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Code · REGISTER · 2005-10-14 · SECURITIES AND EXCHANGE COMMISSION · Notices

Notices. SECURITIES AND EXCHANGE COMMISSION

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BILLING CODE 7708-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52573; File No. SR-NSX-2005-07] Self-Regulatory Organizations; National Stock Exchange; Notice of Filing of Proposed Rule Change, and Amendment Nos. 1, 2, and 3, Thereto, Relating to the Creation of a Regulatory Oversight Committee October 7, 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 1, 2005, the National Stock Exchange SM (“NSX” SM 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 NSX.
On August 17, 2005, the Exchange filed Amendment No. 1 to the proposed rule change. On August 18, 2005, the Exchange filed Amendment No. 2 to the proposed rule change. On October 6, 2005, the Exchange filed Amendment No. 3 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change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 3 replaced and superseded the original filing, as amended by Amendments Nos. 1 and 2, in its entirety.
I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange is proposing to amend the text of Article VI, Section 1.1 of the Exchange's By-Laws to allow it to create, and specifically identify, a Regulatory Oversight Committee (“ROC”) in accordance with the agreed upon undertakings contained in Section F.1. of the Order Instituting Administrative and Cease-And-Desist Proceedings Pursuant to Sections 19(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Sanctions (“Order”) entered May 19, 2005. 4 The text of the proposed rule change, including the proposed charter for the ROC, is below. 5 Proposed new language is in *italics.* 4 *See In the Matter of National Stock Exchange and David Colker,* Securities Exchange Act Release No. 51715 (May 19, 2005). 5 After consultation with staff, the Exchange is filing the Charter for the Regulatory Oversight Committee (the “ROC Charter”) as part of this Rule Change.
Accordingly, the Exchange represents that any changes (amendments or deletions) to the ROC Charter will be filed for approval as part of a filing pursuant to Rule 19b-4 (17 CFR 240.19b-4). Code of Regulations (By-Laws) of National Stock Exchange Article VI Committees Section 1. Establishment of Committees 1.1. Committees There shall be a *Regulatory Oversight Committee* , a Membership Committee, a Business Conduct Committee, a Securities Committee, an Appeals Committee, a Nominating Committee, and such other committees as may be established from time to time by the Board.
Committees shall have such authority as is vested in them by the By-Laws or Rules or as is delegated to them by the Board. All Committees are subject to the control and supervision of the Board. NSX REGULATORY OVERSIGHT COMMITTEE CHARTER *The Regulatory Oversight Committee (the “ROC”) shall be responsible to oversee all of the National Stock Exchange's (“NSX” or the “Exchange”) regulatory functions and responsibilities and to advise regularly the NSX's Board of Directors about NSX's regulatory matters.* *A.
The responsibilities of the ROC shall be to:*
(i)oversee the NSX's regulatory functions to enforce compliance with the federal securities laws and NSX rules, including monitoring the design, implementation, and effectiveness of NSX's regulatory programs;
(ii)recommend the NSX Board an adequate operating budget for NSX's regulatory functions;
(iii)approve the promulgation, filing, or issuance of new rules, rule amendments, rule interpretations, and regulatory circulars;
(iv)take any other action necessary to fulfill its oversight and advisory responsibilities; and
(v)adopt policies and procedures to ensure the independence of the Chief Regulatory Officer (the “CRO”). For the purpose of strengthening the ROC oversight procedures, the CRO shall certify compliance with the required items of the SEC Order to the ROC on a form and frequency basis set by the ROC. The CRO shall have the authority to require such additional compliance certification from the staff as he deems appropriate and in such forms as he may prescribe. *B. The ROC shall be authorized to retain, at NSX's expense, outside counsel and consultants as it deems appropriate to carry out its responsibilities.* *C. Meetings of the ROC shall be called by the Chairman of the ROC or at the request of a majority of the members of the ROC or the CRO. On at least an annual basis, the ROC shall report to the NSX Board on the state of the Exchange's regulatory program.* *D. The ROC shall create and maintain complete minutes of all of its meetings, and shall also create and maintain records reflecting the ROC's recommendations or proposals made to NSX Board, and NSX Board's decision as to each such recommendation proposal.* *E. In the event that the ROC's recommended operating budget for NSX's regulatory functions either:
(1)is less than the previous year's budget by a material amount,
(2)is rejected by the NSX Board,
(3)is reduced by the NSX Board by a material amount, or
(4)is altered by the NSX Board in a manner that, in the judgment of the ROC, materially impairs the ability of NSX to meet its regulatory obligations, then NSX shall, within fifteen
(15)business days of such NSX Board action, notify the Director of the Commission's Division of Market Regulation in writing, providing copies of all minutes and other records reflecting the ROC's budget proposal and the NSX Board's decision regarding such proposal.* Composition *The Committee members shall be comprised of no less than three members, who have been appointed by the Chairman with the approval of the Board in a composition consistent with federal securities laws and the Exchange By-Laws and Rules. At a minimum, the ROC members shall not be, nor have been during the preceding three years, employees of NSX or any NSX member firm. The ROC shall elect a Chairperson from among its members.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposal and discussed any comments it received on the proposed rule change, as amended. 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 In accordance with the agreed upon undertakings provided in Section F.1. of the Order, the NSX is proposing to create a ROC through the submission of this rule change. In that regard, the NSX is seeking approval of an amendment to the Exchange By-Laws to specifically identify the ROC as an Exchange committee. The composition, scope of responsibilities, and functions of the ROC will be described in the ROC Charter, which would include provisions that mirror the terms of the undertaking 6 along with certification procedures similar to those prescribed by Sarbanes-Oxley and which are also consistent with the certification procedures contained in the Order. 6 Section F.1. of the Order provides that NSX will undertake to create a ROC and further that: “a. Within ninety
(90)days of the issuance of the Order, NSX shall file proposed rule changes with the [Securities and Exchange] Commission in accordance with Section 19(b) of the Exchange Act and Rule 19b-4 to create a ROC to oversee all of NSX's regulatory functions and responsibilities and to advise regularly the * * * NSX Board * * * about NSX's regulatory matters. The ROC members shall not be, nor have been in the preceding three years, employees of NSX or any NSX member firm. The NSX Board shall appoint the members of the ROC. The ROC shall elect a Chairperson from among its members. b. The responsibilities of the ROC shall include, but not be limited to:
(i)oversight of NSX's regulatory functions to enforce compliance with the federal securities laws and NSX rules, including monitoring the design, implementation, and effectiveness of NSX's regulatory programs;
(ii)recommending to the NSX Board an adequate operating budget for NSX's regulatory functions;
(iii)approving the promulgation, filing, or issuance of new rules, rule amendments, rule interpretations, and regulatory circulars;
(iv)taking any other action necessary to fulfill its oversight and advisory responsibilities; and
(v)adopting policies and procedures to ensure the independence of the Chief Regulatory Officer described in Section F.2.a [of the Order]. c. The ROC shall be authorized to retain, at NSX's expense, outside counsel and consultants as it deems appropriate to carry out its responsibilities. d. The ROC shall create and maintain complete minutes of all of its meetings, and shall also create and maintain records reflecting the ROC's recommendations or proposals made to the NSX Board, and the NSX Board's decision as to each such recommendation or proposal. e. In the event the ROC's recommended operating budget for NSX's regulatory functions, as described in Section F.1.b. above, either:
(i)is less than the previous year's budget by a material amount,
(ii)is rejected by the NSX Board;
(iii)is reduced by the NSX Board by a material amount; or
(iv)is altered by the NSX Board in a manner that, in the judgment of the ROC, materially impairs the ability of NSX to meet its regulatory obligations, then NSX shall, within fifteen
(15)business days of such NSX Board action, notify the Director of the Commission's Division of Market Regulation (“Market Regulation”) in writing, providing copies of all such minutes and other records reflecting the ROC's budget proposal and the NSX Board's decision regarding such proposal. f. Subject to Commission approval of NSX's proposed rule changes, NSX shall fully implement this undertaking within one-hundred-eighty
(180)days of the issuance of this Order.” *See* Order, *supra* note 4. The ROC members shall be comprised of no less than three members, who have been appointed by the NSX Chairman with the approval of the Board in a composition consistent with federal securities laws and the Exchange By-Laws and Rules. At a minimum, the ROC members shall not be, nor have been during the preceding three years, employees of the NSX or any NSX member firm. The ROC shall elect a Chairperson from among its members. With respect to scope of responsibilities, the ROC is a committee of the NSX Board that is responsible for oversight of all NSX regulatory functions. The ROC is also responsible for keeping the NSX Board informed, on a regular basis, concerning the Exchange's regulatory functions, for providing advice to the Board concerning those functions, and for making recommendations to the Board for NSX action with respect to regulatory matters. The scope of responsibilities, as detailed in the Commission's Order, is contained in the ROC Charter. As detailed in the ROC Charter, the ROC's functions include responsibility for the oversight of all of NSX's regulatory functions in order to promote and enforce compliance with the federal securities laws and the NSX rules, including reviewing with the Exchange's Chief Regulatory Officer (the “CRO”) and other appropriate regulatory personnel various aspects of the design, implementation, and effectiveness of NSX's regulatory programs. The ROC will also review, revise and/or approve the CRO's recommendation for a regulatory budget to formulate the ROC's recommendation of an adequate operating budget and staffing level for NSX's regulatory function to the Board. In addition, the ROC will review, evaluate, and, if appropriate, recommend to the Board the implementation of any and all actions recommended by the CRO and the Regulatory Services Division (the “Division”) to fulfill the Division's and the ROC's oversight and advisory responsibilities. The ROC also has the responsibility to assess the performance of the CRO and review the CRO's assessment of the Division's staff in fulfilling their responsibilities and recommend compensation and personnel actions to the Board. The ROC will also review, amend, approve or reject the CRO's recommendations respecting the promulgation, filing, or issuance of new rules, rule amendments, rule interpretations, and regulatory circulars, including the approval (or ratification) of all regulatory circulars issued by the NSX within thirty five days of the issuance of such regulatory circulars. On at least an annual basis, the ROC will review the structural protections to separate the Exchange's regulatory function from the commercial interest of the Exchange by reviewing the supervisory responsibilities of the Chief Executive Officer and the CRO. Further, the ROC will take all steps necessary to provide reasonable assurance that NSX is and remains in compliance with the Order 7 and will take any other action necessary to fulfill its oversight and advisory responsibilities. 7 This includes, but is not limited to, the review, assessment and approval of
