; and that such meetings are held at appropriate locations. 8 8 The proposed language in Rule G-20 that refers to “a location at which a significant asset, if any, being financed or refinanced in the primary offering is located” is based on language included in draft amendments to NASD Rule 2710 proposed for comment by NASD in Notice to Members 04-07 (February 3, 2004) (the “NASD Corporate Financing Proposal”). • Require that non-cash compensation arrangements include the total production and equal weighting requirements under NASD rules, which are designed to ensure that the arrangement does not favor sales of one municipal security over another. 9 9 These total production and equal weighting requirements currently are included in NASD Rules 2820 and 2830, and are included in draft amendments to Rule 2710 proposed for comment in the NASD Corporate Financing Proposal. • Amend the recordkeeping requirements in Rule G-8 to require that dealers maintain a record of non-cash compensation received in connection with a primary offering from the issuer or its advisers, the underwriter, or any of their affiliates, as well as records regarding any internal sales incentive program for municipal fund securities. 2. Statutory Basis The MSRB believes that the proposed rule change is consistent with section 15B(b)(2)(C) of the Act, 10 which requires that the rules of the MSRB shall “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 municipal securities, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and, in general, to protect investors and the public interest * * *.” 11 10 15 U.S.C. 78o-4(b)(2)(C). 11 Id. The MSRB believes that the proposed rule change is consistent with these provisions in that it would provide for consistent treatment across the securities markets regarding gifts, gratuities, non-cash compensation and sales incentives, thereby facilitating dealer understanding of, and compliance with, these requirements. B. Self-Regulatory Organization's Statement on Burden on Competition The MSRB does not believe that the proposed rule change will result in 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 In June 2004, the MSRB requested comment on draft amendments to Rule G-20, and the related recordkeeping provisions of Rule G-8, that would: • Treat non-cash sales incentives relating to municipal fund securities and other primary offerings of municipal securities ( *i.e.,* bonds and notes) in a manner similar to NASD's treatment of non-cash sales incentives relating to mutual funds and corporate debt and equity offerings. • Modify the existing provision in MSRB Rule G-20 that permits occasional gifts of meals or sports and entertainment tickets, and sponsorship of business functions outside of the $100 per year limitation by requiring that dealer personnel host (accompany) such meals, entertainment and business functions. • Amend the recordkeeping requirements in Rule G-8 to require that dealers maintain a record of non-cash compensation received in connection with a primary offering from the issuer or its advisers, the underwriter, or any of their affiliates, as well as records regarding any internal sales incentive program for municipal fund securities. 12 12 See “Request for Comments on Draft Amendments to Rules G-20 and G-8 Relating to Gifts, Gratuities and Non-Cash Compensation in Municipal Debt Offerings and Sales of Municipal Fund Securities,” MSRB Notice 2004-17 (June 15, 2004), at *http://www.msrb.org.* In response to the draft amendments, the MSRB received comment letters from NASD, The Investment Company Institute (“ICI”), Morgan Keegan, and Bernardi Securities. Three of the commentators (NASD, ICI and Morgan Keegan) expressed general support for the draft amendments, and one commentator (Bernardi Securities) opposed one aspect of the draft amendments. Two of the commentators (NASD and ICI) suggested that the MSRB make certain revisions, discussed below. The MSRB believes that a number of the commentators' concerns and suggestions have merit and, accordingly, revised the amendments to
(1)incorporate NASD rule language where possible;
(2)clarify that NASD interpretations would apply to comparable MSRB provisions, unless the MSRB specifically provides otherwise; and
