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Code · REGISTER · 2006-09-01 · National Aeronautics and Space Administration (NASA) · Notices

Notices. Finding of No Significant Impact

43,302 words·~197 min read·/register/2006/09/01/06-7386

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BILLING CODE 9210-01-P NATIONAL AERONAUTICS AND SPACE ADMINISTRATION [Notice (06-062)] National Environmental Policy Act; Development of the Crew Exploration Vehicle AGENCY: National Aeronautics and Space Administration (NASA). ACTION: Finding of No Significant Impact. SUMMARY: Pursuant to the National Environmental Policy Act of 1969, as amended
(NEPA)(42 U.S.C. 4321, *et seq.* ), the Council on Environmental Quality Regulations for Implementing the Procedural Provisions of NEPA (40 CFR Parts 1500-1508), and NASA policy and procedures (14 CFR Part 1216 subpart 1216.3), NASA has made a Finding of No Significant Impact (FONSI) with respect to the proposed development of the Crew Exploration Vehicle (CEV). The CEV, a reusable Apollo-like capsule, would enable our Nation's renewed commitment to human space exploration of the Moon and beyond and provide human and cargo access to the International Space Station no later than 2014. Development of the CEV would entail the design, fabrication and assembly of different variants of the spacecraft that meet mission requirements for journeys to Low-Earth Orbit, Moon, Mars, and destinations beyond. Development activities would occur at multiple NASA and commercial facilities throughout the United States. Under the Proposed Action a limited number of CEV spacecraft would be assembled and made available for future testing and flight qualification. DATES: This Proposed Action may proceed as of the date of signature of this FONSI. ADDRESSES: The Final Environmental Assessment
(EA)that supports this FONSI may be reviewed at the following NASA locations:
(a)NASA Headquarters, Library, Room 1J20, 300 E Street, SW., Washington, DC 20546-0001; and
(b)Jet Propulsion Laboratory, Visitor's Lobby, Building 249, 4800 Oak Grove Drive, Pasadena, CA 91109. In addition, hard copies of the Final EA may be examined at other NASA Centers (see SUPPLEMENTARY INFORMATION below). A limited number of hard copies of the Final EA are available for persons wishing a copy by contacting Mario Busacca at the address, electronic mail address, telephone or fax number indicated herein. The Final EA is also available on-line in Acrobat® format at *http://exploration.nasa.gov/documents/cev_finalea.html.* FOR FURTHER INFORMATION CONTACT: Mario Busacca, Lead, Planning and Special Projects, NASA/KSC, Environmental Program Office, Mail Code TA-C3, NASA, Kennedy Space Center, Florida 32899; electronic mail, *mario.busacca-1@nasa.gov* ; telephone, 321-867-8456; and fax, 321-867-8040. SUPPLEMENTARY INFORMATION: NASA initiated a 30-day public review and comment period for the Draft Environmental Assessment of the Development of the Crew Exploration Vehicle by publishing a notice in the **Federal Register** on July 20, 2006 (71 FR 41260). The public review period closed on August 25, 2006. NASA received eight comment letters, all from Federal and State agencies and confined to relatively minor factual errors or regulatory requirements in the event that CEV activities were to take place in a specific State. The Final EA has been modified from the Draft EA in response to those comments to the extent applicable. NASA has reviewed the Final EA and has determined that it represents an accurate and adequate analysis of the scope and level of associated environmental impacts. The Final EA is incorporated by reference in this FONSI. In his January 14, 2004, address to the Nation, President George W. Bush announced a new policy for space exploration with the goal of landing humans on the Moon before the end of the next decade, paving the way for eventual human journeys to other destinations. In pursuing this new policy, NASA has been tasked with developing the spacecraft, launch vehicles and related technologies necessary to travel and explore the Solar System. The CEV represents an important building block in this future exploration architecture. NASA is proposing to fund the development of the CEV, a new human-rated space vehicle. The CEV would provide human and cargo access to the International Space Station and make possible human return to and exploration of the Moon. Lunar missions would build mission-operations experience necessary for the planning and implementation of human exploration missions to Mars and eventually beyond. The CEV would consist of a Crew Module, a Service Module and a Launch Escape System. The Crew Module, a conical Apollo-like reusable capsule, would provide habitable volume for up to six crew members, life support, pressurized space for cargo during uncrewed missions, docking with other space vehicles and atmospheric entry and landing capabilities. The Service Module, a cylindrical structure fixed to the rear of the Crew Module, would contain the propulsion and power systems and the thermal control elements for the Crew Module. Electric power would be generated via two deployable solar arrays attached to the Service Module. The CEV Service Module would be similar in design to the Apollo Service Module. The Launch Escape System would be mounted atop the Crew Module and would be similar in design to the Apollo Launch Escape System. The Launch Escape System would be activated if an emergency occurs during launch or ascent operations separating the Crew Module safely from the remainder of the launch vehicle stack. The CEV design would utilize a modular approach, with different variants keyed to the needs of missions to Low-Earth Orbit, the Moon and Mars. These needs continue to evolve reflecting the results of ongoing trade studies, discussions of mission goals, and analyses of costs, benefits, and risks. The CEV would also be capable of incorporating technological advances that may develop over its service life. The CEV development activities addressed under the Proposed Action would include design and fabrication of components and subsystems and assembly of a limited number of spacecraft. Development activities would be performed at a number of existing NASA and commercial facilities throughout the United States. If NASA proceeds with CEV development, the Agency would contract with a commercial firm to serve as the prime contractor, with specific design, fabrication and assembly activities to be clarified as the CEV Program matures. These activities would be expected to be consistent with the mission and normal scope of operations of each facility and subject to applicable Federal environmental regulations and those of the respective States and localities. It is expected that CEV development activities would not involve construction of major new buildings at any NASA or commercial facility. However, additions or modifications to existing facilities or testing areas may be required in the future. As these requirements become known they would be evaluated for compliance with applicable Federal, State and local environmental regulations. Obligations for revised environmental permits and additional environmental documentation would be determined. All design, fabrication, and assembly of CEV components and subsystems at NASA and commercial facilities would be expected to result in air emissions and waste streams at levels within existing environmental permit limitations at each facility. As such, the short- and long-term environmental impacts would be expected to be within the limits of all applicable environmental laws and regulations. Little or no adverse impact on the local infrastructure (e.g., roadways) or traffic near the facilities involved in CEV development would be anticipated. There should be little incremental impact on employment levels at the facilities involved in CEV development. Thus little or no incremental socioeconomic impacts to regional economies would be expected. CEV development activities at NASA facilities would be considered to be within the normal scope of activities at each facility and therefore would have no disproportionately high or adverse human health or environmental impacts on low-income populations or minority populations. Alternatives considered but not evaluated further included extending Space Shuttle service and weighing different CEV concepts. Refurbishing the Space Shuttle for long-term cargo delivery and human access to the International Space Station was considered impractical. Major modifications to the Shuttle's design to improve crew safety significantly (e.g., a crew escape system) cannot be implemented easily. Moreover, the Shuttle was not designed to withstand the Earth re-entry speeds of a Lunar mission. If flights were to be extended beyond the planned retirement in 2010, the fleet would require recertification, a costly and lengthy process. Moreover, the President has decided to curtail Shuttle operations after 2010. Other designs and configurations for the CEV were considered initially by NASA. Winged vehicles, lifting bodies, and slender bodies as well as other approaches were addressed and discarded. In the end, it was determined that the present proposed configuration, a legacy of the Apollo Program, was best suited to the long-term safety and success of the human spaceflight systems needed for exploration of the Moon and Mars. Therefore, none of the other configurations was considered further for the purposes of the Final EA. The alternative evaluated was the No-Action Alternative (i.e., no CEV development). Failure to develop the CEV would disrupt efforts to achieve long-term goals and objectives set forth in NASA's *New Vision for Space Exploration* , the centerpiece of our Nation's civilian space policy. The value of the CEV in realizing the scientific, security, and economic interests underlying the Vision is high. While potential environmental impacts would be avoided by cancellation of the proposed CEV development, the loss of scientific knowledge and other national interests could be substantial. The United States would not have a spacecraft capable of transporting humans to the International Space Station once the Space Shuttle is retired or to undertake missions to the Lunar surface, Mars or other destinations in the Solar System. Furthermore, people who currently manage the day-to-day operations of the Space Shuttle would not be able to transfer to the CEV program, and United States would risk losing the only skilled-operations workforce with human space-flight experience. The Final EA that supports this FONSI may be examined by contacting the pertinent Freedom of Information Office:
(a)NASA, Ames Research Center, Moffett Field, CA 94035 (650-604-3273);
(b)NASA, Dryden Flight Research Center, Edwards, CA 93523 (661-276-2704);
(c)NASA, Glenn Research Center, Cleveland, OH 44135 (866-404-3642);
(d)NASA, Goddard Space Flight Center, Greenbelt, MD 20771 (301-286-4721);
(e)NASA, Johnson Space Center, Houston, TX 77058 (281-483-8612);
(f)NASA, Kennedy Space Center, Florida 32899 (321-867-2745);
(g)NASA, Langley Research Center, Hampton, VA 23681 (757-864-2497);
(h)NASA, Marshall Space Flight Center, Huntsville, AL 35812 (256-544-1837); and
(i)NASA, Stennis Space Center, MS 39529 (228-688-2118). Should NASA proceed with CEV development, the assembled spacecraft would undergo testing and flight qualification prior to obtaining operational status. These actions would be the subject of future environmental documentation. On the basis of the Final EA, I have determined that the environmental impacts associated with the proposed action would not individually or cumulatively have a significant impact on the quality of the human environment. Dated: August 29, 2006. Douglas Cooke, Deputy Associate Administrator for Exploration Systems Mission Directorate. [FR Doc. E6-14586 Filed 8-31-06; 8:45 am] BILLING CODE 7510-13-P NUCLEAR REGULATORY COMMISSION Agency Information Collection Activities: Proposed Collection: Comment Request AGENCY: U. S. Nuclear Regulatory Commission (NRC). ACTION: Notice of pending NRC action to submit an information collection request to OMB and solicitation of public comment. SUMMARY: The NRC is preparing a submittal to OMB for review of continued approval of information collections under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). Information pertaining to the requirement to be submitted: 1. *The title of the information collection:* 10 CFR Part 71, “Packaging and Transportation of Radioactive Material.” 2. *Current OMB approval number:* 3150-0008. 3. *How often the collection is required:* On occasion. Applications for package certification may be made at any time. Required reports are collected and evaluated on a continuing basis as events occur. 4. *Who is required or asked to report:* All NRC specific licensees who place byproduct, source, or special nuclear material into transportation, and all persons who wish to apply for NRC approval of package designs for use in such transportation. 5. *The estimated number of annual respondents:* 250 licensees. 6. *The number of hours needed annually to complete the requirement or request:* 42,896 hours (37,304 hours for reporting requirements and 5,592 for recordkeeping requirements). 7. *Abstract:* NRC regulations in 10 CFR Part 71 establish requirements for packing, preparation for shipment, and transportation of licensed material, and prescribe procedures, standards, and requirements for approval by NRC of packaging and shipping procedures for fissile material and for quantities of licensed material in excess of Type A quantities. Submit, by October 31, 2006, comments that address the following questions: 1. Is the proposed collection of information necessary for the NRC to properly perform its functions? Does the information have practical utility? 2. Is the burden estimate accurate? 3. Is there a way to enhance the quality, utility, and clarity of the information to be collected? 4. How can the burden of the information collection be minimized, including the use of automated collection techniques or other forms of information technology? A copy of the draft supporting statement may be viewed free of charge at the NRC Public Document Room, One White Flint North, 11555 Rockville Pike, Room O-1 F21, Rockville, MD 20852. OMB clearance requests are available at the NRC worldwide Web site: *http://www.nrc.gov/public-involve/doc-comment/omb/index.html* . The document will be available on the NRC home page site for 60 days after the signature date of this notice. Comments and questions about the information collection requirements may be directed to the NRC Clearance Officer, Brenda Jo. Shelton, U.S. Nuclear Regulatory Commission, T-5 F52, Washington, DC 20555-0001, by telephone at 301-415-7233, or by Internet electronic mail to *INFOCOLLECTS@NRC.GOV* . Dated at Rockville, Maryland, this 24th day of August 2006. For the Nuclear Regulatory Commission. Brenda Jo. Shelton, NRC Clearance Officer, Office of Information Services. [FR Doc. E6-14513 Filed 8-31-06; 8:45 am] BILLING CODE 7590-01-P NUCLEAR REGULATORY COMMISSION Agency Information Collection Activities: Proposed Collection; Comment Request AGENCY: U.S. Nuclear Regulatory Commission (NRC). ACTION: Notice of pending NRC action to submit an information collection request to OMB and solicitation of public comment. SUMMARY: The NRC is preparing a submittal to OMB for review of continued approval of information collections under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). Information pertaining to the requirement to be submitted: 1. *The title of the information collection:* NRC Form 171, “Duplication Request”. 2. *Current OMB approval number:* 3150-0066. 3. *How often the collection is required:* On occasion. 4. *Who will be required or asked to report:* Individuals or companies requesting document duplication. 5. *The number of annual respondents:* 7,940. 6. *The number of hours needed annually to complete the requirement or request:* 990 hours ( about 7.5 minutes per respondent). 7. *Abstract:* This form is utilized by individual members of the public requesting reproduction of publicly available documents in NRC Headquarters' Public Document Room. Copies of the form are utilized by the reproduction contractor to accompany the orders and are then discarded. Submit, by October 31, 2006, comments that address the following questions: 1. Is the proposed collection of information necessary for the NRC to properly perform its functions? Does the information have practical utility? 2. Is the burden estimate accurate? 3. Is there a way to enhance the quality, utility, and clarity of the information to be collected? 4. How can the burden of the information collection be minimized, including the use of automated collection techniques or other forms of information technology? A copy of the draft supporting statement may be viewed free of charge at the NRC Public Document Room, One White Flint North, 11555 Rockville Pike, Room O-1 F21, Rockville, MD 20852. OMB clearance requests are available at the NRC worldwide Web site: *http://www.nrc.gov/public-involve/doc-comment/omb/index.html* . The document will be available on the NRC home page site for 60 days after the signature date of this notice. Comments and questions about the information collection requirements may be directed to the NRC Clearance Officer, Brenda Jo. Shelton (T-5 F52), U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, by telephone at 301-415-7233, or by Internet electronic mail to *INFOCOLLECTS@NRC.GOV* . Dated at Rockville, Maryland, this 23rd day of August 2006. For the Nuclear Regulatory Commission. Brenda Jo. Shelton, NRC Clearance Officer, Office of the Chief Information Officer. [FR Doc. E6-14514 Filed 8-31-06; 8:45 am] BILLING CODE 7590-01-P NUCLEAR REGULATORY COMMISSION Agency Information Collection Activities: Submission for the Office of Management and Budget
(OMB)Review; Comment Request AGENCY: U. S. Nuclear Regulatory Commission (NRC). ACTION: Notice of the OMB review of information collection and solicitation of public comment. SUMMARY: The NRC has recently submitted to OMB for review the following proposal for the collection of information under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35). The NRC hereby informs potential respondents that an agency may not conduct or sponsor, and that a person is not required to respond to, a collection of information unless it displays a currently valid OMB control number. 1. *Type of submission, new, revision, or extension:* Extension. 2. *The title of the information collection:* NRC Form 398: “Personal Qualification Statement—Licensee”. 3. *The form number if applicable:* NRC Form 398. 4. *How often the collection is required:* On occasion and every six years (at renewal). 5. *Who will be required or asked to report:* Individuals requiring a license to operate the controls at a nuclear reactor. 6. *An estimate of the number of annual responses:* 1,350 (one each per respondent). 7. *The estimated number of annual respondents:* 1,350 annually. 8. *An estimate of the total number of hours needed annually to complete the requirement or request:* 3,250 (2.4 hours per response). 9. *An indication of whether Section 3507(d), Pub. L. 104-13 applies:* Not applicable. 10. *Abstract:* NRC Form 398 requests detailed information that should be submitted by a licensing applicant and facility licensee when applying for a new or renewal license to operate the controls at a nuclear reactor facility. This information, once collected, would be used for licensing actions and for generating reports on the Operator Licensing Program. A copy of the final supporting statement may be viewed free of charge at the NRC Public Document Room, One White Flint North, 11555 Rockville Pike, Room O-1 F21, Rockville, MD 20852. OMB clearance requests are available at the NRC worldwide Web site: * http://www.nrc.gov/public-involve/ doc-comment/omb/index.html * . The document will be available on the NRC home page site for 60 days after the signature date of this notice. Comments and questions should be directed to the OMB reviewer listed below by October 2, 2006. Comments received after this date will be considered if it is practical to do so, but assurance of consideration cannot be given to comments received after this date. John A. Asalone, Office of Information and Regulatory Affairs (3150-0090), NEOB-10202, Office of Management and Budget, Washington, DC 20503. Comments can also be e-mailed to *John_A._Asalone@omb.eop.gov* or submitted by telephone at
(202)395-4650. The NRC Clearance Officer is Brenda Jo. Shelton, 301-415-7233. Dated at Rockville, Maryland, this 25th day of August, 2006. For the Nuclear Regulatory Commission. Beth C. St. Mary, Acting NRC Clearance Officer, Office of Information Services. [FR Doc. E6-14515 Filed 8-31-06; 8:45 am] BILLING CODE 7590-01-P NUCLEAR REGULATORY COMMISSION The Ohio State University Notice of Acceptance for Docketing of the Application and Notice of Opportunity for Hearing Regarding Renewal of The Ohio State University Research Reactor Facility License No. R-75 for an Additional 20-year Period; Extension of Comment Period AGENCY: United States Nuclear Regulatory Commission. ACTION: Extension of comment period. SUMMARY: On August 2, 2006 (71 FR 43818), the U.S. Nuclear Regulatory Commission
(NRC)published for public comment a Notice of Acceptance for Docketing of the Application and Notice of Opportunity for Hearing Regarding Renewal of the Ohio State University Research Reactor. An additional 30 days has been added to this **Federal Register** Notice. The date for an applicant to file a request for hearing and a petition for leave to intervene has been extended to October 2, 2006. DATES: The comment period has been extended and now expires on October 2, 2006. ADDRESSES: Mail Written comments to: the Office of the Secretary of the Commission, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001. *Attn:* Rulemaking and Adjudications Staff. Hand delivered comments should also be addressed to: the Office of the Secretary, Sixteenth Floor, One White Flint North, 11555 Rockville Pike, Rockville, Maryland, 20852, *Attn:* Rulemaking and Adjudications Staff. This should be delivered between 7:30am and 4:15pm Federal Workdays. Certain Documents relating to this renewal may be examined at the NRC Public Document Room, 11555 Rockville Pike, Room O1F21, Rockville, Maryland, 20852. For more information, contact the Public Document Room Reference Staff at 1-800-397-4209, or at 301-415-4737, or by e-mail at *PDR@NRC.GOV* . FOR FURTHER INFORMATION CONTACT: Daniel Hughes, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, telephone 301-415-1631, e-mail *DEH3@NRC.GOV* . Dated at Rockville, Maryland, this 23rd day of August 2006. For the Nuclear Regulatory Commission. Brian E. Thomas, Branch Chief, Research and Test Reactors Branch, Division of Policy and Rulemaking, Office of Nuclear Reactor Regulation. [FR Doc. E6-14512 Filed 8-31-06; 8:45 am] BILLING CODE 7590-01-P NUCLEAR REGULATORY COMMISSION [Docket No. 50-271] Vermont Yankee Nuclear Power Station; Notice of Withdrawal of Application for Amendment to Facility Operating License The U.S. Nuclear Regulatory Commission (the Commission) has granted the request of Entergy Nuclear Operations, Inc. (the licensee) to withdraw its December 15, 2004, application for proposed amendment to Facility Operating License No. DPR-28 for the Vermont Yankee Nuclear Power Station, located in Windham County. The proposed amendment would have revised the Technical Specifications pertaining to control rod operability, scram time and control rod accumulator technical specification surveillance testing requirements. The Commission had previously issued a Notice of Consideration of Issuance of Amendment published in the **Federal Register** on January 18, 2005 (70 FR 2889). However, by letter dated August 10, 2006, the licensee withdrew the proposed change. For further details with respect to this action, see the application for amendment dated December 15, 2004, as supplemented on December 12, 2005, and July 6, 2006, and the licensee's letter dated August 10, 2006, which withdrew the application for license amendment. 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 28th day of August 2006. For the Nuclear Regulatory Commission. James Shea, Project Manager, Plant Licensing Branch I-1, Division of Operating Reactor Licensing, Office of Nuclear Reactor Regulation. [FR Doc. E6-14525 Filed 8-31-06; 8:45 am] BILLING CODE 7590-01-P NUCLEAR REGULATORY COMMISSION [Docket No. 50-482] Wolf Creek Nuclear Operating Corporation; Notice of Consideration of Issuance of Amendment to Facility Operating License, Proposed No Significant Hazards Consideration Determination, and Opportunity for a Hearing The U.S. Nuclear Regulatory Commission (the Commission) is considering issuance of an amendment to Facility Operating License No. NPF-42, issued to Wolf Creek Nuclear Operating Corporation (the licensee), for operation of the Wolf Creek Generating Station, located in Coffey County, Kansas. The proposed amendment would revise Technical Specification
(TS)3.7.2, “Main Steam Isolation Valves (MSIVs),” and TS 3.7.3, “Main Feedwater Isolation Valves (MFIVs),” to add the associated actuator trains to
(1)the limiting condition for operation (LCO),
(2)the conditions, required actions, and completion times for the LCO, and
(3)the surveillance requirements. Each MSIV and MFIV has two actuator trains. The Table of Contents for the TSs would be changed to account for the resulting renumbering of TS page numbers. Before issuance of the proposed license amendment, the Commission will have made findings required by the Atomic Energy Act of 1954, as amended (the Act), and the Commission's regulations. The Commission has made a proposed determination that the amendment request involves no significant hazards consideration. Under the Commission's regulations in Title 10 of the Code of Federal Regulations (10 CFR), Section 50.92, this means that operation of the facility in accordance with the proposed amendment would not
(1)involve a significant increase in the probability or consequences of an accident previously evaluated; or
(2)create the possibility of a new or different kind of accident from any accident previously evaluated; or
(3)involve a significant reduction in a margin of safety. As required by 10 CFR 50.91(a), the licensee has provided its analysis of the issue of no significant hazards consideration, which is presented below:
(1)Does the proposed change involve a significant increase in the probability or consequences of an accident previously evaluated? Response: No. The proposed changes to incorporate requirements for the MSIV and MFIV actuator trains do not involve any design or physical changes to the facility, including the MSIVs, MFIVs, and actuator trains themselves. The design and functional performance requirements, operational characteristics, and reliability of the MSIVs, MFIVs, and actuator trains are thus unchanged. There is therefore no impact on the design safety function of the MSIVs and MFIVs to close (as an accident mitigator), nor is there any change with respect to inadvertent closure of an MSIV or MFIV (as a potential transient initiator). Since no failure mode or initiating condition that could cause an accident (including any plant transient) evaluated per the Updated Safety Analysis Report-described safety analyses is created or affected, the change cannot involve a significant increase in the probability of an accident previously evaluated. With regard to the consequences of an accident and the equipment required for mitigation of the accident, the proposed changes involve no design or physical changes to the MSIVs, MFIVs, or any other equipment required for accident mitigation. With respect to MSIV and MFIV actuator train Completion Times, the consequences of an accident are independent of equipment Completion Times as long as adequate equipment availability is maintained. The proposed MSIV and MFIV actuator Completion Times take into account the redundancy of the actuator trains, only 3 of 4 MSIVs and MFIVs are assumed to close in the accident analyses, and are limited in extent consistent with other Completion Times specified in the Technical Specifications. Adequate equipment availability would therefore continue to be required by the Technical Specifications. On this basis, the consequences of applicable, analyzed accidents (such as a main steam line break) are not significantly impacted by the proposed changes. Based on all of the above, the proposed changes do not involve a significant increase in the probability or consequences of an accident previously analyzed.
