Notices. SECURITIES AND EXCHANGE COMMISSION
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BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52781; File No. SR-Amex-2005-069] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change and Amendment Nos. 1, 2, 3 and 4 Relating to Listing Standards for Broad-Based Index Options and Concentration Limits for Narrow-Based Index Option Listing Standards November 16, 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 June 24, 2005, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Amex.
On August 17, 2005, the Amex filed Amendment No. 1 to the proposed rule change. 3 On September 13, 2005, the Amex filed Amendment No. 2 to the proposed rule change. 4 On September 28, 2005, the Amex filed Amendment No. 3 to the proposed rule change. 5 On September 30, 2005, the Amex filed Amendment No. 4 to the proposed rule change. 6 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons and is approving the proposal on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 replaced the original filing in its entirety. 4 In Amendment No. 2, the Amex made minor revisions to the proposed rule text and clarified that the request for expedited review and accelerated effectiveness set forth in Amendment No. 1 includes the revision to concentration limits for narrow-based index options. 5 In Amendment No. 3, the Amex set forth its interpretation of the term “major market data vendor” in proposed Commentary .02(a)(11) to Rule 901C to include the Options Price Reporting Authority
(OPRA)and the Consolidated Tape Association (CTA), as well as other securities information processors. The Exchange also set forth how the term “vendor” is defined in Rule 600(b)(83) of Regulation NMS under the Act. 6 In Amendment No. 4, the Amex made minor revisions to the proposed rule text. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt new Commentary .02 to Amex Rule 901C and amend Amex Rule 904C to adopt generic listing standards and position and exercise limits for broad-based index options. The Exchange also proposes to revise the concentration limitation for narrow-based index option generic listing standards in Commentary .03 to Amex Rule 901C. The text of the proposed rule change is available on the Amex's Web site ( *http://www.amex.com* ), at the Amex's Office of the Secretary and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Amex included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item III below. The Amex 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 Listing and Maintenance Standards and Position and Exercise Limits for Broad-Based Index Options The Amex proposes to adopt new Commentary .02(a) to Amex Rule 901C to establish initial listing standards for broad-based index options. The proposal will allow the Amex to list, pursuant to Rule 19b-4(e) under the Act, 7 broad-based index options that meet the “generic” listing standards in new Commentary .02(a) to Amex Rule 901C. The listing standards require, among other things, that the underlying index be a broad stock index group, as defined in Amex Rule 900C(b)(1); that options on the index be a.m.-settled; that the index be capitalization-weighted, modified capitalization-weighted, price-weighted, or equal dollar-weighted; and that the index be comprised of at least 50 securities, all of which must be “NMS stocks,” as defined in Rule 600 of Regulation NMS. 8 In addition, new Commentary .02(a) to Amex Rule 901C requires that the index's component securities meet certain minimum market capitalization and average daily trading volume requirements; that no single component account for more than 10% of the weight of the index and that the five highest weighted components represent no more than 33% of the weight of the index; that the index value be widely disseminated at least every 15 seconds; and that the Amex have written surveillance procedures in place with respect to the index options. 7 17 CFR 240.19b-4(e). 8 *See* Amendment No. 4, *supra* note 6. Rule 600 of Regulation NMS defines an “NMS stock” to mean “any NMS security other than an option.” An “NMS security” is “any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options.” *See* 17 CFR 242.600. The Amex also proposes to adopt new Commentary .02(b) to Amex Rule 901C, which establishes maintenance standards for broad-based index options listed pursuant to new Commentary .02(a) to Amex Rule 901C. In addition, the Amex proposes to amend Amex Rule 904C to establish position limit and exercise limits of 25,000 contracts on the same side of the market for broad-based index options listed pursuant to new Commentary .02(a) to Amex Rule 901C. 9 9 *See* Amendment No. 4, *supra* note 6. Amex Rule 905C establishes exercise limits for index options at the same levels as the corresponding index option's position limits. The Exchange also proposes to make minor technical changes to the rule text of Amex Rule 904C. Telephone conversation between Jeffrey Burns, Associate General Counsel, Amex, and Kate Robbins, Attorney, Division of Market Regulation, Commission, on August 30, 2005. Narrow-Based Index Options “Generic” Listing Standards Commentary .02(a)(7) (redesignated as Commentary .03(a)(7)) to Amex Rule 901C provides that no single component security may represent more than 25% of the weight of the index, and that the five highest weighted component securities in the index may not, in the aggregate, account for more than 50% (60% for an index consisting of fewer than 25 component securities) of the weight of the index. The Exchange proposes to amend Commentary .02(a)(7) to increase the 25% concentration limit for the highest weighted component stock to 30%, and to increase the concentration limit for the five most highly weighted stocks in an index consisting of fewer than 25 component securities from 60% to 65%. In addition, the continuing listing standard found in Commentary .02(d)(1) (redesignated as Commentary .03(d)(1)) to Amex Rule 901C will be similarly revised to reflect the proposed increase in percentage weights of a single issuer to 30% and the five most highly weighted stocks in an index consisting of fewer than 25 component securities to 65%. The Exchange believes that the proposed revision to Commentary .02 to Amex Rule 901C should provide additional flexibility in the listing and trading of narrow-based index options while continuing to serve the intended purpose of preventing a single security or small number of securities from dominating an index. 10 10 *See* Securities Exchange Act Release No. 51267 (February 25, 2005), 70 FR 10715 (March 4, 2005) (approving an identical proposal by the International Securities Exchange, Inc. (“ISE”) to increase the concentration limits for narrow-based index option generic listing standards). 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with section 6 of the Act 11 in general and furthers the objectives of section 6(b)(5) 12 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove impediments to and perfect the mechanism of a free and open market and a national market system. 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange did not receive any written comments on the proposed rule change. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Amex-2005-069 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-Amex-2005-069. 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 Amex. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Amex-2005-069 and should be submitted on or before December 14, 2005. IV. Commission's Findings and Order Granting Accelerated Approval of the Proposed Rule Change After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 13 In particular, the Commission finds that the proposed rule change, as amended, is consistent with section 6(b)(5) of the Act, 14 which requires, among other things, that the rules of a national securities exchange be 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. 13 In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 14 15 U.S.C. 78f(b)(5). To list options on a particular broad-based index, the Amex currently must file a proposed rule change with the Commission pursuant to section 19(b)(1) of the Act and Rule 19b-4 thereunder. However, Rule 19b-4(e) provides that the listing and trading of a new derivative securities product by a self-regulatory organization (“SRO”) will not be deemed a proposed rule change pursuant to Rule 19b-4(c)(1) if the Commission has approved, pursuant to section 19(b) of the Act, the SRO's trading rules, procedures, and listing standards for the product class that would include the new derivative securities product, and the SRO has a surveillance program for the product class. As described more fully above, the Amex proposes to establish listing standards for broad-based index options. The Commission's approval of the Amex's listing standards for broad-based index options will allow options that satisfy the listing standards to begin trading pursuant to Rule 19b-4(e), without constituting a proposed rule change within the meaning of section 19(b) of the Act and Rule 19b-4, for which notice and comment and Commission approval is necessary. 15 The Amex's ability to rely on Rule 19b-4(e) to list broad-based index options that meet the requirements of Commentary .02(a) to Amex Rule 901C potentially reduces the time frame for bringing these securities to the market, thereby promoting competition and making new broad-based index options available to investors more quickly. 15 When relying on Rule 19b-4(e), the SRO must submit Form 19b-4(e) to the Commission within five business days after the SRO begins trading the new derivative securities product. *See* Securities Exchange Act Release No. 40761 (December 8, 1998), 63 FR 70952 (December 22, 1998) (File No. S7-13-98). The Commission notes that the Amex has represented that it has adequate trading rules, procedures, listing standards, and surveillance program for broad-based index options. Amex's existing index option trading rules and procedures will apply to broad-based index options listed pursuant to Commentary .02(a) to Amex Rule 901C. Other existing Amex rules, including provisions addressing sales practices and margin requirements, also will apply to these options. In addition, the Amex proposes to establish position and exercise limits of 25,000 contracts on the same side of the market for broad-based index options listed pursuant to Commentary .02(a) to Amex Rule 901C. 16 The Commission believes that the proposed position and exercise limits should serve to minimize potential manipulation concerns. 16 *See* Amendment No. 4, *supra* note 6. The Amex represents that it has adequate surveillance procedures for broad-based index options and that it intends to apply its existing surveillance procedures for index options to monitor trading in broad-based index options listed pursuant to Commentary .02(a) to Amex Rule 901C. In addition, because Commentary .02(a) to Amex Rule 901C requires that each component of an index be an “NMS stock,” as defined in Rule 600 of Regulation NMS under the Act, each index component must trade on a registered national securities exchange or through Nasdaq. Accordingly, the Amex will have access to information concerning trading activity in the component securities of an underlying index through the Intermarket Surveillance Group (“ISG”). 