(3)expand the definition of offeror to include, with respect to securities held as assets underlying municipal fund securities, any person considered an offeror under relevant NASD rules. *Consistency between NASD and MSRB Rules.* NASD and ICI supported the MSRB's proposal to make Rule G-20 consistent with NASD's rules. ICI stated that a “uniform system of regulation between the MSRB and the NASD reduces the potential that persons subject to both regimes will face conflicting regulatory requirements and facilitates compliance efforts. Moreover, inasmuch as the NASD is charged with inspecting securities firms for compliance with the rules of the MSRB, providing uniformity between MSRB's rules and those of the NASD * * * should facilitate the NASD's ability to conduct such inspections.” NASD suggested that the MSRB, “whenever possible, use precisely the same language as Rule 2830, and clarify that * * * [NASD's] interpretation of that rule would similarly apply to the interpretation of the Rule G-20 amendments.” The MSRB agrees that, whenever possible, incorporating identical language between comparable provisions of MSRB and NASD rules would facilitate dealer understanding of and compliance with such provisions, as well as facilitate the inspection and enforcement thereof. The MSRB has, therefore, incorporated NASD language in the proposed amendments to Rule G-20, including those provisions relating to the requirement that dealers host meals, tickets to events and the like; technical language on gifts that call into question the dealer's ethical standards; non-cash compensation arrangements, including payment or reimbursement for education and training meetings; and the definitions of “non-cash compensation,” “cash compensation,” and “offeror.” *NASD interpretations.* NASD asked the MSRB to clarify whether NASD's interpretation of the exception for training and education meetings, as set forth in its Summer 2000 Regulatory and Compliance Alert, would apply to the training and education meeting exception in the draft amendments. 13 The MSRB agrees that this interpretation should apply to the similar provisions of amended Rule G-20. 13 *See* NASD “Regulatory & Compliance Alert” (Summer 2000) at 13. Moreover, the MSRB intends generally that the provisions of Rule G-20 be read consistently with the analogous NASD provisions, unless the MSRB specifically indicates otherwise. Thus, relevant NASD interpretations would be presumed to apply to the comparable MSRB provision, subject to the MSRB's right to make distinctions when necessary and appropriate in the context of municipal fund securities and other primary offerings of municipal securities. *Definition of “offeror.”* NASD suggested that the draft definition of “offeror,” which includes the issuer's service providers in connection with the marketing and maintenance of its municipal fund securities, also should include the investment adviser to the underlying funds. Similarly, ICI recommended expanding the draft definition of “offeror” to include the issuer of any investment product into which the assets of a municipal fund security are invested, as well as any investment adviser, fund administrator, underwriter, or affiliated person of such entities with respect to such underlying investments. The MSRB agrees, and revised the proposed rule language to reflect this change, with minor adjustments to more fully conform to municipal fund securities and other primary offerings of municipal securities. *Applicability of basic gift limitation to municipal fund securities.* ICI suggested that the MSRB limit the provisions that would be applicable to municipal fund securities to those set forth in draft subsection
(d)of Rule G-20. ICI noted that the draft amendments would result in there being two provisions governing “ *de minimis* ” gifts, and two provisions governing gifts of meals or tickets. ICI stated that this is unnecessary and will create confusion. It recommended that subsections
(a)and
(b)be revised to exclude the offer and sale of municipal fund securities, and that such offers and sales be subject solely to subsection (d). The MSRB does not agree with this suggestion; the two provisions are intended to apply in different contexts. Rule G-20(a) applies to gifts and gratuities in relation to the municipal securities activities of the employer of the recipient. Rule G-20(d) applies to non-cash compensation in connection with the sale and distribution of a primary offering of municipal securities. The MSRB believes that both provisions are important and both should apply to municipal fund securities as well as to other primary offerings of municipal securities. The MSRB observes that dealers selling mutual fund shares also are currently subject to both NASD Rule 3060 and NASD Rule 2830(l)(5). *Records of de minimis gifts.* ICI recommended that the MSRB revise the draft recordkeeping requirement in Rule G-8 regarding non-cash compensation to conform to NASD Rule 2830, on investment company securities. ICI stated that the NASD rule does not require dealers to keep records of *de minimis* gifts ( *i.e.