(2)Does the proposed change create the possibility of a new or different kind of accident from any accident previously evaluated? Response: No. The proposed changes to incorporate requirements for the MSIV and MFIV actuator trains do not involve any design or physical changes to the facility, including the MSIVs, MFIVs, and actuator trains themselves. No physical alteration of the plant is involved, as no new or different type of equipment is to be installed. The proposed changes do not alter any assumptions made in the safety analyses, nor do they involve any changes to plant procedures for ensuring that the plant is operated within analyzed limits. As such, no new failure modes or mechanisms that could cause a new or different kind of accident from any previously evaluated are being introduced. Therefore, the proposed change does not create the possibility of a new or different kind of accident from any accident previously evaluated.
(3)Does the proposed change involve a significant reduction in a margin of safety? Response: No. The proposed change to incorporate requirements for the MSIV and MFIV actuator trains does not alter the manner in which safety limits or limiting safety system settings are determined. No changes to instrument/system actuation setpoints are involved. The safety analysis acceptance criteria are not impacted by this change and the proposed change will not permit plant operation in a configuration outside the design basis. Therefore, the proposed change does not involve a significant reduction in the margin of safety. The NRC staff has reviewed the licensee's analysis and, based on this review, it appears that the three standards of 10 CFR 50.92(c) are satisfied. Therefore, the NRC staff proposes to determine that the amendment request involves no significant hazards consideration. The Commission is seeking public comments on this proposed determination. Any comments received within 30 days after the date of publication of this notice will be considered in making any final determination. Normally, the Commission will not issue the amendment until the expiration of 60 days after the date of publication of this notice. The Commission may issue the license amendment before expiration of the 60-day period provided that its final determination is that the amendment involves no significant hazards consideration. In addition, the Commission may issue the amendment prior to the expiration of the 30-day comment period should circumstances change during the 30-day comment period such that failure to act in a timely way would result, for example, in derating or shutdown of the facility. Should the Commission take action prior to the expiration of either the comment period or the notice period, it will publish in the **Federal Register** a notice of issuance. Should the Commission make a final No Significant Hazards Consideration Determination, any hearing will take place after issuance. The Commission expects that the need to take this action will occur very infrequently. Written comments may be submitted by mail to the Chief, Rules and Directives Branch, Division of Administrative Services, Office of Administration, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, and should cite the publication date and page number of this **Federal Register** notice. Written comments may also be delivered to Room 6D59, Two White Flint North, 11545 Rockville Pike, Rockville, Maryland, from 7:30 a.m. to 4:15 p.m. Federal workdays. 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. The filing of requests for hearing and petitions for leave to intervene is discussed below. Within 60 days after the date of publication of this notice, the licensee may file a request for a hearing with respect to issuance of the amendment to the subject facility operating license and any person whose interest may be affected by this proceeding and who wishes to participate as a party in the proceeding must file a written request for a hearing and a petition for leave to intervene. Requests for a hearing and a petition for leave to intervene shall be filed in accordance with the Commission's “Rules of Practice for Domestic Licensing Proceedings” in 10 CFR Part 2. Interested persons should consult a current copy of 10 CFR 2.309, which is available at the Commission's PDR, located at One White Flint North, Public File Area O1F21, 11555 Rockville Pike (first floor), Rockville, Maryland. Publicly available records will be accessible from the Agencywide Documents Access and Management System's (ADAMS) Public Electronic Reading Room on the Internet at the NRC Web site, *http://www.nrc.gov/reading-rm/doc-collections/cfr/.* If a request for a hearing or petition for leave to intervene is filed by the above date, the Commission or a presiding officer designated by the Commission or by the Chief Administrative Judge of the Atomic Safety and Licensing Board Panel, will rule on the request and/or petition; and the Secretary or the Chief Administrative Judge of the Atomic Safety and Licensing Board will issue a notice of a hearing or an appropriate order. As required by 10 CFR 2.309, a petition for leave to intervene shall set forth with particularity the interest of the petitioner in the proceeding, and how that interest may be affected by the results of the proceeding. The petition should specifically explain the reasons why intervention should be permitted with particular reference to the following general requirements:
(1)The name, address and telephone number of the requestor or petitioner;
(2)the nature of the requestor's/petitioner's right under the Act to be made a party to the proceeding;
(3)the nature and extent of the requestor's/petitioner's property, financial, or other interest in the proceeding; and
(4)the possible effect of any decision or order which may be entered in the proceeding on the requestors/petitioner's interest. The petition must also identify the specific contentions which the petitioner/requestor seeks to have litigated at the proceeding. Each contention must consist of a specific statement of the issue of law or fact to be raised or controverted. In addition, the petitioner/requestor shall provide a brief explanation of the bases for the contention and a concise statement of the alleged facts or expert opinion which support the contention and on which the petitioner intends to rely in proving the contention at the hearing. The petitioner/requestor must also provide references to those specific sources and documents of which the petitioner is aware and on which the petitioner intends to rely to establish those facts or expert opinion. The petition must include sufficient information to show that a genuine dispute exists with the applicant on a material issue of law or fact. Contentions shall be limited to matters within the scope of the amendment under consideration. The contention must be one which, if proven, would entitle the petitioner to relief. A petitioner/requestor who fails to satisfy these requirements with respect to at least one contention will not be permitted to participate as a party. Those permitted to intervene become parties to the proceeding, subject to any limitations in the order granting leave to intervene, and have the opportunity to participate fully in the conduct of the hearing. If a hearing is requested, the Commission will make a final determination on the issue of no significant hazards consideration. The final determination will serve to decide when the hearing is held. If the final determination is that the amendment request involves no significant hazards consideration, the Commission may issue the amendment and make it immediately effective, notwithstanding the request for a hearing. Any hearing held would take place after issuance of the amendment. If the final determination is that the amendment request involves a significant hazards consideration, any hearing held would take place before the issuance of any amendment. Nontimely requests and/or petitions and contentions will not be entertained absent a determination by the Commission or the presiding officer of the Atomic Safety and Licensing Board that the petition, request and/or the contentions should be granted based on a balancing of the factors specified in 10 CFR 2.309(c)(1)(i)-(viii). A request for a hearing or a petition for leave to intervene must be filed by:
(1)First class mail addressed to the Office of the Secretary of the Commission, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, Attention: Rulemaking and Adjudications Staff;
(2)courier, express mail, and expedited delivery services: Office of the Secretary, Sixteenth Floor, One White Flint North, 11555 Rockville Pike, Rockville, Maryland, 20852, Attention: Rulemaking and Adjudications Staff;
(3)e-mail addressed to the Office of the Secretary, U.S. Nuclear Regulatory Commission, *hearingdocket@nrc.gov;* or
(4)facsimile transmission addressed to the Office of the Secretary, U.S. Nuclear Regulatory Commission, Washington, DC, Attention: Rulemakings and Adjudications Staff at
(301)415-1101, verification number is
(301)415-1966. A copy of the request for hearing and petition for leave to intervene should also be sent to the Office of the General Counsel, U.S. Nuclear Regulatory Commission, Washington, DC 20555-0001, and it is requested that copies be transmitted either by means of facsimile transmission to 301-415-3725 or by e-mail to *OGCMailCenter@nrc.gov.* A copy of the request for hearing and petition for leave to intervene should also be sent to Jay Silberg, Esq., Pillsbury Winthrop Shaw Pittman LLP, 2300 N Street, NW., Washington, DC 20037, attorney for the licensee. For further details with respect to this action, see the application for amendment dated August 25, 2006, which is available for public inspection at the Commission's PDR, located at One White Flint North, File Public Area O1 F21, 11555 Rockville Pike (first floor), Rockville, Maryland. Publicly available records will be accessible from the Agencywide Documents Access and Management System's (ADAMS) Public Electronic Reading Room on the Internet at the NRC Web site, *http://www.nrc.gov/reading-rm/adams.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, 301-415-4737, or by e-mail to *pdr@nrc.gov.* Dated at Rockville, Maryland, this 28th day of August 2006. For the Nuclear Regulatory Commission. Jack Donohew, Senior Project Manager, Plant Licensing Branch IV, Division of Operating Reactor Licensing, Office of Nuclear Reactor Regulation. [FR Doc. E6-14511 Filed 8-31-06; 8:45 am] BILLING CODE 7590-01-P NUCLEAR REGULATORY COMMISSION [Docket No. 040-08980] Notice of Availability of Environmental Assessment and Finding of No Significant Impact for License Amendment for Heritage Minerals, Inc.; Manchester Township, NJ AGENCY: Nuclear Regulatory Commission. ACTION: Notice of availability. FOR FURTHER INFORMATION CONTACT: Marjorie McLaughlin, Project Manager, Decommissioning Branch, Division of Nuclear Materials Safety, Region I, U.S. Nuclear Regulatory Commission, 475 Allendale Road, King of Prussia, Pennsylvania, 19406-1415. Telephone:
(610)337-5240; fax number:
(610)337-5269; e-mail: *mmm3@nrc.gov.* SUPPLEMENTARY INFORMATION: I. Introduction The U.S. Nuclear Regulatory Commission
(NRC)is considering the issuance of a license amendment to Materials License No. SMB-1541 issued to Heritage Minerals, Inc. (HMI or the licensee), to authorize release of the NRC-licensed areas of its facility in Manchester Township, New Jersey (the Heritage site) for unrestricted use and license termination, and has prepared an Environmental Assessment
(EA)in support of this amendment in accordance with the requirements of 10 CFR part 51. Based on the EA, the NRC has concluded that a Finding of No Significant Impact (FONSI) is appropriate. The amendment will be issued following the publication of this Notice. II. EA Summary The purpose of the proposed amendment is to allow the release of the NRC-licensed areas of the licensee's Manchester Township, New Jersey, facility for unrestricted use and license termination. HMI was authorized by the NRC on January 2, 1991, to possess radioactive source materials resulting from past minerals processing operations at the site. The facility was used by HMI and previous owners from 1973-1989 for the mechanical processing of dredged native sand to extract various heavy minerals (zirconium and titanium). The native sand also contained natural uranium and thorium, which were concentrated in the waste tailings of the processing operation. The processing operation involved two stages, with each stage producing a separate tailings waste stream that was immediately combined and stockpiled on site. In 1987, HMI began reprocessing the stockpiled tailings to extract any remaining heavy minerals, producing a more concentrated combined waste stream. This more concentrated waste was then further processed by HMI starting in 1989. With this further reprocessing, HMI also installed a process change, by which the waste streams from the two stages were no longer combined, but were instead maintained separate. The resultant waste tailings from one stage of this process contained a concentration of uranium and thorium in excess of 0.05% by weight, meeting the 10 CFR part 40 definition of radioactive source material (10 CFR 40.4). This concentration exceeds the unimportant quantity exemption for source material stated in 10 CFR 40.13(a), and therefore required an NRC license. HMI separated the source material from all other waste material, and stored this sand within a stockpile area that was later enclosed by a fence. On March 10, 1989, HMI submitted an application for an NRC source material license. Before the license was issued, reduced demand and price for zircon caused HMI to cease processing activities, and no additional source material was added. On January 2, 1991, the NRC issued Materials License No. SMB-1541 authorizing HMI to possess the stockpiled source material and to perform decommissioning of the impacted areas of the site (two mill buildings and the ground beneath the stockpile), comprising approximately one acre. The ground (approximately 287 acres) between and surrounding the impacted areas contains uranium and thorium concentrations that are above background but below 0.05% by weight. The above-background concentrations of source material in these regions resulted from staging and regrading waste sands from previous (unlicensed) processing activities. Because the source material concentration of this material is below 0.05% by weight, it remains exempt from NRC regulations, and is not part of the license. Removal of this material may be required by the State of New Jersey. Within this region, however, NRC confirmatory surveys identified several pockets of material exceeding 0.05% source material concentration by weight. NRC staff determined that these pockets were inadvertently formed from the staging and grading of the exempt material described above. Consequently, the staff determined that this material was “licensable,” in that it met the 10 CFR part 40 definition of source material. The staff required HMI to remediate all pockets of licensable material in the same manner as the licensed material. On March 4, 2005, HMI requested that NRC release the facility for unrestricted use. Both mill buildings have been demolished and only the concrete pads remain. The stockpiled licensed material has been disposed and the ground beneath the pile excavated. The pockets of licensable material identified between the impacted areas have also been excavated and disposed offsite. The HMI has conducted surveys of the impacted areas and the remediated pockets and provided information to the NRC demonstrating these areas meet the license termination criteria for unrestricted release in its approved Decommissioning Plan (DP). HMI's DP was previously noticed in the **Federal Register** on September 1, 1999 (64 FR 47872-47877), along with a notice of an opportunity to request a hearing. The 10 CFR 20 Subpart E, “The License Termination Rule” (LTR), bases termination of NRC licenses and release of facilities for unrestricted use on meeting residual radioactivity levels distinguishable from background, that do not result in a Total Effective Dose Equivalent
(TEDE)to an average member of the critical group above 25 millirem
(mrem)per year. The rule was a change from past practice, which based release of a site for unrestricted use on meeting specific concentration-based cleanup levels. When the LTR was published (62 FR 39088), a provision was included in 10 CFR 20.1401(b)(3) to “grandfather” sites with DPs submitted to the NRC before August 20, 1998, and approved by August 20, 1999, (the approval date was extended to August 20, 2000, for 12 sites, including Heritage Minerals, by SECY-99-195). Grandfathered sites are decommissioned under the criteria in their approved DPs, using the previous concentration-based cleanup levels. These cleanup standards were considered to result in a dose less than the public dose limit of 100 mrem/yr, specified in 10 CFR 20.1301. The NRC staff has prepared an EA in support of the proposed action of terminating HMI's Materials License No. SMB-1541, and releasing the NRC-licensed areas of the Heritage site for unrestricted use. The staff evaluated the request from HMI and the results of their surveys, performed independent, confirmatory measurements, and performed a quantitative dose assessment of the licensed areas. The mill pads were modeled with the assumption of reuse of the structures for residential occupancy. The highest resultant TEDE for this scenario is 1.6 mrem/yr. The stockpile area was modeled for a suburban resident, resulting in a maximum possible TEDE of 40 mrem/yr. III. Finding of No Significant Impact The staff has prepared an EA in support of the proposed license amendment to terminate HMI's license and release the NRC-licensed areas of the Heritage site for unrestricted use. The staff has found that the radiological environmental impacts from the proposed action would not exceed the public dose limit of 100 mrem/yr. Surface and groundwater analyses performed at the site confirm that no significant radionuclide transport or elevated concentrations are occurring in the surface water or aquifer system. The NRC staff has determined that the proposed action would have no impact on site geology, ecology, or water. The staff has also found that the proposed action is procedural in nature because HMI has completed all NRC-required remediation at the site. On the basis of the EA, NRC has concluded that there are no significant environmental impacts from the proposed action of terminating HMI's license and releasing for unrestricted use the NRC-licensed areas of the Heritage site, and has determined not to prepare an environmental impact statement. IV. Further Information Documents related to this action, including the application for amendment and supporting documentation, are available electronically at the NRC's Electronic Reading Room at *http://www.nrc.gov/reading-rm/adams.html.* From this site, you can access the NRC's Agencywide Document Access and Management System (ADAMS), which provides text and image files of NRC's public documents. The ADAMS accession numbers for the documents related to this notice are: Summarized document description ADAMS Accession No. 1 Environmental Assessment for the Proposed Termination of U.S. Nuclear Regulatory Commission Materials License No. SMB-1541, Issued to Heritage Minerals, Inc. in Manchester Township, New Jersey, and Release for Unrestricted Use ML062350098 2 “Five Options for NRC Approval of Disposal or Onsite Storage of Thorium or Uranium Wastes From Past Nuclear Operations,” dated 10/23/81 ML033630718 3 FC 83-23 “Termination of Byproduct, Source, and Special Nuclear Materials Licenses,” dated 11/4/83 ML003745523 4 Letter terminating Heritage plant activities, dated 8/23/90 ML030370350 5 Additional Information for License Application, dated 7/25/90 ML030370324 6 Environmental Assessment and Finding of No Significant Impact for HMI DP, dated 10/19/99 ML003721778 7 HMI Final Status Survey, dated 11/25/01 ML021150357 8 NRC Confirmatory Survey Report, dated 4/10/02 ML021060589 9 HMI proposed additional remediation activities, dated 3/10/03 ML030830547 10 HMI amendment to proposed additional remediation activities, dated 5/6/03 ML031320537 11 NRC Confirmatory Survey Phase 2, dated 12/31/03 ML040250070 12 HMI proposed final remediation activities, dated 6/30/04 ML041910222 13 NRC letter accepting proposed final remediation activities, dated 11/17/04 ML043240049 14 HMI Termination Request, dated 3/04/05 ML050960109 15 Soil Sample Results from HMI, dated 2/14/05 ML050960038 16 NJDEP comments on draft HMI EA, dated 7/12/05 ML052000408 17 Dose Assessment for Unrestricted Future Use Scenarios of the HMI site, dated 8/25/05 ML052410061 If you do not have access to ADAMS or if there are problems in accessing the documents located in ADAMS, contact the NRC Public Document Room
(PDR)Reference staff at 1-800-397-4209, 301-415-4737, or by e-mail to *pdr@nrc.gov.* These documents may also be viewed electronically on the public computers located at the NRC's PDR, O 1 F21, One White Flint North, 11555 Rockville Pike, Rockville, MD 20852. The PDR reproduction contractor will copy documents for a fee. Dated at King of Prussia, Pennsylvania this 23rd day of August, 2006. For the Nuclear Regulatory Commission. Marie Miller, Chief Decommissioning Branch, Division of Nuclear Materials Safety, Region I. [FR Doc. E6-14519 Filed 8-31-06; 8:45 am] BILLING CODE 7590-01-P SECURITIES AND EXCHANGE COMMISSION [Rel. No. IC-27468; File No.812-13273] Merrill Lynch Life Insurance Company, et al; Notice of Application August 28, 2006. AGENCY: Securities and Exchange Commission (“Commission”). ACTION: Notice of application for an amended order pursuant to Section 6(c) of the Investment Company Act of 1940 (“Act”) granting exemptions from the provisions of Sections 2(a)(32) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder. *Applicants:* Merrill Lynch Life Insurance Company (“MLLIC”), Merrill Lynch Life Variable Annuity Separate Account A, Merrill Lynch Life Variable Annuity Separate Account C, Merrill Lynch Life Variable Annuity Separate Account D, ML Life Insurance Company of New York (“MLNY”), ML of New York Variable Annuity Separate Account A, ML of New York Variable Annuity Separate Account C, ML of New York Variable Annuity Separate Account D, and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”) (except for MLLIC, MLNY, and MLPF&S, each a “separate account” and collectively the “Separate Accounts”). *Summary of Application:* The Applicants request an order amending an existing order to permit the recapture of amounts applied to purchase payments made under certain variable annuity contracts. Applicants also request that the relief under the order extend to any current or future separate accounts of Merrill Lynch and their successors in interest, which may offer or support contracts that are substantially similar in all material respects to the contracts described in the application and to any other NASD registered broker/dealers under common control with Merrill Lynch, that serves as distributor or principal underwriter for the contracts. *Filing Date:* The application was filed on February 15, 2006, and amended and restated on August 24, 2006. *Hearing or Notification of Hearing:* An order granting the application will be issued unless the Commission orders a hearing. Interested person may request a hearing by writing to the Secretary of the Commission and serving Applicants with a copy of the request, personally or by mail. Hearing requests should be received by the Commission by 5:30 p.m. on September 25, 2006, and should be accompanied by proof of service on Applicants, in the form of an affidavit or, for lawyers, a certificate of service. Hearing requests should state the nature of the writer's interest, the reason for the request, and the issues contested. Persons may request notification of a hearing by writing to the Secretary of the Commission. ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. Applicants, c/o Kirsty Lieberman, Esq., Merrill Lynch Insurance Group, Inc., 1300 Merrill Lynch Drive, 2nd Floor, Pennington, New Jersey 08534. FOR FURTHER INFORMATION CONTACT: Robert Lamont, Senior Counsel or Joyce M. Pickholz, Branch Chief, Office of Insurance Products, Division of Investment Management, at
(202)551-6795. SUPPLEMENTARY INFORMATION: The following is a summary of the application; the complete application may be obtained for a fee from the Public Reference Branch of the Commission, 100 F Street, NE., Washington, DC 20549 (tel.