17 Commentary .02(a) to Amex Rule 901C also provides that non-U.S. index components that are not subject to a comprehensive surveillance sharing agreement between the Amex and the primary market(s) trading the index components may comprise no more than 20% of the weight of the index. 18 The Commission believes that these requirements will help to ensure that the Amex has the ability to monitor trading in broad-based index options listed pursuant to Commentary .02(a) to Amex Rule 901C and in the component securities of the underlying indexes. 17 The ISG was formed on July 14, 1983, to, among other things, coordinate more effectively surveillance and investigative information sharing arrangements in the stock and options markets. All of the registered national securities exchanges and the National Association of Securities Dealers, Inc., are members of the ISG. In addition, futures exchanges and non-U.S. exchanges and associations are affiliate members of the ISG. 18 However, such non-U.S. index components, as “NMS stocks,” would be registered under Section 12 of the Act and listed and traded on a national securities exchange or Nasdaq, where there is last sale reporting. The Commission believes that the requirements in Commentary .02(a) to Amex Rule 901C regarding, among other things, the minimum market capitalization, trading volume, and relative weightings of an underlying index's component stocks are designed to ensure that the markets for the index's component stocks are adequately capitalized and sufficiently liquid, and that no one stock dominates the index. In addition, Commentary .02(a) to Amex Rule 901C requires that the underlying index be a “broad stock index group,” as defined in Amex Rule 900C(b)(1). 19 The Commission believes that these requirements minimize the potential for manipulating the underlying index. 19 Amex Rule 900C(b)(1) defines “broad stock index group” to mean a stock index group relating to a stock index which reflects representative stock market values or prices of a broad segment of the stock market. The Commission believes that the requirement in Commentary .02(a) to Amex Rule 901C that the current index value be widely disseminated at least once every 15 seconds by the one or more major market data vendors 20 during the time an index option trades on the Amex should provide transparency with respect to current index values and contribute to the transparency of the market for broad-based index options. In addition, the Commission believes, as it has noted in other contexts, that the requirement in Commentary .02(a) to Amex Rule 901C that an index option be settled based on the opening prices of the index's component securities, rather than on closing prices, could help to reduce the potential impact of expiring index options on the market for the index's component securities. 21 20 The Amex has set forth its interpretation of the term “major market data vendor” for the purposes of Commentary .02(a)(11) to Amex Rule 901C to include the OPRA and the CTA, as well as other securities information processors. *See* Amendment No. 3, *supra* note 5. 21 *See, e.g.* , Securities Exchange Act Release No. 30944 (July 21, 1992), 57 FR 33376 (July 28, 1992) (order approving a Chicago Board Options Exchange, Incorporated proposal to establish opening price settlement for S&P 500 Index options). The Commission believes that increasing the concentration limits for narrow-based index options listed pursuant to Commentary .03 to Amex Rule 901C should provide additional flexibility to the Exchange in listing and trading narrow-based index options and reduce the instances in which the addition of a new series is restricted. The proposed rule change should also reduce instances where an index option listed on the Exchange is temporarily out of compliance with the concentration limits set forth under Commentary .03 to Amex Rule 901C because of changes in the market value of the underlying index components. Lastly, the Commission believes that that the concentration limit listing standards should continue to serve the purpose for which they were originally intended of not permitting a single security or a small number of securities to dominate an index. The Commission finds good cause for approving the proposed rule change, as amended, prior to the 30th day after the date of publication of the notice of filing in the **Federal Register** . The Exchange has requested accelerated approval of the proposed rule change. The proposal implements listing and maintenance standards and position and exercise limits for broad-based index options substantially identical to those recently approved for the ISE. 22 In addition, the proposal implements concentration limits for narrow-based index options substantially identical to those previously approved for the Philadelphia Stock Exchange, Inc., which were subject to the full comment period with no comments received, 23 and for the ISE, which were approved by the Commission on an accelerated basis. 24 22 *See* Securities Exchange Act Release No. 52578 (October 7, 2005); 70 FR 60590 (October 18, 2005). 23 *See* Securities Exchange Act Release No. 50945 (December 29, 2004), 70 FR 1498 (January 7, 2005). 24 *See supra* note 10. The Commission does not believe that the Exchange's proposal raises any novel regulatory issues. Therefore, the Commission finds good cause, consistent with section 19(b)(2) of the Act, 25 to approve the proposed rule change, as amended, on an accelerated basis. 25 15 U.S.C. 78s(b)(2). V. Conclusion *It is therefore ordered* , pursuant to section 19(b)(2) of the Act, 26 that the proposed rule change (SR-Amex-2005-069), as amended, is hereby approved on an accelerated basis. 26 *Id* . For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 27 27 17 CFR 200.30-3(a)(12). Jonathan G. Katz, Secretary. [FR Doc. E5-6447 Filed 11-22-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52782; File No. SR-Amex-2004-74] Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to the Elimination of Commentary .01(5) to Amex Rule 916 and Amendment to Amex Rules Relating to the Definition of “NMS Stock” November 16, 2005. On August 27, 2004, the American Stock Exchange LLC (“Amex”) filed with the Securities and Exchange Commission (“Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to eliminate Commentary .01(5) to Amex Rule 916 (“Commentary .01(5)”). The proposal would permit the opening of new option series on an underlying security previously approved for Amex option transactions when the issuer of the underlying security has failed to timely file reports required by the Act and has not corrected such failure within 30 days after the due date of the report. On September 26, 2005, Amex amended the proposal to replace the term “national market system security” with the term “NMS stock” in its rules for consistency with Regulation NMS. 3 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, Amex proposed to amend Amex Rule 915(a) and Commentary .01(6) to Amex Rule 916, in order to substitute the term “NMS stock” for the term “national market system security,” for consistency with Regulation NMS. *See* Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). The proposed rule change, as amended, was published for comment in the **Federal Register** on October 12, 2005. 4 The Commission received no comments on the proposal. 4 *See* Securities Exchange Act Release No. 52563 (October 4, 2005), 70 FR 59380. After careful review of the proposal, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations applicable to a national securities exchange. 5 The Commission believes that the elimination of Commentary .01(5) is consistent with section 6(b)(5) of the Act, 6 which requires that rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest. 5 The Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 6 15 U.S.C. 78f(b)(5). The Commission notes that currently, when an issuer of a security has failed to timely file its reports required under the Act, the issuer's security may continue to trade on the primary market for a period of time. Notwithstanding the fact that the underlying security may continue to trade, Commentary .01(5) prevents Amex from opening new series of options covering the underlying security of the delinquent filer. This treatment potentially denies investors the opportunity to trade at strike prices that may more accurately reflect the current market in the underlying security. Moreover, the Commission believes that elimination of Commentary .01(5) could help reduce investor confusion arising from inconsistent treatment of the underlying security and options covering the underlying security. Finally, the Commission notes that pursuant to Amex rule, the underlying security will not be deemed to meet Amex's requirements for continued approval if such underlying security is not subject to an effective transaction reporting plan and other requirements that address the liquidity and pricing of the underlying security. 7 Amex has represented it has procedures in place to monitor whether the underlying security continues to trade or is delisted from its primary market and will cease opening new series of options in such security and allow the existing series of options to expire. Amex has also represented that if the underlying security has been halted or suspended in its primary market, Amex may halt trading in the option class pursuant to Amex Rule 918(b) and shall halt trading pursuant to Amex Rule 117. The Commission expects Amex to diligently execute its oversight responsibilities with respect to the listing status of the underlying security, and, in the event of such a delisting, to promptly take the appropriate actions with respect to any options covering such security. 7 *See* proposed Commentary .01(5) to Amex Rule 916 (currently Commentary .01(6) to Amex Rule 916). *It is therefore ordered* , pursuant to section 19(b)(2) of the Act, 8 that the proposed rule change (SR-Amex-2004-74), as amended, is approved. 8 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 9 9 17 CFR 200.30-3(a)(12). Jonathan G. Katz, Secretary. [FR Doc. E5-6448 Filed 11-22-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52779; File No. SR-CBOE-2004-37] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to the Deletion of Interpretation and Policy .01(e) to CBOE Rule 5.4 November 16, 2005. On July 1, 2004, the Chicago Board Options Exchange, Incorporated (“Exchange” or “CBOE”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to delete Interpretation and Policy .01(e) to CBOE Rule 5.4 (“Interpretation .01(e)”). The proposal would permit the opening of new option series on an underlying security previously approved for CBOE option transactions when the issuer of the underlying security has failed to timely file reports required by the Act and has not corrected such failure within 30 days after the due date of the report. On September 21, 2005, CBOE amended the proposal to replace the term “national market system security” with the term “NMS stock” in its rules for consistency with Regulation NMS. 3 The proposed rule change, as amended, was published for comment in the **Federal Register** on October 12, 2005. 