(i)the CRO's certification of certain matters to the Commission,
(ii)the CRO's cooperation and interaction with the Regulatory Consultants and the Regulatory Auditors,
(iii)the Regulatory Division's implementation of the Regulatory Consultant's recommendations,
(iv)the Regulatory Division's answers to any deficiencies noted in the Regulatory Auditors' reports, and
(v)the Regulatory Division's adoption of certain procedures and programs outlined in the Order. As also detailed in the ROC Charter, meetings of the ROC shall be called by the Chairman of the ROC or at the request of a majority of the members of the ROC or the CRO. On at least an annual basis, the ROC shall report to the NSX Board on the state of the Exchange's regulatory program. The ROC will also create and maintain complete minutes of all of its meetings, and shall also create and maintain records reflecting the ROC's recommendations or proposals made to the NSX Board, and the NSX Board's decision as to each such recommendation or proposal. As also provided in the ROC Charter, in the event that the ROC's recommended operating budget for NSX's regulatory functions either:
(1)Is less than the previous year's budget by a material amount,
(2)is rejected by the NSX Board,
(3)is reduced by the NSX Board by a material amount, or
(4)is altered by the NSX Board in a manner that, in the judgment of the ROC, materially impairs the ability of NSX to meet its regulatory obligations, then NSX shall, within fifteen
(15)business days of such NSX Board action, notify the Director of the Commission's Division of Market Regulation in writing, providing copies of all minutes and other records reflecting the ROC's budget proposal and the NSX Board's decision regarding such proposal. 2. Statutory Basis The Exchange believes the proposed rule change, as amended, is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the “Act”) 8 in general, and furthers the objectives of Section 6(b)(5) 9 in particular, in that it is designed to promote just and equitable principles of trade and to remove impediments to and perfect the mechanism of a free and open market and a national market system and, generally, in that it protects investors and the public interest. The proposed rule change, as amended, also furthers the objectives of Section 6(b)(1), 10 in that it helps to assure that the Exchange is so organized and has the capacity to be able to carry out the purposes of the Act and to comply, and to enforce compliance by its members, with the Act. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). 10 15 U.S.C. 78f(b)(1). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any inappropriate burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the Exchange consents, the Commission will:
(a)by order approve 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-NSX-2005-07 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-NSX-2005-07. 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 NSX. 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-NSX-2005-07 and should be submitted on or before November 4, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-5644 Filed 10-13-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52573; File No. SR-NSX-2005-07] Self-Regulatory Organizations; National Stock Exchange; Notice of Filing of Proposed Rule Change, and Amendment Nos. 1, 2, and 3, Thereto, Relating to the Creation of a Regulatory Oversight Committee October 7, 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 1, 2005, the National Stock Exchange SM (“NSX” SM 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 NSX. On August 17, 2005, the Exchange filed Amendment No. 1 to the proposed rule change. On August 18, 2005, the Exchange filed Amendment No. 2 to the proposed rule change. On October 6, 2005, the Exchange filed Amendment No. 3 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 Amendment No. 3 replaced and superseded the original filing, as amended by Amendments Nos. 1 and 2, in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange is proposing to amend the text of Article VI, Section 1.1 of the Exchange's By-Laws to allow it to create, and specifically identify, a Regulatory Oversight Committee (“ROC”) in accordance with the agreed upon undertakings contained in Section F.1. of the Order Instituting Administrative and Cease-And-Desist Proceedings Pursuant to Sections 19(b) and 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing Sanctions (“Order”) entered May 19, 2005. 4 The text of the proposed rule change, including the proposed charter for the ROC, is below. 5 Proposed new language is in *italics* . 4 *See In the Matter of National Stock Exchange and David Colker* , Securities Exchange Act Release No. 51715 (May 19, 2005). 5 After consultation with staff, the Exchange is filing the Charter for the Regulatory Oversight Committee (the “ROC Charter”) as part of this Rule Change. Accordingly, the Exchange represents that any changes (amendments or deletions) to the ROC Charter will be filed for approval as part of a filing pursuant to Rule 19b-4 (17 CFR 240.19b-4). Code of Regulations (By-Laws) of National Stock Exchange Article VI Committees Section 1. Establishment of Committees 1.1. Committees There shall be a *Regulatory Oversight Committee* , a Membership Committee, a Business Conduct Committee, a Securities Committee, an Appeals Committee, a Nominating Committee, and such other committees as may be established from time to time by the Board. Committees shall have such authority as is vested in them by the By-Laws or Rules or as is delegated to them by the Board. All Committees are subject to the control and supervision of the Board. NSX REGULATORY OVERSIGHT COMMITTEE CHARTER *The Regulatory Oversight Committee (the “ROC”) shall be responsible to oversee all of the National Stock Exchange's (“NSX” or the “Exchange”) regulatory functions and responsibilities and to advise regularly the NSX's Board of Directors about NSX's regulatory matters.* *A. The responsibilities of the ROC shall be to:
(i)oversee the NSX's regulatory functions to enforce compliance with the federal securities laws and NSX rules, including monitoring the design, implementation, and effectiveness of NSX's regulatory programs;
(ii)recommend the NSX Board an adequate operating budget for NSX's regulatory functions;
(iii)approve the promulgation, filing, or issuance of new rules, rule amendments, rule interpretations, and regulatory circulars;
(iv)take any other action necessary to fulfill its oversight and advisory responsibilities; and
(v)adopt policies and procedures to ensure the independence of the Chief Regulatory Officer (the “CRO”). For the purpose of strengthening the ROC oversight procedures, the CRO shall certify compliance with the required items of the SEC Order to the ROC on a form and frequency basis set by the ROC.* *The CRO shall have the authority to require such additional compliance certification from the staff as he deems appropriate and in such forms as he may prescribe.* *B. The ROC shall be authorized to retain, at NSX's expense, outside counsel and consultants as it deems appropriate to carry out its responsibilities.* *C. Meetings of the ROC shall be called by the Chairman of the ROC or at the request of a majority of the members of the ROC or the CRO. On at least an annual basis, the ROC shall report to the NSX Board on the state of the Exchange's regulatory program.* *D. The ROC shall create and maintain complete minutes of all of its meetings, and shall also create and maintain records reflecting the ROC's recommendations or proposals made to NSX Board, and NSX Board's decision as to each such recommendation proposal.* *E. In the event that the ROC's recommended operating budget for NSX's regulatory functions either:
(1)Is less than the previous year's budget by a material amount,
(2)is rejected by the NSX Board,
(3)is reduced by the NSX Board by a material amount, or
(4)is altered by the NSX Board in a manner that, in the judgment of the ROC, materially impairs the ability of NSX to meet its regulatory obligations, then NSX shall, within fifteen
(15)business days of such NSX Board action, notify the Director of the Commission's Division of Market Regulation in writing, providing copies of all minutes and other records reflecting the ROC's budget proposal and the NSX Board's decision regarding such proposal.* Composition *The Committee members shall be comprised of no less than three members, who have been appointed by the Chairman with the approval of the Board in a composition consistent with federal securities laws and the Exchange By-Laws and Rules. At a minimum, the ROC members shall not be, nor have been during the preceding three years, employees of NSX or any NSX member firm. The ROC shall elect a Chairperson from among its members.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposal and discussed any comments it received on the proposed rule change, as amended. 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 In accordance with the agreed upon undertakings provided in Section F.1. of the Order, the NSX is proposing to create a ROC through the submission of this rule change. In that regard, the NSX is seeking approval of an amendment to the Exchange By-Laws to specifically identify the ROC as an Exchange committee. The composition, scope of responsibilities, and functions of the ROC will be described in the ROC Charter, which would include provisions that mirror the terms of the undertaking 6 along with certifications procedures similar to those prescribed by Sarbanes-Oxley and which are also consistent with the certification procedures contained in the Order. 6 Section F.1. of the Order provides that NSX will undertake to create a ROC and further that: “a. Within ninety
(90)days of the issuance of the Order, NSX shall file proposed rule changes with the [Securities and Exchange] Commission in accordance with Section 19(b) of the Exchange Act and Rule 19b-4 to create a ROC to oversee all of NSX's regulatory functions and responsibilities and to advise regularly the * * * NSX Board * * * about NSX's regulatory matters. The ROC members shall not be, nor have been in the preceding three years, employees of NSX or any NSX member firm. The NSX Board shall appoint the members of the ROC. The ROC shall elect a Chairperson from among its members. b. The responsibilities of the ROC shall include, but not be limited to:
(i)oversight of NSX's regulatory functions to enforce compliance with the federal securities laws and NSX rules, including monitoring the design, implementation, and effectiveness of NSX's regulatory programs;
(ii)recommending to the NSX Board an adequate operating budget for NSX's regulatory functions;
(iii)approving the promulgation, filing, or issuance of new rules, rule amendments, rule interpretations, and regulatory circulars;
(iv)taking any other action necessary to fulfill its oversight and advisory responsibilities; and
(v)adopting policies and procedures to ensure the independence of the Chief Regulatory Officer described in Section F.2.a [of the Order]. c. The ROC shall be authorized to retain, at NSX's expense, outside counsel and consultants as it deems appropriate to carry out its responsibilities. d. The ROC shall create and maintain complete minutes of all of its meetings, and shall also create and maintain records reflecting the ROC's recommendations or proposals made to the NSX Board, and the NSX Board's decision as to each such recommendation or proposal. e. In the event the ROC's recommended operating budget for NSX's regulatory functions, as described in Section F.1.b. above, either:
(i)is less than the previous year's budget by a material amount,
(ii)is rejected by the NSX Board;
(iii)is reduced by the NSX Board by a material amount; or
(iv)is altered by the NSX Board in a manner that, in the judgment of the ROC, materially impairs the ability of NSX to meet its regulatory obligations, then NSX shall, within fifteen
(15)business days of such NSX Board action, notify the Director of the Commission's Division of Market Regulation (“Market Regulation”) in writing, providing copies of all such minutes and other records reflecting the ROC's budget proposal and the NSX Board's decision regarding such proposal. f. Subject to Commission approval of NSX's proposed rule changes, NSX shall fully implement this undertaking within one-hundred-eighty
(180)days of the issuance of this Order.” *See* Order, *supra* note 4. The ROC members shall be comprised of no less than three members, who have been appointed by the NSX Chairman with the approval of the Board in a composition consistent with federal securities laws and the Exchange By-Laws and Rules. At a minimum, the ROC members shall not be, nor have been during the preceding three years, employees of the NSX or any NSX member firm. The ROC shall elect a Chairperson from among its members. With respect to scope of responsibilities, the ROC is a committee of the NSX Board that is responsible for oversight of all NSX regulatory functions. The ROC is also responsible for keeping the NSX Board informed, on a regular basis, concerning the Exchange's regulatory functions, for providing advice to the Board concerning those functions, and for making recommendations to the Board for NSX action with respect to regulatory matters. The scope of responsibilities, as detailed in the Commission's Order, is contained in the ROC Charter. As detailed in the ROC Charter, the ROC's functions include responsibility for the oversight of all of NSX's regulatory functions in order to promote and enforce compliance with the federal securities laws and the NSX rules, including reviewing with the Exchange's Chief Regulatory Officer (the “CRO”) and other appropriate regulatory personnel various aspects of the design, implementation, and effectiveness of NSX's regulatory programs. The ROC will also review, revise and/or approve the CRO's recommendation for a regulatory budget to formulate the ROC's recommendation of an adequate operating budget and staffing level for NSX's regulatory function to the Board. In addition, the ROC will review, evaluate, and, if appropriate, recommend to the Board the implementation of any and all actions recommended by the CRO and the Regulatory Services Division (the “Division”) to fulfill the Division's and the ROC's oversight and advisory responsibilities. The ROC also has the responsibility to assess the performance of the CRO and review the CRO's assessment of the Division's staff in fulfilling their responsibilities and recommend compensation and personnel actions to the Board. The ROC will also review, amend, approve or reject the CRO's recommendations respecting the promulgation, filing, or issuance of new rules, rule amendments, rule interpretations, and regulatory circulars, including the approval (or ratification) of all regulatory circulars issued by the NSX within thirty five days of the issuance of such regulatory circulars. On at least an annual basis, the ROC will review the structural protections to separate the Exchange's regulatory function from the commercial interest of the Exchange by reviewing the supervisory responsibilities of the Chief Executive Officer and the CRO. Further, the ROC will take all steps necessary to provide reasonable assurance that NSX is and remains in compliance with the Order 7 and will take any other action necessary to fulfill its oversight and advisory responsibilities. 7 This includes, but is not limited to, the review, assessment and approval of
(i)the CRO's certification of certain matters to the Commission,
(ii)the CRO's cooperation and interaction with the Regulatory Consultants and the Regulatory Auditors,
(iii)the Regulatory Division's implementation of the Regulatory Consultant's recommendations,
(iv)the Regulatory Division's answers to any deficiencies noted in the Regulatory Auditors' reports, and
(v)the Regulatory Division's adoption of certain procedures and programs outlined in the Order. As also detailed in the ROC Charter, meetings of the ROC shall be called by the Chairman of the ROC or at the request of a majority of the members of the ROC or the CRO. On at least an annual basis, the ROC shall report to the NSX Board on the state of the Exchange's regulatory program. The ROC will also create and maintain complete minutes of all of its meetings, and shall also create and maintain records reflecting the ROC's recommendations or proposals made to the NSX Board, and the NSX Board's decision as to each such recommendation or proposal. As also provided in the ROC Charter, in the event that the ROC's recommended operating budget for NSX's regulatory functions either:
(1)Is less than the previous year's budget by a material amount,
(2)is rejected by the NSX Board,
(3)is reduced by the NSX Board by a material amount, or
(4)is altered by the NSX Board in a manner that, in the judgment of the ROC, materially impairs the ability of NSX to meet its regulatory obligations, then NSX shall, within fifteen
(15)business days of such NSX Board action, notify the Director of the Commission's Division of Market Regulation in writing, providing copies of all minutes and other records reflecting the ROC's budget proposal and the NSX Board's decision regarding such proposal. 2. Statutory Basis The Exchange believes the proposed rule change, as amended, is consistent with Section 6(b) of the Securities Exchange Act of 1934 (the “Act”) 8 in general, and furthers the objectives of Section 6(b)(5) 9 in particular, in that it is designed to promote just and equitable principles of trade and to remove impediments to and perfect the mechanism of a free and open market and a national market system and, generally, in that it protects investors and the public interest. The proposed rule change, as amended, also furthers the objectives of Section 6(b)(1), 10 in that it helps to assure that the Exchange is so organized and has the capacity to be able to carry out the purposes of the Act and to comply, and to enforce compliance by its members, with the Act. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). 10 15 U.S.C. 78f(b)(1). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any inappropriate burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the Exchange consents, the Commission will:
(a)by order approve 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-NSX-2005-07 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-NSX-2005-07. 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 NSX. 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-NSX-2005-07 and should be submitted on or before November 4, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 J. Lynn Taylor, Assistant Secretary. 11 17 CFR 200.30-3(a)(12). [FR Doc. E5-5643 Filed 10-13-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52569; File No. SR-NYSE-2005-61] Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 2 Thereto Relating to an Interpretation of Exchange Rule 452 October 6, 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 September 2, 2005, the New York Stock Exchange, Inc. (“Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in items I, II, and III below, which items have been prepared by the Exchange. The Exchange filed Amendment Nos. 1 3 and 2 4 to the proposed rule change on September 20, 2005 and September 28, 2005, respectively. 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 was intended to replace and supersede the filing in its entirety. However, the Exchange withdrew Amendment No. 1 on September 28, 2005 since the Exchange inadvertently submitted Amendment No. 1 incorrectly under to Rule 19b-4(f)(6), rather than Rule 19b-4(f)(1). 4 In Amendment No. 2, the Exchange made non-substantive clarifying changes to reference Sections 402.06 and 402.08 of the Exchange's Listed Company Manual, in the Purpose section of its filing. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend an Exchange interpretation of Exchange Rule 452 (Giving Proxies by Member Organizations). 5 5 The Commission notes that the proposed rule change, as amended, does not amend the text of Exchange Rule 452 or its Supplementary Material. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Exchange Rule 452 (which is referenced in Sections 402.06 and 402.08 of the Listed Company Manual) provides that a member organization may give a proxy to vote shares registered in its name, notwithstanding the failure of the beneficial owner to instruct the firm how to vote, provided, among other things, that the proposal being voted on does not involve a matter which “may affect substantially the rights or privileges of such stock.” By way of example, Supplementary Material .11 to Rule 452 (which is also referenced in Section 402.08 of the Listed Company Manual) lists 18 actions in respect of which member organizations may not vote uninstructed shares. In addition to those 18 specific actions, the Exchange has interpreted Rule 452 to preclude member organizations from voting without instructions in certain other situations, including any material amendment to the investment advisory contract with an investment company. 6 6 *See* Securities Exchange Act Release No. 30697 (May 13, 1992), 57 FR 21434 (May 20, 1992) (SR-NYSE-92-05). For many years, the Exchange interpreted this provision to permit member organizations to vote uninstructed shares on the authorization of new investment company investment advisory contracts, where the change in identity of the investment adviser was the only change being made to the substantive terms of the contract. The Exchange, following discussions with staff from the Commission's Division of Investment Management, has determined that any proposal to obtain shareholder approval of an investment company's investment advisory contract with a new investment adviser, which approval is required by the Investment Company Act of 1940, as amended (“1940 Act”), 7 and the rules thereunder, will be deemed to be a “matter which may affect substantially the rights or privileges of such stock” for purposes of Exchange Rule 452 so that a member organization may not give a proxy to vote shares registered in its name absent instruction from the beneficial holder of the shares. As a result, for example, a member organization may not give a proxy to vote shares registered in its name, absent instruction from the beneficial holder of the shares, on any proposal to obtain shareholder approval required by the 1940 Act of an investment advisory contract between an investment company and a new investment adviser due to an assignment of the investment company's investment advisory contract, including an assignment caused by a change in control of the investment adviser that is party to the assigned contract. 