(202)551-8090). Applicants' Representations 1. The Existing Order ( *Merrill Lynch Life Insurance Company* , *et al.* , Investment Company Act Release Nos. 26712 (Dec. 20, 2004) (Notice) (FR Dec. 28, 2004) and 26726 (Jan. 21, 2005) (Order)), exempts the Applicants with respect to certain variable annuity contracts described herein (“Contracts”) and other variable annuity contracts that are substantially similar in all material respects to the Contracts, that MLLIC and/or MLNY (together, the “Companies”) may issue in the future (“Future Contracts”), and any other separate accounts of the Companies and their successors in interest (“Future Accounts”) that support Future Contracts, and certain NASD member broker-dealers which in the future, may act as principal underwriter of such contracts (“Future Underwriters”), from the provisions of Sections 2(a)(32) and 27(i)(2)(A) of the Act and Rule 22c-1 thereunder, pursuant to Section 6(c) of the Act, to the extent necessary to permit the recapture of all or a portion of the bonus amounts (previously attributable to premium payments under the bonus class of the Contracts (“XC Class”)) where the bonus amounts were applied and a contract owner (“Owner”)
(1)returns the Contract during the “Ten Day Right to Review” period (the “Free Look Period”);
(2)dies within six months of receipt and acceptance by MLLIC or MLNY of a premium payment (unless the Contract is continued under the spousal benefit continuation option); or
(3)surrenders the Contract (in full or in part) or the surrender value is paid to the Owner within three years of receipt and acceptance by MLLIC or MLNY of a premium payment (pursuant to a bonus recapture schedule). 2. Applicants now seek to amend the Existing Order by changing the current bonus structure. The Applicants propose to increase the maximum bonus amount percentage during certain promotional periods. However, the Applicants would continue to recapture bonus amounts only at the lower maximum percentage allowed by the Existing Order when an Owner surrenders the Contract (in full or in part) or the surrender value is paid to the Owner within three years of receipt and acceptance by MLLIC or MLNY of a premium payment (pursuant to a bonus recapture schedule). The change in the bonus structure may provide an Owner with an additional bonus amount that is not subject to recapture. However, when an Owner returns the Contract during the Free Look Period or dies within six months of receipt and acceptance by MLLIC or MLNY of a premium payment, then the Applicants propose to recapture the entire bonus amount. 3. The Contracts are individual flexible premium deferred variable annuity contracts issued by the Companies through the Separate Accounts. The Contracts provide for the accumulation of values on a variable basis during the accumulation period, and provide for a variety of annuity settlement options. Certain Contracts may be purchased on a non-qualified tax basis. Certain Contracts also may be purchased and used in connection with plans qualifying for favorable federal income tax treatment. The Contracts currently offer four different charge structures, each referred to as a “Class.” Each Class imposes different surrender charges and asset-based insurance charges. 4. The Owner determines at the time of application for a Contract how premium payments will be allocated among the subaccounts of the applicable Separate Account (“Subaccounts”). The Owner generally may allocate premium payments to up to 20 of any of the available Subaccounts. The Contract Value, which is the total value of an Owner's interest in the Contract as of the end of the valuation period, will vary with the investment performance of the Subaccounts selected, and the Owner bears the entire risk for amounts allocated to the Subaccounts. 5. During the Free Look Period, an Owner has the right to return his or her Contract within ten days (or longer if required by state law). In those states that require the return of premium payments in the event of Contract cancellation, the Companies will refund the greater of all premium payments paid into the Contract (less any withdrawals) or the Account Value (less any bonus amounts) as of the date the Owner returns the Contract. The Companies will place premium payments into a predetermined or designated money market Subaccount for the first fourteen days following the Contract Date. After fourteen days, the greater of premium payments or Account Value initially required to be maintained in the money market Subaccount will be reallocated to the Subaccounts the Owner selected. However, if the Owner elected the Asset Allocation Program at the time he/she purchased the Contract, then the premium payments initially required to be maintained in the money market Subaccount will be reallocated according to the asset allocation model the Owner selected. If the Owner has not made any withdrawals and the Companies have placed premium payments in a money market Subaccount for the first fourteen days, the Companies guarantee they will allocate at least the Owner's premium payments to the Subaccounts selected by the Owner after the fourteen day period, regardless of charges or investment performance. The Companies reserve the right to discontinue providing this guarantee for Contracts issued after a specified date. 6. In states that permit the return of Account Value in the event of Contract cancellation, the Companies will refund the Account Value (less any bonus amounts) as of the date the Owner returns the Contract. For Contracts issued in California, for Owners who are 60 years of age or older, the Companies will put all premium payments in a money market Subaccount for the first 35 days following the Contract Date, unless the contract owner directs the Companies to invest the premiums immediately in other Subaccounts. The Companies also will not provide the guarantee to Contracts issued in California for Owners who are 60 years of age or older, whose premium payments are invested in a money market Subaccount. The Companies will invest premium payments immediately in the Subaccounts the Owner selected or according to the composition of the asset allocation model the Owner selected. The Companies will not provide the guarantee discussed above to Owners, in states where the Companies return Account Value, who elect to put their premium payments into a money market Subaccount. The Companies will not assess surrender charges against a Contract returned during the Free Look Period. The Companies will generally pay the refund within seven days after they receive the returned Contract. The Contract will then be considered void. The Companies recapture bonus amounts added to the Account Value if the Owner returns the Contract during the Free Look Period. 7. During the accumulation period, an Owner may transfer Account Value among the Subaccounts up to twelve times per Contract year without charge. An Owner may make additional transfers, but the Companies currently charge a $25 transfer fee per transfer (guaranteed not to exceed $30) after the first twelve transfers in a Contract year. Currently, the minimum transfer amount is $100 or the total value of the Subaccount if less than $100. The Account Value remaining in a Subaccount after a transfer must be at least $100 or MLLIC or MLNY will transfer the total value of that Subaccount. 8. The Owner may surrender the Contract or make a partial withdrawal from Account Value during the accumulation period. The minimum amount that may be withdrawn is $100, and at least $5,000 surrender value must remain in the Contract after a partial withdrawal (and any associated surrender charge) is made (except if the Guaranteed Minimum Withdrawal Benefit is elected in which case the minimum surrender value after a partial withdrawal requirement is waived.) If an Owner surrenders a Contract or takes a partial withdrawal, the Companies may deduct a surrender charge to compensate them for expenses relating to the sale of the Contracts, such as commissions, preparation of sales literature, and other promotional activity. Upon partial withdrawal, the Companies also may deduct any applicable premium taxes. Upon surrender, the Companies also will deduct any applicable contract fee, accrued but uncollected rider charges, and applicable premium taxes. The surrender charge will be reduced using the “free withdrawal amount” provided for in the Contract. The free withdrawal amount is the portion of any partial withdrawal or surrender that is not subject to a surrender charge. The free withdrawal amount is the greater of:
(a)10% of the amount of each premium subject to a surrender charge (not to exceed the amount of each premium that had not been previously withdrawn as of the beginning of the Contract year), less any prior withdrawals during that Contract year; and
(b)the “gain” in the Contract plus premiums remaining in the Contract that are no longer subject to a surrender charge. Any amount previously withdrawn from the Contract during that Contract year will be taken into account in determining the “free withdrawal amount” available as of the date of the withdrawal request. For the purpose of calculating the surrender charge, the Companies make withdrawals as if gain is withdrawn first, followed by premiums. Premium payments are assumed to be withdrawn on a first-in, first-out (“FIFO”) basis. The surrender charge equals a percentage of each premium withdrawn. With regard to the XC Class offered under the Contracts, each premium is subject to the charge for the applicable period specified below from the date it is received and accepted by MLLIC or MLNY, as follows: Complete years elapsed since payment of premium Surrender charge percentage (as a percentage of the premium payment) 0 years 8.0 1 year 8.0 2 years 7.0 3 years 7.0 4 years 6.0 5 years 6.0 6 years 5.0 7 years 4.0 8 years 3.0 9 years 0 The Companies recapture all or a portion of the bonus amounts added to the Account Value if the Owner surrenders the Contract or makes a partial withdrawal within three years of MLLIC's or MLNY's receipt and acceptance of a premium payment. 9. Under certain circumstances, the Contract may be terminated due to inactivity. If no premiums have been received during the prior 24 months (36 months in New York), the total of all premiums paid (less any partial withdrawals) is less than $2,000 ($5,000 in New York), and the Account Value is less than $2,000 ($5,000 in New York), then the Contract may be terminated. No Contract will be terminated solely due to negative investment performance. Termination for inactivity is treated as a surrender for purposes of bonus recapture (not applicable if the Guaranteed Minimum Withdrawal Benefit is elected). Also, partial annuitizations would be considered to be partial withdrawals for purposes of calculations under the Contract, including bonus recaptures. 10. A Surrender charge will not be deducted from payments made under any of the death benefits. Upon payment of the death benefit, the Companies may deduct any applicable premium taxes. The Companies will also recapture any bonus amounts added to the Account Value if the Owner (the first Owner to die, if there are Co-Owners, or the first Annuitant, if any Owner is not a natural person) dies within six months of MLLIC's or MLNY's receipt and acceptance of the corresponding premium payment. However, if an Owner dies and the Contract is continued under the spousal benefit continuation option, any bonus amounts not previously recaptured will no longer be subject to recapture as of the spousal continuation date. 11. If an Owner elects the XC Class under the Contracts, then the Companies will add a bonus amount to the Account Value each time the Owner makes a premium payment. With regard to an initial premium payment, the Companies will apply the corresponding bonus amount to an Owner's Account Value on the Contract Date. With regard to each additional premium payment, the Companies will apply a corresponding bonus amount to an Owner's Account Value at the end of the valuation period during which that premium payment is received and accepted at MLLIC's or MLNY's Service Center. 12. Under the Existing Order, to calculate each bonus amount, the Companies allocate the corresponding premium payment to one or more bonus tiers based on the amount of cumulative premium payments made under the Contract, as follows: Tier If cumulative premium payments are: Then maximum bonus amount percentage is: Then current bonus amount percentage is: Then minimum guarantee bonus amount percentage is: 1 Less than or equal to $25,000 5.0 4.5 3.0 2 Greater than $25,000 but less than or equal to $125,000 5.5 4.5 3.0 3 Greater than $125,000 but less than or equal to $500,000 5.5 4.5 3.5 4 Greater than $500,000 but less than or equal to $1,000,000 6.0 5.5 4.0 5 Greater than $1,000,000 7.0 5.5 4.5 Under the application, the Applicant's propose to change the bonus structure as follows: Tier If cumulative premium payments are: Then maximum bonus amount percentage is: Then maximum recapture amount percentage for withdrawals and surrenders is: Then current bonus amount percentage is: Then minimum guarantee bonus amount percentage is: 1 Less than or equal to $25,000 7.0 5.0 4.5 3.0 2 Greater than $25,000 but less than or equal to $125,000 7.0 5.5 4.5 3.0 3 Greater than $125,000 but less than or equal to $500,000 7.0 5.5 4.5 3.5 4 Greater than $500,000 but less than or equal to $1,000,000 7.0 6.0 5.5 4.0 5 Greater than $1,000,000 7.0 7.0 5.5 4.5 As is the case under the Existing Order, under this proposed structure, the Companies may apply different bonus percentages to each premium payment (unless cumulative premium payments are less than or equal to $25,000) by breaking out the payment according to the ranges in the above table and multiplying the portion of the payment allocated to each tier by that tier's current bonus amount percentage. However, a premium payment will only be allocated to the first tier if cumulative premium payments are less than or equal to $25,000. If the initial premium payment exceeds $25,000, the first tier will not apply and the second tier will apply to all cumulative premiums less than or equal to $125,000. For example, an initial premium payment of $20,000 would receive a current bonus amount of $900 ($20,000 × 0.045 (tier 1)). If the initial premium payment is $100,000, the current bonus amount would be $4,500 ($100,000 × 0.045 (tier 2)). However, an initial premium payment of $700,000 would receive a current bonus amount of $33,500 ($125,000 × 0.045 (tier 2) + $375,000 × 0.045 (tier 3) + $200,000 × 0.055 (tier 4)). No bonus amount will be based on a percentage that exceeds the maximum bonus amount percentages shown in the above table. In addition, no subsequent recapture of bonus amounts will exceed the maximum recapture amount percentages shown in the above table (except when an Owner dies within six months of a premium payment and under the Free Look Period). When calculating each bonus amount, “cumulative premium payments” do not include bonus amounts previously added to Account Value. The bonus amount is allocated among the Subaccounts in the same manner as the corresponding premium payment. The Companies may change the current bonus amount percentage, but it will never be less than the minimum guaranteed bonus amount percentage listed in the table. 13. The Companies may offer promotional programs with promotional rates for XC Class Contracts issued within specified periods of time (each, a “Promotional Period”). Such promotional programs may apply to initial and/or subsequent premium payments received during the Promotional Period. Initial and/or subsequent premium payments received after the Promotional Period will receive the current bonus amount percentage in effect at that time. No bonus amount applied pursuant to a promotional program will be based on a percentage that exceeds the maximum bonus amount percentages shown in the above table. In addition, no subsequent recapture of bonus amounts will exceed the maximum recapture amount percentages shown in the above table (except when an Owner dies within six months of a premium payment or under the Free Look Period). The Companies may terminate any promotional programs or offer other promotional programs at any time in their sole discretion. 14. If the Owner returns the Contract during the Free Look Period, then the Owner will not receive any portion of the bonus amounts (i.e., the Companies will “recapture” the full amount of each bonus). In the event of the death of the Owner (or upon the death of the first Owner to die if there are Co-Owners, or upon the death of the first Annuitant if any Owner is not a natural person), the Companies will recapture all remaining bonus amounts corresponding to premium payments received and accepted within the previous six months of death. Thus, under the XC Class, if an optional guaranteed minimum death benefit (“GMDB”) is not chosen, the death benefit equals the Account Value less any bonus amounts credited in the prior six months and less uncollected charges. If a GMDB is chosen, the death benefit equals the greater of the Account Value less any bonus amounts credited in the prior six months and less uncollected charges or the GMDB Base. However, in the event the Contract is continued under the spousal beneficiary continuation option, any bonus amounts not previously recaptured will no longer be subject to recapture as of the spousal continuation date. In the event of partial withdrawal or surrender within three years of MLLIC's or MLNY's receipt and acceptance of a premium payment, the Companies may recapture all or a portion of the corresponding bonus amount based on the bonus recapture percentages presented in the following schedule: Completed years since receipt and acceptance of premium payment Bonus recapture percentage for surrenders and partial withdrawals up to the maximum recapture amount percentage 0 100 1 65 2 30 3+ 0 In the event of partial withdrawal or surrender within three years of MLLIC's or MLNY's receipt and acceptance of a premium payment, the Companies will never exceed the maximum recapture amount of the bonus. For example, if an Owner makes an initial $10,000 premium payment, the Companies will add a $700 bonus amount to the Account Value (assuming the maximum 7.0% bonus amount percentage). In the event of partial withdrawal or surrender, if it has been two years since the receipt and acceptance of this premium payment, then the maximum bonus amount that the Companies will recapture is $150 ($10,000 × .050 × .30). 15. The Companies will recapture any bonus amounts subject to recapture from the Owner's Account Value at the end of the valuation period during which the transaction request is received and accepted at MLLIC's or MLNY's Service Center. For each premium payment, the maximum bonus amount subject to recapture is equal to the applicable bonus recapture percentage for surrenders and partial withdrawals multiplied by
(a)minus
(b)where:
(a)is the premium applied multiplied by the maximum recapture amount percentage; and
(b)is the sum of each previously recaptured bonus amount attributable to that premium payment divided by the bonus recapture percentage on the date such amount was recaptured. 16. The Companies will deduct bonus amounts subject to recapture based on the associated premiums withdrawn from the Contract, which are determined on a “first-in, first out” (or “FIFO”) basis. Currently, the Companies do not recapture any bonus amounts on withdrawals that are within the “free withdrawal amount.” The Companies reserve the right to recapture bonus amounts on withdrawals that are within the “free withdrawal amount” in the future. The amount actually recaptured is based on the bonus amount subject to recapture multiplied by the ratio of:
(i)The associated premium payment withdrawn that was subject to a surrender charge to
(ii)The total amount of that premium payment remaining in the Contract immediately prior to the withdrawal that was subject to a surrender charge. The Companies will deduct any recaptured bonus amounts on a pro rata basis from among the Subaccounts the Owner is invested in, based on the ratio of the Owner's Subaccount value to his or her total Subaccount value before the partial withdrawal. 17. If the Companies recapture a bonus amount, they will take back the bonus amount as if it had never been applied. However, the accumulated gain or loss on bonus amounts is not subject to recapture. Thus, an Owner bears any investment loss and retains any investment gain attributable to bonus amounts. The Companies will not re-credit any charges, including asset-based insurance charges, imposed on bonus amounts subsequently recaptured. The Applicants propose to amend the Existing Order by increasing the maximum bonus amount percentage during certain promotional periods. However, the Applicants would continue to recapture bonus amounts only at the lower maximum percentage allowed by the Existing Order when an Owner surrenders the Contract (in full or in part) or the surrender value is paid to the Owner within three years of receipt and acceptance by MLLIC or MLNY of a premium payment (pursuant to a bonus recapture schedule). Thus, when an Owner surrenders the Contract, the change in the bonus structure would provide an Owner with an additional bonus amount that is not subject to recapture. However, when an Owner returns the Contract during the Free Look Period or dies within six months of receipt and acceptance by MLLIC or MLNY of a premium payment, then the Applicants propose to recapture the entire bonus amount. Thus, under the application, even though the Companies would increase the maximum bonus amount percentage up to 7.0%, the bonus amount recaptured would remain the same as it is under the Existing Order with the exception of the Free Look Period and when an Owner dies within six months of a premium payment. For example, under the Existing Order, if the Owner makes a premium payment of $10,000, which is allocated to Tier 2, he would receive a maximum bonus of $550. If the Owner surrenders the Contract within one year of the Companies' receipt and acceptance of that premium payment, the Companies recapture $550, the entire bonus amount. Under the application, if the bonus amount percentage is 7% and the Owner makes a premium payment of $10,000 and is in Tier 2, he would receive a maximum bonus of $700. If the Owner surrenders the Contract within one year of the Companies' receipt and acceptance of that premium payment, the maximum amount the Companies would be permitted to recapture would still be $550 (the amount of premium paid multiplied by the maximum recapture amount percentage allocated to Tier 2). Thus, under the application, $150 of the bonus would not be subject to recapture (except during the Free Look Period and when an Owner dies within six months of a premium payment as described above). If the Owner withdrew the premium payment, the recapture would still be based on the bonus recapture schedule in the Existing Order (which recaptures 100% of the maximum recapture amount percentage in the first year, 65% in the second year, and 30% in the last year). Applicants' Legal Analysis 1. The Applicants request that the Commission amend the Existing Order and, pursuant to Section 6(c) of the Act, grant the exemptions to permit the Applicants
(1)to recapture all bonus amounts attributable to premium payments under the Contract's XC Class when an Owner returns the Contract during the Free Look Period;
(2)to recapture all bonus amounts attributable to premium payments under the Contract's XC Class when an Owner dies within six months of receipt and acceptance by MLLIC or MLNY of a premium payment (unless the Contract is continued under the spousal benefit continuation option); or
(3)to recapture all or a portion of bonus amounts attributable to premium payments under the Contract's XC Class when an Owner surrenders the Contract (in full or in part) or the surrender value is paid to the Owner (because the Contract has been terminated for inactivity) within three years of receipt and acceptance by MLLIC or MLNY of a premium payment (pursuant to a bonus recapture schedule). 2. Because the provisions may be inconsistent with a recapture of bonus amounts, the Applicants request exemptions for the Contracts described herein, and for Future Contracts, from Sections 2(a)(32) and 27(i)(2)(A) of the Act, and Rule 22c-1 thereunder, pursuant to Section 6(c), to the extent necessary to recapture the bonus amounts. The Applicants seek exemptions in order to avoid any questions concerning the Contracts' compliance with the Act and rules thereunder. The exemptions requested herein are necessary or appropriate in the public interest and consistent with the protection of investors and purposes fairly intended by the policy and provisions of the Act. 3. To the extent that the bonus amount recapture might be seen as a discount from the net asset value, or might be viewed as resulting in the payment to an Owner of less than the proportionate share of the issuer's net assets, the bonus amount recapture would trigger the need for relief absent some exemption from the Act. Rule 6c-8 provides, in relevant part, that a registered separate account, and any depositor of such account, shall be exempt from Sections 2(a)(32), 22(c), 27(c)(1), 27(c)(2), and 27(d) of the Act and Rule 22c-1 thereunder to the extent necessary to permit them to impose a deferred sales load on any variable annuity contract participating in such account. However, the bonus amount recapture is not a sales load, but a recapture of bonus amounts MLLIC or MLNY previously attributed to an Owner's premium payments. The Companies provide the bonus amounts from their general accounts on a guaranteed basis. The Contracts are designed to be long-term investment vehicles. In undertaking this financial obligation, the Companies contemplate that an Owner will retain a Contract over an extended period, consistent with the long-term nature of the Contracts. The Companies designed the product so that they would recover their costs (including the bonus amounts) over an anticipated duration while a Contract is in force. If an Owner withdraws his money during the Free Look Period, or a death benefit is paid, or a withdrawal or surrender is made, before this anticipated period, the Companies must recapture the bonus amounts subject to recapture in order to avoid a loss. However, if a withdrawal or surrender is made, the Companies will absorb the loss for the bonus amount that exceeds the maximum recapture amount percentage. 4. Applicants submit that the recapture of bonus amounts does not violate Section 2(a)(32) of the Act. The bonus amount recapture provision pursuant to the Contract's XC Class does not deprive the Owner of his or her proportionate share of the issuer's current net assets. In the case of death of the Owner, an Owner will have the full right to any bonus amounts not previously recaptured six months following MLLIC's or MLNY's receipt and acceptance of the corresponding premium payment. In the case of partial or full surrender, an Owner's right to a portion of a bonus amount not previously recaptured will begin one year following MLLIC's or MLNY's receipt and acceptance of the corresponding premium payment, and an Owner will have the full right to any such remaining bonus amount three years following MLLIC's or MLNY's receipt and acceptance of the corresponding premium payment. Until that time, the Companies generally retain the right and interest in the dollar amount of any bonus amounts subject to recapture. Thus, when the Companies recapture all or a portion of a bonus amount, they are only retrieving their own assets, and because an Owner does not have an interest in the bonus amount, such Owner would not be deprived of a proportionate share of the applicable Separate Account's assets (the issuer's current net assets) in violation of Section 2(a)(32). Therefore, such recapture does not reduce the amount of the applicable Separate Account's current net assets an Owner would otherwise be entitled to receive. However, to avoid uncertainty as to full compliance with the Act, the Applicants request an exemption from the provisions of Sections (2)(a)(32) and 27(i)(2)(A) to the extent deemed necessary to permit them to recapture all or a portion of the bonus amounts under the Contracts and Future Contracts. 5. As a result of the bonus amounts available under the Contract's XC Class, an Owner who made an initial premium payment of $10,000 in the first Contract year could be viewed as having an Account Value of $10,450 before any earnings accrued. The Companies' addition of bonus amounts might arguably be viewed as resulting in an Owner purchasing a redeemable security for a price below the current net asset value. Further, by recapturing the bonus amounts, the Companies might arguably be redeeming a redeemable security for a price other than one based on the current net asset value of the applicable Separate Account. 6. Applicants argue that an Owner's interest in his or her Account Value would always be offered at a price based on the net asset value next calculated after receipt of the order. The granting of bonus amounts does not reflect a reduction of that price. Instead, the Companies will purchase with their own general account assets an interest in the applicable Separate Account equal to the bonus amounts. Because the bonus amounts will be paid out of MLLIC's or MLNY's assets, not the applicable Separate Account's assets, no dilution will occur as a result of the bonus amounts. 7. Applicants submit that the recapture of bonus amounts does not involve either of the two harms that the Commission intended to eliminate or reduce with Rule 22c-1. The Commission's stated purposes in adopting Rule 22c-1 were to avoid or minimize:
