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Code · REGISTER · 2006-05-03 · SECURITIES AND EXCHANGE COMMISSION · Notices

Notices. Notice

27,821 words·~126 min read·/register/2006/05/03/06-4130·

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BILLING CODE 8010-01-C SECURITIES AND EXCHANGE COMMISSION [Release No. 34-53723; File No. SR-Amex-2005-105] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of a Proposed Rule Change and Amendments No. 1 and 2 Thereto Relating to the Listing and Trading of Principal Protected Notes Linked to the Metals-China Basket April 25, 2006. 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 October 20, 2005, the American Stock Exchange LLC (the “Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Amex.
On March 23, 2006, Amex filed Amendment No. 1 to the proposed rule change. 3 On April 12, 2006, Amex filed Amendment No. 2 to the proposed rule change. 4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(l). 2 17 CFR 240.19b-4. 3 Amendment No. 1 to the proposed rule change:
(1)Clarifies certain specialist restrictions regarding potential conflicts of interests in the underlying commodities; and
(2)specifies that the listing and trading principle protected notes will occur on the debt trading floor and be subject to the Exchange's debt trading rules. 4 Amendment No. 2 to the proposed rule change states that the applicable composite basket will be calculated and disseminated once each trading day. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to list and trade principal protected notes, the performance of which is linked to a basket comprised of an equal weighting of the FTSE/Xinhua China 25 Index (the “China 25 Index” or “Index”) and the following four commodities: copper, lead, nickel, and zinc (the “Metals-China Basket” or “Basket”). The text of the proposed rule change is available on the Amex's Web site at *http://www.amex.com,* the Amex' 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, as amended, and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The 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 the Statutory Basis for, the Proposed Rule Change 1. Purpose Under section 107A of the Amex Company Guide (“Company Guide”), the Exchange may approve for listing and trading securities that cannot be readily categorized under the listing criteria for common and preferred stocks, bonds, debentures, or warrants. 5 The Amex proposes to list for trading under section 107A of the Company Guide principal protected notes linked to the performance of the Metals-China Basket (the “Notes”). 6 5 *See* Securities Exchange Act Release No. 27753 (March 1, 1990), 55 FR 8626 (March 8, 1990) (order approving File No. SR-Amex-89-29). 6 Wachovia Corporation (“Wachovia”) and FTSE/Xinhua Index Limited (“FXI”), a joint venture between FTSE International Limited and Xinhua Financial Network, have entered into a non-exclusive license agreement providing for the use of the Xinhua Index by Wachovia and certain affiliates and subsidiaries in connection with certain securities including these Notes. FTSE/Xinhua Index Limited is not responsible and will not participate in the issuance and creation of the Notes. Wachovia will issue the Notes under the name “Asset Return Obligation Securities.” The China 25 Index is determined, calculated and maintained solely by FXI while the commodity prices are determined by the cash settlement price of each respective commodity futures contract traded on the London Metals Exchange (the “LME”). The Notes will provide for participation in the positive performance of the Metals-China Basket during their term while reducing the risk exposure to investors through principal protection. The Notes will conform to the initial listing guidelines under section 107A 7 and continued listing guidelines under sections 1001-1003 8 of the Company Guide. The Notes are senior non-convertible debt securities of Wachovia. The principal amount of each Note is expected to be $1,000. The Notes are expected to have a term of at least one
(1)but no more than ten
(10)years. At a minimum, the Notes will entitle the owner at maturity to receive at least 100% of the principal investment amount. At maturity, the holder would receive the full principal investment amount of each Note plus the Basket Performance Amount. The Basket Performance Amount is the greater of zero and the product of $1,000 and the performance of the Basket as adjusted by the adjustment factor (the “Adjustment Factor”). 9 Accordingly, if the performance of the Metals-China Basket is negative or does not appreciate by greater than 7.2341% as of the Valuation Date, a holder will nevertheless receive the principal investment amount of the Note at maturity. The Notes are not callable by the Issuer. 7 The initial listing standards for the Notes require:
(1)A market value of at least $4 million; and
(2)a term of at least one year. Because the Notes will be issued in $1,000 denominations, the minimum public distribution requirement of one million units and the minimum holder requirement of 400 holders do not apply. In addition, the listing guidelines provide that the issuer has assets in excess of $100 million, stockholder's equity of at least $10 million, and pre-tax income of at least $750,000 in the last fiscal year or in two of the three prior fiscal years. In the case of an issuer which is unable to satisfy the earning criteria stated in section 101 of the Company Guide, the Exchange will require the issuer to have the following:
(1)Assets in excess of $200 million and stockholders' equity of at least $10 million; or
(2)assets in excess of $100 million and stockholders' equity of at least $20 million. 8 The Exchange's continued listing guidelines are set forth in sections 1001 through 1003 of part 10 to the Exchange's Company Guide. Section 1002(b) of the Company Guide states that the Exchange will consider removing from listing any security where, in the opinion of the Exchange, it appears that the extent of public distribution or aggregate market value has become so reduced to make further dealings on the Exchange inadvisable. With respect to continued listing guidelines for distribution of the Notes, the Exchange will rely, in part, on the guidelines for bonds in section 1003(b)(iv). Section 1003(b)(iv)(A) provides that the Exchange will normally consider suspending dealings in, or removing from the list, a security if the aggregate market value or the principal amount of bonds publicly held is less than $400,000. 9 The Adjustment Factor is initially set at 100% and will be reduced by a rate of 2% per annum compounded daily on an actual 365 day count. On any calendar day, the Adjustment Factor is equal to (100%−(2%/365)) n . “ *n* ” is the number of calendar days from but excluding July 21, 2005 to and including the calendar day. The Adjustment Factor as of the Valuation Date will be 93.2341%. The payment that a holder or investor of a Note will be entitled to receive (the “Maturity Payment Amount”) will depend on the performance of the Metals-China Basket during the term of the Note. The Metals-China Basket will not be managed and will remain static over the term of the Notes. 10 Performance of the Basket will be determined at the close of the market on the fifth business day (the “Valuation Date”) prior to maturity of the Notes. The Basket Starting Level will be 1,000 and the Basket Ending Level will be the closing level of the underlying basket on the Valuation Date, equal to the sum of the products of
(i)the component multiplier of each basket component and
(ii)the closing price or level of the respective basket component on the Valuation Date. The Basket Ending Level is then adjusted by the Adjustment Factor as of the Valuation Date. In the event that the Valuation Date occurs on a non-trading day or if a market disruption event 11 occurs on such date, the Valuation Date will be the next trading day on which no market disruption event occurs. 10 *See* Telephone Conference between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on April 24, 2006. Amex confirmed that the Metals-China Basket is not managed. 11 A “market disruption event” is defined as the failure of the primary market or related markets to open for trading during regular trading hours or the occurrence or existence of any of the following events:
(i)A trading disruption, if material, at any time during the one hour period that ends at the close of trading for a relevant exchange or related exchange;
(ii)an exchange disruption, if material, at any time during the one hour period that ends at the close of trading for a relevant exchange or related exchange; or
(iii)an early closure. A “trading disruption” generally means any suspension of, or limitation, imposed on trading by the relevant exchange or related exchange or otherwise, whether by reason of movements in price exceeding limits permitted by the relevant exchange or related exchange or otherwise:
(i)Relating to securities that comprise 20% or more of the level of the Index; or
(ii)in options contracts or futures contracts relating to the Index on any relevant related exchange. An “exchange disruption” means any event (other than a scheduled early closure) that disrupts or impairs the ability of market participants in general to:
(i)Effect transactions in, or obtain market values on, any relevant exchange or related exchange in securities that comprise 20 percent or more of the level of the Index or;
(ii)effect transactions in options contracts or futures contracts relating to the Index on any relevant related exchange. A “related exchange” is an exchange or quotation system on which futures or options contracts relating to the Index are traded. *See* footnote 19, *infra.* At maturity, a holder will receive a maturity payment amount per Note equal to $1,000 + Basket Performance Amount. If the Adjusted Basket Ending Level is less than or equal to the Basket Starting Level, the Basket Performance Amount will be zero and the Maturity Payment Amount will be $1,000. The Basket Performance Amount per Note is equal to the greater of:
(i)Zero; and
(ii)EN03MY06.018 The Maturity Payment Amount per Note will never be less than the principal investment amount of $1,000. Metals-China Basket The Basket is an equally-weighted basket of four commodities (copper, lead, nickel, and zinc) and the China 25 Index. Each component of the Basket will initially represent 20% of the Basket. The Basket is not a recognized market index and was created solely for purpose of offering the Notes. The Metals-China Basket will not be managed and will remain static over the term of the Notes. The basket value will be calculated and disseminated once each trading day. The Exchange believes that this daily dissemination of an indicative basket amount is appropriate because the Notes are a bond traded on Amex's debt floor, the value of which is linked to the basket, and there will be no creation or redemption of shares as there would be with an exchange-traded fund (“ETF”). 12 12 *See* Telephone Conference between Jeffrey Burns, Associate General Counsel, Amex, and Raymond Lombardo, Special Counsel, Division of Market Regulation, Commission, on April 13, 2006. China 25 Index The China 25 Index is designed to represent the performance of the largest companies in the mainland China equity market that are available to international investors. The Index consists of the 25 largest and most heavily traded Chinese companies. 13 The components of the Index are weighted based on the free-float adjusted total market value of their shares, so that securities with higher total market values generally have a higher representation in the Index. Components are screened for liquidity and weightings are capped to avoid over-concentration in any one stock. The China 25 Index commenced publication in March 2001. As of September 30, 2005, the top three holdings were China Mobile, PetroChina and BOC Hong Kong, with the top three industries being telecommunications, oil and gas, and banks. 13 All classes of equity securities in issue are eligible for inclusion in the Index, subject to conforming with free-float and liquidity restrictions. H shares and Red Chip shares are eligible for inclusion in the Index. H shares are incorporated in China and listed and traded on the Hong Kong Stock Exchange. They are quoted and traded in Hong Kong and U.S. dollars. Like other securities trading on the Hong Kong Stock Exchange, there are no restrictions on who can trade H shares. Red Chip shares are incorporated in Hong Kong and trade on the Hong Kong Stock Exchange. They are quoted in Hong Kong dollars. Red Chip companies may be substantially owned directly or indirectly by the Chinese Government and have the majority of their business interested in mainland China. H shares and Red Chip shares trade on the Hong Kong Stock Exchange, typically on a T+2 basis, through a central book-entry system that the Exchange states effectively guarantees settlement of exchange trades by broker-dealers. As of September 30, 2005, the China 25 Index's components had a total market capitalization of approximately $414 billion and a float-adjusted market capitalization of approximately $55 billion. 14 The average total market capitalization was approximately $16.5 billion and the average float-adjusted market capitalization was approximately $22 billion. The ten largest constituents represented approximately 62% of the index weight. The 5 highest weighted stocks, which represented 41.7% of the index weight, had an average daily trading volume in excess of $79 million globally during the past six
(6)months. 14 Float-adjusted market capitalization includes shares available in the market for public investment and reflects free float adjustments to the Index in accordance with FTSE's free float rules. Additional information regarding FTSE's free float adjustment methodology is available on *http://www.ftse.com.* *Component Selection Criteria.* The China 25 Index is rule-based and is monitored by a governing committee. The China 25 Index Committee (the “Index Committee”) is responsible for conducting quarterly reviews of components and for making changes in accordance with applicable procedures. The Index Committee is currently composed of 19 members, four of whom are currently affiliated with non-U.S. broker-dealers. FTSE has represented that the FTSE, FXI, and the Index Committee have adopted policies that prohibit the dissemination and use of confidential and proprietary information about the Index and have instituted procedures designed to prevent the improper dissemination or the use of such information. *Float-Adjusted Market Capitalization.* When calculating a component's index weight, shares held by governments, corporations, strategic partners, or other control groups are excluded from the company's shares outstanding. Shares owned by other companies are also excluded, regardless of whether such companies are index components. Where a foreign investment limit exists at the sector or company level, the component's weight will reflect either the foreign investment limit or the percentage float, whichever is more restrictive. Component stocks are screened to ensure there is sufficient liquidity to be traded. Factors in determining liquidity include the availability of current and reliable price information and the level of trading volume relative to shares outstanding. Value traded and float turnover are also analyzed on a monthly basis to ensure ample liquidity. Fundamental analysis is not part of the selection criteria for inclusion or exclusion of stocks from the Index. The financial and operating conditions of a company are not analyzed. *Index Maintenance.* The Index Committee is responsible for undertaking the review of the China 25 Index and for approving changes of components in accordance with the index rules and procedures. The FTSE Global Classification Committee is responsible for the industry classification of constituents of the Index within the FTSE Global Classification System. The FTSE Global Classification Committee may approve changes to the FTSE Global Classification System and Management Rules. FXI appoints the Chairman and Deputy Chairman of the Index Committee. The Chairman chairs meetings of the Committee and represents the Committee in outside meetings. Adjustments to reflect a major change in the amount or structure of a constituent company's issued capital (before the quarterly review) will be made before the start of the index calculation on the day on which the change takes effect. Adjustments to reflect less significant changes (before the quarterly review) will be implemented before the start of the index calculation on the day following the announcement of the change. All adjustments are made before the start of the index calculations on the day concerned, unless market conditions prevent this. A company will be inserted into the Index at the quarterly periodic review if it rises to 15th position or above when the eligible companies are ranked by full market value before the application of any investibility weightings. A company in the Index will be deleted at the quarterly periodic review if it falls to 36th position or below when the eligible companies are ranked by full market value before the application of any investibility weightings. Any deletion to the Index will simultaneously entail an addition to the Index to maintain 25 index constituents at all times. The China 25 Index is reviewed quarterly for changes in free float. These reviews will coincide with the quarterly reviews undertaken of the Index as a whole. Implementation of any changes will be after the close of the index calculation on the third Friday in January, April, July, and October. The quarterly review of the Index constituents takes place in January, April, July, and October. Any changes will be implemented on the next trading day following the third Friday of the same month of the review meeting. Details of the outcome of the review and the dates on which any changes are to be implemented will be published as soon as possible after the Index Committee meeting has concluded its review. *Index Dissemination.* The Index is calculated in real time and published every minute during the index period (09:15-16:00 Local Hong Kong Time) or (17:15-24:00 U.S. PDT). It is available, by subscription, published every minute, directly from FTSE and from the following vendors: Reuters, Bloomberg, Telekurs, FTID, and LSE/Proquote. The end of day index value, based on last sale prices, is distributed at 16:15 (Local Hong Kong Time). This end of day index value is also made available to the Financial Times Asia edition and other major newspapers and will be available at the FTSE Index Services Web site: *http://www.ftse.com* . The Index is calculated using Hong Kong Stock Exchange trade prices and Reuter's realtime spot currency rates, as described below. A total return index value that takes into account reinvested dividends is published daily at the end of day. The Index is not calculated on days that are holidays in Hong Kong. The daily closing index value, historical values, constituents' weighting, constituents' market capitalization and daily percentage changes are publicly available from *http://www.ftsexinhua.com* . All corporate actions and rules relating to the management of the indices are also available from the Web site. *Exchange Rates and Pricing.* FXI calculates the value of the Index using Reuters real-time foreign exchange spot rates and local stock exchange real-time, last sale security prices. The underlying Index is calculated in Hong Kong Dollars, using Hong Kong Stock Exchange trade prices. Non-Hong Kong Dollar denominated constituent prices are converted to Hong Kong Dollars in order to calculate the value of the underlying Index. Thus, the Reuter's foreign exchange rates and Hong Kong Stock Exchange prices received at the closing time of the underlying Index will be used to calculate the final underlying Index value each day. The Commission has previously approved the listing of securities linked to the performance of the China 25 Index. 15 15 *See, e.g.