7 15 U.S.C. 80a *et seq.* 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements under Section 6(b)(5) of the Act 8 that an exchange have rules that are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. 8 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has neither solicited nor received written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 9 and paragraph (f)(1) of Rule 19b-4 thereunder 10 as constituting a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing Exchange rule. 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. 11 9 15 U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b-4(f)(1). 11 The effective date of the original proposed rule change is September 2, 2005 and the effective date of Amendment No. 2 is September 28, 2005. For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change, as amended, under Section 19(b)(3)(C) of the Act, the Commission considers the period to commence on September 28, 2005, the date on which the Exchange submitted Amendment No. 2. *See* 15 U.S.C. 78s(b)(3)(C). IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-NYSE-2005-61 on the subject line. Paper Comments • Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-9303. All submissions should refer to File Number SR-NYSE-2005-61. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. 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-NYSE-2005-61 and should be submitted on or before November 4, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 12 12 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-5646 Filed 10-13-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52579; File No. SR-NYSE-2004-73] Self-Regulatory Organizations; New York Stock Exchange, Inc., Order Approving Proposed Rule Change and Amendment Nos. 1 and 2 Thereto To Amend NYSE Rule 440A Relating to Telephone Solicitation October 7, 2005. On December 30, 2004, the New York Stock Exchange, Inc. (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”), pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (“Exchange Act”), 2 and Rule 19b-4 thereunder, 3 a proposed amendment to NYSE Rule 440A relating to telephone solicitation. On July 1, 2005, the NYSE filed Amendment No. 1 to the proposed rule change. 4 On August 11, 2005, the NYSE filed Amendment No. 2 to the proposed rule change. 5 The proposed rule change, as amended, was published for comment in the **Federal Register** on August 25, 2005. 6 The Commission received no comments on the proposal. This order approves the proposed rule change, as amended. 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a *et seq.* 3 17 CFR 240.19b-4. 4 In Amendment No. 1, the NYSE proposed to partially amend the text of proposed amended Rule 440A and made conforming and technical changes to the original filing. 5 In Amendment No. 2, the NYSE proposed additional changes to the text of proposed amended Rule 440A and made additional changes to the original filing. 6 *See* Securities Exchange Act Release No. 52308 (August 19, 2005), 70 FR 49961 (August 25, 2005). NYSE Rule 440A currently provides that no member, allied member or employee of a member or member organization shall make an outbound telephone call to the residence of any person for the purpose of soliciting the purchase of securities or related services at any time other than between 8 a.m. and 9 p.m. local time at the called person's location without the prior consent of the person; or make an outbound telephone call to any person for the purpose of soliciting the purchase of securities or related services without disclosing promptly and in a clear and conspicuous manner to the called person the following information:
(1)The identity of the caller and the member or member organization;
(2)the telephone number or address at which the caller may be contacted; and
(3)that the purpose of the call is to solicit the purchase of securities or related services. The proposed amendment to NYSE Rule 440A would incorporate regulations issued by the Federal Communications Commission (“FCC”) and the Federal Trade Commission relating to the implementation of the national do-not-call registry and the amendments to the Telephone Consumer Protection Act of 1991 (“TCPA”). 7 The amendment would delete current Rule 440A and replace it with new language that incorporates the requirements of the FCC regulation, which is applicable to broker-dealers, but retain those sections of current Rule 440A that remain relevant. The proposed amended rule would generally prohibit NYSE members, allied members, and employees of members and member organizations from making telemarketing calls to people who have registered on the national do-not-call registry, while retaining time-of-day and firm-specific do-not-call restrictions similar to those contained in the current rule. 7 Rules and Regulations Implementing the TCPA, FCC 03-153, adopted June 26, 2003, 68 FR 44144 (July 25, 2003). The FCC rules address such diverse topics as abandoned calls and calls made on behalf of tax exempt non-profit organizations. The NYSE's proposed amendment does not contain these provisions as such matters generally fall outside the purview of the investor protection concerns underlying the proposed rule change. Nevertheless, members and member organizations are subject to the FCC national do-not-call rules and must therefore, comply with those provisions or risk action by the FCC. The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange. 8 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Exchange Act, 9 of the Exchange Act. Section 6(b)(5) requires, among other things, that the rules of an exchange 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 national market system, and in general, to protect investors and the public interest. The Commission believes that the proposed rule change, as amended, is designed to accomplish these ends by requiring NYSE members, allied members, and employees of members and member organizations to observe time-of-day restrictions on telephone solicitations, maintain firm-specific do-not-call lists, and refrain from initiating telephone solicitations to investors and other members of the public who have registered their telephone numbers on the national do-not-call registry. The Commission also believes that the proposed rule change, as amended, establishes adequate procedures to prevent NYSE members, allied members, and employees of members and member organizations from making telephone solicitations to do-not-call registrants, which should have the effect of protecting investors by enabling persons who do not want to receive telephone solicitations from members or member organizations to receive the protections of the national do-not-call registry, while providing appropriate exceptions to the rule's restrictions, which should promote just and equitable principles of trade. 8 In approving this proposed rule change, the Commission has considered whether the proposed rule change will promote efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 9 15 U.S.C. 78f(b)(5). *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 10 that the proposed rule change (SR-NYSE-2004-73), as amended, be and is hereby approved. 10 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Jill M. Peterson, Assistant Secretary. [FR Doc. E5-5652 Filed 10-13-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52568; File No. SR-Phlx-2005-58] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change and Amendment No. 1 Thereto Relating to Its October 2005 Equity Options Payment for Order Flow Program October 6, 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 September 29, 2005, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On October 3, 2005, the Phlx submitted Amendment No. 1 to the proposed rule change. 3 The Phlx has designated this proposal as one changing a fee imposed by the Phlx under Section 19(b)(3)(A)(ii) of the Act 4 and Rule 19b-4(f)(2) thereunder, 5 which renders the proposal, as amended, effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, the Exchange revised the proposed text to correct typographical errors contained in the proposed Schedule of Fees and to reflect that options on the Nasdaq-100 Index Tracking Stock SM are now traded under the symbol “QQQQ.” 4 15 U.S.C. 78s(b)(3)(A)(ii). 5 17 CFR 240.19b-4(f)(2). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to amend its equity options payment for order flow program in a number of ways, as described in detail below. A. Equity Option Payment for Order Flow Program Prior to October 1, 2005 Pursuant to the Exchange's payment for order flow program in effect for transactions settling on or after July 1, 2005, 6 only orders that are delivered electronically, over AUTOM, are assessed a payment for order flow fee to a Registered Options Trader (“ROT”) or a Directed ROT, 7 but not a specialist, 8 if the specialist elects to opt into the payment for order flow program for that option. For those orders that are not delivered electronically, *i.e.* represented by a floor broker, a payment for order flow fee is not assessed on those equity option transactions. 9 6 The program that took effect on July 1, 2005 is a pilot program that is scheduled to expire on May 27, 2006, the same date the one-year pilot program in connection with Directed Orders is due to expire. *See* Securities Exchange Act Release Nos. 51759 (May 27, 2005), 70 FR 32860 (June 6, 2005) (SR-Phlx-2004-91) and 52114 (July 22, 2005), 70 FR 44138 (August 1, 2005) (SR-Phlx-2004-44). 7 Directed ROTs are either Streaming Quote Traders (“SQTs”) or Remote Streaming Quote Traders (“RSQTs”) that receive Directed Orders. An SQT is an Exchange ROT who has received permission from the Exchange to generate and submit option quotations electronically through an electronic interface with AUTOM via an Exchange approved proprietary electronic quoting device in eligible options to which such SQT is assigned. AUTOM is the Exchange's electronic order delivery, routing, execution and reporting system, which provides for the automatic entry and routing of equity option and index option orders to the Exchange trading floor. *See* Exchange Rules 1014(b)(ii) and 1080l. An RSQT is an Exchange ROT that is a member or member organization of the Exchange with no physical trading floor presence who has received permission from the Exchange to generate and submit option quotations electronically through AUTOM in eligible options to which such RSQT has been assigned. An RSQT may only submit such quotations electronically from off the floor of the Exchange. An RSQT may only trade in a market making capacity in classes of options in which he is assigned. *See* Exchange Rule 1014(b)(ii)(B). *See* Securities Exchange Act Release Nos. 51126 (February 2, 2005), 70 FR 6915 (February 9, 2005) (SR-Phlx-2004-90) and 51428 (March 24, 2005), 70 FR 16325 (March 30, 2005) (SR-Phlx-2005-12). The term “Directed Order” means any customer order to buy or sell, which has been directed to a particular specialist, RSQT, or SQT by an Order Flow Provider (defined below). The provisions of Exchange Rule 1080(l) are in effect for a one-year pilot period to expire on May 27, 2006. *See* Securities Exchange Act Release No. 51759 (May 27, 2005), 70 FR 32860 (June 6, 2005) (SR-Phlx-2004-91). 