(1)Dilution of the interests of other security holders; and
(2)speculative trading practices that are unfair to such holders. These two concerns were the result of backward pricing, the practice of basing the price of a mutual fund share on the net asset value per share determined as of the close of the market on the previous day. Backward pricing allowed investors to take advantage of increases or decreases in net asset value that were not yet reflected in the price, and thereby the values of outstanding mutual fund shares were diluted. 8. According to Applicants, the proposed recapture of bonus amounts under the Contracts does not pose such threat of dilution. The bonus amount recapture will not alter an Owner's net asset value. The Companies will determine an Owner's surrender value (an amount equal to the Account Value reduced by any charges (including the surrender charge) and increased by any credits applied upon surrender) under a Contract in accordance with Rule 22c-1 on a basis next computed after receipt of an Owner's request for surrender (likewise, the calculation of death benefits and annuity payment amounts will be in full compliance with the forward pricing requirement of Rule 22c-1). The amount recaptured will equal all or a portion of bonus amounts that MLLIC or MLNY paid out of its general account assets. It is not administratively feasible to track the bonus amount in the Separate Accounts after the Companies apply the bonus. As a result, the asset-based charges applicable to the Separate Accounts will be assessed against the entire amount held in the Separate Accounts, including the bonus amount, during the time the bonus amount is subject to recapture. During this time, the aggregate asset-based charges assessed against an Owner's Account Value will be higher than those that would be charged if the Owner's Account Value did not include the bonus amount, but the increment will obviously be only a small percentage of the bonus amount. On the other hand, an Owner will retain any investment benefit from the bonus amount. Although an Owner will retain any investment gain attributable to the bonus amounts, the Companies will determine the amount of such gain on the basis of the current net asset value of the Subaccount. Thus, no dilution will occur upon the recapture of bonus amounts. 9. Further, the other harm that Rule 22c-1 was designed to address (speculative trading practices calculated to take advantage of backward pricing) will not occur as a result of MLLIC's or MLNY's recapture of a bonus amount. Variable annuities are designed for long-term investment, and by their nature, do not lend themselves to the kind of speculative short-term trading that Rule 22c-1 was designed to prevent. More to the point, the bonus recapture simply does not create the opportunity for speculative trading. 10. Applicants assert that rule 22c-1 should have no application to a bonus amount, as neither of the harms that Rule 22c-1 was designed to address are present in the recapture of bonus amounts. However, to avoid uncertainty as to full compliance with the Act, the Applicants request an exemption from the provisions of Rule 22c-1 to the extent deemed necessary to permit them to recapture bonus amounts available through the XC Class under the Contracts and Future Contracts. 11. Applicants submit that the bonus amount provisions are generally beneficial to Owners. The recapture provisions temper this benefit somewhat, but only if an Owner redeems his or her money under the circumstances described herein. While there would be a small downside in a declining market where an Owner would bear any losses attributable to the bonus amounts up to the maximum recapture amount percentage, it is the converse of the benefits an Owner would receive on the bonus amounts in a rising market. As any earnings on bonus amounts applied would not be subject to recapture and thus would be immediately available to an Owner, likewise any losses on bonus amounts would also not be subject to recapture and thus would be immediately available to an Owner. The bonus amount recapture provision does not diminish the overall value of the bonus amounts. 12. MLLIC's or MLNY's recapture of bonus amounts is designed to prevent anti-selection against it. The risk of anti-selection would be that an Owner could make significant premium payments into the Contract solely in order to receive a quick profit from the bonus amounts. By recapturing the bonus amounts, the Companies protect themselves against the risk that an Owner will make such large premium payments, receive the bonus amounts, and then withdraw his or her money from the Contract. The Companies generally protect themselves from this kind of anti-selection, and recover their costs in situations where an Owner withdraws his or her money early in the life of a Contract, by imposing a surrender charge. However, where an Owner withdraws his money during the Free Look Period or a death benefit is paid, the Companies do not apply this charge. 13. The Applicants seek relief herein not only for themselves with respect to the support of the Contracts, but also with respect to Future Accounts or Future Contracts described herein. The Applicants represent that the terms of the relief requested with respect to any Contracts or Future Contracts funded by the Separate Accounts or Future Accounts are consistent with the standards set forth in Section 6(c) of the Act and Commission precedent. The Commission has previously granted class relief (from certain specified provisions of the Act for separate accounts that support variable annuity contracts) that is materially similar to the relief described in the application. 14. In addition, the Applicants seek relief herein with respect to Future Underwriters ( *i.e.* , a class consisting of NASD member broker-dealers that may also act as principal underwriter of the Contracts and Future Contracts). The Commission has regularly granted relief to “future underwriters” that are not named, and are not affiliates of the applicants. The Applicants represent that the terms of the relief requested with respect to any Future Underwriters are consistent with the standards set forth in Section 6(c) of the Act and Commission precedent. 15. Applicants argue that without the requested class relief, exemptive relief for any Future Account, Future Contract, or Future Underwriter would have to be requested and obtained separately. These additional requests for exemptive relief would present no issues under the Act not already addressed herein. If the Applicants were to repeatedly seek exemptive relief with respect to the same issues addressed herein, investors would not receive additional protection or benefit, and investors and the Applicants could be disadvantaged by increased costs from preparing such additional requests for relief. The requested class relief is appropriate in the public interest because the relief will promote competitiveness in the variable annuity market by eliminating the need for the Companies to file redundant exemptive applications, thereby reducing administrative expenses and maximizing efficient use of resources. Elimination of the delay and the expense of repeatedly seeking exemptive relief would, the Applicants opine, enhance the Applicants' ability to effectively take advantage of business opportunities as such opportunities arise. The Applicants' request for class exemptions is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act, and that an order of the Commission including such class relief, should, therefore, be granted. Any entity that currently intends to rely on the requested exemptive order is named as an Applicant. Any entity that relies upon the requested order in the future will comply with the terms and conditions contained in the application. Conclusion Applicants submit that their request for an amended order meets the standards set out in Section 6(c) of the Act and that an order amending the Existing Order should, therefore, be granted. For the Commission, by the Division of Investment Management, under delegated authority. Nancy M. Morris, Secretary. [FR Doc. E6-14538 Filed 8-31-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 54374; File No. SR-BSE-2005-09] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Its Minor Rule Violation Plan August 28, 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 7, 2005, the Boston Stock Exchange, Inc. (“BSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which items have been prepared by the Exchange. The Exchange filed Amendment No. 1 to the proposed rule change on July 7, 2006, and Amendment No. 2 on August 18, 2006. 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 replaced and superseded the original filing, and Amendment No. 2 superseded and replaced Amendment No. 1. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange seeks to amend and make additions to its minor rule violation plan (“MRVP”). The text of the proposed rule change is available on the Exchange's Web site ( *http://www.bostonstock.com/legal/index.html* ), at the Exchange's principal office, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposal, and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The proposal modifies BSE Rule Chapter XXX (“Disciplining of Members—Denial of Membership”) and BSE Rule Chapter XXXIV (“Minor Rule Violations”) in several areas. Most notably, the Exchange proposes adding to BSE Rule Chapter XXX new language setting forth “Principal Considerations in Determining Sanctions.” In addition, the Exchange proposes moving its Acceptance Waiver and Consent Procedures (“AWC”) from BSE Rule Chapter XXXIV to BSE Rule Chapter XXX. The Exchange also proposes adding to BSE Rule Chapter XXX a “late charge” where a member fails to pay a fine on a timely basis. Also, BSE proposes clarifying language and restructuring of the fine levels of several existing rule violations listed in the MRVP, as well as the addition of a new paragraph addressing violations of the Exchange's rules governing the Intermarket Trading System (“ITS”). Each of these changes is discussed below. The Exchange proposes three changes to BSE Rule Chapter XXX. First, the Exchange proposes new language setting forth “Principal Considerations in Determining Sanctions” by providing a list of factors to be considered when determining whether sanctions should be imposed. The purpose is to provide factors that should be considered in conjunction with the imposition of sanctions. The Exchange recognizes, as other exchanges have, that mitigating factors may exist in certain instances, and those circumstances should be considered when determining whether sanctions should be imposed. Second, the Exchange proposes moving the AWC currently provided in the MRVP to the Exchange's formal disciplinary procedures (BSE Rule Chapter XXX). 4 When the AWC was initially proposed, the intent and application was for the AWC to apply to all disciplinary matters, not just minor rule violations. Therefore, the current placement has caused some confusion. In addition, the Exchange proposes to change the references to the “Chief Regulatory Officer” found in the original AWC to the “General Counsel or his/her delegatee.” 5 Third, the Exchange proposes to provide a late charge where a member fails to pay a fine or fee on a timely basis. 6 Furthermore, the Exchange proposes a number of changes to its MRVP. In Section 2(c) of BSE Rule Chapter XXXIV (Failure to Display Limit Orders), Section 2(f) (Floor Order Facilitation), Section 2(n) (Failure to Designate an Order (PPS)), and Section 2(o) (Dealings Outside of Exchange Operating Hours), the Exchange proposes to restructure the fine levels resulting from violations. The Exchange proposes to increase some of the fine amounts and provide for their application through a defined number of violations. Also, because existing Section 1 of BSE Rule Chapter XXXIV provides for formal disciplinary action at the discretion of the Exchange at any level of offense, the Exchange is not precluded from proceeding with more stringent action at any point, regardless of the listed fine levels. The Exchange represents that it is structuring its fines to address repeat offenses, so that fine levels increase as the number of offenses increase. 4 *See* proposed BSE Rule Chapter XXX, Section 10. 5 The Exchange has recently undergone a restructuring. The General Counsel is now a member of the BSE Regulatory Department. 6 *See* proposed BSE Rule Chapter XXX, Section 11. In Section 2(j) of BSE Rule Chapter XXXIV, the Exchange proposes adjusting the fine levels for short sale violations to increase as the number of violations increase and providing that offenses in excess of ten, over a 12-month rolling period, would result in formal disciplinary action. In so doing, the Exchange believes that the proposed change provides progressively significant punitive measures for short sale rule violations. The Exchange also proposes the addition of a new MRVP provision establishing sanctions for violations of the Exchange's rules governing ITS. In the past, the Exchange has levied fines on its member specialists under Section 2(f) of BSE Rule Chapter XXXIV for the failure to execute valid ITS commitments. Now, in proposed Section 2(p) of BSE Rule Chapter XXXIV, the Exchange seeks to identify the failure to execute valid ITS commitments as its own specific offense, rather than continuing to enforce compliance through a broader “catch-all” provision of its MRVP. The Exchange believes that this new provision would impose liability for each violation, with progressively significant penalties as the number of violations increases. 2. Statutory Basis The Exchange believes that the proposed rule change, as amended, is consistent with Section 6(b)(5) of the Act 7 in that it is designed to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating securities transactions, to remove impediments to perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. 7 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change, as amended, would impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the self-regulatory organization consents, the Commission will:
(A)By order approve such proposed rule change, or
(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposal, 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-BSE-2005-09 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 No. SR-BSE-2005-09. 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 changes 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 will also be available for inspection and copying at the principal office of the BSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-BSE-2005-09 and should be submitted on or before September 22, 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. E6-14530 Filed 8-31-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54364; File No. SR-BSE-2006-20] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order Granting Approval of Proposed Rule Change and Amendment Nos. 1 and 3 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 5 To Create a New Electronic Trading Facility, the Boston Equities Exchange (“BeX”), To Be Operated by BSX Group, LLC August 25, 2006. I. Introduction On May 5, 2006, the Boston Stock Exchange, Inc. (“BSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934, as amended (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change relating to the creation of a new electronic trading facility, the Boston Equities Exchange (“BeX”), which is owned and will be operated by BSX Group, LLC (“BSX”). On June 1, 2006, the BSE filed Amendment No. 1 to the proposed rule change. 3 On June 15, 2006, the BSE filed Amendment No. 3 to the proposed rule change. 4 The proposed rule change, as amended, was published for comment in the **Federal Register** on June 29, 2006. 5 The Commission received no comments regarding the proposal, as amended. On August 25, 2006, the BSE filed Amendment Nos. 4 and 5 to the proposed rule change. 6 This order approves the proposed rule change, as amended, grants accelerated approval to Amendment No. 5 to the proposed rule change, and solicits comments from interested persons on Amendment No. 5. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 superseded and replaced the original filing in its entirety. Amendment No. 2 was withdrawn by BSE on June 9, 2006. 4 Amendment No. 3 superseded and replaced the original filing and Amendment No. 1 in their entirety. 5 *See* Securities Exchange Act Release No. 54035 (June 22, 2006), 71 FR 37135. 6 Amendment No. 5 replaced Amendment No. 4, which was withdrawn due to a technical problem in transmission. In Amendment No. 5, the BSE made changes to the proposed rule change to clarify its discussion of the BSX Operating Agreement and correct several inconsistencies between the description of the BSX Operating Agreement and the agreement's text. In addition, Amendment No. 5 amended proposed Section 6 of Chapter XVIII of the BSE Rules to align the cure period for a violation of the Ownership Concentration Limit with that contained in Section 8.5(b) of the BSX Operating Agreement. Amendment No. 5 also updated Schedule 2 of the BSX Operating Agreement to provide current information on the ownership interests of the BSX Members, and made other technical, non-substantive changes to the proposed rule change. II. Description of the Proposal A. Overview The Exchange proposes to establish a new electronic trading facility, 7 BeX, for the use of BSE members, including the new category of “Electronic Access Members” (“EAMs”), 8 and their customers. BeX is owned and will be operated by BSX, of which the Exchange is currently a majority owner. The Exchange seeks the Commission's approval of the proposed governance structure of BSX as reflected in the amended and restated operating agreement of BSX 9 (“BSX Operating Agreement”), 10 and changes to its Constitution to provide for EAMs and to its Constitution and rules to further transfer and ownership provisions of the BSX Operating Agreement. Separately, the Commission is approving the trading rules governing the first phase of the BeX trading system. 11 7 Pursuant to Section 3(a)(2) of the Act, the term “facility” when used with respect to an exchange, includes “its premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service.” 15 U.S.C. 78c(a)(2). 8 The term “EAMs” is used herein to signify both Electronic Access Members and Electronic Access Memberships, as applicable. 9 The rules of an exchange, as defined in Section 3(a)(27) of the Act, 15 U.S.C. 78c(a)(27), include the constitution of the exchange, its articles of incorporation, bylaws, and rules. Thus, any changes to these BSE instruments need to be filed pursuant to Section 19(b) of the Act and Rule 19b-4 thereunder. The operating agreement of the BSX is the organizational document of BSX, not the BSE. Nevertheless, certain provisions in agreements of this nature may be deemed the rules of an exchange when they are the stated policies, practices, and interpretations, as defined in Rule 19b-4 under the Act, of the exchange. Any proposed rule or any proposed change in, addition to, or deletion from any such rules of an exchange must be filed pursuant to Section 19(b) of the Act and Rule 19b-4 thereunder. 10 Unlike a corporation's charter or bylaws, the BSX Operating Agreement is a signed contract among the Members of BSX. These Members are currently the sole owners, or “unitholders,” of BSX. While ownership interests in a corporation are generally referred to as “shares” or “stock,” ownership interests in an LLC are referred to as “units.” *See infra* note 16 and accompanying text for a definition of “Member,” as used in the BSX Operating Agreement. 11 *See* Securities Exchange Act Release No. 54365 (August 25, 2006). The Commission notes that the BSE has filed another proposed rule change setting forth proposed rules to implement the second phase of BeX and to comply with the Commission's Regulation NMS under the Act, which the Commission has published for comment. *See* Securities Exchange Act Release No. 54291 (August 8, 2006), 71 FR 47264 (August 16, 2006) (File No. SR-BSE-2006-30). Under various agreements between BSE and BSX, BSX would operate BeX as a facility of the BSE. All the assets and liabilities that solely support the equities trading business of the BSE would be transferred to BSX. Upon restructuring, however, the BSE would continue to be the self-regulatory organization (“SRO”) for the equities business that will be operated on BeX. 12 All the proposed changes to facilitate this restructuring have been set forth in the BSX Operating Agreement and would be reflected in the changes to the Exchange's Constitution and a related provision in the Exchange's Rules of the Board of Governors (“BSE Rules”). The Exchange also proposes to amend its Constitution and the BSE Rules to create a new category of BSE members to be known as EAMs. EAMs would be entitled to trade equity securities on BeX without purchasing a seat on the Exchange. BSE Members have approved the proposed changes to the Constitution. 12 The BSE states that the proposed restructuring would not affect the Boston Options Exchange facility (“BOX Market”) which is controlled by the Boston Options Exchange Group, LLC (“BOXG”). The BSE is a founding member and part owner of the BOXG, and the BOX Market is regulated by Boston Options Exchange Regulation, LLC (“BOXR”), a wholly-owned subsidiary of the BSE to which the BSE has delegated regulatory oversight authority for the BOX Market. The Exchange believes that by restructuring the control of its equities business as a limited liability company with business control and management by the directors and officers of BSX, the new entity would have greater flexibility to build and execute approaches designed to improve its competitive position, including the development of strategic relationships. Furthermore, the Exchange anticipates that by restructuring so that a separately controlled organization is responsible for the operation of its equities business, the management of BSX will be better able to respond quickly to competitive pressures and to make changes to the operation as market conditions warrant. The Exchange indicated that the proposed BSX structure would be substantially the same as that which the Exchange has established for its options trading business, 13 except that the BSE, rather than a wholly-owned subsidiary such as BOXR, directly would regulate the Exchange's equities trading business. The Exchange also believes that by conferring trading privileges on EAMs that do not bear the costs of seat ownership, it can increase the revenue of its equities business. 14 13 *See* Securities Exchange Act Release Nos. 49067 (January 13, 2004), 69 FR 2761 (January 20, 2006) and 49065 (January 13, 2004), 69 FR 2768 (January 20, 2004). 14 The Exchange has represented that it intends to keep fees imposed upon EAMs consistent with the applicable fees imposed upon non-EAMs and that it intends to file with the Commission a separate rule filing to address all fees related to the BeX trading system, including EAM and non-EAM fees. B. Current Ownership and Control of BSX According to the Exchange, BSX will be run by its management with limited policy direction by BSE members. BSX will be controlled by its own board of directors (“BSX Board”), which would be responsible for the commercial governance of BeX, subject at all times to BSE's overriding regulatory responsibility. Currently, there are six unitholders who have a direct controlling interest in BSX: the BSE (approximately 58.33 percent); and Citigroup Financial Strategies Inc. (“Citi”), Credit Suisse First Boston Next Fund Inc. (“CSFB”), LB 1 Group, Inc. (“Lehman”), Fidelity Global Brokerage Group, Inc. (“Fidelity”), and Merrill Lynch L.P. Holdings Inc. (“Merrill”) (each approximately 8.33 percent). There are currently no other unitholders in BSX. These six unitholders are termed the “Founding Members” of BSX. C. Changes in Ownership of BSX Section 8.1(a) of the BSX Operating Agreement provides that, except in certain limited circumstances, no person may directly or indirectly transfer any units, or any rights arising from the ownership of units, without the prior approval of the board of directors of BSX (the “BSX Board”). 15 To be eligible for such approval, the proposed transferee must:
(1)Have sufficient financial assets to support such a transfer;
(2)be able to carry out its duties to BSX as a Member 16 under the BSX Operating Agreement (“BSX Member”), if admitted; and
(3)be under no regulatory or governmental disqualification. 15 As defined in Section 8.1(a) of the BSX Operating Agreement, the term “Transfer” (“transfer” as used herein) means: to transfer, dispose of, sell, lend, pledge, hypothecate, encumber, assign, exchange, participate, subparticipate, or otherwise transfer in any manner. As defined in Section 1.1 of the Agreement the term “Person” (“person” as used herein when used with respect to provisions in the Agreement) means: an individual, corporation, association, general or limited partnership, organization, business, firm, limited liability company, joint venture, trust, estate, or other entity, association, or organization, whether constituting a legal entity or not. 16 Section 1.1 of the BSX Operating Agreement defines a “ Member,” in brief, as each person admitted and named as a Member on Schedule 2 of the Operating Agreement (which currently lists the Members as BSE, Citi, CSFB, LB 1, Fidelity, and Merrill), and any person admitted to BSX as an additional or substitute member as provided by the agreement. The definition makes explicit that a transferee or assignee (including the personal representatives of a Member) of a limited liability company interest in BSX shall not be a BSX Member, and that no transferee or assignee (except as specifically provided with respect to BSE) other than a duly admitted BSX Member shall have any right whatsoever to vote or consent to any action with respect to BSX unless and until the transferee or assignee is admitted as a BSX Member in accordance with the provisions of the Agreement. Section 8.1(b) provides, in addition, that a person (other than an affiliate of an existing BSX Member 17 ) shall be admitted to the BSX as an additional or substitute BSX Member only upon that person's execution of a counterpart of the BSX Operating Agreement to evidence its written acceptance of the terms and provisions of the Agreement, and acceptance thereof by resolution of the BSX Board, which may be given or withheld in the sole discretion of the BSX Board; and approval of the BSX Board. 18 17 As defined in Section 1.1 of the BSX Operating Agreement, “Affiliate” (“affiliate” as used herein) means, with respect to any person, any other person controlling, controlled by or under common control with, that person. As used in this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise. A person is presumed to control any other person, if that person:
(i)Is a director, general partner, or officer exercising executive responsibility (or having similar status or performing similar functions);
(ii)directly or indirectly has the right to vote 25 percent or more of a class of voting securities or has the power to sell or direct the sale of 25 percent or more of a class of voting securities of the person; or