* , Securities Exchange Act Release Nos. 50505 (October 8, 2004), 69 FR 61280 (October 15, 2004) (approving the listing and trading of the iShares FTSE/Xinhua China 25 Index Fund) and 50800 (December 6, 2004), 69 FR 72228 (December 13, 2004) (approving the trading of the iShares FTSE/Xinhua China 25 Index Fund). Commodities: Copper, Lead, Nickel, and Zinc Commodity prices are volatile and, although ultimately determined by the interaction of supply and demand, are subject to many other influences, including the psychology of the marketplace and speculative assessments of future world and economic events. Political climate, interest rates, treaties, balance of payments, exchange controls and other governmental interventions, as well as numerous other variables affect the commodity markets, and even with complete information it is impossible for any trader to reliably predict commodity prices. *Copper.* The Exchange states that copper was the first mineral that man extracted from the earth and along with tin gave rise to the Bronze Age. As the ages and technology progressed, the uses for copper increased. With the increased demand, exploration for the metal was extended throughout the world, laying down the foundations for the industry as we know it today. Copper is an excellent conductor of electricity, as such one of its main industrial usage is for the production of cable, wire and electrical products for both the electrical and building industries. The construction industry also accounts for copper's second largest usage in such areas as pipes for plumbing, heating, and ventilating as well as building wire and sheet metal facings. The price of copper is volatile with fluctuations expected to affect the value of the Notes. The closing price of copper is determined by reference to the official U.S. dollar cash settlement price per ton of the copper futures contract traded on the LME. The price of copper is primarily affected by the global demand for and supply of copper. Demand for copper is significantly influenced by the level of global industrial economic activity. Industrial sectors which are particularly important include the electrical and construction sectors. In recent years demand has been supported by strong consumption from newly industrializing countries, which continue to be in a copper-intensive period of economic growth as they develop their infrastructure (such as China). An additional, but highly volatile, component of demand is adjustments to inventory in response to changes in economic activity and/or pricing levels. Apart from the United States, Canada, and Australia, the majority of copper concentrate supply (the raw material) comes from outside the Organization for Economic Cooperation and Development countries. Chile is the largest producer of copper concentrate. In previous years, copper supply has been affected by strikes, financial problems, and terrorist activity. Output has fallen particularly sharply in the “African Copperbelt” and in Bougainville, Papua New Guinea. The price of copper during the period January 2001 through September 2005, ranged from a high of $3,978 per ton in September 2005 to a low of $1,319 per ton in November 2001. As of September 30, 2005, the spot price as provided by that day's spot copper futures contract was $3,949 per ton. *Lead.* Being very soft and pliable and highly resistant to corrosion, lead was ideal for use in plumbing as well as for the manufacture of pewter. In the early 20th century, the Exchange states that the automotive industry took off and new areas of consumption—batteries and petrol—created an enormous market. Storage batteries remain the main outlet but lead-free fuels have caused a decline in usage. Ironically, environmental issues have brought about new uses for the metal, particularly in the housing of power generation units to protect against electrical charges or dangerous radiation. Changes in the price of lead are expected to affect the value of the Notes. The closing price of lead is determined by reference to the official U.S. dollar cash settlement price per ton of the lead futures contract traded on the LME. The price of lead is primarily affected by the global demand for and supply of lead. Demand for lead is significantly influenced by the level of global industrial economic activity. The storage battery market is extremely important given that the use of lead in the manufacture of batteries accounts for approximately two-thirds of worldwide lead demand. Lead is also used to house power generation units as it protects against electrical charges and dangerous radiation. Additional applications of lead include petrol additives, pigments, chemicals and crystal glass. The supply of lead is widely spread around the world. It is affected by current and previous price levels, which influences important decisions regarding new mines and smelters. A critical factor influencing supply is the environmental regulatory regimes of the countries in which lead is mined and processed. It is not possible to predict the aggregate effect of all or any combination of these factors. The price of lead during the period January 2001 through September 2005 ranged from a high of $1,056 per ton in December 2004 to a low of $425 per ton in October 2002. As of September 30, 2005, the spot price as provided by that day's spot lead futures contract was $975 per ton. 16 16 *See* Telephone Conference between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on April 24, 2006. *Nickel.* In the mid 18th century, the Exchange states that primary nickel was first isolated as a separate metal. Prior to this, it was found in copper mines and thought to be an unsmeltable copper ore. Primary nickel can resist corrosion and maintains its physical and mechanical properties even when placed under extreme temperatures. When these properties were recognized, the development of primary nickel began. It was found that by combining primary nickel with steel, even in small quantities, the durability and strength of the steel increased significantly, as did its resistance to corrosion. This partnership has remained and the production of stainless steel is now the single largest consumer of primary nickel today. This highly useful metal is also used in the production of many different metal alloys for specialized use. Changes in the price of nickel are expected to affect the value of the Notes. The closing price of nickel is determined by reference to the official U.S. dollar cash settlement price per ton of the nickel futures contract traded on the LME. The price of nickel is primarily affected by the global demand for and supply of nickel. Demand for nickel is significantly influenced by the level of global industrial economic activity. The stainless steel industrial sector is particularly important given that the use of nickel in the manufacture of stainless steel accounts for approximately two-thirds of worldwide nickel demand. An additional, but highly volatile, component of demand is adjustments to inventory in response to changes in economic activity and/or pricing levels. Nickel supply is dominated by Russia, the world's largest producer by far. Australia and Canada are also large producers. The supply of nickel is also affected by current and previous price levels, which will influence investment decisions in new mines and smelters. It is not possible to predict the aggregate effect of all or any combination of these factors. The price of nickel during the period January 2001 through September 2005 ranged from a high of $17,770 per ton in January 2004 to a low of $4,420 per ton in October 2001. As of September 30, 2005, the spot price per ton for nickel as provided by that day's spot nickel futures contract was $13,600 per ton. 17 17 *See* Telephone Conference between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on April 24, 2006. Amex confirmed that the spot price for nickel was calculated per ton. *Zinc.* Zinc is commonly mined as a co-product with standard lead, and both metals have growing core markets for their consumption. For zinc, the main market is galvanizing, which accounts for almost half its modern-day demand. Zinc's electropositive nature enables metals to be readily galvanized, which gives added protection against corrosion to building structures, vehicles, machinery, and household equipment. Changes in the price of zinc are expected to affect the value of the Notes. The closing price of zinc is determined by reference to the official U.S. dollar cash settlement price per ton of the zinc futures contract traded on the LME. The price of zinc is primarily affected by the global demand for and supply of zinc. Demand for zinc is significantly influenced by the level of global industrial economic activity. The galvanized steel industrial sector is particularly important given that the use of zinc in the manufacture of galvanized steel accounts for approximately 50% of world-wide zinc demand. The galvanized steel sector is in turn heavily dependent on the automobile and construction sectors. A relatively widespread increase in the demand for zinc by the galvanized steel sector, particularly in China and the United States, has been the primary cause of the recent rise in zinc prices. An additional, but highly volatile, component of demand is adjustments to inventory in response to changes in economic activity and/or pricing levels. The supply of zinc concentrate (the raw material) is dominated by China, Australia, North America, and Latin America. The supply of zinc is also affected by current and previous price levels, which will influence investment decisions in new mines and smelters. It is not possible to predict the aggregate effect of all or any combination of these factors. The price of zinc during the period January 2001 through September 2005 ranged from a high of $1,439 per ton in September 2005 to a low of $725.5 per ton in August 2002. As of September 30, 2005, the spot price per ton for zinc as provided by that day's spot zinc futures contract was $1,411 per ton. 18 18 *See* Telephone Conference between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on April 24, 2006. Amex confirmed that the spot price for zinc was calculated per ton. The LME The LME was established in 1877. The Exchange states that the LME is the principal metals exchange in the world on which contracts for the future delivery of copper, lead, zinc, and nickel are traded. In contrast to U.S. futures exchanges, the LME operates as a principals' market for the trading of forward contracts and is therefore more closely analogous to over-the-counter physical commodity markets than futures markets in the U.S. As a result, members of the LME trade with each other as principals and not as agents for customers, although such members may enter into offsetting “back-to-back” contracts with their customers. In addition, while futures exchanges permit trading to be conducted in contracts for monthly delivery in stated delivery months, historically, LME contracts were established for delivery on any day (referred to as a “prompt date”) from one day to three months following the date of the contract ( *i.e.* , the average amount of time it took a ship to sail from certain Commonwealth countries to London). Currently, LME contracts may be established for monthly delivery up to 63, 27, and 15 months forward (depending on the commodity). Further, because it is a principals' forward market, there are no price limits applicable to LME contracts, and therefore, prices may decline without limitation over a period of time. Trading is conducted on the basis of warrants that cover physical material held in listed warehouses. The LME is not a cash cleared market. Both inter-office and floor trading are cleared and guaranteed by a system run by the London Clearing House, whose role is to act as a central counterparty to trades executed between clearing members. The LME is subject to regulation by the Securities and Investment Board (“SIB”) in the United Kingdom. The bulk of trading on the LME is transacted through inter-office dealing that allows the LME to operate as a 24-hour market. Trading on the floor takes place in two sessions daily, from 11:40 a.m. to 1:15 p.m. and from 3:10 p.m. to 4:35 p.m., London time. The two sessions are each broken down into two rings made up of five minutes' trading in each contract. After the second ring of the first session, the official prices for the day are announced. Contracts may be settled by offset or delivery and can be cleared in U.S. dollars, pounds sterling, Japanese yen, and euros. Copper has traded on the LME since its establishment. The copper contract was upgraded to high grade copper in November 1981 and again to today's Grade-A contract which began trading in June 1986. Nickel joined the exchange in April 1979. The LME share (by weight) of world terminal market trading is over 90% of all copper and virtually all lead, nickel, and zinc. Commodity Market Regulation The Exchange states that the LME provides the trading environment for the four commodities of copper, lead, nickel, and zinc (as well as several others) and is required to ensure that business in its market is conducted in an orderly manner for the protection of investors. The members of the LME are the institutions involved in trading with each other and with their customers. Regulation of the market is largely carried out by the LME subject to SIB oversight with the Financial Services Authority (the “FSA”) responsible for regulating the financial soundness and conduct of LME members. Market participants are generally subject to a range of requirements, including fitness and properness, capital adequacy, liquidity, and systems controls. The FSA is responsible for regulating investment products, including derivatives, and those who deal in investment products. Approved as a recognized investment exchange (“RIE”) and conforming with U.K. and other international regulatory requirements, the LME provides price and volume transparency and audit trails. The Exchange states that LME members operate in a strict regulatory environment policed by the FSA. To ensure compliance with its regulatory obligations, the LME has a compliance department under the supervision of its executive director of regulation and compliance. This department monitors the market and member positions in order to analyze developments and ensure that the LME is meeting its regulatory responsibilities. The Notes are cash-settled in U.S. dollars and do not give the holder any right to receive a portfolio security, dividend payments, or any other ownership right or interest in the portfolio or index of securities comprising the Metals-China Basket. The Notes are designed for investors who desire to participate or gain exposure to the Metals-China Basket, are willing to hold the investment to maturity, and who want to limit risk exposure by receiving principal protection of their investment amount. Trading Because the Notes are issued in $1,000 denominations, the Amex's existing debt floor trading rules will apply to the trading of the Notes. 19 First, pursuant to Amex Rule 411, the Exchange will impose a duty of due diligence on its members and member firms to learn the essential facts relating to every customer prior to trading the Notes. 20 Second, even though the trading of the notes will occur on the debt trading floor subject to the debt trading rules of the Exchange, the Notes will be subject to the equity margin rules of the Exchange. 21 Third, the Exchange will, prior to trading the Notes, distribute a circular to the membership providing guidance with regard to member firm compliance responsibilities (including suitability recommendations) when handling transactions in the Notes and highlighting the special risks and characteristics of the Notes. With respect to suitability recommendations and risks, the Exchange will require members, member organizations and employees thereof recommending a transaction in the Notes:
(1)To determine that such transaction is suitable for the customer, and
(2)to have a reasonable basis for believing that the customer can evaluate the special characteristics of, and is able to bear the financial risks of, such transaction. In addition, Wachovia will deliver a prospectus in connection with the initial sales of the Notes. 19 Because the Notes are principal protected, the Exchange has not set out specific criteria for trading halts. However, if a “market disruption event” occurs that is of more than a temporary nature, the Exchange will cease trading the Notes. In the event a “market disruption event” occurs that is of more than a temporary nature, the Exchange would immediately contact the Commission to discuss measures that may be appropriate under the circumstances. *See* Telephone Conference between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on April 24, 2006. 20 Amex Rule 411 requires that every member, member firm or member corporation use due diligence to learn the essential facts, relative to every customer and to every order or account accepted. 21 *See* Amex Rule 462 and section 107B of the Company Guide. The Exchange represents that its surveillance procedures are adequate to properly monitor the trading of the Notes. Specifically, the Amex will rely on its existing surveillance procedures governing equities, which have been deemed adequate under the Act. In addition, the Exchange also has a general policy which prohibits the distribution of material, non-public information by its employees. Exchange surveillance procedures applicable to trading in the proposed Notes will be similar to those applicable to other index-linked notes listed and traded on the Exchange. The Exchange also has in place a comprehensive surveillance agreement with the Hong Kong Stock Exchange. 22 In addition, the Hong Kong Exchanges and Clearing Ltd. (“HKEx”), which is the clearing house for both the Hong Kong Stock Exchange and the Hong Kong Futures Exchange, is currently an affiliate member of the Intermarket Surveillance Group (“ISG”). In addition, the Exchange has negotiated an Information Sharing Agreement with the LME regarding the sharing of information related to any financial instrument based, in whole or in part, upon an interest in or performance of copper, lead, nickel, and zinc. 22 *See* Telephone Conference between Jeffrey Burns, Associate General Counsel, Amex, and Florence Harmon, Senior Special Counsel, Division of Market Regulation, Commission, on April 24, 2006. The listing and trading of the China-Metals Notes will be subject to Amex Rules 1203A and 1204A applicable to Commodity-Based Trust Shares. Amex Rule 1203A addresses potential conflicts of interest and provides that the prohibitions in the Amex Rule 175(c) apply to a specialist in the Notes so that the specialist or affiliated person may not act or function as a market maker in the underlying commodities, related futures contracts or option on commodity future, or any other related commodity derivative. An affiliated person of the specialist, consistent with the Amex Rule 193, may be afforded an exemption to act in a market making capacity, other than as a specialist in the Notes on another market center, in the underlying commodities, related futures or options or any other related commodity derivative. More specifically, Amex Rule 1203A provides that an approved person of the specialist that has established and obtained Exchange approval for procedures restricting the flow of material, non-public market information between itself and the specialist member organization, and any member, officer, or employee associated therewith, may act in a market making capacity, other than as a specialist in the Notes, on another market center in the underlying commodity, related commodity futures or options on commodity futures, or any other related commodity derivatives. Amex Rule 1204A requires that specialists provide the Exchange with all the necessary information relating to their trading in physical commodities and related futures contracts and options thereon or any other related commodities derivative. Amex Rule 1204A states that, in connection with trading the physical asset or commodities, futures or options on futures, or any other related derivatives, the use of material, non-public information received from any person associated with a member, member organization, or employee of such person regarding trading by such person or employee in the physical asset or commodities, futures or options on futures, or any other related derivatives is prohibited by the Exchange. 2. Statutory Basis The Exchange believes that the proposed rule change, as amended, is consistent with section 6 of the Act 23 in general, and furthers the objectives of section 6(b)(5) 24 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. 23 15 U.S.C. 78f(b). 24 15 U.S.C. 78(f)(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change, as amended, will impose any 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. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the self-regulatory organization consents, the Commission will:
(A)By order approve the proposed rule change, or
(B)institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form at *http://www.sec.gov/rules/sro.shtml* or • Send an e-mail to *rule-comments@sec.gov.* Please include File No. SR-Amex-2005-105 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File No. SR-Amex-2005-105. 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 at *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 Amex. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-Amex-2005-105 and should be submitted on or before May 24, 2006. 25 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 25 Nancy M. Morris, Secretary. [FR Doc. E6-6642 Filed 5-2-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-53727; File No. SR-CBOE-2006-37] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend CBOE Rule 8.4 Relating to Remote Market-Maker Appointments April 26, 2006. 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 April 12, 2006, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Exchange filed the proposal as a “non-controversial” proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b-4(f)(6) thereunder. 4 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change CBOE proposes to amend CBOE Rule 8.4 relating to Remote Market-Maker appointments. The text of the proposed rule change is available at the Office of the Secretary, CBOE and at the Commission. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this rule change is to amend CBOE Rule 8.4 relating to Remote Market-Maker (“RMM”) appointments. CBOE Rule 8.4 provides that RMMs will have a Virtual Trading Crowd (“VTC”) Appointment, which confers the right to quote electronically in a certain number of products selected from various “Tiers”. There are five Tiers (Tiers A, B, C, D, and E) that are structured according to trading volume statistics, and an “A+” Tier which consists of five option classes—options on Standard & Poor's Depositary Receipts, options on the Nasdaq-100 Index Tracking Stock, options on Diamonds, reduced value options on the Standard & Poor's 500 Stock Index, and options based on The Dow Jones Industrial Average. CBOE Rule 8.4(d) assigns “appointment costs” to Hybrid 2.0 Classes based on the Tier in which they are located, and an RMM may select for each Exchange membership it owns or leases any combination of products trading on the Hybrid 2.0 Platform whose aggregate “appointment cost” does not exceed 1.0. CBOE proposes to make the following changes to the Tiers. CBOE proposes to remove from the A+ Tier reduced value options on the Standard & Poor's 500 Stock Index (XSP). Going forward, XSP options would fall within one of the remaining Tiers A through E depending on its trading volume. As a result of this change, the appointment cost for XSP options would be reduced from .25 to the appointment cost for whichever Tier (A through E) it is assigned. CBOE also proposes to make two changes to the non-A+ Tiers. First, CBOE proposes to lower the appointment costs for Tiers B, C, D, and E as follows (the costs for Tiers A and A+ remain the same): Tiers Existing appointment cost New appointment cost B .0667 .05 C .05 .04 D .04 .02 E .033 .01 CBOE believes that the above new appointment costs for Tiers B, C, D, and E, are more appropriate for each of these four Tiers which would effectively lower an RMM's cost to access CBOE's marketplace and receive an appointment in multiple Hybrid 2.0 Classes. Moreover, these revised appointment costs are more competitive with the access costs at other options exchanges to hold an appointment as a market-maker in multiple option classes. Second, CBOE proposes to amend the composition of the five non-A+ Tiers, in connection with CBOE's determination to increase the total number of option classes traded on the Hybrid 2.0 Platform from approximately 605 to 905. When CBOE launched its RMM program in March 2005, it initially designated as Hybrid 2.0 Classes the 602 most actively traded, multiply listed option classes. CBOE also advised its members that it may designate additional classes as Hybrid 2.0 Classes as conditions warrant. Increasing the total number of Hybrid 2.0 Classes to 905 would increase competition and liquidity in these option classes by allowing RMMs to have an appointment in them, and would provide RMMs with additional trading opportunities. As noted above, Tiers A through E are structured according to trading volume statistics, with Tier A consisting of the 20% most actively-traded Hybrid 2.0 Classes over the preceding three calendar months, (excluding “A+” Tier products), Tier B consisting of the next 20% most actively-traded products, etc., through Tier E, which consists of the 20% least actively-traded Hybrid 2.0 Classes. Currently, there are approximately 605 option classes traded on the Hybrid 2.0 Platform. Tiers A through E thus each consist of approximately 120 Hybrid 2.0 Classes. CBOE proposes to amend the composition of Tiers A through E as follows: Tiers Current tier composition New tier composition A 20% Most Active Hybrid 2.0 Classes (Classes 1-120) Hybrid 2.0 Classes 1-60. B Next 20% Most Active Hybrid 2.0 Classes (Classes 121-240) Hybrid 2.0 Classes 61-120. C Next 20% Most Active Hybrid 2.0 Classes (Classes 241-360) Hybrid 2.0 Classes 121-345. D Next 20% Most Active Hybrid 2.0 Classes (Classes 361-480) Hybrid 2.0 Classes 346-570. E Next 20% Most Active Hybrid 2.0 Classes (Classes 481-600) All Remaining Hybrid 2.0 Classes. 5 CBOE believes that these new Tier compositions more accurately reflect the appropriate appointment costs for the classes located in them, based on the average daily trading volume for these classes. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with the Act and the rules and regulations under the Act applicable to a national securities exchange and, in particular, the requirements of Section 6(b) of the Act. 6 Specifically, the Exchange believes the proposed rule change is consistent with the Section 6(b)(5) of the Act, 7 which requires that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts and, in general, to protect investors and the public interest. 5 CBOE will publish periodically to its members via Information Circular the total number of option classes traded on the Hybrid 2.0 Platform. 6 15 U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received from Members, Participants or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 8 and subparagraph (f)(6) of Rule 19b-4 9 thereunder because it does not:
(i)Significantly affect the protection of investors or the public interest;
(ii)impose any significant burden on competition;
(iii)become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate; and the Exchange has given the Commission written notice of its intention to file the proposed rule change at least five business days prior to filing. At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 8 15 U.S.C. 78s(b)(3)(A)(iii). 9 17 CFR 240.19b-4(f)(6). Under Rule 19b-4(f)(6) of the Act, 10 the proposal does not become operative for 30 days after the date of its filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. The Exchange has requested that the Commission waive the 30-day operative date, so that the proposal may take effect upon filing. The proposal lowers the appointment costs for Tiers B, C, D, and E, and changes the composition of the five non-A+ Tiers to reflect the designation of additional Hybrid 2.0 classes. The Exchange believes that the proposed rule change does not raise any new regulatory issues and promotes competition by reducing the access costs of trading in multiple options classes as an RMM. The Commission agrees and, consistent with the protection of investors and the public interest, has determined to waive the 30-day operative date so that the proposal may take effect upon filing. 10 17 CFR 240.19b-4(f)(6). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-CBOE-2006-37 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CBOE-2006-37. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 100 F Street, NE., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of the CBOE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2006-37 and should be submitted on or before May 24, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-6659 Filed 5-2-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-53729; File No. SR-ISE-2006-15] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Execution of Complex Orders April 26, 2006. 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 April 13, 2006, the International Securities Exchange, Inc. (“ISE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The ISE has filed this proposal pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The ISE is proposing to amend its rules to specify that complex orders may be executed using the Solicited Order Mechanism. The text of the rule change is as follows. *Italics* indicate additions; [bracketing] indicates deletions. Rule 716. Block Trades
(a)through
(e)no change. Supplementary Material to Rule 716 .01 through .07 no change. .08 Complex Orders. Electronic Access Members may use the Facilitation Mechanism *and the Solicited Order Mechanism* according to paragraph *s*
(d)*and (e)* of this Rule 716 to [facilitate] *execute* block-size complex orders (as defined in Rule 722) at a net price. Members may enter Indications for complex orders at net prices, and bids and offers for complex orders will participate in the execution of an order being [facilitated] *executed* as provided in paragraph *s*
(d)*and (e)* of this Rule 716. With respect to bids and offers for the individual legs of a complex order entered into the [Facilitation M] *m* echanism *s* , the priority rules for complex orders contained in Rule 722(b)(2) will continue to be applicable. If an improved net price for the complex order being [facilitated] *executed* can be achieved from bids and offers for the individual legs of the complex order in the Exchange's auction market, the order being [facilitated] *executed* will receive an execution at the better net price. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to amend Supplementary Material .08 to ISE Rule 716, “Block Trades,” to specify that complex orders may be executed through the Solicited Order Mechanism. The Commission previously approved the execution of complex orders through the Facilitation Mechanism, and the Exchange has modified its system to similarly handle the execution of complex orders through the Solicited Order Mechanism. 5 5 *See* Securities Exchange Act Release No. 52327 (Aug. 24, 2005), 70 FR 51854 (Aug. 31, 2005) (order approving File No. SR-ISE-2004-33) (“Facilitation Mechanism Order”). The Facilitation and Solicited Order Mechanisms work in the same basic manner. An Electronic Access Member (“EAM”) enters an order of a minimum size with a counter side interest, and other market participants are given an opportunity to participate in the trade before it is automatically executed. Complex orders are entered at a net price and are handled in the same manner as any other order under ISE Rule 716(d), “Facilitation Mechanism,” and ISE Rule 716(e), “Solicited Order Mechanism.” 6 With respect to bids and offers for the individual legs of a complex order entered into either mechanism, the priority rules for complex orders contained in ISE Rule 722(b)(2), “Complex Order Priority,” continue to be applicable. If an improved net price for the complex order being executed can be achieved from bids and offers for the individual legs of the complex order in the Exchange's auction market, the order being executed will receive an execution at the better net price. 6 Each mechanism has different execution requirements. In particular, the Facilitation Mechanism has a minimum order size of 50 contracts, while the Solicited Order Mechanism has a minimum order size of 500 contracts. Each leg of a complex order must comply with these minimum order sizes. In addition, the Solicited Order Mechanism requires that all orders be entered as all-or-none orders, while the Facilitation Mechanism does not have this requirement. Complex orders would be subject to the all-or-none requirement when entered into the Solicited Order Mechanism. 2. Statutory Basis The Exchange believes that the basis under the Act for this proposed rule change is found in section 6(b)(5), 7 in that it will serve to remove impediments to, and perfect the mechanisms of, a free and open market and a national market system and, in general, to protect investors and the public interest. In particular, the proposed rule change will make an existing service available to an additional order type. 7 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes that the proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has designated the proposed rule change as one that:
(i)Does not significantly affect the protection of investors or the public interest;
(ii)does not impose any significant burden on competition; and
(iii)does not become operative for 30 days from the date of filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. In addition, as required under Rule 19b-4(f)(6)(iii), 8 the ISE provided the Commission with written notice of its intention to file the proposed rule change, along with a brief description and the text of the proposed rule change, at least five business days prior to filing the proposal with the Commission. Therefore, the foregoing rule change has become effective pursuant to section 19(b)(3)(A) of the Act 9 and Rule 19b-4(f)(6) thereunder. 10 8 17 CFR 240.19b-4(f)(6)(iii). 9 15 U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b-4(f)(6). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate the rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-ISE-2006-15 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-ISE-2006-15. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-ISE-2006-15 and should be submitted on or before May 24, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-6641 Filed 5-2-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-53721; File No. SR-NSX-2006-03] Self-Regulatory Organizations; National Stock Exchange SM ; Notice of Filing of a Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to the Demutualization of the National Stock Exchange April 25, 2006. 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 April 5, 2006, the National Stock Exchange SM (“NSX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. On April 19, 2006, the NSX submitted Amendment No. 1 to the proposed rule change. 3 On April 25, 2006, the NSX submitted Amendment No. 2 to the proposed rule change. 4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 (“Amendment No. 1”) makes revisions to the proposed: Holdings Certificate of Incorporation, sections (b)(iii)(B) and (C); Holdings By-Laws, Article III, Sections 3.1 and 3.4; NSX By-Laws, Article III, section 3.2(b); and NSX Rule 2.10. In addition, Amendment No. 1 adds new proposed section 3.6 to Article III of the Holdings By-Laws, requiring Holdings to take reasonable steps necessary to cause its officers, directors, and employees to consent to the applicability to them of Article III of the Holdings By-Laws. Finally, Amendment No. 1 makes corresponding changes to Item 3 of Form 19b-4 and Exhibit 1 to describe the effect of the foregoing Exhibit 5 revisions and also add a description of proposed NSX Rule 2.10. 4 Amendment No. 2 (“Amendment No. 2”) made changes to Item 3 of Form 19b-4 and Exhibit 1, which changes have been incorporated into this notice. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The NSX proposes a series of changes to its corporate structure and governance documents to allow for the demutualization of NSX. NSX is proposing to “demutualize” by converting NSX from an Ohio non-stock, nonprofit membership corporation to a Delaware for-profit stock corporation. To effect the demutualization, NSX states that it has established a Delaware for-profit stock holding company, NSX Holdings, Inc. (“Holdings”) that would become the parent company and sole stockholder of NSX after the demutualization. NSX would become a Delaware for-profit stock corporation that would continue to engage in the business of operating a national securities exchange registered under Section 6 of the Act. 5 NSX states that it would continue to have self-regulatory responsibilities over its members, and would have its own Board of Directors that would manage NSX's business and affairs. 5 15 U.S.C. 78f. The proposed rule change for implementing the demutualization includes the Amended and Restated Certificate of Incorporation of Holdings (the “Holdings Certificate of Incorporation”), Amended and Restated By-Laws of Holdings (the “Holdings By-Laws”), Amended and Restated Certificate of Incorporation of National Stock Exchange, Inc. (the “NSX Certificate of Incorporation”), Amended and Restated By-Laws of National Stock Exchange, Inc. (the “NSX By-Laws), and revised Rules of National Stock Exchange, Inc. (the “NSX Rules”), Exhibit 5 of NSX's proposed rule change contains the NSX Certificate of Incorporation, the NSX By-Laws, and the NSX Rules, each marked to reflect changes from the current Articles of Incorporation, By-Laws, and Rules of the Exchange, as well as the new Holdings Certificate of Incorporation and the Holdings Bylaws. A summary of these documents is provided below. The full text of Exhibit 5 is available on the Commission's Web site at * http:// www.sec.gov * , 6 the Web site of the Exchange at *http://www.nsx.com* , at the principal office of the Exchange, and at the Commission. 6 The text of Exhibit 5 posted on the Commission's Web site is edited to incorporate the changes made in Amendment No. 1. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change, as amended. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Through this proposed rule change, as amended, the Exchange proposes a series of changes to the Exchange's corporate structure that would allow for the demutualization of the Exchange. The Exchange also proposes changes to its rules to implement a proposed equity trading permit structure, which would replace the existing structure of Exchange membership as a basis for trading rights. a. Description of Demutualization Transaction Currently, NSX is a non-stock, nonprofit Ohio corporation. NSX proposes to demutualize by reorganizing as a Delaware for-profit stock corporation that would be a direct and wholly-owned subsidiary of a new Delaware for-profit stock holding company, Holdings. To accomplish the demutualization, NSX has established
(i)two new Delaware stock for-profit corporations: Holdings, a direct and wholly-owned subsidiary of NSX, and NSX Delaware Merger Sub, Inc. (“NSX Delaware Merger Sub”), a direct and wholly-owned subsidiary of Holdings, and