8 The Exchange uses the terms “specialist” and “specialist unit” interchangeably herein. 9 Electronically-delivered orders do not include orders delivered through the Floor Broker Management System pursuant to Exchange Rule 1063. If the specialist unit opts into the program, the Exchange charges a payment for order flow fee to ROTs of $0.60 on all equity options traded against a customer order on the Exchange that are delivered electronically over AUTOM, other than options on the Nasdaq-100 Index Tracking StockSM traded under the symbol QQQQ (“QQQQ”), 10 which are assessed a payment for order flow fee of $0.75. FXI Options are not assessed a payment for order flow fee. 10 The Nasdaq-100(r), Nasdaq-100 Index®, Nasdaq®, The Nasdaq Stock Market®, Nasdaq-100 Shares SM , Nasdaq-100 Trust SM , Nasdaq-100 Index Tracking Stock SM , and QQQ SM are trademarks or service marks of The Nasdaq Stock Market, Inc. (“Nasdaq”) and have been licensed for use for certain purposes by the Philadelphia Stock Exchange pursuant to a License Agreement with Nasdaq. The Nasdaq-100 Index® (the “Index”) is determined, composed, and calculated by Nasdaq without regard to the Licensee, the Nasdaq-100 Trust SM , or the beneficial owners of Nasdaq-100 Shares SM . Nasdaq has complete control and sole discretion in determining, comprising, or calculating the Index or in modifying in any way its method for determining, comprising, or calculating the Index in the future. The Exchange proposes to modify the symbol “QQQ” in its Fee Schedule to “QQQQ” to reflect that the options on the Nasdaq-100 Index Tracking Stock are currently traded under the symbol “QQQQ.” *See* Amendment No. 1. 1. Directed ROTs and ROTs For Directed Orders received over AUTOM, Directed ROTs may elect to be assessed or not to be assessed a payment for order flow fee for orders directed to them when the specialist has elected to participate in the payment for order flow program for that option. Directed ROTs may not request reimbursement for payment for order flow paid to Order Flow Providers. 11 11 The term “Order Flow Provider” means any member or member organization that submits, as agent, customer orders to the Exchange. *See* Exchange Rule 1080(l). Directed ROTs must notify the Exchange of the election to pay or not to pay the payment for order flow fee for Directed Orders in writing no later than five business days prior to the start of the month for which the payment for order flow fee is to be assessed. 12 12 Directed ROTs are required to notify the Exchange in writing to either elect to pay the payment for order flow fee or not to pay the fee when the specialist has elected to opt into the payment for order flow program for that option. The Directed ROT does not need to notify the Exchange in writing to either elect to pay the payment for order flow fee or not to pay the fee if the specialist for that option does not participate in the Exchange's payment for order flow program. Once an election to pay the payment for order flow fee or not to pay the payment for order flow fee in a particular month has been made, no notice to the Exchange is required in a subsequent month unless there is a change in participation status. However, the payment for order flow fee is assessed on any ROT (but not the Directed ROT for that transaction when the Directed ROT has opted out of the payment for order flow program) if the ROT participates in the allocation of any remaining contracts after the Directed ROT receives its trade allocation. The Exchange states that the payment for order flow fee applies, in effect, to equity option transactions between a ROT (and Directed ROT who has elected to be assessed a payment for order flow fee) and a customer. 13 13 Thus, the payment for order flow fee is not assessed on transactions between:
(1)a specialist and a ROT;
(2)a ROT and a ROT;
(3)a ROT and a firm; and
(4)a ROT and a broker-dealer. The ROT payment for order flow fee does not apply to index options or foreign currency options. For purposes of the payment for order flow program, a firm is defined as a proprietary account of a member firm, and not the account of an individual member and a broker-dealer orders are orders entered from other than the floor of the Exchange, for any account
(i)in which the holder of beneficial interest is a member or non-member broker-dealer or
(ii)in which the holder of beneficial interest is a person associated with or employed by a member or non-member broker-dealer. This includes orders for the account of an ROT entered from off-the-floor. 2. Specialists Specialists are not assessed a payment for order fee. 14 Consistent with current practice, the Exchange must be notified of the election to participate or not to participate in the payment for order flow program in writing no later than five business days prior to the start of the month for which reimbursement for monies expended on payment for order flow will be requested. 15 The Exchange states that the result of electing not to participate in the program is a waiver of the right to any reimbursement of payment for order flow funds for such month(s). If a specialist opts in its entirety into the program and does not request any payment for order flow reimbursement more than two times in a six-month period, it will be precluded from entering in its entirety in the payment for order flow program for the next three months. 14 For purposes of assessing payment for order flow fees, the Exchange does not differentiate between specialists and specialists who receive Directed Orders. 15 Specialists must notify the Exchange in writing to either elect to participate or not to participate in the program. Once an election to participate or not to participate in the Exchange's payment for order flow program in a particular month has been made, no notice to the Exchange is required in a subsequent month, as described above, unless there is a change in participation status. For example, if a specialist elected to participate in the program and provided the Exchange with the appropriate notice, that specialist would not be required to notify the Exchange in the subsequent month(s) if it intends to continue to participate in the program. However, if it elects not to participate (a change from its current status), it would need to notify the Exchange in accordance with the requirements stated above. Specialists may also elect to participate or not to participate in the payment for order flow program on an option-by-option basis if they notify the Exchange in writing no later than three business days prior to entering into or opting out of the payment for order flow program. Specialists may only opt into or out of the Exchange's payment for order flow program one time in any given month. Thus, if at any time during a month, a specialist opts into the payment for order flow program for a particular option, a payment for order flow fee is assessed for that portion of the month. For example, a payment for order flow fee is assessed, even beginning mid-month, if an option is allocated, or reallocated from a non-participating specialist unit, to a specialist unit that participates in the Exchange's payment for order flow program. Payment for order flow charges apply to ROTs (or Directed ROTs that have elected to be assessed the payment for order flow fee) as long as the specialist unit for that option elects to participate in the Exchange's payment for order flow program. The payment for order flow fee is billed and collected on a monthly basis. Because the specialists are not charged the payment for order flow fee, they may not request reimbursement for order flow funds in connection with any transactions to which they were a party. The Exchange states that specialists may request payment for order flow reimbursements on an option-by-option basis. The collected funds are to be used by each specialist as a reimbursement for monies expended to attract options orders to the Exchange by making payments to Order Flow Providers who provide order flow to the Exchange. Specialists receive their respective funds only after submitting an Exchange certification form identifying the amount of the requested funds. 16 16 The Exchange states that Specialists are given instructions as to when the certification forms are required to be submitted. While all determinations concerning the amount that will be paid for orders and which Order Flow Providers shall receive these payments are made by the specialists, the specialists will provide to the Exchange on an Exchange form certain information as required by the Exchange, which may include what firms they paid for order flow, the amount of the payment and the price paid per contract. The Exchange states that the amount a specialist may receive in reimbursement is limited. For a specialist who elects to participate in the Exchange's payment for order flow program for electronically delivered orders, the amount of reimbursement is limited to the percentage of ROT and Directed ROT monthly volume to total participating specialist, Directed ROT and ROT monthly volume in the equity option payment for order flow program. 3. Specialist Calculation Funds collected from the payment for order flow program are available to the specialist participating in the payment for order flow program. The amount of funds that are available are determined by a specific specialist calculation. 