Notices. Notice of final priorities
12,731 words·~58 min read·
/register/2005/08/30/05-17186A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [[Release No. 35-28019] Filings Under the Public Utility Holding Company Act of 1935, as Amended (“Act”) August 24, 2005. Notice is hereby given that the following filing(s) has/have been made with the Commission pursuant to provisions of the Act and rules promulgated under the Act. All interested persons are referred to the application(s) and/or declaration(s) for complete statements of the proposed transaction(s) summarized below.
The application(s) and/or declaration(s) and any amendment(s) is/are available for public inspection through the Commission's Branch of Public Reference. Interested persons wishing to comment or request a hearing on the application(s) and/or declaration(s) should submit their views in writing by September 19, 2005, to the Secretary, Securities and Exchange Commission, Washington, DC 20549-0609, and serve a copy on the relevant applicant(s) and/or declarant(s) at the address(es) specified below.
Proof of service (by affidavit or, in the case of an attorney at law, by certificate) should be filed with the request. Any request for hearing should identify specifically the issues of facts or law that are disputed. A person who so requests will be notified of any hearing, if ordered, and will receive a copy of any notice or order issued in the matter. After September 19, 2005, the application(s) and/or declaration(s), as filed or as amended, may be granted and/or permitted to become effective.
CenterPoint Energy, Inc., et al. (70-10329) CenterPoint Energy, Inc. (“CenterPoint”), a registered public-utility holding company under the Act, located at 1111 Louisiana, Houston, TX 77002, Utility Holding, LLC (“Utility Holding”), CenterPoint's direct, wholly owned subsidiary limited liability company, located at 200 West Ninth Street Plaza, Suite 411,Wilmington, DE 19801, CenterPoint Energy Houston Electric, LLC (“CEHouston Electric”), a wholly owned electric utility subsidiary limited liability company of Utility Holding, and CenterPoint Energy Transition Bond Company II, LLC (“CE Issuer”), a direct, wholly owned subsidiary limited liability company of CEHouston Electric, both located at 1111 Louisiana, Houston, TX 77002 (together, “Applicants”), have filed an application-declaration, as amended (“Application”), with the Commission under sections 6(a), 7, 9, 10, 12(b), 12(c) 12(f), 12(g) and 13(b) of the Act and rules 42, 43, 44, 45, 54, 90 and 91.
Applicants are requesting authority to issue certain additional transition bonds (“Additional Transition Bonds”) 1 in an amount projected, at this time, to be approximately $2 billion 2 and to engage in certain transactions related to Applicants' financing and recovery of costs associated with the State of Texas' electric-utility industry restructuring, administered by the Texas Commission. 3 The proposed bonds are in addition to transition bonds issued in 2001, prior to CenterPoint's registration with the Commission. 4 1 By its order dated Nov. 30, 2004, the Commission previously authorized CenterPoint to form and capitalize CenterPoint Energy Transition Bond Company II, LLC, to issue the Additional Transition Bonds and, in its order dated June 29, 2005, the Commission previously discussed the bonds' financial effect on the CenterPoint system's capitalization. *See CenterPoint Energy, Inc., et al.,* Holding Co.
Act Release No. 27919; *CenterPoint Energy, Inc., et al.,* Holding Co. Act Release No. 27989 (“June 29, 2005 Omnibus Financing Order”), respectively. 2 Applicants state that the amount of the proposed bonds is a projection, as it is based on an assumption that issuance will be prior to Dec. 31, 2006 and the total amount of Additional Transition Bonds is also subject to a further determination of the Texas Public Utility Commission (“Texas Commission”). 3 The Texas Restructuring Law (“Restructuring Law”) became effective on Sept. 1, 1999, to permit companies to compete for retail electric customers, among other things.
The Restructuring Law also required the Texas Commission to administer the requirement that integrated utilities separate their generating, transmission and distribution and retail sales functions. 4 Applicants state that, in October 2001, CenterPoint Energy Transition Bond Company, LLC (formerly known as Reliant Energy Transition Bond Company, LLC) (“Transition Bond Company I”), a special purpose, wholly owned subsidiary of CEHouston Electric, issued $749 million of the Series 2001-1 Transition Bonds.
Applicants also note that they have referred to CEHouston Electric as the “T&D Utility” in previous filings and that it may be so referred to in certain of the exhibits to this Application. I. Summary of the Request Applicants request authority to issue the Additional Transition Bonds and engage in related transactions, as generally described below: 1. CEHouston Electric, to sell, pledge or assign transition property (“Transition Property”), as described below, to CE Issuer in exchange for proceeds from the sale of one or more series of Additional Transition Bonds; 2.
CE Issuer, to issue and sell Additional Transition Bonds in an aggregate principal amount not to exceed approximately $2 billion (as authorized and approved by the Texas Commission); 3. CE Issuer, to enter into hedging transactions and arrangements and credit enhancement transactions to reduce certain interest rate and credit risks associated with the Additional Transition Bonds; 4. CEHouston Electric, or any successor entity or another affiliate, to provide services to CE Issuer related to the Transition Property and to enter into one or more Transition Property Servicing Agreements, as described below; 5.
CEHouston Electric, or any successor entity or another affiliate, to provide administrative services to CE Issuer and to enter into one or more Administration Agreements, as described below; 6. CE Issuer, to use the proceeds from the Additional Transition Bonds to pay the expenses of issuance and to purchase the Transition Property from CEHouston Electric; 7. CEHouston Electric and Utility Holding, to pay dividends out of capital or unearned surplus, from the Transition Property sale proceeds (or some portion of the proceeds), from CEHouston Electric to Utility Holding and from Utility Holding to CenterPoint; 8.