(ii)one transitory Ohio stock for-profit corporation, NSX Ohio Merger Sub, Inc. (“NSX Ohio Merger Sub”), also a direct and wholly owned subsidiary of Holdings. 7 7 The Exchange states that the establishment of NSX Ohio Merger Sub and the process of demutualization through two mergers (as described more fully in this document) are necessitated because under Ohio law, NSX, as an Ohio nonprofit corporation, may not merge directly with and into a foreign for-profit corporation, such as NSX Delaware Merger Sub. Pursuant to an agreement and plan of merger, NSX would merge (“Merger #1”) with and into NSX Ohio Merger Sub, with NSX Ohio Merger Sub surviving the merger as an Ohio for-profit stock corporation that is a direct and wholly-owned subsidiary of Holdings. As a result of Merger #1, NSX Ohio Merger Sub will be the initial successor-in-interest to NSX. Immediately following Merger #1, pursuant to a second agreement and plan of merger, NSX Ohio Merger Sub would merge (“Merger #2”) with and into NSX Delaware Merger Sub, with NSX Delaware Merger Sub surviving the merger as a Delaware for-profit stock corporation that is a direct and wholly-owned subsidiary of Holdings, and renamed National Stock Exchange, Inc. For ease of reference, the term “NSX” in this document will also refer to the Exchange as a Delaware for-profit stock corporation after the demutualization. The Exchange states that upon completion of Merger #2, NSX, the Delaware for-profit stock corporation, would be, in effect, the successor-in-interest to NSX, the current Ohio non-stock, nonprofit corporation, and would assume all of the assets and liabilities of the Exchange, including, without limitation, the adherence to, and the performance of, the undertakings under the *Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 19(b) and 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Sanctions* , entered by the Commission on May 19, 2005 8 (the “Order”) 9 . NSX states that it would continue to engage in the business of operating a national securities exchange registered under section 6 of the Act. 10 8 *See* Securities Exchange Act Release No. 51714. 9 The Exchange has advised the staff that it may petition the Commission to modify the Order in light of the potential demutualization and the anticipated changes to the trading platform (for which Commission approval will be sought in a subsequent filing). 10 15 U.S.C. 78f. Following the demutualization, the Exchange states that earnings of NSX not retained in its business may be distributed to its parent, Holdings, and Holdings would be authorized to pay dividends to the stockholders of Holdings as and when they are declared by the Board of Directors of Holdings, but subject to the limitation under the proposed NSX By-Laws that any revenues received by NSX from regulatory fees or penalties may not be used to pay dividends. *See* proposed NSX By-Laws, Section 10.4. Presently, the members of NSX hold certificates of proprietary membership in NSX and have a right to trade on the exchange operated by NSX. 11 On the effective date of the demutualization (the “Effective Date”), each member of NSX would receive 1,000 shares of Holdings Class A common stock 12 for the first certificate of proprietary membership of NSX held by the member and would receive a modestly discounted number of shares of Class A common stock (determined by a formula set forth in the Merger #1 merger agreement) for each additional certificate held. If, however, the total number of Class A shares to be received by a member that would hold an equity trading permit entitling it to trading access on the Exchange after the demutualization (an “ETP Holder”), together with any Class A shares to be received by that member's Related Persons, 13 would exceed 20% of the total number of Class A shares issued (and thus be in violation of an ownership limitation under the proposed Holdings Certificate of Incorporation 14 ), that member would receive shares of Class C common stock 15 (which would generally not be entitled to the right to vote) in lieu of the shares of Class A common stock that are in excess of the 20% ownership limitation (and that the member would have received were the 20% ownership limitation not in effect under the proposed Holdings Certificate of Incorporation). 11 *See infra* note 16 and subsection c.(1)(b)(ii) for a description of Chicago Board Options Exchange, Incorporated's interest in NSX. 12 Holdings would be authorized to issue 1,100,000 shares of common stock having a par value of $.0001 per share (of which 900,000 shares will be designated as Class A common stock, 100,000 shares will designated as Class B common stock and 100,000 shares will be designated as Class C common stock) and 100,000 shares of preferred stock having a par value of $.0001 per share. The Class A common stock would be entitled to one vote per share, absent a provision in the Holdings Certificate of Incorporation fixing or denying voting rights. Neither the Class B nor Class C common stock would be entitled to vote, unless the matter at issue would alter the rights, preferences, privileges or limitations (other than the right to vote) of that stock, respectively, without also altering the rights, preferences, privileges and limitations of the Class A common stock in an identical manner. *See* proposed Holdings Certificate of Incorporation, Article Fourth, and proposed Holdings By-Laws, Section 4.10. 13 Under the proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (a)(ii), “Related Persons” means, with respect to any Person:
(A)Any “affiliate” of such Person (as such term is defined in Rule 12b-2 under the Act);
(B)any other Person with which such first Person has any agreement, arrangement or understanding (whether or not in writing) to act together for the purpose of acquiring, voting, holding or disposing of shares of the capital stock of the Corporation;
(C)in the case of a Person that is a company, corporation or similar entity, any executive officer (as defined under Rule 3b-7 under the Act) or director of such Person and, in the case of a Person that is a partnership or limited liability company, any general partner, managing member or manager of such Person, as applicable;
(D)in the case of an ETP Holder, any Person that is associated with the ETP Holder (as determined using the definition of “person associated with a member” as defined under Section 3(a)(21) of the Act);
(E)in the case of a Person that is an individual, any relative or spouse of such Person, or any relative of such spouse who has the same home as such Person or who is a director or officer of the Corporation or any of its parents or subsidiaries;
(F)in the case of a Person that is an executive officer (as defined under Rule 3b-7 under the Act) or a director of a company, corporation or similar entity, such company, corporation or entity, as applicable; and
(G)in the case of a Person that is a general partner, managing member or manager of a partnership or limited liability company, such partnership or limited liability company, as applicable. 14 This ownership limitation, in addition to other ownership, voting and transfer limitations, is described more fully later in this document. 15 Each share of Class C common stock issued would be convertible, at the option of its holder, to one share of Class A common stock upon the satisfaction of certain notification and other requirements under the Holdings Certificate of Incorporation, but only to the extent that the conversion does not violate the limitations on ownership, transfer and voting applicable to Class A common stock under the Holdings Certificate of Incorporation, as more fully described in this document. *See* proposed Holdings Certificate of Incorporation, Article Fourth, paragraph (d). The Exchanges states that Chicago Board Options Exchange, Incorporated (“CBOE”) is not a member of NSX but owns certificates of proprietary membership in NSX. In the demutualization, CBOE would receive shares of Holdings Class B common stock (which is generally not entitled to the right to vote) in exchange for its certificates of proprietary membership in NSX that are subject to put and call rights under a Termination of Rights Agreement between NSX and CBOE dated September 27, 2004 (the “TORA”), 16 and would receive shares of Holdings Class A common stock in exchange for the remainder of its certificates of proprietary membership. 17 The number of Class A and Class B shares received by CBOE would be based on the discount formula set forth in the Merger #1 merger agreement. 16 The Exchange states that, in 1986, NSX and CBOE entered into an agreement of affiliation pursuant to which CBOE obtained certificates of proprietary membership in NSX and certain rights associated with NSX, including the right to hold certain seats on the Board of Directors of NSX and certain put rights in connection with its certificates of proprietary membership in NSX. Under the TORA, the CBOE agreed to relinquish, upon certain terms, certain of these rights in exchange for cash payments and other undertakings. *See* Securities Exchange Act Release No. 34-51033 (January 13, 2005), 70 FR 3085 (January 19, 2005) (File No. SR-NSX-2004-12). *See also supra* subsection c(1)(b)(ii). 17 Each share of Class B common stock would automatically convert to one share of Class A common stock upon its transfer, in accordance with the TORA, to a bona fide third party purchaser unaffiliated with CBOE. *See* proposed Holdings Certificate of Incorporation, Article Fourth, paragraph (c). NSX states that the Class B shares would be transferable only under extraordinary circumstances. Following the demutualization, persons and entities who have been qualified for membership under the Exchange's current Rules and, as a result, have access to the Exchange's trading facilities would separately receive NSX equity trading permits (“ETPs”) entitling them to maintain their trading access to NSX and, as noted above, would be referred to as “ETP Holders.” Shares of Holdings capital stock and ETPs would not be tied together. The Exchange states that, as a result, following the demutualization, former NSX members would be able to sell the shares of Holdings capital stock they receive in connection with the demutualization, subject to the applicable restrictions in the proposed Holdings Certificate of Incorporation and Holdings By-Laws (as described more fully below), while retaining the ability to trade and operate on the Exchange pursuant to their ETPs. NSX states that any other person or entity that satisfies the regulatory requirements set forth in the NSX Rules also would be able to obtain an ETP without regard to whether such person is a stockholder of Holdings. b. Reasons for the Proposed Demutualization There are several benefits that the Exchange believes may result from the demutualization of the Exchange. The Exchange believes that, by adopting a for-profit approach with a view towards optimizing volume, efficiency, and liquidity in the markets the Exchange provides, it would be able to better meet the demands of, and provide value to, investors, while also preserving the ability to provide benefits and opportunities for ETP Holders. Additionally, NSX believes that its reorganization into a holding company structure could provide increased financing opportunities and better access to capital markets, which, as a result, could improve the Exchange's business and facilitate strategic initiatives. NSX also believes that the creation of Holdings as a for-profit stock corporation may present opportunities to enter into strategic alliances, while allowing the regulated Exchange business to remain separate. The Exchange states that it remains committed to its role as a national securities exchange and does not believe that a change to a for-profit institution will undermine its responsibilities for regulating its marketplace. Indeed, as further described below, the Exchange believes that it has proposed specific provisions in the proposed Holdings By-Laws and NSX By-Laws that reinforce the ability of the Exchange to perform its self-regulatory functions. In addition, NSX states that it has retained in the proposed NSX By-Laws certain governance provisions of its current By-Laws (for example, the inclusion and governing structure of a Regulatory Oversight Committee) that were required by the Order. c. Summary of Proposed Rule Change The proposed rule change, as amended, is outlined below. In general, the proposed rule change, as amended, consists of the proposed Holdings Certificate of Incorporation and Holdings By-Laws and the proposed changes to the Articles of Incorporation and By-Laws of the Exchange that reflect governance and corporate form changes. NSX states that the proposed rule change also includes proposed changes to the Rules of the Exchange that are necessary to implement the proposed equity trading permit structure. NSX also proposes to move certain provisions in the current By-Laws of NSX respecting members, listing standards, and other matters not relating to the Exchange's corporate governance to the NSX Rules.
(1)Corporate Structure
(a)Holdings Following the demutualization, Holdings would be the parent company and sole stockholder of NSX. NSX states that all of the issued and outstanding stock of Holdings initially would be owned by the former owners of certificates of proprietary membership in the Exchange. As sole stockholder of NSX, Holdings would have the right to elect the Board of Directors of NSX, subject to certain provisions in the Holdings By-Laws that require Holdings to vote for certain persons nominated for ETP Holder Director positions and certain persons nominated for CBOE Director positions, in each case in accordance with the revised governance documents of NSX. The Holdings Certificate of Incorporation and the Holdings By-Laws would govern the activities of Holdings.
(i)Holdings Board of Directors The business and affairs of Holdings would be managed by its Board of Directors (“Holdings Board”). The Holdings Board would consist of between 10 and 16 persons, as determined by the Holdings Board, one of which shall be the Chief Executive Officer (“CEO”) of Holdings. The Holdings Board would initially have 13 directors after the demutualization. No person that is subject to any “statutory disqualification” (within the meaning of Section 3(a)(39) of the Act) may be a director of Holdings. 18 18 *See* proposed Holdings Certificate of Incorporation, Article Sixth, section (a), and proposed Holdings By-Laws, sections 2.2(a) and (b). The directors of Holdings would be divided into three classes, which would be as nearly equal in number as the total number of directors then constituting the entire Holdings Board. After completion of an initial phase-in schedule, the directors of Holdings would serve staggered three-year terms, with the term of office of one class expiring each year. 19 19 *See* proposed Holdings Certificate of Incorporation, Article Sixth, section (b), and proposed Holdings By-Laws, section 2.2(c). The Holdings Board would elect its Chairman from among the directors on the Holdings Board, and may elect a vice-chairman to perform the functions of the Chairman in his or her absence. 20 20 *See* proposed Holdings By-Laws, section 2.3(a). At each annual meeting of the stockholders of Holdings at which a quorum is present, the individuals receiving a plurality of the votes cast of the Class A shares would be elected directors of Holdings. 21 At an election of directors, each Holdings stockholder would be entitled to one vote for each share of Class A common stock owned by that stockholder. 22 Class B and Class C shares shall not be entitled to vote at an election of directors. 23 21 *See* proposed Holdings By-Laws, section 4.8. 22 *See* proposed Holdings Certificate of Incorporation, Article Fourth, paragraph (b), and proposed Holdings By-Laws, section 4.10. 23 *See* proposed Holdings Certificate of Incorporation, Article Fourth, paragraphs
(c)and (d). In most cases, vacancies on the Holdings Board would be filled by the remaining directors of Holdings. If the vacancy has resulted from a director being removed for cause by the stockholders of Holdings, however, that vacancy may be filled by the stockholders of Holdings at the same meeting at which the director was removed. Any director appointed to fill a vacancy will serve until the expiration of the term of office of the replaced director or until the end of the term for a newly created directorship. 24 24 *See* proposed Holdings By-Laws, section 2.4.
(ii)Committees of Holdings The Holdings Board would have an Audit Committee, a Governance and Nominating Committee, and such other committees that the Holdings Board establishes. 25 The Chairman of the Holdings Board would appoint the members of all committees of the Holdings Board, and may remove any member so appointed, subject to the approval of the Holdings Board. 26 Each committee would have the authority and duties prescribed for it in the Holdings By-Laws or by the Holdings Board. 27 25 *See* proposed Holdings By-Laws, section 5.1. 26 *See* proposed Holdings By-Laws, section 5.2. 27 *See* proposed Holdings By-Laws, section 5.3.
(iii)Officers of Holdings The officers of Holdings would be a CEO, a President, a Secretary, a Treasurer, and such other officers as the Holdings Board determines. 28 The CEO would be responsible to the Holdings Board for management of the business affairs of Holdings. 29 The officers of Holdings would have the duties and authority set forth in the Holdings By-Laws or given to them by the Holdings Board, and in the case of the President, the Secretary, and the Treasurer, given to them by the Chief Executive Officer. 30 Any two or more offices may be held by the same person, except that the Secretary may not also serve as the CEO or the President. No person that is subject to any “statutory disqualification” (within the meaning of section 3(a)(39) of the Act) may be an officer of Holdings. 31 28 *See* proposed Holdings By-Laws, section 6.1. 29 *See* proposed Holdings By-Laws, section 6.4. 30 *See* proposed Holdings By-Laws, sections 6.1, 6.4, 6.5, 6.6, and 6.7. 31 *See* proposed Holdings By-Laws, section 6.1.
(iv)Stockholder Restrictions The Holdings Certificate of Incorporation and the Holdings By-Laws place certain restrictions on the ability to transfer, own, and vote the capital stock of Holdings.
(1)Restrictions on voting The Holdings Certificate of Incorporation prohibits any Person, 32 either alone or together with its Related Persons, from
(a)voting or giving a proxy or consent with respect to shares representing more than 20% of the voting power of the then-issued and outstanding capital stock of Holdings; or
(b)entering into any agreement, plan, or arrangement that would result in the shares of Holdings subject to that agreement, plan, or arrangement not being voted on a matter, or any proxy relating thereto being withheld, where the effect of that agreement, plan, or arrangement would be to enable any Person, alone or together with its Related Persons, to obtain more than 20% of the voting power of the then-issued and outstanding capital stock of Holdings. 33 32 Article Fifth of the proposed Holdings Certificate of Incorporation defines a “Person” to mean “an individual, partnership (general or limited), joint stock company, corporation, limited liability company, trust or unincorporated organization, or any governmental entity or agency or political subdivision thereof.” 33 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (b)(ii)(C). This restriction would not apply to the Class B or Class C common stock and, as to the Class A common stock owned by Persons other than ETP Holders and their Related Persons, may be waived by Holdings Board pursuant to a resolution adopted by the Holdings Board. 34 Before adopting such resolution, however, the Holdings Board must determine that, among other things, the waiver of the voting limitation will not impair the ability of NSX to carry out its functions and responsibilities under the Act and the rules and regulations promulgated thereunder, and will not impair the Commission's ability to enforce the Act and the rules and regulations promulgated thereunder. 35 In addition, the Holdings Board also must determine that a Person and its Related Persons that would vote more than 20% of the outstanding stock of Holdings are not subject to an applicable “statutory disqualification” (within the meaning of section 3(a)(39) of the Act). 36 Finally, any resolution of the Holdings Board that would permit a Person to vote more than 20% of the outstanding stock of Holdings must be filed with and approved by the Commission before it becomes effective. 37 34 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraphs (b)(iii)(A) and (B). *See* Amendment No. 1, *supra* note 3. 35 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (b)(iii)(B). 36 15 U.S.C. 78c(a)(39); *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (b)(iv). 37 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (b)(iii)(B).
