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Code · REGISTER · 2006-08-18 · Nuclear Regulatory Commission · Notices

Notices. Regulatory Guide and Associated Standard Review Plan Notice of Issuance and Availability: Withdrawal

37,543 words·~171 min read·/register/2006/08/18/06-7012

A research copy — for the controlling text, always check the official state or federal source. Not legal advice.

BILLING CODE 4410-15-M NUCLEAR REGULATORY COMMISSION [Docket Nos. 50-498 and 50-499] STP Nuclear Operating Company; Notice of Withdrawal of Application for Amendments to Facility Operating Licenses The U.S. Nuclear Regulatory Commission (NRC/the Commission) has granted the request of STP Nuclear Operating Company (the licensee) to withdraw its August 2, 2004, application for the proposed amendments to Facility Operating License Nos. NPF-76 and NPF-80, for the South Texas Project (STP), Units 1 and 2, respectively, located in Matagorda County, Texas.
The purpose of the licensee's request for amendments was to allow implementation of a risk-informed process for determining the allowed outage times for STP's Technical Specifications. The Commission had previously issued a Notice of Consideration of Issuance of Amendments published in the **Federal Register** on August 31, 2004 (69 FR 53112). However, by letter dated July 27, 2006, the NRC informed the licensee that the NRC would consider the proposed application for amendments to be withdrawn unless the licensee notified the NRC, by August 9, 2006, that our understanding was incorrect.
Thus, the August 2, 2004, application for amendments is considered to be withdrawn by the licensee. For further details with respect to this action, see the application for amendments dated August 2, 2004, and the NRC staff's letter dated July 27, 2006. Documents may be examined, and/or copied for a fee, at the NRC's Public Document Room (PDR), located at One White Flint North, Public File Area O1 F21, 11555 Rockville Pike (first floor), Rockville, Maryland. Publicly available records will be accessible electronically from the Agencywide Documents Access and Management Systems (ADAMS) Public Electronic Reading Room on the internet at the NRC Web site, *http://www.nrc.gov/reading-rm.html* .
Persons who do not have access to ADAMS or who encounter problems in accessing the documents located in ADAMS should contact the NRC PDR Reference staff by telephone at 1-800-397-4209, or 301-415-4737, or by e-mail to *pdr@nrc.gov* . Dated at Rockville, Maryland, this 10th day of August 2006. For the Nuclear Regulatory Commission. Mohan C. Thadani, Senior Project Manager, Plant Licensing Branch IV, Division of Operating Reactor Licensing, Office of Nuclear Reactor Regulation. [FR Doc.
E6-13631 Filed 8-17-06; 8:45 am] BILLING CODE 7590-01-P NUCLEAR REGULATORY COMMISSION Regulatory Guide and Associated Review Plan; Withdrawal of Notice AGENCY: Nuclear Regulatory Commission. ACTION: Regulatory Guide and Associated Standard Review Plan Notice of Issuance and Availability: Withdrawal. SUMMARY: The Nuclear Regulatory Commission
(NRC)is withdrawing the notice of the issuance and availability of a Regulatory Guide for public comment (i.e., Regulatory Guide 1.200, Revision 1 and its associated Standard Review Plan). The NRC is taking this action because of the omission of information. FOR FURTHER INFORMATION CONTACT: Mary Drouin, Office of Nuclear Regulatory Research, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, telephone
(301)415-6675, e-mail *MXD@NRC.Gov.* SUPPLEMENTARY INFORMATION: On August 10, 2006 (71 FN 45864), the NRC published a notice in the **Federal Register** stating that the Nuclear Regulatory Commission has issued for public comment a revision of a regulatory guide (and its associated Standard Review Plan), specifically Regulatory Guide 1.200, Revision 1, “An Approach for Determining the Technical Adequacy of Probabilistic Risk Assessment Results for Risk-Informed Activities,” which provides guidance to licensees in determining the technical adequacy of a probabilistic risk analysis used in risk-informed, integrated decision-making process, and to endorse standards and industry guidance. Certain pertinent information was inadvertently omitted from the notice; therefore, the NRC is withdrawing the notice. The NRC will issue a corrected notice with a revised date for the review and comment period. Dated at Rockville, MD, this 14th day of August 2006. For the Nuclear Regulatory Commission. Farouk Eltawila, Director, Division of Risk Assessment and Special Projects, Office of Nuclear Regulatory Research. [FR Doc. E6-13635 Filed 8-17-06; 8:45 am] BILLING CODE 7590-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54314; File No. SR-Amex-2006-27] Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving a Proposed Rule Change and Amendments No. 1 and 2 Thereto Relating to Interim Members August 14, 2006. I. Introduction On March 23, 2006, the American Stock Exchange LLC (“Amex” 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 proposal to amend Amex Rule 353 to limit members and member organizations from allocating their seats to interim members on the Floor of the Exchange for a maximum of fifteen aggregate days that may be used consecutively or non-consecutively for a one-year period beginning on the date of approval as an interim member (“approval date”). On June 15, 2006, Amex filed Amendment No. 1 to the proposed rule change and on June 27, 2006, Amex filed Amendment No. 2 to the proposed rule change. The proposed rule change, as amended, was published for comment in the **Federal Register** on July 13, 2006. The Commission received no comments regarding the proposal. 3 This order approves the proposed rule change, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 The comment period expired on August 3, 2006. II. Description of the Proposal Currently, Amex Rule 353 permits unfettered temporary allocation of a membership to an interim member 4 on the Floor of the Exchange so long as the duration is no less than one day and no more than one year. The Exchange proposes to amend Amex Rule 353 to reduce the maximum number of days the member or member organization can allocate its membership to an interim member to fifteen days, which may be used by each interim member consecutively or non-consecutively for a one-year period beginning on the date of approval of such interim member by the Exchange. Upon approval of this proposed rule change by the Commission,
(1)all interim members currently on seats will be able to use their fifteen day allocation for the duration of the year from the date on which they were approved for interim membership and
(2)interim members that are subsequently approved will have a year beginning on their individual approval dates to use their fifteen day allocation. 4 An interim member is an individual, pre-qualified by the Exchange, who is designated by a member or member organization to temporarily use the membership for a specified period of time when the member is absent from the Trading Floor. Article IV, Section 3(e) of the Amex Constitution explicitly states that the designation of an interim member is “subject to and in accordance with such rules as may be adopted from time to time by the Board of Governors.” Amex Rule 353 sets forth the specific requirements, rights, and limitations of interim members. If an interim member has exhausted the fifteen day period, even if this occurs prior to end of the one-year period, the member or member organization may regain interim membership status by designating another interim member, or redesignating the same interim member, to the seat by filing documents required by the Membership Services Department and paying the maintenance fee in accordance with Article VII, Section 1(g) of the Amex Constitution. 5 5 The maintenance fee is a $1500 charge that is paid by a member or member organization annually to the Exchange in order to maintain interim member status. This proposal does not affect the amount of the maintenance fee. In addition, the proposed rule change will
(1)eliminate the $250 allocation fee in Article IV, Section 3(e) and Article VII, Section 1(g) of the Amex Constitution, which specify the fees associated with the Interim Member program, and all references thereto;
(2)waive the $1,500 initiation fee associated with the transfer of a membership pursuant to a special transfer agreement 6 in Article IV, Section 1(f) and Article VII, Section 1(c) of the Amex Constitution for interim members who wish to lease a seat immediately following their allotted time as an interim member;
(3)make clarifications in Amex Rule 353 and Article IV, Section 3(e) of the Amex Constitution that an interim member will become effective upon submission of the appropriate form to and approval by the Membership Services Department of the Exchange; and
(4)make corresponding changes related to this proposed rule change to the Member Fee Schedule, which sets forth the fees that Amex charges its members. 6 A special transfer agreement is an agreement between the owner of a regular or options principal membership and an individual who is authorized to use the membership for a specified period of time or until the occurrence of a specified event. III. Discussion After careful consideration of the proposal, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange 7 and, in particular, the requirements of Section 6 of the Act. 8 Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act, 9 which requires, among other things, 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, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. Section 6(b)(5) of the Act 10 also requires that the rules of an exchange not be designed to permit unfair discrimination among customers, issuers, brokers, or dealers. In addition, the Commission believes that the proposal is consistent with Section 6(b)(4) of the Act, 11 in that the proposed rule change provides for the equitable allocation of reasonable dues, fees, and other charges among the Exchange's members and issuers and other persons using its facilities. 7 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 8 15 U.S.C. 78f. 9 9 15 U.S.C. 78f(b)(5). 10 *Id.* 11 15 U.S.C. 78f(b)(4). The Exchange believes that allowing unlimited allocation of temporary membership days to interim members lessens the value of memberships by essentially permitting individuals who do not own or lease seats to operate as members. 12 The Exchange believes that this circumvention of seat leasing and ownership increases the number of unleased seats and decreases the demand for a membership, thereby artificially lessening the value of the membership. However, the Exchange also believes that the Interim Member program has served a useful function on the Floor by providing members with protection in cases of illnesses or emergencies and coverage when vacation is taken. The Exchange believes that the proposed rule change adequately balances concerns over having adequate emergency coverage on the Floor and concerns over the devaluation of memberships. The Commission believes that is consistent with the Act for the Exchange to make the changes described above to limit the interim membership program to balance these concerns. 12 12 The Exchange represents that if the proposed rule change had been implemented at the start of 2005, approximately half of the 21 interim members would have exhausted their fifteen aggregate days by the beginning of November. While some members may incur additional expense as a result of the proposed restrictions to the Interim Member program, the proposed rule change should also provide some economic relief to these members. For example, the elimination of the $250 allocation fee, which the Exchange charges each time an interim member is designated to a seat, should permit members to more effectively use the fifteen days for emergencies, illnesses, and vacations on a non-consecutive basis. Further, waiving the $1,500 initiation fee, which is charged whenever a member enters into a special transfer agreement, for those who wish to lease a seat immediately following their allotted time as an interim member, will provide relief to members who encounter serious emergencies, as well as offer a financial incentive for interim members to enter into special transfer agreements. IV. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 13 that the proposed rule change (SR-Amex-2006-27), as amended, is approved. 13 15 U.S.C. 78s(b)(2). 14 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 Nancy M. Morris, Secretary. [FR Doc. E6-13636 Filed 8-17-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54310; File No. SR-Amex-2006-71] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change Relating to Floor Broker HandHeld Terminals August 11, 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 August 2, 2006, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons and is approving the proposal on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt Commentary .02 to Amex Rule 935—ANTE to clarify that floor brokers, when interacting with orders and quotes in the ANTE System, are required to use their handheld terminals. The text of the proposed rule change is available on the Exchange's Web site at ( *http://www.amex.com* ), at the principal office of the Exchange, and at the Commission's Public Reference Room. The text of the proposed rule change is set forth below. Proposed new language is *italicized.* Rule 935—ANTE. Allocation of Executed Contracts (a)-(b) No Change. Commentary .01 No Change . *02 Floor brokers when interacting with orders and quotes in the ANTE system are required to use their handheld terminals.* 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. The text of these statements may be examined at the places specified in Item III below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to add new Commentary .02 to Amex Rule 935—ANTE to clarify that Exchange floor brokers are required to use their handheld terminals when interacting with orders and quotes in accessing the Exchange's electronic options marketplace or “ANTE.” The market depth at the Exchange in ANTE and the trading crowd may differ, due to the differences inherent in an automatic execution system and an auction market. With the recent approval and near-term implementation of a remote market maker program ( *i.e.* , Remote Registered Options Traders (“RROTs”) and Supplemental Registered Options Traders (“SROTs”)), 3 as well as the “hybrid” market structure for options at the Exchange, a floor broker may receive different execution sizes based on whether the order is routed electronically or walked into the trading crowd. As a result, the Exchange believes that in order to maintain a fair and orderly market, a floor broker who desires to access the ANTE system should be required to use his or her handheld terminal. 3 *See* Securities Exchange Act Release Nos. 53652 (April 13, 2006), 71 FR 20422 (April 20, 2006) and 53635 (April 12, 2006), 71 FR 20144 (April 19, 2006). In today's options marketplace, orders are increasingly routed to and executed on the Amex and the other options exchanges electronically. At the Exchange, the ANTE system provides for the automatic matching and execution of market and marketable limit orders within eligible size limit parameters ( *i.e.* , the “auto-match size”). The auto-match size is the maximum order size that can be automatically matched with orders on the book or the disseminated quote. Orders for less than the auto-match size are automatically matched at the disseminated price up to the disseminated size. The ANTE system then allocates the executed contracts among the participants to the trade, pursuant to the algorithm set forth in Amex Rule 935—ANTE. Floor brokers, in order to receive an ANTE allocation for transactions in ANTE, are required to use their handheld terminals so that the order trades against the ANTE Central Book. Floor brokers that execute orders in the trading crowd are accordingly outside the ANTE system. Therefore, the ANTE or electronic marketplace and the trading crowd may have different depth of market at any particular point in time. The Exchange believes that this is the nature of the “hybrid” market model that currently exists. As a result, a floor broker who desires to access the depth of market available in ANTE by interacting with orders and quotes, must submit his or her order through the handheld terminal. Working an order in the trading crowd does not access the depth of market that may exist in the ANTE system. In addition, the introduction of RROTs and SROTs further necessitates direct floor broker access to the ANTE market, since the specialist is unable to match a trade in the trading crowd with an RROT or SROT quote. Therefore, the Exchange proposes to adopt Commentary .02 to Amex Rule 935—ANTE to clarify that a floor broker accessing the electronic marketplace available through ANTE by interacting with orders and quotes must submit such order(s) via his or her handheld terminal. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, 4 in general, and furthers the objectives of Section 6(b)(5) of the Act, 5 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, 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. 4 15 U.S.C. 78f(b). 5 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchanges 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 No written comments were solicited or received with respect to the proposed rule change. III. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Amex-2006-71 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Amex-2006-71. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Amex. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Amex-2006-71 and should be submitted on or before September 8, 2006. IV. Commission's Findings and Order Granting Accelerated Approval of Proposed Rule Change The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 6 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act, 7 which requires that an exchange have rules designed, among other things, to promote just and equitable principles of trade, 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. The Commission believes that the proposal should help to promote just and equitable principles of trade and remove impediments to and perfect the mechanisms of a free and open market by clarifying current requirements for floor broker access to the liquidity on ANTE, the Exchange's electronic options marketplace. 6 In approving this rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. * See* 15 U.S.C. 78c(f). 7 15 U.S.C. 78f(b)(5). The Commission finds good cause for approving this proposed rule change before the thirtieth day after the publication of notice thereof in the **Federal Register** pursuant to Section 19(b)(2) of the Act. 8 The proposal does not raise any new or novel regulatory issues and merely codifies a current requirement for floor broker access to ANTE. 8 15 U.S.C. 78s(b)(2). V. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 9 that the proposed rule change (SR-Amex-2006-71) is hereby approved on an accelerated basis. 9 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 10 10 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-13637 Filed 8-17-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54311; File No. SR-CBOE-2005-103] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To Amend CBOE Rules Relating to the Electronic Designated Primary Market Maker Program August 11, 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 December 5, 2005, 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, II and III below, which Items have been prepared by CBOE. On August 11, 2006, the Exchange filed Amendment No. 1 to the proposed rule change. 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. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend CBOE rules relating to the Electronic Designated Primary Market Maker (“e-DPM”) Program. The text of the proposed rule change is set forth below. Proposed additions are in italics, and proposed deletions are in brackets. Rule 8.92. Electronic DPM Program (a)-(b) No change.
(c)Allocation of Option Classes. The Board of Directors or a committee designated by the Board of Directors shall grant e-DPMs allocations in option classes. Factors to be considered in granting allocations include performance, capacity, performance commitments, efficiency, competitiveness, and operational factors. In addition, the following shall apply: (i)-(iv) No change.