CEHouston Electric, to enter into:
(a)Indemnity provisions in the Transition Property Sale Agreement, indemnifying CE Issuer, the trustee and certain of their affiliates; and
(b)As a service provider, to enter into indemnity provisions of the Transition Property Service Agreement, indemnifying CE Issuer, the trustee, certain affiliates of the trustee and the Texas Commission (for the benefit of CEHouston Electric's customers); 9. CE Issuer, to enter into indemnity provisions in its limited liability company agreement, through which it may indemnify its managers; and 10. CEHouston Electric, to make capital contributions to CE Issuer and, subject to certain limitations, receive interest and other investments earnings on them. II. Background In addition to introducing competition to the Texas electric utility industry, by requiring integrated utilities to separate their generating, transmission and distribution and retail sales functions, Applicants state that the Texas Restructuring Law permits utilities to recover certain of certain “stranded” or other “transition” costs associated with transition to a competitive retail electric market in Texas. 5 Applicants explain that the Restructuring Law permits recovery of the stranded costs, and other transition related costs, providing two mechanisms, either, or both, of which the Texas Commission may use to permit a utility to recover transition costs:
(1)Non-bypassable “competition transition charges” (“CTCs”) imposed on retail electric customers' bills or
(2)the issuance of transition bonds, securitizing non-bypassable “transition charges” imposed on customers, which pay for the bonds (“Transition Charges”). 6 Applicants' request in this Application involves the latter mechanism. 7 5 Applicants state that the Restructuring Law allows a utility to recover the amount by which the market value of its generating assets is below the regulatory book value of the assets as of the end of 2001. It also allows a utility to recover certain other transition costs by a true-up procedure ( *i.e.,* calculating the difference between the Texas Commission's projected market prices for generation during 2002 and 2003 and the actual market prices for generation occurring in 2002 and 2003). The statute requires these determinations to be made by the Texas Commission in “true-up proceedings.” 6 Applicants state that the Restructuring Law provides, in general, that retail electric customers within the utility's service territory as it existed on May 1, 1999, will be assessed CTCs, regardless of whether the retail electric customers receive service from the utility that historically served them or another entity. CTCs are similar to transition charges in the way they are imposed and collected, but CTCs are not securitized. 7 Applicants state that, separately, in January 2005, CEHouston Electric filed an application with the Texas Commission for a CTC order, to recover the entire true-up balance (plus accrued interest and excess mitigation credits), and that, on July 14, 2005, CEHouston Electric received an order allowing it to collect approximately $570 million in CTC over 14 years, plus interest at an annual rate of 11.075% (“CTC Order”). Based on this interest permitted, it is expected that the amount will total to approximately $600 million by the end of the third quarter of 2005, when the CTC is expected to be implemented. Applicants state that the CTC Order also allows CEHouston Electric to collect approximately $24 million of rate case expenses over three years. Applicants state that the Texas Restructuring Law requires transition bonds to be repaid by retail customers, over a period of no more than 15 years, through the imposition of the non-bypassable Transition Charges. 8 Under the statute, transition bonds will be secured by, and payable from, Transition Property, which includes the right to impose, collect and receive the Transition Charges. 9 Applicants state that transition bonds may be issued through a special purpose entity designed to be a bankruptcy remote entity. 10 The obligations on the bonds are required to be non-recourse to the utility and to all other entities in the electric utility system, other than issuer, the special purpose entity. 8 Applicants explain that the Restructuring Law authorizes the Texas Commission to issue financing orders approving transition bonds to recover certain “qualified costs.” Qualified costs of an electric utility include, among other things, the costs of issuing, supporting and servicing transition bonds and any costs of retiring and refunding existing debt and equity securities in connection with their issuance. The Restructuring Law permits a utility, its successors or a third-party assignee of a utility, to issue transition bonds. Under the Restructuring Law, proceeds of transition bonds must be used to reduce the amount of recoverable qualified costs through the refinancing or retirement of the electric utility's debt or equity, and may have a maximum maturity of 15 years. 9 Applicants also state that the State of Texas pledged in the Restructuring Law that it will not take or permit any action that would impair the value of the transition property or, except as permitted in connection with the true-up adjustment authorized by the statute, reduce, alter or impair the transition charges until the principal, interest and premium, and any other charges incurred and contracts to be performed in connection with transition bonds, have been paid and performed in full. Applicants state that the Restructuring Law does require the Texas Commission to review and adjust the transition charges at least annually, within 45 days of the anniversary of the date of the issuance of the transition bonds in order to:
(1)Correct any overcollections or undercollections during the preceding 12 months and
(2)provide for recovery of amounts sufficient to pay timely all debt service and other amounts and charges associated with the transition bonds. 10 *See* notes 1 and 8, above. The Commission previously authorized CenterPoint to form and capitalize CenterPoint Energy Transition Bond Company II, LLC, to issue the Additional Transition Bonds. *CenterPoint Energy, Inc., et al.,* Holding Co. Act Release No. 27919 (Nov. 30, 2004). As noted above, the Restructuring Law permits a utility, its successors or a third party assignee of a utility, to issue transition bonds. In December 2004, the Texas Commission authorized CEHouston Electric 11 to recover about $2.4 billion of stranded costs and interest accrued through Aug. 31, 2004 (“True-Up Order”). Applicants state that, on Mar. 16, 2005, the Texas Commission authorized the proposed Additional Transition Bonds, allowing CEHouston Electric to securitize approximately $1.494 billion, plus
(1)the amount of excess mitigation credits provided by CEHouston Electric after Aug. 31, 2004,
(2)interest on the stranded cost amount accrued after Aug. 31, 2004, and through the date of issuance of the transition bonds, and
(3)certain up-front qualified costs related to the issuance of the Additional Transition Bonds (“Texas Financing Order”). 12 On Nov. 30, 2004, as noted previously, the Commission authorized Centerpoint to form and capitalize CE Issuer ( *i.e.* , Centerpoint Energy Transition Bond Company II, LLC), for the purpose of issuing the Additional Transition Bonds. 13 11 Applicants explain that, on Mar. 31, 2004, CEHouston Electric, Texas Genco, LP and Reliant Energy Retail Services, LLC, applied to the Texas Commission for an order determining CEHouston Electric's 2004 true-up balance. Applicants state that the Restructuring Law requires the power generation company and the retail electric provider that are “affiliated with” the former integrated electric utility to be parties to the application. Reliant Energy Retail Services was an applicant even though, at the time, it no longer had any legal affiliation with CenterPoint Energy or its subsidiaries. 12 Applicants state that this amount was also subject to adjustments reflecting certain deferred taxes, accrual of interest and payment of excess mitigation credits after Aug. 31, 2004. Applicants also explain that a financing order, once effective, is irrevocable and not subject to reduction, impairment or adjustment by the Texas Commission (including the transition charges authorized in the order), except for annual and interim true-up adjustments made under the Restructuring Law. 13 *See* notes 1 and 10, above. III. The Proposed Transactions A. Additional Transition Bonds Applicants request authority to issue the Additional Transition Bonds through CE Issuer, in one or more series, each made up of one or more classes, up to an amount, anticipated to be approximately $2 billion (as authorized by the Texas Commission), secured by CE Issuer's right, title and interest in and to the Transition Property. Applicants also ask that they be authorized to issue the different series, with different interest rates (which may be at fixed or floating rates) and amortizations of principal and that each series have classes with different interest rates and amortizations of principal. Applicants state that, in accordance with the requirements of the Restructuring Law, the Additional Transition Bonds will be required to be fully repaid within 15 years of the date of issuance. 14 CenterPoint projects that, with interest from Aug. 31, 2004 to the date of issuance (and assuming the Additional Transition Bonds are issued no later than Dec. 31, 2006), the amount of Additional Transition Bonds issued would be no more than $2 billion, although the total amount of Additional Transition Bonds issued will be determined by the Texas Commission before the bonds are issued. 