(2)Restrictions on ownership Under the proposed Holdings Certificate of Incorporation, no Person, either alone or together with its Related Persons, may own shares constituting more than 40% of any class of capital stock of Holdings (other than a class of stock without general voting rights). 38 The Holdings Board may waive this ownership limitation pursuant to a resolution adopted by the Holdings Board. Before adopting such resolution, however, the Holdings Board must determine that, among other things, the waiver of the ownership limitation would not impair the ability of NSX to carry out its functions and responsibilities under the Act and the rules and regulations promulgated thereunder and would not impair the Commission's ability to enforce the Act and the rules and regulations promulgated thereunder. 39 38 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraphs (b)(ii)(A) and (b)(iii)(A). 39 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (b)(iii)(B). In addition, the Holdings Board also must determine that any Person and its Related Persons that would own more than 40% of any class of capital stock of Holdings are not subject to any applicable “statutory disqualification” (within the meaning of section 3(a)(39) of the Act). 40 Finally, any Holdings Board resolution that would permit ownership of Holdings capital stock in excess of the ownership limitation described above must be filed with and approved by the Commission before it becomes effective. 41 40 15 U.S.C. 78c(a)(39); *see* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (b)(iv). 41 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraphs (b)(iii)(B) and (C). In addition to the ownership restriction described above, no ETP Holder, whether alone or together with its Related Persons, may own shares constituting more than 20% of any class of capital stock of Holdings. 42 However, this ownership restriction would not apply to any ETP Holder, with respect to shares of Class C common stock of Holdings issued to the ETP Holder in connection with, and from the date of, the demutualization of NSX so long as the ETP Holder becomes compliant with the ownership limitation promptly after such issuance. 43 42 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (b)(ii)(B). 43 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (b)(iii)(C). *See* Amendment No. 1, *supra* note 3.
(3)Other stockholder ownership and voting restriction requirements The Exchange states that the proposed Holdings Certificate of Incorporation contains several provisions that would enable Holdings to enforce restrictions on the ownership and voting of Holdings capital stock described in the preceding section. Specifically, if a stockholder purports to sell, transfer, assign, or pledge to any Person (other than Holdings) any shares of Holdings that would violate the ownership restrictions, Holdings would record on its books the transfer of only the number of shares that would not violate the restrictions and would treat the remaining shares as owned by the purported transferor, for all purposes, including, without limitation, voting, payment of dividends, and distributions. 44 44 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (d). In addition, if any stockholder purports to vote, or to grant any proxy or enter into any agreement, plan, or arrangement relating to the voting of shares that would violate the voting restrictions, Holdings would not honor such vote, proxy, or agreement, plan, or other arrangement to the extent that the restrictions would be violated, and any shares subject to that arrangement would not be entitled to be voted to the extent of the violation. 45 Further, if any stockholder purports to sell, transfer, assign, pledge, vote, or own any shares that would violate the ownership and voting restrictions, Holdings would have the right to, and would generally be required to promptly, redeem such shares at a price equal to the par value of the shares. 46 Also, a stockholder that alone or together with its Related Persons owns five percent or more of the then outstanding shares of the capital stock of Holdings entitled to vote in an election of directors must, upon acquiring knowledge of such ownership, immediately give the Holdings Board written notice of such ownership. 47 Holdings may also require any Person reasonably believed to be subject to and in violation of the voting and ownership restrictions to provide to Holdings information relating to such potential violation. 48 45 *Id.* 46 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (e). 47 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (c)(i). Such notice must also be updated under certain circumstances. *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (c)(ii). 48 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (c)(iii).
(4)Restrictions on transfer Members, former members, and other equity owners of NSX who receive shares of capital stock of Holdings in the demutualization may not sell, transfer, or otherwise dispose of those shares for the first thirty days following their issuance, unless the Holdings Board waives this transfer restriction. 49 49 *See* proposed Holdings Certificate of Incorporation, Article Fifth, paragraph (b)(i). Also, unless waived by the Holdings Board or pursuant to a redemption of shares by Holdings, each stockholder of Holdings would be prohibited from selling, transferring, or otherwise disposing of common shares of Holdings except in amounts of at least 1,000 shares (unless the stockholder is transferring all shares owned), and no stockholder would be permitted to transfer any capital stock of Holdings (other than pursuant to a redemption of shares by Holdings) until all amounts due and owing from that stockholder to NSX have been paid. 50 50 *See* proposed Holdings By-Laws, sections 9.4 and 9.5(b). In the event that a stockholder desires to transfer shares of capital stock of Holdings to any person (other than an affiliate of the stockholder or to another holder of the same class of capital stock) prior to January 1, 2011, Holdings would have a right of first refusal permitting it to purchase those shares, except for transfers by bequest, operation of law, or judicial decree under certain circumstances. 51 51 *See* proposed Holdings By-Laws, section 9.6. In addition to these transfer restrictions, the Exchange states that shares of Holdings would be “restricted securities” under the Securities Act of 1933 (“Securities Act”) and only may be transferred pursuant to an effective registration statement under the Securities Act and in accordance with applicable state securities laws or, if an exemption from registration is available, upon delivery to Holdings of a satisfactory opinion of counsel that such transfer may be effected pursuant to the exemption. In addition, counsel to Holdings may require delivery of documentation to ensure that the transfer complies with the Securities Act and state securities laws before such transfer is effected. 52 The Exchange states that Holdings has no present intention to register its common stock under the Securities Act or the Act, and, unless waived in writing by the Holdings Board, no transfer would be honored by Holdings that would cause Holdings to have to do so or to become subject to the reporting requirements of the Act. 53 52 *See* proposed Holdings By-Laws, section 9.5(a). 53 *See* proposed Holdings By-Laws, section 9.5(c).
(v)Self-Regulatory Function and Oversight. NSX states that the Holdings By-Laws contain various provisions designed to protect the independence of the self-regulatory function of NSX and to clarify the Commission's oversight responsibilities. For example, under the Holdings By-Laws, for as long as Holdings controls NSX, the Holdings Board and the directors, officers, and employees of Holdings must give due regard to the preservation of the independence of the self-regulatory function of NSX and to its obligations to investors and the general public, and are prohibited from taking actions that would interfere with the effectuation of decisions by the Board of Directors of NSX (“NSX Board”) relating to NSX's regulatory functions, including disciplinary matters, or which would interfere with NSX's ability to carry out its responsibilities under the Act. 54 54 *See* proposed Holdings By-Laws, section 3.1. The Holdings By-Laws also contain a specific requirement that all books and records of NSX, and the information contained therein, that reflect confidential information pertaining to the self-regulatory function of NSX, which come into the possession of Holdings, must be retained in confidence by Holdings and its Board, officers, employees, and agents, and must not be used for any non-regulatory purposes. 55 In addition, the Holdings By-Laws provide that, to the extent they are related to the activities of NSX, the books, records, premises, officers, directors, agents, and employees of Holdings are deemed to be the books, records, premises, officers, directors, agents, and employees of NSX for the purposes of, and subject to oversight pursuant to, the Act. 56 55 *See* proposed Holdings By-Laws, section 3.2. 56 *See* proposed Holdings By-Laws, section 3.3. This provision also requires Holdings to maintain its books and records in the United States. NSX states that, pursuant to the Holdings By-Laws, Holdings must comply with the Federal securities laws and the rules and regulations promulgated thereunder. With regard to the Commission's ability to oversee the activities of Holdings, the Exchange states that the Holdings By-Laws also provide that Holdings must cooperate with the Commission and NSX pursuant to and to the extent of their respective regulatory authority, and that the officers, directors, employees, and agents of Holdings, by virtue of their acceptance of such position, are deemed to agree to cooperate with the Commission and NSX in respect of the Commission's oversight responsibilities regarding NSX and the self-regulatory function and responsibilities of NSX. 57 In addition, the Holdings By-Laws provide that Holdings, its officers, directors, employees and agents, by virtue of their acceptance of such positions, will be deemed to irrevocably submit to the jurisdiction of the U.S. federal courts, the Commission and NSX, for the purpose of any suit, action, or proceeding pursuant to the U.S. Federal securities laws, and the rules and regulations promulgated thereunder, arising out of, or relating to, the activities of NSX. 58 57 *See* proposed Holdings By-Laws, section 3.4. *See* Amendment No. 1, *supra* note 3. 58 *See* proposed Holdings By-Laws, section 3.5. Pursuant to the Holdings By-Laws, Holdings would be required to take reasonable steps necessary to cause its officers, directors, and employees, prior to accepting a position as an officer, director, or employee, as applicable, of Holdings, to consent in writing to the applicability to them of the provisions described in this and the preceding two paragraphs with respect to their activities related to NSX; *see* Amendment No. 1, *supra* note 3. Finally, the Holdings Certificate of Incorporation and the Holdings By-Laws provide that, as long as Holdings controls NSX, before any change to the Holdings Certificate of Incorporation or the Holdings By-Laws, respectively, will be effective, such change must be submitted to the NSX Board, and if the NSX Board determines that the change must be filed with or filed with and approved by the Commission before it may be effective, the change will not be effective until it is filed with, or filed with and approved by, the Commission, as the case may be. 59 59 *See* proposed Holdings Certificate of Incorporation, Article Twelfth, and proposed Holdings By-Laws, Article VIII. These provisions additionally state, respectively, that
(i)any change to the proposed Holdings Certificate of Incorporation must also be first approved by the Holdings Board and
(ii)any change to the proposed Holdings By-Laws may be made by either the stockholders of Holdings or the Holdings Board. In addition, under Article Fourth, paragraph
(e)of the proposed Holdings Certificate of Incorporation, holders of preferred stock (voting separately as single class) must approve any change to the Holdings Certificate of Incorporation that would change the terms of that preferred stock. No preferred stock is currently issued and outstanding.
(b)NSX Following the demutualization, NSX would become a Delaware for-profit stock corporation, with the authority to issue 1,000 shares of common stock. At all times, all of the voting stock of NSX would be owned by Holdings. 60 NSX states that it would continue to be the entity registered as a national securities exchange under section 6 of the Act 61 and, accordingly, NSX would continue to be a self-regulatory organization (“SRO”). Moreover, NSX states that it would continue to adhere to the undertakings in the Order 62 including, without limitation, the structure provisions of a Regulatory Oversight Committee, the separation of the regulatory functions from the commercial interests of the Exchange, and the retention of third parties to review the Exchange's regulatory functions. 60 *See* proposed NSX Certificate of Incorporation, Article Fourth. 61 15 U.S.C. 78f. 62 *See supra* note 9.
(i)Governing Documents and NSX Rules The proposed NSX Certificate of Incorporation, 63 NSX By-Laws, and NSX Rules (with the proposed changes described in this document) would govern the activities of NSX. NSX states that these rules and governance documents are proposed to reflect, among other things, NSX's status as a wholly-owned subsidiary of Holdings, its management by the NSX Board and its designated officers, and its self-regulatory responsibilities pursuant to NSX's registration under section 6 of the Act. NSX states that it has designed these proposed governance documents to be generally consistent with NSX's current governance structure, with certain changes based upon its proposed new corporate form. NSX states that none of these proposed changes are in contravention of the Order. 63 Due to differences in terminology between Ohio and Delaware law, the Exchange's Articles of Incorporation are proposed to be renamed its “Certificate of Incorporation.”
(ii)Board of Directors After the demutualization, the NSX Board would initially consist of 13 directors. The NSX Board would be initially comprised of the CEO of NSX, 3 ETP Holder Directors, 64 7 Independent Directors, 65 and 2 directors who are executive officers of CBOE, its members, 66 or executive officers of CBOE member organizations. 67 This composition is consistent with the composition of the Exchange's current Board of Directors, which consists of the CEO of NSX, 3 proprietary members or executive officers of proprietary members, 7 independent directors, and 2 executive officers of CBOE, CBOE members, or executive officers of CBOE member organizations. 64 An ETP Holder Director is defined under the proposed NSX By-Laws as a director who is an ETP Holder or a director, officer, managing member or partner of an entity that is an ETP Holder. *See* proposed NSX By-Laws, section 1.1(E)(2). 65 An Independent Director is defined under the proposed NSX By-Laws as a member of the NSX Board that the NSX Board has determined to have no material relationship with NSX or any affiliate of NSX, or any ETP Holder or any affiliate of any such ETP Holder, other than as a member of the NSX Board. *See* proposed NSX By-Laws, section 1.1(I)(1). This definition is consistent with the definition of Independent Director in the current By-Laws of NSX. NSX states that at least one Independent Director will be representative of investors; *see* Amendment No. 1, *supra* note 3. 66 A CBOE member is defined under the proposed NSX By-Laws as an individual CBOE member or a CBOE member organization that is a regular member or special member of CBOE (as such terms are described in the Constitution of the CBOE), as such CBOE members may exist from time to time. *See* proposed NSX By-Laws, section 1.1(C)(2). 67 *See* proposed NSX By-Laws, section 3.2(a). Under the proposed rule change, the NSX Board may by resolution increase its size to up to 20 directors. Directors added to the NSX Board to fill these new director positions will be
(i)Independent Directors, to the extent necessary for the NSX Board to include at least 50% Independent Directors;
(ii)ETP Holder Directors, to the extent necessary for the NSX Board to include at least 20% ETP Holder Directors; and
(iii)persons who do not qualify as Independent Directors (“At-Large Directors”), for the remainder of the positions added to the NSX Board that are not filled with Independent Directors or ETP Holder Directors pursuant to clauses
(i)and
(ii)above. At all times, the NSX Board must include the CEO of NSX, at least 50% Independent Directors and 3 ETP Holder Directors (or such greater number of ETP Holder Directors as is necessary to comprise at least 20% of the NSX Board). 68 68 *See* proposed NSX By-Laws, section 3.2(b); *see* Amendment No. 1, *supra* note 3. NSX states that, consistent with the current By-Laws of NSX, no two or more directors under the proposed NSX By-Laws may be partners, officers, or directors of the same person or be affiliated with the same person, unless such affiliation is with a national securities exchange or Holdings. 69 Directors of NSX other than the CEO and the CBOE Directors would be divided into three classes, consisting as nearly as possible of equal numbers of directors. 70 After completion of an initial phase-in schedule, these directors would serve for staggered three-year terms, with the term of one class expiring each year. The CEO's appointment as a director would coincide with his or her term as CEO of NSX. 71 The CBOE Directors would each serve a one year term. 72 69 *See* proposed NSX By-Laws, section 3.2(c). NSX states that the current By-Laws of NSX prohibit two or more directors from being partners, officers, or directors of the same person or affiliated with the same person, except for affiliations with national securities exchanges. 70 *See* proposed NSX By-Laws, section 3.4. NSX states that this board framework is consistent with the current By-Laws of NSX. 71 *See* proposed NSX By-Laws, section 3.4(a). NSX states that this provision is consistent with the current By-Laws of NSX. 72 *See* proposed NSX By-Laws, section 3.4(d). NSX states that this provision is consistent with the current By-Laws of NSX. NSX states that, consistent with the current By-Laws of NSX, under the proposed NSX By-Laws, the NSX Board is subject to change upon certain events in accordance with the TORA between CBOE and NSX. 73 Under the TORA, CBOE was provided with 4 put rights to transfer its equity interests in NSX to NSX and NSX was provided with 4 call rights on those equity interests. NSX states that, as of March 10, 2006, the first of these put rights was exercised by CBOE, decreasing the number of director positions of NSX filled by a representative of CBOE from 3 to 2 and increasing the number of positions filled by independent directors from 6 to 7. NSX states that, under the proposed NSX By-Laws: 73 *See generally* proposed NSX By-Laws, section 3.3. The current Board of Directors of NSX is also subject to these provisions of the TORA. • On the second closing of a put or call under the TORA, the number of positions on the NSX Board filled by representatives of CBOE will be reduced from 2 to 1. The vacant director position must be filled by an At-Large Director, unless an Independent Director is needed to maintain at least 50% Independent Directors on the NSX Board. 74 74 *See* proposed NSX By-Laws, section 3.3(a). The current By-Laws of NSX permit the vacant director position to be filled by an independent director or a proprietary member director. • On the earlier of the date CBOE owns less than 5% of the outstanding capital stock of Holdings or the third anniversary of the fourth closing of a put or call under the TORA, CBOE's appointed positions on the NSX board will decrease to zero. The vacant director position must be filled with an At-Large Director, unless an Independent Director is needed to maintain at least 50% Independent Directors on the NSX Board. 75 75 *See* proposed NSX By-Laws, section 3.3(b). The current By-Laws of NSX permit the vacant director position to be filled by an independent director or a proprietary member director. The NSX Board would elect its Chairman from among the directors of the NSX Board. The Chairman of the NSX Board may also serve as the CEO and President of NSX, but may hold no other offices in NSX. Unless the Chairman also serves as the CEO of NSX, the NSX Board must elect the Chairman from among the Independent Directors of the NSX Board. 76 76 *See* proposed NSX By-Laws, section 3.6. In most cases, vacancies on the NSX Board would be filled by the remaining directors of NSX. If the vacancy has resulted from a director being removed for cause by the stockholders of NSX, however, that vacancy may be filled by the stockholder of NSX ( *i.e.* , Holdings) at the same meeting at which the director was removed. Any director appointed to fill a vacancy would serve until the expiration of the term of office of the replaced director or until the end of the term for a newly-created directorship. 77 77 *See* proposed NSX By-Laws, section 3.7(a). NSX states that this provision is consistent with, and expands upon, the current By-Laws of NSX.