(iii)in the case of a partnership, has contributed, or has the right to receive upon dissolution, 25 percent or more of the capital of the partnership. 18 Further under Section 8.1(b), if the person is a transferee, the person would need to submit an agreement in writing to its assumption of the obligations of its assignor under the BSX Operating Agreement, and acceptance thereof by resolution of the BSX Board, which acceptance may be given or withheld in the sole discretion of the BSX Board; and confirmation by the BSX Board that the transfer was permitted by the Agreement. Section 8.1(b) also provides that, whether or not a transferee who acquired any units has accepted in writing the terms and provisions of the BSX Operating Agreement and assumed in writing the obligations its predecessor in interest, the transferee shall be deemed, by the acquisition of such units, to have agreed to be subject to and bound by all the obligations of the Agreement with the same effect and to the same extent as any predecessor in interest of the transferee. Section 8.4(a), among other things, provides that no transfer of any units may take place if the transfer is prohibited by the BSX Operating Agreement or any State, Federal or provincial securities laws. Section 8.4(c) provides that any transfer of units that contravenes Article 8 of the Operating Agreement will be void *ab initio* and ineffectual, and will not bind or be recognized by BSX. Section 8.4(d) of the BSX Operating Agreement provides that, beginning after Commission approval of this proposed rule change, BSX must provide the Commission with written notice ten days prior to the closing date of any acquisition that results in a BSX Member's percentage ownership interest in BSX, alone or with any affiliate, meeting or crossing either the 5 percent, 10 percent, or 15 percent thresholds. Section 8.4(e) provides that any transfer of BSX units that results in the acquisition and holding by any person, alone or together with an affiliate, of an interest that meets or crosses the 20 percent threshold or any successive five percent threshold ( *i.e.,* 25 percent, 30 percent, *etc.* ) would trigger an amendment to the BSX Operating Agreement that would have to be filed with the Commission under Section 19(b) of the Act. 19 In addition, Section 8.4(e) provides that any transfer of BSX units that would reduce BSE's ownership in BSX below the 20 percent threshold would require a proposed rule change under Section 19(b) of the Act. Moreover, Commission approval would be required to permit any person, alone or together with any affiliate, to control 20 percent of the Total Votes (as defined in Section 4.4(a) of the BSX Operating Agreement). 19 For example, assume that a person owns a 28 percent interest in BSX and buys units constituting ent with the same an additional three percent. Because the person would cross the 30 percent ownership threshold, the acquisition would trigger an amendment to the BSX Operating Agreement that would have to be submitted as a proposed rule change. However, an acquisition of an additional three percent that would raise the person's interest from 31 percent to 34 percent would not trigger a proposed rule change. Section 8.4(f) of the BSX Operating Agreement provides for indirect changes in control of BSX. Any person that acquires a controlling interest ( *i.e.,* an interest of 25 percent or greater) in a BSX Member that holds 20 percent or more of BSX units would be required to agree to become a party to the BSX Operating Agreement and abide by its terms. 20 The amendment to the BSX Operating Agreement caused by the addition of the indirect controlling party would require a filing with the Commission pursuant to Section 19(b) of the Act. The rights and privileges of the BSX Member in whom a controlling interest is acquired would be suspended until the amendment becomes effective under the Act or until the indirect controlling party ceases to have a controlling interest in the BSX Member. 20 For example, assume that Company XYZ, a BSX Member, owns a 25 percent interest in BSX and Firm ABC acquires 35 percent of Company XYZ. Firm ABC must execute an amendment to the BSX Operating Agreement whereby Firm ABC agrees to become a new party to the agreement and abide by all its provisions. Furthermore, a person could become subject to Section 8.4(f) of the BSX Operating Agreement if it acquires an indirect controlling interest in a BSX Member. In addition to the requirements for proposed rule changes relating to direct and indirect changes in control of BSX, Section 4.3(c) of the BSX Operating Agreement prohibits BSX Members from entering into voting trust agreements with respect to their ownership interests in BSX. 21 21 *See* Section II.G below for a discussion of ownership restrictions and voting limitations on BSX Members who are also BeX Participants. D. Commission Jurisdiction Over Owners of BSX Under Section 18.6(a), each BSX Member, by becoming a party to the BSX Operating Agreement, would be required to acknowledge that, to the extent that they are related to BSX activities, the books, records, premises, officers, directors, agents, and employees of the BSX Member will be deemed to be the books, records, premises, officers, directors, agents, and employees of BSE for the purpose of and subject to oversight pursuant to the Act. Under Section 18.6(b), each BSX Member and the officers, directors, agents, and employees thereof are required to irrevocably submit to the jurisdiction of the U.S. Federal courts, the Commission, and BSE 22 for the purposes of any suit, action, or proceeding pursuant to the U.S. Federal securities laws and the rules or regulations thereunder, arising out of or relating to BSX activities or Section 18.6(a). Also, under Section 18.6(b), each BSX Member and the officers, directors, agents, and employees thereof must waive, and agree not to assert by way of motion, as a defense or otherwise in any such suit, action, or proceeding, any claim that they are not personally subject to the jurisdiction of the Commission; that the suit, action or proceeding is an inconvenient forum; or that the venue of the suit, action, or proceeding is improper or may not be enforced in or by such courts or agency. 22 Such jurisdiction includes Delaware for matters relating to the organization or internal affairs of BSX. Section 18.6(c) of the BSX Operating Agreement provides that the BSE and each other BSX Member must take such action as is necessary to ensure that such BSX Member's officers, directors, and employees consent to the applicability of Section 18.6 with respect to their BSX-related activities. E. Governance of BSX Section 4.2(b) of the BSX Operating Agreement gives the BSX Board the power and responsibility to manage the business of BSX, select and evaluate the performance of its senior executive, and establish and monitor capital and operating budgets. Section 4.1(a) provides that the BSX Board will consist of between five and 15 directors. Under Section 4.1(b) BSE is entitled to designate two directors and Citi, CSFB, Lehman, Fidelity and Merrill are entitled to designate one director each. Moreover, for as long as BeX remains a facility of the Exchange, BSE has the right to designate at least one director. 23 Section 4.1(d) provides that, in the event of the addition of any new BSX Members or the transfer of interest from one BSX Member to another BSX Member, the BSX Board will determine the number of board seats, if any, to be designated by the new or transferee BSX Member and will determine the disposition of the board seats designated by any transferring BSX Member. 24 Section 4.1(e) further provides that the BSX Board may increase its size and/or provide for representation for new or transferee BSX Members with ownership interests equal to or greater than five percent. Section 4.8 provides that, except as otherwise expressly provided in the BSX Operating Agreement or as requested by the BSX Board, no BSX Member may take part in the day-to-day management or operation of the business or affairs of BSX. 23 The Commission notes that Section 4.1(b) also provides that if any Founding Member maintains an ownership percentage of 3.00 percent or greater, it will be entitled to designate one director. 24 *See* Amendment No. 5 to the proposal. Pursuant to Section 4.1(c) of the BSX Operating Agreement, a director would be terminated by the BSX Board:
(i)in the event the director has violated any provision of the BSX Operating Agreement or any Federal or State securities law; or
(ii)if the BSX Board determines that such action is necessary or appropriate in the public interest or for the protection of investors. In addition, Section 4.2(a) requires each director to comply with the Federal securities laws and the rules and regulations thereunder and to cooperate with the Commission and BSE pursuant to their regulatory authority and the provisions of the BSX Operating Agreement. Section 4.2(a) also requires each director to take into consideration whether his or her actions as a director would cause BSX to engage in conduct that fosters, and does not interfere with, its ability to prevent fraudulent and manipulative actions and practices; promote just and equitable principles of trade; foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities; 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. F. Regulation of BSX BeX is owned and will be operated by BSX, but it will be a facility of the Exchange. Accordingly, BSE has responsibility under the Act for the BeX facility. In this regard, Sections 12.1 and 15 of the BSX Operating Agreement each provide that the books, records, premises, officers, directors, agents, and employees of BSX shall be deemed to be the books, records, premises, officers, directors, agents, and employees of BSE for the purpose of and subject to oversight pursuant to the Act. Moreover, under Section 5.3 of the BSX Operating Agreement, each BSX Member agrees to comply with the Federal securities laws and the rules and regulations thereunder; to cooperate with the Commission and BSE pursuant to their regulatory authority and the provisions of the BSX Operating Agreement; and to engage in conduct that fosters and does not interfere with BSX's ability to prevent fraudulent and manipulative acts and practices; promote just and equitable principles of trade; foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities; 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. Section 5.8 of the BSX Operating Agreement further provides that, after appropriate notice and opportunity for hearing, the BSX Board, by a two-thirds vote, including the affirmative vote of BSE and excluding the vote of the BSX Member subject to sanction, may suspend or terminate a BSX Member's voting privileges or membership:
(i)Ixn the event such BSX Member is subject to a statutory disqualification, as defined in Section 3(a)(39) of the Act;
(ii)in the event such BSX Member has violated any provision of the BSX Operating Agreement or any Federal or State securities law; or
(iii)if the BSX Board determines that such action is necessary or appropriate in the public interest or for the protection of investors. In addition, Section 4.4(a) of the BSX Operating Agreement provides that BSX may not take any “Super Major Action” unless such action is approved by directors holding at least 75 percent of the total votes of the BSX Board, including the affirmative vote of all of the votes of directors designated by four of the Founding Members, plus the affirmative vote of all of the votes of directors designated by BSE. A “Super Major Action” is defined in Section 4.4(b) to include, among other things: a merger or consolidation involving BSX; a sale of any material portion of its assets; appointing directors to afford representation to BSX Members, other than Founding Members, having a percentage interest less than five percent; operating the BeX with a Regulatory Services Provider other than the BSE or an affiliate of the BSE; making a material change to the market structure of BeX; the acquisition of any units by any person that results in such person holding an aggregate percentage interest in BSX equal to or greater than 20 percent; altering the provisions for BSX Board membership for the Founding Members; entry by BSX into any other line of business other than the development, operation, and ownership of the BeX, except as expressly contemplated by the BSX Operating Agreement and the Related Agreements; 25 entering into any agreement, commitment, or transaction with a BSX Member or any of its affiliates other than transactions or agreements upon commercially reasonable terms that are no less favorable to BSX than BSX would obtain in a comparable transaction or agreement with a third party; taking any action which would effect the voluntary, or which would precipitate an involuntary, dissolution or winding up of BSX; and entering into any partnership, joint venture or other similar joint business undertaking. 25 Section 1.1 of the BSX Operating Agreement defines “Related Agreements” as the BSE Facility Services Agreement and any other agreement among or between any of the Members and BSX, or to which the Members or BSX are otherwise parties, in all cases necessary for the conduct of the business of BSX. Section 16.2(a) of the BSX Operating Agreement provides that a BSX Member may not disclose any confidential information of BSX to any person except as expressly provided by the BSX Operating Agreement. However, Section 16.2(b) provides exceptions for, among other things, disclosure required by the Federal securities laws or in response to a request by the Commission pursuant to the Act or by the BSE. Similarly, Section 16.5 of the BSX Operating Agreement provides that nothing in the BSX Operating Agreement should be interpreted as to limit or impede the rights of the Commission or BSE to access or examine confidential information to the Commission or BSE. G. Ownership Restrictions and Voting Limitations on BSX Members Who Are Also BeX Participants Section 8.5 addresses BSX ownership concentration limits and voting limitations. Section 8.5(a) limits any person who, either alone or with its affiliates, is a BeX market participant (“BeX Participant”) 26 , from owning in the aggregate more than 20 percent of the outstanding units of BSX (the “Ownership Concentration Limit”). 27 Section 8.5(b) sets forth that any person that is not a BeX Participant that, alone or together with affiliates exceeds the Ownership Concentration Limit, and subsequently becomes a BeX Participant, must, within 180 days, transfer sufficient interest so that the person who is also a BeX Participant does not exceed the Ownership Concentration Limit. 26 The BSX Operating Agreement defines “BeX Participant ” as “a firm, or organization that is registered with the BSE pursuant to the BSE Rules for purposes of participating in equities trading on the BeX.” 27 The proposed rule change also includes a related provision to be added to Article IX of the BSE Constitution prohibiting BSE members, either alone or with any affiliates, from owning beneficially, at any time, any interest in BSX representing in the aggregate more than 20 percent of the then outstanding units of BSX. In tandem, the proposed rule change would add a provision to Chapter XVIII of the BSE Rules stating that the Exchange must:
(1)Provide notice to a member within five business days of learning of the member's failure to comply with this ownership limitation;
(2)allow the member fifteen calendar days to respond;
(3)absent an adequate response, schedule a hearing before a Hearing Panel consisting of a Hearing Officer, who would be the Chairman of the Panel, and at least two members of the Hearing Committee within thirty calendar days; and
(4)render its decision as to the existence of a violation no later than ten calendar days following the date of the hearing. Should the Hearing Panel determine that a violation exists, all trading rights and privileges of the BSE member would be suspended. *See* Amendment No. 5 to the proposed rule change. The proposed rule change also would add to Article IX of the BSE Constitution a provision stating that, without prior Commission approval, the BSE or any entity with which it is affiliated could not directly acquire or maintain an ownership interest in a BSE Member. In addition, no BSE member could be or become an affiliate of the Exchange or any affiliate of an affiliate of the BSE. Section 8.6 of the BSX Operating Agreement imposes a “voting limitation” on any BSX Member who, alone or together with an affiliate, has an ownership interest in BSX in excess of 20 percent and is also a BeX Participant. The interests owned by such BSX Member in excess of 20 percent are deemed “excess units.” No BSX Member who is also a BeX Participant is permitted to vote or give proxy rights to vote with respect to any excess units. However, Section 8.6 further provides that the excess units would be considered for quorum purposes of any meeting of the BSX Board, and the person presiding over quorum and vote matters would vote the excess units in the same proportion that the units held by the other BSX Members are voted. H. Electronic Access Members The Exchange proposes to amend its Constitution to permit a new type of member and membership, EAMs, which would allow persons or firms to conduct business on the Exchange without having to purchase seats. 28 The Exchange would issue EAMs to persons or entities that wish to engage in equity transactions on the Exchange. Those seeking to become EAMs would need to satisfy all the requirements for membership on the Exchange, as set forth in the Exchange Constitution and Rules, with the exception of purchasing a seat. 28 *See* proposed amendments to Article I, Section 3 and Article IX, Sections 1-3 of the BSE Constitution. EAM memberships would provide access to the BeX, but would not confer the same rights and privileges as are conferred by Exchange seats. Specifically, EAMs would be represented on the BSE Board of Governors and on its various constitutional committees in the same capacity and to the same extent as BSE Members. They also would have the right to vote in the same capacity as BSE Members, except with respect to Exchange ownership matters—specifically those matters relating to mergers, consolidations, dissolution, liquidation, transfer, or conversion of assets of the Exchange. For the purposes of the Act, EAMs would be considered members of the BSE. There would be no limit to the number of EAMs issued, provided that, in the determination of the BSE Board of Governors, sufficient operational capacity existed to grant additional EAMs. BSE seat holders, who would retain ownership interest in the Exchange, also would have access to the BeX, and so would not need to separately be approved as EAMs. III. Discussion After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 29 In particular, the Commission finds that the proposed rule change, as amended, is consistent with Section 6(b)(1) of the Act, 30 which requires a national securities exchange to be so organized and have the capacity to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act, the rules or regulations thereunder, and the rules of the exchange. 29 In approving the proposed rule change, the Commission has considered its impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 30 15 U.S.C. 78f(b)(1). The Commission also finds that the proposed rule change, as amended, is consistent with Section 6(b)(3) of the Act, 31 which, among other things, requires that the rules of an exchange ensure fair representation of its members in the selection of its directors and administration of its affairs. 31 15 U.S.C. 78f(b)(3). The Commission also finds that the proposed rule change, as amended, is consistent with Section 6(b)(5) of the Act, 32 which requires that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; to 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; and are not designed to unfairly discriminate between customers, issuers, brokers, or dealers. 32 15 U.S.C. 78f(b)(5). A. BeX as a Facility of the Exchange The Commission believes that the proposed rule change is consistent with Section 6(b)(1) of the Act 33 in that upon establishing the BeX as an Exchange facility and entering into the relationship with BSX described above, BSE will remain so organized, and have the capacity to be able, to carry out the purposes of the Act. The Commission further believes that BSE's proposal for BSX to operate BeX as a facility of BSE is properly filed under Section 19(b) of the Act and Rule 19b-4 thereunder, and that BeX is not required, separate from BSE, to apply for registration as a national securities exchange pursuant to Section 6(a) of the Act. 34 The Commission notes that it previously approved a similar structure with respect to the operation of the BOX, a facility of the Exchange, by BOXG. 35 33 15 U.S.C. 78f(b)(1). 34 15 U.S.C. 78f(a). 35 *See supra* note 13 and accompanying text. The Commission believes that BSX can be approved as the operator of the BeX facility since BSE will be the SRO for the BeX facility, and BSX will conduct the facility's business operations in a manner consistent with the regulatory and oversight responsibilities of BSE. 36 36 BSE will regulate the BeX market via a contract. Although BSX itself will not carry out any regulatory functions, all its activities must be consistent with the Act. Under Section 5.3 of the BSX Operating Agreement, each BSX Member agrees to comply with Federal securities law; to cooperate with the Commission and BSE pursuant to their regulatory authority and the provisions of the BSX Operating Agreement; and to engage in conduct that fosters and does not interfere with BSX's ability to prevent fraudulent and manipulative acts and practices; promote just and equitable principles of trade; foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities; 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. Section 4.2(a) also requires each BSX director to cooperate with the Commission and BSE in carrying out his or her regulatory responsibilities. These provisions reinforce the notion that BeX, as a facility of an exchange, is not solely a commercial enterprise; it is an integral part of an SRO registered pursuant to the Act and, as such, is subject to obligations imposed by the Act. These obligations endure as long as BeX is a facility of the Exchange, regardless of the size of BSE's ownership interest in BSX, the operator of the facility. The BSE currently owns a controlling interest in the operator of the facility and if, in the future, it wishes to reduce its interest in BSX to below 20 percent, pursuant to Section 8.4(e)(ii) of the BSX Operating Agreement the Exchange would be required to file such a transfer of units as a proposed rule change under Section 19(b) of the Act. The Commission believes that this is a reasonable measure to alert the Commission to a significant reduction of BSE's interest in BSX. Such a reduction could warrant additional review of the BSX Operating Agreement to ensure that BSE's responsibilities as the SRO of the BeX facility are not compromised. The BSX Operating Agreement includes additional provisions that make special accommodations for BSE as the SRO of the BeX facility. For example, Section 4.4(a) of the BSX Operating Agreement provides that BSX may not take any Super Major Action unless such action is approved by seventy-five percent of the total votes of the BSX Board, including the affirmative vote of four of the directors designated by the Founding Members and all the directors designated by BSE. Section 4.1(b) of the BSX Operating Agreement provides that, with its present ownership interest, BSE is entitled to two seats on the BSX Board. Section 4.1(b) also gives BSE a perpetual right, so long as BeX remains a facility of BSE, to designate at least one director on the BSX Board regardless of whether it maintains any ownership interest in BSX. In addition, despite its statement of a general prohibition against BSX Members committing or acting on behalf of BSX, Section 5.2 would permit BSE to act on behalf of BSX in regulatory matters. Finally, Sections 16.2(b) and 16.5 of the BSX Operating Agreement allows BSE, and the other BSX Members, their officers, directors, agents, and employees, to disclose to the Commission confidential information. Because the BSE has proposed to operate BeX as its facility, BSE's obligations under the Act extend to its members' activities on BeX, as well as to the operation and administration of BeX. The Commission believes that Section 19 of the Act affords the Commission the ability to determine whether BSE's proposal is consistent with the Act, as would a separate application by BeX to register as a national securities exchange. More specifically, the Commission believes that these provisions, described above, are consistent with the Act and enhance the ability of BSE to carry out its self-regulatory responsibilities with respect to its BeX facility. B. Changes in Control of BSX The Commission believes that the restrictions in the BSX Operating Agreement on direct and indirect changes in control of BSX are sufficient so that BSE would be able to carry out its self-regulatory responsibilities and that the Commission can fulfill its responsibilities under the Act. Schedule 2 of the BSX Operating Agreement lists all BSX Members, the number of units each holds, and the percentage of ownership in BSX that such units represent. A change to this schedule (as well as any other provision of the BSX Operating Agreement) would need to be filed with the Commission if so required under Section 19(b) of the Act and Rule 19b-4 thereunder. In addition, Section 8.4(e) of the BSX Operating Agreement provides that any proposed transfer of BSX units that would cause the acquirer to meet or cross the 20 percent ownership threshold or any subsequent five percent ownership threshold ( *e.g.* , 25 percent, 30 percent, 35 percent, *etc.* ) would require BSE to file a proposed rule change with the Commission pursuant to Section 19(b) of the Act. Furthermore, Section 8.4(d) of the BSX Operating Agreement requires BSE to inform the Commission in writing at least ten days before any proposed acquisition of BSX units that would result in a BSX Member meeting or crossing the 5 percent, 10 percent, or 15 percent ownership thresholds. The Commission believes that this approach is consistent with the Act in that it is analogous to the ongoing reporting requirements of Form 1, 37 the application for (and amendments to the application for) registration as a national securities exchange. Exhibit K of Form 1 requires any exchange that is a corporation or partnership to list any persons that have an ownership interest of five percent or more in the exchange; 38 and Rule 6a-2(a)(2) under the Act 39 requires an exchange to update its Form 1 within ten days after any action that renders inaccurate the information previously filed in Exhibit K. 37 17 CFR 249.1 and 17 CFR 249.1a. 38 This reporting requirement applies only to exchanges that have one or more owners, shareholders, or partners that are not also members of the exchange. *See* Form 1, Exhibit K. Exhibit K applies only to the exchange itself, not to entities that operate facilities of the exchange. 39 17 CFR 240.6a-2(a)(2). Exhibit K imposes no obligation on an exchange to report parties whose ownership interest in the exchange is less than five percent. Similarly, Section 8.4(d) of the BSX Operating Agreement requires BSE to notify the Commission of an interest in BSX only when that interest reaches five percent or more. The Commission does not believe that the identity of a party that has less than a five percent interest in a facility of a national securities exchange is a “rule of the exchange” that must be filed pursuant to Section 19(b) and Rule 19b-4(b) thereunder. In addition, Section 8.4(f) of the BSX Operating Agreement would require an indirect controlling party to become a party to the BSX Operating Agreement. This amendment to the agreement would require a proposed rule change to be filed with the Commission pursuant to Section 19(b) of the Act. The proposed rule change would alert the Commission to the existence of a proposed indirect controlling party and present the Commission and BSE with an opportunity to determine what additional measures, if any, might be necessary to provide sufficient regulatory jurisdiction over the proposed indirect controlling party. The Commission understands that Section 8.4(f) of the BSX Operating Agreement would apply to any ultimate parent of BSX, no matter how many levels of ownership are involved, provided that a controlling interest exists between each link of the ownership chain. In conclusion, the Commission believes that Sections 8.4(d), (e), and