14 Applicants expect that it will be a condition of issuance that each series of Additional Transition Bonds be rated Aaa by Moody's Investors Service, Inc., AAA by Standard and Poor's Rating Services, a Division of The McGraw-Hill Companies and AAA by Fitch, Inc. In addition, Applicants state that CEHouston Electric will comply with the Commission's investment grade criteria contained in the Commission's June 29, 2005 Omnibus Financing Order. *See also* note 1, above. Applicants further request that CEHouston Electric be authorized to transfer its right to receive Transition Charges to CE Issuer. Applicants state that, once CEHouston Electric transfers its right to receive Transition Charges to CE Issuer, all revenues and collections resulting from them, and its other rights and interests received under the Texas Financing Order, will constitute Transition Property. Applicants state that the Transition Property includes the right to impose, collect and receive (through the transition charges payable by retail electric customers within CEHouston Electric's service territory) an amount sufficient to recover the CEHouston Electric's “qualified costs,” including the right to receive transition charges in amounts and at times sufficient to pay principal and interest and to make other deposits in connection with the Additional Transition Bonds (authorized in the Texas Financing Order). 15 15 *See also* notes 9, 10 and 13, above. Under the Texas Financing Order, CEHouston Electric's qualified costs include a portion of CEHouston Electric's 2004 true-up balance, up-front costs of issuing, supporting and servicing the Additional Transition Bonds and certain related costs of retiring and refunding CEHouston Electric's existing debt and equity securities. Applicants also state that the Restructuring Law provides that the issuer of the transition bonds will have a valid and enforceable lien and security interest in the transition property derived from the transition charges and created by a Texas financing Order. Applicants state, as well, that the Restructuring Law also provides that an electric utility's (or an assignee's) transfer of transition property is a “true sale” under state law. Applicants state that a trustee will be appointed under the indenture governing the Additional Transition Bonds and that the trustee, and its investment authority, will be subject to certain constraints. 16 The trustee will provide to the holders of record of the Additional Transition Bonds regular reports (containing information concerning, among other things, CEHouston Electric and the bonds' collateral) prepared by the servicer, described below. 17 16 Deutsche Bank Trust Company Americas will be the initial trustee under the indenture governing the Additional Transition Bonds. 17 As noted above, other transition bonds have been issued by Applicants. Applicants note with respect to the previous bonds that, although CEHouston Electric is the servicer of the Series 2001-1 Transition Bonds and is expected to be the initial servicer of the Additional Transition Bonds, CE Issuer is a separate legal entity from Transition Bond Company I and the Additional Transition Bonds issued by CE Issuer will be payable from collateral that is separate from the collateral securing the Series 2001-1 Transition Bonds. Moreover, Applicants note that Transition Bond Company I has no obligations for the Additional Transition Bonds that will be issued by CE Issuer and, similarly, CE Issuer will have no obligations for the Series 2001-1 Transition Bonds. In addition, Applicants request authority to enter into certain transactions for the purpose of protecting CE Issuer against certain credit risks that may be associated with the Additional Transition Bonds. Applicants explain that these transactions or instruments, which may include surety bonds, financial guaranty insurance policies or letters of credit, among other things, are intended to protect against losses or delays in scheduled payments on the Additional Transition Bonds. B. Hedging Transactions Applicants request that CE Issuer be authorized to hedge its interest rate risk using interest rate swaps or other financial derivatives. 18 Applicants state that each hedging arrangement will be treated for accounting purposes in accordance with U.S. generally accepted accounting principles and that Applicants will comply with Statement of Financial Accounting Standards 133 and Statement of Financial Accounting Standards 138 (“Accounting for Certain Derivative Instruments and Certain Hedging Activities”) or other standards applicable to accounting for derivative transactions as are adopted and implemented by the Financial Accounting Standards Board. 18 Applicants state that CE Issuer may enter into certain interest rate swaps or other transactions for the purpose of hedging a series or class of floating rate Additional Transition Bonds. They explain that interest rate swaps and other hedging arrangements may be used, among other things, to fix synthetically the interest on floating rate Additional Transition Bonds. C. Various Agreements 1. Transition Property Servicing Agreement Applicants request that CEHouston Electric be authorized to act on behalf of CE Issuer, as the servicer, of the Additional Transition Bonds. They propose that the servicer of the bonds, as the agent of CE Issuer, manage, service, administer and make collections related to the Transition Property. 19 Applicants state that, while they anticipate that CEHouston Electric will be the servicer, they request that the trustee be authorized to appoint an unaffiliated third party as the servicer under certain conditions. Applicants state that the appointment of a third party as the servicer will not adversely affect Additional Transition Bonds' investment grade ratings. 19 The servicer will be responsible for, among other things, calculating, billing and collecting the transition charges from retail electric providers, submitting requests to the Texas Commission to adjust these charges, monitoring the collateral for the transition bonds and taking certain actions in the event of non-payment by a retail electric provider. Applicants also request an exemption from the “at cost” requirements in connection with the servicing fee. Applicants propose that the servicer be entitled to receive an aggregate annual servicing fee under the terms of the transition property servicing agreement. Applicants state that the servicing fee must be comparable to similar fees charged in market-based, arm's length transactions for CE Issuer to qualify for the status of a bankruptcy remote entity and to satisfy related rating agency and other legal requirements. Applicants propose that the fee be set at an annual level of not more than one percent of the initial principal amount of the Additional Transition Bonds. Applicants state that, although they expect the servicing fee to approximate the actual costs of providing the services, they cannot be certain that the servicing fee will meet the “at cost” requirements of section 13(b) of the Act and other applicable rules. 2. Administration Agreement Applicants request that CEHouston Electric be authorized to provide administrative services to CE Issuer. They propose that CEHouston Electric provide administrative services to CE Issuer under an administration agreement, providing ordinary clerical, bookkeeping and other corporate administrative services necessary and appropriate. 20 20 These services may include, without limitation:
(1)Maintaining CE Issuer's general accounting records;
(2)preparing and filing required documents;
(3)preparing and filing income, franchise or other tax returns;
(4)preparing minutes of meetings of CE Issuer's managers;
(5)maintaining executed copies of CE Issuer documents;
(6)taking actions necessary for CE Issuer to keep in full effect its existence, rights and franchises as a limited liability company;
(7)providing for the issuance and delivery of the Additional Transition Bonds;
(8)providing for the performance by CE Issuer of its obligations and enforcement each of its rights under the indenture, the servicing agreement and the sale agreement;
(9)providing for defense of any action, suit or proceeding; and