* , those under $100 per year) or occasional meals or tickets to theatrical and sporting events. ICI suggested that the MSRB similarly exclude these items from the recordkeeping requirements of Rule G-8 “based on the conclusion that these *de minimis* items do not raise regulatory concerns and, therefore, the burden of making and keeping such records would exceed any benefits of requiring them.” ICI further noted that this revision would provide uniformity between MSRB and NASD recordkeeping requirements. The MSRB does not agree with this recommendation. The provisions in NASD Rule 3060, on influencing or rewarding employees of others, require firms to keep a separate record of *all* payments or gratuities in any amount. The MSRB believes that a recordkeeping requirement for *de minimis* gifts is necessary for both the dealer and the appropriate regulatory agency to determine whether a rule violation has occurred. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the self-regulatory organization consents, the Commission will: A. By order approve such proposed rule change, or B. Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form *(http://www.sec.gov/rules/sro.shtml);* or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-MSRB-2005-02 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-MSRB-2005-02. 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 MSRB. 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-MSRB-2005-02 and should be submitted on or before September 14, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 14 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4621 Filed 8-23-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52289, File No. SR-MSRB-2005-09] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Order Approving Proposed Rule Change Relating to Month-End Performance Data for Municipal Fund Securities Under MSRB Rule G-21 August 18, 2005. On June 2, 2005, the Municipal Securities Rulemaking Board (“MSRB” or “Board”), filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change amending MSRB Rule G-21, on advertising, to establish requirements relating to the availability of performance data current to the most recent month-end in connection with advertisements by brokers, dealers and municipal securities dealers containing performance data for municipal fund securities. The proposed rule change was published for comment in the **Federal Register** on July 11, 2005. 3 The Commission received one comment letter regarding the proposal. 4 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. 51951 (June 30, 2005), 70 FR 39833 (July 11, 2005). 4 *See* letter to Jonathan G. Katz, Secretary, Commission, from Tamara K. Salmon, Senior Associate Counsel, Investment Company Institute (“ICI”), dated July 25, 2005 (“ICI's Letter”). The proposed rule change would amend Rule G-21 to require dealers to include in advertisements that contain performance data for municipal fund securities a phone number or Web address where investors may obtain performance data current to the most recent month-end, unless the data included in the advertisement is itself current to the most recent month-end. A full description of the proposal is contained in the Commission's Notice. 5 The MSRB proposes that dealers be required to comply with the proposed rule change for advertisements of municipal fund securities submitted or caused to be submitted for publication on or after December 1, 2005. 6 5 *See supra* note 3. 6 This effective date conforms to the effective date for other changes made to Rule G-21 earlier this year. *See* Exchange Act Release No. 51736 (May 24, 2005), 70 FR 31551 (June 1, 2005). ICI's Letter strongly supported the proposed amendments, which would bring advertising rules for municipal fund securities more in line with the requirements of Rule 482 adopted by the SEC under the Securities Act of 1933, as amended. 7 The ICI's Letter stated that greater uniformity with the advertising requirements applicable to mutual funds is appropriate because municipal fund securities and mutual funds share many common features, including the manner in which they are advertised to investors. The ICI's Letter also stated that uniform standards will facilitate the NASD's ability to conduct inspections because the NASD is charged with inspecting securities firms for compliance with both MSRB and SEC advertising rules. 7 15 U.S.C. 77a *et seq.* The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to the MSRB 8 and, in particular, the requirements of Section 15B(b)(2)(C) of the Act and the rules and regulations thereunder. 9 Section 15B(b)(2)(C) of the Act requires, among other things, that the MSRB's rules 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 municipal securities, to remove impediments to and perfect the mechanism of a free and open market in municipal securities, and, in general, to protect investors and the public interest. 10 In particular, the Commission finds that the proposed rule change will further investor protection by making information provided in advertisements of municipal fund securities more up-to-date and more comparable among different municipal fund securities investments and between municipal fund securities and registered mutual funds. 