(f)of the BSX Operating Agreement, together with the requirements of Section 19(b) of the Act and Rule 19b-4 thereunder, provide the Commission with sufficient authority over changes in control of BSX to enable the Commission to carry out its regulatory oversight responsibilities with respect to BSE and the BeX facility. C. Regulatory Jurisdiction Over BSX Members The Commission believes that the terms of the BSX Operating Agreement provide the Commission and BSE with sufficient regulatory jurisdiction over the controlling parties and BSX Members to carry out their responsibilities under the Act. In Section 18.6(a), each BSX Member acknowledges that—to the extent that they are related to BSX activities—the books, records, premises, officers, directors, agents, and employees of the BSX Member are deemed to be the books, records, premises, officers, directors, agents, and employees of BSE itself for the purpose of and subject to oversight pursuant to the Act. Moreover, in Sections 12.1 and 15 of the BSX Operating Agreement, all the BSX Members acknowledge that the books, records, premises, officers, directors, agents, and employees of BSX are deemed to be the books, records, premises, officers, directors, agents, and employees of BSE for the purpose of and subject to oversight pursuant to the Act. These provisions would enable the Commission to exercise its authority under Section 19(h)(4) 40 of the Act with respect to the officers and directors of BSX and of all BSX Members, since all such officers and directors—to the extent that they are acting in matters related to BSX activities—would be deemed to be the officers and directors of BSE itself. Furthermore, the records of any BSX Member—to the extent that they are related to BSX activities—are subject to the Commission's examination authority under Section 17(b)(1) of the Act, 41 as these records would be deemed to be the records of BSE itself. 40 15 U.S.C. 78s(h)(4). Section 19(h)(4) authorizes the Commission, by order, to remove from office or censure any officer or director of a national securities exchange if it finds, after notice and an opportunity for hearing, that such officer or director has:
(1)willfully violated any provision of the Act or the rules and regulations thereunder, or the rules of a national securities exchange;
(2)willfully abused his or her authority; or
(3)without reasonable justification or excuse, has failed to enforce compliance with any such provision by a member or person associated with a member of the national securities exchange. 41 15 U.S.C. 78q(b)(1). In addition, under the terms of Section 18.6 of the BSX Operating Agreement, each BSX Member—and each officer, director, agent, and employee thereof—must irrevocably submit to the jurisdiction of the U.S. Federal courts, the Commission, and BSE for the purposes of any suit, action, or proceeding pursuant to the U.S. Federal securities laws and the rules or regulations thereunder, arising out of or relating to BSX activities. In addition, each BSX Member—and each officer, director, agent, and employee thereof—must waive, and agree not to assert by way of motion, as a defense or otherwise in any such suit, action, or proceeding, any claim that it is not personally subject to the jurisdiction of the Commission; that the suit, action or proceeding is an inconvenient forum; that the venue of the suit, action, or proceeding is improper; or that the subject matter of the suit, action, or proceeding may not be enforced in or by such courts or agency. Moreover, pursuant to Section 18.6(c) of the BSX Operating Agreement, the BSE and each BSX Member are required to take such action as is necessary to ensure that such BSX Member's officers, directors, and employees consent to the application of these requirements with respect to their BSX-related activities. Finally, under Section 5.3 of the BSX Operating Agreement each BSX Member agrees to cooperate with the Commission and BSE pursuant to their regulatory authority. The Commission also notes that, even in the absence of these provisions of the BSX Operating Agreement, Section 20(a) of the Act 42 provides that any person with a controlling interest in BSX would be jointly and severally liable with and to the same extent that BSX is liable under any provision of the Act, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. 42 15 U.S.C. 78t(a). The Commission believes that, together, these provisions grant the Commission sufficient jurisdictional authority over the controlling parties and other BSX Members. Moreover, BSE is required to enforce compliance with these provisions because they are “rules of the exchange” within the meaning of Section 3(a)(27) of the Act. 43 A failure on the part of BSE to enforce its rules could result in suspension or revocation of registration under Section 19(h)(1) of the Act. 44 43 15 U.S.C. 78c(a)(27). 44 15 U.S.C. 78s(h)(1). D. Ownership Restrictions on BeX Participants The Commission believes that the restriction on voting trust agreements in Section 4.3(c) of the BSX Operating Agreement is reasonable and consistent with the Act. In the absence of such a provision, unaffiliated parties could act in concert and evade the BSX Operating Agreement's provisions regarding changes in control of BSX. 45 A voting trust agreement would not necessarily be inconsistent with the Act, but any BSX Members wishing to establish a voting trust agreement first would need to amend the BSX Operating Agreement to enable them to do so. Such amendment would require a proposed rule change, thus affording the Commission an opportunity to review the matter. 45 However, the BSX Operating Agreement treats as belonging to a single person any BSX units held by affiliated parties of the person. *See* Sections 8.4(d)-(f) of the BSX Operating Agreement. In addition, the Commission believes that the Ownership Concentration Limit, 46 which prevents a person from owning more than 20 percent of the outstanding units of BSX while also being a BeX Participant, along with the provision that restricts the ability of BSX Members to vote interests in excess of 20 percent, are reasonable and consistent with the Act. It is common for members who trade on an exchange to have ownership interests in the exchange. However, a member's interest could become so large as to cast doubt on whether the exchange can fairly and objectively exercise its self-regulatory responsibilities with respect to that member. A member that is also a controlling shareholder of an exchange might be tempted to exercise that controlling influence by directing the exchange to refrain from diligently surveilling the member's conduct or from punishing any conduct that violates the rules of the exchange or the Federal securities laws. An exchange also might be reluctant to surveil and enforce its rules zealously against a member that the exchange relies on as its largest source of capital. 46 *See supra* notes 26-27 and accompanying text. E. Electronic Access Members The proposed rule change would enable the Exchange to issue EAMs, which would allow persons or firms to conduct business on the Exchange without having to purchase seats. EAMs would be required to satisfy all of the requirements for membership on the Exchange with the exception of having to purchase a seat. The Commission believes that the creation of EAMs is consistent with Section 6(b)(5) of the Act in that it should help remove impediments to and help perfect the mechanism of a free and open market and a national market system. The Exchange has represented that it would issue EAMs to persons or entities that wish to engage in equity transactions on the Exchange, and that there would be no limit to the number of EAMs issued if, in the determination of the BSE Board, sufficient operational capacity existed to grant additional EAMs. 47 The Commission believes that the proposed rule change does not permit unfair discrimination. 47 The BSE has represented that it intends to keep fees imposed upon EAMs consistent with the applicable fees imposed upon non-EAMs, and that it will file a separate proposed rule change to address all fees related to the BeX, including EAM and non-EAM fees. The Commission also believes that the creation of EAMs is consistent with Section 6(b)(3) of the Act because the proposed rule change provides for the fair representation of the Exchange's members, including EAMs, in the selection of its directors and the administration of its affairs. The Commission notes that, for the purposes of the Act, EAMs would be considered members of the BSE. EAMs would be represented on the BSE Board of Governors and on its various constitutional committees in the same capacity and to the same extent as other BSE members and also would have the right to vote in the same capacity as other BSE Members, except with respect to Exchange ownership matters—specifically those matters related to mergers, consolidations, dissolution, liquidation, transfer, or conversion of assets of the Exchange. 48 48 15 U.S.C. 78f(b)(3). The Commission does not believe that treating EAMs as members of BSE for all purposes other than ownership issues is the only method that satisfies the fair representation requirements of Section 6(b)(3) of the Act, and reviews each SRO proposal on its own terms to determine if it is consistent with the Act. F. Accelerated Approval of Amendment No. 5 The Commission finds good cause for approving Amendment No. 5 to the proposed rule change prior to the thirtieth day after publishing notice of Amendment No. 5 in the **Federal Register** pursuant to Section 19(b)(2) of the Act. 49 49 15 U.S.C. 78s(b)(2). Pursuant to Section 19(b)(2) of the Act, the Commission may not approve any proposed rule change, or amendment thereto, prior to the thirtieth day after the date of publication of the notice thereof, unless the Commission finds good cause for so doing. In Amendment No. 5, the BSE made changes to the proposed rule change to clarify its discussion of the BSX Operating Agreement and correct several inconsistencies between the description of the BSX Operating Agreement and the Agreement's text. In addition, Amendment No. 5 amended proposed Section 6 of Chapter XVIII of the BSE Rules to align the cure period for a violation of the Ownership Concentration Limit with that contained in Section 8.5(b) of the BSX Operating Agreement. Amendment No. 5 also updated Schedule 2 of the BSX Operating Agreement to provide current information on the ownership interests of the BSX Members. The BSE also made other technical, non-substantive changes to the proposed rule change, which raise no new or novel issues. The Commission believes that Amendment No. 5 serves to clarify and enhance the proposal and that publication of its provisions would needlessly delay the implementation of the proposal. The Commission therefore finds good cause exists to accelerate approval of Amendment No. 5, pursuant to Section 19(b)(2) of the Act. 50 50 15 U.S.C. 78s(b)(2). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 5, including whether Amendment No. 5 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-BSE-2006-20 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-BSE-2006-20. 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 Amendment No. 5 of File Number SR-BSE-2006-20 and should be submitted on or before September 22, 2006. V. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 51 that the proposed rule change (SR-BSE-2006-20), as amended, and Amendment No. 3 thereto, is approved and Amendment No. 5 is approved on an accelerated basis. 51 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 52 52 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-14531 Filed 8-31-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54365; File No. SR-BSE-2006-22] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order Granting Approval of Proposed Rule Change and Amendment Nos. 1, 2, and 3 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 5 Thereto To Implement the Boston Equities Exchange (“BeX”) Trading System August 25, 2006. I. Introduction On May 10, 2006, the Boston Stock Exchange, Inc. (“BSE” or “Exchange”) submitted to the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change to implement a new trading system, the Boston Equities Exchange (“BeX”). BSE filed Amendment No. 1 to the proposed rule change on June 2, 2006. 3 BSE filed Amendment No. 2 to the proposed rule change on June 9, 2006. 4 BSE filed Amendment No. 3 to the proposed rule change on June 15, 2006. 5 The proposed rule change, as amended, was published for comment in the **Federal Register** on June 29, 2006. 6 The Commission received no comments regarding the proposal, as amended. On August 22, 2006, BSE filed Amendment No. 5 to the proposed rule change. 7 This order approves the proposed rule change, as amended, grants accelerated approval to Amendment No. 5 to the proposed rule change, and solicits comments from interested persons on Amendment No. 5. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 replaced and superseded the original filing in its entirety. 4 Amendment No. 2 replaced and superseded the original filing and Amendment No. 1 in their entirety. 5 Amendment No. 3 replaced and superseded the original filing, Amendment No. 1, and Amendment No. 2 in their entirety. 6 *See* Securities Exchange Act Release No. 54034 (June 22, 2006), 71 FR 37140. 7 Amendment No. 4 was filed on July 26, 2006. Amendment No. 4 was withdrawn on August 22, 2006. Amendment No. 5 was filed on August 22, 2006. In Amendment No. 5, the Exchange amended BSE Rules Chapter II, Section 41—Minimum Price Variation to state that the Exchange shall not display, rank, or accept any bids, offers, or orders in a security priced in an increment smaller than $0.01 if that bid, offer, or order is priced equal to or greater than $1.00, but that the Exchange may execute and report Mid-point Cross Orders in increments as small as one-half the Minimum Price Variation for the security. In addition, BSE amended the rule text of BSE Rule, Chapter XXXVII to clarify that if an At the Close order is not fully executed at the close, the part of the order not executed will be cancelled; to clarify opening procedures; to indicate more clearly when orders would be routed at the instruction of the Member entering the order; and to clarify how cross orders would be executed in the Post-Primary Trading Session. Further, the Exchange corrected several technical errors contained in the rule text. II. Description of the Proposed Rule Change In a separate filing that is being approved today, BSE proposes to establish a new communications and electronic trading facility, 8 to be known as “BeX.” 9 The BeX facility is a fully-automated electronic book for the display and execution of orders in securities intended for the use of BSE Members, including Electronic Access Members, and their customers. 8 Pursuant to Section 3(a)(2) of the Act, the term “facility ” when used with respect to an exchange, includes “its premises, tangible or intangible property whether on the premises or not, any right to the use of such premises or property or any service thereof for the purpose of effecting or reporting a transaction on an exchange (including, among other things, any system of communication to or from the exchange, by ticker or otherwise, maintained by or with the consent of the exchange), and any right of the exchange to the use of any property or service.” 15 U.S.C. 78c(a)(2). 9 BeX is owned and will be operated by BSX Group, LLC (“ BSX”), of which BSE is currently a majority owner. *See* Securities Exchange Act Release No. 54364 (August 25, 2006) (order approving SR-BSE-2006-20), which adopts the proposed governance structure of BSX as reflected in its operating agreement, and proposed changes to the BSE Constitution with respect to the creation of Electronic Access Members and to BSE rules regarding transfer of ownership of BSX units. In the instant filing, the Exchange proposes rules to implement the initial phase of BeX. 10 In this initial phase, BeX would be BSE's trading facility for any security, other than securities listed on The Nasdaq Stock Market (“Nasdaq”), 11 for which BSE obtains unlisted trading privileges (“UTP”) after June 30, 2006. All securities displayed and executed on BeX would be securities that are not assigned to a BSE specialist. BeX would allow Exchange Members, whether or not they are on the Exchange's floor, to enter orders in these securities into the BeX facility for possible execution. 10 The Commission notes that the BSE recently filed a proposed rule change setting forth proposed rules to implement the second phase of BeX and to comply with the Commission's Regulation NMS under the Act, which the Commission has published for comment. *See* Securities Exchange Release Act No. 54291 (August 8, 2006), 71 FR 47264 (August 16, 2006) (File No. SR-BSE-2006-30)(“BeX Phase II Notice”). 11 The BSE rules governing trading in Nasdaq stocks (BSE Rules, Chapter XXXV) and the BSE rules governing trading in listed securities assigned to a specialist (BSE Rules, Chapters I, II, III, XV, XVI, XVII, XIX, and XXXIII) remain unchanged. The Exchange advised that it intends to apply for UTP in securities listed otherwise than on Nasdaq for which it currently does not trade UTP. The rules governing BeX would be located in Chapter XXXVII of the BSE's Rules. The bylaws and all other BSE Rules and policies would continue to be applicable to BeX trading except where the context requires otherwise. 12 12 *See* proposed BSE Rule, Chapter XXXVII, Section 7. *Eligible securities.* In the initial phase of BeX, all securities eligible for trading on the Exchange that are listed otherwise than on Nasdaq for which the BSE has obtained UTP after June 30, 2006 would be eligible to be traded in the BeX. 13 However, any specialist request to remove a security from BeX would be considered by the appropriate committee of the BSE's Board of Directors (“Board”). 14 13 This includes securities that are not listed on Nasdaq and securities listed on other exchanges that did not begin trading on BSE prior to June 30, 2006. 14 *See* proposed BSE Rule, Chapter XXXVII, Section 1, Paragraph (a). *Receipt of orders.* Orders could be routed to BeX through the Exchange's systems or through other communications lines approved by the Exchange for the delivery of orders by Exchange Members. 15 BeX would also accept and automatically execute commitments sent by market centers that participate in ITS. 15 *See* proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph (h)(i). *Ranking, display, and automated matching of orders.* Except for Cross, Cross with Size, Mid-point Cross orders and Post Primary Cross orders, 16 all orders sent to BeX would be ranked according to their price and time of receipt and would be displayed to the public when they constitute the Best Bid or Offer in BeX for a security. Orders would automatically match against each other, in price/time priority. Specifically, an incoming order would be matched against one or more orders in the BeX, in the order of their ranking, at the price of each order, for the full amount of shares available at that price, or for the size of the incoming order, if smaller. 17 If an incoming order could not be matched when it is received, and it is not designated as an order that should be immediately cancelled, the order would be placed in the BeX. 18 16 *See* Section on eligible order types for a discussion of BeX-eligible cross orders. Cross, Cross with Size, Mid-point Cross and Post Primary Cross orders would be executed in accordance with BSE Rule, Chapter XXXVII, Section 3, Paragraph (k). 17 *See* proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph (j). 18 *See* discussion of compliance with the Intermarket Trading System (“ITS”) Plan *infra.* Under the proposed rules, orders could be entered by a BSE Member on its own behalf, for the account of another Member (collectively, “professional orders”) or for the account of a customer (an “agency order”). However, agency orders would be subject to the same display and execution processes as professional orders, and agency orders would not receive any priority in order execution or handling. 19 19 *See* proposed BSE Rule, Chapter XXXVII, Section 2, Paragraph (d). The Exchange has represented that current BSE Rule, Chapter II, Section 11, Trading While Acting as a Broker as to Market Orders, would apply to participants' activities on BeX. The rule generally provides that a member may not trade ahead of a customer order it is representing. Telephone call between Brian Donnelly, Assistant Vice President, Regulation and Compliance, BSE, and Jennifer Colihan, Special Counsel, and David Michehl, Special Counsel, Division of Market Regulation, Commission, on August 8, 2006. *Eligible order types.* Orders sent to BeX would be required to be specifically designated in the manner specified by the Exchange for trading in BeX. BeX would accept only round-lot market and limit orders for regular-way settlement. 20 20 *See* proposed BSE Rule, Chapter XXXVII, Section 2, Paragraph (a)-(b). Orders eligible for execution in BeX could be designated as one of the following existing BSE order types: 21 “At the Close,” “At the Opening or At the Opening Only,” “Day,” “Do Not Increase (DNI),” “Do not Reduce (DNR),” “Fill or Kill,” “Good ‘til Cancel,” “Immediate or Cancel,” “Limit, Limited or Limited Price,” “Market,” “Stop Limit,” or “Stop” orders. Orders could also be designated one of the following new order types in BeX: “Cross,” “Cross with Size,” “Good ‘Till Date (GTD),” Good “Till Time (GTT),” “Limit or Close,” “Mid-point Cross” or “Post Primary Cross.” Descriptions of the new BeX-eligible order types are as follows: 22 21 *See* proposed BSE Rule, Chapter XXXVII, Section 1, Paragraph (c)(i). 22 *See* proposed BSE Rule, Chapter XXXVII, Section 1, Paragraph (c)(ii). *Cross:* An order to buy and sell the same security at a specific price better than the best bid and offer displayed in BeX and equal to or better than the National Best Bid and Offer. A Cross order could represent interest of one or more BSE Members. *Cross with Size:* A Cross order to buy and sell at least 5,000 shares of the same security with a market value of at least $100,000 at a price equal to or better than the best bid or offer displayed in BeX and the National Best Bid or Offer, where the size of the order is larger than the aggregate size of all interest displayed in BeX at that price. Neither side of a Cross with Size order may be for the account of the BSE Member sending the order to BeX. 23 23 The Commission notes that the in the BeX Phase II Notice, *supra* note 10, BSE has proposed, among other things, to amend the Cross with Size provision. *Good 'Till Date (GTD):* An order to buy or sell that, if not executed, expires at the end of the date specified in the order. *Good 'Till Time (GTT):* An order to buy or sell that, if not executed, expires at the time specified in the order. *Limit or Close:* A Limit Order to buy or sell that if not executed prior to the Market on Close cutoff time of 3:40 p.m., pursuant to BSE Rule, Chapter II, Section 22, will automatically convert to an At the Close Order for inclusion in the closing process, and if not so executed at the close, will be cancelled. *Mid-Point Cross:* A two-sided order with both a buy and sell component combined that would be executed at the midpoint of the National Best Bid or Offer. A Mid-Point Cross order would be rejected when a locked or crossed market exists in the relevant security at the time the order is received. Mid-Point Cross orders would be permitted to be executed and reported in increments as small as one-half of the Minimum Price Variation. 24 24 BSE Rules, Chapter II, Section 41 generally sets forth the “ Minimum Price Variation” as $.01. *See supra* note 7 regarding an amendment the Exchange has made to this proposal with respect to the definition of Minimum Price Variation. *Post Primary Cross:* A single priced cross order entered during the Post Primary Trading Session. Cross, Cross with Size, Mid-point Cross, and Post Primary Cross orders would be executed automatically if they meet the requirements for those types of orders. If they do not meet applicable requirements, they would be immediately cancelled. 25 25 *See* proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph (k). With the exception of Fill or Kill and Immediate or Cancel orders, a customer would be able to append to an order an instruction that the order be routed to the market(s) displaying the National Best Bid or Offer if the order would trade through the National Best Bid or Offer if executed on the BeX. Absent such an instruction, the order would be cancelled. *Compliance with ITS Plan.* 26 The proposed rules provide that if an order in an ITS-eligible security crosses or locks the National Best Bid or Offer at the time that it is received, the order would be immediately cancelled or, at the instruction of the member entering the order, routed to the market(s) displaying the National Best Bid or Offer to ensure compliance with the ITS Plan's rules relating to locked markets. 27 If an incoming Limit Order would trade through (as defined in the ITS Plan) through the National Best Bid or Offer if executed on the BeX at the time of receipt, it would be either cancelled or, at the instruction of the member entering the order, routed to the market(s) showing the National Best Bid or Offer. 28 If an incoming Market Order would trade through the National Best Bid or Offer if executed on the BeX at the time of receipt, it would either be cancelled or, at the instruction of the member entering the order, routed to the market(s) displaying the National Best Bid or Offer. 29 26 The Commission notes that in the BeX Phase II Notice, *supra* note 10, the BSE proposed further rule changes, among others, to ensure that its rules comply with Rules 610 and 611 of Regulation NMS under the Act. The Commission notes that once Regulation NMS has been fully implemented, the ITS Plan and its requirements will no longer be in effect. 27 *See* proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph (i), subparagraph (ii). Similarly, if an order in a listed security locks or crosses the Best Bid or Offer in BeX at the time it is received, the order would be executed on BeX according to BeX's matching algorithm with any remaining portion either immediately cancelled, at the instruction of the member entering the order, routed to an away market center(s). 28 *See* proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph (j)(ii). 29 *Id.* at Paragraph (j)(iii). Inbound ITS commitments, if priced at or better than the current Best Bid or Offer in BeX, would be automatically executed against the order(s) reflected in the Best Bid or Offer for the full amount of shares at that price, and any remaining portion of the ITS commitment would be automatically cancelled. 30 30 *Id.* at Paragraph (j)(iv). *Operating hours and trading sessions.* BeX would operate from 7:30 a.m. until 4:30 p.m. during Pre-Opening, Opening, Primary, and Post-Primary Trading Sessions. 31 Specifically, the Pre-Opening would extend from 7:30 a.m. until 9:30 a.m., during which orders could be placed on the BeX but would not be matched and would not generate trade executions. Market participants would be able to add, modify or cancel orders during this period. 31 *See* proposed BSE Rule, Chapter XXXVII, Section 3, Paragraphs (a)-(g). The BeX facility would open for trading once the primary market for a security opens on either a displayed quote or trade (the “Opening”). 32 Where the Opening is based on a trade print in the primary market, it would match the primary market opening price for each individual security opened. Once the BeX opening price was determined, all eligible orders priced equal to or better than the BeX opening price would be paired for execution at that price following applicable BeX priority rules. 32 The proposed rules define the primary market for purposes of BeX as the listing market for a security, unless otherwise designated by the appropriate BSE Board committee; provided, however, that if a security is traded by the New York Stock Exchange, Inc. (“NYSE”), then the primary market for such security would be the NYSE, and if a security is not traded by the NYSE and is traded by the Amex, then the primary market for such security would be the Amex. If a security is traded on both the NYSE and the Amex, whichever of the two is the listing market would be considered the primary market. If a security is solely listed on any other exchange, then the primary security for that market would be that exchange. *See* proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph (a)(i). Nasdaq securities and BSE-solely listed issues, which currently are assigned to a specialist, would continue to trade under the BSE's existing rules, and not on BeX. Where the Opening is based on a quote in the primary market, the BeX would open in one of the following ways:
(1)Where there were orders in the BeX that could not be matched, the BeX would open on a quote;
(2)where there were orders in the BeX that could be matched, the BeX opening price would be the Theoretical Opening Price (“TOP”), 33 provided the TOP is at or within the National Best Bid and Offer. If the only orders in BeX at the opening are Market Orders, the TOP will be the prior day's closing price and the orders would be executed at that price. If that price is not within the National Best Bid or Offer, the order would be routed, at the instruction of the Member entering the order, to the market center(s) displaying the National Best Bid or Offer. If the Member has not provided the instruction to route, the order will be cancelled;