4 The Commission received no comments on the proposal. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, which replaced the original filing in its entirety, the Exchange conformed the definition of “NMS security” in CBOE Rules 5.3(a)(1) and Interpretation .01(f) of Rule 5.4 to that found in Regulation NMS. *See* Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). 4 *See* Securities Exchange Act Release No. 52562 (October 4, 2005), 70 FR 59382. After careful review of the proposal, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations applicable to a national securities exchange. 5 The Commission believes that the elimination of Interpretation .01(e) is consistent with Section 6(b)(5) of the Act, 6 which requires that rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and in general, to protect investors and the public interest. 5 The Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 6 15 U.S.C. 78f(b)(5). The Commission notes that currently, when an issuer of a security has failed to timely file its reports required under the Act, the issuer's security may continue to trade on the primary market for a period of time. Notwithstanding the fact that the underlying security may continue to trade, Interpretation .01(e) prevents CBOE from opening new series of options on the underlying security of the delinquent filer. This treatment potentially denies investors the opportunity to trade at strike prices that more accurately reflect the current market in the underlying security. Moreover, the Commission believes that elimination Interpretation .01(e) could help reduce investor confusion arising from inconsistent treatment of the underlying security and option. The Commission notes that, pursuant to CBOE rules, the underlying security will not be deemed to meet CBOE's requirements for continued listing if such underlying security is not subject to an effective transaction reporting plan, and other requirements that address the liquidity and pricing of the underlying security. 7 Finally, the Commission notes that CBOE has stated that it will monitor the listing status of the underlying security and, pursuant to Interpretation and Policy .01(f) to CBOE Rule 5.4, no longer approve an underlying security for the listing of new option series when the issue is delisted from trading. The Commission expects CBOE to diligently execute its oversight responsibilities with respect to the listing status of the underlying security, and, in the event of such a delisting, to promptly take the appropriate actions with respect to any options on such security. 7 *See* Interpretation and Policy .01 to CBOE Rule 5.4. *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 8 that the proposed rule change (SR-CBOE-2004-37), as amended, is approved. 8 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 9 9 17 CFR 200.30-3(a)(12). Jonathan G. Katz, Secretary. [FR Doc. E5-6449 Filed 11-22-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52784; File No. SR-DTC-2005-08] Self-Regulatory Organizations; The Depository Trust Company; Order Granting Approval of a Proposed Rule Change Relating to the New Canadian Link Service November 16, 2005. I. Introduction On July 27, 2005, The Depository Trust Company (“DTC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change SR-DTC-2005-08 pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). 1 On August 30, 2005, DTC amended the proposed rule change. Notice of the proposal was published in the **Federal Register** on September 26, 2005. 2 No comment letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 52471, (September 19, 2005), 70 FR 56196. II. Description The proposed rule change will allow participants of DTC and participants of The Canadian Depository for Securities Limited (“CDS”)
(i)to clear and settle securities transactions in Canadian dollars and
(ii)to transfer or receive Canadian dollars without any corresponding delivery or receipt of securities. 1. Overview of the Canadian-Link Service The proposed rule change creates a new DTC service, the Canadian-Link Service, that will facilitate the clearance and settlement of valued securities transactions and the transfer of funds denominated in Canadian dollars between DTC's Participants using the Canadian-Link Service (“Canadian-Link Participants”) and CDS Participants and between Canadian-Link Participants and other Canadian-Link Participants. Currently, DTC processes transactions in U.S. dollars only. The Canadian-Link Service will:
(1)Create a new link between DTC and CDS to leverage the existing CDS infrastructure for clearing and settling valued securities transactions and transferring funds in Canadian dollars so that DTC will not have to replicate this infrastructure;
(2)Apply enhanced DTC risk management controls to the transactions processed for Canadian-Link Participants through the Canadian-Link Service and will also subject DTC to CDS risk management controls, which are similar in most respects to DTC risk management controls; and
(3)Permit DTC Participants to concentrate their securities positions at DTC and not bifurcate inventory between DTC and CDS or a Canadian custodian. At the present time, CDS maintains a number of links with DTC and the National Securities Clearing Corporation (“NSCC”). These links include:
(1)The American and Canadian Connection for Efficient Securities Settlement (“ACCESS”) Service which enables CDS Participants to clear and settle transactions with DTC Participants through omnibus accounts maintained by CDS with DTC and NSCC. 3 CDS Participants that use the ACCESS Service are not participants or members of DTC or NSCC and CDS does not maintain or sponsor individual accounts at DTC or NSCC for such CDS Participants. 3 CDS has advised DTC that it has decided to terminate the ACCESS Service and to transfer its users to the New York Link Service. However, the ACCESS Service will continue to be available to DTC Participants for free deliveries of securities to and from CDS Participants.
(2)The New York Link Service which enables CDS Participants to clear and settle transactions with DTC Participants through sponsored accounts maintained by CDS with DTC and NSCC. Through such sponsored accounts, CDS Participants may clear and settle transactions on a trade for trade basis or on a continuous net settlement basis through the facilities of DTC and NSCC.
(3)The DTC Direct Link Service which enables CDS Participants to clear and settle transactions with DTC Participants through sponsored accounts maintained by CDS with DTC. Through such sponsored accounts, CDS Participants may clear and settle their transactions on a trade for trade basis through the facilities of DTC. At the present time, DTC maintains no comparable links with CDS although DTC Participants may use the ACCESS Service of CDS for free deliveries of securities to and from CDS Participants. With the implementation of the Canadian-Link Service by DTC, Canadian-Link Participants will have the same ability to clear and settle valued securities transactions with CDS Participants and other Canadian-Link Participants in Canadian dollars that CDS Participants now have to clear and settle valued securities transactions with DTC Participants in U.S. dollars. As noted above, this will be accomplished using the existing CDS infrastructure for processing transactions in Canadian dollars together with enhanced DTC risk management controls. 2. The DTC Omnibus Account DTC, as a participant of CDS, will maintain at CDS a ledger consisting of a series of accounts, including a securities account to record securities held by CDS for DTC and securities to be delivered by DTC to CDS and a funds account to record the net amount of money owing from time to time intraday between DTC and CDS. Such ledger and the accounts included in the ledger are referred to collectively as the “DTC Omnibus Account.” The DTC Omnibus Account will be subject to all CDS risk management controls, including the full collateralization of securities transactions, subject to appropriate haircuts, and limits on allowable net debits. DTC will be the account party on the DTC Omnibus Account. As a participant of CDS, DTC will be liable to CDS with respect to transactions processed for Canadian-Link Participants through the DTC Omnibus Account. Such obligations of DTC to CDS will in turn be matched by the obligations of Canadian-Link Participants to DTC with respect to such transactions. As an operational matter, DTC will act as a conduit between Canadian-Link Participants and CDS by transmitting to CDS information and instructions received from Canadian-Link Participants and by transmitting to Canadian-Link Participants information and instructions received from CDS. CDS and Canadian-Link Participants will not have a direct relationship with each other. The DTC Omnibus Account will have its own
(i)collateral requirements and controls and net debit requirements and controls,
(ii)settlement obligations, and
(iii)line of credit from a Canadian bank that is a CDS Participant to secure the settlement obligations of DTC to CDS. In accordance with the Rules and Procedures of CDS, DTC will be a member of a credit ring with certain other CDS Participants. 4 Although DTC will take instructions from Canadian-Link Participants with respect to their transactions with CDS Participants through the Canadian-Link Service, DTC will at all times maintain control over the securities and funds credited to the DTC Omnibus Account. 4 CDS has advised DTC that
(i)DTC will be required to be a member of the Non-Contributing Receivers Credit Ring for Canadian Dollar Settlements,
(ii)the only claims that could be made against DTC as a member of this credit ring involve very unusual events, and
(iii)no claim has ever been made by CDS against any member of this credit ring. Transactions will be processed in the CDS system on each day that CDS is open for business (“CDS Business Day”) whether or not such day is a day that DTC is open for business (“DTC Business Day”). 3. Transactions Processed Through the Canadian-Link Service Transactions between Canadian-Link Participants and CDS Participants will be processed through the DTC Omnibus Account in accordance with the Rules and Procedures of CDS. Canadian-Link Participants will be able
(i)to deliver securities to or receive securities from CDS Participants against payment in Canadian dollars and