8 In approving this rule the Commission notes that it has considered the proposed rule's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). 9 15 U.S.C. 78o-4(b)(2)(C). 10 *Id.* *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 11 that the proposed rule change (SR-MSRB-2005-09) be, and hereby is, approved. 11 15 U.S.C. 78s(b)(2). 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. E5-4622 Filed 8-23-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52294; File No. SR-NASD-2004-025] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Change To Amend NASD's Minor Rule Violation Plan August 18, 2005. On February 10, 2004, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend its minor rule violation plan (“MRVP”). On March 17, 2005, NASD filed Amendment No. 1 to the proposed rule change. On June 27, 2005, NASD filed Amendment No. 2 to the proposed rule change. The proposed rule change, as amended, was published for comment in the **Federal Register** on July 14, 2005. 3 The Commission received two comments on the proposal. 4 This order approves the proposed rule change, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 51994 (July 7, 2005), 70 FR 40764. 4 *See* e-mails to *rule-comments@sec.gov* from Scott Lynn Fagin, Chief Compliance Officer and Chief Financial Officer, The Jeffrey Matthews Financial Group, LLC, dated August 5, 2005; and Joseph W. Mays, Jr., President, Securities Consulting Group, Inc., dated August 1, 2005. The comments are not germane to the proposal and thus do not raise any issue that would preclude approval of this proposal. NASD proposed to make the following changes to its MRVP: • Combine in one entry all rule violations eligible for disposition under the MRVP that relate to transaction reporting and audit trail requirements in equity and debt securities. Specifically, NASD proposes to eliminate the separate minor rule violation pertaining to NASD Rules 6130 and NASD 6170 (transaction reporting to the Automated Confirmation Transaction Service) and add them to a consolidated entry; add to the MRVP, and this consolidated entry, violations of NASD Rules 4632A, 5430, 6130A, and 6170A, which relate to TRACS requirements; and eliminate the reference in the MRVP to a violation of the Fixed Income Pricing System, NASD Rule 6240, and replace it with a violation of NASD Rule 6230, the TRACE transaction reporting rule. • Include in the MRVP violations of standards applicable to member communications with the public (NASD Rules 2210, 2211, and 2220, and related Interpretive Materials) which would allow NASD to address minor or technical violations of content-related advertising rules. • Expand the MRVP to include a member's failure to identify to NASD and keep current information regarding any contact person that a member must provide to NASD under any current or future NASD rule. • Change “the Association” to “NASD” in the minor rule violation provision relating to NASD Rule 3110 and change “ECN's” to “ECNs” in the minor rule violation provision relating to Rule 11Ac1-1(c)(5) under the Act. The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association. 5 In particular, the Commission believes that the proposal is consistent with Section 15A(b)(6) of the Act, 6 which requires that the rules of an association be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission also believes that the proposal is consistent with Sections 15A(b)(2) and 15A(b)(7) of the Act 7 which require that the rules of an association enforce compliance and provide appropriate discipline for violations of Commission and association rules. In addition, because existing NASD Rule 9216(b) provides procedural rights to a person fined under the MRVP to contest the fine and permits a hearing on the matter, the Commission believes the MRVP, as amended by this proposal, provides a fair procedure for the disciplining of members and persons associated with members, consistent with Sections 15A(b)(8) and 15A(h)(1) of the Act. 8 5 In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 6 15 U.S.C. 78o-3(b)(6). 7 15 U.S.C. 78o-3(b)(2) and 78o-3(b)(7). 8 15 U.S.C. 78o-3(b)(8) and 78o-3(h)(1). Finally, the Commission finds that the proposal is consistent with the public interest, the protection of investors, or otherwise in furtherance of the purposes of the Act, as required by Rule 19d-1(c)(2) under the Act, 9 which governs minor rule violation plans. The Commission believes that the change to its MRVP will strengthen NASD's ability to carry out its oversight and enforcement responsibilities as a self-regulatory organization in cases where full disciplinary proceedings are unsuitable in view of the minor nature of the particular violation. 