(3)where there were orders in the BeX that could be matched, and the TOP is not at or within the National Best Bid and Offer, the BeX opening trade price would be at the National Best Bid or Offer closest to the TOP as long as orders could be matched at that price. If orders could not be matched at that price, the BeX would open on a quote. 33 The TOP would be the price that maximizes the quantity of orders traded on the BeX at the opening. If there are multiple prices that maximize the quantity of orders traded on the BeX at the opening, then the TOP would be the price that minimizes the quantity of orders not traded. If there are multiple prices that minimize the quantity of orders not traded, then the price that minimizes any order imbalance is the TOP. If there are multiple prices that minimize the quantity of orders not traded and there is no order imbalance, the TOP is the price closest to the previous day's closing price. *See* proposed BSE Rule, Chapter XXXVII, Section 3(c)(iii). Following the opening execution process in an individual security all orders remaining that are executable against the National Best Bid and Offer would be cancelled, or routed in accordance with the customer's instruction. All other orders would be booked on the BeX. Immediately following the Opening for individual securities, BeX will commence the Primary Trading Session. All orders would be matched automatically following price and time priority as soon as they are entered in the BeX book. Incoming orders would be executed at or within the National Best Bid and Offer. BeX would close the Primary Trading Session in the following manner: Beginning at 3:40 p.m., BeX would broadcast the imbalance between the At-the-Close and Limit-or-Close orders on the bid side, and At-the-Close and Limit-or-Close orders on the offer side. During this “Market on Close Period,” At-the-Close and Limit-or-Close orders could not be cancelled. At 4 p.m., BeX would put all eligible orders in such securities received by 4 p.m. into an Authorized Reserve State. When BeX received the closing price message from the primary market, the BeX trading engine would complete the closing process for each individual security. During this process, all paired At the Close and Limit or Close orders would be executed at the primary market closing price. The Post-Primary Trading Session would operate from the time when the primary market disseminates its closing price until 4:30. During the Post Primary Trading Session only Post Primary Cross orders at a specific price could be submitted. *Cancellations of transactions and handling of clearly erroneous transactions.* Under the proposed rules, Members that make a transaction in demonstrable error could agree to cancel and unwind the transaction, subject to the approval of the Exchange. 34 For purposes of the BeX facility, the Exchange also proposes to adopt procedures for review of clearly erroneous transactions when such review is requested. 35 The Chief Regulatory Officer (“CRO”) or another officer designated by the CRO would review the transaction and potentially modify or cancel executions where one party believes that the terms of the transaction were clearly erroneous when submitted. The CRO or another officer designated by the CRO would also be able to modify or cancel executions that result from a disruption or malfunction in the use or operation of BeX, or any communications system associated with the BeX. 34 *See* proposed BSE Rule, Chapter XXXVII, Section 4, Paragraph (a). 35 *See* proposed BSE Rule, Chapter XXXVII, Section 5, Paragraph (a). The proposed rules set out procedures for each of these reviews, including specific means for Members to appeal the Exchange's decisions. *Adjustment of orders on ex-dates.* The Exchange also proposes to adopt a process for adjusting orders in securities quoted ex-dividend, ex-distribution, ex-rights, or ex-interest. III. Discussion After careful review of the proposal, the Commission finds that the proposed rule change, as amended, which would establish trading rules for the BeX facility, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 36 In particular, the Commission finds that the proposed rule change, as amended, is consistent with Section 6(b)(5) of the Act, 37 which requires that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system; and, in general, to protect investors and the public interest. 36 In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 37 15 U.S.C. 78f(b)(5). According to BSE, it currently has no provisions for the trading of securities that are not assigned to a specialist. Under the proposed rule change, BSE would inaugurate a new, fully-electronic facility for the trading of equity securities, which would permit orders in eligible securities to match against each other automatically, without the participation of a BSE specialist. The Commission finds that the proposed rules governing the BeX facility are designed to perfect the mechanism of a free and open market by providing for the automatic handling of orders in BeX-eligible securities in a fair and reasonable manner. In the Commission's view, this new automatic execution facility should help provide investors with a more efficient mechanism by which to immediately access and trade securities on the Exchange. 38 38 The Commission notes that the Exchange recently filed a proposed rule change, that, among other things, would add enhancements to the BeX facility to ensure the Exchange's compliance with Regulation NMS under the Act, and to qualify as an “automated trading center” under that regulation. While the Commission believes that the instant proposed rule change, as amended, is consistent with the requirements of the Act, the Commission is not making a determination in this Order that the Exchange's automatic execution capabilities would satisfy the “automated trading center” definition in Rule 600(b)(4) of Regulation NMS. Various facets of the proposed rule change are discussed below. 1. Eligible Securities Under the proposed rule change, securities eligible for trading on BeX would include all securities eligible for trading on the Exchange that are not listed on the Nasdaq for which the BSE obtains UTP after June 30, 2006. Although, under the proposal, a specialist could request to remove a security from BeX, the Commission notes that a security would not be eligible for trading on BeX if that same security is traded by a BSE specialist. The Commission further notes that, since filing the instant proposal, the Exchange has filed a proposed rule change that is intended to eliminate, as of January 1, 2007, specialist participation in any transactions on the BSE. 39 The Commission believes that the Exchange's retention on a short-term basis of its existing specialist system for securities that have traded pursuant to UTP on the BSE prior to June 1, 2006, at the same time BeX is introduced for other securities, is a reasonable approach by which the Exchange can phase-in its fully-automated trading system. 39 *See* BeX Phase II Notice, *supra* note10. 2. Receipt, Ranking, Display, and Automated Matching of Orders Orders could be routed to BeX through the Exchange's systems or through other communications lines approved by the Exchange for the delivery of orders by Exchange Members. 40 BeX would also accept and automatically execute commitments sent by market centers that participate in ITS. 40 *See* proposed BSE Rule, Chapter XXXVII, Section 3, Paragraph (h)(i). Under the proposed rule change, all orders sent to BeX (excluding the order types discussed below) would be ranked according to their price and time of receipt and would be displayed to the public when they constitute the Best Bid or Offer in BeX for a security. No distinction is made to this priority with regard to agency orders and professional or proprietary orders. The Commission believes that the use of price/time priority in the ranking, display, and matching of orders, and the equal treatment of agency and professional orders, is consistent with the Act. The Commission notes that it previously has approved similar rules for other exchanges. 41 41 *See, e.g.,* Securities Exchange Act Release No. 52094 (July 21, 2005), 70 FR 43913 (July 29, 2005) (Order approving the electronic book for the Chicago Stock Exchange, Inc.). 3. Eligible Order Types In addition to accepting specific order types set forth in BSE's existing rules, the Exchange proposes to add several new order types for use exclusively on BeX. These order types include Cross, Cross with Size, Good ‘Till Date, Good ‘Till Time, Limit or Close, Mid-Point Cross, and Post Primary Cross orders types. The Commission believes that these new order types are appropriate in the context of the BeX facility. In addition, they should help provide market participants with greater flexibility in fulfilling their trading objectives. With respect to the Cross, Cross with Size, and Mid-point Cross orders that would be implemented in BeX, the Commission notes that similar order types have been approved for electronic trading systems at other exchanges. 42 The Commission notes that the proposed rule regarding Cross with Size, in consonance with the criteria for larger-sized crosses contained in the existing BSE rules, would require this order type to be for at least 5,000 shares and larger than the aggregate size of all interest displayed in BeX at the price of the cross. It would further require that neither side of the order be for the account of the BSE member sending the order to the Exchange. The Exchange has added another condition for BeX, stipulating that the order must have a market value of at least $100,000. 43 42 *See* Chicago Stock Exchange Rules Chapter XXA, Rule 2(c)(3)-(4); NYSE Arca Rule 7.31(y). 43 The Commission notes that the BSE has proposed to amend the Cross with Size provision as part of the second phase of BeX. *See* BeX Phase II Notice. 4. Compliance With Intermarket Trading System Plan The Commission believes that the proposed rule change includes provisions serving to ensure that the BeX complies with the ITS Plan and thereby promote the fair and orderly operation of the national market system. 44 In this regard, the Commission notes that the rules provide that if an order in an ITS-eligible security crosses or locks the NBBO at the time that it is received, the order would be cancelled or, at the instruction of the member entering the order, routed to the market center(s) displaying the National Best Bid or Offer. 44 *See also supra* note 26. If an incoming Limit Order or Market Order in an ITS-eligible security would trade through (as defined in the ITS Plan) the NBBO if executed on the BeX at the time of receipt, it would either be cancelled, or routed to the market(s) displaying the NBBO if it contains such instruction from the Exchange member entering the order. Inbound ITS commitments, if priced at or better than the current best bid or offer in BeX (“BBO”), would be automatically executed against the order(s) reflected in the BBO for the full amount of shares at that price, and any remaining portion of the ITS commitment would be automatically cancelled. 5. Trading Sessions and Opening and Closing Procedures The BeX will open its Primary Session for trading each day, and begin processing orders that have been submitted during the 7:30 to 9:30 a.m. Pre-Opening Session, once the primary market for the relevant security opens. When the primary market opens on a trade print, the opening price on BeX will match the price of that transaction. When the primary market opens on a displayed quote, and there are no orders in BeX that can be matched, BeX also will open on a quote. When there are orders that can be matched, the opening price will be either the TOP, or—when the TOP is inferior to the National Best Bid or National Best Offer—at the closer of the National Best Bid or National Best Offer to the TOP, if there are orders on the BeX that can be matched at that price. Otherwise, BeX will open on a quote. Following the opening in an individual security—where there were orders that were matched—any remaining orders that could be executed at the NBBO are either canceled, or routed in accordance with the customer's instructions. Remaining orders that could set a new NBBO would be displayed. All other orders would be placed on the BeX book. To close the Primary Trading Session, at 3:40 p.m., BeX would broadcast the imbalance between the orders on the bid and ask side, respectively, that have been designated to be executed at the closing price ( *i.e.* , At-the-Close and any Limit-or-Close orders that have not been executed by this time, and have therefore been converted to At the Close orders). At 4 p.m., BeX would put all eligible orders in such securities received by 4:00 p.m. into an Authorized Reserve State. When BeX receives the closing price message from the primary market, BeX would complete the closing process for each individual security by pairing these orders and executing them at the primary market closing price. From this time until 4:30 p.m., the BeX will operate a Post-Primary Trading Session during which only Post Primary cross orders could be submitted. The Commission believes that the proposed BeX opening and closing procedures are reasonable and consistent with the Act. 6. Cancellations, Clearly Erroneous Transactions, and Adjustment of Orders The Exchange's proposal would allow participants making a demonstrable error to agree to cancel and unwind the transaction, subject to the Exchange's approval. The proposed rule change also sets forth formal procedures regarding the Exchange's review of clearly erroneous transactions, and the specific means for market participants to appeal decisions made by Exchange officials. The Commission believes that these proposed rules are consistent with the Act and should provide for a fair, transparent, and reasonable process in which BeX participants can correct erroneous transactions. The Commission notes that it has approved similar rules at other exchanges. 45 45 *See, e.g.,* CHX Rules, Article XXA, Rules 5 and 7; NYSE Arca Rule 7.10. The proposal also sets forth the rules governing how and when it would adjust certain orders to buy or sell a security when a security is quoted ex-dividend, ex-distribution, or ex-interest. These procedures should help ensure that such orders will continue to be handled according to the sellers' or buyers' original intentions and to preserve the ability of these orders to obtain the best price available. These proposed rules, too, are substantially similar to rules of another exchange that were previously approved by the Commission. 46 46 *See* NYSE Rule 118. 7. Application of “Effect v. Execute” Exemption From Section 11(a) of the Act Section 11(a) of the Act 47 prohibits a member of a national securities exchange from effecting transactions on that exchange for its own account, the account of an associated person, or an account over which it or its associated person exercises discretion (collectively, “covered accounts”) unless an exception applies. Rule 11a2-2(T) 48 under the Act, known as the “effect versus execute” rule, provides exchange members with an exemption from the Section 11(a) prohibition. Rule 11a2-2(T) permits an exchange member, subject to certain conditions, to effect transactions for covered accounts by arranging for an unaffiliated member to execute the transactions on the exchange. To comply with Rule 11a2-2(T)'s conditions, a member
(i)must transmit the order from off the exchange floor;
(ii)may not participate in the execution of the transaction once it has been transmitted to the member performing the execution;
(iii)may not be affiliated with the executing member; and
(iv)with respect to an account over which the member has investment discretion, neither the member nor its associated person may retain any compensation in the connection with effecting the transaction except as provided in the Rule. 47 15 U.S.C. 78k(a). 48 17 CFR 240.11a2-2(T). In letters to the Commission, 49 the Exchange represented that transactions effected in the BeX trading system meet the requirements of Rule 11a2-2(T). Based on these representations, the Commission finds that the BeX trading system satisfies the four conditions of Rule 11a2-2(T). 49 *See* Letter from Letter from William C. Meehan, General Counsel, BSE, to Kelly M. Riley, Assistant Director, Division of Market Regulation, Commission, dated June 2, 2006; *see also* Letter from William C. Meehan, General Counsel, BSE, to Kelly M. Riley, Assistant Director, Division, Commission, dated August 8, 2006. First, orders would be sent, by electronic means, to the physically separate trading platform of BeX. In the context of other automated trading systems, the Commission has found that the off-floor transmission requirement is met if a covered account order is transmitted from a remote location directly to an exchange's floor by electronic means. 50 The Exchange stated in its letter that it proposes that its members, whether they are located on the Exchange's physical trading floor or off of the floor, be able to use automated means to transmit orders for their own account into the BeX trading system. The Commission has stated that the off-floor transmission requirement may be met when an order is sent from one trading floor of an exchange to another, separate trading floor of the same exchange. 51 On the basis of the Exchange's representations, the Commission believes that orders sent, by electronic means, from the Exchange's physical trading floor may be considered to be sent from “off-floor” for purposes of the BeX trading system. Specifically, the Commission believes that because the securities traded on the BeX trading system are not traded on the Exchange's physical floor, the BeX trading system is essentially a different, separate “trading floor.” The Commission notes that Exchange floor members will not have a time/place advantage with regard to the securities traded in the BeX trading system. Specifically, orders transmitted from the Exchange's trading floor will not be processed any more quickly by the BeX trading system than those orders received from off the physical floor. In addition, floor members will see information about orders that are at the top of the BeX trading system only after that information has been sent to the securities information processor for dissemination to the public. Thus, based on these facts, the Commission believes the off-floor transmission requirement is satisfied in this case. 50 *See, e.g.* , Securities Exchange Act Release Nos. 49066 (January 13, 2004), 69 FR 2773 (January 20, 2004) (order approving the Boston Options Exchange as an options trading facility of the Boston Stock Exchange); 29237 (May 24, 1991), 56 FR 24853 (May 31, 1991) (regarding New York Stock Exchange's (“NYSE”) Off-Hours Trading Facility); 15533 (January 29, 1979), 44 FR 6084 (January 31, 1979) (regarding the American Stock Exchange (“Amex”) Post Execution Reporting System, the Amex Switching System, the Intermarket Trading System, the Multiple Dealer Trading Facility of the Cincinnati Stock Exchange, the Pacific Exchange's (“PCX”) Communications and Execution System, and the Philadelphia Stock Exchange's (“Phlx”) Automated Communications and Execution System (“1979 Release”)); and 14563 (March 14, 1978), 43 FR 11542 (March 17, 1978) (regarding the NYSE's Designated Order Turnaround System). *See also* Letter from Paula R. Jensen, Deputy Chief Counsel, Division, Commission, to Angelo Evangelou, Senior Attorney, Chicago Board Options Exchange (“CBOE”), dated March 31, 2003 (regarding CBOE's CBOEdirect system (“CBOEdirect Letter”)); Letter from Paula R. Jenson, Deputy Chief Counsel, Division, Commission, to Jeffrey P. Burns, Assistant General Counsel, Amex, dated July 9, 2002 (regarding Amex's Auto-Ex system for options); Letter from Paula R. Jenson, Deputy Chief Counsel, Division, Commission, to Richard S. Rudolph, Counsel, Phlx, dated April 15, 2002 (regarding Phlx's AUTOM System and its automatic execution feature AUTO-X); Letter from Paula R. Jensen, Deputy Chief Counsel, Division, Commission, to Kathryn L. Beck, Senior Vice President, Special Counsel and Antitrust Compliance Officer, PCX, dated October 25, 2001 (regarding Archipelago Exchange (“ArcaEx”) (“ArcaEx Letter”)); Letter from Brandon Becker, Director, Division, Commission, to George T. Simon, Foley & Lardner, dated November 30, 1994 (regarding Chicago Match (“Chicago Match Letter”)). 51 * See* Letter from Richard A. Steinwurtzel, Attorney, Office of Chief Counsel, Division, Commission, to Philip J. Lo Bue, Senior Vice President, PCX, dated December 22, 1978); *see also* Securities Exchange Act Release No. 52094 (July 21, 2005), 70 FR 43913 (July 29, 2005) (order approving the Chicago Stock Exchange, Inc. Ebook). Second, the rule requires that the member not participate in the execution of its order. The Exchange represented that its members relinquish control of orders after they are submitted to BeX and noted that the members do not receive any special or unique trading advantages in BeX. 52 Third, although Rule 11a2-2(T) contemplates having an order executed by an exchange member who is unaffiliated with the member initiating the order, the Commission recognizes that the requirement may be satisfied when automated exchange facilities are used. 53 Finally, the BSE represents that members that rely on Rule 11a2-2(T) for a managed account transaction must comply with the limitations on compensation set forth in the rule. 52 *See* Securities Exchange Act Release No. 44983 (October 25, 2001), 66 FR 55225 (November 1, 2001) (Order approving ArcaEx as the equities trading facility of PCX Equities Inc.); 1979 Release, *supra* note 50. *See also* CBOEdirect Letter, *supra* note 50; Letter from Larry E. Bergmann, Senior Associate Director, Division, Commission, to Edith Hallahan, Associate General Counsel, Phlx, dated March 24, 1999 (regarding Phlx's VWAP Trading System); Letter from Catherine McGuire, Chief Counsel, Division, Commission, to David E. Rosedahl, PCX, dated November 30, 1998 (regarding Optimark); and Chicago Match Letter, *supra* note 50. 53 In considering the operation of automated execution systems operated by an exchange, the Commission noted that while there is no independent executing exchange member, the execution of an order is automatic once it has been transmitted into the systems. Because the design of these systems ensures that members do not possess any special or unique trading advantages in handling their orders after transmitting them to the exchange, the Commission has stated that executions obtained through these systems satisfy the independent execution requirement of Rule 11a2-2(T). *See* 1979 Release, *supra* note 50. Accelerated Approval of Amendment No. 5 The Commission finds good cause for approving Amendment No. 5 to the proposed rule change prior to the thirtieth day after publishing notice of Amendment No. 5 in the **Federal Register** pursuant to Section 19(b)(2) of the Act. 54 54 15 U.S.C. 78s(b)(2). Pursuant to Section 19(b)(2) of the Act, the Commission may not approve any proposed rule change, or amendment thereto, prior to the thirtieth day after the date of publication of the notice thereof, unless the Commission finds good cause for so doing. In Amendment No. 5, the BSE amended Chapter II, Section 41—Minimum Price Variation to state that the Exchange shall not display, rank, or accept any bids, offers, or orders in a security priced in an increment smaller than $0.01 if that bid, offer, or order is priced equal to or greater than $1.00, but that the Exchange may execute and report Mid-point Cross Orders in increments as small as one-half the Minimum Price Variation for the security. In addition, BSE amended the rules text of BSE Rule, Chapter XXXVII to clarify that if an At the Close order is not fully executed at the close, the part of the order not executed will be cancelled; to clarify opening procedures; to indicate more clearly when orders would be routed at the instruction of the member entering the order, to the market center(s) displaying the National Best Bid or Offer; and to clarify how cross orders would be executed in the Post-Primary Trading Session. The Exchange also corrected several technical errors contained in the rule text. The Commission believes that these clarifying and technical changes to the proposed rule change improve the proposal and raise no new or novel issues of regulatory concern, and therefore should not delay its implementation. Accordingly, the Commission finds good cause to accelerate approval of Amendment No. 5, pursuant to Section 19(b)(2) of the Act. 55 55 15 U.S.C. 78s(b)(2). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 5, including whether Amendment No. 5 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-BSE-2006-22 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-BSE-2006-22. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of 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 Amendment No. 5 of File Number SR-BSE-2006-22 and should be submitted on or before September 22, 2006. V. Conclusion For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange, and, in particular, with Section 6(b)(5) of the Act. 56 56 15 U.S.C. 78f(b)(5). *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 57 that the proposed rule change (SR-BSE-2006-22), as amended, and Amendment No. 3 thereto, is approved and Amendment No. 5 is approved on an accelerated basis. 57 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 58 58 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-14564 Filed 8-31-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54367; File No. SR-DTC-2006-09] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing and Immediate Effectiveness of Proposed Rule To Revise the DTC Custody Service Guide To Incorporate the Terms of Certain Participant Agreements August 25, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on May 19, 2006, The Depository Trust Company (“DTC”) filed with the Securities and Exchange Commission (“Commission”) a proposed rule change and on June 23, 2006, amended the proposed rule change described in Items I, II, and III below, which items have been prepared primarily by DTC. DTC filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 2 and Rule 19b-4(f)(4) thereunder 3 so that 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 parties. 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78s(b)(3)(A)(iii). 3 17 CFR 240.19b-4(f)(4). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would incorporate the terms and conditions of certain participant agreements related to DTC's custody service into the DTC Custody Service Guide. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, DTC 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. DTC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of these statements. 4 4 The Commission has modified the text of the summaries prepared by DTC.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change DTC is filing the proposed rule change to incorporate the terms and conditions of various participant agreements relating to DTC's custody service into the DTC Custody Service Guide (“Guide”). 5 Specifically, DTC is incorporating the terms of three custody service participant agreements into the Guide:
(i)The High Value Letter, 6
(ii)New York Window Service Agreement, 7 and
(iii)Medallion Signature Guarantee/Stamp Letter. 8 The terms proposed to be incorporated by this filing into the Guide match those currently included in the agreements thereby affording both DTC and its participants the same rights and responsibilities as those afforded by the agreements. 5 For background information on the Custody Service Guide, which replaced applicable participant operating procedures relating to the custody service, see Securities Exchange Act Release No. 34-44719 (August 17, 2001), 66 FR 44656 (August 24, 2001) [File No. SR-DTC-2001-01]. 6 The High Value Letter defines the extent of loss that DTC would incur in connection with the processing of certain “high value” certificates as being limited by the extent of the DTC insurance coverage at the time of an incident of loss. 7 The New York Window Service Agreement sets forth the terms and conditions for a participant's use of the New York Window Service, a service offered under the umbrella of DTC's custody service. 8 The Medallion Signature Guarantee/Stamp Letter sets forth the terms and conditions for DTC's use of certain participant stamps and medallions in connection with the New York Window Service. DTC believes that the proposed rule change is consistent with the requirements of the Act, as amended, and the rules and regulations thereunder because it incorporates existing terms of DTC participant agreements into DTC's Guide and thus facilitates the safeguarding of securities in DTC's custody or control.