(10)providing office space and ancillary services. Applicants also request an exemption from the “at cost” requirements in connection with the administration fee. Applicants propose that the administrator be entitled to receive a fixed fee, plus reimbursable expenses. Applicants state that the administrative fee must be comparable to similar fees charged in market-based, arm's length transactions for CE Issuer to qualify for the status of a bankruptcy remote entity and to satisfy related rating agency and other, legal requirements. Applicants state that, although they expect the administrative fee to approximate the actual costs of providing the services, they cannot be certain that the fee will meet the “at cost” requirements of section 13(b) of the Act and other applicable rules. D. Dividend Authority and Use of Proceeds Applicants request that CE Issuer be authorized to use the proceeds from the issuance of the Additional Transition Bonds to pay associated issuance expenses and to purchase the Transition Property from CEHouston Electric. In addition, Applicants request that CEHouston Electric be authorized to use proceeds received from CE Issuer to reduce stranded costs, through the retirement of debt or equity or both, or to be distributed to Utility Holding and to CenterPoint through either the payment of dividends or the settlement of intercompany payables. 21 Applicants state that they intend to maintain CEHouston Electric's capital structure at the approximately 60% debt to 40% equity target levels (exclusive of the Additional Transition Bonds). 22 21 Applicants state that the specific amount of proceeds to be used to retire debt and/or equity will depend on CEHouston Electric's capital structure and market conditions. They expect that approximately $1.3 billion of the securitization proceeds will be used to repay CEHouston Electric's term loan maturing in November 2005 (or any replacement credit facility or debt issuance if the proceeds have not been received by the maturity date). To the extent that proceeds may not be applied to repay that loan, they may be distributed to Utility Holding and CenterPoint, either through dividend payments or the settlement of intercompany payables. Applicants state that proceeds that are paid as a dividend by CEHouston Electric to Utility Holding and by Utility Holding then to CenterPoint may be used to reduce debt at CenterPoint and to otherwise improve the capital structure of the CenterPoint system. To the extent that proceeds received prior to the November 2005 maturity of the term loan may not be used to repay the loan, Applicants state that they may be contributed back to CEHouston Electric when the term loan matures. 22 *See also* June 29, 2005 Omnibus Financing Order. E. Indemnifications Applicants also request that they be authorized to enter into various indemnity agreements associated with the transition property sale agreement and transition property servicing agreement. Applicants explain that CEHouston Electric will be required to indemnify the Texas Commission (for the benefit of CEHouston Electric's customers), CE Issuer, the trustee and certain of their affiliates for various activities required in connection with the issuance and administration of the Additional Transition Bonds and, similarly, under the limited liability company agreement, CE Issuer will be required to indemnify its managers in certain situations, as described in the Application. F. CEHouston Electric Capitalization Finally, Applicants also request an exemption from the Commission's 30% common equity ratio in order to carry out the Texas Financing Order, as discussed in the Commission's June 29, 2005 Omnibus Financing Order. 23 Applicants state that CEHouston Electric's common equity ratio is projected to decrease below the Commission's standard of 30% during part of the period that the Additional Transition Bonds are outstanding, because the Additional Transition Bonds are categorized as debt. Applicants state, however, that inasmuch as the bonds will be
(1)non-recourse to CEHouston Electric and
(2)serviced by Transition Charges cash flows in accordance with the Texas Financing Order (not CEHouston Electric utility operation revenues), the Additional Transition Bonds do not represent the type of financial leverage that the Commission's 30% common equity standard is intended to address. 23 *See* note 1, above. As discussed in the June 29, 2005 Omnibus Financing Order, CEHouston Electric may have less than the Commission's common equity ratio standard 30% when the securitization debt of the Additional Transition Bonds is included. Applicants anticipate, however, that its equity ratio will improve as the Additional Transition Bonds are paid down, although it is not expected to reach 30% until 2010 with securitization debt included in the calculation. Applicants note that, in their request for the June 29, 2005 Omnibus Financing Order, they asked the Commission to take into account the particular nature of this debt in issuing that order. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4725 Filed 8-29-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52325; File No. SR-Amex-2005-052] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Integration of Regulatory Staff Into Floor Official Rulings and the Review of Floor Official Rulings and Expediting the Process for Appealing Floor Official Rulings August 23, 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 May 11, 2005, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Amex. On August 12, 2005, the Exchange submitted Amendment No. 1 to the proposed rule change. 3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1 Amex made minor revisions to the proposed rule text and clarified certain details of its proposal. Amendment No. 1 replaced and superseded Amex's original filing in its entirety. The Commission made clarifications to the description in Item II, pursuant to telephone conversations with Amex, as noted herein. Telephone conversations between Nyieri Nazarian, Assistant General Counsel, Amex, and Rahman Harrison, Attorney, Commission, on August 23, 2005. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to
(1)amend Amex Rules 22(c), 115, 958A(d), 958A-ANTE(d), 118(n), 135A and Amex Rule 155, Commentary .05 to integrate regulatory staff into Floor Official rulings and the review of Floor Official rulings; and
(2)amend Amex Rule 22(d) to expedite the process for appealing a Floor Official's ruling. The text of the proposed rule change, as amended, is available on the Amex's Web site at *http://www.amex.com,* the Office of the Secretary, the Amex, 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, Amex included statements concerning the purpose of, and basis for, the proposed rule change, as amended, and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Incorporation of Regulatory Staff into Floor Official Rulings Floor Officials are officers of the Exchange, 4 who are authorized to
(1)make rulings on behalf of the Exchange with respect to certain matters that require a decision by the Exchange, and
(2)resolve trading disputes submitted to them by members. Floor Official decisions are currently subject to same day, on-floor appeal at the request of an aggrieved member, first by an Exchange Official, then by a Governor and finally by a panel of three Governors. 5 The Exchange proposes to integrate regulatory staff into specified categories of Floor Official rulings and the review of Floor Official rulings (“Covered Rulings and Reviews”) on an advisory, *i.e.,* non-approving, basis. The Exchange believes that incorporation of regulatory staff in Covered Rulings and Reviews will contribute to a more consistent application of Exchange rules, and better ensure that proper documentation is completed. 4 There are three levels of Floor Officials on the floor, each with ascending levels of responsibility: Floor Officials, Exchange Officials and Senior Floor Officials. All are considered to be Floor Officials. Article II, Section 3 of the Amex Constitution provides that the Chairman of the Board of Governors may appoint members of the Exchange and individuals employed by, or associated with, a member organization in a senior capacity as Exchange Officials to serve on committees of the Board. Amex Rule 21 provides for the appointment of Senior Floor Officials and Floor Officials. 5 Telephone conversation between Nyieri Nazarian, Assistant General Counsel, Amex, and Rahman Harrison, Attorney, Commission, on August 23, 2005. The proposed rules would require a member of the regulatory staff to be present during a Floor Official's ruling on an advisory basis. This member of the regulatory staff would give his or her opinion on the matter and, although the Floor Official would be required to take this opinion into consideration, the Floor Official would not be required to rule according to the regulatory staff member's opinion. Once the Floor Official's decision is documented by the Floor Official, the participating regulatory staff member will also sign the form, indicating whether he or she agrees or disagrees with the ruling. 6 The regulatory staff member will be responsible for maintaining the documentation related to Covered Rulings and Reviews, and will forward such documentation, as appropriate, to the NASD Amex Regulation Division. 7 6 Commentary .02 to Amex Rule 22 requires that a written record of all Floor Official decisions or rulings be documented on a form and prepared as soon as practicable after the decision or ruling is made. 7 The NASD Amex Regulation Division will utilize documentation of such rulings, as appropriate, in order to verify that an appropriate ruling was obtained as required by applicable Amex rules, as well as to enable review of situations in which a Floor Official may have issued an improper ruling contrary to the advice of the regulatory staff. Amex Rule 22(c) currently provides Floor Officials with the authority to make rulings in the following areas: • Trading halts; • Indications and reopenings; • Non-regular way trades; • Unusual market exception to the Commission's Firm Quote Rule; • Turning Auto-Ex off; • ITS disputes; • Member disputes; • Cancellations or revisions to trades; • Voluntary publication of imbalances; • Enforcing standards of floor decorum. The Exchange proposes to amend Amex Rule 22(c) to require that a member of the regulatory staff participate in an advisory capacity in the following categories of Floor Official rulings: • Unusual market exception to the Commission's Firm Quote Rule; • ITS disputes; • Member disputes; • Cancellations or revisions to trades. Corresponding amendments are also proposed to Amex Rules 115, 958A(d), 958A-ANTE(d), 118(n), 135A and 155, Commentary .05, which are the existing rules governing the application of the unusual market exceptions to the Commission's Firm Quote Rule and the Amex rules governing cancellation or revisions to trades. Amex Rules 936, 936C, 936-ANTE, 936C-ANTE, governing the cancellation and adjustment to equity and index option transactions, are not being amended because regulatory staff is already required to participate in such rulings. At the present time, regulatory staff would not be required to participate in Floor Official rulings relating to trading halts, indications and reopenings, non-regular way trades, turning Auto-Ex off, voluntary publication of imbalances, and enforcing standards of floor decorum. Amex Rule 22(d) The Amex also is proposing to amend Amex Rule 22(d) in two respects. Amex Rule 22(d) currently provides for three on-Floor tiers of review in the appeal of a Floor Official's initial ruling. First, any member wishing prompt on-Floor review of a Floor Official's market decision may present the matter to an Exchange Official, who may confirm, amend or overrule the decision. Second, an Exchange Official's decision may be promptly appealed to a Governor. Finally, a Governor's decision may be appealed to a panel of three Governors. A decision by a panel of three Governors is binding on members, with the option that at any point after establishing a loss or profit and complying with the highest decision made in a matter, either party to the matter may submit it to arbitration. 