(ii)to transfer funds to or receive funds from CDS Participants in Canadian dollars without any corresponding delivery or receipt of securities. Transactions between Canadian-Link Participants and other Canadian-Link Participants will be processed through accounts at DTC in accordance with the Rules and Procedures of DTC. Canadian-Link Participants will be able to
(i)deliver securities to or receive securities from other Canadian-Link Participants against payment in Canadian dollars and
(ii)transfer funds to or receive funds from other Canadian-Link Participants in Canadian dollars without any corresponding delivery or receipt of securities. For both transactions between Canadian-Link Participants and CDS Participants processed through the DTC Omnibus Account and transactions between Canadian-Link Participants and other Canadian-Link Participants processed through accounts at DTC, there will be a single end-of-day Canadian dollar money settlement between DTC and its Canadian-Link Participants (“Canadian-Link Money Settlement”). For the transactions between Canadian-Link Participants and CDS Participants processed through the DTC Omnibus Account, there will be a separate end-of-day Canadian dollar money settlement between CDS and DTC. 4. Eligibility of Participants and Securities All DTC Participants will be eligible to be Canadian-Link Participants and use the Canadian-Link Service, provided that they comply with
(i)the Rules and Procedures of DTC,
(ii)the Rules and Procedures of CDS, and
(iii)all agreements between DTC and CDS relating to the participation of DTC in CDS. (Such agreements together with the Rules and Procedures of CDS will be referred to as the “Canadian-Link Documents”). DTC will determine what securities will be eligible for the Canadian-Link Service (“Canadian-Link Securities”). Some securities may be eligible for all purposes of the Canadian-Link Service and some securities may be eligible only for limited purposes ( *e.g.* , clearance and settlement through the facilities of CDS but only custody and asset servicing through the facilities of DTC). In no case will a security be eligible for the Canadian-Link Service if the issuer is on an OFAC list of specially designated nationals and blocked persons or is incorporated in a jurisdiction on an OFAC list of sanctioned countries. As is the case with securities processed through the facilities of DTC, it will be DTC rather than CDS that will monitor such compliance with OFAC regulations. 5. Enhanced DTC Risk Management Controls Each Canadian-Link Participant will be required to make an additional required cash deposit to the DTC Participants Fund (“Canadian-Link Required Participants Fund Deposit”). The amount of the Canadian-Link Required Participants Fund Deposit will be determined by a formula that will be fixed by DTC and will be set forth in DTC's procedures. For all purposes of the Rules and Procedures of DTC, the Canadian-Link Required Participants Fund Deposit of a Canadian-Link Participant will be considered a part of the Required Participants Fund Deposit of such Participant and will secure all of the obligations of such Participant to DTC, including transactions processed for such Participant through the Canadian-Link Service and other transactions processed by DTC for such Participant. Each Canadian-Link Participant will be assigned a net debit cap on the transactions that may be processed for such Participant through the Canadian-Link Service (“Canadian-Link Net Debit Cap”). The Canadian-Link Net Debit Cap of a Canadian-Link Participant will be determined by a formula that will be fixed by DTC and will be set forth in DTC's procedures. Under existing DTC Rules, which will not be affected by new DTC Rule 30, which governs the Canadian-Link Service, each DTC Participant is assigned a Net Debit Cap on the transactions that may be processed for such Participant through the facilities of DTC ( *i.e.* , a limit on the negative funds balance that may from time to time be incurred with respect to its Canadian-Link funds transactions). The Canadian-Link Net Debit Cap of a Canadian-Link Participant and not its Net Debit Cap will apply to the transactions of such Participant processed through the Canadian-Link Service, including both transactions with CDS Participants processed for such Participant through the DTC Omnibus Account and transactions with other Canadian-Link Participants processed for such Participant through accounts at DTC. The Net Debit Cap of a Canadian-Link Participant and not its Canadian-Link Net Debit Cap will apply to all other transactions processed by DTC for such Participant. Each Canadian-Link Participant will have a single Collateral Monitor with respect to transactions processed for such Participant through the Canadian-Link Service and other transactions processed by DTC for such Participant. For purposes of the Canadian-Link Service, the Collateral Monitor of a Canadian-Link Participant will be adjusted as follows:
(1)Canadian dollar net credits from transactions processed for such Participant through the Canadian-Link Service will be converted into U.S. dollar equivalents and added to U.S. dollar net credits from other transactions processed by DTC for such Participant;
(2)Canadian dollar net debits from transactions processed for such Participant through the Canadian-Link Service will be converted into U.S. dollar equivalents and added to U.S. dollar net debits from other transactions processed by DTC for such Participant;
(3)The Collateral Value of Canadian-Link Securities delivered by such Participant to CDS Participants through the DTC Omnibus Account and the Collateral Value of Canadian-Link Securities delivered by such Participant to other Canadian-Link Participants through accounts at DTC will be converted into U.S. dollar equivalents and deducted from the Collateral Value of the collateral of such Participant; and
(4)Collateral Value in U.S. dollars will be given for Canadian-Link Securities received by such Participant from other Canadian-Link Participants but no Collateral Value will be given for Canadian-Link Securities received by such Participant from CDS Participants unless and until such securities are credited to an account of such Participant at DTC. 6. Instructions for Transactions Processed Through the Canadian-Link Service A Canadian-Link Participant may give DTC an instruction to clear and settle a securities transaction or to effect a funds transaction between such Participant and a CDS Participant as follows:
(1)An instruction from a Canadian-Link Participant to DTC to clear and settle a delivery of Canadian-Link Securities to a CDS Participant will constitute an instruction for DTC
(i)to report or to confirm as appropriate the details of the transaction to CDS for processing in the CDS system and
(ii)to transfer the securities subject to such instruction from an account of such Participant at DTC to the DTC Omnibus Account for the purpose of making such delivery on the settlement date;
(2)An instruction from a Canadian-Link Participant to DTC to clear and settle a receipt of Canadian-Link Securities from a CDS Participant will constitute an instruction for DTC
(i)to report or to confirm as appropriate the details of the transaction to CDS for processing in the CDS system and
(ii)to transfer subject to CDS risk management controls the securities subject to such instruction from the DTC Omnibus Account to an account of such Participant at DTC on the settlement date;
(3)An instruction from a Canadian-Link Participant to DTC with respect to a payment of Canadian dollars to a CDS Participant without any corresponding receipt of Canadian-Link Securities will constitute an instruction for DTC to report or confirm as appropriate the details of the transaction to CDS for processing in the CDS system; and
(4)An instruction from a Canadian-Link Participant to DTC with respect to a receipt of Canadian dollars from a CDS Participant without any corresponding delivery of Canadian-Link Securities will constitute an instruction for DTC to report or confirm as appropriate the details of the transaction to CDS for processing in the CDS system. A Canadian-Link Participant may give DTC an instruction to clear and settle a securities transaction or effect a funds transaction with another Canadian-Link Participant as follows:
(1)An instruction from a Canadian-Link Participant to DTC to clear and settle a delivery of Canadian-Link Securities to another Canadian-Link Participant will constitute an instruction for DTC
(i)to match the details of such transaction and
(ii)if such details match, to debit the securities from an account of the delivering Participant at DTC and to credit the securities to an account of the receiving Participant at DTC and
(iii)credit the delivering Participant and to debit the receiving Participant the contract price of the securities in Canadian-Link Money Settlement;
(2)An instruction from a Canadian-Link Participant to DTC to clear and settle a receipt of Canadian-Link Securities from another Canadian-Link Participant will constitute an instruction for DTC
(i)to match the details of such transaction and
(ii)if such details match, to credit the securities to an account of the receiving Participant at DTC and to debit the securities from an account of the delivering Participant at DTC, and
(iii)to debit the receiving Participant and to credit the delivering Participant the contract price of the securities in Canadian-Link Money Settlement;
(3)An instruction from a Canadian-Link Participant to DTC with respect to the payment of Canadian dollars to another Canadian-Link Participant without any corresponding receipt of Canadian-Link Securities will constitute an instruction for DTC
(i)to match the details of such transaction and
(ii)if such details match, to debit the paying Participant and to credit the receiving Participant the appropriate amount of funds in Canadian-Link Money Settlement;
(4)An instruction from a Canadian-Link Participant to DTC with respect to the receipt of Canadian dollars from another Canadian-Link Participant without any corresponding delivery of Canadian-Link Securities will constitute an instruction for DTC
(i)to match the details of such transaction and
(ii)if such details match, to credit the paying Participant and to debit the receiving Participant the appropriate amount of funds in Canadian-Link Money Settlement. All valued securities transactions processed through the Canadian-Link Service will be settled trade for trade on a delivery against payment basis. 7. The Settlement of Transactions Processed Through the Canadian-Link Service On each CDS Business Day, CDS will give DTC a recap of all transactions processed for DTC through the DTC Omnibus Account on such CDS Business Day and the net amount of money that CDS owes DTC or that DTC owes CDS with respect to such transactions. In turn, DTC will give each Canadian-Link Participant a recap of the transactions processed for such Participant through the Canadian-Link Service on such CDS Business Day, including transactions with CDS Participants processed for such Participant through the DTC Omnibus Account and transactions with other Canadian-Link Participants processed for such Participant through accounts at DTC, and the net amount of money that DTC owes such Participant or that such Participant owes DTC with respect to such transactions. Then, in the following order,