(iii)Nomination and Election of Directors After the formation of the initial NSX Board, the NSX Governance and Nominating Committee would nominate directors for each director position (other than CBOE director positions) standing for election at the annual meeting of stockholders that year. Candidates for CBOE Directors would be nominated by the Board of Directors of CBOE at its annual meeting or within 20 days of NSX's annual stockholders' meeting. Because ETPs are not equity interests in NSX, ETP Holders are not entitled to directly elect members of the NSX Board. Rather, Holdings, as the sole stockholder of NSX, would have the sole right and the obligation to vote for the directors of the NSX Board. 78 However, NSX states that, to ensure that ETP Holders are afforded fair representation as required under section 6(b)(3) of the Act, 79 NSX has proposed a procedure, similar to one already in place under the current By-Laws of NSX, whereby ETP Holder Directors and ETP Holders would be involved in the selection of ETP Holder Director nominees. 80 78 Under section 10.5(a) of the proposed By-Laws of Holdings, the power to vote the stock of NSX held by Holdings would be in the CEO of Holdings, unless the Holdings Board instructs otherwise or unless the Holdings Board or the CEO of Holdings confers such power on another person. 79 15 U.S.C. 78f(b)(3). 80 *See* proposed NSX By-Laws, section 3.5. Specifically, the ETP Holder Director Nominating Committee of NSX (which would be composed solely of ETP Holder Directors and/or ETP Holder representatives) would consult with the NSX Governance and Nominating Committee, the Chairman, and the CEO of NSX and solicit comments from ETP Holders for the purpose of approving and submitting names of ETP Holder Director candidates. These initial candidates for nomination would be announced to ETP Holders, who would then have the opportunity to identify additional candidates for nomination to ETP Holder Director positions by submitting a petition signed by at least ten percent of the ETP Holders. An ETP Holder may endorse as many candidates as there are ETP Holder Director positions to be filled. If no petitions are submitted within the time frame prescribed by the NSX By-Laws, the initial candidates approved and submitted by the ETP Holder Director Nominating Committee would be nominated. If one or more valid petitions are submitted, the ETP Holders would vote on the entire group of potential candidates, and the individuals receiving the largest number of votes would be the ETP Holder Director nominees. 81 NSX states that, under the Holdings By-Laws, the person with the power to vote the stock of NSX held by Holdings must vote to elect the ETP Holder Director candidates nominated in accordance with the foregoing procedure. 82 81 Under section 3.5(e) of the proposed NSX By-Laws, each ETP Holder, regardless of its affiliation with other ETP Holders, will have one vote with respect to each ETP Holder Director position to be filled, but may not cast such votes cumulatively. NSX states that, these nomination provisions are generally consistent with the current By-Laws of NSX. Under the current By-Laws of NSX, independent directors are nominated by the Nominating Committee subject to approval by the Board of Directors of NSX. The CBOE directors are elected by the Board of Directors of CBOE at its January meeting or as soon thereafter as possible. The current By-Laws of NSX also contain a procedure for proprietary member director nominations, whereby one proprietary member director candidate is nominated by the Nominating Committee and additional proprietary member director candidates may be nominated by a petition signed by ten percent or more of the proprietary members. At an annual election during the annual meeting of members, the proprietary members vote for the proprietary member directors among the nominated candidates. 82 Under section 10.5(b) of the proposed By-Laws of Holdings, the person with power to vote the stock of NSX held by Holdings must vote for the ETP Holder Directors and CBOE Directors nominated in accordance with the proposed NSX Certificate of Incorporation and NSX By-Laws.
(iv)Committees The NSX Board would have the following committees:
(1)A Business Conduct Committee;
(2)a Securities Committee;
(3)an Appeals Committee;
(4)a Governance and Nominating Committee;
(5)an ETP Holder Director Nominating Committee;
(6)a Regulatory Oversight Committee;
(7)a Compensation Committee;
(8)an Executive Committee; and
(9)an Audit Committee. 83 The NSX Board may establish other committees from time to time. Each committee would have the authority and responsibilities prescribed for it in the NSX By-Laws, the rules of the Exchange, or by the NSX Board. 84 83 *See* proposed NSX By-Laws, section 5.1. NSX states that, under the current By-Laws of NSX, the standing committees of NSX are a Membership Committee, a Business Conduct Committee, a Securities Committee, an Appeals Committee, a Nominating Committee, and a Regulatory Oversight Committee. 84 *See* proposed NSX By-Laws, sections 5.1 and 5.3. The Chairman of the NSX Board would appoint, and may remove, the members of the committees, subject to the approval of the NSX Board. 85 Each committee must have at least 3 members. 86 The Executive Committee would have the powers that the NSX Board delegates to it, except the power to change the membership of, or fill vacancies in, the Executive Committee. 87 The ETP Holder Director Nominating Committee would have the power to approve and submit names of candidates for election to the position of ETP Holder Director in accordance with the NSX By-Laws. 88 The Regulatory Oversight Committee shall oversee all of the regulatory functions and responsibilities of NSX and advise the NSX Board on regulatory matters. 89 The Regulatory Oversight Committee's duties and responsibilities are outlined in its charter. NSX states that the Regulatory Oversight Committee's charter following demutualization would be the same as the charter previously filed with the Commission, and is consistent with the terms of the Order. 90 85 Under section 5.2 of the proposed NSX By-Laws, the terms of committee members are subject to the appointment and removal process of the Chairman and NSX Board. Under the current By-Laws of NSX, terms of committee members expire at the regular meeting of the Board of Directors of NSX after the corresponding annual election meeting, except for members of the Nominating Committee whose stated term is 1 year. 86 *See* proposed NSX By-Laws, section 5.2. This provision is consistent with the current By-Laws of NSX. 87 *See* proposed NSX By-Laws, section 5.5. This provision is consistent with the current By-Laws of NSX. 88 *See* proposed NSX By-Laws, section 5.7. 89 *See* proposed NSX By-Laws, section 5.6. 90 *See* Securities Exchange Act Release No. 34-52573 (October 7, 2005), 70 FR 60113 (October 14, 2005) (File No. SR-NSX-2005-07).
(v)Management The officers of NSX would be a CEO, a President, a Chief Regulatory Officer, a Secretary, and a Treasurer, and such other officers as the NSX Board may determine. 91 Any two or more offices may be held by the same person, except that the Chief Regulatory Officer and the Secretary may not be the CEO or the President. 92 The Chairman of the NSX Board, subject to approval of the NSX Board, may designate one or more officers or other employees of NSX to serve as an Arbitration Director, who would perform or delegate all ministerial duties in connection with matters submitted for arbitration pursuant to the rules of NSX. 93 91 *See* proposed NSX By-Laws, section 6.1. Under the current By-Laws of NSX, the officers of NSX are a Chairman of the Board, President, Secretary, Treasurer, and such other officers as may be appointed by the Board of Directors of NSX. 92 *See* proposed NSX By-Laws, section 6.1. Under the current By-Laws of NSX, the Secretary may not hold either the office of Chairman of the Board or President. 93 *See* proposed NSX By-Laws, section 6.6. NSX states that this provision is consistent with the current By-Laws of NSX.
(vi)Self-Regulatory Function and Oversight As noted above, following the demutualization NSX would continue to be registered as a national securities exchange under section 6 of the Act and thus would continue to be an SRO. 94 The Exchange states that, as an SRO, NSX would be obligated to carry out its statutory responsibilities, including enforcing compliance by ETP Holders with the provisions of the federal securities laws and the applicable rules of NSX. Further, NSX states that it would retain the responsibility to administer and enforce the rules that govern NSX and the activities of its ETP Holders. In addition, NSX states that it would continue to be required to file with the Commission, pursuant to section 19(b) of the Act 95 and Rule 19b-4 thereunder, 96 any changes to its rules and governing documents. The Exchange states that the structural protections adopted by NSX pursuant to the Order to ensure that NSX's regulatory functions are independent from the commercial interests of NSX and its members would remain in effect following demutualization. 94 *See* 15 U.S.C. 78c(a)(26). 95 15 U.S.C. 78s(b). 96 17 CFR 240.19b-4. NSX states that, like the proposed Holdings By-Laws, the proposed NSX By-Laws contain specific provisions relating to the self-regulatory function of NSX. 97 For example, the proposed NSX By-Laws require the NSX Board to consider applicable requirements under Section 6(b) of the Act in connection with the management of the Exchange. 98 In addition, meetings of the NSX Board and of the committees of NSX that pertain to the self-regulatory function of NSX must be closed to persons who are not members of the NSX Board or NSX officers, staff, counsel, or other advisors whose participation is necessary or appropriate to the self-regulatory function of NSX, or representatives of the Commission. 99 97 *See* proposed NSX By-Laws, Article X. 98 *See* proposed NSX By-Laws, section 10.1. Section 6(b) of the Act requires, among other things, that the Exchange's rules be designed to protect investors and the public interest. It also requires that the Exchange be so organized that it has the capacity to carry out the purposes of the Act and to enforce compliance by its members with the Act, the rules and regulations promulgated thereunder, and the rules of the Exchange. 99 *See* proposed NSX By-Laws, section 10.2. In addition, the Exchange states that members of the Holdings Board who are also not members of the NSX Board and any officers, staff, counsel, or advisors of Holdings who do not hold similar positions with respect to NSX would not be allowed to participate in any meeting of the NSX Board (or any committee of NSX) that pertains to the self-regulatory function of NSX. NSX states that these requirements and the requirements relating to the confidentiality of records are not, however, designed to prevent the Exchange from sharing with Holdings the type of information about the Exchange's business that would ordinarily be shared with a parent corporation, including information relating to the Exchange's compliance with applicable laws, reports from the Commission or others evaluating the Exchange's self-regulatory programs, and information about the trading activities and business strategies of the Exchange's ETP Holders. Further, the NSX books and records reflecting confidential information relating to the self-regulatory function of NSX must be kept confidential, must not be used for non-regulatory purposes, and must not be made available to any person other than those directors, officers, and agents of NSX to the extent necessary or appropriate to properly discharge NSX's self-regulatory responsibilities, and the books and records of NSX must be maintained in the U.S. 100 The proposed NSX By-Laws also provide that any revenues received by NSX from fees derived from its regulatory function or regulatory penalties must be applied to fund the legal and regulatory operations of NSX or to pay restitution and disgorgement of funds intended for NSX customers, and may not be used to pay dividends. 101 100 *See* proposed NSX By-Laws, section 10.3. 101 *See* proposed NSX By-Laws, section 10.4.
(vii)Restrictions on Ownership and Transfer Although there are no percentage-based restrictions on the ownership of NSX, the proposed NSX Certificate of Incorporation confirms that Holdings will own all of the voting stock of NSX at all times. 102 102 *See* proposed NSX Certificate of Incorporation, Article Fourth. Under the current By-Laws of NSX, certificates of proprietary membership may be sold to a person whose application for proprietary membership in NSX has been approved by NSX only if the owner of the certificate has paid in full all obligations to the Exchange and certain claims of creditors who are members of the Exchange. In addition, a registered national securities exchange may purchase, hold or sell certificates of proprietary membership only with approval of the Board of Directors of NSX.
(viii)Changes to Certificate of Incorporation and By-Laws Under the proposed NSX Certificate of Incorporation, any change to that document must first be approved by the NSX Board and, if required to be approved or filed with the Commission before it may become effective, cannot take effect until the procedures of the Commission necessary to make it effective have been satisfied. 103 103 *See* proposed NSX Certificate of Incorporation, Article Eleventh. Similarly, under the proposed NSX By-Laws, any change to that document that is required to be approved by or filed with the Commission before it may become effective cannot take effect until the procedures of the Commission necessary to make it effective have been satisfied. 104 Changes to the NSX By-Laws as proposed may be made by either the stockholders of NSX or the NSX Board, except that certain provisions relating to the NSX Board, and to the voting of NSX stockholders may not be changed without the approval of the stockholder of NSX. 105 104 *See* proposed NSX Certificate of Incorporation, Article Seventh. 105 *See* proposed NSX Certificate of Incorporation, Article Seventh and proposed NSX By-Laws, section 8.1. Under the current By-Laws of NSX, changes to the By-Laws may be proposed by any member of the Board of Directors of NSX by resolution or 1/3 of the proprietary members by petition. The NSX Board then determines whether to approve submission of the proposed change to the proprietary members for their approval. In addition, consistent with the current By-Laws of NSX, sections 3.1(b) and 8.2 of the proposed NSX By-Laws permit the NSX Board to amend, repeal, and adopt new Rules of the Exchange.
(c)Other Provisions in the Certificates of Incorporation and By-Laws The proposed Holdings By-Laws, Holdings Certificate of Incorporation, NSX Certificate of Incorporation, and NSX By-Laws contain other customary provisions of for-profit corporations, such as provisions relating to corporate offices and corporate purposes; 106 director meetings, voting, removal, compensation and limitation of liability; 107 indemnification of, and insurance for, directors, officers, employees and agents, and advancement of expenses related to defending certain actions; 108 stock certificate procedures; 109 stockholder ownership, including provisions relating to the timing and conduct of meetings, record dates, quorum requirements, proxies, and other matters; 110 and other general provisions. 111 These provisions are designed to reflect current and customary corporate practices. 106 *See* proposed NSX Certificate of Incorporation, Articles Second and Third, and proposed NSX By-Laws, Article II; *see* proposed Holdings Certificate of Incorporation, Articles Second and Third, and proposed Holdings By-Laws, Article I. 107 *See* proposed NSX Certificate of Incorporation, Articles Fifth and Eighth, and proposed NSX By-Laws, Article III and Section 7.1; *see* proposed Holdings Certificate of Incorporation, Articles Sixth and Ninth, and proposed Holdings By-Laws, Article II and section 7.1. 108 *See* proposed NSX By-Laws, Article VII, and proposed Holdings By-Laws, Article VII. In addition, under these provisions, neither corporation is liable for any loss or damage sustained by a current or former member of NSX or ETP Holder relating to such person's use of the facilities of the Exchange or its subsidiaries. 109 *See* proposed NSX By-Laws, Article IX, and proposed Holdings By-Laws, Article IX. 110 *See* proposed NSX Certificate of Incorporation, Article Ninth, and proposed NSX By-Laws, Article IV; *See* proposed Holdings Certificate of Incorporation, Article Tenth, and proposed Holdings By-Laws, Article IV. 111 *See, for example,* proposed NSX Certificate of Incorporation, Article Tenth, and proposed NSX By-Laws, Article XI; *See, e.g.* , proposed Holdings Certificate of Incorporation, Article Eleventh, and proposed Holdings By-Laws, Article X.
(2)National Market System Plans NSX currently is a participant in various National Market System (“NMS”) plans, including, but not limited to, the Consolidated Tape Association Plan, the Consolidated Quotation System Plan, the Intermarket Trading System Plan, the Intermarket Surveillance Group, and the Reporting Plan for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis (“Nasdaq UTP”) Plan. These plans are joint industry plans entered into by SROs for the purpose of addressing last sale reporting, quotation reporting, and intermarket equities trading. Following the completion of the demutualization, NSX, in its continuing role as the SRO, would continue to serve as the voting member of these NMS plans, and a representative of NSX would continue to serve as the Exchange's representative with respect to dealing with these plans.