(v)An e-DPM may not be allocated an option class for which the e-DPM organization serves as DPM on the trading floor *,* [.] *(vi) The Exchange may remove any option class from the e-DPM Program at any time if certain factors no longer warrant its inclusion in the program. Factors to be considered in removing an option class include any of the following: Market share, number of exchanges trading the product, average daily trading volume, and liquidity in the product. The Exchange shall give prior notice of any removal of an option class to the e-DPMs trading in that option class.* (d)-(e) No change. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, CBOE 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. CBOE 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 CBOE's e-DPM Program was created, generally, to enhance the liquidity base of the CBOE Hybrid Trading System and to increase the Exchange's market share in overall options trading by allowing member organizations, e-DPMs, to operate remotely as competing DPMs in the same option classes. 3 The Exchange, through its designees, determines which option classes to include in the e-DPM Program and, accordingly, which classes to allocate to each respective e-DPM. 4 3 *See* CBOE Rules 8.92 through 8.94 and Securities Exchange Act Release No. 50003 (July 12, 2004), 69 FR 43028 (July 19, 2004) (Order approving SR-CBOE-2004-24). e-DPMs operate remotely as specialists by entering bids and offers electronically from locations other than the trading floor. 4 *Id.* This rule change proposes to clarify that the Exchange should also have the authority to remove any e-DPM option class from the e-DPM Program if certain factors no longer warrant the continued inclusion of that option class in the e-DPM Program. The factors used in making such a determination would relate to the option class itself and will include any of the following:
(i)Market share,
(ii)number of exchanges trading the product,
(iii)average daily trading volume, and
(iv)liquidity in the product. The Exchange will consider any one or all of these factors in determining whether to remove an option class from the e-DPM Program. Such factors will be considered by the Exchange in removing any option class(es) from the e-DPM Program, including those option classes that are the top classes trading on the Exchange and those option classes that are the bottom classes trading on the Exchange. 5 The ability to remove and limit the number of e-DPM option classes is necessary to further the competitive goals of the e-DPM Program. 5 Based on the National Average Daily Volume. The purpose of the e-DPM Program is to create, among other things, greater market share, volume and liquidity. For certain option classes that have been in the e-DPM Program, there may no longer be a need to have such option classes in the program since at the present time, those classes have consistently maintained a level of greater market share, higher volume and/or greater liquidity. In reviewing these factors, the Exchange may determine that such class(es) no longer need to be in the e-DPM Program and can therefore be removed from the e-DPM Program, since that class meets the levels that the Exchange deems appropriate. In addition, the Exchange may wish to remove an option class from the e-DPM Program for the opposite reason. Certain option classes that are in the e-DPM Program may not have increased in market share, volume and/or liquidity, or may have even gone down in total market share, volume and/or liquidity. Since being in the e-DPM Program did not increase these factors, the Exchange may wish to remove such option class(es) from the program since they have not benefited from being in the program. Prior to removing any option class from the e-DPM Program, the Exchange would notify the e-DPMs trading in that option class that such class is being removed from the program. Persons aggrieved by the removal of an option class from the e-DPM Program may appeal such decision to the Exchange's Appeals Committee pursuant to Chapter XIX of the rules of the Exchange. By being able to review these proposed factors for all option classes in the e-DPM Program and in making a determination on whether an option class(es) should be included in the e-DPM Program, the Exchange believes it will have the flexibility to ultimately enhance the overall market share and volume of all option classes trading on the Exchange. 2. Statutory Basis The Exchange believes that the proposal is consistent with Section 6(b) of the Act, 6 in general, and Sections 6(b)(5) and 6(b)(7) of the Act, 7 in particular, in that it is designed to promote just and equitable principles of trade and to remove impediments to and perfect the mechanism of a free and open market and a national market system, and provides a fair procedure for the limitation by the Exchange of any person with respect to access to services offered by the Exchange. 6 15 U.S.C. 78f(b). 7 15 U.S.C. 78f(b)(5) and 78f(b)(7). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange did not solicit or receive any written comments with respect to 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 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-2005-103 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CBOE-2005-103. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2005-103 and should be submitted on or before September 8, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 8 8 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-13643 Filed 8-17-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54301; File No. SR-CHX-2006-05] Self-Regulatory Organizations; Chicago Stock Exchange, Inc,; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto to Implement a New Trading Model August 10, 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 February 2, 2006, the Chicago Stock Exchange, Inc. (“CHX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the CHX. On August 10, 2006, the Exchange filed Amendment No. 1 to the proposed rule change. 3 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 replaces and supersedes the original filing in its entirety. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The CHX proposes to amend its rules to implement a new trading model that provides the opportunity for entirely automated executions to occur within a central matching system accessible by all Exchange participants. The new model also would end the Exchange's operation of a physical trading floor and is intended to comply with the requirements of Regulation NMS (“Reg. NMS”). 4 The text of this proposed rule change is available on the Exchange's Web site at *http://www.chx.com/rules/proposed_rules.htm* , in the Commission's Public Reference Room, and on the Commission's Web site at *http://www.sec.gov.* 4 17 CFR 242.600, *et seq.* 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 CHX 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 CHX has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Through this proposed rule change, the Exchange seeks to implement a new trading model that allows its participants to interact in a fully-automated matching system. In this model, the Exchange would no longer operate a physical trading floor where on-floor specialists, brokers and market makers seek execution of their orders. Instead, the Exchange would operate an automated system where its participants—from any location—could submit orders for immediate execution. The Exchange believes that this new model provides an opportunity for its participants and their customers to receive efficient, low-cost executions, while giving the Exchange enhanced capabilities for surveilling its participants' trading activities. In this new model, the Exchange anticipates that most of its participants would continue to be “off-Exchange” order-sending firms that would simply send orders to the Matching System for execution. These firms would not be required to register with the Exchange to act in any specific capacity other than as trading participants. 5 The Exchange would, however, allow participant firms to register in two special categories—to operate as proprietary market makers on the Exchange or to act as institutional brokers. Market makers could choose to post two-sided quotations and trade for their proprietary accounts. Any customer order would be accepted off the Exchange and a market maker could then choose whether or not to enter the order in the Exchange's Matching System or submit the order to a different venue. In contrast, any customer orders accepted by institutional brokers would be deemed to be on the Exchange when accepted. These market makers and institutional brokers would operate on the Exchange, even if they are not physically located on a single trading floor. 5 Since its demutualization in February 2005, the Exchange has not had “members.” Instead, a broker-dealer that seeks to effect transactions directly on the Exchange must become an Exchange “participant.” Because the Exchange is taking this opportunity to modernize many of its long-standing procedures and rules, the implementation of the new trading model will result in changes to virtually every section of the Exchange's rule book. The most significant changes can be found in new CHX Article 20 of the Exchange's rules, which describes the operation of the Exchange's central matching system. CHX Article 16 details the new role of market makers on the Exchange, and CHX Article 17 describes the role and responsibilities of the Exchange's institutional brokers. Changes to other sections of the rules are designed to eliminate obsolete provisions—including those that relate to the operation of a physical trading floor—and to update other responsibilities to reflect the more automated trading that is the hallmark of the Exchange's new model. The Exchange has also made an effort to better organize the rules. After describing the provisions of new CHX Articles 20, 16 and 17, this submission will review each of the other sets of proposed rule changes beginning with CHX Article 1. 6 6 Throughout its rule book, the Exchange is replacing the Roman numerals currently used to identify each of its articles with an easier-to-understand Arabic number. a. The Matching System The Exchange's Matching System would be the core facility of the Exchange. It would provide the only means for the display of orders and a central point for the execution of orders. On one hand, the Matching System is simply an extension of the operation of the Exchange's electronic book to all securities traded on the Exchange. 7 On the other hand, this Matching System would provide a much more robust platform for the interaction of orders than is possible on the Exchange today. 7 *See* Securities Exchange Act Release No. 52094 (July 21, 2005), 70 FR 43913 (July 29, 2005) (approving the electronic book for the trading of securities not assigned to a specialist firm). 1. *Trading hours.* The Matching System would operate a regular trading session and a late trading session each day. 8 The regular trading session ordinarily would begin immediately after the primary market for a security opens its market and would end at 3 p.m. each day for all securities except specified exchange-traded funds, which would trade until 3:15 p.m. 9 The second trading session—the late trading session—would begin immediately after the close of the first session and would end at 3:30 p.m. 10 Two senior officers of the Exchange could decide to open the Exchange for trading if the primary market announces that it will not open or will open later than usual, or if the primary market has not opened within 15 minutes after its normal operating time. 11 Special rules apply to the trading hours for securities listed exclusively on the Exchange. 12 8 *See* CHX Article 20, Rule 1(b). 9 All times referenced in this filing are expressed in Central Time. 10 These sessions are similar to the trading sessions that occur on the Exchange today, except that the late trading session in the new model (unlike the extended session under the current rules, in which the MAX system is not operational) would be a fully automated trading session. *See* CHX Article IX, Rule 10(b). 11 *See* CHX Article 20, Rule 1, Interpretation and Policy .03. If these officers decide to open one or more NYSE-listed, Amex-listed or other listed securities (other than Nasdaq-listed securities) when the primary market for these securities is not trading, the Matching System will cancel all pending opening cross orders in affected securities and, at the opening time selected by these officers, will then accept all other orders and match them as provided by the Matching System rules. If these officers decide to open one or more Nasdaq-listed securities when the primary market for these securities is not trading, the Matching System will:
(a)If the decision is made before 8:30 a.m., execute all opening cross orders in affected securities as if the primary market had opened and then accept all other orders and match them as provided by the Matching System rules; or
(b)if the decision is made on or after 8:30 a.m., cancel all pending opening cross orders in affected securities and, at the opening time selected by the Exchange officers, then accept all other orders and match them as provided by the Matching System rules. 12 *See* CHX Article 20, Rule 1, Interpretation and Policy .04 (confirming that the regular trading session for these securities would begin at 8:30 a.m. and end at 3:00 p.m.). 2. *Access to the Matching System.* Exchange participants could route orders to the Matching System through any communications line approved by the Exchange. 13 To the extent that the Exchange participates in the Intermarket Trading System (“ITS”) Plan or any other linkage plan, ITS commitments and other intermarket orders could be sent to the Matching System through those linkages. 14 13 *See* CHX Article 20, Rule 8(a)(1). 14 *See* CHX Article 20, Rule 8(a)(2). So long as it is required by the OTC/UTP Plan, the Exchange would also provide telephonic access to NASD market makers. *See* CHX Article 20, Rule 8(a)(3). 3. *Eligible orders—basic requirements.* The Exchange's Matching System would only accept day orders; orders designated good-till-canceled would not be accepted. 15 Similarly, except for immediate-or-cancel market orders or specially-designated cross orders, the Matching System would only accept limit orders and orders for regular-way settlement. 16 Orders could be submitted as round lots, odd lots or mixed lots, except that orders in securities that only trade in specific share size increments must be submitted only in those share sizes. 17 15 *See* CHX Article 20, Rule 4(a)(2). 16 *See* CHX Article 20, Rules 4(a)(1), 4(a)(3) and 4(a)(7). A special type of order—a non-regular way cross order—could be submitted for execution and non-regular way settlement. *See* CHX Article 20, Rule 4(b)(15). 17 *See* CHX Article 20, Rule 4(a)(4). Except for any types of cross and cross with size orders (described later in this filing), the Matching System would only accept orders that comply with the sub-penny requirements of Reg. NMS set out in Rule 612 18 and that do not exceed any size and/or price limitations imposed by the Exchange to help eliminate erroneous transactions or orders and transactions that cannot be processed by the Exchange's systems. 19 Because cross and cross with size orders essentially are sub-penny executions (rather than orders), these transactions could be submitted to the Matching System in sub-penny increments down to $0.000001. 20 Importantly, however, the Matching System would not allow any type of cross or cross with size order (except a midpoint cross, a cross that executes at the midpoint of the NBBO or a cross with size)
(i)Priced at or above $1.00, to execute at a price less than $.01 better than any order on the same side of the Matching System, or
(ii)priced under $1.00, to execute at a price less than $.0001 better than any order on the same side of the Matching System. 21 18 17 CFR 242.612. 19 *See* CHX Article 20, Rule 4(a)(6). The Exchange intends to develop a set of parameters that would be used to identify orders that either appear to be erroneous (based on their relationship to current market conditions) or that exceed the Exchange's systems capabilities (such as orders priced higher than a very high dollar level or those for a very large number of shares). These orders would be rejected to permit the continued effective operation of the Matching System. 20 *See* CHX Article 20, Rule 4(a)(7)(b), confirming that cross and cross with size orders can be submitted in sub-penny increments, whether the orders are priced less than or at or above $1.00. The Exchange represents that it understands that it will need to obtain exemptive relief from the requirements of Reg. NMS to permit these executions to occur and will work with Commission staff to obtain that relief. 21 *See* CHX Article 20, Rule 4(a)(7)(b). The Exchange represents that it has imposed this requirement based on input from Commission staff that it is required for any market operated by a national securities exchange. 4. *Order types and conditions.* The Matching System would accept a wide variety of order types and conditions, which are set out in CHX Article 20, Rule 4(b). Some of the more routine order types would include immediate or cancel (“IOC”) limit and market orders, fill or kill (“FOK”) orders, sell short and short exempt orders, reserve size orders, time in force orders and cancel on halt orders. 22 As required by Reg. NMS, IOC orders would be executed against any orders at or better than the Exchange's best bid or offer (“BBO”), including any reserve size or other undisplayed orders at or better than that price. 23 Reserve size orders would permit a participant to identify a portion of an order to be displayed and a portion that should remain undisplayed, and to provide an instruction that the displayed portion should be refreshed to the original display quantity whenever the displayed share size falls below a specific threshold. 24 Time in force orders would be eligible for execution within a specified time period, with any unexecuted balance to be immediately cancelled when this period expires. 25 Cancel on halt orders would be automatically cancelled by the Matching System if a trading halt or suspension is declared on the Exchange in that security. 26 22 *See* CHX Article 20, Rule 4(b)(12) (IOC orders); Rule 4(b)(13) (IOC market orders); Rule 4(b)(11) (FOK orders); Rule 4(b)(20) (sell short orders); Rule 4(b)(21) (short exempt orders); Rule 4(b)(19) (reserve size orders); Rule 4(b)(22) (time in force orders); and Rule 4(b)(3) (cancel on halt orders). 23 *See* CHX Article 20, Rules 4(b)(12) (IOC orders) and 4(b)(13) (IOC market orders). 24 *See* CHX Article 20, Rule 4(b)(19). 25 *See* CHX Article 20, Rule 4(b)(22). The Matching System initially would permit participants to identify any time period of a minute or a multiple of a minute as the “time in force” for a particular order. In later upgrades to the Matching System, participants would be allowed to identify an order's “time in force” in seconds. 26 *See* CHX Article 20, Rule 4(b)(3). The Matching System also would accept several different types of cross transactions, including a basic cross, a cross with size, a cross with satisfy, a cross with yield, a midpoint cross, an opening cross and a non-regular way cross. A basic cross transaction would be an order to buy and sell the same security at a specific price that is better than the Exchange's displayed BBO and, where required by the ITS Plan, another linkage plan or Reg. NMS, equal to or better than the NBBO. 27 A cross with size would be a cross for at least 5,000 shares and for a value of $100,000 that is at a price equal to or better than the Exchange's displayed BBO (and, where required by the ITS Plan, another linkage plan, or Reg. NMS, equal to or better than the NBBO), where the size of the cross transaction is larger than the largest order displayed on the Exchange at that price. 28 A cross with satisfy is designed to provide a participant with an efficient mechanism for clearing out displayed orders in the Matching System that would otherwise have time priority (or displayed bids or offers in other market centers that would otherwise have price priority) and then effecting a cross transaction at that price. 29 A cross with yield is a similar order type, which would automatically yield interest on the buy, sell or either side of the order to any order already displayed in the Matching System at the same or better price. 30 And, finally, as their names suggest, an opening cross is a cross transaction that would be specifically designated to be executed at the opening price; a non-regular way cross would be designated for non-regular way settlement; and a midpoint cross would execute at the midpoint between the NBBO. 31 27 *See* CHX Article 20, Rule 4(b)(4). A cross may represent interest of one or more Exchange participants, trading for a proprietary account. This order or transaction type is already permitted in the Exchange's electronic book. *See* CHX Article XXA, Rule 2. 28 *See* CHX Article 20, Rule 4(b)(6). A cross with size is already permitted in the Exchange's electronic book and is similar to the type of transaction that can take place on the Exchange's trading floor. *See* CHX Article XXA, Rule 2; CHX Article XX, Rule 23. The proposed definition of a cross with size transaction would reduce the required number of shares in the order to 5,000 shares from 25,000 shares, mirroring similar requirements in the floor trading rules of other markets. *See* Boston Stock Exchange Rules, Chapter II, Section 18; Philadelphia Stock Exchange Rule 126(h). At the same time, the definition would be changed to also require that a cross must have a value of $100,000. The Exchange represents that it has imposed this requirement based on input from Commission staff that it is required for any market operated by a national securities exchange and based on an assurance from Commission staff that all national securities exchanges would be required to impose a similar requirement. The proposed definition of a cross with size transaction also would confirm that this order could represent interest of one or more participants of the Exchange. 29 *See* CHX Article 20, Rule 4(b)(5). With this order type, a participant would send:
(A)An instruction to execute a cross transaction at a specific price; and
(B)an instruction
(i)To execute orders already displayed in the Matching System at their limit prices (up to a specified number of shares) against a specified party to the extent necessary to allow the cross transaction to occur and/or
(ii)to route outbound orders or commitments to other market centers to the extent necessary to prevent an improper trade-through. If a cross with satisfy is sent with a share size that is too small to satisfy orders in the Matching System or bids or offers in other markets, as applicable, the order would be automatically cancelled. Once the satisfying execution has occurred (or, for orders or commitments sent to other market centers, those orders or commitments have been sent), the cross would be executed at a price that is better than the best bid or offer to be displayed in the Matching System and, for securities listed on NYSE, Amex and any exchange other than Nasdaq (and for Nasdaq-listed securities, when Reg. NMS is implemented in those issues), equal to or better than the NBBO. A cross with satisfy may represent interest of one or more participants of the Exchange but, to the extent that it represents interest of the participant sending the order to the Matching System, the participant would not be eligible to satisfy existing bids or offers in the Matching System at a price that is better than the cross price and could only satisfy bids or offers in other markets at a price that is better than the cross price if the cross is for at least 10,000 shares or has a value of at least $200,000 (a “block size order”) or is for the account of an institutional customer (as that term is defined in CHX Article 8, Rule 11, Interpretation and Policy .03) and the participant's customer has specifically agreed to that outcome. 30 *See* CHX Article 20, Rule 4(b)(7). This order would have:
(A)An instruction to execute a cross transaction at a specific price; and
(B)an instruction to yield interest on the buy, sell or either side of the order (as specified in the order) to any order already displayed in the Matching System at the same or better price, to the extent necessary to allow the cross transaction to occur. The cross would be executed at a price that is better than the best bid or offer to be displayed in the Matching System and, for securities listed on NYSE, Amex and any exchange other than Nasdaq (and for Nasdaq-listed securities, when Reg. NMS is implemented in those issues), equal to or better than the NBBO. 31 *See* CHX Article 20, Rule 4(b)(16) (opening cross); Rule 4(b)(15) (non-regular way cross); and Rule 4(b)(14) (midpoint cross). As described later in this submission, opening cross orders would execute immediately after the primary market opens in a security, at the opening price. For securities listed on NYSE, Amex and any exchange other than Nasdaq, the opening price would be the primary market opening price. For Nasdaq-listed securities (except in the case of an initial IPO), the opening price would be the midpoint of the first unlocked, uncrossed market that occurs on or after 8:30 a.m. For Nasdaq-listed securities on the date of an IPO, the opening price would be the Nasdaq opening price. Opening cross orders would not be accepted in securities exclusively listed on the Exchange and would not be accepted if any part of the sell side of the order is marked as a sell short order. A midpoint cross would be executed at the midpoint of the NBBO, but if the NBBO is locked at the time a midpoint cross is received, the midpoint cross would execute at the locked NBBO. If the NBBO is crossed at the time a midpoint cross is received, the midpoint cross would be automatically cancelled. A non-regular way settlement cross would execute without regard to the NBBO or any other orders the Matching System and could represent the interest of one or more participants in the Exchange. Any non-regular way cross that is for cash settlement must be received by the Matching System by 2 p.m. or such other time that may be established by the Exchange and communicated to participants from time to time. The Matching System would not accept one-sided orders for non-regular way settlement. The only way to effect a non-regular way transaction within the Matching System would be through a non-regular way cross. Exchange participants currently may execute orders for non-regular way settlement, both on the floor of the Exchange and in the Exchange's electronic book. *See* CHX Article XX, Rule 9; CHX Article XXA, Rule 2(c)(5). The Matching System also would accept several order types that are specifically contemplated by Reg. NMS. 32 For example, the Matching System would accept benchmark orders which meet the requirements of Rule 611(b)(7) of Reg. NMS. Initially, the Exchange would limit submission of benchmark orders to the Exchange's institutional brokers. 33 The Matching System would also accept BBO intermarket sweep orders (“BBO ISOs”), which would execute against orders at the Exchange's BBO, without regard to whether the execution would trade through another market's protected quotation. 34 If a BBO ISO is marked as “immediate or cancel,” any remaining balance in the order would be automatically cancelled. If a BBO ISO is not marked as “immediate or cancel,” any remaining balance in the order would be placed in the Matching System and displayed, without regard to whether that display would lock or cross another market center. 35 Two other Reg. NMS-related orders—an outbound ISO and a price-penetrating ISO—would also be accepted by the Exchange's Matching System. 36 32 These order types—and other expressly-identified provisions—take effect with the implementation of Rule 611 of Reg. NMS. 17 CFR 242.611. The Exchange will use February 5, 2007 (the “Trading Phase Date”) as the effective date for these provisions. *See* Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR 30038 (May 24, 2006) (setting new compliance dates for Rules 610 and 611). 33 The Exchange initially has limited the use of this order type to its institutional brokers to ensure that the Exchange can determine whether or not the requirements of Rule 611(b)(7) Reg. NMS have been met. *See* CHX Article 20, Rule 4(b)(2). A benchmark order may execute at any price, without regard to the protected NBBO and may represent interest of one or more Exchange participants. 