8 The Exchange is proposing to amend Amex Rule 22(d) to clarify that Senior Floor Officials have the same authority as Governors with respect to matters arising on the Floor that require review or action by Governors. 9 The amendment will replace each reference to “Governor” with “Senior Floor Official.” 10 8 A decision to cancel or revise an option trade may also be appealed to the Board of Governors. *See* Amex Rules 936, 936C, 936 ANTE and 936C ANTE. 9 Telephone conversation between Nyieri Nazarian, Assistant General Counsel, Amex, and Rahman Harrison, Attorney, Commission, on August 23, 2005. The Commission recently approved an amendment to Amex Rule 21 which provides that: “An Exchange Official who has been appointed as a Senior Floor Official has the same authority and responsibilities as a Floor Governor with respect to matters that arise on the Floor and require review or action by a Floor Governor or Senior Floor Official.” Securities Exchange Act Release No. 51503 (April 7, 2005), 70 FR 19534 (April 13, 2005). 10 Based on the recent amendment to Amex Rule 21 ( *see supra* note 9), the Exchange also proposes to make conforming changes to Amex Rule 118(n)(iii) (Trading in Nasdaq National Market Securities) and Amex 135A(c) (Cancellations of, and Revisions in, Transactions Where Both the Buying and Selling Members Do Not Agree to the Cancellation or Revision) to replace “Governor” and “Floor Governor,” as applicable, with “Senior Floor Official.” Amex Rules 118(n)(iii) and 135A(c) address the process for review of transactions, and the ability of a Floor Governor to declare a transaction null or void, in the event of an operational malfunction or “extraordinary market conditions.” Telephone conversation between Nyieri Nazarian, Assistant General Counsel, Amex, and Rahman Harrison, Attorney, Commission, on August 23, 2005. Second, the Exchange proposes to amend Amex Rule 22(d) to eliminate the second tier in the current review process, *i.e.,* review of an Exchange Official's decision by a Governor. The proposed rule will provide that a Floor Official's initial decision will be reviewable by an Exchange Official and then a three Senior Floor Official panel. The Exchange believes that two levels of on-Floor review following a Floor Official's original decision are sufficient to assure a fair and impartial review and that three levels of on-Floor review may unnecessarily delay the resolution of disputed matters. The Exchange notes that under the proposal, regulatory staff would advise and participate in each level of a review of a Floor Official decision or ruling that required the advice and participation of a member of the regulatory staff in the initial Floor Official ruling. The increased involvement of regulatory staff should help ensure that rulings are in accordance with applicable rules. 2. Statutory Basis The Exchange believes that the proposed rule change, as amended, is consistent with Section 6(b) of the Act 11 in general, and furthers the objectives of Section 6(b)(5) 12 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change, as amended, would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding, or
(ii)as to which the Amex 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-Amex-2005-052 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-Amex-2005-052. 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 publicly available. All submissions should refer to File Number SR-Amex-2005-052 and should be submitted on or before September 20, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 13 13 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4727 Filed 8-29-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52326; File No. SR-CHX-2005-22] Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Extend the Pilot Rule Interpretation Relating to Trading of Nasdaq National Market Securities in Sub-Penny Increments August 23, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on August 17, 2005, the Chicago Stock Exchange, Inc. (“CHX” 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 CHX. The Exchange has filed this proposal pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change CHX requests an extension, until January 31, 2006, the compliance date of new Rule 612 of Regulation NMS, 5 of a pilot rule interpretation (Article XXX, Rule 2, Interpretation and Policy .06 “Trading in Nasdaq/NM Securities in Subpenny Increments”) which requires a CHX specialist (including a market maker who holds customer limit orders) to better the price of a customer limit order in his book which is priced at the national best bid or offer (“NBBO”) by at least one penny if the specialist determines to trade with an incoming market or marketable limit order. The pilot, which was approved in conjunction with exemptive relief granted by the Commission to allow for trading in Nasdaq National Market securities in sub-penny increments, expires on August 29, 2005. The Exchange proposes that the pilot remain in effect until January 31, 2006, the compliance date of Rule 612. 5 17 CFR 242.612. The Commission recently extended the compliance date for Rule 612 to January 31, 2006. *See* Securities Exchange Act Release No. 52196 (August 2, 2005) 70 FR 45529 (August 8, 2005). II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CHX included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received regarding the proposal. The text of these statements may be examined at the places specified in Item IV below. CHX has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose On April 6, 2001, the Commission approved, on a pilot basis through July 9, 2001, a pilot rule interpretation (Article XXX, Rule 2, Interpretation and Policy .06 “Trading in Nasdaq/NM Securities in Subpenny Increments”) 6 that requires a CHX specialist (including a market maker who holds customer limit orders) to better the price of a customer limit order in his book which is priced at the NBBO by at least one penny if the specialist determines to trade with an incoming market or marketable limit order. The pilot, which was approved in conjunction with exemptive relief granted by the Commission to allow for trading in Nasdaq National Market securities in sub-penny increments, has been extended many times and now is set to expire on August 29, 2005. 7 The Exchange is not proposing any substantive (or typographical) change to the pilot; rather, the Exchange proposes that the pilot remain in effect through January 31, 2006, the compliance date of Rule 612 of Regulation NMS. 6 *See* Securities Exchange Act Release No. 44164 (April 6, 2001), 66 FR 19263 (April 13, 2001) (SR-CHX-2001-07). 7 *See* Securities Exchange Act Release Nos. 44535 (July 10, 2001), 66 FR 37251 (July 17, 2001) (extending pilot through November 5, 2001); 45062 (November 15, 2001), 66 FR 58768 (November 23, 2001) (extending pilot through January 14, 2002); Securities Exchange Act Release No. 45386 (February 1, 2002), 67 FR 6062 (February 8, 2002) (extending the pilot through April 15, 2002); 45755 (April 15, 2002), 67 FR 19607 (April 22, 2002) (extending the pilot through September 30, 2002); 46587 (October 2, 2002), 67 FR 63180 (October 10, 2002) (extending the pilot through January 31, 2003); 47372 (February 14, 2003), 68 FR 8955 (February 26, 2003) (extending the pilot through May 31, 2003); 47951 (May 30, 2003), 68 FR 34448 (June 9, 2003) (extending the pilot through December 1, 2003); 48871 (December 3, 2003), 68 FR 69097 (December 11, 2003) (extending pilot through June 30, 2004); 49994 (July 9, 2004), 69 FR 42486 (July 15, 2004) (extending pilot through June 30, 2005); 51944 (June 30, 2005), 70 FR 39539 (August 8, 2005) (extending pilot through August 29, 2005, the effective date of Rule 612). 2. Statutory Basis CHX believes the proposal is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act. 8 CHX believes the proposal is consistent with Section 6(b)(5) of the Act 9 in that it is designed to promote just and equitable principles of trade; to remove impediments to, and to perfect the mechanism of, a free and open market and a national market system; and, in general, to protect investors and the public interest. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule changes would impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange asserts the foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 10 and Rule 19b-4(f)(6) 11 thereunder because the proposed rule change does not: 10 15 U.S.C. 78s(b)(3)(A). 11 17 CFR 240.19b-4(f)(6).