9 17 CFR 240.19d-1(c)(2). In approving this proposal, the Commission in no way minimizes the importance of compliance with NASD rules and all other rules subject to the imposition of fines under NASD's MRVP. The Commission believes that the violation of any self-regulatory organization's rules, as well as Commission rules, is a serious matter. However, an MRVP provides a reasonable means of addressing rule violations that do not rise to the level of requiring formal disciplinary proceedings, while providing greater flexibility in handling certain violations. The Commission expects that NASD will continue to conduct surveillance with due diligence and make a determination based on its findings, on a case-by-case basis, whether a fine of more or less than the recommended amount is appropriate for a violation under the MRVP or whether a violation requires formal disciplinary action. *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act 10 and Rule 19d-1(c)(2) under the Act, 11 that the proposed rule change (SR-NASD-2004-025), as amended, be, and hereby is, approved and declared effective. 10 15 U.S.C. 78s(b)(2). 11 17 CFR 240.19d-1(c)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 12 17 CFR 200.30-3(a)(12); 17 CFR 200.30-3(a)(44). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4625 Filed 8-23-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52291; File No. SR-NASD-2005-011] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment Nos. 1, 2, and 3 Thereto To Limit the Eligibility for Quotation on the OTCBB of the Securities of an Issuer That Is Repeatedly Delinquent In Its Periodic Reporting Obligations August 18, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on January 28, 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 submitted Amendment No. 1 to this filing on May 10, 2005. 3 Nasdaq submitted Amendment No. 2 to this filing on June 24, 2005. 4 Nasdaq submitted Amendment No. 3 to this filing on August 15, 2005. 5 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1, which replaced the original filing in its entirety, clarified the proposed rule text in response to comments received from the Commission staff, clarified how Nasdaq will notify issuers about the proposed rule, and stated that the proposed rule would be implemented for those filings for periods ending on or after June 1, 2005. 4 Amendment No. 2, which replaced the original filing and Amendment No. 1 in their entirety, further clarified the proposed rule text in response to comments received from the Commission staff, and set forth in the proposed rule text that filings for reporting periods ending before June 1, 2005 will not be considered under the proposed rule change. 5 Amendment No. 3, which supplemented the filing as modified by Amendment No. 2, amended the proposed rule text to provide that filings for reporting periods ending before October 1, 2005 will not be considered under the proposed rule change. I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change Nasdaq proposes to limit the eligibility for quotation on the Over-the-Counter Bulletin Board (“OTCBB”) of the securities of an issuer that is repeatedly late in filing required periodic reports. Nasdaq proposes to implement the proposed rule in connection with filings for reporting periods ending on or after October 1, 2005. 6 6 The Commission notes that the NASD has submitted a proposed rule change (SR-NASD-2005-089), which was published for public comment in the **Federal Register** on July 29, 2005, that would amend the NASD's Plan of Allocation and Delegation of Functions by the NASD to Subsidiaries (“Delegation Plan”) and amend several NASD rules with respect to the OTCBB. Currently, the Delegation Plan allocates responsibility for activities related to or in support of the trading in over-the-counter (“OTC”) equity securities, including the OTCBB, to Nasdaq. Under the NASD's proposal, the NASD would assume direct authority for OTC equity securities, rather than delegate it to Nasdaq. Nasdaq would, however, continue to provide certain operational systems and support to the OTCBB pursuant to contract. *See* Securities Exchange Act No. 52119 (July 25, 2005), 70 FR 43918 (July 29, 2005) (public notice of File No. SR-NASD-2005-089). The text of the proposed rule change, as amended, is set forth below. Proposed new language is in *italics,* deletions are in [brackets]. 6530. OTCBB-Eligible Securities A member shall be permitted to quote the following categories of securities in the Service:
(a)any domestic equity security that satisfies the requirements of subparagraph
(1)and either subparagraph
(2)or
(3)or
(4)below: (1)-(3) No change.
(4)the issuer of the security is a bank or savings association ( *or a holding company for such an entity* ) that is not required to file reports with the Commission pursuant to Section 13 or 15(d) of the Act and, subject to a sixty calendar day grace period, the issuer of the security is current with all required filings with its appropriate Federal banking agency or State bank supervisor (as defined in 12 U.S.C. 1813). (b)-(d) No change.