34 *See* CHX Article 20, Rule 4(b)(1). These orders are executed based on the premise that the participant routing the order to the Matching System has already satisfied the protected quotations of other market centers. *See* CHX Article 20, Rule 6(c)(3). 35 These orders are displayed based on the premise that the participant routing the order to the Matching System has already satisfied the quotations of other markets so that the display of the order would not lock or cross those markets. 36 An outbound ISO would allow an Exchange participant to ask the Exchange to execute an order on the Exchange without regard to the protected quotations at other markets while simultaneously routing ISOs to those other markets to execute against their protected quotations. *See* CHX Article 20, Rule 4(b)(17). A price-penetrating ISO would operate much like a basic ISO, except that it would allow a participant to execute through displayed and undisplayed interest, at multiple price points, on the Exchange. *See* CHX Article 20, Rule 4(b)(18). Finally, the Matching System would accept do-not-display and do not route orders. A do not route order, as its name implies, would be executed or displayed within the Matching System and could not be routed to another market center. 37 A do-not-display order would be an order, for at least 1,000 shares when entered, that should not be displayed in whole or in part, but that would remain eligible for execution within the Matching System. 38 37 As further described in the section relating to the prevention of trade-throughs, a do not route order would be immediately cancelled if its execution would improperly trade through the ITS BBO or another market's protected quotations. Any types of cross, IOC or FOK orders would deemed to have been received with a “do not route” condition because these orders either are immediately executed in the Matching System or cancelled. *See* CHX Article 20, Rule 4(b)(10). 38 *See* CHX Article 20, Rule 4(b)(9). A do-not-display order could receive that designation because a customer specifically instructed a participant not to display the order or because a participant decided that its own order should not be displayed. As described later in this submission, a do-not-display order would be ranked, at any given price point, behind displayed orders (and any odd-lot and mixed-lot orders at the price) and behind the undisplayed portions of any reserve size orders. These completely undisplayed orders would both allow a participant to fulfill a customer's instructions and to otherwise keep trading interest hidden, but to remain within the Matching System where the orders could be executed against inbound orders seeking liquidity. 5. *Ranking of orders in the Matching System.* As described in CHX Article 20, Rule 8, all orders received by the Matching System would be ranked by price, time of receipt and, for round-lot orders, any display instructions received with the orders. Specifically, orders received by the Matching System would be ranked as follows: a. *Orders that are eligible for display, as well as mixed-lot and odd lot orders.* Limit orders that are eligible to be displayed, including the displayed portion of reserve size orders, and all odd-lot and mixed-lot orders would be ranked together, at each price point, in time priority. 39 39 For the most part, executions in the Matching System would occur on a “share-for-share” basis, regardless of whether the incoming or resting orders were round-lot, mixed-lot or odd-lot orders. The one exception to this share-for-share matching is in the handling of ITS commitments or linkage plan orders, which would only be matched in round-lot increments, for the full amount of round-lot shares available at the price reflected in the NBBO. *See* CHX Article 20, Rule 8(e)(9). Any remaining portion of the ITS commitment or linkage plan order would then be automatically cancelled. b. *Orders that are displayed in part, where a portion is not displayed.* At each price point, the undisplayed portions of reserve size orders would be ranked together in time priority and would be ranked after any displayed orders (and any odd-lot and mixed-lot orders) at that price. c. *Completely undisplayed orders.* Orders that are received with a do-not-display instruction would be ranked together, at each price point, in time priority and would be ranked after any other orders at that price. Changes to an order's size or price, or its displayed portion, could impact its ranking within the Matching System. For example, when the displayed portion of a reserve size order is refreshed with new volume, the displayed portion of the order would receive a new ranking based on the time at which it was refreshed. 40 Similarly, if a participant increases the number of shares in a fully-displayed order, that order would receive a new ranking based on the time at which these shares were added to the order. 41 Any change in the price of an order would result in a new price and time ranking for the order, based on the time of the price change. 42 Finally, any change to the display instruction associated with an order would result in a new ranking for the order based on the time that the new instruction was received. 43 40 *See* CHX Article 20, Rule 8(b)(4). Any remaining undisplayed portion of the order would continue to be ranked at the price and time at which it was originally received. 41 *See* CHX Article 20, Rule 8(b)(5). Any reduction in the number of shares in an order, however, would not change its ranking within the Matching System. 42 *Id.* 43 *Id.* 6. *Display of orders within the Matching System.* All orders that are eligible for display would be immediately and publicly displayed through the processes set out in the appropriate transaction reporting plan for each security when they constitute the best round-lot bid or offer in the Matching System for that security. In addition, the Matching System would aggregate all shares, including odd-lot orders and the odd-lot portions of mixed-lot orders, at a single price point, and then round that total share amount down to the nearest round-lot amount for display purposes. 44 The undisplayed portion of a reserve size order and any other orders received with a do-not-display instruction would not be eligible for display. 44 This aggregation and rounding process would apply for display purposes only; all orders would retain their rankings for execution purposes as described in CHX Article 20, Rule 8(b)(1) through (5). However, as noted in CHX Article 20, Rule 8(g), the Matching System would report each round-lot transaction that occurs within the Matching System, including executions of resting odd-lot orders that have been aggregated into one or more round-lots for display purposes, to the appropriate consolidated reporting system. The Exchange believes that its disseminated quotations would constitute automated quotations under the definition set out in Rule 600(b)(3) of Reg. NMS. 45 The Exchange's proposed rules confirm that each order submitted to the Matching System must be a firm order and cannot be identified as a “manual” quotation. 46 45 As required by Rule 600(b)(3) of Reg. NMS in its definition of “automated quotations,” the Exchange's Matching System is designed to accept IOC orders; to immediately and automatically execute an IOC order against the displayed BBO, up to its full size; to immediately and automatically cancel any unexecuted portion of the IOC order without routing the order elsewhere; to immediately and automatically transmit a response to the order-sending participant indicating the action taken on the order; and to immediately and automatically update the BBO to reflect any change that occurred as a result of the execution. 46 *See* CHX Article 20, Rule 3(a). 7. *Opening of the regular trading session.* Immediately after the primary market opens, the Matching System would execute all opening cross orders, then start accepting and matching orders as provided in CHX Article 20, Rule 8(d). 47 If the primary market in a security other than a Nasdaq-listed security opens with a quote, but has not reported a trade for 30 seconds following the dissemination of the initial quote, the Matching System would cancel all opening cross orders, and then start accepting and matching all other orders. 48 47 *See* CHX Article 20, Rule 8(d). 48 *Id.* This provision would apply only to securities other than Nasdaq-listed securities. As noted above, Nasdaq-listed securities would open based on the first unlocked, uncrossed market that occurs on or after 8:30 a.m. 8. *Automated matching of orders.* With certain exceptions specifically set out in CHX Article 20, Rule 8(e), and subject to the provisions relating to the prevention of trade throughs that are set out in CHX Article 20, Rule 5, incoming orders would be matched against one or more orders in the Matching System, in the order of their ranking, at the price of each resting order, for the full amount of shares available at that price or for the size of the incoming order, if smaller. 49 If an order could not be immediately matched or matched in full when received (and it is not designated as an order type that should be immediately cancelled), it or its residual portion would be placed in the Matching System and ranked as described above. 50 49 *See* CHX Article 20, Rule 8(d)(1). 50 *See* CHX Article 20, Rule 8(d)(2). Orders that would be immediately cancelled, if not executed, include FOK orders and IOC limit and market orders. *See* CHX Article 20, Rules 4(b)(11) through (13). The following order types would be subject to specific executions within the Matching System: a. *Benchmark orders.* Benchmark orders, which are cross transactions submitted by institutional brokers that meet the requirements of Rule 611(b)(7) of Reg. NMS, would execute at any price, without regard to the NBBO and may represent the interest of one or more participants of the Exchange. 51 51 *See* CHX Article 20, Rule 8(e)(1) and Rule 4(b)(2). A benchmark order is defined in Rule 611(b)(7) of Reg. NMS as an order that is executed at a price that was not based, directly or indirectly, on the quoted price of the security at the time of execution and for which the material terms were not reasonably determinable at the time the commitment to execute the order was made. b. *Cross and cross with size orders.* Cross and cross with size orders would be automatically executed if they meet the requirements set out in Rule 4(b)(4) and
(6)respectively, but would be immediately and automatically cancelled if they do not meet these requirements. 52 52 *See* CHX Article 20, Rule 8(e)(1). c. *Cross with satisfy orders.* In executing this order type, the Matching System first would determine whether the order contains a share size that is sufficient to satisfy orders in the Matching System or bids or offers in other markets, as applicable. If this requirement is not met, the cross with satisfy would be automatically cancelled. 53 53 *See* CHX Article 20, Rule 8(e)(4). If the order meets this requirement, the Matching System then would satisfy existing orders in the Matching System or send orders or commitments to other market centers to satisfy bids or offers, as necessary to prevent a trade-through and, before updating the Exchange's quotes, would execute the cross at a price that is better than the best bid or offer to be displayed in the Matching System and, for securities listed on NYSE, Amex or any other exchange other than Nasdaq (and for Nasdaq-listed securities, when Reg. NMS is implemented in those issues), equal to or better than the NBBO. In doing so, the Matching System would determine whether the Participant that sent the order to the Matching System is attempting to satisfy bids or offers in the Matching System at a price that is better than the cross price and, if so, would not allow those executions to occur, but would instead allocate the better prices to the customer, not to the Participant sending the order to the Matching System. d. *Cross with yield orders.* When the customer order that is part of a cross with yield order is eligible for an immediate execution because it is at a price better than the currently displayed best bid or offer in the Matching System, the cross with yield order would be automatically executed by matching the participant as principal against the customer order; provided, however, that if there is any order already displayed in the Matching System at the same price as (or better than) the participant's interest, that order or those orders would be matched against the customer order in place of the participant's interest as necessary to exhaust the customer order interest. 54 If the customer order that is part of a cross with yield order is not eligible for an immediate execution because it is not better than the currently displayed bid or offer in the Matching System, the cross with yield order would be immediately and automatically cancelled. 54 *See* CHX Article 20, Rule 8(e)(2). e. *Midpoint cross.* A midpoint cross order would be immediately executed at the midpoint between the NBBO. If the NBBO is locked at the time the order is received, the midpoint cross would be executed at the locked market price, unless the order could be executed in subpenny increments. If the NBBO is crossed at the time the order is received, the midpoint cross would be immediately and automatically cancelled. 55 55 *See* CHX Article 20, Rule 4(b)(14). f. *Non-regular way cross orders.* These orders would be automatically executed without regard to either the NBBO or any orders for regular way settlement that might be in the Matching System. 56 56 *See* CHX Article 20, Rule 4(b)(15). g. *Sell short orders.* Sell short orders (including odd lot orders) would be displayed and executed only when permissible under the provisions of Rule 10a-1 (“Short Sale Rule”) and Regulation SHO. 57 When a sell short order cannot be executed or displayed at its limit price under the provisions of the Short Sale Rule and Regulation SHO, the order would be automatically repriced (without violating its limit price) to the next available price at which it can be executed or displayed. 58 57 Because there is no exemption from the requirements of the Short Sale Rule or Reg. SHO for odd lots executed within a system such as the Matching System, odd lot orders would be treated as all other orders in determining whether they could be executed under the Short Sale Rule and Reg. SHO. 58 *See* CHX Article 20, Rule 8(e)(5). h. *Do not display orders.* A do-not-display order would be executed as provided in CHX Rule 8(d), but would be immediately and automatically cancelled if, at any point, the order would prevent the execution of an inbound order because the do-not-display order has crossed the NBBO. 59 59 *See* CHX Article 20, Rule 8(e)(6). i. *Inbound ITS commitment or linkage plan order.* An inbound ITS commitment or linkage plan order, if it is priced at or better than the current Exchange-displayed BBO (or if it is marked “market”), would be automatically matched, in round-lot increments, against the order(s) at the price reflected in the BBO (or at a better undisplayed price), for the full amount of round-lot shares available at that price, and any remaining portion of the ITS commitment or linkage plan order would be automatically cancelled. 60 An inbound ITS commitment marked as a “block” trade would be automatically matched, in round-lot increments, at the price reflected in the ITS commitment, against the order(s) in the Matching System, in regular price-time priority. 60 *See* CHX Article 20, Rule 8(e)(7). The Exchange believes that this handling of ITS commitments and linkage plan orders is consistent with the ITS Plan and the current draft of the linkage plan that might replace the ITS Plan. j. *Trades in locked markets.* Trades would continue to be executed in the Matching System when the NBBO is crossed; provided however, that
(i)If the ITS Plan requires that the Matching System route the inbound order to another market for execution, the Matching System would do so or, if the order is marked “do not route,” the Matching System would automatically cancel the order; and
(ii)once Reg. NMS is implemented in a security, the Matching System would only execute orders in that security up to (but not beyond) the first uncrossed NBBO. 61 61 *See* CHX Article 20, Rule 5, Interpretation and Policy .01(e). 9. *Prevention of trade-throughs and other order routing.* The Exchange's Matching System would prevent the execution of all or a part of an inbound order for at least a round lot if the execution would cause an improper trade-through of another ITS market or if, when Reg. NMS is implemented for a security, the execution of all or a part of the order would be improper under Reg. NMS Rule 611. 62 Inbound odd lot orders and odd lot crosses would be eligible for execution on the Exchange, even if they would trade through other markets' bids and offers. 62 *See* CHX Article 20, Rule 5. At least initially, however, the Exchange would not apply the “flickering quote” exception to Rule 611 of Reg. NMS (Reg. NMS Rule 611(b)(8)) when determining whether or not the execution of the order would create an improper trade-through. If a participant has submitted a cross with satisfy or an outbound ISO order and its execution would cause an improper trade through, the Matching System would execute the order and simultaneously route commitments or orders to other markets to satisfy their protected quotes. In these situations, the Exchange's systems would determine when, how and where these orders (or commitments) should be routed to satisfy protected quotes. The Exchange would route these orders (or commitments), at the participant's election, either through the Intermarket Trading System (or any later linkage that supersedes ITS) or through the connectivity provided by a routing services provider with whom the Exchange has negotiated an agreement. The Exchange will provide these routing services pursuant to the terms of three separate agreements, to the extent that they are applicable to a specific routing decision:
(1)An agreement between the Exchange and each Participant on whose behalf orders will be routed (“Participant-Exchange Agreement”);
(2)an agreement between each Participant and a specified third-party broker-dealer that will use its routing connectivity to other markets and serve as a “give-up” in those markets (“Give-Up Agreement”); and
(3)an agreement between the Exchange and the specified third-party broker-dealer (“Routing Connectivity Agreement”) pursuant to which the third-party broker-dealer agrees to provide routing connectivity to other markets and serve as a “give-up” for the Exchange's Participants in other markets. The Exchange will provide these routing services in compliance with its rules and with the provisions of the Act and the rules thereunder, including, but not limited to, the requirements of Sections 6(b)(4) and
(5)of the Act that the rules of a national securities exchange provide for the equitable allocation of reasonable dues, fees and other charges among its members and issuers and other persons using its facilities, and not be designed to permit unfair discrimination between customers, issuers, brokers or dealers. The Routing Connectivity Agreement will include terms and conditions that enable the Exchange to comply with these obligations. In addition to these routing services, the Exchange is developing a functionality that would, in all other situations where the execution of an inbound round lot order, in whole or in part, would cause a trade-through,
(a)Route the order to another venue, according to each participant's instructions, or
(b)if the order is marked “do not route,” automatically cancel the order. 63 The Exchange plans to supplement this filing, or file a new rule submission, with respect to this functionality, as soon as possible. 63 There would be one exception to the general rule that an inbound “do not route” order would be cancelled if its execution would constitute an improper trade-through. If an undisplayed order is resting in the Matching System and the execution of an inbound order (that is not an IOC or FOK order) against the undisplayed resting order would cause an improper trade-through, the resting order would be cancelled to the extent necessary to allow the inbound order to be executed or quoted. The Exchange has developed an initial series of trade-through policies and procedures that describe how the Exchange will implement the provisions of Rule 611 of Reg. NMS. 64 These procedures describe the Exchange's clock synchronization practices, as well as its plans for applying the exceptions to Rule 611 of Reg. NMS. 65 Among other things, these procedures confirm that the Exchange would apply the self-help exception (and disregard another market's quotations for trade-through purposes) when that market has publicly announced that it is not disseminating automated quotations (but has not identified those quotes as manual); or when the Exchange has a reasonable basis for believing that the other market is experiencing systems problems and that market
(a)Has not responded, within 30 seconds, to an Exchange inquiry seeking information about possible systems problems, or
(b)has not confirmed, within two minutes after an Exchange inquiry, that it is not having systems problems. 66 These procedures also confirm that the Exchange automatically would place an appropriate modifier on trades executed pursuant to an exemption from, or exception to, Rule 611 of Reg. NMS in accordance with specifications approved by the operating committee of the relevant national market system plan for an NMS stock. 67 64 *See* CHX Article 20, Rule 5, Interpretation and Policy .01. The Exchange will further define its policies in more detail over the next month or so. 65 The Exchange's systems will routinely, throughout the trading day, use processes that capture the time reflected on the atomic clock operated by the National Institute of Standards and Technology and will automatically make adjustments to the time recorded in the Exchange's Matching System to ensure that the period between the two times does not exceed 500 milliseconds. 66 *See* CHX Article 20, Rule 5, Interpretation and Policy .01(d). The Exchange would notify the other market of its use of the self-help exception by using appropriate technology made available for intermarket communications from time to time. The Exchange then would continue to apply this self-help exception until the other market has provided reasonable assurance to the Exchange (or to the public) that the problems have been corrected. 67 *See* CHX Article 20, Rule 5, Interpretation and Policy .01(h). In addition, if an on-Exchange participant submits an outbound ISO order (consisting of an order to execute on the Exchange, coupled with outbound ISOs to execute against protected quotations of other markets), the Matching System will not execute the order on the Exchange until it either simultaneously routes ISOs to other markets or confirms that the participant submitting the order has simultaneously routed ISOs designed to execute against the full size of any other market's protected bid or offer, as required by Rule 600(b)(30) and Rule 611(b)(6) of Reg. NMS. The Exchange's initial trade-through policies also describe its plans for confirming that its own bids and offers qualify as automated quotations. Specifically, the Exchange would periodically (no less often than once every five seconds and no more often than once every second) send a test IOC order to the Matching System to determine whether the Exchange's Matching System accepts the order and would use automated monitoring systems to further measure the Matching System's handling of test IOC orders within the Matching System. 68 These monitoring systems would provide immediate reports to other Exchange systems for further handling. If these systems receive a report that gives the Exchange reason to believe that it is not capable of displaying automated quotations, the Exchange would automatically and immediately append a “manual” identifier to the bids and offers it makes publicly available. 69 The Exchange would not remove this “manual” identifier until it has determined that its quotations qualify as automated quotations. It would then notify other markets that its quotations are automated to ensure that all markets recognize the Exchange's bids and offers as automated quotations. 68 These systems would review, in real time, the Matching System's handling of test IOC orders to determine whether, and within what time frame,
(i)IOC orders are executed against the displayed quote, up to its full size;
(ii)any unexecuted portion of the IOC order is cancelled;
(iii)a confirmation of the action taken is generated and transmitted from the Matching System to the monitoring system (to serve as a proxy for a transmission to the order-sending firm); and