(i)Significantly affect the protection of investors or the public interest;
(ii)Impose any significant burden on competition; and
(iii)Become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, if consistent with the protection of investors and the public interest. 12 The Exchange has requested that the Commission waive the 30-day operative delay and designate the proposed rule change operative immediately so that the pilot can continue uninterrupted. 12 In addition, Rule 19b-4(f)(6)(iii) states that the Exchange must provide the Commission with written notice of its intent to file the proposed rule change at least five days prior to the date of filing of the proposed rule change or such shorter time as designated by the Commission. The Commission has determined to waive the requirement in this case. The Commission hereby grants the request. 13 The Commission believes that such waiver is consistent with the protection of investors and the public interest because it will allow the protection of customer limit orders provided by the pilot to continue without interruption and designates the proposed rule change to be operative upon filing with the Commission. 13 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File No. SR-CHX-2005-22 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-CHX-2005-22. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-CHX-2005-22 and should be submitted on or before September 20, 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. E5-4723 Filed 8-29-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52332; File No. SR-NASD-2005-094] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to Amendments to the Classification of Arbitrators Pursuant to Rule 10308 of the NASD Code of Arbitration August 24, 2005. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on June 22, 2005, the National Association of Securities Dealers, Inc. (“NASD”) 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 NASD. On August 5, 2005, NASD filed amendment No. 1 to the proposed rule. 3 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 The amendment clarified the rule's text and purpose, and revised the effective date of the rule. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change NASD is proposing to amend Rule 10308 of the NASD Code of Arbitration Procedure (“Code”) relating to the classification of arbitrators to further ensure that individuals with significant ties to the securities industry do not serve as public arbitrators. Below is the text of the proposed rule change. 4 Proposed new language is italics; proposed deletions are in brackets. 4 The rules proposed in this filing will be renumbered as appropriate following Commission approval of the pending revisions to the NASD Code of Arbitration Procedure for Customer Disputes; *see* Securities Exchange Act Release No. 51856 (June 15, 2005), 70 FR 36442 (June 23, 2005) (SR-NASD-2003-158); and the NASD Code of Arbitration Procedure for Industry Disputes; *see* Securities Exchange Act Release No. 51857 (June 15, 2005), 70 FR 36430 (June 23, 2005) (SR-NASD-2004-011). 10308. Selection of Arbitrators
(a)Definitions
(1)through
(3)No change
(4)“non-public arbitrator” The term “non-public arbitrator” means a person who is otherwise qualified to serve as an arbitrator and:
(A)is, or within the past 5 years, was:
(i)associated with *, including registered through,* a broker or a dealer (including a government securities broker or dealer or a municipal securities dealer);
(ii)registered under the Commodity Exchange Act;
(iii)a member of a commodities exchange or a registered futures association; or
(iv)associated with a person or firm registered under the Commodity Exchange Act;
(B)is retired from, or spent a substantial part of a career, engaging in any of the business activities listed in subparagraph (4)(A);
(C)is an attorney, accountant, or other professional who has devoted 20 percent or more of his or her professional work, in the last two years, to clients who are engaged in any of the business activities listed in subparagraph (4)(A); or
(D)is an employee of a bank or other financial institution and effects transactions in securities, including government or municipal securities, and commodities futures or options or supervises or monitors the compliance with the securities and commodities laws of employees who engage in such activities.
(5)“public arbitrator”
(A)The term “public arbitrator” means a person who is otherwise qualified to serve as an arbitrator and:
(i)is not engaged in the conduct or activities described in paragraphs (a)(4)(A) through (D);
(ii)was not engaged in the conduct or activities described in paragraphs (a)(4)(A) through
(D)for a total of 20 years or more;
(iii)is not an investment adviser;
(iv)is not an attorney, accountant, or other professional whose firm derived 10 percent or more of its annual revenue in the past 2 years from any persons or entities listed in paragraph (a)(4)(A); [and]
(v)*is not employed by, and is not the spouse or an immediate family member of a person who is employed by, an entity that directly or indirectly controls, is controlled by, or is under common control with, any partnership, corporation, or other organization that is engaged in the securities business;*
(vi)*is not a director or officer of, and is not the spouse or an immediate family member of a person who is a director or officer of, an entity that directly or indirectly controls, is controlled by, or is under common control with, any partnership, corporation, or other organization that is engaged in the securities business; and* ( *vii* ) is not the spouse or an immediate family member of a person who is engaged in the conduct or activities described in paragraphs (a)(4)(A) through (D).