(e)[Paragraphs (a)(2) and
(3)and
(4)above will not apply with respect to any domestic equity security quoted in the Service on the effective date of this rule change until six months after that date.] *Notwithstanding the foregoing paragraphs, a member shall not be permitted to quote a security if:* *(1) while quoted on the OTCBB, the issuer of the security has failed to file a complete required annual or quarterly report by the due date for such report (including, if applicable, any extensions permitted by SEC Rule 12b-25) three times in the prior two-year period; or* *(2) the security has been removed from the OTCBB due to the issuer's failure to satisfy paragraph (a)(2),
(3)or (4), above, two times in the prior two-year period.* *Following the removal of an issuer's securities pursuant to this paragraph (e), such securities shall not be eligible for quotation until the issuer has timely filed in a complete form all required annual and quarterly reports due in a one-year period. For purposes of this paragraph, a report filed within any applicable extensions permitted by SEC Rule 12b-25 will be considered timely filed. Furthermore, filings for reporting periods ending before October 1, 2005 will not be considered for purposes of this paragraph (e).* 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 In January of 1999, the Commission approved amendments to NASD Rules 6530 and 6540 requiring all issuers of securities quoted on the OTCBB to be current in their filings with the Commission or other appropriate regulator (the “Eligibility Rule”). 7 When a security becomes ineligible for quoting on the OTCBB due to the Eligibility Rule, either because a filing is not made or because a filing is incomplete, 8 Nasdaq appends an additional character “E” designator to the security's symbol. 9 This identifier notifies investors and other market participants that the issuer is not current in its reporting obligations. If the issuer does not comply within the applicable grace period provided by the Eligibility Rule (typically 30 days), 10 Nasdaq removes the issuer's securities from quotation on the OTCBB. Approximately 80% of issuers achieve compliance within the grace period, while 20% are removed. 7 *See* Securities Exchange Act Release No. 40878 (January 4, 1999), 64 FR 1255 (January 8, 1999) (SR-NASD-98-51). These amendments were fully implemented for all securities quoted on the OTCBB as of June 2000. 8 In order for a filing to be complete, it must, for example, contain all required certifications, attestations, and financial statements, including an auditor's review pursuant to SAS-100 (for quarterly reports) or an unqualified auditor's opinion (for annual reports). *See, e.g.* , Rule 13a-14 under the Act, 17 CFR 240.13a-14, and Rules 10-01(d) and 2-02(c) of Regulation S-X, 17 CFR 210.10-01(d) and 2-02(c). In addition, the auditor must be registered with the Public Company Accounting Oversight Board. *See* Section 102(a) of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7212(a). 9 Nasdaq also appends an “E” to a security's symbol when it fails to receive notice that an issuer, which files with a regulator other than the Commission, has timely filed. In the case of those issuers, the Nasdaq generally receives notice of a regulatory filing from the applicable market maker or the issuer itself, and will investigate any instance where it has not received such notice. *See* Telephone conversation between Tim Fox, Attorney, Commission, and Arnold Golub, Associate Vice President, Nasdaq on May 20, 2005. 10 The Eligibility Rule provides a 60-day grace period to banks, savings association and insurance companies that do not file with the Commission, but are required to file with other regulators. *See* NASD Rule 6530(a)(3) and (4). Nasdaq reports that it has identified a high level of non-compliance with the Eligibility Rule. Specifically, over the two-year period ended August 31, 2004, Nasdaq identified over 3,000 instances of delinquent or otherwise incomplete filings by 1,806 OTCBB issuers, of which 1,067 were still quoted as of August 31, 2004. Of the 1,806 issuers, 1,035 were late in filing one time, 548 issuers were delinquent twice and 223 were delinquent three or more times. Given this high rate of recidivism, Nasdaq proposes to make certain securities ineligible for quotation on the OTCBB for a period of one year. First, Nasdaq proposes to make the securities of those OTCBB issuers that are delinquent in a required filing three times in a two-year period ineligible for quotation on the OTCBB for a period of one year. 11 Accordingly, the securities of a company would be removed from the OTCBB the third time that the company does not file by the due date (including, if applicable, any extensions permitted by Rule 12b-25 under the Act) in a two-year period, without the benefit of any grace period for this third delinquency. 