(iv)the Matching System transmits a new bid or offer (as appropriate) to the monitoring system (to serve as a proxy for a transmission to the appropriate securities information processor). * See* CHX Article 20, Rule 5, Interpretation and Policy .02(a). 69 In the event that the Exchange's systems do not permit the Exchange to disseminate a “manual” identifier, the Exchange would announce that its quotes are manual over an appropriate functionality available for communications with other market centers. *See* CHX Article 20, Rule 5, Interpretation and Policy .02(b). 10. *Locking and crossing quotations.* An order would not be displayed on the Exchange if its display would improperly lock or cross the ITS best bid or offer or, when Reg. NMS is implemented for a security, if its display would constitute a locking or crossing quotation. 70 These otherwise locking or crossing orders would either be routed to another appropriate market or, if designated as “do not route,” would be automatically cancelled. 70 *See* CHX Article 20, Rule 6(d). 11. *Clearing the matching system.* To ensure that orders on the Exchange have an appropriate opportunity to interact with each other, institutional brokers ordinarily would be required to clear the Matching System before sending an order to another market for execution. 71 Any outbound ITS commitments that are seeking liquidity in another market—whether they represent agency or proprietary interest—would be required to first clear the displayed and undisplayed orders in the Exchange's Matching System before being sent through the ITS System. Outbound ITS commitments (or ISOs) that are being sent to another market to satisfy its displayed bid or offer, however, would not be required to clear the Exchange's Matching System before being sent to the other market. 72 Additionally, an institutional broker would not be required to clear the Matching System if the customer order that is being sent to another market could not be executed in the Matching System ( *e.g.* , the order is a stop or stop limit order which has not yet been elected). 73 71 If a customer specifically requests otherwise, an institutional broker is not required to clear the Matching System. *See* CHX Article 20, Rule 7(a). Institutional brokers would be required to document any directives for special handling of orders under this rule. *See* CHX Article 20, Rule 7(b). 72 *See* CHX Article 20, Rule 7(c). 73 * See* CHX Article 20, Rule 7(d). 12. *Trading halts.* Under the proposed rules, two senior officers of the Exchange would be authorized to suspend and restart trading within a trading session or to halt trading for the remainder of a trading session, in one or more securities, when the officials believe it is in the public interest. 74 If trading in one or more issues is suspended or halted, the Matching System would not accept any additional orders and would resume quoting and matching orders only after the end of the trading halt. 75 Because the Matching System would not be locked or crossed when trading is halted, and because it would not accept orders during the halt, the Matching System would be able to emerge from the halt without any special reopening process, by simply displaying its BBO and then accepting and matching orders as provided by the Matching System rules described above. 74 *See* CHX Article 20, Rule 1(d). Under the Exchange's current rules, a trading halt could be declared by the chairman or vice chairman of the Exchange's Board of Directors, or by its president, with the prior approval of a director from a participant firm and a director from the trading floor. The Exchange believes that it no longer is appropriate or effective to require its directors to participate in the decisions to suspend or halt trading, particularly with the automated environment proposed by the new trading model and the fact that the Exchange will no longer be operating a trading floor. 75 *See* CHX Article 20, Rule 1, Interpretation and Policy .02. Participants could cancel orders during the halt. 13. *Cancelling transactions/handling clearly erroneous transactions.* Under the proposed rules, participants that make a transaction in demonstrable error could agree to cancel and unwind the transaction, subject to the approval of the Exchange. 76 The Exchange also proposes to extend its current electronic book rule for the handling of clearly erroneous transactions, with a few minor changes, to the operation of the Matching System. 77 This rule would allow the Exchange to review, and potentially modify or cancel, executions where one party believes that the terms of the transaction were clearly erroneous when submitted. A related rule relating to systems disruptions and malfunctions would allow the Exchange to modify or cancel executions that result from a disruption or malfunction in the use or operation of the Matching System, or any communications system associated with the Matching System or when extraordinary market conditions or other circumstances exist in which the nullification or modification of transactions may be necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest. The proposed rules set out procedures for each of these reviews, including specific means for participants to appeal the Exchange's decisions. 78 76 *See* CHX Article 20, Rule 9. 77 *See* CHX Article 20, Rule 10; *see also* CHX Article XXA, Rule 7 (the policy approved for use within the electronic book). 78 For example, a participant seeking review of a “clearly erroneous” transaction would be required to notify the Exchange of the request immediately after the execution by telephone, and within 15 minutes after the execution in writing. The Exchange would promptly notify the other party to the transaction. Both parties then would be required to submit information relating to the disputed transaction, within specified time frames. After reviewing the transaction, an Exchange official would notify both parties of his or her decision, in writing; either party could appeal the decision to a subcommittee of the Exchange's Committee on Exchange Procedure and, if not satisfied, to the full Committee on Exchange Procedure. In making his or her decision, the Exchange official would consider the goals of maintaining a fair and orderly market and protecting investors and the public interest; if an Exchange official determines that a transaction was clearly erroneous, he or she would try to return the parties to the positions that they would have been in (or positions reasonably similar to those positions) if the error had not occurred. Similarly, in the event of a disruption or malfunction that impacts the operation or use of the Matching System (or in the event of extraordinary market conditions or other circumstances), an Exchange official could declare transactions void or modify transactions. Absent extraordinary circumstances, any Exchange action to void or modify transactions in this manner must be taken within 30 minutes of detection of the erroneous transaction, but in no event later than 2 p.m. on the trading day following the date of the trade at issue. The official would be required to notify each member involved in the transaction as soon as practicable after making any decision; decisions could be appealed using the procedure set out for the review of decisions addressing clearly erroneous transactions. 14. *The late trading session.* The Exchange's Matching System would begin accepting orders for the late trading session immediately after the closing of the regular trading session. 79 Orders for the late trading session would be matched according to the same process used during the regular trading session. As noted above, the late trading session would end at 3:30 p.m. 79 * See* CHX Article 20, Rule 8(c)(2). Orders for the late trading session would not be allowed queue before the close of the regular trading session; they would only be accepted by the Exchange after the close of the regular trading session. b. Market Makers The Exchange's proposed new trading model would allow participants to register to act as proprietary market makers on the Exchange. The provisions that would govern the activities of these market makers are set out in the proposed rules in CHX Article 16. These proposed rules replace the current market maker rules contained in CHX Article XXXIV. Under the proposed rules, a participant firm seeking to act as a market maker would be required to register with the Exchange. 80 Participant firms would be required to register as market makers; individual traders within those firms would be required to separately register as market maker traders. 81 The proposed rules specifically provide that a market maker that is a participant in the Exchange, but is not a member of another self-regulatory organization, would be permitted to trade only on a proprietary basis and would not be permitted to handle any agency orders on the Exchange. 82 More than one market maker could register in each security. 83 80 *See* CHX Article 16, Rule 1(a). A participant would be not be considered to be acting as a market maker unless it was registered in that capacity and was in good standing. 81 *See* CHX Article 16, Rule 1, Interpretation and Policy .01. 82 *See* CHX Article 16, Rule 1, Interpretation and Policy .02. 83 *See* CHX Article 16, Rule 3, Interpretation and Policy .03. A participant would register as a market maker by submitting an application to the Exchange, confirming its ability to comply with applicable rules and identifying the number of securities in which it seeks to make markets. 84 The Exchange would review each application and, using specific criteria, would determine whether or not the participant should be registered in that capacity. 85 The Exchange would notify each participant of the action taken with respect to its application and, if it denies a participant's registration request, would describe the reasons for that denial. 86 An unsuccessful applicant would be permitted to seek a review from that decision pursuant to the provisions of CHX Article 15. 87 84 *See* CHX Article 16, Rule 2(b). 85 *See* CHX Article 16, Rule 3. In considering a participant's request for registration as a market maker, the Exchange would consider:
(a)The participant's financial resources;
(b)the participant's experience and demonstrated ability in making markets, including the depth and quality of the market quoted by the participant in other securities;
(c)the participant's demonstrated ability to make markets in such a manner as to increase the order flow to the Exchange and, as a result, the competitiveness of its market with markets elsewhere;
(d)the participant's disciplinary record, including its violations of Exchange rules, the rules of other SROs and Federal securities laws;
(e)the participant's operational capability, including its ability to comply with the responsibilities set out in CHX Article 16, Rule 8; and
(f)the overall best interests of the Exchange. 86 *See* CHX Article 16, Rule 2(d). 87 *See* CHX Article 16, Rule 2(d). Under the proposed rules, once a firm's market maker registration is approved, the firm could select the securities in which it would act as market maker by notifying the Exchange. 88 The Exchange would require a firm to seek prior approval before acting as market maker in more than 500 securities and with respect to each increment of an additional 100 securities after that threshold is reached. 89 If a market maker drops a security from its selected list, that participant would not be allowed to trade that security again as market maker for 20 calendar days. 90 88 *See* CHX Article 16, Rule 5. A market maker would be required to notify the Exchange of a decision to add or drop securities by 9 a.m. on the trading day preceding the date on which the change would take effect, unless the Exchange is able to accommodate a notification closer to the effective date. *Id.* 89 *See* CHX Article 16, Rule 5, Interpretation and Policy .01. This process would allow the Exchange to evaluate a market maker's request, using the criteria in CHX Rule 3, to determine whether the firm appears capable of handling its market maker responsibilities in these additional issues. 90 *See* CHX Article 16, Rule 5, Interpretation and Policy .02. This prohibition would not apply where a market maker has received approval to voluntarily deregister as a market maker under the provisions of CHX Article 16, Rule 6. A firm's registration as a market maker could be terminated voluntarily, by the market maker itself, or involuntarily, by the Exchange. 91 The proposed rules would allow market makers to voluntarily deregister by filing the appropriate form with the Exchange. As part of that process, a firm would be permitted to request temporary or partial deregistration as a market maker—and thus avoid the need to complete the registration process again—in specific circumstances that temporarily prevent a market maker from acting in that role. 92 Under the proposed rules, the Exchange could grant a request for temporary or partial deregistration for up to 60 days and could extend that period in its discretion. The proposed rules would allow the Exchange to suspend, terminate or limit a market maker's registration upon a determination of any substantial or continued failure by the participant to engage in dealings as required by CHX Article 16, Rule 8 or as set out in CHX Article 13. 93 91 * See* CHX Article 16, Rules 6 (voluntary deregistration) and 7 (involuntary deregistration). In addition, the Exchange would consider a firm to have deregistered if it is not trading any securities as a market maker ( *i.e.,* it is not submitting bids or offers in the securities it has selected). *See* CHX Article 16, Rule 6. If a firm is deemed to have deregistered, it would be required to complete the registration process again before acting as a market maker on the Exchange. 92 These reasons include software, hardware, connectivity or other problems that interfere with the market maker's ability to appropriately send bids or offers to the Exchange or otherwise act as market maker; legal or regulatory considerations that temporarily prevent the participant from acting as market maker; or other circumstances, including, but not limited to, those that are beyond a market maker's control, that interfere with the participant's ability to act as market maker. *See* CHX Article 16, Rule 6, Interpretation and Policy .01. 93 CHX Article 13 contains the Exchange's rules and procedures relating to the suspension and reinstatement of a participant's ability to act as a participant and to retain its registration in a special capacity (such as a market maker). During the Exchange's regular trading session, a market maker would be required to engage in a course of dealings for its own account to assist in the maintenance, to the extent reasonably practicable, of fair and orderly markets on the Exchange. A market maker's responsibilities would specifically include:
(1)Using automated systems to maintain a continuous two-sided quote, for at least a round-lot, in each of the securities in which it is registered;
(2)maintaining adequate minimum capital; and
(3)meeting specific quotation or trade requirements, with respect to its dealings on the Exchange, over the course of each calendar month. 94 A market maker's continuous two-sided quotes must be at prices which are reasonably related to the prevailing market price of the security. 95 94 *See* CHX Article 16, Rule 8(a) through (c). Over the course of each calendar month, a market maker would be required to meet either of these requirements:
(1)At least 5% of the total number of a market maker's principal bids or offers on the Exchange, in each quarter, for each of its assigned securities, must, when entered on the Exchange, be at the NBBO or improve the NBBO in a manner that attributes market data revenue to the Exchange under the terms of applicable national market system reporting plans; or
(2)the shares traded by a market maker for its own account, for each of its assigned issues, must equal or exceed 1% of the total number of shares executed on the Exchange in that issue. 95 *See* CHX Article 16, Rule 8, Interpretation and Policy .01. The proposed rules provide that, in most circumstances, a market maker's quotations should be priced no more than 10% away from the prevailing NBBO (as applicable) for securities priced under $1.00, 5% for securities priced between $1.00 and $50.00 and 3% for securities priced above $50.00. This quoting guidance is substantially similar to that currently provided by the Exchange's Market Regulation Department to participants (such as specialists and market makers) that have a quoting obligation on the Exchange. Market makers would have two other specific obligations. First, a market maker that is registered as a market maker solely on the Exchange and engages in other business activities (or that is affiliated with a broker or dealer that engages in other business activities) would be required to establish, and describe to the Exchange, information barriers that prevent the market maker from using material, non-public information or information about customer order flow in its trading activities. 96 And, second, a market maker would be required to record and, provide upon request, to the Exchange in an approved electronic format, its long or short position in a security as of the time that it initiates an order in that security on the Exchange. 97 96 *See* CHX Article 16, Rule 9. At the time a participant becomes a market maker, the participant would be required to submit a written statement describing its plans for establishing and maintaining the required information barriers, including the internal controls that will be put in place to monitor the barriers' effectiveness. A market maker engaging in these other business activities would not be allowed to act as a market maker on the Exchange until the Exchange had approved the information barrier procedures. 97 *See* CHX Article 16, Rule 10. The requirement to report information to the Exchange would apply only to market makers that are not NASD members. NASD members would provide this information directly to the NASD and would be subject to the NASD's oversight with respect to their trading activity. c. Institutional Brokers Under the Exchange's proposed new trading model, any participant firm that acts as a broker in effecting transactions on the Exchange and for which the Exchange is the designated examining authority would be permitted to register with the Exchange as an institutional broker and to use Exchange systems for handling orders and reporting transactions. 98 Each individual that would be authorized to effect trades on behalf of the firm would be required to separately register as an institutional broker representative. 99 The Exchange anticipates that its existing floor brokers would register as institutional brokers in the new model. Importantly, although institutional brokers would operate as participants on the Exchange, they could trade from any location and would not effect transactions from a physical trading floor. 100 98 *See* CHX Article 17, Rule 1. 99 *See* CHX Article 17, Rule 1, Interpretation and Policy .02. This requirement essentially tracks the current requirement that individual floor brokers separately register with the Exchange and take required examinations. *See* CHX Article VI, Rules 2 and 3. 100 As noted above, the Exchange would not operate a physical trading floor in the new trading model. The Exchange anticipates that it would continue to allow participants to remain in their current locations within the trading floor space, paying current rent, through the end of the year, at which time the trading floor space would be more formally subleased to interested parties (including participants) for use as office or trading space. The Exchange believes that it would be appropriate to allow participants to remain in their current locations on the floor (and to pay the current rent for that space) during, and for a short time after, the transition to the new trading model so that firms that choose to relocate are not unnecessarily required to disrupt their operations by both a transition to a new trading model and a physical relocation. Under the proposed rules, institutional brokers would be required to adhere to trading and business conduct rules that apply to participant firms generally and would be subject to specific obligations set out in CHX Article 17. Among other things, institutional brokers would be required to enter all orders received for execution on the Exchange into an automated system to provide an electronic record of their order handling practices; would be required to maintain separate accounts for handling agency transactions, principal transactions and transactions involving errors; and would be required to enter transactions into the appropriate accounts. 101 Institutional brokers would also be required to maintain required records of their trading activities, including records of their relationships with their customers. 102 Finally, institutional brokers would be required to use an electronic system, acceptable to the Exchange, for the handling of orders that integrates the institutional broker's on-Exchange trading activities with the Matching System and with its trading activities in other market centers. 103 101 *See* CHX Article 17, Rule 3(a) and Rule 3(c). The requirement for entering orders into an electronic system to permit the Exchange to more readily surveil broker order handling activities has been approved and implemented. *See* CHX Article 11, Rule 3; Securities Exchange Act Release No. 53772 (May 8, 2006), 71 FR 27758 (May 12, 2006). In addition, although the Exchange's current rules do not specifically require brokers to maintain specific principal, agency and error accounts, the Exchange's Market Regulation Department has encouraged them to do so as a way to evidence their compliance with general order handling obligations. 102 *See* CHX Article 17, Rule 3(f). 103 *See* CHX Article 17, Rule 3(b). A customer order would be deemed to be on the Exchange when received by an institutional broker, but would not have priority in the Matching System until it is entered into that system. The proposed rules would also set out specific order handling obligations for institutional brokers. 104 Specifically, an institutional broker handling a market order would be required to use due diligence to execute the order at the best price or prices available. 105 Similarly, an institutional broker handling a limit order would be required to use due diligence to execute the order at or better than the limit price, if available. And, an institutional broker who has been given a not held order would be required to use brokerage judgment in the execution of the order, and if he exercises such judgment, would be relieved of all responsibility with respect to the time of the order's execution and the execution price or prices given to the order. 106 These proposed rules are similar to rules that relate to broker trading activities on at least one other market and are designed to establish a specific standard by which institutional broker order handling activities could be measured. 107 104 *See* CHX Article 17, Rule 3(d). An institutional broker generally would execute its customers' orders on an agency basis. If, however, an institutional broker believes it is in the best interests of its customer to execute an order on a principal basis, it must comply with the requirements of CHX Article 9, Rule 18. See CHX Article 17, Rule 3(d)(4). 105 In handling a market order, an institutional broker could assign an appropriate limit price to the order and send it to the Matching System, could enter an IOC market order into the Matching System or could route the order to another market center after clearing the Exchange's Matching System. 106 *See* CHX Article 17, Rule 3(d)(3). 107 *See* NYSE Rule 123A.41-.44. The Exchange's Rules do not currently contain any specific order execution standards that apply to its brokers. The final new requirement under the proposed rules would require that brokers use reasonable efforts to report all transactions that are not effected through the Exchange's Matching System to the Exchange within 10 seconds after the trade occurs. 108 Although the Exchange anticipates that most executions by its institutional brokers would occur within the Matching System, the Exchange recognizes that its institutional brokers could, from time to time, execute orders outside of that system. To ensure that the Exchange and its institutional brokers can establish compliance with the trade-through provisions of the ITS Plan and Rule 610 of Reg. NMS, the Exchange is developing functionality in its Brokerplex system that would allow an institutional broker to electronically validate whether a trade would constitute a trade-through before the trade occurs and that would create an electronic record that that validation had taken place. 109 Because of the possibility that a broker trading on a proprietary basis against a customer order could use this functionality in a manner inconsistent with the broker's fiduciary obligations to the customer order, the proposed rules would require a broker that pulls up the validation window to complete the required information and report the transaction (without cancelling out of the functionality) unless the broker mistakenly input the symbol for the wrong security or the transaction may be cancelled pursuant to the provisions set out in CHX Article 20, Rules 9, 10 and 11 (relating to cancellations of transactions, clearly erroneous transactions and systems disruptions and malfunctions). 110 108 *See* CHX Article 17, Rule 3(e). This provision would also require that an institutional broker mark as “SOLD” any trades reported after this time. 109 *See* CHX Article 17, Rule 3, Interpretation and Policy .03. Other possible functionality might allow a broker to enter the details of a proposed cross transaction (such as its price, the number of shares and whether the sell side of the order is “short”) into the Brokerplex system, which would send the cross to the Matching System for execution when it could be executed. The first type of functionality—to allow a broker to report a trade outside of the Matching System in a manner that is consistent with the NBBO and orders in the Matching System—is slated for roll-out to brokers in (or before) early October 2006. 110 *See* CHX Article 17, Rule 3, Interpretation and Policy .03. d. Other Rule Changes 1. *CHX Article 1. (Definitions and General Information).* Within this Article of the rules, the Exchange proposes to add new definitions for terms that are used elsewhere in the rules. 111 The Exchange also seeks to add two new sections—one new rule that lists and defines types of orders and conditions and one new rule that confirms that all times identified in the rules are Central Time unless otherwise indicated. 112 111 These newly-defined terms include “Act” and “Exchange Act,” “Amex,” “BBO,” “CHX,” “CHX Holdings,” “institutional broker,” “NBBO,” “Nasdaq,” “NYSE,” “primary market,” “Rule 10a-1 and Regulation SHO,” “rules,” and “Securities Act.” The Exchange's BBO would be the best bid or offer displayed in the Exchange's Matching System. The NBBO would be described in reference to the definition used in Rule 600(b)(42) of Reg. NMS. The “primary market”—a term used largely to determine the execution price of opening cross orders—would mean, unless otherwise designated by the Exchange, the initial listing market for a security. References to the Exchange's Rules would include the rules of the Exchange that have been adopted by the Exchange's Board of Directors and that have either been approved by the Commission or become effective pursuant to Section 19(b)(3) of the Act. The Exchange proposes to delete the definitions of “floor” and to delete references to the trading floor from the “trading facilities” definition to reflect the fact that the Exchange will not be operating a physical trading floor in the new model. 112 *See* CHX Article 1, Rules 2 and 3. The order types and conditions set out in Rule 2 primarily are those that are accepted by the Exchange's Matching System and described in CHX Article 20, Rule 4. A few new definitions were added to clarify basic information such as the definition of “odd lot,” “round lot” and “mixed lot.” *See* CHX Article 1, Rules 2(w) (odd lot), 2(cc) (round lot) and 2(r) (mixed lot). 2. *CHX Article 2. (Committees).* The proposed changes to this Article eliminate references to the Exchange's trading floor and to the Exchange's current Committee on Specialist Assignment and Evaluation. 113 Under the proposed new model, the Exchange would no longer have specialists who are responsible for handling orders in each issue and thus there is not a need to have a committee to assign securities and evaluate specialist performance. The proposed changes also would confirm that the Committee on Exchange Procedure would consist of not less than seven participants, without specifying the specialized roles in which those persons must serve. 114 113 *See* CHX Article 2, Rule 5 (removing references to the trading floor and to the Committee on Specialist Assignment and Evaluation); Rule 6 (deleting the description of the role of the Committee on Specialist Assignment and Evaluation); and Rule 10 (deleting references to the Exchange's trading floor). 114 *See* CHX Article 2, Rule 5 (removing a requirement that three of the Committee members be active on the Exchange's Floor as specialists, odd-lot dealers or floor brokers). The Exchange believes that, with its move the new trading model, it is no longer appropriate to mandate that Committee members trade in certain capacities and not others. 3. *CHX Article 3. (Participants).* The primary substantive changes in this Article are designed to streamline the process of obtaining a trading permit on the Exchange. Under the Exchange's current rules, the Exchange's staff makes a preliminary determination about an applicant's qualifications and then posts the applicant's name to permit other participants to submit any objections to that applicant's desire to trade on the Exchange. The Exchange believes that this posting process is not a necessary component of the application process—indeed, it appears to relate back to a time when information about a firm's prior business dealings might best be learned by talking with others in the business community. The electronic databases of information that are available today eliminate the need for this sort of process. 115 115 *See* CHX Article 3, Rules 3 and 4. Other changes to the application process would confirm that, with the posting process eliminated, Exchange staff would make the initial determination on each application for a trading permit. These changes also would refer applicants to a new CHX Article, CHX Article 15, for a single set of procedures for seeking review of Exchange decisions, such as the denial of a trading permit. There are three other groups of proposed changes within CHX Article 3. In CHX Rule 1, the Exchange seeks to eliminate the definitions that identify when a participant is engaging in a public securities business—these definitions do not relate to any particular requirement applicable to Exchange participants under the current rules. And, in CHX Rule 2, the Exchange proposes to replace references to “co-specialists,” “floor brokers” and “registered market makers” with references to “institutional broker representatives” and “market maker traders,” the terms used in CHX Articles 16 and 17 to refer to the individuals who would have special registration on the Exchange in the new model. One final change to CHX Article 3 would create a more detailed limitation of liability provision that tracks similar provisions on other markets. 116 This provision would confirm that neither the Exchange, nor its affiliates, nor any of the directors, officers, committee members, officials, employees, contractors or agents of the Exchange or its affiliates would be liable to participants or persons associated with participants for any loss arising out of the use of the facilities, systems, services or equipment provided by the Exchange or for any loss associated with an interruption in, or in a failure or unavailability of, of any such facilities, systems, services or equipment, whether or not the loss resulted from negligence or other unintentional errors omissions or from any other cause within or without the Exchange's control. 