(i)Canadian-Link Participants with net settlement debits will pay DTC the amounts of such net settlement debits,
(ii)DTC will pay CDS the amount of any net settlement debit owing to CDS or CDS will pay DTC the amount of any net settlement credit owing to DTC, and
(iii)DTC will pay Canadian-Link Participants with net settlement credits the amounts of such net settlement credits. However, the amount of any net settlement credit owing to a Canadian-Link Participant with respect to transactions processed for such Participant through the Canadian-Link Service may be withheld and applied to any obligation of such Participant to DTC or to any obligation of DTC to another registered clearing agency with respect to such Participant. DTC will not be required to make any payment to Canadian-Link Participants with net settlement credits unless and until DTC receives payment from all Canadian-Link Participants with net settlement debits and payment of any net amount of money that CDS owes DTC. If a Canadian-Link Participant fails to pay any Canadian dollar net settlement debit with respect to the transactions processed for such Participant through the Canadian-Link Service. DTC may apply the DTC Participants Fund to cover any shortfall in its settlement obligations to CDS. If the day of such default is a DTC Business Day, DTC may either:
(1)Declare such Participant to be a Defaulting Participant, in which case DTC will have all of its rights and remedies under the Rules and Procedures of DTC, including the right to sell or to pledge
(i)all securities credited to the DTC Omnibus Account at CDS for delivery to the Defaulting Participant, which securities are owned by DTC until they are paid for by the Participant,
(ii)all securities provisionally credited to an account of the Defaulting Participant at DTC against payment, which securities are owned by DTC until they are paid for by the Participant, and
(iii)all securities which are designated as additional Collateral by the Defaulting Participant pursuant to the Rules and Procedures of DTC; or
(2)Translate the amount of such Canadian dollar net settlement debit into a U.S. dollar amount that will be added to or subtracted from, as the case may be, the U.S. dollar net settlement debit or credit of such Participant with respect to other transactions processed for such Participant through the facilities of DTC on that day and if as a result of this process such Participant has a net-net settlement debit with respect to all transactions processed for such Participant and fails to pay such net-net settlement debit to DTC, DTC may declare such Participant to be a Defaulting Participant and will have all of its rights and remedies under the Rules and Procedures of DTC, including the rights and remedies described above. If the day of such default is not a DTC Business Day and as a result the amount of such Canadian dollar net settlement debit cannot be included in the calculation of the settlement obligations of such Participant with respect to other transactions processed by DTC for such Participant on that day, DTC will deem such Participant to be a Defaulting Participant, and DTC will have all of its rights and remedies under the Rules and Procedures of DTC, including the rights and remedies described above. Any amounts withdrawn from the DTC Participants Fund to cover a shortfall in the settlement obligations of DTC to CDS will be restored to the Participants Fund
(i)from any payments subsequently received by DTC from the Defaulting Participant and
(ii)from any amounts derived by DTC from the operation of its failure to settle procedures and loss allocation rules. 8. Additional Matters As a member of CDS, DTC must observe and comply with the Canadian- Link Documents. Each Canadian-Link Participant, in order to use the Canadian-Link Service, acknowledges that
(i)all transactions processed for such Participant though the facilities of CDS are subject to the Canadian-Link Documents,
(ii)the Canadian-Link Documents may include grants of security interests in and liens on securities and funds in the CDS system in which such Participant has an interest,
(iii)there are other provisions of the Canadian-Link Documents that could also affect the interest of such Participant in such securities and funds, and
(iv)in the event of any conflict between the Rules and Procedures of DTC, which are a contract between DTC and DTC Participants, and the Canadian-Link Documents, which are a contract between DTC and CDS, the requirements of the Canadian-Link Documents will prevail. 9. Fees DTC is proposing to charge its Canadian-Link Participants the following fees. The fee schedule is set forth in section 23 of the Canadian-Link Service Guide. 5 All fees will be collected in U.S. dollars through the existing U.S. dollar settlement system and will be uniquely identified on the DTC U.S. dollar settlement statement bill. The proposed fees are as follows: 5 Section 23 of the Canadian-Link Service Guide is attached as Exhibit 2 to DTC's filed proposed rule change.
(1)Deliver Order Fees DTC will charge $2.00 U.S. per submitted Canadian dollar delivery/receive, recall transaction resulting from the automatic recall process, cancel instruction, and modify instruction. DTC will not charge for hold instructions of Canadian dollar deliveries/receives, DK instructions, confirm instructions, or end-of-day sweep transactions.
(2)Payment Order Fees DTC will charge $2.00 U.S. per submitted Canadian dollar payment order delivery/receive, cancel instruction, and modify instruction. DTC will not charge for hold instructions of Canadian dollar payment order deliveries/receives, DK instructions, or confirm instructions.
(3)Asset Servicing/Custody Fees DTC will charge for asset servicing and custody services on all Canadian and U.S. securities at the existing DTC Asset Servicing/Custody fees. III. Discussion Section 17A of the Act sets forth the regulatory framework for the national system for clearance and settlement of securities transactions and provides the requirements a clearing agency must meet in order to be registered with the Commission. Although the proposed rule change concerns the linkage of DTC and CDS to facilitate the clearance, settlement, and custody of Canadian securities and payments of Canadian dollars by DTC participants, it is consistent with the general purpose of section 17A to promote the perfection of a system for the prompt and accurate clearance and settlement of securities transactions. Furthermore, the proposed rule change is consistent with DTC's other cross border services that link CDS with DTC to facilitate the clearance and settlement of transactions executed by CDS participants in U.S. dollars. Section 17A(a)(1)(D) of the Act provides in general that the linking of clearance and settlement facilities and the development of uniform standards and procedures for clearance and settlement reduces unnecessary costs and increases the protection of investors and persons facilitating transactions by and acting on behalf of investors. 6 The Canadian-Link Service will take advantage of existing connectivity between DTC and CDS to increase efficiencies and to reduce costs for DTC participants and ultimately investors with respect to the clearance and settlement of Canadian dollar transactions. Additionally, new DTC Rule 30 will establish detailed procedures for the Canadian-Link Service that will provide certainty and reliability with respect to these transactions and will apply to all Canadian-Link Participants. As a result, the proposed rule change is consistent with the directives in sections 17A(a)(1)(D) because it should reduce unnecessary costs by providing increased efficiencies for DTC participants and because it should create uniform standards for the clearance and settlement of securities transactions by establishing procedures for Canadian dollar transactions processed through DTC. 6 15 U.S.C. 78q-1(a)(1)(D). Section 17A(b)(3)(F) of the Act requires that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in the custody or control of the clearing agency or for which it is responsible. Most DTC participants currently clear and settle their Canadian securities transactions in Canadian dollars by using a custodian bank in Canada as a settlement agent at CDS. The proposed rule change is designed to streamline the clearance and settlement process of Canadian dollar transactions for DTC participants by centralizing the process at DTC and by establishing rules and procedures for Canadian Link Participants. By leveraging the existing linkage between DTC and CDS, by using the existing rules and procedures of DTC and CDS, and by establishing new rules and procedures for the Canadian-Link Service, DTC has put in place sufficient procedures so that it should be able to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible. The Commission also considered whether the fact that under the proposal DTC will be required to become a member of a clearing agency that is neither registered with nor regulated by the Commission ( *i.e.,* CDS) would be inconsistent with DTC's statutory obligations under section 17A or would present unacceptable risks to DTC or its participants. As a member of CDS and as an intermediary for its Canadian-Link Participants, DTC will be subject to CDS's rules and procedures and will bear the initial financial burden if CDS or a Canadian-Link Participant fails to meet its settlement obligations. Also, DTC will be required to be a member of CDS's Non-Contributing Receivers Credit Ring. Accordingly, the Commission has focused part of its review of DTC's proposal on CDS itself and on DTC's risk management procedures related to the Canadian-Link Service. CDS is the sole central securities depository organized in the Canadian market and is regulated in Canada at the Federal and provincial level. CDS has been a member of DTC since 1979. As a participant of DTC, CDS is required to meet DTC's financial and capital requirements and is subject to DTC's risk management evaluation and review. 7 As a result, DTC has previously evaluated and is familiar with CDS's financial and organizational soundness. CDS conducts its clearance and settlement services pursuant to a published rulebook and has risk management procedures in place that are similar to and in some cases more conservative than DTC's risk management procedures. For example, CDS requires that all positions be fully collateralized with a bank line of credit, and it has limited membership categories and credit rings so that a participant will not share in a financial loss related to a service in which it does not participate. Furthermore, DTC provided the Commission with the materials it used to analyze the risks associated with the Canadian-Link Service and represented that in its risk analysis it found neither any unacceptable risk related to DTC becoming a member in CDS nor any other cause for concern regarding the proposed rule change. Accordingly, the Commission finds that neither DTC nor its participants should be exposed to any undue risks or burdens as a result of DTC's membership in CDS or DTC's offering the Canadian-Link Service. 