12 In applying the look-back associated with this provision, Nasdaq would consider reports characterized by due dates (including, if applicable, any extensions permitted by Rule 12b-25 under the Act) that fell within the prior two-year period. 11 A filing would not be considered delinquent if made within any applicable extensions permitted pursuant to Rule 12b-25 under the Act. Nasdaq also appends an “E” to a security's symbol when it does not receive notice that an issuer that files with a regulator other than the Commission has timely filed. Nasdaq will not consider such occurrences to be a delinquent filing for purposes of the proposed rule if the issuer did, in fact, timely file with the appropriate regulator. Nonetheless, these issuers can help alleviate confusion by providing Nasdaq with a copy of the filing made with the appropriate regulator on or before its due date. 12 Prior to such removal, Nasdaq intends to provide issuers with 7 calendar days to request review of the determination by a hearings panel. See File No. SR-NASD-2005-067, which proposes to clarify the availability of a process to review eligibility determinations under NASD Rule 6530. This filing, which has not yet been published by the Commission for public comment, is available on Nasdaq's Web site at *http://www.nasdaq.com.* Second, Nasdaq also proposes to make the securities of those OTCBB issuers whose securities are removed from the OTCBB for failure to file two times in a two-year period ineligible for quotation on the OTCBB for a period of one year. 13 The heightened test for this category reflects the greater length of the filing delinquencies, *i.e.* , these issuers were unable to regain compliance, even within the applicable “grace” period. In applying the look-back associated with this provision, Nasdaq would consider the date the security is removed, without regard to when the delinquent reports were actually due. 13 An issuer that is not removed because it files a late report after requesting a hearing pursuant to the NASD Rule 9700 Series but before a decision has been issued in the matter would not be considered to have failed to file pursuant to proposed NASD Rule 6530(e)(2), but it would still be considered to have filed late for purposes of proposed NASD Rule 6530(e)(1). Under the proposed rule change, as amended, only filings for which the grace period ends while the issuer is quoted on the OTCBB would be considered. 14 Following its removal for violating one of the proposed requirements, a security would not be eligible for re-inclusion unless the issuer has timely filed in a complete form all required annual and quarterly reports for a period of one year. Thus, the securities of an issuer could not be re-included for a minimum of one year and the securities of, for example, most domestic issuers would not be eligible for re-inclusion until the issuer has timely filed at least one Form 10-K and three Forms 10-Q. Under the proposed rule change, as amended, while a late filing during the period when an issuer is ineligible would reset the ineligibility period, once an issuer that is removed for violating one of the proposed requirements is re-included, Nasdaq would not consider late filings due prior to the date of re-inclusion under the proposed rule. 15 14 Thus, for example, an OTCBB-quoted issuer that has no prior late filings fails to file its Form 10-K for the period ended December 31, 2005, prior to the end of the applicable grace period. The issuer is removed from the OTCBB under existing NASD Rule 6530(a)(2), and thereafter also files its Form 10-Q for the period ended March 31, 2006, after the due date. The issuer is subsequently re-included on the OTCBB. Only the late filing for the period ended December 31, 2005, would count for purposes of the proposed rule change because the issuer was not quoted on the OTCBB when the grace period for the March 31, 2006 filing expired. *See* Telephone conversation between Tim Fox, Attorney, Division of Market Regulation, Commission, and Arnold Golub, Associate Vice President, Nasdaq, on August 17, 2005. 15 *See* Telephone conversation between Tim Fox, Attorney, Division of Market Regulation, Commission, and Arnold Golub, Associate Vice President, Nasdaq, on August 17, 2005. Nasdaq proposes to implement the proposed rule in connection with filings for periods ending on or after October 1, 2005. 16 Filings for periods ending before October 1, 2005 would not be considered in determining the number of times a company has made late filings. Upon implementation, a company would be provided notification whenever Nasdaq determines that it is late in a periodic filing. Such notice would explain the effect of such a late filing under the proposed rule. Nasdaq would also provide information about the proposed rule on the issuer section of the OTCBB Web site, at *http://www.otcbb.com.