117 The provision would also confirm that the Exchange makes no warranty as to results that might be obtained by persons using the Exchange's facilities or services or any data transmitted by or on behalf of the Exchange. 118 Other changes to this provision would bar a participant from instituting a legal proceeding against the Exchange, its affiliates or their directors, officer, committee members, officials, employees, contractors or agents for actions taken or omitted in connection with the official business of the Exchange, except to the extent that such actions or omissions constitute violations of the Federal securities laws for which a private right of action exists. 119 116 *See* ISE Rule 705(a) and CBOE Rule 6.7A. 117 *See* the full text of this provision at CHX Article 3, Rule 8(a). 118 *See* the full text of this provision at CHX Article 3, Rule 8(b). 119 *See* CHX Article 3, Rule 8(c) for the complete text of this provision. Importantly, this last provision would not apply to appeals of disciplinary actions or other actions by the Exchange for which an appellate right is provided by the rules. 4. *CHX Article 4. (Participant Firms).* In this Article, the Exchange seeks to eliminate references to its trading floor and to floor brokers. 120 It also proposes to change existing requirements relating to the nominees and voting designees named on trading permits to confirm that any person affiliated with a participant firm, not just a general partner of the firm, who is acting as an institutional broker representative or a market maker trader can be named as a nominee on a trading permit. 121 Similarly, the Exchange proposes to confirm that any officer of a participant firm can be named as voting designee, not just the firm's president or one of its vice presidents. 122 These changes are designed to reflect the fact that participant firms are structured in various ways—some are partnerships and others are not—and that the Exchange is concerned with an individual's authority to act on behalf of the firm, not whether he or she fits into a narrowly selected job title or role. 123 120 *See* CHX Article 4, Rules 4 and 15. 121 *See* CHX Article 4, Rule 13(b). 122 *See* CHX Article 4, Rule 13(c). 123 Other proposed changes in this Article correct a misspelling (CHX Rule 4) and clarify that participants do not “own” trading permits, they “hold” them. (CHX Rule 13(a)). 5. *CHX Article 5. (Access to the Exchange).* Under the Exchange's current rules, this Article (entitled “Admission to Floor—Communications”) contains rules describing visitor and employee access to the trading floor, the making of announcements on the floor and the connections that can be made to and from the Exchange's trading floor. 124 Because the Exchange would not operate a physical trading floor in its new model, the Exchange proposes to delete these rules and to replace them with rules that contemplate remote access to the Exchange's automated trading systems. These proposed new rules would begin by requiring that participants have reasonable procedures to maintain the physical security of the equipment and systems used to access the Exchange and to maintain an updated list of the persons who can obtain access to the Exchange on the Participant's behalf. 125 Another rule would confirm that, as a condition of obtaining access to the Exchange, each participant agrees to pay Exchange fees, including fees associated with the routing of orders to other markets. 126 124 One of these provisions, CHX Rule 4, contains a new interpretation and policy that requires participants to provide specific information to the Exchange about connections to, and orders handled through, layoff vendors. The Exchange proposes to move this provision to CHX Article 11, its new Books and Records rule. 125 *See* CHX Article 5, Rule 1. 126 *See* CHX Article 5, Rule 2. One of the last proposed new rules in this Article would set out a structure through which Exchange participants could provide non-participant broker-dealers with access to the Exchange, through clearing arrangements or otherwise. 127 Under this proposed rule, this type of sponsored access could be provided so long as the participant sponsoring access (the “sponsoring participant”), the non-participant broker-dealer and the Exchange entered into appropriate agreements confirming basic information about the roles and responsibilities of the various parties. These agreements would confirm that:
(1)All orders submitted by the non-participant broker-dealer, and any executions resulting from those orders, are binding in all respects on the sponsoring participant;
(2)the sponsoring participant is responsible for all actions taken and fees incurred in connection with any order submitted or transaction executed by the non-participant broker-dealer;
(3)in all matters relating to the non-participant's access to the Exchange and its use of Exchange facilities, the Exchange would communicate with the sponsoring participant and would not be required to communicate with the non-participant at any time;
(4)the non-participant broker-dealer would have reasonable procedures to maintain the physical security of the equipment used to access the Exchange to prevent improper use of, or access to, the Exchange; and
(5)the sponsoring participant would indemnify and hold the Exchange harmless from any liability, loss, claim or expense which the Exchange may incur in connection with the agreement. The Exchange believes that these provisions provide sufficient assurances to the Exchange, to other participants using the Exchange's facilities and to the non-participants themselves that non-participant broker-dealer access to the Exchange's facilities would be subject to the same standards and obligations that apply to participant access. 128 127 *See* CHX Article 5, Rule 3. 128 For example, because the sponsoring participant confirms that it is responsible for the non-participant's actions, the Exchange can enforce compliance with its rules through actions taken against the sponsoring participant. In addition, the non-participant (like a participant) would be required to use reasonable procedures to maintain the physical security of the equipment used to access the Exchange and the Exchange would communicate with the participant on all issues relating to the use of the Exchange's facilities. The final proposed rule in this Article would permit an appeal from a Market Regulation Department decision to deny access to a participant (or a non-participant broker-dealer) under any of the rules in the Article. Any appeal from such a decision would be made pursuant to the procedures set out in CHX Article 15. 129 129 *See* CHX Article 5, Rule 4. 6. *CHX Article 6. (Registration).* In this Article, the proposed rule changes would begin by confirming that individuals acting as institutional broker representatives and market maker traders would be required to register with the Exchange and successfully complete certain written examinations. 130 Other proposed changes would set out more specific obligations relating to notifications that would need to be made to the Exchange when a registered or associated person is terminated and would require participant firms to notify the Exchange of any firm-related event constituting a statutory disqualification. 131 Additional changes would update the firm supervision rules to require participants to identify the person(s) responsible for acting as supervisors; to recognize that supervisory authority could be delegated and to establish the mechanism for doing so; to provide that, in the absence of a specific designation, the firm's general partner(s), president, chief executive officer or other principal executive officer would be deemed to have supervisory responsibility; to require firms to meet, at least annually, with staff about compliance matters; and to require firms to establish internal controls to assure that appropriate supervision is being exercised. 132 Other changes would require that a participant opening a branch office file a Form BR with the Exchange (instead of Schedule E to Form BD) and confirm that a participant must retain records that identify the names of all persons who are designated as supervisory personnel (and the dates for which those designations are effective) for six years (the first two years in an easily accessible place). Finally, the changes in this Article would add a new rule relating to fingerprinting of Exchange staff and contractors and would incorporate two rules that currently occur elsewhere in the Exchange's rules. 133 130 *See* CHX Article 6, Rules 2(b)(7) and 3. 131 *See* CHX Article 6, Rule 2(e)-(f) and Interpretations and Policies .03 and .04. 132 *See* CHX Article 6, Rule 5(a) (various provisions relating to the designation of persons with supervisory authority) and 5(c) (internal controls and training). These obligations are similar to those required by other SROs and would ensure that the Exchange's participant firms are strengthening the work that they do to supervise their registered and associated persons. 133 *See* CHX Article 6, Rule 10 (fingerprinting) and Rules 8 and 9 (formerly, CHX Article VIII, Rule 16 and CHX Article VIII, Rule 11). Under the proposed fingerprinting rule, the Exchange would conduct fingerprint-based criminal records checks of all prospective employees, as well as of independent contractors and temporary employees who are expected to have access to Exchange facilities for more than 10 days. The Exchange would similarly conduct checks of persons who would have access to premises controlled by CHX Holdings, when those premises are in the same building as Exchange facilities. This proposed rule would codify the Exchange's current practice of conducting these checks for prospective Exchange employees and would extend that practice to independent contractors and temporary workers who have more than fleeting access to Exchange facilities, as well as to other persons who have access to certain CHX Holdings premises. 7. *CHX Article 7. (Financial Responsibility and Reporting).* 134 In this Article, the proposed rule changes would delete references to requirements that current apply to specialist firms and incorporate three fee-related provisions that currently appear in other Articles. 135 134 This Article previously was numbered CHX Article XI of the Exchange's Rules. The marked version of the rules in this submission compares the current CHX Article XI to the changes that would be made as part of the Exchange's new trading model, including the change in numbering. The provisions in current CHX Article VII have been moved to new CHX Article 13, as described below. 135 The specialist-related provisions that would be deleted are shown in CHX Article 7, Rule 3. The three fee-related rules that would be added to this section—so that all fee-related provisions could be gathered as much as possible in one place—formerly were CHX Article XIV, Rules 1 (fixing and paying fees); 10 (failure to pay debts); and 11 (fees for participants in military service). 8. *CHX Article 8. (Business Conduct).* As noted above, as part of its new model filing, the Exchange has sought to better organize its rules. Although there were some minor organizational changes in earlier Articles, the proposed changes in CHX Article 8 are somewhat more extensive. 136 Importantly, though, CHX Article 8 does not contain any completely new rule provisions; indeed, eleven of the sixteen proposed rules in this CHX Article have not been changed at all. 137 Instead, the rules in this section were gathered from throughout the Exchange's rulebook and, with three exceptions discussed below, are not substantially modified. 138 136 To try to enhance a reader's ability to understand which rules the Exchange proposes to keep in force, the Exchange shows the reorganized rules as new text in the first section of Exhibit 5 and the existing rule text as deleted text in the second section of Exhibit 5. Some of these apparently deleted rules have not been completely removed; instead, they have been moved to other CHX Articles in the rulebook. *See* CHX Article VIII, Deleted Rules 3, 7, 9 and 17 (moved to CHX Article 9); Rules 8, 11 and 16 (moved to CHX Article 12); and Rule 23 and 24 (moved to new CHX Article 14). 137 *See* CHX Article 8, Rules 2 (formerly Rule 12); 3 (formerly Rule 1); 4 (formerly Rule 5); 5 (formerly Rule 2); 8 (formerly Rule 18); 9 (formerly Rule 19); 11 (formerly Rule 25); 12 (formerly CHX Article XV, Rule 3); 13 (formerly CHX Article XIII); 14 (formerly CHX Article XXXIII) and 15 (formerly CHX Article XV, Rule 1). 138 Small modifications include changes that would delete references to the trading floor, eliminate obsolete provisions or clarify wording. *See* CHX Article 8, Rule 1 (replacing the reference to “constitution” with a reference to the Exchange's “bylaws” and deleting the unnecessary word “Firm” in the first few words of the text); Rule 7 (eliminating references to non-participants on the trading floor and to employees of banks, insurance companies and other corporations); and Rule 8 (eliminating references to floor employees). The existing version of CHX Article VIII, Rule 21 extensively details how one participant firm must coordinate with another participant in the transfer of customer accounts. Because the Exchange is not the designated examining authority for any firm that carries participant accounts, the Exchange believes that this detailed recitation of account transfer procedures is not a necessary component of its rules. Instead, the Exchange proposes to adopt, in CHX Article 8, Rule 10, rule language similar to that used by other markets that have similarly constrained examining responsibilities. 139 Also, the Exchange has proposed revisions to CHX Rule 16 that would make the text relating to its policy against harassment and other conduct rules applicable, once the Exchange no longer operates a trading floor, to conduct that occurs on Exchange premises, while conducting business on the Exchange or when interacting with Exchange staff who are conducting Exchange business. 139 *See* PCXE Rule 9.19. The Exchange has proposed the deletion of several rules in the existing CHX Article VIII. As an initial matter, the Exchange seeks to delete CHX Article VIII, Rule 22 (Responsibility for Acts of Others), which identifies supervisory obligations that are much like those being added to CHX Article 6, Rule 5, as described above. Other provisions that would be deleted appear to be unnecessarily duplicative of existing Exchange authority or of provisions that are being retained or seem otherwise unnecessary for the regulation of the automated market which the Exchange will operate. 140 140 *See* *e.g.* , CHX Article VIII, Rule 4 (Upsetting Market Equilibrium) and Rule 10 (Dealings on Market Price Fluctuations), which address issues similar to those set out in other Exchange rules, including CHX Article 9, Rule 11 (Price Manipulation). *See also* CHX Article VIII, Rule 8 (unnecessarily confirming that a participant, or a partner, officer, director or registered employee of a participant firm that is found guilty of conduct inconsistent with just and equitable principles of trade shall be expelled, suspended or disciplined). 9. *CHX Article 9. (General Trading Rules).* The Exchange proposes to reorganize CHX Article 9 in much the same manner as CHX Article 8. 141 The proposed changes to CHX Article 9 include only three new rules—relating to the reporting of transactions (including riskless principal transactions) and to the use of a customer's give-up. 142 Other provisions have been gathered from the text of the existing CHX Article IX and from other sections of the current rulebook and have been modified primarily to remove references to the Exchange's trading floor or to make other clarifications to the text. 143 141 As above, the Exchange shows the reorganized rules as new text in the first section of Exhibit 5 and the existing rule text as deleted text in the second section of Exhibit 5. 142 *See* CHX Article 9, Rules 13, 14 and 25. Proposed Rule 13 contains provisions that confirm that transactions on the Exchange may occur only in the Matching System or through an institutional broker and require institutional brokers to report all executions that occur on the Exchange (except for transactions that occur within the Matching System, because the Exchange has already stored information about those transactions). Proposed CHX Rule 14 sets out riskless principal trade reporting rules that are similar to those put in place by other markets and could be used by institutional brokers in their handling of customer orders. Most frequently, however, the Exchange anticipates that its institutional brokers would continue their current practice of acting on an agency, not riskless principal, basis when representing orders in other markets. Rule 14 confirms that the second, riskless principal leg of the riskless principal transaction is not required to clear the Matching System pursuant to CHX Article 20, Rule 7 and is not required to yield to orders otherwise resident on the Exchange. 143 *See* CHX Article 9, Rules 1 (moved from CHX Article XX, Rule 1 and modified to state simply that the trading rules apply to trading on the Exchange); 2 (moved from CHX Article VIII, Rule 7 and modified to confirm that, even if not willful, a pattern or practice of rule violations may be considered conduct inconsistent with just and equitable principles of trade); 3 (moved from CHX Article XX, Rule 4 and modified to eliminate obsolete references to Exchange employees who are authorized to close contracts under the rule); 4 (moved from CHX Article IX, Rule 8); 5 (moved from CHX Article XX, Rule 6); 6 (moved from CHX Article XX, Rule 8 and modified to replace references to “bids and offers” with references to “orders”); 7 (moved from CHX Article XXVII, Rules 1 and 2); 8 (moved from CHX Article XX, Rule 3); 9 (moved from CHX Article VIII, Rule 3); 10 (moved from CHX Article XX, Rule 29); 11 (moved from CHX Article IX, Rule 6 and modified to confirm that the rule applies to both purchases and sales); 12 (moved from CHX Article IX, Rule 11); 16 (moved from CHX Article VIII, Rule 17); 17 (moved from CHX Article IX, Rule 5 and modified
(i)To confirm that a participant may not execute an incoming order for its own account at a price less than a penny better than an unexecuted customer limit order that it is aware of or holding;
(ii)to confirm that a participant will be deemed to be holding or aware of an unexecuted customer order when the order remains unexecuted in the Matching System; and
(iii)to clarify that a participant will not violate this provision if it satisfies bids and offers in other markets at a price that is better than the cross price of a customer order, in accordance with the requirements for a “cross with satisfy” order); 18 (moved from CHX Article XX, Rule 31 and modified to remove references to public bidding and offering, as on the floor of the Exchange); 19 (moved from CHX Article IX, Rule 1); 20 (combined from CHX Article IX, Rules 2 and 9; CHX Article XX, Rule 32); 21 (moved from CHX Article IX, Rule 4); 22 (combined from CHX Article IX, Rule 15 and CHX Article XX, Rule 33; modified to eliminate references to the trading floor); 23 (moved from CHX Article IX, Rule 17); and 24 (moved from CHX Article VIII, Rule 9 and modified to eliminate the definition of “Act” because that definition is already contained in CHX Article 1 of the rules). As in CHX Article VIII, the Exchange has proposed the deletion of rules that are obsolete; that appear to be unnecessarily duplicative of existing Exchange authority or of provisions that are being retained; or that seem otherwise unnecessary for the regulation of the automated market which the Exchange will operate. For example, the Exchange proposes to delete its existing general books and records rule (CHX Article IX, Rule 7) because it has been replaced by much more detailed provisions in CHX Article 11. Similarly, the existing rule relating to the business days and hours of the Exchange (CHX Article IX, Rule 10) would be replaced by the provisions of CHX Article 20, Rule 1, which contains information (including the operating hours) associated with the Matching System's trading sessions. 144 144 Other rules that would be deleted include CHX Article IX, Rule 10B (containing an obsolete rule relating to a stop order ban based on a no-longer-existing NYSE rule on the same topic); Rule 12 (containing a broad prohibition on the circulation of rumors that seems to be focused on a floor-based trading environment) and Rule 16 (relating to floor trading). 10. *CHX Article 10. (Margins).* The Exchange proposes to delete, from this section of its rules, the provisions relating to any margin requirements for specialists. 145 145 *See* CHX Article 10, Rule 3(c)(6). 11. *CHX Article 11. (Books and Records).* This Article is an entirely new Article that would include the four primary books and records rule that apply to Exchange participants. 146 Two of these proposed rules contain provisions that already appear elsewhere in the Exchange's current rules. 147 One new rule—CHX Rule 2—would confirm that Exchange participants must make and preserve all books, accounts, records, memoranda and correspondence as required by applicable law, including Commission rules and Exchange rules. Another new rule—CHX Rule 1—would require that participants provide the Exchange with access to books and records and must furnish requested financial and transaction-related records to the Exchange upon request. The Exchange believes that these new rules bolster the Exchange's ability to perform its regulatory responsibilities. 146 The provisions in current CHX Article XI have been moved to CHX Article 7 of the proposed set of rules. 147 *See* Proposed CHX Rule 3 (incorporating text from CHX Article XX, Rule 24) and Proposed CHX Rule 4 (moved from CHX Article V, Rule 4). 12. *CHX Article 12. (Disciplinary Matters and Trial Proceedings).* The Exchange's proposal would make two primary changes to this CHX Article. 148 First, because the Exchange would not operate a trading floor in the new trading model, the proposal would eliminate the Exchange Procedure Committee's ability to take action against participants with respect to trading floor and other on-site decorum violations. 149 The proposal also would eliminate, from the Minor Rule Violation Plan, any rules that would otherwise be deleted by this proposal. 150 148 The Exchange has sought other changes to CHX Article 12, and to other Exchange rules, as part of a pending rule filing, SR-CHX-2005-06. When that proposal is approved, the Exchange will amend this submission, if necessary, to incorporate any changes arising from the other proposal. 149 *See* CHX Article 12, deleted Rule 3. 150 *See* *e.g.* , CHX Article 12, Rule 8(h) (proposed deletion of rules relating to the submission of the co-specialist survey, as well as failure to comply with decorum and open outcry requirements). 13. *CHX Article 13. (Suspensions and Reinstatements).* In this Article, which previously was numbered CHX Article VII, the Exchange proposes one substantive change. 151 As an initial matter, the Exchange seeks to add new text that would allow the Exchange to use its emergency suspension authority whenever a participant firm that is registered as an institutional broker or market maker has failed to perform, or is failing to perform, any material responsibility imposed on the participant because of that role and, as a result, cannot be permitted to continue in business with safety to its customers or creditors or to the Exchange. 152 The Exchange believes that it is important to extend its suspension authority in this manner to allow the Exchange to address egregious circumstances that might arise because of an institutional broker's or market maker's failure to meet the obligations that arise because of its specialized role in the market. 151 The advertising requirements of CHX Article XIII have been moved to CHX Article 8, Rule 14. 152 *See* CHX Article 13, Rule 2. 14. *CHX Article 14. (Arbitration).* Under the Exchange's proposal, this Article would consist of Rules 23 and 24 from former CHX Article VIII. The Exchange does not propose any substantive changes to these provisions, although it has re-numbered provisions to make them somewhat more consistent with the other sets of rules. 153 Also, in Section 31 of Proposed CHX Rule 2, the Exchange has replaced a reference to an effective date that was “after 120 days have elapsed from the date of Commission approval of this Rule” with a reference to the appropriate specific date, January 5, 1990. 153 The current provisions of CHX Article XIV (“Fiscal Policies”) were either transferred to CHX Article 7 (“Financial Responsibility and Reporting”) or would be deleted as no longer necessary in the new trading model. 15. *CHX Article 15. (Hearings and Reviews).* 154 The Exchange currently has several disparate provisions that permit participants to seek review of an Exchange decision. These provisions often do not define the specifics associated with any hearing or review; they sometimes (but not always) permit further review by the Board. This new Article is designed to consolidate many of these provisions into one section that can be uniformly applied to Exchange decisions that do not involve disciplinary matters or appeals from arbitration decisions. 155 154 The current text of CHX Article XV (“Commissions”) has either been moved to other CHX Articles ( *e.g.* , CHX Article XV, Rule 5 has been moved to CHX Article 22) or it has been deleted. 155 *See* CHX Article 15, Rule 1. Among other things, this new Article would provide details about requesting a hearing (which must be done within 30 days of the initial decision at issue, unless an extension of time is granted); the appointment of the hearing panel (which would be the entire Executive Committee, unless the Committee chooses to appoint a panel of five of its members to hear a matter); requesting extensions of time; submitting documents and witness lists (which ordinarily must be done at least 72 hours before the start of the hearing); the notice of hearing; the conduct of the hearing (during which all parties may be represented by counsel and the formal rules of evidence would not apply); the parameters of the decision that would be reached (for example, the decision would be in writing and ordinarily distributed within 90 days after the end of the hearing or the submission of post-hearing briefs, whichever is later); and seeking further review of the decision (which can be done by either party, within 30 days, or by the Board on its own motion). 156 Throughout these proposed rules, the Exchange has sought to provide a central set of rules for these hearings which is similar to, but more expansive than, the various provisions scattered throughout the existing rulebook. 156 *See* CHX Article 15, Rule 2 (submission of requests for hearing); Rule 3 (requests for hearings on emergency actions); Rule 4 (hearing panel); Rule 5 (extensions of time); Rule 6 (submissions of supporting materials); Rule 7 (notice of hearing); Rule 8 (conduct of hearing); Rule 9 (decision); and Rule 10 (seeking review of that decision). 16. *CHX Article 19. (ITS).* This Article contains the ITS-related rules applicable to the Exchange's participants. The Exchange has proposed only a few changes to these rules. The most substantive change to this section of the rulebook confirms that the Exchange's Matching System will accept and execute inbound ITS commitments on behalf of its participants. 157 This change recognizes the much more automated nature of the trading that will occur on the Exchange in the new trading model. Other proposed changes to the rules highlight the sections that will be deleted on the effective date of the NMS Linkage Plan among various exchanges—these sections include the provisions relating to the Preopening Application, the Locked Markets requirements and the Block Trade Policy. 158 Other changes to the ITS rules eliminate references to the Exchange's trading floor and to rules that are being deleted as part of the implementation of the new trading model. 157 *See* CHX Article 19, Rule 1(b)(4). The proposed changes confirm that the Matching System will execute ITS commitments as set out in CHX Article 20 of the Exchange's rules. 158 The Exchange will file a proposal, nearer the effective date of the NMS Linkage Plan, to formally propose the deletion of these sections. 17. *CHX Article 21. (Clearance and Settlement).