7 CDS has also been a member of NSCC since 1984 and is subject to NSCC's risk management evaluation and review. Based on the DTC's history with CDS, the regulatory oversight and risk management framework of CDS's operations, and the risk analysis DTC performed with respect to the proposed rule change, the Commission is satisfied that DTC has taken adequate steps to design the Canadian-Link Service so that it can be offered by DTC in a manner that enables DTC to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible. IV. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular section 17A of the Act and the rules and regulations thereunder. *It is therefore ordered,* pursuant to section 19(b)(2) of the Act, that the proposed rule change (File No. SR-DTC-2005-08) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 8 8 17 CFR 200.30-3(a)(12). Jonathan G. Katz, Secretary. [FR Doc. E5-6458 Filed 11-22-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52786; File No. SR-NASD-2005-011] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Order Approving Proposed Rule Change and Amendment Nos. 1, 2, and 3 Thereto To Limit the Eligibility for Quotation on the OTCBB of the Securities of an Issuer That Is Repeatedly Delinquent in Its Periodic Reporting Obligations November 16, 2005. I. Introduction On January 28, 2005, the National Association of Securities Dealers, Inc. (“NASD”), through its subsidiary, The Nasdaq Stock Market, Inc. (“Nasdaq”), filed with the Securities and Exchange Commission (“Commission”), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to limit the eligibility for quotation on the Over-the-Counter Bulletin Board (“OTCBB”) of the securities of an issuer that is repeatedly late or otherwise delinquent in filing required periodic reports. 3 Nasdaq submitted Amendment No. 1 to this filing on May 10, 2005. 4 Nasdaq submitted Amendment No. 2 to this filing on June 24, 2005. 5 Nasdaq submitted Amendment No. 3 to this filing on August 15, 2005. 6 The proposed rule change, as amended, was published for comment in the **Federal Register** on August 24, 2005. 7 The Commission received one comment letter on the proposal. 8 Nasdaq 9 and the NASD 10 each responded to the comment letter. This order approves the proposed rule change, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 The Commission notes that subsequent to publication of the Notice, the Commission approved the NASD's proposal to amend its Plan of Allocation and Delegation of Functions by the NASD to Subsidiaries, as well as certain corresponding NASD rules, to permit the NASD to assume direct authority for over-the-counter (“OTC”) equity operations, including the OTCBB, rather than continuing to delegate this authority to Nasdaq. Nasdaq, however, will continue to furnish the OTCBB quotation and trade reporting platform and certain other services that it provided with respect to over-the-counter equity operations. *See* Securities Exchange Act Release No. 52508 (September 26, 2005), 70 FR 57346 (September 30, 2005) (SR-NASD-2005-089). 4 Amendment No. 1, which replaced the original filing in its entirety, made clarifying changes to the proposal's rule text; provided greater detail regarding how Nasdaq would notify issuers about the proposed rule; and stated that the proposed rule would be implemented for those filings for periods ending on or after June 1, 2005. 5 Amendment No. 2, which replaced the original filing and Amendment No. 1 in their entirety, further clarified the proposal's rule text; and amended the proposal's rule text to provide that filings for reporting periods ending before June 1, 2005, would not be considered for purposes of the proposed rule change. 6 Amendment No. 3, which supplemented the filing as modified by Amendment No. 2, amended the proposal's rule text to provide that filings for reporting periods ending before October 1, 2005, would not be considered for purposes of the proposed rule change. 7 *See* Securities Exchange Act Release No. 52291 (August 18, 2005), 70 FR 49701 (“Notice”). 8 *See* E-mail from John Meade to *rule-comments@sec.gov* , dated September 14, 2005. 9 *See* Letter from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq, to Jonathan G. Katz, Secretary, Commission, dated September 29, 2005. 10 *See* Letter from Andrea Orr, Assistant General Counsel, NASD, to Katherine A. England, Assistant Director, Division of Market Regulation, Commission, dated October 14, 2005. II. Description of the Proposal Pursuant to current NASD Rule 6530 (the “Eligibility Rule”), for an issuer's securities to be eligible and remain eligible for quotation on the OTCBB by an NASD member, the issuer must be current in its filings with the Commission or other appropriate regulator. 11 When a security becomes ineligible for quotation on the OTCBB due to the Eligibility Rule, either because a required periodic filing is not made or because a filing is incomplete, 12 Nasdaq appends an additional character “E” designator to the security's symbol. 13 If the issuer does not comply within the applicable grace period provided by the Eligibility Rule (typically 30 days), 14 the Rule prohibits NASD members from quoting the issuer's securities on the OTCBB. Nasdaq notes that approximately 80% of issuers achieve compliance within the applicable grace period, while 20% are removed from quotation on the OTCBB. 11 *See* Securities Exchange Act Release No. 40878 (January 4, 1999), 64 FR 1255 (January 8, 1999) (SR-NASD-98-51). 12 In order for a filing to be complete, it must, for example, contain all required certifications, attestations, and financial statements, including an auditor's review pursuant to SAS-100 (for quarterly reports) or an unqualified auditor's opinion (for annual reports). *See* , *e.g.* , Rule 13a-14 under the Act, 17 CFR 240.13a-14, and Rules 10-01(d) and 2-02(c) of Regulation S-X, 17 CFR 210.10-01(d) and 210.2-02(c). In addition, the auditor must be registered with the Public Company Accounting Oversight Board. *See* section 102(a) of the Sarbanes-Oxley Act of 2002, 15 U.S.C. 7212(a). 13 Nasdaq also appends an “E” to a security's symbol when it fails to receive notice that an issuer, which files with a regulator other than the Commission, has timely filed. In the case of those issuers, the Nasdaq generally receives notice of a regulatory filing from the applicable market maker or the issuer itself, and will investigate any instance where it has not received such notice. *See* Telephone conversation between Tim Fox, Attorney, Commission, and Arnold Golub, Associate Vice President, Nasdaq on May 20, 2005. 14 The Eligibility Rule provides a 60-day grace period to banks, savings association and insurance companies that do not file with the Commission, but are required to file with other regulators. *See* NASD Rule 6530(a)(3) and (4). Nasdaq reports that it has identified a high level of non-compliance with the Eligibility Rule. Specifically, over the two-year period ended August 31, 2004, Nasdaq identified over 3,000 instances of delinquent or otherwise incomplete filings by 1,806 OTCBB issuers, of which 1,067 were still quoted as of August 31, 2004. Of the 1,806 issuers, 1,035 were late in filing one time, 548 issuers were delinquent twice and 223 were delinquent three or more times. Given the high rate of recidivism, Nasdaq has proposed to amend NASD Rule 6530(e) to make certain OTCBB securities ineligible for quotation on the OTCBB for a period of one year. Specifically, the proposed rule change would prohibit NASD members from quoting on the OTCBB the securities of OTCBB issuers that have been delinquent in their filing obligations on the number of occasions and within the time frame specified in the proposed rule, as described below. Nasdaq has proposed to implement the rule change in connection with filings for reporting periods ending on or after October 1, 2005. 15 15 *See* Amendment No. 3, *supra* note 6. Filings for reporting periods ending before October 1, 2005, would not be considered in determining the applicability of proposed NASD Rule 6530(e). Under proposed NASD Rule 6530(e)(1), an NASD member would be prohibited from quoting on the OTCBB for a period of one year the securities of those OTCBB issuers that submit a required filing late or in an incomplete form three times in the prior two-year period while the security was quoted on the OTCBB. 16 Accordingly, the securities of an OTCBB issuer would become ineligible for quotation on the OTCBB on the third time in the prior two-year period that the issuer does not file in complete form a required periodic report by the due date (including, if applicable, any extensions permitted by Rule 12b-25 under the Act, 17 but without the benefit of any grace period for this third delinquency). 18 In applying the look-back associated with this provision, Nasdaq would consider reports characterized by due dates (including, if applicable, any extensions permitted by Rule 12b-25 under the Act) that fell within the prior two-year period. 16 A filing would not be considered late for the purposes of this proposed rule if it is made within any applicable extensions permitted pursuant to Rule 12b-25 under the Act, 17 CFR 240.12b-25. Nasdaq also appends an “E” to a security's symbol when it does not receive notice that an issuer that files with a regulator other than the Commission has timely filed. Nasdaq would not consider such occurrences to be a late filing for purposes of the proposed rule if the issuer did, in fact, timely file with the appropriate regulator. Nonetheless, Nasdaq states that these issuers can help alleviate confusion by providing Nasdaq with a copy of the filing made with the appropriate regulator on or before its due date. 17 17 CFR 240.12b-25. 18 Prior to such removal, Nasdaq intends to provide issuers with 7 calendar days to request review of the determination by a hearings panel. *See* File No. SR-NASD-2005-067, which proposes to clarify the availability of a process to review eligibility determinations under NASD Rule 6530. Under proposed NASD Rule 6530(e)(2), an NASD member would be prohibited from quoting on the OTCBB for a period of one year the securities of those OTCBB issuers that are removed from the OTCBB due to the issuer's failure to satisfy paragraphs (a)(2),
(3)or