* 16 *See* Amendment No. 3. Finally, Nasdaq proposes to clarify its current position that the 60-day grace period applicable to banks and savings associations also applies to holding companies for such entities. Nasdaq believes that this clarification is appropriate because, like banks and savings associations, these holding companies must also file publicly available periodic reports with the appropriate state or federal regulator. 2. Statutory Basis Nasdaq believes that the proposed rule change, as amended, is consistent with the provisions of Section 15A of the Act, 17 in general, and with Section 15A(b)(6) of the Act, 18 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, remove impediments to a free and open market and a national market system, and, in general, to protect investors and the public interest. Nasdaq represents that the proposed rule change, as amended, is designed to increase the quality and timeliness of disclosure available to investors by OTCBB issuers and to prevent the securities of issuers that repeatedly fail to timely comply with their obligations under the securities laws from being quoted on the OTCBB. 17 15 U.S.C. 78 *o* -3. 18 15 U.S.C. 78 *o* -3(b)(6). B. Self-Regulatory Organization's Statement on Burden on Competition Nasdaq does not believe that the proposed rule change, as amended, will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received by Nasdaq. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the self-regulatory organization consents, the Commission will:
(A)by order approve such proposed rule change, as amended, or
(B)institute proceedings to determine whether the proposed rule change, as amended, 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-2005-011 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-NASD-2005-011. 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 Nasdaq. 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-2005-011 and should be submitted on or before September 14, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 19 19 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4627 Filed 8-23-05; 8:45 am] BILLING CODE 8010-01-P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration Premium War Risk Insurance AGENCY: Federal Aviation Administration, DOT. ACTION: Determination to allow for the provision of FAA Aviation Insurance. SUMMARY: This notice contains the text of a memorandum from the Secretary of Transportation to the Administrator of the Federal Aviation Administration regarding the Provision of Aviation Insurance Coverage for U.S. Flag Commercial Air Carrier Service in Domestic and International Operations. DATES: Dates of extension from August 31, 2005 through December 31, 2005. FOR FURTHER INFORMATION CONTACT: Helen Kish, Program Analyst, AEP-20, 202-267-9943 or Eric Nelson, Program Analyst, AEP-20, 202-267-3090. Federal Aviation Administration, 800 Independence Ave., SW., Washington, DC 20591. SUPPLEMENTARY INFORMATION: On August 16, 2005, the Secretary of Transportation authorized the provision of aviation insurance by the Federal Aviation Administration for 122 days as follows: MEMORANDUM FOR THE ADMINISTRATOR Pursuant to the authority delegated to me by the President in Presidential Determination 2005-15 of December 21, 2004, I hereby make the determination and finding set forth in that Determination and extend the determination to allow for the provision of aviation insurance and reinsurance coverage for U.S. flag commercial air carrier service in domestic and international operations through December 31, 2005. Pursuant to section 44306(c) of Chapter 443 of 49 U.S.C., Aviation Insurance, the period for provision of insurance shall be extended from August 31, 2005, through December 31, 2005. /s/ Normal Y. Mineta *Affected Public:* Air Carriers who currently have premium war risk insurance with the Federal Aviation Administration. Issued in Washington, DC on August 17, 2005. John M. Rodgers, Director, Aviation Insurance Program Office. [FR Doc. 05-16790 Filed 8-23-05; 8:45 am]
Connectionstraces to 21
Traces to 21 documents
U.S. Code
5 references not yet in our index
  • 17 CFR 240.19
  • 15 USC 78
  • 17 CFR 155.2-155
  • 17 CFR 240.6
  • 17 CFR 240.13
Citation graph
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Notices
Determination to allow for the provision of FAA Aviation Insurance
U.S.C.§ 78s
U.S.C.§ 78f
U.S.C.§ 552
U.S.C.§ 78c
C.F.R.§ 200.30-3
U.S.C.§ 7a–2
U.S.C.§ 2
U.S.C.§ 77r
U.S.C.§ 6j
Cite17 CFR 240.19
Cite15 USC 78
Cite17 CFR 155.2-155
Cites 26 · showing 12Cited by 0 across 0 sources
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