* In this new Article, the Exchange seeks to incorporate all of the rules that it believes would be necessary in connection with the clearance and settlement of transactions in the new trading model. These rules have been gathered from various existing CHX Articles; the section does not include any entirely new rules, although a few rules have been modified to eliminate references to the trading floor. 159 Among other things, this proposed new Article would require participants to maintain accounts with a qualified clearing agency, or with another participant that has such an account, for the recording of transactions on the Exchange. 160 The proposed Article would also confirm that the Exchange may extend or postpone the time for performance of contracts when required by just and equitable principles of trade or to meet unusual conditions. 161 159 The Exchange has updated the definition of “registered clearing agency” to confirm that it means a clearing agency which is registered with the Commission pursuant to the provisions of Section 17(A)(b)(2) of the Act or has obtained from the Commission an exemption from registration granted specifically to allow the clearing agency to provide confirmation and affirmation services. *See* CHX Article 21, Rule 1, Interpretation and Policy .01. 160 This rule—and a related rule relating to book-entry settlement—currently are found in CHX Article XXII, Rule 3 and CHX Article XXI, Rule 4 of the Exchange's rules. 161 *See* CHX Article 21, Rule 3 (formerly, CHX Article XXII, Rule 1). As a final matter, this provision would allow the Exchange to continue to provide services, including back-office clearing work, for participants. *See* CHX Article 21, Rule 4 (formerly, CHX Article XXI, Rule 13). 18. *CHX Article 22. (Listing).* This Article is numbered CHX Article XXVIII in the Exchange's current rules. 162 The proposed changes in this section would delete references to the Exchange's specialist firms; correct a telephone number and a typographical error; eliminate references to the Exchange's trading floor; and more accurately describe the work done by Exchange staff in connection with its surveillance of trading in exclusively listed securities. 163 No other changes to the Exchange's listing rules are contemplated in connection with the proposed new trading model. 162 The markings in this Article compare the text of CHX Article XXVIII against the proposed rule changes. The rules contained in current CHX Article XXI, which relates to the contracts, tickets and comparisons, would either be moved to other sections of the proposed new trading model rules ( *e.g.* , CHX Article XXI, Rules 4 and 13 have been moved to CHX Article 22) or would be deleted in the new trading model because the issues covered by this provision are the subject of clearing depository rules or agreements between participants and their clearing firms and/or a clearing depository. 163 *See* CHX Rule 23(a) (correcting the omission of the roman numeral “I”); Interpretations and Policies to Rule 23 (clarifying the work of market surveillance; deleting references to specialists; and correcting a telephone number); and CHX Rule 26 (eliminating references to the Exchange's trading floor). 19. *Other deleted provisions.* In addition to the changes noted in the paragraphs above, the Exchange's new trading model proposal would also eliminate the following Articles from its rulebook: CHX Article XVI (Insurance as an Ancillary Activity); CHX Article XVII (Suspension and Termination of Special Floor Registration for Unsatisfactory Performance); CHX Article XX (Regular Trading Session); XXIII (Reclamations); XXIV (Lending Securities); XXV (Closing of Contracts); XXVI (Marking to the Market); CHX Article XXIX (Special Offerings); CHX Article XXX (Specialists); CHX Article XXXI (Odd-lots); CHX Article XXXII (Exchange Distribution Plan); XXXIV (registered Market Makers—Equity Floor); CHX Article XXXV (Secondary Trading Session); CHX Article XXXVI (Baskets); and CHX Article XXXVII (Chicago Match). Each of these sets of rules would no longer be necessary in the new trading model. 164 164 A few of these Articles contain rules for trading sessions that have been already discontinued. The Exchange, for example, is not conducting a secondary trading session under the rules set out in CHX Article XXXV and is not using the Chicago Match system described in CHX Article XXXVII. One Article, CHX Article XX, contains the rules relating to the Exchange's operation of its MAX trading system, which will be replaced with the new model's Matching System. Other Articles relate to special registration categories—such as those for odd-lot dealers (CHX Article XXXI) or specialists (CHX Article XXX)—which are not part of the new trading model. Moreover, the Exchange does not currently intend to permit special offerings (CHX Article XXIX) or use the Exchange Distribution Plan (CHX Article XXXII) or the basket rules (CHX Article XXXVI) in the new model. Finally, some of the Articles that the Exchange proposes to delete appear to be more related to clearing and settlement or to back office processes (CHX Articles XXIII (Reclamations), XV (Closing of Contracts) and XXVI (Marking to the Market) and less related to the Exchange's on-going role as a market. e. Proposed Roll-Out of New Trading Model The Exchange anticipates that it will be ready to begin implementing its new trading model in September 2006. Closer to the implementation date, the Exchange will notify participants of its detailed roll-out plans. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act. 165 In particular, the Exchange believes that the proposed rule change is consistent with Section 6(b)(5) of the Act, 166 because it would promote just and equitable principles of trade, remove impediments to, and perfect the mechanism of, a free and open market and a national market system, and, in general, protect investors and the public interest by permitting the Exchange to operate an efficient, automated market for the trading of securities. 165 15 U.S.C. 78f(b). 166 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule changes 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 has reviewed drafts of various sections of the proposed rule text, and the concept of the new trading model, with various participants. Although some participants provided varying levels of input, the Exchange did not solicit, nor did it receive, written comments with respect to this final version of the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)As the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the Exchange consents, the Commission will:
(A)By order approve such proposed rule change, 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-CHX-2006-05 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-CHX-2006-05. 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-CHX-2006-05 and should be submitted on or before September 8, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 167 167 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-13618 Filed 8-17-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54313; File No. SR-NASD-2006-099] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Amendments to Procedures for the Exercise of Options August 14, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on August 10, 2006, the National Association of Securities Dealers, Inc. (“NASD”) 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 NASD. NASD filed the proposal as a “non-controversial” proposed rule change pursuant to Section 19(b)(3)(A) of the Act, 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposal effective upon filing with the Commission. 5 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(6). 5 NASD gave the Commission written notice of its intent to file the proposed rule change on June 16, 2006. *See* Rule 19b-4(f)(6)(iii). 17 CFR 240.19b-4(f)(6)(iii). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change NASD proposes to amend Rule 2860(b)(23) (Tendering Procedures for Exercise of Options) to:
(1)Simplify the manner in which a Contrary Exercise Advice (“CEA”) is submitted;
(2)extend by one hour the cut-off time by which members must submit CEA notices;
(3)add procedures for exercising a standardized equity option when a modified close of trading is announced; and
(4)consolidate all provisions pertaining to the exercise of standardized options contracts into Rule 2860(b)(23) instead of having additional and overlapping provisions in Rule 11850 (Tendering Procedures for Exercise of Options) as it currently the case. The text of the proposed rule change is available at NASD, at the Commission, and at *www.nasd.com.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NASD included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. NASD has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose NASD proposes to amend Rule 2860(b)(23) (Tendering Procedures for Exercise of Options) to conform to recent changes of the substantially similar rules of the Options Exchanges. 6 The proposed rule change presents no novel issues. 6 *See* Rule 980 of the American Stock Exchange; Rule 1042 of the Philadelphia Stock Exchange; Rule 6.24 of the NYSE Arca (formerly the PCX); Rule 11.1 and related Regulatory Circulars RG03-41 and RG 03-54 of the Chicago Board Options Exchange; Rule 1100 of the International Securities Exchange; and Chapter VII Section 1 of the Boston Options Exchange (collectively referred to as the “Options Exchanges”). The proposed rule change simplifies the manner in which a Contrary Exercise Advice (“CEA”) is submitted, extends by one hour the cut-off time by which members must submit CEA notices, and adds procedures for exercising a standardized equity option when a modified close of trading is announced. The proposed rule change also consolidates all provisions pertaining to the exercise of standardized options contracts into Rule 2860(b)(23) instead of having additional and overlapping provisions in Rule 11850 (Tendering Procedures for Exercise of Options) as is currently the case. The provisions in Rule 2860(b)(23) apply only to members that are not also members of the exchange on which the option is listed and traded, so-called “access firms.” 7 Inasmuch as access firms are not members of an options exchange, it is necessary that the NASD rule subject such firms and customers of such firms to the same requirements for CEAs as customers and firms that are members of an options exchange. 7 *See* Rule 2860(b)(1)(A)(ii). Currently, Rule 2860(b)(23)(A) generally requires that members cannot accept instructions to exercise a standardized option from the account of any customer or any other member after 5:30 p.m. Eastern Time (“ET”) on the business day immediately prior to the expiration date of an option contract. Rule 2860(b)(23)(A) also provides for an exception to this exercise cut-off time for specified reasons. Rule 2860(b)(23)(B) requires that members maintain records for each exercise instruction. Additional procedures with respect to the exercise of standardized options contracts that are not included in Rule 2860 are provided in Rule 11850 of the Uniform Practice Code and address The Options Clearing Corporation's (“OCC”) exercise-by-exception procedures (“Ex-by-Ex”). The Ex-by-Ex procedures set forth in OCC Rule 805 provide for the automatic exercise of certain options that are in-the-money by a specified amount. Under the Ex-by-Ex procedures, option holders holding an option contract that is in-the-money by a requisite amount and who wish to have their contracts automatically exercised need to take no further action. However, under OCC Rule 805, option holders who do not want their options automatically exercised or who want their options to be exercised under different parameters than that of the Ex-by-Ex procedure must file a CEA with a national options exchange of which they are a member or where the equity option is listed in accordance with Rule 11850 and instruct the OCC of their “contrary intention.” Rule 11850 is designed, in part, to deter individuals from taking improper advantage of late breaking news by requiring evidence of an options holder's intention to exercise or not exercise expiring equity options via the submission of a CEA. Members satisfy the filing requirement by manually submitting a CEA form or by electronically submitting the CEA through OCC's electronic communications system. If the OCC has waived the Ex-by-Ex procedures for an options class, a member is still required to submit a CEA if the member wants to exercise a standardized equity option that would not have been automatically exercised, or not to exercise a standardized equity option that would have been automatically exercised, had the Ex-by-Ex procedure been in effect. The Ex-by-Ex procedures contained in the rules of Options Exchanges have recently been amended. 8 In addition, the Options Exchanges' rules contain provisions for exercising an equity option in the event of a modified close of trading. NASD proposes to
(1)amend its rules to conform to the changes to the similar rules of the Options Exchanges, and
(2)consolidate the provisions pertaining to the procedures for exercising standardized options set forth in Rule 11850 into Rule 2860(b)(23). 8 *See* Securities Exchange Act Release Nos. 47885 (May 16, 2003), 68 FR 28309 (May 23, 2003) (SR-AMEX-2001-92) (approval order); 48639 (October 16, 2003), 68 FR 60764 (October 23, 2003) (SR-PHLX-2003-65); 48640 (October 16, 2003), 68 FR 60757 (October 23, 2003) (SR-PCX-2003-47); 49275 (February 18, 2004), 69 FR 8713 (February 25, 2004) (SR-CBOE-2003-47); 48505 (September 17, 2003), 68 FR 55680 (September 26, 2003) (SR-ISE-2003-20); and 49191 (February 4, 2004), 69 FR 7055 (February 12, 2004) (SR-BSE-2004-04). Specifically, Rule 2860(b)(23)(A)(i) would be amended to mirror the provisions of Rule 11850(a)(1) and provide that members may establish fixed procedures as to the latest time they will accept exercise instructions from customers for tender to the OCC. Rule 2860(b)(23)(A)(ii) would be amended to integrate the provisions of Rule 11850(b)(1)(A) regarding the cut-off time to submit final exercise decisions. In addition, to conform to the similar amendments to the rules of the Options Exchanges, NASD proposes to extend the cut-off time to 6:30 p.m. ET for members to submit CEAs for customer accounts. NASD further proposes to allow members to submit CEAs for non-customer accounts by 6:30 p.m. ET, but only if such member employs an electronic procedure with time stamp recording for the submission of exercise instructions by options holders. Members would have to establish fixed procedures to ensure secure time stamps in connection with the utilization of the electronic stamp provision. If a member does not employ an electronic time stamp and appropriate procedures to ensure secure time stamps, the member would have to submit CEAs for non-customer accounts by 5:30 p.m. ET. NASD believes that granting members additional time to submit CEAs or Advice Cancels is necessary to address a concern that a 5:30 p.m. ET cut-off time is problematic for customer accounts due to logistical difficulties in the time required to receive customer exercise instructions, and, subsequently, to process them through retail branch systems and back offices before submitting them. NASD believes that extending the cut-off times for CEAs and Advice Cancels for non-customer accounts, if electronically time stamped, is fair and provides for consistent regulation. NASD does not propose to extend the submission cut-off time for members that manually submit CEA and Advice Cancels due to difficulties involved in monitoring manual procedures. Rule 2860(b)(23)(A)(iii) would be amended to incorporate the provisions of Rule 11850(b)(1)(A) regarding the Ex-by-Ex procedures together with conforming language and definitional changes to harmonize the rule with the rules of the Options Exchanges. A new subparagraph
(iv)would be added to Rule 2860(b)(23)(A) to parallel the provisions of Rule 11850(b)(1)(B) for cases in which the Ex-by-Ex procedure has been waived. New subparagraph
(iv)also would track the amended rules of the Options Exchanges that provide that no CEA is required to be filed if the option holder does not wish to exercise the expiring standardized equity option. Rule 2860(b)(23)(A)(v) would provide (as currently provided in Rule 11850(b)(1)(C)) that members that maintain proprietary or public customer positions in expiring standardized equity options must take necessary steps to ensure that final exercise decisions are properly indicated to the relevant national options exchange with respect to such positions. In addition, members that have accepted the responsibility to indicate final exercise decisions on behalf of another member also must take necessary steps to ensure that such decisions are properly indicated to the relevant national options exchange. Rule 2860(b)(23)(A)(vi) would retain the provision (as currently provided in Rule 2860(b)(23)(A)(ii) and Rule 11850(b)(2)) that would allow members to make final exercise decisions after the exercise cut-off time, but before expiration of the standardized equity option subject to the same exceptions as Rule 11850 currently provides which are also consistent with the rules of the Options Exchanges. 9 Rule 2860(b)(23)(B) would also retain the requirements for reporting and record keeping obligations when a member relies on these exceptions as amended by incorporating provisions from Rule 11850(b)(3). 9 *See* Securities Exchange Act Release No. 35389 (February 16, 1995) 60 FR 10135 (February 23, 1995) (SR-NASD-94-78) regarding the Commission's approval of NASD's deletion of the exemption in Rule 11850 that applies “in the case of options contracts carried in an account maintained for another member in which only positions of customers of such other member are carried” in order to conform to the rules of the Options Exchanges. NASD also proposes to add to Rule 2860 a similar provision as found in the rules of the Options Exchanges that address when an options exchange or the OCC establishes a different exercise cut-off time. 10 Specifically, proposed Rule 2860(b)(23)(A)(vii) would apply when a different or modified close of trading is announced. In such cases, the option exchange or the OCC would have forewarning of the event and would be required to provide notice of the change in the exercise cut-off time by 5:30 p.m. ET on the business day prior to the last trading day before expiration. Under such circumstances, the deadline for making a final decision to exercise or not exercise would be 1 hour and 28 minutes following the time announced for the close of trading on that day. With respect to the submission of a CEA by members, the cut-off time would be 2 hours and 28 minutes after the close of trading for customer accounts and non-customer accounts where the member firm employs an electronic procedure with time stamp for the submission of exercise instructions. Members that do not employ an electronic submission procedure for exercise instructions would be required to submit a CEA within 1 hour and 28 minutes after the close of trading for its non-customer accounts. 10 *See supra* note 6. Proposed subparagraphs (viii),
(ix)and
(x)of Rule 2860(b)(23)(A), wholly incorporate the provisions of Rule 11850(b)(4) through (6), respectively. As noted above, Rule 2860(b)(23)(B) requiring recordkeeping of instructions would be retained and amended by incorporating provisions from Rule 11850(b)(3). Finally, paragraphs
(C)and
(D)of Rule 2860(b)(23) govern the allocation of exercise assignment notices and delivery and payment, respectively. Rule 11850(c) and
(d)of the Uniform Practice Code have the same provisions as Rule 2860(b)(23) with regard to these provisions. Accordingly, these provisions are deleted from Rule 11850 as they are covered in Rule 2860(b)(23)(C) and (D). NASD believes that the proposed rule change is necessary to provide its members that are not members of an options exchange with the same treatment as members of the Options Exchanges. Furthermore, as noted above, the proposed rule change will streamline and simplify the NASD rules as well as harmonize NASD's rule with those of the Options Exchanges. NASD has filed the proposed rule change for immediate effectiveness. NASD will announce the implementation date of the proposed rule change in a *Notice to Members* to be published no later than 60 days following the filing of the rule change with the Commission for immediate effectiveness. The implementation date will be 30 days after the date of the *Notice to Members* . 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act, 11 which requires, among other things, that NASD rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. NASD believes the proposed rule change will streamline and simplify NASD rules by consolidating overlapping provisions. In addition, NASD believes the proposed rule change will promote consistent regulation by harmonizing NASD's rule with those of the Options Exchanges. 11 15 U.S.C. 78 *o* -3(b)(6). B. Self-Regulatory Organization's Statement on Burden on Competition NASD does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not:
(i)Significantly affect the protection of investors or the public interest;
(ii)impose any significant burden on competition; and
(iii)become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 12 and Rule 10b-4(f)(6) thereunder. 13 12 15 U.S.C. 78s(b)(3)(A). 13 17 CFR 240.19b-4(f)(6). 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. 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-NASD-2006-099 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NASD-2006-099. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NASD-2006-099 and should be submitted on or before September 8, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 14 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-13639 Filed 8-17-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54306; File No. SR-OCC-2006-05] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Expiration Date Exercise Procedures August 11, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on April 26, 2006, The Options Clearing Corporation (“OCC”) 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 primarily by OCC. 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). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would amend Rule 805, which describes expiration date exercise procedures including exercise by exception processing. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of such statements. 2 2 The Commission has modified parts of these statements.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The proposed rule change would amend Rule 805, Expiration Date Exercise Procedure, to reduce the threshold amounts used to determine the equity options that are in the money for purposes of exercise by exception processing. A conforming change would also be made to Rule 1106, Open Positions, which concerns the treatment of open positions following the suspension of a clearing member. OCC has for years maintained an “exercise by exception” procedure. Under that procedure, options that are in the money at expiration by more than a specified threshold amount are exercised automatically unless the clearing member carrying the position instructs otherwise. Equity options are determined to be in the money or not based on the difference between the exercise price and the closing price of the underlying equity interest on the last trading day before expiration. In September 2004, in order to streamline expiration processing, OCC reduced the threshold amounts for equity options from $.75 to $.25 in a clearing member's customers' account and from $.25 to $.15 in any other account ( *i.e.* , firm and market makers' accounts). 3 This change, which was implemented at the request of the OCC Roundtable, 4 immediately yielded significant benefits to both OCC and clearing members as the time for submitting exercise instructions was reduced by one to three hours on an average expiration weekend. 3 Securities Exchange Act Release No. 50178 (August 10, 2004), 69 FR 51343 (August 18, 2004) [File No. SR-OCC-2004-04]. 4 The OCC Roundtable is an OCC sponsored advisory group comprised of representatives from OCC's participant exchanges, OCC, a cross-section of OCC clearing members, and industry service bureaus. The Roundtable considers operational improvements that may be made to increase efficiencies and lower costs in the options industry. Increasing options volumes in 2004 and 2005 prompted the OCC Roundtable to review the thresholds applied to equity options in an effort to further reduce operational risks and improve expiration processing. Initially, the Roundtable proposed that the threshold for all account types be set at $.01, but an OCC survey of clearing members found that while 65% of responding clearing members supported this change, 35% were against it. A second OCC survey determined that 75% of responding clearing members were in favor of a threshold change to $.05 for all account types and 25% were opposed to it. The Roundtable then requested that OCC establish $.05 as the threshold applicable to equity options exercises for all account types. In response to this request, OCC analyzed equity options exercise information from the June 2004 through December 2005 expirations. OCC's analysis determined that 70% of equity option contracts carried in clearing members' customers' accounts that were in the money by the amount of $.05 to $.24 ( *i.e.* , the change in the “in-the-money” amount represented by the proposed threshold) were exercised. OCC's analysis also determined that exercise activity in other account ranges supported the proposed threshold change. OCC surveyed all clearing members to obtain their views and comments on the proposed change to $.05 as the threshold amount for equity options for all account types. Survey results demonstrated strong support across the membership for the change. Eighty-seven clearing members 5 responded to the survey with sixty-five clearing members (75 percent) in favor of the threshold change and 22 clearing members (25 percent) opposed. Clearing members supporting the change confirmed the Roundtable's view that it would significantly reduce the number of instructions they are required to input on expiration thereby shortening the timeframe for completing instructions to OCC. 5 OCC contacted clearing members that did not respond to its survey. These firms expressed no opinion on the matter. OCC contacted each firm that opposed the threshold change. These firms are generally mid-size to small retail clearing members. Their opposition to the change reflected their principal concern about having to input more “do not exercise” instructions. Some indicated concerns about the need to educate customers and the possibility that commission costs could make an exercise unprofitable. 6 However, all of these firms agreed that they could adapt to the change if supported by the majority of clearing members. OCC further reviewed the positions carried by these firms and determined that, on average, they carry positions in fewer than 10 expiring series per expiration that are below the current threshold of $.25. This review led OCC to conclude that the threshold change would result in only a slight increase in processing time for these firms and that they would not be unduly burdened by its implementation. 6 As noted, clearing members are able to instruct OCC not to exercise an expiring equity option. OCC's survey of clearing members also asked firms to provide an estimate of the time needed to accommodate the threshold change based upon supplied time frames (e.g., 0-3 months or 4-6 months). The majority of firms indicated that they could complete the necessary systems development and customer notifications within six months. OCC contacted every firm that commented on the proposed time frames, and all expressed the view that their efforts would be completed in the six month time period. The Roundtable has recommended that this change be implemented for the October 2006 expiration. OCC therefore requests that the Commission approve the proposed rule change with an effective date of October 1, 2006, and that the Commission authorize OCC to implement the threshold change thereafter based upon its assessment of clearing member readiness. OCC would provide at least ten days advance notice to clearing members of the effective date for the new threshold amounts by information memoranda and other forms of electronic notice such as e-mail. Additionally, OCC would allow clearing members additional time to complete preparations for the threshold change if necessary. OCC believes that the proposed rule change is consistent with Section 17A of the Act because it facilitates the prompt and accurate processing of exercise information on expiration.