(4)of NASD Rule 6530 twice in the prior two-year period. 19 According to Nasdaq, the more stringent test for this category reflects the greater length of the filing delinquencies, *i.e.* , these issuers were unable to regain compliance even within the applicable “grace” period. In applying the look-back associated with this provision, Nasdaq would consider the date the security is removed, without regard to when the delinquent reports were actually due. 19 An issuer that is not removed because it files a late report after requesting a hearing pursuant to the NASD Rule 9700 Series but before a decision has been issued in the matter would not be considered to have failed to file pursuant to proposed NASD Rule 6530(e)(2), but would be considered to have filed late for purposes of proposed NASD Rule 6530(e)(1). Under the proposed rule change, as amended, only filings for which the grace period ends while the issuer's securities are quoted on the OTCBB would be considered. 20 Once they become ineligible for quotation on the OTCBB because the conditions in NASD Rule 6530(e)(1) or (e)(2) have occurred, the securities of an OTCBB issuer would not become eligible for re-inclusion on the OTCBB until the issuer has timely filed in a complete form all required annual and quarterly reports for a period of one year. Thus, the securities of, for example, most domestic issuers would not be eligible for re-inclusion until the issuer has timely filed at least one Form 10-K and three Forms 10-Q. While a late filing during the period when an issuer is ineligible for quotation on the OTCBB would reset the ineligibility period, once an issuer that is removed for failure to satisfy NASD Rule 6530(e)(1) or (e)(2) is re-included, Nasdaq would not consider late filings due prior to the date of re-inclusion under the proposed rule. 20 Thus, for example, an OTCBB-quoted issuer that has no prior late filings fails to file its Form 10-K for the period ended December 31, 2005, prior to the end of the applicable grace period. The issuer is removed from the OTCBB under existing NASD Rule 6530(a)(2), and thereafter also files its Form 10-Q for the period ended March 31, 2006, after the due date. The issuer is subsequently re-included on the OTCBB. Only the late filing for the period ended December 31, 2005, would count for purposes of the proposed rule change because the issuer was not quoted on the OTCBB when the grace period for the March 31, 2006 filing expired. *See* Telephone conversation between Tim Fox, Attorney, Division of Market Regulation, Commission, and Arnold Golub, Associate Vice President, Nasdaq, on August 17, 2005. Finally, Nasdaq has proposed to clarify its current position that the 60-day grace period applicable to banks and savings associations also applies to holding companies for such entities. Nasdaq believes that this clarification is appropriate because, like banks and savings associations, these holding companies must also file publicly available periodic reports with the appropriate state or federal regulator. III. Summary of Comments and the Nasdaq's and NASD's Response The Commission received one comment in response to the proposed rule change, as amended. 21 The commenter urged the Commission and the NASD to “start properly regulating the smallcap market.” Specifically, the commenter advocated that all public companies, regardless of size, be required to file periodic financial reports. In addition, the commenter recommended that if a reporting issuer is delinquent with respect to a required filing for 60 days, then trading in its securities should be halted in all venues until such time as it files the late report. 21 *See supra* note 8. In its response to the comment letter, 22 Nasdaq affirmed the importance of timely filing periodic financial reports. Nasdaq explained that an NASD rule governing the OTCBB already imposes a requirement that all issuers of securities quoted on the OTCBB file periodic reports and be current in those filings with the appropriate regulator. Nasdaq does not believe, however, that halting the trading of the securities of delinquent OTCBB issuers would be appropriate, since other OTC marketplaces, including the Pink Sheets, do not require reporting issuers to be current in their filings. Nasdaq reiterated its view that the proposed rule change strikes an appropriate balance, because it is designed to increase the timeliness of disclosure available to investors and to prevent the securities of issuers who repeatedly fail to comply with their disclosure obligations from being quoted on the OTCBB, subject to an appropriate grace period for companies that only occasionally experience problems in submitting complete filings in a timely manner. 22 *See supra* note 9. The NASD also responded to the single comment letter received on the proposal. 23 In its response, the NASD noted, among other things, that it regulates trading in both the OTCBB and the Pink Sheets, and that there are, in certain instances, rules that are applicable only to trading in OTCBB securities. Further, the NASD noted that, as part of the recent transfer of direct authority over the OTCBB from Nasdaq to NASD, 24 the NASD is currently analyzing whether certain distinctions across quotation services in the OTC market are appropriate. 23 *See supra* note 10. 24 *See supra* note 3. IV. Discussion and Commission Findings The Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities association and, in particular, the requirements of section 15A of the Act 25 and the rules and regulations thereunder. The Commission finds specifically that the proposed rule change is consistent with the provisions of section 15A(b)(6) of the Act, 26 which requires, among other things, that the NASD's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. 27 25 15 U.S.C. 78 *o* -3. 26 15 U.S.C. 78 *o* -3(b)(6). 27 In approving this proposed rule change, as amended, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). Under the proposed rule change, the securities of an OTCBB issuer that submits a required periodic filing late or in an incomplete form three times during a two-year period, and the securities of an OTCBB issuer that are removed from the OTCBB as a result of the issuer's failure to file a required report with the appropriate regulatory agency two times in a two-year period, would become ineligible for continued quotation on the OTCBB by an NASD member. The issuer's securities, however, would become again eligible for quotation on the OTCBB when the issuer has timely filed, in a complete form, all required annual and quarterly reports for a one-year period. In the Commission's view, the proposed rule change is designed to protect investors and the public interest by setting forth conditions upon which an NASD member would be precluded from quoting on the OTCBB for a period of one year the securities of those OTCBB issuers that have failed to meet their reporting obligations on the number of occasions and within the time frame specified in the proposed rule change. The Commission believes that the proposed rule change's imposition of a one-year ban from quotation on the OTCBB upon the issuer's third failure during a two-year period to file a complete required annual or quarterly report by its due date (including any extension permitted by Rule 12b-25 under the Act), or upon the second removal of the issuer's securities from the OTCBB during a two-year period, are designed to foster the timeliness of disclosure available to the public by OTCBB issuers. Once such issuer has timely filed in a complete form all required annual and quarterly reports for a one-year period, its securities would become re-eligible for quotation on the OTCBB. The Commission believes that the proposal provides measures that are designed to exclude from its applicability those OTCBB issuers that occasionally and inadvertently fail to comply with their reporting obligations. The securities of OTCBB issuers would not be precluded from quotation on the OTCBB, unless the issuer failed to file annual or quarterly reports or filed incomplete reports three times during the prior two-year period or unless the issuer's securities were removed from the OTCBB twice in the prior two-year period due to the issuer's failure to file required reports. A required periodic filing would not be considered delinquent if the issuer files a complete Form 12b-25 with the Commission and submits the report within the applicable time frame specified in Rule 12b-25 under the Act. With respect to the procedural rights of OTCBB issuers adversely affected by the operation of the proposed rule change, the Commission notes that OTCBB issuers retain the right to initiate the hearing process under NASD Rule 9700 Series, through which an issuer could request a review of an ineligibility determination made pursuant to NASD Rule 6530. Moreover, Nasdaq has represented that it would provide OTCBB issuers that file late or are otherwise delinquent a third time in a two-year period with seven calendar days' notice prior to removal of the issuer's securities from the OTCBB in order to allow the issuer to request a review of the determination by a hearings panel under the NASD Rule 9700 Series. In addition, Nasdaq has represented that, upon implementation, it plans to provide an OTCBB issuer notification whenever Nasdaq determines that the issuer is late in a periodic filing, along with an explanation of the consequences of the OTCBB issuer's delinquent status. 28 28 Telephone conversation between Arnold Golub, Associate Vice President, Nasdaq and Nancy Sanow, Assistant Director, Division of Market Regulation, Commission, and Tim Fox, Special Counsel, Division of Market Regulation, Commission on November 15, 2005. Finally, NASD staff has advised of plans to identify on the OTCBB Web site, *http://www.otcbb.com,* those OTCBB issuers that are subject to removal from quotation on the OTCBB for a one-year period if the issuer fails to satisfy the requirements of NASD Rule 6530(e)(1) or (e)(2). In the event that an issuer's securities are to be removed from the OTCBB because the security has become ineligible for quotation pursuant to NASD Rule 6530(e), the NASD staff has advised of plans to indicate the date on which the issuer's securities no longer will be eligible for quotation on the OTCBB. 29 In the Commission's view, this information will help broker-dealers and investors to ascertain those securities that are at risk of being removed from the OTCBB for a one-year period, if the issuer fails to keep current in its reporting obligations. 29 Telephone conversation among Arnold Golub, Associate Vice President, Nasdaq, Andrea Orr, Assistant General Counsel, NASD, Nancy Sanow, Assistant Director, Division of Market Regulation, Commission and Tim Fox, Special Counsel, Division of Market Regulation, Commission on November 16, 2005. V. Conclusion *It is therefore ordered* , pursuant to section 19(b)(2) of the Act, 30 that the proposed rule change (SR-NASD-2005-011), as amended, be, and it hereby is, approved. 