(B)No change
(6)through
(7)No change
(b)through
(f)No change II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NASD 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. NASD has prepared summaries, set forth in Sections (A), (B), and
(C)below, of the most significant aspects of such statements.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend the arbitrator classification criteria in Rule 10308 of the Code to ensure that individuals with significant ties to the securities industry may not serve as public arbitrators in NASD arbitrations. The Code classifies arbitrators as public or non-public. When investors have a dispute with member firms or associated persons in NASD arbitration, they are entitled to have their cases heard by a panel consisting of either a single public arbitrator, or a majority public panel consisting of two public arbitrators and one non-public arbitrator, depending on the amount of the claim. 5 5 The panel composition for intra-industry disputes (not involving any parties who are investors) is governed by Rule 10202. Depending on the nature of the dispute, intra-industry panels may consists of all public arbitrators, all non-public arbitrators, or a majority of public arbitrators. The arbitrator classification provisions of Rule 10308 apply to all such panels. Under Rule 10308(a)(4) of the Code, a person is classified as a non-public arbitrator if he or she:
(A)Is, or within the past 5 years, was:
(i)Associated with a broker or a dealer (including a government securities broker or dealer or a municipal securities dealer);
(ii)Registered under the Commodity Exchange Act;
(iii)A member of a commodities exchange or a registered futures association; or
(iv)Associated with a person or firm registered under the Commodity Exchange Act;
(B)Is retired from, or spent a substantial part of a career, engaging in any of the business activities listed in subparagraph (4)(A);
(C)Is an attorney, accountant, or other professional who has devoted 20 percent or more of his or her professional work, in the last two years, to clients who are engaged in any of the business activities listed in subparagraph (4)(A); or
(D)Is an employee of a bank or other financial institution and effects transactions in securities, including government or municipal securities, and commodities futures or options or supervises or monitors the compliance with the securities and commodities laws of employees who engage in such activities. The criteria for public arbitrators are set forth in Rule 10308(a)(5) of the Code. In general, an individual will be classified as a public arbitrator if he or she is qualified to serve as an arbitrator and is not either personally engaged in certain activities that would make him or her non-public, or the immediate family member of a person engaged in such activities. In order to ensure that individuals with significant ties to the securities industry may not serve as public arbitrators in NASD arbitrations, NASD believes that revisions to the definitions of public and non-public arbitrators are warranted. NASD is proposing to amend the definition of public arbitrator to exclude individuals who work for, or are officers or directors of, an entity that controls, is controlled by, or is under common control with, a broker/dealer, or who have a spouse or immediate family member who works for, or is an officer or director of, an entity that is in such a control relationship with a broker/dealer. Currently, such individuals are not covered by the rule. For example, a person who works for a real estate firm that is under common control with a broker/dealer and perhaps shares the same corporate name may be classified as a public arbitrator under current rules. Since investors may feel that an arbitrator who is employed by a firm in such a control relationship with a broker/dealer is not truly “public,” NASD is proposing to revise the definition of public arbitrator to exclude any person who is employed by, or who has a spouse or an immediate family member who is employed by, an entity that directly or indirectly controls, is controlled by, or is under common control with, any partnership, corporation, or other organization that is engaged in the securities business. 6 Similarly, NASD also proposes to exclude from the definition of public arbitrator persons who are officers or directors of, or who have a spouse or an immediate family member who is an officer or director of, an entity in a control relationship with a broker/dealer. 6 For purposes of this rule, the term “control” has the same meaning that it has for purposes of Form BD, which broker/dealers use to register with NASD and to make periodic updates. Specifically, control is defined as “The power, directly or indirectly, to direct the management or policies of a company, whether through ownership of securities, by contract, or otherwise. Any person that
(i)is a director, general partner or officer exercising executive responsibility (or having similar status or functions);
(ii)directly or indirectly has the right to vote 25% or more of a class of a voting security or has the power to sell or direct the sale of 25% or more of a class of voting securities; or
(iii)in the case of a partnership, has the right to receive upon dissolution, or has contributed, 25% or more of the capital, is presumed to control that company.” *See* Uniform Application for Broker-Dealer Registration (Form BD). In addition, NASD is proposing to revise the definition of non-public arbitrator to clarify that persons who are registered with a broker/dealer may not be classified as public arbitrators. Under current rules, arbitrators who are associated with a broker or dealer are considered non-public. In the financial services industry, it is not uncommon for a person to be employed by one company (such as a bank or insurance company) and to be registered to sell securities through another company (such as an affiliated broker/dealer). NASD believes that there may be some uncertainty among arbitrators who work for entities in a control relationship with a broker/dealer as to whether they are associated with a broker/dealer for purposes of Rule 10308, even though they hold licenses through the broker/dealer. Since the definition of “person associated with a member” in the NASD By-Laws includes persons who are registered with a broker/dealer, regardless of their status as employees, such persons should be considered non-public arbitrators. Therefore, NASD proposes to amend the definition of non-public arbitrator to specifically include anyone registered through a broker/dealer. 7 7 For purposes of Rule 10308(a)(4)(A)(i), the term “including” is expanding or illustrative, not exclusive or limiting. The use of the term “including but not limited to” in Rule 10321(d) of the Code is not intended to create a negative implication regarding the use of “including” without the term “but not limited to” in Rule 10308(a)(4)(A)(i) or other provisions of the Code. NASD will announce the effective date of the proposed rule change in a Notice to Members to be published no later than 30 days following Commission approval. The effective date will be no later than 60 days following publication of the Notice to Members announcing Commission approval. 8 8 If an arbitrator's classification changes solely because of an amendment to the definitions in Rule 10308, the arbitrator's classification will be changed prospectively, that is, for future appointments only. In ongoing cases, staff will notify the parties of the prospective change in the arbitrator's classification. In such situations, because the arbitrator's classification was correct when the arbitrator was appointed, NASD normally will not grant challenges for cause based on a prospective change in classification. This provides continuity and avoids unnecessary disruption to ongoing cases. Challenges for cause still may be made based upon the disqualification and removal criteria in Rules 10308(d) and 10312(d). 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A of the Act, 9 in general, and with Section 15A(b)(6) of the Act, 10 in particular, which requires, among other things, that NASD's rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. NASD believes that, by providing further assurance to parties that individuals with significant ties to the securities industry are not able to serve as public arbitrators in NASD arbitrations, the proposed rule change will enhance investor confidence in the fairness and neutrality of NASD's arbitration forum. 9 15 U.S.C. 78o-3. 10 15 U.S.C. 78o-3(b)(6).