(B)Self-Regulatory Organization's Statement on Burden on Competition OCC does not believe that the proposed rule change would impose any burden on competition.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were not and are not intended to be solicited with respect to the proposed rule change, and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 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 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ) or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-OCC-2006-05 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-OCC-2006-05. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 100 F Street, NE., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC's Web site at *www.optionsclearing.com.* All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-OCC-2006-05 and should be submitted on or before September 8, 2006. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-13616 Filed 8-17-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54305; File No. SR-OCC-2006-11] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change Relating to Quarterly Options August 11, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on June 23, 2006, The Options Clearing Corporation (“OCC”) 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 primarily by OCC. OCC filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 2 whereby the proposal was 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 15 U.S.C. 78s(b)(3)(A)(ii). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would amend OCC's By-Laws and Rules to accommodate “quarterly options” ( *i.e.* , a series of options or index options that expires on the last business day of the calendar quarter) which have been proposed for trading by the International Securities Exchange (“ISE”). II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. OCC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of such statements. 3 3 The Commission has modified parts of these statements.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change Quarterly options in general have the same terms as conventional options except that
(a)quarterly options expire on the last business day of a calendar quarter and
(b)all quarterly index options would be settled based on the level of the underlying index at the close on the day of exercise (“P.M. Settled”) rather than the level of the index at the opening on that day (“A.M. Settled”). In addition, certain modifications in exercise procedures are necessary to accommodate the business day expiration of quarterly options. Because of concerns with quoting capacity, ISE filed and the Commission has approved a proposed rule change that allows ISE to list quarterly options under a pilot program that is limited both in duration and in the number of classes of quarterly options that may trade. 4 Specifically, for an initial one-year period following the first trade date (“Pilot Period”) ISE would list series of quarterly options in
(a)up to five options classes already listed on ISE that are either
(i)index options or
(ii)options on exchange traded funds and
(b)options classes that are selected by any other exchanges that list quarterly options under a similar pilot program. If ISE decides to continue to list quarterly options at the end of the Pilot Period, ISE would have to file an additional rule filing with the Commission as well as a pilot program report analyzing a variety of data, including the impact of the pilot program on the capacity of ISE, the Options Price Reporting Authority, and market data vendors. If ISE decides to cease listing quarterly options at the end of the Pilot Period or if the Commission were to refuse to approve a rule change permitting quarterly options to continue to trade, ISE would not list any additional series and would permit only closing transactions in open series. 4 Securities Exchange Act Release Nos. 53857 (June 1, 2006), 71 FR 31246 (May 24, 2006) and 54113 (July 7, 2006), 71 FR 39694 (July 13, 2006) [File No. SR-ISE-2006-24]. ISE notes in its filing that there is a risk of confusion with respect to quarterly options series and other options in the same class. The risk of confusion is lessened with respect to conventional options because those options cannot expire in the same week as quarterly options. However, short term options, which are one-week options that normally are listed on a Friday and expire on the next following Friday, could expire on the same day as quarterly options. In order to lessen the likelihood of confusion with respect to short term options and quarterly options in the same class, ISE will not list a series of short term options if that series would expire on the same date as a series of quarterly options in the same class. 5 Because of their differing expiration dates, quarterly options are not be fungible with conventional options or short term options. 5 Supplementary Material .02(b) to ISE Rule 2009. Because quarterly options differ from conventional options and short term options only in their expiration date, the P.M. settlement feature of quarterly index options, and other modifications relating to business day expiration, quarterly options can be cleared and settled by OCC with relatively minor revisions to OCC's By-Laws and Rules. A new defined term for “quarterly options” is added to Article I of the By-Laws, and the definition of “expiration date” in that Article is amended to clarify that quarterly options do not expire on the same date as conventional options. Rules 801 and 805 are amended to include quarterly options among the exceptions to the general rule that options may not be exercised on the business day before their expiration date. Rules 801 and 1804 are amended to provide for the automatic exercise of quarterly index options when those options are in-the-money by a specified amount. Finally, a reference in Article XVII to “quarterly index expiration options” or “QIX,” which are no longer traded, has been removed to avoid confusion. A conforming reference to short term options has been added to Rule 801(b) to provide clarity that such options on indexes are subject to automatic exercise, as presently provided in Rule 1804(c). OCC believes that the proposed rule change is consistent with the purposes and requirements of Section 17A of the Act because it is designed to promote the prompt and accurate clearance and settlement of securities transactions, to foster cooperation and coordination with persons engaged in the clearance and settlement of securities transactions, to remove impediments to and perfect the mechanism of a national system for the prompt and accurate clearance and settlement of securities transactions, and, in general, to protect investors and the public interest. The proposed changes promote these objectives by applying to quarterly options the same basic governing principles that are applicable to other classes of options. The proposed changes are not inconsistent with the existing By-Laws and rules of OCC, including those proposed to be amended.
(B)Self-Regulatory Organization's Statement on Burden on Competition OCC does not believe that the proposed rule change would impose any burden on competition.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were not and are not intended to be solicited with respect to the proposed rule change, and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act 6 and Rule 19b-4(f)(4) 7 promulgated thereunder because the proposal effects a change in an existing service of OCC that
(A)does not adversely affect the safeguarding of securities or funds in the custody or control of OCC or for which it is responsible and
(B)does not significantly affect the respective rights or obligations of OCC or persons using the service. At any time within sixty days of the filing of the proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 6 15 U.S.C. 78s(b)(3)(A)(iii). 7 17 CFR 240.19b-4(f)(4). 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-OCC-2006-11 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-OCC-2006-11. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site *(http://www.sec.gov/rules/sro.shtml)* . Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 100 F Street, NE., Washington, DC 20549. Copies of such filing also will be available for inspection and copying at the principal office of OCC and on OCC's Web site at *www.optionsclearing.com.* All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-OCC-2006-11 and should be submitted on or before September 8, 2006. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 8 8 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-13617 Filed 8-17-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54312; File No. SR-Phlx-2006-28] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendments No. 1, 2, and 3 Thereto Relating to the Deletion of Obsolete Provisions from Exchange Rules August 14, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 , and Rule 19b-4 2 thereunder, notice is hereby given that on April 28, 2006, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the Phlx. On June 15, 2006, July 19, 2006, and August 10, 2006, the Exchange filed Amendments No. 1, 3 2, 4 and 3, 5 respectively. The Exchange has designated the proposed rule change, as amended, as constituting a non-controversial rule change under Rule 19b-4(f)(6) under the Act, 6 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 replaced the original filing in its entirety. 4 Amendment No. 2 replaced the original filing and Amendment No. 1 in their entirety. 5 Amendment No. 3 made clarifying changes to the rule text by retaining a description of Auto-X and clarifying that the term Auto-X is currently applied to include Book Match and Book Sweep in the Exchange's rules, including those rules concerning the engagement and disengagement of Auto-X. 6 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Phlx proposes to amend various Exchange rules to delete obsolete provisions relating to trading systems and practices that are no longer in effect on the Exchange, particularly as the new options system, Phlx XL, replaced the old “AUTO-X” provisions. 7 The text of the proposed rule change, as amended, is available on the Exchange's Web site at *http://www.phlx.com,* at the Exchange's Office of the Secretary, and the Commission's Public Reference Room. 7 In July 2004, the Exchange began trading equity options on Phlx XL, followed by index options in December 2004. Phlx XL was completely rolled out by February 2005, such that all options are now “Streaming Quote Options.” *See* Securities Exchange Act Release No. 50100 (July 27, 2004), 69 FR 46612 (August 3, 2004) (SR-Phlx-2003-59). II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Phlx included statements concerning the purpose of and basis for the proposed rule change 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 Phlx has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to delete provisions in the Exchange's rules that no longer apply because of technological advancements or obsolete trading practices. Specifically, the following amendments are proposed: *Quotation Size:* The Phlx XL rules originally provided in Exchange Rule 1014(b) that electronic quotations submitted on Phlx XL could be submitted with a quotation size of fewer than 10 contracts for a specific period of time following the initial deployment of Phlx XL. The maximum time period during which such a quotation size was permitted was one year following the deployment of Phlx XL, after which all electronic quotations submitted on Phlx XL had to be for a size of at least 10 contracts. Because it has been more than one year since the initial deployment of Phlx XL, the rule is now obsolete. Quotations submitted on Phlx XL currently must have a size of at least 10 contracts. Additionally, quotations made by non-SQT ROTs in open outcry in response to a request for a market were originally permitted to quote with a size fewer than 10 contracts during this period. Non-SQT ROTs must now provide such quotations with a size of at least 10 contracts. *Continuous Open Outcry Quoting Obligation:* Currently, Exchange Rule 1014(b)(ii)(E)(1)(C) describes the open outcry quoting obligation applicable to non-SQT ROTs in response to a request for a quote by a Floor Broker, specialist, Floor Official, or other ROT (including an SQT). The Exchange proposes to delete the portion of the rule that describes the minimum quote size for such a quotation during various phases of the rollout of Phlx XL. Because Phlx XL is now deployed floor-wide, and the rollout periods described in the rule have all expired, that portion of the rule is no longer necessary. *Definition of “Remainder of the Order”:* Currently, Exchange Rule 1014(g)(i)(A)(1) defines “Remainder of the Order” as, respecting non-Streaming Quote Options, the portion of an Initiating Order that remains following the allocation of contracts to customers that are on parity in accordance with Rule 1014(g)(i). The term “Remainder of the Order” is used in the Exchange's rules concerning the allocation of contracts traded in open outcry and allocated in the crowd. 8 During the rollout period of Phlx XL, some options traded as “Streaming Quote Options” on the Phlx XL platform, while others continued to trade as “non-Streaming Quote Options.” Currently, all options traded on the Exchange are traded on Phlx XL as “Streaming Quote Options.” Exchange Rule 1014(g)(i)(A)(1) originally contemplated that non-Streaming Quote Options would generally be traded and allocated in open outcry. Thus, now that there are no longer any non-Streaming Quote Options, the Exchange proposes to amend Exchange Rule 1014(g)(i)(A)(1) such that the definition of “Remainder of the Order,” in that sub-paragraph would apply only to transactions that are executed and allocated in open outcry by a participant other than the specialist. 9 8 *See* Exchange Rule 1014(g)(v). 9 The Exchange notes that both Streaming Quote Options and Non-Streaming Quote Options have been executed in open outcry since the initial deployment of Phlx XL. The term “Remainder of the Order” also appears in Exchange Rule 1014(g)(i)(A)(2) respecting orders that are executed manually by the specialist. Because the specialist is responsible as agent for limit orders on the limit order book, Exchange Rule 1014(g)(i)(A)(2) requires the specialist to allocate to customer orders, and next to off-floor broker-dealer limit order first. “Remainder of the Order” in this situation means the portion of the initiating order that after the specialist makes such an allocation. The Exchange is proposing a corresponding amendment to Options Floor Procedure Advice (“OFPA”) B-6, Priority of Options Orders for Equity Options and Index Options by Account Type. *ROT Access:* Prior to the deployment of Phlx XL, Exchange specialists and ROTs were permitted to submit price improving limit orders onto the limit order book electronically in non-Streaming Quote options. Specialists and ROTs that submitted such price-improving limit orders were entitled to receive a special allocation. The program, known as “ROT Access” and codified in Exchange Rule 1014(g)(i)(B), applied to options that did not trade on Phlx XL because it was, before Phlx XL, the only way for ROTs to enter trading interest independently and electronically. Currently, all options traded on the Exchange are traded on Phlx XL, thus obviating the need for ROT Access. 10 10 The Exchange notes that the proposed rule change would not affect the ability of a non-SQT ROT ( *i.e.,* an on-floor Exchange ROT that does not submit electronic quotes) to place limit orders onto the limit order book via electronic interface. Exchange Rule 1014(g)(i)(B) is therefore proposed to be deleted. The introductory phrase “[r]especting Streaming Quote Options” in Exchange Rule 1014(g)(i)(A)(2) and the caption “Assignment in Streaming Quote Options” in Exchange Rule 1014 Commentary .05(b) are deleted as unnecessary because all equity and index options now trade as Streaming Quote Options. During the development and deployment of Phlx XL, the Exchange adopted Commentary .04 to Exchange Rule 1080, which among other things describes when Phlx XL would be deployed following Commission approval of the rules applicable to Phlx XL, and actions to be taken by the Exchange in the event that Phlx XL was not deployed for all options trading on the Exchange by April 30, 2005. Because Phlx XL was deployed for all options trading on the Exchange prior to April 30, 2005, these portions of Commentary .04 are moot and thus proposed to be deleted. *Assignment in Non-Streaming Quote Options:* Exchange Rule 1014, Commentary .05(a) currently describes assignments in non-Streaming Quote Options. Because all options on the exchange currently trade on Phlx XL (and thus there are no non-Streaming Quote Options), Exchange Rule 1014, Commentary .05(a) is proposed to be deleted. *AUTO-X:* Exchange Rule 1080(c) currently includes references to the antiquated notion of an artificial “AUTO-X guarantee” and a minimum and maximum guaranteed AUTO-X size. Because the Exchange's Phlx XL automatic execution features (Book Match 11 and Book Sweep 12 ) currently provide for automatic executions up to the disseminated size (for which the responsible brokers or dealers that are quoting are firm), there is no longer an artificial “AUTO-X guarantee” for which the Exchange will provide automatic executions. Therefore, the Exchange proposes to delete the relevant sections of Rule 1080(c) discussing an artificial AUTO-X guarantee. In addition, the Options Committee's ability to restrict the use of AUTO-X and increase the size of eligible orders is being deleted, as automatic execution processes, Book Match and Book Sweep, are described in other parts of the rule. 11 Book Match is an automatic execution feature of the Exchange's systems that automatically executes inbound marketable orders against limit orders on the book or specialist, RSQT and/or SQT electronic quotes (“electronic quotes”) at the disseminated price where:
(1)The Exchange's disseminated size includes limit orders on the book and/or electronic quotes at the disseminated price; and
(2)the disseminated price is the National Best Bid or Offer. *See* Exchange Rule 1080(g)(i)(B). 12 Book Sweep is an automatic execution feature of the Exchange's systems that, respecting non-Streaming Quote Options, allowed certain orders resting on the limit order book to be automatically executed when the bid or offer generated by the Exchange's system or by the specialist's proprietary quoting system locks ( *i.e.,* $1.00 bid, $1.00 offer) or crosses ( *i.e.,* $1.05 bid, $1.00 offer) the Exchange's best bid or offer in a particular series as established by an order on the limit order book. Orders in non-Streaming Quote Options executed by the Book Sweep feature were allocated among crowd participants participating on the Wheel. Book Sweep is being retained for Streaming Quote Options. *See* Exchange Rule 1080(c)(iii). Telephone conversation between Richard Rudolph, Vice President and Counsel, Exchange, and Terri Evans, Special Counsel, Division, Commission, on August 9, 2006 (clarifying that Book Sweep is being retained). Exchange Rule 1080(c)(iii)(A) currently describes the Exchange's “Book Sweep” automatic execution and Wheel allocation functionality respecting non-Streaming Quote Options. Because there are no longer any non-Streaming Quote Options and the Wheel is obsolete, the Exchange proposes to delete the current text of Exchange Rule 1080(c)(iii)(A). The current text of Exchange Rule 1080(c)(iii)(B) respecting the Book Sweep functionality applicable to Streaming Quote Options, which are allocated automatically pursuant to Exchange Rule 1014(g)(vii), and not on the “Wheel,” would be retained and renumbered accordingly. *The Wheel:* Prior to the floor-wide deployment of Phlx XL, contra-side participation for AUTO-X automatic execution in non-Streaming Quote Options rotated among Wheel participants (the specialist and ROTs signed onto the Wheel) in accordance with Exchange Rule 1080(g)(i)(A). Trades executed on the Wheel were allocated in accordance with the algorithm set forth in OFPA F-24. Because all options on the Exchange are traded on Phlx XL, and because the Wheel is no longer in use in the Exchange's trading system, Exchange Rule 1080(g)(i)(A) and OFPA F-24 are proposed to be deleted. Additionally, Exchange Rule 1080(g)(i) currently provides that the contra-side to automatically executed orders may be a Wheel Participant. There are no longer any Wheel Participants on the Exchange; therefore the Exchange proposes to amend Exchange Rule 1080(g)(i) to provide that the contra-side to automatically executed orders may be an electronic quotation, 13 which reflects the current system that has been in place for Streaming Quote Options since the deployment of Phlx XL. Finally, for accuracy, the Exchange proposes to delete the reference to AUTO-X from the title of Exchange Rule 1080(g). 13 *See supra* note 10. *Collective Crowd Quote/Firm Quotations:* Exchange Rule 1080, Commentary .01(b)(ii) currently provides that, respecting non-Streaming Quote Options, specialists determine which model to select per option and may change models during the trading day, and that the specialist may, but is not required to
(a)consult with and/or