17 17 For example, if a specialist unit in the payment for order flow program has a payment for order flow arrangement with various Order Flow Providers to pay the Order Flow Providers $0.50 per contract for order flow routed to the Exchange, including for order flow sent to Directed ROTs, and those Order Flow Providers send 90,000 customer contracts to the Exchange in one month for one option, then the specialist would be required, pursuant to its agreement with the Order Flow Providers, to pay the Order Flow Providers $45,000 for that month. Assuming that the 90,000 represents 30,000 specialist contracts, 30,000 total ROT and Directed ROT contracts (comprised of 10,000 ROT contracts, 10,000 Directed ROT “A” contracts, 7,000 Directed ROT “B” contracts and 3,000 Directed ROT “C” contracts), and 30,000 contracts from firms, broker-dealers and other customers, the specialist may request reimbursement of up to 50% (30,000 ROT and Directed ROT contracts/60,000, which is comprised of 30,000 ROT and Directed ROT contracts + 30,000 specialist contracts) of the amount paid ($45,000 × 50% = $22,500). Because the ROTs and Directed ROTs will have paid a total of $18,000 (30,000 contracts × $.60 per contract) into the payment for order flow fund for that month, the specialist may collect up to $18,000 of its $22,500 reimbursement request. Assuming, however, that Directed ROT “B” elects not to be assessed a payment for order flow fee and has notified the Exchange pursuant to the requirements set forth above, then the specialist is obligated to pay for 83,000 contracts (or $41,500 (83,000 × $.50 per contract)). The ROTs and Directed ROTs “A” and “C” will have paid $13,800 (23,000 contracts × $.60 per contract) into the payment for order flow fund for that option for that month. Thus, the amount the specialist may collect is up to $13,800 of its $20,750 ($41,500 × 50%) reimbursement request. (For purposes of this example, the Directed ROTs have elected to be assessed the payment for order flow fee by notifying the Exchange in writing, consistent with the notification requirements previously discussed). If all Directed ROTs have notified the Exchange that they elect not to be assessed a payment for order flow fee in the above-referenced example, then the specialist is obligated to pay for 70,000 contracts (or $35,000 (70,000 × $.50 per contract)). The ROTs will have paid $6,000 (10,000 contracts × $.60 per contract) into the payment for order flow fund for that option for that month. Thus, the amount the specialist may collect is up to $6,000 of its $17,500 ($35,000 × 50%) reimbursement request. The Exchange states that any excess funds (funds remaining after reimbursement requests are processed) for a particular month that are not requested by the participating specialist are returned, by option, to the ROTs and Directed ROTs (who have opted to pay the payment for order flow fee) who have been charged payment for order flow fees. The excess funds are reflected as a credit on the monthly invoices and rebated on a pro rata basis by option to the ROTs and Directed ROTs who were billed payment for order flow charges for that same month. Participating specialists may not receive more than the payment for order flow amount billed and collected in a given month. In addition, a 500-contract cap per individual cleared side of a transaction is imposed. The Exchange also implements a quality of execution program. Further, the Exchange may audit a specialist's payments to Order Flow Providers to verify the use and accuracy of the payment for order flow funds remitted to the specialists based on their certification form. 18 18 *See* Exchange Rule 760. B. This Proposal: Equity Options Payment for Order Flow Program To Be in Effect for Transactions Settling on or After October 1, 2005 The proposal, as discussed below, would be in effect for trades settling on or after October 1, 2005 and would remain in effect as a pilot program that is scheduled to expire on May 27, 2006, the same date that the one-year pilot program relating to Directed Orders is due to expire. 19 19 *See* Securities Exchange Act Release No. 51759 (May 27, 2005), 70 FR 32860 (June 6, 2005) (SR-Phlx-2004-91). The payment for order flow rate would remain unchanged under the program to be in effect for transactions settling on or after October 1, 2005 (“October program”). Specifically, the following rates would continue to apply:
(1)Equity options other than QQQQ and FXI Options will be assessed $0.60 per contract;
(2)options on QQQQ will be assessed $0.75 per contract; and
(3)no payment for order flow fee will be assessed on FXI Options. Consistent with the current program, trades resulting from either Directed or non-Directed Orders that are delivered electronically over AUTOM and executed on the Exchange would be assessed a payment for order flow fee, while non-electronically-delivered orders ( *i.e.* , represented by a floor broker) would not be assessed a fee. 20 20 For purposes of this proposal, electronically-delivered orders do not include orders delivered through the Floor Broker Management System pursuant to Exchange Rule 1063. However, the following aspects of the October program would be new or different:
(1)Assessing the payment for order flow fee;
(2)allowing Directed ROTs to elect to participate or not to participate in the payment for order flow program;
(3)establishing separate pools of funds for each Directed ROT and each specialist unit that participates in the Exchange's payment for order flow program, with the funds no longer being pooled on an option-by-option basis;
(4)eliminating the reimbursement process whereby specialists requested funds to reimburse them for payments made to Order Flow Providers;
(5)allowing the Exchange to make payments directly to Order Flow Providers at the direction of the Directed ROT or specialist unit;
(6)carrying forward each month excess funds (funds not requested by specialist units or Directed ROTs to be paid to Order Flow Providers), up to a certain amount or, at the direction of the specialist unit or Directed ROT rebating the excess funds on a pro-rata basis; and
(7)establishing a payment for order flow advisory group, which would conduct periodic reviews to assist in determining the effectiveness of the Exchange's payment for order flow program. Assessment of the Payment for Order Flow Fee and Participation in the Payment for Order Flow Program Specialist and Directed ROTs who participate in the Exchange's payment for order flow program would be assessed a payment for order flow fee, in addition to ROTs. Therefore, the payment for order flow fee would be assessed, in effect, on equity option transactions between a customer and an ROT, a customer and a Directed ROT, or a customer and a specialist. The payment for order flow fees would be assessed when the specialist, or Directed ROT to whom the order is directed, participates in the Exchange's payment for order flow program. Specialist units would continue to be permitted to opt into or out of the Exchange's payment for order flow program. The Exchange also proposes to allow Directed ROTs to be permitted to opt into or out of the Exchange's payment for order flow program for orders directed to them. For both specialist units and Directed ROTs, the Exchange must be notified of the election to participate or not to participate in the payment for order flow program in writing no later than five business days prior to the date on which the payment for order flow fee will be assessed. 21 Specialist units and Directed ROTs may only opt into or out of the Exchange's payment for order flow program one time in any given month. The Exchange represents that the result of electing not to participate in the program would be a waiver of the right to direct the Exchange to make payments to Order Flow Providers. If a specialist unit or Directed ROT opts into the program and does not direct the Exchange to make any payment for order flow payments to Order Flow Providers more than two times in a six-month period, it would be precluded from entering into the payment for order flow program for the next three months. 21 Specialist units and Directed ROTs would be required to notify the Exchange in writing to either elect to participate or not to participate in the program. Once an election to participate or not to participate in the Exchange's payment for order flow program in a particular month has been made, no notice to the Exchange would be required in a subsequent month, as described above, unless there is a change in participation status. For example, if a specialist unit elected to participate in the program and provided the Exchange with the appropriate notice, that specialist unit would not be required to notify the Exchange in the subsequent month(s) if it intends to continue to participate in the program. However, if it elects not to participate (a change from its current status), it would need to notify the Exchange in accordance with the requirements stated above. Specialist units and Directed ROTs who currently participate in the Exchange's payment for order flow program in effect beginning July 1, 2005, would not need to notify the Exchange again regarding their participation status, unless there is a change from their current status. If at any time during a month, a specialist unit or Directed ROT opts into the payment for order flow program, a payment for order flow fee would be assessed for that portion of the month. For example, a payment for order flow fee would be assessed, even beginning mid-month, if an option is allocated, or reallocated from a non-participating specialist unit, to a specialist unit that participates in the Exchange's payment for order flow program or if a ROT is designated as a Directed ROT mid-month. The amount a specialist unit or Directed ROT may request that the Exchange pay to Order Flow Providers would be limited to the amount billed and collected for that month, 22 plus any excess funds that were carried over from previous months (funds collected but not requested by a specialist unit or Directed ROT). However, specialist units or Directed ROTs, would be able to request that any excess funds be rebated on a pro-rata basis to the applicable members ( *i.e.* , the applicable ROT, Directed ROT or specialist) 23 who paid into that pool of funds. If excess funds are rebated, they would be reflected as a credit on the invoices. 24 22 The Exchange intends to have the National Securities Clearing Corporation collect the payment for order flow fees, along with other Exchange fees, on behalf of the Exchange on a monthly basis. 23 *See* Amendment No. 1, note 3, *supra* . 24 If a specialist unit or a Directed ROT leaves the Exchange mid-month, any excess funds in that specialist unit or Directed ROT pool would be rebated to the applicable Exchange members on a pro rata basis. This process would occur automatically without any request having to be made by any party. Per Telephone call between Michou H.M. Nguyen, Commission and Cynthia K. Hoekstra, Exchange on October 4, 2005. The available payment for order flow funds would be disbursed by the Exchange according to the instructions of the specialist units and Directed ROTs. 25 Specialist units and Directed ROTs would be given instructions as to how to submit their payment directions. The Exchange would not be involved in the determination of the terms governing the orders that qualify for payment or the amount of any payment. The Exchange would provide administrative support for the program in such matters as maintaining the funds, keeping track of the number of qualified orders each specialist unit and Directed ROT directs to the Exchange, and making payments to the Order Flow Providers on behalf of, and at the direction of, the specialist units or Directed ROT. 25 A specialist unit or a Directed ROT would certify to the Exchange that payment for order flow funds directed by either of them to be paid to Order Flow Providers reflect payment arrangements entered into by the specialist unit or Directed ROT and the Order Flow Provider. Separate pools of funds would be available to each specialist unit and Directed ROT solely for those trades where the payment for order flow fee was assessed and would be aggregated for use by each specialist unit and each Directed ROT to attract customer orders to the Exchange from Order Flow Providers that accept payment as a factor in making their order routing decisions. For Directed Orders, payment for order flow fees would be assessed on a per contract basis (when the specialist or Directed ROT opts into the program) and would be aggregated into separate pools of funds for use by each specialist unit or Directed ROT. For non-directed electronically-delivered orders, payment for order flow fees would continue to be assessed on a per contract basis and would be allocated for use by the participating specialist. The Exchange is also proposing to establish a payment for order flow advisory group, which would conduct periodic reviews to assist in determining the effectiveness of the Exchange's payment for order flow program. 