(B)Self-Regulatory Organization's Statement on Burden on Competition NASD does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which 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. The Commission particularly urges commenters to consider the proposed amendment to the definition of “non-public arbitrator.” Specifically, the NASD has proposed to amend Rule 10308(4)(A)(i) to clarify that persons “associated” with a broker or a dealer include persons “registered through” a broker or a dealer because there has been some uncertainty among certain arbitrators. Although it is clear under NASD rules that persons who are registered through a broker or a dealer are associated persons of that broker-dealer, is this amendment helpful? 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-2005-094 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 20549-2001. All submissions should refer to File Number SR-NASD-2005-094. 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 at the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to the File Number SR-NASD-2005-094 and should be submitted on or before September 20, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Margaret H. McFarland, Deputy Secretary. [FR Doc. E5-4726 Filed 8-29-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52328; File No. SR-NYSE-2005-45] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Approving Proposed Rule Change To Amend NYSE Rule 80A (Index Arbitrage Trading Restrictions) To Calculate Limitations on Index Arbitrage Trading Based on the NYSE Composite Index August 24, 2005. On June 28, 2005, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend NYSE Rule 80A (Index Arbitrage Trading Restrictions) relating to limitations on index arbitrage trading. The proposed rule change was published for comment in the **Federal Register** on July 25, 2005. 3 The Commission received no comments on the proposal. This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Securities Exchange Act Release No. 52051 (July 18, 2005), 70 FR 42608. Current NYSE Rule 80A provides for limitations on index arbitrage trading in any component stock of the S&P 500 Stock Price Index on any day that the Dow Jones Industrial Average (“DJIA”) 4 advances or declines at least 2% 5 from its previous day's closing value. 6 The NYSE proposes to amend NYSE Rule 80A to calculate the limitations on index arbitrage trading as provided in the rule based on the average closing value of the NYSE Composite Index® (“NYA”), replacing the current usage of the DJIA. 4 “Dow Jones Industrial Average” is a service mark of Dow Jones & Company, Inc. 5 Current NYSE Rule 80A provides that collars are based on a quarterly calculation of “two percent value,” which is 2%, rounded down to the nearest ten points, of the average closing value of the DJIA for the last month of the previous calendar quarter. 6 NYSE Rule 80A's current limitations on index arbitrage trading provide that if the market advances by 2% or more, all index arbitrage orders to buy must be stabilizing (buy minus); similarly, if the market declines by 2% or more, all index arbitrage orders to sell must be stabilizing (sell plus). The stabilizing requirements are removed if the DJIA moves back to or within 1% of its closing value. 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 7 and, in particular, the requirements of Section 6 of the Act 8 and the rules and regulations thereunder. Specifically, the Commission finds the proposal to be consistent with Section 6(b)(5) of the Act, 9 in that it is 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. According to the Exchange, the NYA is a better reflection of market activity with respect to the S&P 500 and thus, a better indicator as to when the restrictions on index arbitrage trading provided by NYSE Rule 80A should be triggered. Therefore, the Commission believes that it is consistent with the Act for the NYSE to amend NYSE Rule 80A to calculate limitations on index arbitrage trading based on the NYA. 10 7 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). 8 15 U.S.C. 78f. 9 15 U.S.C. 78f(b)(5). 10 The Commission notes that approval of the proposed rule change is based, in part, on the fact that NYSE Rule 80A affects only certain types of trading by NYSE members trading on the floor of the Exchange. The rule's cross-market implications are minimal. The Commission, therefore, believes that the NYSE should have considerable discretion in determining which index to apply under this rule. The Commission's approval of the proposed rule change should in no way be interpreted as an indication that a similar change to NYSE Rule 80B (Trading Halts Due to Extraordinary Market Volatility), which is integral to the cross-market trading halt procedures known as “Circuit Breakers,” would be subject to the same analysis or similarly approved by the Commission. *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 11 that the proposed rule change (SR-NYSE-2005-45) be, and it 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. E5-4724 Filed 8-29-05; 8:45 am] BILLING CODE 8010-01-P UNITED STATES SENTENCING COMMISSION Sentencing Guidelines for United States Courts AGENCY: United States Sentencing Commission. ACTION: Notice of final priorities. SUMMARY: In June 2005, the Commission published a notice of possible policy priorities for the amendment cycle ending May 1, 2006. *See* 70 FR 37145 (June 28, 2005). After reviewing public comment received pursuant to the notice of proposed priorities, the Commission has identified its policy priorities for the upcoming amendment cycle and hereby gives notice of these policy priorities. FOR FURTHER INFORMATION CONTACT: Michael Courlander, Public Affairs Officer, Telephone:
(202)502-4590. SUPPLEMENTARY INFORMATION: The United States Sentencing Commission is an independent agency in the judicial branch of the United States Government. The Commission promulgates sentencing guidelines and policy statements for federal sentencing courts pursuant to 28 U.S.C. 994(a). The Commission also periodically reviews and revises previously promulgated guidelines pursuant to 28 U.S.C. 994(o) and submits guideline amendments to the Congress not later than the first day of May each year pursuant to 28 U.S.C. 994(p). As part of its statutory authority and responsibility to analyze sentencing issues, including operation of the federal sentencing guidelines, the Commission has identified its policy priorities for the amendment cycle ending May 1, 2006, and possibly continuing into the amendment cycle ending May 1, 2007. While the Commission intends to address these priority issues, it recognizes that other factors, most notably changes that may be required as a result of *United States* v. *Booker,* 543 U.S. __ (2005), 125 S.Ct. 738 (2005), as well as the enactment of any legislation requiring Commission action, may affect the Commission's ability to complete work on any or all policy issues by the statutory deadline of May 1, 2006. The Commission's policy priorities for the upcoming amendment cycle are as follows:
(1)Implementation of crime legislation enacted during the 108th Congress and the first session of the 109th Congress warranting a Commission response, including
(A)the Family Entertainment and Copyright Act of 2005, Public Law 109-9;
(B)the Intellectual Property Protection and Courts Amendment Act of 2004, Public Law 108-482;
(C)the Anabolic Steroids Act, Public Law 108-358 (and as part of its work on this Act, examination of offenses involving human growth hormones under 21 U.S.C. 333(e));
(D)the Intelligence Reform and Terrorism Reform Act of 2004, Public Law 108-458; and
(E)other legislation, amending statutory penalties and creating new offenses, that requires incorporation into the guidelines;
(2)Assessment of the Justice for All Act of 2004, Public Law 108-405, and other statutes pertaining to victims' rights;
(3)Continuation of its work with the congressional, executive, and judicial branches of the government and other interested parties on appropriate responses to *United States* v. *Booker,* including any appropriate guideline changes, and a report on the effects of *Booker* on federal sentencing, including an analysis of sentencing data collected within the first year of that decision;
(4)Continuation of its policy work regarding immigration offenses, specifically, offenses under §§ 2L1.1 (Smuggling, Transporting, or Harboring an Unlawful Alien) and 2L1.2 (Unlawfully Entering or Remaining in the United States), and Chapter Two, Part L, Subpart 2 (Naturalization and Passports);
(5)Continuation of its work with the congressional, executive, and judicial branches of the government and other interested parties on cocaine sentencing policy, including the update of Commission research, in view of the Commission's 2002 report to Congress, *Cocaine and Federal Sentencing Policy;*
(6)Review, and possible amendment, of commentary in Chapter Eight (Organizations) regarding waiver of the attorney-client privilege and work product protections;
(7)Review, and possible amendment, of guideline provisions pertaining to firearms offenses, particularly the trafficking of firearms, and of departure provisions related to firearms offenses;
(8)Consideration of policy statements pertaining to motions under 18 U.S.C. 3582(c)(1)(A)(i) for sentence reductions for “extraordinary and compelling reasons”;
(9)Resolution of a number of circuit conflicts, pursuant to the Commission's continuing authority and responsibility, under 28 U.S.C. 991(b)(1)(B) and *Braxton* v. *United States,* 500 U.S. 344 (1991), to resolve conflicting interpretations of the guidelines by the federal courts; and
(10)Review, and possible amendment, of pertinent guideline provisions to address structural issues regarding the Sentencing Table in Chapter Five, Part A, particularly “cliff-like” effects occurring between levels 42 and 43, and a possible adjustment to the offense level computation in cases in which the offense level exceeds level 43, and to address other miscellaneous and limited issues pertaining to the application of the sentencing guidelines. Authority: 28 U.S.C. 994(a), (o); USSC Rules of Practice and Procedure 5.2. Ricardo H. Hinojosa, Chair. [FR Doc. 05-17186 Filed 8-29-05; 8:45 am]
Connectionstraces to 11
Traces to 11 documents
U.S. Code
- Registration, responsibilities, and oversight of self-regulatory organizations§ 78s
- National securities exchanges§ 78f
- Public information; agency rules, opinions, orders, records, and proceedings§ 552
- Definitions and application§ 78c
- Registered securities associations§ 78o–3
- Duties of the Commission§ 994
- Penalties§ 333
- Imposition of a sentence of imprisonment§ 3582
- United States Sentencing Commission; establishment and purposes§ 991
7 references not yet in our index
- 17 CFR 240.19
- Pub. L. 109-9
- Pub. L. 108-482
- Pub. L. 108-358
- Pub. L. 108-458
- Pub. L. 108-405
- 500 U.S. 344
Citation graph
cites case law
Notices
Notice of final priorities
SCOTUS500 U.S. 344
Cite17 CFR 240.19
Pub. L.Pub. L. 109-9
Cites 18 · showing 12Cited by 0 across 0 sources