(b)agree with the trading crowd in setting these parameters or selecting a model, but the members of the trading crowd are not required to provide input in these decisions, and in all cases, the specialist has the responsibility and authority to make the final determination. Because all options on the Exchange trade on Phlx XL, and each Phlx XL participant submits independent quotations, the rule is obsolete and is proposed to be modified. 14 14 Telephone conversation between Richard Rudolph, Vice President and Counsel, Exchange, and Terri Evans, Special Counsel, Division, Commission, on August 9, 2006 (clarifying that the rule is being modified and not deleted). Exchange Rule 1080, Commentary .01(c) states that with respect to non-Streaming Quote Options, the disseminated market (whether by Auto-Quote or specialized quote feed) is deemed to represent the quotations of all ROTs in that option unless a ROT has expressly indicated otherwise in a clear and audible manner, respecting either a specific series, the class or the option (specifying LEAPS), and with sufficient time for the specialist to take action to update the quote if necessary. Because there are no longer any non-Streaming Quote Options and there is no collective quote (rather, there are independent quotations), the Exchange proposes to modify Exchange Rule 1080, Commentary .01, to reflect that specialists, SQTs and RSQTs submit individual quotations. For the same reason, a similar modification concerning a collective quoting requirement is proposed to Exchange Rule 1082. *Disseminated Size:* Exchange Rule 1082(a)(ii)(A) defines “disseminated size” as it applies to non-Streaming Quote Options. Because there are no longer any non-Streaming Quote Options, Exchange Rule 1082(a)(ii)(A) is proposed to be deleted. The phrase “[w]ith respect to non-Streaming Quote Options” is deleted from Exchange Rule 1082(b)(i) as obsolete. 15 The introductory phrases “respecting Streaming Quote Options” and “[w]ith respect to Streaming Quote Options” are deleted from Exchange Rule 1082(a)(ii)(B) and Exchange Rule 1082(b)(ii) respectively as unnecessary, since all equity and index options are now Streaming Quote Options. 15 The remaining text of Exchange Rule 1082(b) concerning the firm quote obligations of a responsible broker or dealer acting as agent on behalf of a limit order would be retained, since Floor Brokers still may represent limit orders in the crowd and would be the “responsible broker or dealer” in that situation. The Exchange is proposing a corresponding amendment to OFPA F-7, Size of Exchange's Disseminated Bid or Offer. *Firm Quote Rule Citation:* Exchange Rule 1082(a)(iii) currently provides that the term “SEC Quote Rule” shall mean Rule 11Ac1-1 under the Securities Exchange Act of 1934, as amended (the “Act”). Recently, Regulation NMS under the Act was promulgated, and the SEC Quote Rule was re-designated as Rule 602 of Regulation NMS. 16 The proposal would amend Rule 1082(a)(iii) accordingly. *Specified Disengagement Size:* Commentary .07 to Exchange Rule 1080 contains references to the “specified disengagement size” that applied to the Exchange's “rapid fire” mechanism prior to the deployment of Phlx XL. Because that “rapid fire” program no longer exists and has been replaced with Exchange Rule 1093, Phlx XL Risk Monitor Mechanism, 17 Commentary .07 is proposed to be deleted. 16 17 CFR 242.602. 17 *See* Securities Exchange Act Release No. 53166 (January 23, 2006) 71 FR 4625 (January 27, 2006) (SR-Phlx-2006-05). 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act, 18 in general, and furthers the objectives of Section 6(b)(5) of the Act, 19 in particular, in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest, by removing rule provisions which have become obsolete due to changes in technology, trading practices, or other changes that make such provisions obsolete. According to the Exchange, eliminating the obsolete provisions is in the public interest because it will eliminate possible confusion regarding the Exchange's current practices. 18 15 U.S.C. 78f(b). 19 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing rule change:
(1)Does not significantly affect the protection of investors or the public interest;
(2)does not impose any significant burden on competition; and
(3)does not become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, the proposed rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 20 and Rule 19b-4(f)(6) thereunder. 21 20 15 U.S.C. 78s(b)(3)(A). 21 17 CFR 240.19b-4(f)(6). The Exchange has requested that the Commission waive the 5-day pre-filing notice requirement 22 and the 30-day operative delay. The Commission has determined to waive the 5-day pre-filing notice requirement. Also, the Commission, consistent with the protection of investors and the public interest, has determined to waive the 30-day operative delay to allow the deletion of obsolete or unnecessary rules to take effect immediately, which should allow the Exchange to immediately reflect the currently applicable rules in its rule book. Accordingly, the Commission designates the proposal to be effective and operative upon filing with the Commission. 23 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. 24 22 Telephone conversation between Richard Rudolph, Vice President and Counsel, Exchange, and Terri Evans, Special Counsel, Division, Commission, on August 9, 2006. 23 For purposes of waiving the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 24 For purposes of calculating the 60-day abrogation period, the Commission considers the proposed rule change, as amended, to have been filed on August 10, 2006, when Amendment No. 3 was filed. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-Phlx-2006-28 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-Phlx-2006-28. 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, as amended, that are filed with the Commission, and all written communications relating to the proposed rule change, as amended, between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the filing also will be available for inspection and copying at the principal office of the Phlx. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2006-28 and should be submitted on or before September 8, 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. E6-13640 Filed 8-17-06; 8:45 am] BILLING CODE 8010-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10565] Alaska Disaster # AK-00005 AGENCY: U.S. Small Business Administration. ACTION: Notice. SUMMARY: This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Alaska (FEMA-1657-DR), dated 08/04/2006. *Incident:* Snow melt and ice jam flooding. *Incident Period:* 05/13/2006 through 05/30/2006. *Effective Date:* 08/04/2006. *Physical Loan Application Deadline Date:* 10/03/2006. 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: Notice is hereby given that as a result of the President's major disaster declaration on 08/04/2006, applications for Private Non-Profit organizations that provide essential services of a governmental nature may file disaster loan applications at the address listed above or other locally announced locations. *The following areas have been determined to be adversely affected by the disaster:* Primary Areas: Lower Kuskokwim Regional Education Attendance Area, Lower Yukon Regional Education Attendance Area, Yukon-Koyukuk Regional Education Attendance Area. *The Interest Rates are:* Percent Other (including non-profit organizations) with credit available elsewhere 5.000 Businesses and non-profit organizations without credit available elsewhere 4.000 The number assigned to this disaster for physical damage is 10565. (Catalog of Federal Domestic Assistance Number 59008). Roger B. Garland, Acting Associate Administrator for Disaster Assistance. [FR Doc. E6-13645 Filed 8-17-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration #10557 and #10558] Ohio Disaster Number OH-00007 AGENCY: U.S. Small Business Administration. ACTION: Amendment 1. SUMMARY: This is an amendment of the Presidential declaration of a major disaster for the State of Ohio (FEMA-1656-DR), dated 08/01/2006. *Incident:* Severe Storms, Straight Line Winds, and Flooding. *Incident Period:* 07/27/2006 and continuing through 08/04/2006. *Effective Date:* 08/04/2006. *Physical Loan Application Deadline Date:* 10/02/2006. *Eidl Loan Application Deadline Date:* 05/01/2007. 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 Ohio, dated 08/01/2006, is hereby amended to establish the incident period for this disaster as beginning 07/27/2006 and continuing through 08/04/2006. All other information in the original declaration remains unchanged. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Roger B. Garland, Acting Associate Administrator for Disaster Assistance. [FR Doc. E6-13646 Filed 8-17-06; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION National Advisory Council; Public Meeting The U.S. Small Business Administration
(SBA)National Advisory Council
(NAC)will hold a public meeting on Thursday, September 7, 2006. The meeting will be held at the Wyndham New Orleans, Canal Place, 100 Rue Iberville, New Orleans, LA 70130. The purpose of the meeting is for the NAC members to provide expert advice, ideas and opinions on SBA programs and small business issues and discuss recent updates pertaining to the delivery of the Agency's programs and services. Information will be presented by members of the council or interested others. Anyone wishing to attend or participate must contact Balbina Caldwell in writing, phone or e-mail, to be added to the agenda. Balbina Caldwell, Director, National Advisory Council, SBA Headquarters, 409 3rd Street SW., Washington DC 20416, phone
(202)205-6914, e-mail: *balbina.caldwell@sba.gov* . For more information about the National Advisory Council, see our Web site at *http://www.sba.gov/nac/index.html* . Sincerely, Stephen D. Kong, Acting General Counsel. [FR Doc. E6-13650 Filed 8-17-06; 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 (SBA), National Small Business Development Center
(SBDC)Advisory Board will be hosting a public annual meeting on Thursday, September 14, 2006. The meeting will be held at the Hilton Americas Hotel, 1600 Lamar Street, Room 203, Houston, Texas 77011. The purpose of the meeting is to introduce our new board members and to discuss Advisory Board matters that may be presented by members and the staff of the SBA. Anyone wishing to attend the meeting 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. Stephen D. Kong, Acting General Counsel. [FR Doc. E6-13644 Filed 8-17-06; 8:45 am] BILLING CODE 8025-01-P DEPARTMENT OF STATE [Public Notice 5407] Shipping Coordinating Committee; Notice of Meeting The Shipping Coordinating Committee
(SHC)will conduct an open meeting at 10 a.m. on Tuesday, August 29, 2006, in Room 4236 of the Department of Transportation Headquarters, 400 Seventh Street, SW., Washington, DC 20590-0001. The primary purpose of the meeting is to prepare for the Eleventh Session of the International Maritime Organization
(IMO)Sub-Committee on Dangerous Goods, Solid Cargoes and Containers to be held at the International Coffee Organization Headquarters in London, England from September 11 to September 15, 2006. *The primary matters to be considered include:* —Amendments to the International Maritime Dangerous Goods
(IMDG)Code and Supplements including harmonization of the IMDG Code with the United Nations Recommendations on the Transport of Dangerous Goods. —Amendments to the Code of Safe Practice for Solid Bulk Cargoes (BC Code) including evaluation of properties of solid bulk cargos and mandatory application of the BC Code. —Casualty and incident reports and analysis. —Measures to enhance maritime security. —Guidance on serious structural deficiencies in containers; reporting procedure on serious structural deficiencies. —Review of the Code of Safety for Special Purpose Ships (SPS Code). —Amendments to the Code of Safe Practice for Cargo Stowage and Securing (CSS Code). —Revision of the guidelines for the Transport and Handling of Limited Amounts of Hazardous and Noxious Liquid Substances in Bulk on Offshore Support Vessels
(LHNS)and the guidelines for the Design and Construction of Offshore Supply Vessels (OSV). —Extension of the Code of Practice for the Safe Unloading and Loading of Bulk Carriers (BLU Code) to include grain. —Guidance on providing safe working conditions for securing of containers. —Review of the Recommendations on the Safe Use of Pesticides in Ships. —Application of requirements for dangerous goods in packaged form in SOLAS and the 2000 High Speed Craft
(HSC)Code. Members of the public may attend the meeting up to the seating capacity of the room. Interested persons may seek information by writing: Mr. R.C. Bornhorst, U.S. Coast Guard (G-PSO-3), Room 1210, 2100 Second Street, SW., Washington, DC 20593-0001 or by calling
(202)372-1426. Dated: August 9, 2006. Margaret Hayes, Executive Secretary, Shipping Coordinating Committee, Department of State. [FR Doc. E6-13679 Filed 8-17-06; 8:45 am] BILLING CODE 4710-09-P DEPARTMENT OF STATE [Public Notice 5425] Shipping Coordinating Committee; Notice of Meeting The Shipping Coordinating Committee
(SHC)will conduct an open meeting at 9:30 a.m. on Tuesday, October 3, 2006, in Room 2415 of the United States Coast Guard Headquarters Building, 2100 2nd Street, SW., Washington, DC 20593-0001. The primary purpose of the meeting is to prepare for the 55th Session of the International Maritime Organization
(IMO)Marine Environment Protection Committee
(MEPC)to be held at IMO, Central Hall Westminster in London, England from October 9th to 13th, 2006. *The primary matters to be considered include:* —Harmful aquatic organisms in ballast water; —Recycling of ships; —Prevention of air pollution from ships; —Consideration and adoption of amendments to mandatory instruments; —Interpretation and amendments of MARPOL 73/78 and related instruments; —Implementation of the International Convention on Oil Pollution Preparedness, Response and Cooperation
(OPRC)Convention and the OPRC-Hazardous Noxious Substance (OPRC-HNS) Protocol and relevant conference resolutions; —Identification and protection of Special Areas and Particularly Sensitive Sea Areas; —Inadequacy of reception facilities; —Reports of sub-committees; —Work of other bodies; —Status of Conventions; —Harmful anti-fouling systems for ships; —Promotion of implementation and enforcement of MARPOL 73/78 and related instruments; —Follow-up to United Nations Conference on Environment and Development (UNCED) and World Summit on Sustainable Development (WSSD); —Technical co-operation programme; —Future role of formal safety assessment and human element issues; —Work program of the Committee and subsidiary bodies; —Application of the Committees' Guidelines; and —Consideration of the report of the Committee. Please note that hard copies of documents associated with MEPC 55 will not be available at this meeting. Documents will be available in Adobe Acrobat format on CD-ROM. To request documents please write to the address provided below, or request documents via the following Internet link: *http://www.uscg.mil/hq/g-m/mso/MOMEPC.htm.* Members of the public may attend this meeting up to the seating capacity of the room. Interested persons may seek information by writing to Lieutenant Heather St. Pierre, Commandant (G-PSO-4), U.S. Coast Guard Headquarters, 2100 Second Street, SW., Room 1601, Washington, DC 20593-0001 or by calling
(202)372-1432. Dated: August 9, 2006. Margaret Hayes, Executive Secretary, Shipping Coordinating Committee, Department of State. [FR Doc. E6-13681 Filed 8-17-06; 8:45 am] BILLING CODE 4710-09-P DEPARTMENT OF STATE [Public Notice 5456 ] Shipping Coordinating Committee; Notice of Meeting The Working Group on Radiocommunications and Search and Rescue (COMSAR) of the Subcommittee on Safety of Life at Sea (SOLAS) will conduct open meetings at 9:30 a.m. on Thursday, October 5, November 9, December 7, 2006 and January 4, February 8, 2007. The meetings will be held in suite 1060 of the Radio Technical Commission for Maritime Services (RTCM), 1800 North Kent Street, Arlington, VA 22209. This meeting is to prepare for the Eleventh Session of the International Maritime Organization
(IMO)SOLAS COMSAR Sub-Committee scheduled for the week of February 19-23, 2007 in London, England. Members of the public may attend these meetings up to the seating capacity of the rooms. Interested persons may seek information, including meeting room numbers, by writing: Mr. Russell S. Levin, U.S. Coast Guard Headquarters, Commandant (CG-622), Jemal Building Room JR10-1216, 1900 Half Street, SW., Washington, DC 20593 or by sending Internet electronic mail to *rlevin@comdt.uscg.mil.* Dated: August 9, 2006. Margaret Hayes, Executive Secretary, Shipping Coordinating Committee, Department of State. [FR Doc. E6-13682 Filed 8-17-06; 8:45 am] BILLING CODE 4710-09-P DEPARTMENT OF STATE [Public Notice 5517] Receipt of Application for a Permit for Pipeline Facilities To Be Constructed and Maintained on the Borders of the United States AGENCY: Department of State. The Department of State has received an application from TransCanada Keystone Pipeline, LP (“Keystone”) for a Presidential permit, pursuant to Executive Order 11423 of August 16, 1968, as amended by Executive Order 12847 of May 17, 1993, and Executive Order 13284 of January 23, 2003 to construct, connect, operate, and maintain the Keystone Pipeline Project at the U.S.-Canadian border at Cavalier County, North Dakota, for the purpose of transporting Canadian crude oil production from the Western Canadian Sedimentary Basin (“WCSB”) to existing terminals in Missouri, Illinois, and potentially, Oklahoma. TransCanada Keystone Pipeline, LP, is a limited liability company, organized under the laws of the State of Delaware. Keystone is a wholly-owned subsidiary of TransCanada Oil Pipelines Inc., a Delaware Corporation, with its principal office located at 450 1st Street, SW., Calgary, Alberta, Canada, T2P 5H1. The proposed new pipeline would consist in the U.S. of 1,018 miles of 30-inch diameter pipeline and 55 miles of 24-inch diameter pipeline (“Keystone Mainline”) from the U.S.-Canadian border at Cavalier County, North Dakota, to Patoka, Illinois. If the extension to Cushing, Oklahoma (“Cushing Extension”) is constructed, it will consist of an additional 291 miles of 30-inch pipeline for a total of 1365 miles of pipeline. In Canada, the project would involve the sale to Keystone of an existing 530 mile, 34-inch diameter natural gas transmission pipeline currently owned by TransCanada Limited and conversion of that line to crude oil service. In addition, Keystone will construct 230 miles of pipeline from Hardisty to the converted line and an additional 62 miles of pipeline from the converted line to the U.S. border. As required by E.O. 13337, the Department of State is circulating this application to concerned Federal agencies for comment. DATES: Interested parties are invited to submit, in duplicate, comments relative to this proposal on or before September 18, 2006 to Elizabeth Orlando, Office of Environmental Policy, Department of State, Washington, DC 20520. The application and related documents that are part of the record to be considered by the Department of State in connection with this application are available for inspection in the Office of Environmental Policy during normal business hours. FOR FURTHER INFORMATION CONTACT: Elizabeth Orlando, Office of Environmental Policy, Department of State, Washington, DC 20520, telephone 202-647-4284, facsimile 202-647-1052, E-mail *orlandoea2@state.gov.* Dated: August 14, 2006. John Thompson, Acting Director, Office of Environmental Policy, U.S. Department of State. [FR Doc. E6-13626 Filed 8-17-06; 8:45 am] BILLING CODE 4710-07-P DEPARTMENT OF TRANSPORTATION Federal Highway Administration Environmental Impact Statement; Smith County, TX 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 the proposed U.S. Highway (U.S.) 69/Loop 49 North Lindale Reliever Route
(LRR)project in Smith County, Texas. FOR FURTHER INFORMATION CONTACT: Donald E. Davis, District Engineer, Federal Highway Administration—Texas Division, 300 E. 8th Street, Austin, Texas 78701, Telephone: 512-536-5960. SUPPLEMENTARY INFORMATION: The FHWA, in cooperation with the Texas Department of Transportation (TxDOT), will prepare an environmental impact statement
(EIS)for a proposal to construct a Lindale Reliever Route in Smith County, Texas. The proposed improvement would involve construction of a new location roadway from the planned Loop 49 West/IH 20 interchange to connect with the existing U.S. 69 north of the City of Lindale, a roadway distance of approximately 5-6 miles. The proposed Lindale Reliever Route would serve as a connector between Loop 49 and U.S. 69 and address safety, mobility, connectivity and capacity needs. Alternatives under consideration include
(1)taking no action (the no-build alternative),
(2)constructing a proposed Lindale Reliever Route facility built to current highway standards, and
(3)improvements to existing highways. The proposed facility will be evaluated as a toll road project. A Feasibility Study prepared in 2001 evaluated four corridor alternatives along new location right-of-way and a No-Build alternative, resulting in the identification of a recommended study corridor. Subsequent public involvement opportunities have identified additional study corridors. Evaluation of a reasonable number of alignment alternatives will be documented in the EIS, as well as the no-build and existing highway improvement alternatives, based on input from federal, state, and local agencies, as well as private organizations and concerned citizens. The EIS will evaluate potential impacts from construction and operation of the proposed roadway including, but not limited to, the following: Impacts to residences and businesses, including potential relocations and displacements; transportation impacts (construction detours, construction traffic, and mobility improvement); air and noise impacts from construction equipment and operation of the roadway; social and economic impacts; impacts to cultural resources; water quality impacts from construction and roadway runoff; impacts related to tolling; and impacts to waters of the U.S. including wetlands from right-of-way encroachment. Correspondence describing the proposed project and soliciting comments will be sent to appropriate federal, state, and local agencies, and to private organizations and citizens who have previously expressed interest in the proposal. TxDOT completed a Feasibility Study for the project in May 2001. In conjunction with the Feasibility Study, TxDOT developed a steering committee, provided project information at two public meetings, and met with interested stakeholders. An agency scoping meeting is anticipated to be held by TxDOT in September 2006 to coordinate and solicit agency representatives' input on project plans including the purpose and need and the range of alternatives, introduce project team members, obtain comments pertaining to the scope of the EIS, identify important issues, set goals, develop project schedule, and respond to questions. A continuing public involvement program will include a project mailing list, project newsletters, a public scoping meeting (public notice will be given of the time and place), and numerous informal meetings with interested citizens and stakeholders. In addition, a public hearing will be held after the publication of the Draft EIS. Public notice will be given of the time and place of the hearing. The Draft EIS will be available for 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 at the address provided above. (Catalog of Federal Domestic Assistance Program Number 20.205, Highway Research Planning and Construction. The regulations implementing Executive Order 12373 regarding intergovernmental consultation on Federal programs and activities apply to this program.) Donald E. Davis, District Engineer. [FR Doc. 06-7012 Filed 8-17-06; 8:45 am]
Connectionstraces to 13
2 references not yet in our index
  • 17 CFR 240.19
  • 15 USC 78
Citation graph
cites case law
Notices
Regulatory Guide and Associated Standard Review Plan Notice of Issuance and Availability: Withdrawal
U.S.C.§ 78s
U.S.C.§ 78c
U.S.C.§ 78f
C.F.R.§ 200.30-3
U.S.C.§ 552
C.F.R.§ 242.600
C.F.R.§ 242.612
C.F.R.§ 242.611
C.F.R.§ 242.602
Cite17 CFR 240.19
Cite15 USC 78
Cites 15 · showing 11Cited by 0 across 0 sources
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