26 26 In connection with determining the effectiveness of the Exchange's payment for order flow program, the advisory group would review whether excess funds should continue to be carried over from previous months (in instances where specialist units and Directed ROTs do not request that excess funds be rebated to the applicable members who paid into the payment for order flow pools). The 500-contract cap per individual cleared side of a transaction would continue to be imposed. The Exchange would also continue to implement a quality of execution program. 27 27 *See* Exchange Rule 760. Below is the text of the proposed rule change, as amended. Proposed new language is in *italics* ; proposed deletions are in [brackets]. SUMMARY OF EQUITY OPTION CHARGES (p. 3/6) For any top 120 option listed after February 1, 2004 and for any top 120 option acquired by a new specialist unit ** within the first 60 days of operations, the following thresholds will apply, with a cap of $10,000 for the first 4 full months of trading per month per option provided that the total monthly market share effected on the Phlx in that top 120 Option is equal to or greater than 50% of the volume threshold in effect: First full month of trading: 0% national market share Second full month of trading: 3% national market share Third full month of trading: 6% national market share Fourth full month of trading: 9% national market share Fifth full month of trading (and thereafter): 12% national market share ** A new specialist unit is one that is approved to operate as a specialist unit by the Options Allocation, Evaluation, and Securities Committee on or after February 1, 2004 and is a specialist unit that is not currently affiliated with an existing options specialist unit as reported on the member organization's Form BD, which refers to direct and indirect owners, or as reported in connection with any other financial arrangement, such as is required by Exchange Rule 783. REAL-TIME RISK MANAGEMENT FEE $.0025 per contract for firms/members receiving information on a real-time basis. EQUITY OPTION PAYMENT FOR ORDER FLOW FEES*[(1) (2)] [Registered Option Trader**+] *(1) For trades resulting from either Directed or non-Directed Orders that are delivered electronically and executed on the Exchange: Assessed on ROTs, specialists and Directed ROTs on those trades when the specialist unit or Directed ROT elects to participate in the payment for order flow program.**** *(2) No payment for order flow fees will be assessed on trades that are not delivered electronically.* QQQQ (NASDAQ-100 Index Tracking Stock SM ) $0.75 per contract Remaining Equity Options, except FXI Options $0.60 per contract *Assessed on transactions resulting from customer orders, subject to a 500-contract cap, per individual cleared side of transaction *. This proposal will be in effect for trades settling on or after October 1, 2005 and will remain in effect as a pilot program that is scheduled to expire on May 27, 2006.* ***Any excess payment for order flow funds billed but not *utilized by the specialist or Directed ROT* [reimbursed to specialists] will be *carried forward unless the Directed ROT or specialist elects to have those funds rebated to the applicable ROT, Directed ROT or specialist on a pro rata basis, reflected as a credit on the monthly invoices.* [returned to the applicable ROTs and Directed ROTs who have elected to be assessed a payment for order flow fee (reflected as a credit on the monthly invoices) and distributed on a pro rata basis.] [+Only incurred when the specialist elects to participate in the payment for order flow program.] [(1) For orders delivered electronically: Assessed on ROTs when the specialist unit opts into the program. ROTs who receive Directed Orders may elect to be assessed the payment for order flow fee on customer orders directed to and executed by them. [(2) No payment for order flow fees will be assessed on orders that are not delivered electronically] See Appendix A for additional fees. 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 Phlx 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, as amended. The text of these statements may be examined at the places specified in Item IV below. The Phlx has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange represents that the purpose of the proposal, as amended, is to adopt a more competitive and administratively efficient payment for order flow program. This proposal would give both specialist units and Directed ROTs the ability to compete for order flow by allowing them to elect to participate or not to participate in the Exchange's payment for order flow program. The proposal would also establish separate pools of payment for order flow funds for each specialist and each Directed ROT. The proposal would permit the specialist units and Directed ROTs to instruct the Exchange as to how to distribute the available payment for order flow funds directly to order flow providers. According to the Phlx, the Exchange's trading environment has changed. Now, ROTs must submit their orders electronically through streaming quote devices. Therefore, particular trading crowds are not relevant in that ROTs may stream from anywhere on the trading floor or off the trading floor. 28 ROTs have unlimited access to stream any and all equity option issues without limitations, with participation spread among various issues and specialists. 29 28 A ROT is either a SQT or a RSQTs, as defined in footnote 7, *supra.* A SQT may only stream from the floor. A RSQT may only stream from off the floor. Per Telephone call among Michou H.M. Nguyen, Commission, Cynthia K. Hoekstra, Exchange and William N. Briggs, Exchange on October 4, 2005. 29 Exchange Rule 507 places no limit on the number of qualifying ROTs that may become SQTs or RSQTs; any applicant that is qualified as an ROT in good standing and that satisfies the technological readiness and testing requirements shall be approved as an SQT. RSQTs must also demonstrate additional qualifications. *See* Exchange Rule 507, Application for Assignment in Streaming Quote Options. The Exchange believes that the “pooling” of payment for order flow fees collected by the Exchange is similar to the practices currently in effect at the Chicago Board Options Exchange, Inc. (“CBOE”), the International Securities Exchange (“ISE”), Inc and the Pacific Exchange, Inc (“PCX”). 30 Payment for order flow funds generated from this proposal originate from electronic orders—generally the same type of orders for which Order Flow Providers expect payment. Only specialists, Directed ROTs and ROTs that stream quotes will be assessed the payment for order flow fee, as floor-brokered orders are not part of the program. 30 *See* Securities Exchange Act Release Nos. 52474 (September 20, 2005), 70 FR 56520 (September 27, 2005) (SR-CBOE-2005-72) (all funds generated by CBOE's “marketing fee” are collected by CBOE and recorded according to the Designated Primary Market-Maker (“DPM”) station and class where the options subject to the fee are traded); 48568 (September 30, 2003), 68 FR 57720 (October 6, 2003) (SR-ISE-2003-23) (ISE has divided the options it trades into ten groups, with one Primary Market Maker assigned to each group. The ISE maintains a payment for order flow fund for each group, consisting of the fees collected from market makers trading options in that group); and 48175 (July 14, 2003), 68 FR 43245 (July 21, 2003) (SR-PCX-2003-30) (PCX collects and segregates the “marketing fee” proceeds by trading post). According to the Exchange, it has further added supplementary administrative practices that are necessary to remain competitive with other options exchanges and should help to ease the accounting burden on membership. This is achieved by eliminating the reimbursement process and by having the Exchange act as the program administrator remitting payments directly to Order Flow Providers per the instructions of the specialist unit or Directed ROT in a manner, which the Exchange believes is substantially similar to that of other options exchanges. 31 31 *See* Securities Exchange Act Release Nos. 51650 (May 3, 2005), 70 FR 24663 (May 10, 2005) (SR-CBOE-2005-34) (the “marketing fee” collected by CBOE is disbursed by CBOE according to the instructions of the DPM); and 48175 (July 14, 2003), 68 FR 43245 (July 21, 2003) (SR-PCX-2003-30) (PCX collects and segregates the fee proceeds by trading post and makes the funds available to Lead Market Makers (“LMM”). The LMMs determine the specific terms governing the orders that qualify for payment and the amounts to be paid). 2. Statutory Basis The Exchange believes that its proposal, as amended, is consistent with Section 6(b) of the Act 32 in general, and furthers the objectives of Sections 6(b)(4) and 6(b)(5) of the Act 33 in particular, in that it is an equitable allocation of reasonable dues, fees, and other charges among the Phlx's members. 32 15 U.S.C. 78f(b). 33 15 U.S.C. 78f(b)(4)-(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change, as amended, will impose any inappropriate 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 No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change, as amended, has been designated as a fee change pursuant to Section 19(b)(3)(A)(ii) of the Act 34 and Rule 19b-4(f)(2) 35 thereunder, because it establishes or changes a due, fee, or other charge imposed by the Exchange. Accordingly, the proposal will take effect upon filing with the Commission. At any time within 60 days of the filing of such proposed rule change, as amended, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 36 34 15 U.S.C. 78s(b)(3)(A)(ii). 35 17 CFR 240.19b-4(f)(2). 36 The effective date of the original proposed rule change is September 29, 2005, the effective date of Amendment No. 1 is October 3, 2005. For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposal, the Commission considers the period to commence on October 3, 2005, the date on which the Exchange submitted Amendment No. 1. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Phlx-2005-58 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-Phlx-2005-58. 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, as amended, 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 Phlx. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2005-58 and should be submitted on or before November 4, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 37 37 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-5645 Filed 10-13-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52572; File No. SR-Phlx-2005-57] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Order Granting Accelerated Approval to a Proposed Rule Change Relating to Dissemination of the Underlying Index Value for Trust Shares and Index Fund Shares October 7, 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 September 21, 2005, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Phlx. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. In addition, the Commission is granting accelerated approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to amend Sections
(i)and
(l)of Phlx Rule 803, the listing standards for two kinds of exchange traded funds, Trust Shares and Index Fund Shares, to provide that the current value of the underlying index must be widely disseminated by one or more major market data vendors at least every 15 seconds during the time the Trust Share or Index Fund Share trades on the Exchange. The text of the proposed rule change is set forth below. Proposed new language is in *italics* ; proposed deletions are in brackets. Rule 803 Criteria for Listing—Tier I (a)-(h) No Change.