(3)Equity Trading Permits; Administrative Changes The proposed rule change includes proposed changes to the Rules of the Exchange that are necessary to implement the proposed ETP structure. As noted above, following NSX's demutualization, persons and firms who have been qualified for membership pursuant to the Exchange's current Rules and By-Laws and, as a result, have access to the Exchange's trading facilities would receive ETPs entitling them to maintain their trading access to NSX and would be referred to as ETP Holders. The Exchange proposes to replace references to “members,” “member organizations,” and similar terms in the current Rules of the Exchange with references to “ETP Holders” and similar terms in the NSX Rules. The Exchange states that each ETP would constitute a revocable license allowing the holder of the permit access to the Exchange's trading facilities in the same manner as previously authorized for NSX's qualified trading members. 112 The demutualization and the implementation of the use of ETPs would not change current NSX member access to the Exchange or their ability to execute transactions. NSX states that persons holding ETPs of NSX would be “members” of the Exchange for purposes of the Act and, as noted above, will be characterized as ETP Holders subject to NSX's regulatory jurisdiction. 113 ETP Holders would not have any ownership interest in NSX or in Holdings by virtue of their ETPs. 112 *See* proposed NSX Rules, Chapter II, Rules 2.1 and 2.2, and proposed NSX Rules, Chapter I, Rule 1.5 (definition of “ETP”). 113 *See* proposed NSX Rules, Chapter I, Rule 1.5 (definition of “ETP Holder”). NSX proposes to move the provisions of the current By-Laws of NSX relating to members to a single chapter in the NSX Rules regarding ETP Holders, with certain changes based upon the fact that ETP Holders would be subject to modestly different application processes and would not have to purchase and own a certificate of proprietary membership. 114 Following the demutualization, the Exchange states that it would require persons seeking ETPs to complete appropriate application materials and registration forms, satisfy regulatory requirements, and pay processing charges and application fees as designated by the Exchange. NSX states that this process of applying for an ETP immediately following demutualization would be substantially similar to the current membership application process, except that ETP Holders would not be required to be approved by NSX's Membership Committee, ETP Holders would be subject to the financial responsibility requirements of Rule 15c3-1 under the Act (but would not be subject to a separate net capital requirement), and ETP applicants would not need to purchase shares of either NSX or Holdings. 115 114 NSX states that, currently, applicants for membership are required to purchase and own a certificate of proprietary membership in order to become a member of NSX. *See* Article II, section 5.2 of the current By-Laws of NSX. NSX states that all outstanding certificates of proprietary membership would be cancelled in connection with the demutualization, and no other certificates of proprietary membership would be issued by NSX following the demutualization. 115 *See* proposed NSX Rules, Chapter II. The Exchange states that applicants for membership currently must purchase and own a certificate of proprietary membership of NSX in order to become an NSX member. The Exchange states that, once issued, an ETP would be effective until voluntarily terminated by the ETP Holder or until revoked by NSX for, among other things, noncompliance with the NSX Rules. 116 NSX would have the ability to revoke an ETP for the same reasons that it is currently entitled to revoke a membership. 117 An ETP could not be sold, leased, or otherwise transferred. 118 There would be nominal processing charges and application fees relating to the issuance of ETPs. In addition, ETP Holders would be subject to such fees as are designated by NSX or set forth in the NSX Rules. 119 116 *See* proposed NSX Rules, Chapter II, Rules 2.6 and 2.7. 117 *See* proposed NSX Rules, Chapter II, Rule 2.6. 118 *See* proposed NSX Rules, Chapter II, Rule 2.8. 119 *See, generally* NSX Rules, Chapter XI, Rule 11.10(B). NSX also proposes to move certain other provisions of the current By-Laws of NSX respecting listing standards and other matters not relating to the Exchange's corporate governance to the NSX Rules. For example, the Exchange proposes to move the provisions contained in Article IV of the current By-Laws of NSX (relating to Securities Listed on the Exchange) to a new Chapter XV of the NSX Rules. NSX also proposes to move Rules 13.6 and 13.7 (relating to Listing Standards) to this new Chapter XV of the NSX Rules. 120 120 In addition, NSX also proposes to move to the NSX Rules, and make technical changes to, certain provisions under the current By-Laws of NSX relating to Exchange Membership (Article II), Dues, Assessments and Other Charges (Article III), Securities Listed on the Exchange (Article IV), Commissions (Article XI) and Off-Exchange Transactions (Article XII). Finally, NSX proposes to include a new Rule 2.10 that would prohibit, without prior Commission approval, either
(i)NSX or any NSX affiliate from directly or indirectly acquiring or maintaining an ownership interest in an ETP Holder, or
(ii)an ETP Holder being or becoming an affiliate of NSX or any affiliate of NSX. Under proposed Rule 2.10 the term “affiliate” has the meaning specified in Rule 12b-2 of the Act. Proposed Rule 2.10 would not prohibit any ETP Holder or its affiliate from acquiring or holding an equity interest in Holdings that is permitted by the ownership and voting limitations in the Holdings Certificate of Incorporation, and would not prohibit an ETP Holder or an officer, director, manager, managing member, partner, or affiliate of an ETP Holder being or becoming an ETP Holder Director or an At-Large Director on the NSX Board, or a member of the Holdings Board. 121 121 *See* Amendment No. 1, *supra* note 3. 2. Statutory Basis NSX believes the proposal, as amended, is consistent with the requirements of the Act and the rules and regulations promulgated thereunder that are applicable to a national securities exchange, and in particular, with section 6(b) of the Act. 122 NSX believes that the proposal, as amended, is consistent with section 6(b)(5) of the Act 123 in that it would create a governance and regulatory structure of the Exchange that is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchange states that it remains committed to its role as a national securities exchange and does not believe that the proposed change to a for-profit institution will undermine its responsibilities for regulating its marketplace. Indeed, as described above, the Exchange believes that it has proposed specific provisions in the proposed Holdings By-Laws and the proposed NSX By-Laws that reinforce the ability of the Exchange to perform its self-regulatory functions. 122 15 U.S.C. 78f(b) 123 15 U.S.C. 78f(b)(5). Moreover, the Exchange states that it is not proposing any significant changes to its existing operational and trading structure in connection with the demutualization. Instead, NSX represents that the proposed rule change, as amended, primarily consists of: organizational changes to the NSX Articles of Incorporation and By-Laws reflecting the changes in governance and corporate form; and rule changes that are necessary to implement the new NSX ETP structure, which would replace the existing structure of Exchange memberships as a basis for trading rights. The Exchange believes that the proposed rule change is consistent with governance changes approved by the Commission for other demutualized exchanges and does not serve to erode the principles articulated in the Commission's recent governance release. 124 124 *See* Securities Exchange Act Release No. 50699 (November 18, 2004), 69 FR 71126 (December 8, 2004) (File No. S7-39-04). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes the proposed rule change, as amended, will impose no burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received by the Exchange on this proposal, as amended. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding, or
(ii)as to which the Exchange consents, the Commission will: A. By order approve the proposed rule change, as amended, 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-NSX-2006-03 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NSX-2006-03. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NSX-2006-03 and should be submitted on or before May 24, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 125 125 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-6637 Filed 5-2-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-53710; File No. SR-PCX-2006-10] Self-Regulatory Organizations; Pacific Exchange, Inc. (n/k/a NYSE Arca, Inc.); Order Granting Approval to Proposed Rule Change Relating to Trade Shredding April 24, 2006. I. Introduction On February 3, 2006, the Pacific Exchange, Inc. (“PCX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change relating to trade shredding. 3 The proposed rule change was published for comment in the **Federal Register** on March 20, 2006. 4 The Commission received no comments on the proposal. This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(l). 2 17 CFR 240.19b-4. 3 On March 6, 2006, the Exchange filed with the Commission a proposed rule change, which was effective upon filing, to change the name of the Exchange, as well as several other related entities, to reflect the recent acquisition of PCX by Archipelago Holdings, Inc. (“Archipelago”) and the merger of the NYSE with Archipelago. *See* File No. SR-PCX-2006-24. All references herein have been changed to reflect the aforementioned rule change. 4 *See* Securities Exchange Act Release No. 53469 (March 10, 2006), 71 FR 14045. II. Description of the Proposal The Exchange proposed to amend its rules governing the NYSE Arca Marketplace, the equities trading facility of the NYSE Arca Equities, Inc., to prohibit the practice of splitting orders into multiple smaller orders for any purpose other than seeking the best execution of the entire order. III. Discussion and Commission Findings The Commission has reviewed carefully the proposed rule change and finds that it is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange, 5 particularly section 6(b)(5) of the Act which, among other things, requires that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating securities transactions, to remove impediments to and to perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. 6 The Commission believes that the proposed rule change should help eliminate the distortive practice of trade shredding, and, therefore, promote just and equitable principles of trade. 5 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 6 15 U.S.C. 78f(b)(5). IV. Conclusion *It is therefore ordered,* pursuant to section 19(b)(2) of the Act, 7 that the proposed rule change (File No. SR-PCX-2006-10), be and hereby is, approved. 7 15 U.S.C. 78s(b)(2). 8 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 8 Nancy M. Morris, Secretary. [FR Doc. E6-6640 Filed 5-2-06; 8:45 am] BILLING CODE 8010-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10454] California Disaster #CA-00031 Declaration of Economic Injury AGENCY: Small Business Administration. ACTION: Notice. SUMMARY: This is a notice of an Economic Injury Disaster Loan
(EIDL)declaration for the State of California, dated 4/25/2006. *Incident:* Severe mudslide. *Incident Period:* 3/26/2006 and continuing. *Effective Date:* 4/25/2006. *EIDL Loan Application Deadline Date:* 1/25/2007. ADDRESSES: Submit completed loan applications to: Small Business Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator's EIDL declaration applications for economic injury disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: *Primary Counties:* San Mateo. *Contiguous Counties:* California: Alameda, San Francisco, Santa Clara, Santa Cruz. *The Interest Rate is:* 4.000. The number assigned to this disaster for economic injury is 104540. The States which received an EIDL Declaration # is California. (Catalog of Federal Domestic Assistance Number 59002) Dated: April 25, 2006. Hector V. Barreto, Administrator. [FR Doc. E6-6644 Filed 5-2-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10428 and #10429] Missouri Disaster Number MO-00002 AGENCY: Small Business Administration. ACTION: Amendment 3. SUMMARY: This is an amendment of the Presidential declaration of a major disaster for the State of Missouri (FEMA-1631-DR) , dated 3/16/2006. *Incident:* Severe storms, tornadoes, and flooding. *Incident Period:* 3/8/2006 and continuing through 3/13/2006. *Effective Date:* 4/25/2006. *Physical Loan Application Deadline Date:* 5/15/2006. *EIDL Loan Application Deadline Date:* 12/15/2006. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the President's major disaster declaration for the State of Missouri, dated 3/16/2006, is hereby amended to re-establish the incident period for this disaster as beginning 3/8/2006 and continuing through 3/13/2006. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. E6-6643 Filed 5-2-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10439] Oregon Disaster Number OR-00012. AGENCY: Small Business Administration. ACTION: Amendment 1. SUMMARY: This is an amendment of the Presidential declaration of a major disaster for Public Assistance Only for the State of Oregon (FEMA-1632-DR), dated 3/20/2006. *Incident:* Severe storms, flooding, landslides, and mudslides. *Incident Period:* 12/18/2005 through 1/21/2006. *Effective Date:* 4/20/2006. *Physical Loan Application Deadline Date:* 5/19/2006. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the President's major disaster declaration for Private Non-Profit organizations in the State of Oregon, dated 3/20/2006, is hereby amended to include the following areas as adversely affected by the disaster. *Primary Counties:* Yamhill. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Number 59008) Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. E6-6646 Filed 5-2-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10322 and #10323] Texas Disaster Number TX-00097 AGENCY: Small Business Administration. ACTION: Amendment 6. SUMMARY: This is an amendment of the Presidential declaration of a major disaster for the State of Texas (FEMA-1624-DR), dated 1/11/2006. *Incident:* Extreme wildfire threat. *Incident Period:* 11/27/2005 and continuing. *Effective Date:* 4/25/2006. *Physical Loan Application Deadline Date:* 4/30/2006. *EIDL Loan Application Deadline Date:* 10/11/2006. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: The notice of the President's major disaster declaration for the State of Texas, dated 1/11/2006, is hereby amended to re-establish the incident period for this disaster as beginning 11/27/2005 and continuing. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. E6-6645 Filed 5-2-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION National Small Business Development Center Advisory Board; Public Meeting The U.S. Small Business Administration, National Small Business Development Center Advisory Board will be hosting a public meeting via conference call to discuss such matters that may be presented by members, the staff of the U.S. Small Business Administration, and interested others. The conference call is scheduled for Tuesday, May 16, 2006 at 2 p.m. Eastern Standard Time. The purpose of the meeting is to discuss items for their next White Paper for the AA/OSBDC, and the timeframes and logistics for a California site visit to the San Diego and Los Angeles SBDC networks. Anyone wishing to make an oral presentation to the Board must contact Erika Fischer, Senior Program Analyst, U.S. Small Business Administration, Office of Small Business Development Centers, 409 3rd Street, SW., Washington, DC 20416, telephone
(202)205-7045 or fax
(202)481-0681. Matthew K. Becker, Committee Management Officer. [FR Doc. E6-6691 Filed 5-2-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION Public Federal Regulatory Enforcement Fairness Hearing; U.S. Small Business Administration Region VI Regulatory Fairness Board The U.S. Small Business Administration
(SBA)Region VI Regulatory Fairness Board and the SBA Office of the National Ombudsman will hold a public hearing on Tuesday, May 16, 2006, at 9 a.m. The meeting will take place at the South West Texas Border—Small Business Development Center, University of Texas at San Antonio, 501 West Durango Boulevard, Durango Building, Room #2.316, San Antonio, TX 78207-4415. The purpose of the meeting is to receive comments and testimony from small business owners, small government entities, and small non-profit organizations concerning regulatory enforcement and compliance actions taken by Federal agencies. Anyone wishing to attend or to make a presentation must contact Lucille Maldonado, in writing or by fax, in order to be put on the agenda. Lucille Maldonado, Public Information Officer, SBA, San Antonio District Office, 17319 San Pedro, Suite 200, phone
(210)403-5921, Ext. 374, fax
(202)481-4288, e-mail: *lucille.maldonado@sba.gov.* For more information, see our Website at *http://www.sba.gov/ombudsman.* Matthew K. Becker, Committee Management Officer. [FR Doc. E6-6693 Filed 5-2-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION Advisory Committee on Veterans Business Affairs; Public Meeting The U.S. Small Business Administration
(SBA)Advisory Committee on Veterans Business Affairs, pursuant to the Veterans Entrepreneurship and Small Business Development Act of 1999 (Pub. L. 106-50), will hold a public meeting beginning on Tuesday, May 9, 2006, until Wednesday, May 10, 2006. The meeting will be held at the U.S. Small Business Administration located at 409 3rd Street SW., Washington, DC 20416. The meeting will start at 9 a.m. until 5 p.m., in the Eisenhower Conference Room, 2nd Floor. The purpose of the meeting is to focus on procurement opportunities and outreach services for the veterans and service disabled veterans. Anyone wishing to attend must contact Cheryl Clark, Program Liaison, in the Office of Veterans Business Development, at