30 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 31 31 17 CFR 200.30-3(a)(12). Jonathan G. Katz, Secretary. [FR Doc. E5-6455 Filed 11-22-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52752A; File No. SR-NASD-2004-044] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Change and Amendments Nos. 1 and 2 Thereto Relating to Short Sale Delivery Requirements November 17, 2005. Correction In FR Document No. E5-6306, beginning on page 69614 for Wednesday, November 16, 2005, in the first sentence of the first paragraph of the Notice the date should read March 10, 2004. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 1 1 17 CFR 200.30-3(a)(12). Jonathan G. Katz, Secretary. [FR Doc. E5-6457 Filed 11-22-05; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-52783; File No. SR-OCC-2003-13] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of Proposed Rule Change To Establish a Comprehensive Standard of Care and Limitation of Liability With Respect to Clearing Members November 16, 2005. Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on November 5, 2003, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) and on August 18, 2004, amended 2 the proposed rule change as described in Items I, II, and III below, which items have been prepared by OCC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties. 1 15 U.S.C. 78s(b)(1). 2 Letter from William H. Navin, Executive Vice President, General Counsel, and Secretary, OCC (August 17, 2005). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change OCC is seeking to establish gross negligence as its comprehensive standard of care and limitation of liability with respect to its clearing members. 3 3 OCC's proposed rule change would not affect the regulatory standards ( *e.g.* , section 17A of the Act) that apply to OCC or the way in which OCC conducts its clearing agency operations. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of these statements. 4 4 The Commission has modified the text of the summaries prepared by OCC.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In 1980 in its release setting forth standards for registration of clearing agencies, the Division of Market Regulation stated that it was “of the view that clearing agencies should undertake to perform their obligations with a high degree of care.” 5 Later, in 1983 in its release registering nine clearing agencies, the Commission stated that it did “not believe sufficient justification exists at this time to require a unique federal standard of care for registered clearing agencies.” 6 The Commission has left to user-governed clearing agencies the question of how to allocate losses associated with, among other things, clearing agency functions. Along this line, in 1986 in its order approving a proposed rule change of the Midwest Securities Trust Company (“MSTC”) to clarify the rights and liabilities of the MSTC and its participants with respect to certain services, the Commission stated: 5 Securities Exchange Act Release No. 16900 (June 17, 1980), 45 FR 45167 (June 23, 1980). 6 Securities Exchange Act Release No. 20221 (September 23, 1983), 48 FR 45167 (October 3, 1983). The Act does not specify the standard of care that must be exercised by registered clearing agencies and the Commission has determined that imposition of a unique Federal standard of care for registered clearing agencies is not appropriate at this time. [citing Securities Exchange Act Release No. 20221, *supra* note 5] For those reasons the Commission believes that the clearing agency standard of care and the allocation of rights and responsibilities between a clearing agency and its participants applicable to clearing agency services generally may be set by the clearing agency and its participants. The Commission believes it should review clearing agency proposed rule changes in this area on a case-by-case basis and balance the need for a high degree of clearing agency care with the effect resulting liabilities may have on clearing agency operations, costs, and safeguarding of securities and funds. 7 7 Securities Exchange Act Release No. 22940 (February 24, 1986), 51 FR 7169 (February 28, 1986). Because standards of care represent an allocation of rights and liabilities between a clearing agency and its users, which are generally sophisticated financial entities, the Commission has continued to refrain from establishing a unique federal standard of care and has allowed clearing agencies and other self-regulatory organizations and their users to establish their own standards of care. 8 8 *See, e.g.* , Securities Exchange Act Release Nos. 51669 (May 9, 2005), 70 FR 25634 (May 13, 2005) [File No. SR-NSCC-2004-09]; 48201 (July 21, 2003), 68 FR 44128 (July 25, 2003) [File No. SR-GSCC-2002-10]; 37563 (August 14, 1996), 61 FR 43285 (August 21, 1996) [SR-PSE-96-21]; and 37421 (July 11, 1996), 61 FR 37513 (July 18, 1996) [SR-CBOE-96-02]. With this proposed rule change, OCC is seeking to establish a comprehensive gross negligence standard of care and limitation of liability with respect to its clearing members and makes the following representations. OCC states in the filing that since its founding in 1973, it has performed its clearing services with an exemplary level of care. Its record of fulfilling its commitments to its clearing members for over 30 years reflects OCC's commitment to serving the best interests of its clearing members. It has comprehensive systems and operating procedures in place to ensure that its clearing functions are executed with the highest level of accuracy. In addition to its own concern for accuracy, it is subject to extensive regulatory oversight by the Commission. Furthermore, in its amendment to the filing, OCC states that gross negligence is the standard of care generally used by other clearing agencies such as the Fixed Income Clearing Corporation, the decision to apply a gross negligence standard of care to OCC is a conscious allocation of risk between OCC and its members, the filing was unanimously approved by OCC's directors, a majority of whom are officers of clearing members, and the proposed rule change in no way will affect the very high level of care to which OCC has always held itself and to which it is held through the regulatory oversight of the Commission. 9 As such, OCC believes that a gross negligence standard of care is appropriate for OCC. 10 9 *Supra* , letter from William H. Navin, n. 2. 10 Specifically, OCC is proposing to amend Article VI of its By-Laws, “Clearance of Exchange Transactions,” by adding new section 25, “Limitation of Liability,” which would state:
(a)Notwithstanding any other provision in the By-Laws and Rules, the Corporation will not be liable for any action taken, or any delay or failure to take any action, under the By-Laws and Rules or otherwise, to fulfill the Corporation's obligations to its Clearing Members, other than for losses caused directly by the Corporation's gross negligence, willful misconduct, or violation of federal securities laws for which there is a private right of action. Under no circumstances will the Corporation be liable for the acts, delays, omissions, bankruptcy, or insolvency of any third party, including, without limitation, any bank or other depository, custodian, sub-custodian, clearing or settlement system, data communication service, or other third party, unless the Corporation was grossly negligent, engaged in willful misconduct, or was in violation of federal securities laws for which there is a private right of action, in selecting such third party; and
(b)Under no circumstances will the Corporation be liable for any indirect, consequential, incidental, special, punitive or exemplary loss or damage (including, but not limited to, loss of business, loss of profits, trading losses, loss of opportunity and loss of use) however suffered or incurred, regardless of whether the Corporation has been advised of the possibility of such damages or whether such damages otherwise could have been foreseen or prevented. OCC believes that the proposed rule change is consistent with the requirements of section 17A of the Act 11 and the rules and regulations thereunder applicable to OCC because it will permit the resources of OCC to be appropriately utilized for promoting the prompt and accurate clearance and settlement of options transactions and for providing for the safeguarding of securities and funds in its custody or control or for which it is responsible. 11 15 U.S.C. 78q-1.
(B)Self-Regulatory Organization's Statement on Burden on Competition OCC does not believe that the proposed rule change would impose any burden on competition.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were not and are not intended to be solicited with respect to the proposed rule change, and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty-five 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 ninety days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the self-regulatory organization consents, the Commission will:
(A)By order approve such proposed rule change or
(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, 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-OCC-2003-13 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-OCC-2003-13. 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 OCC and on OCC's Web site at *http://www.theocc.com* . 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-OCC-2003-13 and should be submitted on or before December 14, 2005. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 12 Jonathan G. Katz, Secretary. 12 17 CFR 200.30-3(a)(12). [FR Doc. E5-6456 Filed 11-22-05; 8:45 am] BILLING CODE 8010-01-P SMALL BUSINESS ADMINISTRATION Wisconsin District Advisory Council; Public Meeting The U.S. Small Business Administration, Wisconsin District Advisory Council will be hosting a public meeting to discuss such matters that may be presented by members, and staff of the U.S. Small Business Administration, or others present. The meeting will be held on Tuesday, December 13, 2005 starting at 1:30 p.m. The meeting will be held at the U.S. Small Business Administration, Wisconsin-Milwaukee District Office, 310 West Wisconsin Avenue, Suite 400, Milwaukee, Wisconsin. Anyone wishing to attend must contact Cindy Merrigan in writing or by fax. Cindy Merrigan, Computer Specialist, U.S. Small Business Administration, 740 Regent Street, Suite 100, Madison, Wisconsin 53715, phone
(608)441-5560, fax
(202)481-0815, e-mail: *cindy.merrigan@sba.gov.* Matthew K. Becker, Committee Management Officer. [FR Doc. 05-23125 Filed 11-22-05; 8:45 am]
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U.S. Code
- Registration, responsibilities, and oversight of self-regulatory organizations§ 78s
- National securities exchanges§ 78f
- Public information; agency rules, opinions, orders, records, and proceedings§ 552
- Definitions and application§ 78c
- National system for clearance and settlement of securities transactions§ 78q–1
- Registration with the Board§ 7212
4 references not yet in our index
- 17 CFR 240.19
- 17 CFR 240.13
- 17 CFR 240.12
- 15 USC 78
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SECURITIES AND EXCHANGE COMMISSION
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