(i)Trust Shares (1)-(10) No Change.
(11)The Exchange may approve a series of Trust Shares for trading, whether by listing or pursuant to unlisted trading privileges, pursuant to Rule 19b-4(e) under the Securities Exchange Act of 1934 provided each of the following criteria is satisfied:
(a)No Change.
(b)Index Methodology and Calculation.
(i)No Change.
(ii)No Change.
(iii)The current index value will be *widely* disseminated *by one or more major market data vendors at least* every 15 seconds *during the time when the Trust Shares trade on the Exchange* [over the Consolidated Tape Association's Network B]. (c)-(h) No Change.
(j)No Change.
(k)No Change.
(l)Index Fund Shares (1)-(5) No Change.
(6)Listing Pursuant to SEC Rule 19b-4(e). The Exchange may approve a series of Index Fund Shares for listing pursuant to Rule 19b-4(e) under the Securities Exchange Act of 1934 provided each of the following criteria is satisfied:
(A)No Change.
(B)Index Methodology and Calculation.
(I)The index underlying a series of Index Fund Shares will be calculated based on either the market capitalization, modified market capitalization, price, equal-dollar or modified equal-dollar weighting methodology;
(II)If the index is maintained by a broker-dealer, the broker-dealer shall erect a “fire wall” around the personnel who have access to information concerning changes and adjustments to the index and the index shall be calculated by a third party who is not a broker-dealer; and
(III)The current index value will be *widely* disseminated *by one or more major market data vendors at least* every 15 seconds *during the time when the Index Fund Shares trade on the Exchange* [over the Consolidated Tape Association's Network B]. (C)-(H) No Change. (7)-(8) No Change. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it had received on the proposed rule change. The text of these statements may be examined at the places specified in Item III below. The Phlx 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 Sections (i)(11) and (l)(6) of Phlx Rule 803 provide listing standards for Trust Shares and Index Fund Shares, respectively, to permit listing and trading of these securities pursuant to Rule 19b-4(e) under the Act. 3 Rule 19b-4(e) provides that the listing and trading of a new derivative securities product by a self-regulatory organization shall not be deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule 19b-4, if the Commission has approved, pursuant to Section 19(b) of the Act, the self-regulatory organization's trading rules, procedures and listing standards for the product class that would include the new derivative securities product, and the self-regulatory organization has a surveillance program for the product class. 4 3 17 CFR 240.19b-4(e). 4 *See* Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 70952 (December 22,1998). The Phlx rules for Trust Shares and Index Fund Shares currently provide that the current index value for the index underlying a series of Trust Shares (in the case of Phlx Rule 803(i)(11)) and Index Fund Shares (in the case of Phlx Rule 803(l)(6)) will be disseminated every 15 seconds over the Consolidated Tape Association's Network B. The Phlx believes that, rather than identifying specifically in their rules the index dissemination service (that is, the Consolidated Tape Association's Network B), it is preferable to reflect in the rules a requirement for wide dissemination of the underlying index values. This proposed rule change would make clear that the value of the underlying index must be widely disseminated by a reputable index dissemination service, such as the Consolidated Tape Association, Reuters, or Bloomberg. The Phlx believes that the specific identity of the index dissemination service is not necessary, and the purpose of the rule would be achieved, as long as the service used for dissemination is reputable, accepted in the investment community, and effects appropriately wide dissemination of the particular index. The Exchange therefore proposes to change the generic listing standards for Trust Shares and Index Fund Shares to provide that the value of the underlying index must be widely disseminated by one or more major market data vendors at least every 15 seconds during the time when the Trust Shares or Index Fund Shares trade on the Exchange. As currently is the case, if the official index does not change during some or all of the period when trading is occurring (as is typically the case with pre-market-open and after-hours trading, and also with foreign indexes because of time zone differences or holidays in the countries where such indexes' components trade), then the last official calculated index value must remain available throughout the Phlx trading hours. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the provisions of Section 6(b) of the Act, 5 in general, and furthers the objectives of Section 6(b)(5) of the Act, 6 in particular, in that it is designed 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 Phlx believes that clarifying the rules helps all market participants. 5 15 U.S.C. 78f(b). 6 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 would impose any inappropriate burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-Phlx-2005-57 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-Phlx-2005-57. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 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 Phlx. 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-Phlx-2005-57 and should be submitted on or before November 4, 2005. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change After careful consideration, 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 In particular, the Commission believes that the proposed rule change is consistent with Section 6(b)(5) of the Act. 8 The Commission notes that the proposed index dissemination requirement is similar to the index dissemination requirement used in the listing standards for narrow-based index options. 9 The Phlx defines “one or more major market data vendor” to include the Consolidated Tape Association or private vendors, such as Reuters or Bloomberg. 10 The Commission believes, however, that it is critical that such service widely disseminate such index value to market participants. 7 In approving this proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(5). 9 *See e.g.* , Chicago Board Options Exchange Rule 24.2(b); International Securities Exchange Rule 2002(b); Pacific Exchange Rule 5.13; and Philadelphia Stock Exchange Rule 1009A(b) (listing standards for narrow-based index options requiring that, among other things, the current underlying index value be reported at least once every 15 seconds during the time the index option trades on the exchange). 10 The Commission notes, however, that if a self-regulatory organization designates a data vendor, on an exclusive basis, to disseminate an index value on behalf of the self-regulatory organization, such vendor would be an “exclusive processor” under Section 3(a)(22)(B) of the Act and, absent an exemption, required to register as a securities information processor under Section 11A(b)(1) of the Act. The Phlx has requested that the Commission find good cause for approving the proposed rule change prior to the thirtieth day after publication of notice thereof in the **Federal Register** . The Commission notes that it has recently approved similar proposals regarding the dissemination of the underlying index value for exchange traded funds traded on Nasdaq, the American Stock Exchange LLC (“Amex”), and the New York Stock Exchange, Inc. (“NYSE”). 11 The Commission believes that granting accelerated approval of the proposal will allow the Phlx to immediately implement these listing standards for dissemination of the underlying index value that are in place on Nasdaq, the Amex, and the NYSE. Accordingly, the Commission finds good cause, pursuant to Section 19(b)(2) of the Act, 12 for approving the proposed rule change prior to the thirtieth day after the date of publication of notice thereof in the **Federal Register** . 11 *See* Securities Exchange Act Release Nos. 51748 (May 26, 2005), 70 FR 32684 (June 3, 2005) (SR-NASD-2005-024); 51868 (June 17, 2005), 70 FR 36672 (June 24, 2005) (SR-Amex-2005-044); and 52081 (July 20, 2005), 70 FR 43488 (July 27, 2005) (SR-NYSE-2005-44). 12 15 U.S.C. 78s(b)(2). V. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 13 that the proposed rule change (SR-Phlx-2005-57) be, and hereby is, approved on an accelerated basis. 13 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 14 17 CFR 200.30-3(a)(12). J. Lynn Taylor, Assistant Secretary. [FR Doc. E5-5653 Filed 10-13-05; 8:45 am] BILLING CODE 8010-01-P DEPARTMENT OF STATE [Public Notice 5206] Determination Under Section 564 of the Foreign Relations Authorization Act, Fiscal Years 1994 and 1995, Public Law 103-236, as Amended; Suspending Prohibitions on Certain Sales and Leases Under the Anti-Economic Discrimination Act of 1994 Pursuant to the authority vested in the President by Section 564 of the Foreign Relations Authorization Act (“the Act”), Fiscal Years 1994 and 1995, Public Law 103-236, as amended, which was delegated to the Secretary of State on April 24, 1997, I hearby determine that instituting the suspension of the application of Section 564(a) of the Act to Iraq and extending the suspension of the application of Section 564(a) of the Act to the following eight countries until May 1, 2006 will promote the objectives of section 564: Bahrain, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, United Arab Emirates, Yemen. This determination will be reported to the appropriate committees of the Congress and published in the **Federal Register** . Dated: May 13, 2005. Condoleezza Rice, Secretary of State, Department of State. Editorial Note: This document was received in the Office of the Federal Register on October 11, 2005. [FR Doc. 05-20609 Filed 10-13-05; 8:45 am]
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  • 17 CFR 240.19
  • 15 USC 80a
  • Pub. L. 103-236
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Notices
SECURITIES AND EXCHANGE COMMISSION
U.S.C.§ 78s
U.S.C.§ 78f
U.S.C.§ 552
C.F.R.§ 200.30-3
U.S.C.§ 78a
U.S.C.§ 78c
Cite17 CFR 240.19
Cite15 USC 80a
Pub. L.Pub. L. 103-236
Cites 9Cited by 0 across 0 sources
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