(202)205-6773, or e-mail *Cheryl.Clark@sba.gov.* Matthew K. Becker, Committee Management Officer. [FR Doc. E6-6692 Filed 5-2-06; 8:45 am] BILLING CODE 8025-01-P DEPARTMENT OF TRANSPORTATION Office of the Secretary Aviation Proceedings, Agreements Filed the Week Ending April 14, 2006 The following Agreements were filed with the Department of Transportation under the sections 412 and 414 of the Federal Aviation Act, as amended (49 U.S.C. 1382 and 1384) and procedures governing proceedings to enforce these provisions. Answers may be filed within 21 days after the filing of the application. *Docket Number:* OST-2006-24489. *Date Filed:* April 11, 2006. *Parties:* Members of the International Air Transport Association. *Subject:* Mail Vote 482—Resolution 010i, TC3 Japan—Korea, Special Passenger Amending Resolution between Japan and Korea (Rep. of), *Intended effective date:* 1 May 2006. *Docket Number:* OST-2006-24490. *Date Filed:* April 11, 2006. *Parties:* Members of the International Air Transport Association. *Subject:* PTC2 EUR Mail Vote 484. Special Amending Resolution 010k between Luxembourg and Europe. *Intended effective date:* 1 June 2006. Renee V. Wright, Program Manager, Docket Operations, Federal Register Liaison. [FR Doc. E6-6661 Filed 5-2-06; 8:45 am] BILLING CODE 4910-9X-P DEPARTMENT OF TRANSPORTATION Office of the Secretary Privacy Act of 1974: System of Records AGENCY: Department of Transportation (DOT), Office of the Secretary. ACTION: DOT intends to establish a system of records under the Privacy Act of 1974. SUMMARY: The Privacy Act of 1974, as amended, 5 U.S.C. 552a, requires that agencies that maintain a system of records publish a notice in the **Federal Register** of the existence and character of the system. In accordance with the Privacy Act, DOT is giving notice of a system of records to enhance its ability to manage information sharing and employee access to various information systems of its Federal Highway Administration (FHWA). DATES: *Effective Date:* This notice will be effective, without further notice, on June 12, 2006, unless modified by a subsequent notice to incorporate comments received from the public. Comments must be received by June 2, 2006 to be assured consideration. ADDRESSES: Send comments to James Kabel, Privacy Officer, Department of Transportation, Federal Highway Administration, 400 7th Street, SW., Room 4428, Washington, DC 20590 or *James.Kabel@fhwa.dot.gov.* FOR FURTHER INFORMATION CONTACT: Cheryl Ledbetter, Department of Transportation, Federal Highway Administration, HAIM-42, 400 7th Street, SW., Washington, DC 20590,
(202)366-9030 (voice),
(202)366-9030 (fax), or *Cheryl.Ledbetter@fhwa.dot.gov.* SUPPLEMENTARY INFORMATION: DOT intends to establish a system of records that will enable the FHWA to adequately monitor and identify possible unauthorized access incidents or security breaches of FHWA's electronic systems. DOT/FHWA 219 System name: User Profile and Access Control System (UPACS). Security classification: Sensitive, Unclassified. System location: This system is located in the Federal Highway Administration (FHWA), Office of Information and Management Services, 400 7th Street SW., Room 4331, Washington, DC 20590. Categories of individuals covered by the system of records: Employees and contractors of DOT's FHWA and Federal Motor Carrier Safety Administration, State DOT employees and contractors who require access to UPACS for their job duties, as well as other external users with specific needs. Categories of records in the system: This system of records may include user's general profile information that identifies the user, *i.e.* , name, work address, work email address, and the full Social Security Number for FHWA employees, user's application rights records, State, organization and routing symbol records, application information, log and session records and user-base review records. Authority for maintenance of the system: Federal Managers Financial Integrity Act of 1982 as codified in 31 U.S.C. 3512. Purposes: The User Profile and Access Control System (UPACS) is the security control system that manages user authentication and associated access rights for individuals needing entry into any of FHWA's applications. Routine uses of records maintained in the system, including categories of users and the purposes of such uses:
(1)Respond to user complaints;
(2)reply to user feedback comments;
(3)manage access to restricted applications;
(4)manage access rights to information within an application;
(5)provide information to any person(s) authorized to assist in an approved investigation of improper access or usage of FHWA computer systems;
(6)provide access to other government agencies when required by law; and
(7)fulfill requests for reports and other similar information. These reports would be generated for auditing purposes and consist of the following information (any combination thereof): user account approvals and removals, account transfers, failed login attempts, locked passwords and PINs, all resets of passwords and PINs, after-hour activity, a user's successful or unsuccessful access and what FHWA application the user has accessed. See also the Prefatory Statement of General Routine Uses. Disclosure to consumer reporting agencies: None. Policies and practices for storing, retrieving, accessing, retaining, and disposing of records in the system: Storage: All UPACS data is stored on a secure FHWA server. Database tables are setup to detect unauthorized access. FHWA employees and contractors who have access to UPACS information must protect sensitive FHWA data residing on any media, such as tapes, disks, and printouts. UPACS information is provided to only those who have a need to know and access to the information is controlled by the user's level of access rights. Retrievability: These records of access may be retrieved by a user's name or Social Security Number. Safeguards: Access to the system of records is restricted to authorized users. Each user is granted access with his or her user name and security password. The user privileges of each user are based on his or her assigned access rights. User access to sensitive data is granted only to limited individuals with the approval of FHWA management. Retention and disposal: The records in this system of records are retained and disposed of in accordance with the approved records disposition schedules in FHWA Order M 1324.1A, Files Management and Records Disposition Manual. System manager and address: Director, Office of Information and Management Services, Federal Highway Administration, 400 7th Street, SW., Room 4423, Washington, DC 20590. Notification procedure: Write to the System Manager. Record access procedures: Write to the System Manager. Provide full name and a description of the information that you seek, including the time frame during which the records may have been generated. Individuals requesting access must comply with the Department of Transportation's Privacy Act regulations on verification of identity (49 CFR 10.37). Contesting record procedures: Write to the System Manager. Identify the information being contested, the reason for contesting it, and the correction being requested. Individuals requesting access must comply with the Department of Transportation's Privacy Act regulations on verification of identity (49 CFR 10.37). Record source categories: Information contained in this system is obtained from users when they register for or change UPACS profile information and when they access different applications through UPACS. Exemptions claimed for the system: None. OMB Control Number: None. Kara Spooner, Departmental Privacy Officer. [FR Doc. E6-6510 Filed 5-2-06; 8:45 am] BILLING CODE 4910-22-P DEPARTMENT OF TRANSPORTATION Federal Highway Administration [FHWA Docket No. FHWA-2006-24307] ITS Program Advisory Committee to the Secretary of Transportation AGENCY: Federal Highway Administration (FHWA), DOT. ACTION: Notice of intent to form an advisory committee. SUMMARY: Pursuant to section 5305(h) of the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), the Secretary of Transportation, acting through the Acting Administrator of the Federal Highway Administration, is establishing an advisory committee to advise the Secretary on carrying out the Department of Transportation's Intelligent Transportation System
(ITS)Program. The purpose of this notice is to invite interested parties to submit comments on the issues to be discussed, and submit the names of organizations and participants to be considered for representation on the committee. DATES: You should submit your comments or nominations for membership on the committee on or before June 2, 2006. FOR FURTHER INFORMATION CONTACT: Mr. Michael Freitas, Managing Director, ITS Joint Program Office,
(202)366-9292; Ms. Robin Fields, Office of the Chief Counsel,
(202)366-4099; or Mr. Wil Baccus, Office of the Chief Counsel,
(202)366-1396; 400 Seventh Street, SW., Washington, DC 20590. Office hours are from 7:45 a.m. to 4:15 p.m., e.t., Monday through Friday, except Federal holidays. SUPPLEMENTARY INFORMATION: Electronic Access You may submit or retrieve comments online through the Document Management System
(DMS)at: *http://dms.dot.gov/submit.* The DMS is available 24 hours each day, 365 days each year. Electronic submission and retrieval help and guidelines are available under the help section of the Web site. An electronic copy of this document may be downloaded from the **Federal Register** 's home page at: * http:// www.archives.gov * and the Government Printing Office's database at: *http://www.access.gpo.gov/nara.* Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (70 FR 19477), or you may visit *http://dms.dot.gov.* Please note that even after the comment closing date, we will continue to file relevant information in the Docket as it becomes available. Further, some people may submit late comments and we recommend that you periodically check the Docket for new material. Background On August 10, 2005, the President signed into law the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) (Pub. L. 109-59, 119 Stat. 1144). Title V, Subtitle C, section 5305(h) mandates the establishment of an ITS Program Advisory Committee. A. Notice of Intent To Establish an Advisory Committee and Request for Comment In accordance with the requirements of the Federal Advisory Committee Act (FACA), 5 U.S.C. App II, section 1, an agency of the Federal Government cannot establish or utilize a group of people in the interest of obtaining consensus advice or recommendations unless that group is chartered as a Federal advisory committee. The purpose of this notice is to indicate the Department's intent to create a Federal advisory committee, under FACA, in order to invite interested parties to submit comments on ITS issues to be considered by the committee and to submit the names of organizations and participants to be considered for representation on the committee. B. Name of Committee ITS Program Advisory Committee to the Secretary of Transportation. C. Purpose and Objective The ITS Program Advisory Committee to the Secretary of Transportation (ITSAC-OST) will advise the Secretary of the Department of Transportation by: 1. Providing input into the development of the Intelligent Transportation System aspects of the strategic plan under section 508 of title 23, United States Code; and 2. Reviewing, at least annually, areas of intelligent transportation systems research being considered for funding by the Department, to determine—
(i)Whether these activities are likely to advance either the state-of-the practice or state-of-the art in intelligent transportation systems;
(ii)Whether the intelligent transportation system technologies are likely to be deployed by users, and if not, to determine the barriers to deployment; and
(iii)The appropriate roles for government and the private sector in investing in the research and technologies being considered. ITSAC-OST does not exercise program management or regulatory development responsibilities and makes no decisions directly affecting the programs on which it provides advice. ITSAC-OST provides a forum for the development, consideration, and communication of information from a knowledgeable and independent perspective. D. Balanced Membership Plans According to section 5305(h) of SAFETEA-LU, the ITSAC-OST shall have no more than 20 members, be balanced between metropolitan and rural interests, and include, at a minimum—
(1)A representative from a State highway department;
(2)A representative from a local highway department who is not from a metropolitan planning organization;
(3)A representative from a State, local, or regional transit agency;
(4)A representative from a metropolitan planning organization;
(5)A private sector user of intelligent transportation system technologies;
(6)An academic researcher with expertise in computer science or another information science field related to intelligent transportation systems who is not an expert on transportation issues;
(7)An academic researcher who is a civil engineer;
(8)An academic researcher who is a social scientist with expertise in transportation issues;
(9)A representative from a nonprofit group representing the intelligent transportation system industry;
(10)A representative from a public interest group concerned with safety;
(11)A representative from a public interest group concerned with the impact of the transportation system on land use and residential patterns; and
(12)Members with expertise in planning, safety, and operations. This document gives notice of this process to potential participants and affords them the opportunity to request representation on the ITSAC-OST. The procedure for requesting such representation is set out below. In addition, comments and suggestions for potential participants are invited. The Department is aware that there are many more potential organizations and participants than there are membership slots on the committee. Organizations and participants should be prepared to support their participation on the committee. It is very important to recognize that interested parties who are not selected to membership on the committee can make valuable contributions to the work of the ITSAC-OST in any of several ways. The person or organization could request to be placed on the committee mailing list, submitting written comments, as appropriate. Any member of the public could attend the committee meetings, and, as provided in FACA, speak to the committee. Time will be set aside during each meeting for this purpose, consistent with the committee's need for sufficient time to complete its deliberations. E. Applications for Membership Each application for membership or nomination to the committee should include:
(1)The name of the applicant or nominee and the interest(s) identified in Section 5305(h) such person would represent;
(2)Evidence that the applicant or nominee is authorized to represent parties related to the interest(s) the person proposes to represent; and
(3)A written commitment that the applicant or nominee would participate in good faith. Every effort is made to select committee members who are objective. A balance is needed and weight is given to a variety of factors including but not limited to geographical distribution, gender, minority status, organization, and expertise. F. Duration Continuing. G. Notice of Establishment After evaluating comments received as a result of this notice, the Department will issue a notice announcing the establishment and composition of the committee. (Authority: Section 5305(h), Public Law 109-59, 119 Stat. 1144) Issued on: April 28, 2006. J. Richard Capka, Acting Federal Highway Administrator. [FR Doc. E6-6687 Filed 5-2-06; 8:45 am] BILLING CODE 4910-22-P DEPARTMENT OF TRANSPORTATION Federal Highway Administration Environmental Impact Statement: Bannock County, Idaho AGENCY: Federal Highway Administration (FHWA), DOT. ACTION: Notice of intent. SUMMARY: The FHWA is issuing this notice to advise the public that an Environmental Impact Statement
(EIS)will be prepared for a proposed highway project in Bannock County, Idaho. FOR FURTHER INFORMATION CONTACT: Mr. Edwin B. Johnson, Field Operations Engineer, Federal Highway Administration, 3050 Lakeharbor Lane, Suite 126, Boise, Idaho, 83703, Telephone:
(208)334-9180, ext. 116, or Mr. Dennis Clark, Environmental Section Manager, Headquarters, Idaho Transportation Department, P.O. Box 7129 Boise, Idaho 83707-1129, Telephone:
(208)334-8203. SUPPLEMENTARY INFORMATION: The FHWA, in cooperation with the Idaho Transportation Department (ITD), will prepare an Environmental Impact Statement
(EIS)for a proposal to provide a new access point along Interstate 15 (I-15) in Bannock County, Idaho. The proposed new access point project area is located between the existing I-86 system interchange (approximate location Mile Post
(MP)72.0), and terminating to the north at approximate MP 75.5 along I-15. The purpose of this project is to locate a new service type access point to I-15, north of the existing I-86/I-15 system interchange in the Pocatello/Chubbuck metropolitan area located in Bannock County. Rapid residential growth in the northeastern bench and in the northern Chubbuck areas coupled with future commercial development has and will continue to create congestion and safety concerns at the existing interstate access points at the I-86/US 91 Chubbuck Interchange and at the I-15/Pocatello Creek Road Interchange, creating the need for this project. This project will enhance access and cross-freeway mobility, improve traffic operations within the corridor, and provide safe and efficient movement of people, goods and services while giving full consideration to local roads as primary transportation corridors. This project is needed because congestion and safety concerns are rising within the project corridor and travel times for local and through traffic have increased. These conditions have arisen from increased and projected regional travel demand due to planned community growth, limited local city street connectivity to and across I-15, and mobility limitations at existing interchanges. Seven enhancement concepts are under consideration, including:
(a)Taking a no-build action,
(b)applying enhanced Transportation Systems and Transportation Demand Management methods to the existing local roads,
(c)constructing one of five build action options which include: a new service interchange near the 2-1/2 mile overpass; a new service interchange connecting with Tyhee Road; a new interchange connection with Siphon Road; and two different new interchange options at the existing Chubbuck Road Overpass. Letters describing the proposed action and soliciting comments and input will be sent to appropriate Federal, State, and local agencies, and to private organizations and citizens. A series of public meetings will be held in the Chubbuck/Pocatello area. A scoping meeting and a public hearing will be held. Public notice will be given of the time and place of the meetings and hearing. The draft EIS will be made available for both public and agency review and comment prior to the public hearing. To ensure that the full range of issues related to this proposed action are addressed and all significant issues identified, comments and suggestions are invited from all interested parties. Comments or questions concerning this proposed action and the EIS should be directed to the FHWA or ITD at the address provided above. (Catalog of Federal Domestic Assistance Program Number 20.205, Highway Research, Planning and Construction. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities apply to the program.) Authority: 23 U.S.C. 315; 23 CFR 771.123; 49 CFR 1.48. Issued on April 25, 2006. Stephen A. Moreno, Division Administrator, Boise, Idaho. [FR Doc. 06-4130 Filed 5-2-06; 8:45 am]
Connectionstraces to 10
8 references not yet in our index
  • 17 CFR 240.19
  • 15 USC 78(f)(b)(5)
  • Pub. L. 106-50
  • 49 USC 1382
  • 49 CFR 10.37
  • Pub. L. 109-59
  • 119 Stat. 1144
  • 49 CFR 1.48
Citation graph
cites case law
Notices
Notice
U.S.C.§ 78s
U.S.C.§ 78f
U.S.C.§ 552
C.F.R.§ 200.30-3
U.S.C.§ 78c
U.S.C.§ 552a
U.S.C.§ 3512
Fed. Reg.Notices
U.S.C.§ 315
Cite17 CFR 240.19
Cite15 USC 78(f)(b)(5)
Pub. L.Pub. L. 106-50
Cites 18 · showing 12Cited by 0 across 0 sources
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