(B)Self-Regulatory Organization's Statement on Burden on Competition DTC does not believe that the proposed rule change will have any impact or 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 relating to the proposed rule change have not yet been solicited or received. DTC will notify the Commission of any written comments received by DTC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(iii) of the Act 9 and Rule 19b-4(f)(4) 10 thereunder because the proposed rule effects a change in an existing service of DTC that
(i)does not adversely affect the safeguarding of securities or funds in the custody or control of DTC or for which it is responsible and
(ii)does not significantly affect the respective rights or obligations of DTC 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. 9 15 U.S.C. 78s(b)(3)(A)(iii). 10 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-DTC-2006-09 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-DTC-2006-09. 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 DTC and on DTC's Web site at *http://www.dtc.org* . 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-DTC-2006-09 and should be submitted on or before September 22, 2006. For the Commission by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-14552 Filed 8-31-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54366; File No. SR-NSCC-2006-07] Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating To Clarifying and Technical Changes to NSCC's Rules Regarding Its Fund/Serv Mutual Fund Processing System August 25, 2006. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 notice is hereby given that on June 5, 2006, the National Securities Clearing Corporation (“NSCC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change described in Items I, II, and III below, which items have been prepared primarily by NSCC. NSCC filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 2 and Rule 19b-4(f)(4) thereunder 3 so that 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 parties. 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78s(b)(3)(A)(iii). 3 17 CFR 240.19b–4(f)(4). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change would make clarifying and technical changes to NSCC's Rules principally as they relate to funds which are eligible for processing on Fund/Serv, NSCC's mutual fund processing system. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NSCC 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. NSCC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of these statements. 4 4 The Commission has modified the text of the summaries prepared by NSCC.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The purpose of the proposed rule change is to make clarifying and technical changes to NSCC's Rules, principally as they relate to funds which are eligible for processing on Fund/Serv, NSCC's mutual fund processing system. Rule 52 of NSCC Rules addresses NSCC's mutual fund services. The types of funds which are eligible for NSCC's mutual fund services, including the processing on Fund/Serv, are referenced in Section 1 of Rule 52 with supplemental references in Rules 1 and 3. 5 5 Settlement of Fund/Serv transactions is not guaranteed by NSCC. Funds that are eligible for NSCC's mutual fund services currently include investment companies regulated under the Investment Company Act of 1940, as amended; 6 bank and insurance funds such as guaranteed investment contracts, bank collective investments, and stable value funds; and certain offshore funds which are established under regulatory frameworks similar to the Investment Company Act ( *e.g.* , offshore funds established under the Undertaking for Collective Investment in Transferable Securities). Some of these fund types are explicitly mentioned in NSCC's Rules ( *e.g.* , funds defined as “management companies” under section 4(3) of the Investment Company Act and funds regulated under bank and insurance law). Others have been added under NSCC's general authority regarding the designation of “Eligible Mutual Funds” under Rule 3, Section 7 ( *e.g.* , unit investment trusts regulated under the Investment Company Act and certain offshore funds domiciled outside the United States.) 6 15 U.S.C. 80a. The proposed changes to NSCC's Rules will clarify the types of investment vehicles that are eligible for Fund/Serv processing, consolidate the operative provisions in Rule 3, and make technical changes to other rule provisions. The proposed amendment to Rule 3 establishes the defined term “Fund/Serv Eligible Fund” that includes any fund or other pooled investment entity that is eligible for NSCC's mutual fund services, including processing on Fund/Serv,.under Rule 3, Section 7. (The defined terms “Eligible Investment Fund” and “Eligible Mutual Fund” are being deleted.) The term is analogous to the term “Cleared Securities” under Rule 3 which is applicable to securities that are eligible for NSCC's clearance services. Rule 3 is also amended to include a description of the current criteria used by NSCC in determining eligibility for “Fund/Serv Eligible Funds” and NSCC's authority to establish additional criteria for eligibility from time to time using language consistent with that used for “Cleared Securities” in Rule 3. NSCC's current membership requirements applicable to Fund Members admitted under Rule 51 and Addendum I will continue to apply without change. The NSCC Fund Member is the entity that is responsible for settlement of NSCC transactions on behalf of the fund. Additional, unrelated technical changes are made to several definitions in Rule 1. First, the definitions of “TPA” ( *i.e.* , third-party administrator) and “TPA Member” are amended to clarify that a “TPA Member” may act as an administrator for retirement and other benefit plans in general and not just with respect to plans which are structured as defined contribution plans under the Internal Revenue Code ( *i.e.* , defined benefit plans and nonqualified plans). Second, the definitions of “Insurance Entity” and “Fund Member” are amended to clarify that an individual cannot qualify, and only entities organized as a corporation, partnership, or other legal entity are covered by the definitions. NSCC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 7 and the rules thereunder because clarifying the types of funds which are eligible for processing on NSCC's Fund/Serv system will further facilitate the accurate clearance and settlement of Fund/Serv transactions. 7 15 U.S.C. 78q-1.
(B)Self-Regulatory Organization's Statement on Burden on Competition NSCC 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 relating to the proposed rule change have not yet been solicited or received. NSCC will notify the Commission of any written comments received by NSCC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective upon filing pursuant to Section 19(b)(3)(A)(iii) of the Act 8 and Rule 19b-4(f)(4) 9 thereunder because the proposed rule effects a change in an existing service of NSCC that
(i)does not adversely affect the safeguarding of securities or funds in the custody or control of the clearing agency or for which it is responsible and
(ii)does not significantly affect the respective rights or obligations of the clearing agency or persons using the service. At any time within sixty days of the filing of such rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 8 15 U.S.C. 78s(b)(3)(A)(iii). 9 17 CFR 240.19b-4(f)(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-NSCC-2006-07 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-NSCC-2006-07. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference 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 NSCC and on NSCC's Web site at *http://www.nscc.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-NSCC-2006-07 and should be submitted on or before September 22, 2006. 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. E6-14528 Filed 8-31-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54362; File No. SR-NYSE-2006-07] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Approval of Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 Thereto To Amend Exchange Rule 104 Regarding the Requirement That Specialists Obtain Floor Official Approval for Destabilizing Dealer Account Transactions That Match the National Best Bid or Offer August 25, 2006. I. Introduction On February 16, 2006, the New York Stock Exchange LLC (“NYSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend NYSE Rule 104 (Dealings by Specialists) to permit specialists to effect destabilizing dealer account transactions when matching the national best bid or offer without requiring that they obtain Floor Official approval. On April 27, 2006, NYSE filed Amendment No. 1 to the proposed rule change. The proposed rule change, as amended, was published for comment in the **Federal Register** on May 16, 2006. 3 The Commission received one comment letter 4 and a letter from NYSE that responded to the issues raised by the commenter. 5 On August 17, 2006, NYSE filed Amendment No. 2 to the proposed rule change. 6 This order approves the proposed rule change, as amended by Amendment No. 1. Simultaneously, the Commission is providing notice of filing of Amendment No. 2 and granting accelerated approval of Amendment No. 2. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 53782 (May 10, 2006), 71 FR 28399. 4 *See* e-mail from George Rutherfurd to the Commission, dated April 24, 2006 (“Rutherfurd Letter”). 5 Letter to Nancy M. Morris, Secretary, Commission, from Mary Yeager, Assistant Secretary, NYSE, dated July 20, 2006 (“NYSE Response Letter”). 6 Amendment No. 2 clarifies that a specialist's ability to effect destabilizing dealer account transactions when matching the national best bid or offer applies when the national best bid or offer is established by another market center. II. Description of the Proposal NYSE Rule 104 governs specialists' dealings in their specialty stocks. In particular, NYSE Rules 104.10(5) and
(6)describe certain types of transactions that are not to be effected unless they are reasonably necessary to render the specialist's position adequate to the needs of the market. In effect, these restrictions generally require specialists' transactions for their own accounts to be “stabilizing” ( *i.e.* , against the trend of the market) and prohibit specialists from making transactions that are “destabilizing” ( *i.e.* , with the market trend by buying on plus ticks and selling on minus ticks), except with the approval of a Floor Official. The Exchange proposes to allow specialists to effect proprietary transactions on a destabilizing basis for their own account when such trades are effected at a price that matches the current national best bid or offer (“NBBO”) displayed by another market center. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 2, including whether Amendment No. 2 is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File No. SR-NYSE-2006-07 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.s All submissions should refer to File Number SR-NYSE-2006-07. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the NYSE. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSE-2006-07 and should be submitted on or before September 22, 2006. IV. Discussion After careful consideration, 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, and 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. 7 In approving this proposed rule change, as amended, 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 15 U.S.C. 78f(b)(5). The commenter asserted that the proposed rule change is unnecessary because the current rules work well to protect the public and the integrity of the price discovery mechanism. 10 The commenter expressed concern that removing the requirement for Floor Official approval would diminish the check and balance system that ensures that a specialist matching an away bid or offer is appropriate under the circumstances. The commenter also challenged the Exchange's argument that the proposed rule change is consistent with certain current practices in which specialists are permitted to match away bids and offers, as with exchange traded funds (“ETFs”). The commenter argued that, because ETFs are derivatively and objectively priced and the Exchange is not the primary market or price setting mechanism for ETFs, as it is for equities, the proposed rule change would not be appropriate for equity securities. 10 *See* Rutherford Letter, *supra* note 4. In response to the commenter's argument that Floor Official approval is a necessary safeguard against specialist over-reaching, the Exchange asserted that specialist transactions for their own account are still subject to certain Exchange Rules including “a specialist's affirmative and negative obligations, a responsibility to maintain a two-sided market with quotations that are timely and accurately reflect market conditions, and a duty to ensure that a specialist's principal transactions are designed to contribute to the maintenance of price continuity with reasonable depth.” 11 The Exchange argued that a Floor Official's approval of a destabilizing transaction for a specialist's proprietary account is only one part of the test to determine whether a specialist's proprietary transaction is proper. The Exchange also stated that it would continue to surveil specialists' proprietary transactions for compliance with the Exchange's Rules. 12 11 *See* NYSE Response Letter, *supra* note 5, at 1. 12 *Id.* In addition, the Exchange believed that there is no basis for the commenter's argument that that “[p]rices are not objectively determined * * *” with respect to transactions in non-ETF equity securities and that “most investors look to prices prevailing in the primary market, not nominal bids/offers in tertiary markets.” 13 The Exchange argued that the Commission's Order Protection Rule in Regulation NMS 14 undermines the validity of the commenter's assertion. 15 Further, the Exchange believed that “investors and specialists will review pricing information from several sources and assign each source the weight they consider proper in making a trade or investing decision.” 16 The Exchange also believed that the proposed rule change to permit certain specialist trades at the NBBO price without requiring Floor Official approval gives the specialist increased flexibility to keep the Exchange's market competitive. 17 13 *Id.* 14 *See* Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496 (June 29, 2005). 15 *See* NYSE Response Letter, *supra* note 5, at 2. 16 *Id* . at 2. 17 *Id.* at 2. Amending NYSE Rules 104.10(5) and
(6)to permit specialists to effect a destabilizing proprietary trade in an equity security at a price that matches the current NBBO should result in specialists following the market as set by the independent judgment of other market participants. The Commission believes that removing these restrictions should enhance the specialist's ability to make competitive markets. The Commission agrees with the Exchange that the proposed rule change does not relieve specialists of their obligations under Federal securities laws or NYSE Rules. 18 A specialist's ability to effect proprietary transactions remains limited under the Act and NYSE Rules. The Commission notes that the Exchange is obligated to surveil its specialists to ensure their compliance with the Act and the Exchange's Rules. 18 *Id.* at 2. Accelerated Approval of Amendment No. 2 The Commission finds good cause to approve Amendment No. 2 to the proposed rule change, as amended, prior to the thirtieth day after Amendment No. 2 is published for comment in the **Federal Register** pursuant to Section 19(b)(2) of the Act. 19 Amendment No. 2 clarifies that a specialist's ability to effect destabilizing dealer account transactions when matching the NBBO applies when the NBBO is established by another market center. The Commission finds that Amendment No. 2 provides clarification in the rule text as to the intent of the proposed rule filing. For these reasons, the Commission believes that good cause exists to accelerate approval of Amendment No. 2. 19 15 U.S.C 78s(b)(2). V. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 20 that the proposed rule change (File No. SR-NYSE-2006-07), as amended by Amendment No. 1 thereto, be, and hereby is, approved, and that Amendment No. 2 thereto, be, and hereby is, approved on an accelerated basis. 20 15 U.S.C. 78s(b)(2). 21 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 21 Nancy M. Morris, Secretary. [FR Doc. E6-14529 Filed 8-31-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54368; File No. SR-NYSE-2005-58] Self-Regulatory Organizations; New York Stock Exchange, Inc. (n/k/a New York Stock Exchange LLC); Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to Exchange Rule 312(f) Regarding Changes Within Member Organizations August 25, 2006. I. Introduction On August 15, 2005, the New York Stock Exchange, Inc. (n/k/a New York Stock Exchange LLC) (“NYSE” or the “Exchange”) filed with the Securities and Exchange Commission (“SEC” or the “Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Exchange Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change and on May 5, 2006, NYSE filed Amendment No. 1 to the proposed rule change. 3 The proposed rule change, as amended, concerns amendments to Rule 312(f) to, among other changes, permit the recommendation of purchases and sales of shares of companies controlled by and under common control with member organizations (other than MAPs), subject to appropriate customer disclosure of the relationship. The proposed rule change, as amended, was published for comment in the **Federal Register** on May 26, 2006. 4 The Commission received two comment letters on the proposal. 5 On August 11, 2006, NYSE filed a response to the S&C Letter. 6 This order approves the proposed rule change, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 replaced the rule text in the original filing in its entirety and proposed to clarify that Rule 312(f) applies only to non-investment grade debt and equity securities. Amendment No. 1 also added Material Associated Persons (“MAPs”), as that term is used in Rule 17h-1T of the Exchange Act, to the class of persons for whose securities the solicitation of trades is prohibited. 4 *See* Securities Exchange Act Release No. 53840 (May 19, 2006), 71 FR 30458 (May 26, 2006). 5 *See* letter from John Ramsay, Managing Director, Deputy General Counsel, Citigroup Global Markets Inc. (“Citigroup”), to Nancy M. Morris, Secretary, SEC, dated June 16, 2006 (the “Citigroup Letter”) and letter from Sullivan & Cromwell LLP (“S&C”) to Nancy M. Morris, Secretary, SEC, dated June 16, 2006 (the “S&C Letter”). 6 *See* letter from Mary Yeager, Assistant Secretary, NYSE, to Catherine McGuire, Chief Counsel, Division of Market Regulation, SEC, dated August 11, 2006 (the “NYSE Response”). II. Description of the Proposed Rule Change NYSE Rule 312(f) (the “Rule”), in pertinent part, currently prohibits a member organization from soliciting transactions in its own publicly traded securities and from making any recommendations with respect to its publicly traded securities or the securities issued by any corporation controlling, controlled by or under common control with such member corporation ( *i.e.* , the securities of any parent, sister, or subsidiary corporation relative to the member organization). The Exchange's regulatory experience relative to Rule 312(f) has generally involved determinations as to the existence, or not, of a control relationship involving a member organization among the complicated interrelationships of, and equity investments by, financial organizations. The purpose of the proposed rule change is to retain a process for mitigating conflicts of interest that may arise when recommending the securities of companies in which a member organization may have an interest, while also reducing burdens on the industry and the Exchange with respect to making determinations regarding the existence of a control relationship by establishing clearer standards and reducing interpretative questions.
(i)Proposed Codification To Exclude Investment Grade Debt From Rule 312(f) NYSE has interpreted Rule 312(f) to apply only to non-investment grade debt and equity securities. 7 This proposal would codify that interpretation. 7 Another common interpretive inquiry with respect to Rule 312(f) involves, and NYSE anticipates would continue to involve, a determination as to whether the security in question has “debt-like characteristics.” The Exchange has generally interpreted Rule 312(f) restrictions to not apply to investment grade debt and securities that function as investment grade debt. The interpretation as to whether a security functions as investment grade debt is based on the totality of the circumstances, *e.g.* ,
(1)Whether the shares of stock have fixed dividends;
(2)whether the shares of stock are non-participatory in common dividends;
(3)whether the shares of stock have limited voting rights; and
(4)whether the shares of stock are non-convertible into common stock.
(ii)Proposed Expansion To Include All Non-Investment Grade Debt and Equity Securities The proposed rule change would also broaden the application of the Rule to all non-investment grade debt and equity securities, including privately placed issues. The current Rule's prohibition applies only to publicly traded securities. In addition, the proposed rule change would extend the prohibition against solicited transactions to the non-investment grade debt and equity securities of companies controlling member organizations ( *e.g.* , parent companies) and MAPs. By their nature, MAPs can substantially influence a registered broker-dealer, and the inclusion of such entities along with controlling organizations 8 acts to limit inevitable conflicts of interest. 8 *See* NYSE Rule 2.
(iii)Proposed Amendment To Permit Certain Recommendations If Disclosed Finally, the proposed rule change would permit the recommendation of purchases and sales of shares of companies controlled by and under common control with member organizations (other than MAPs), subject to appropriate customer disclosure of the relationship ( *e.g.* , any recommendation would be subject to a requirement to disclose to the customer the existence and nature of the control relationship at the time of recommendation). 9 The Exchange states that for these types of relationships disclosure is likely to function as an adequate method for addressing the conflicts of interest that could arise with respect to a member's recommendation to buy or sell securities of many affiliated entities. The Exchange proposes to retain the prohibition on the recommendation of purchases in the securities of the member organization, any controlling organization or a MAP given the greater potential for a conflict of interest inherent in such relationships. 9 *See* proposed Rule 312(f)(2). If the disclosure at the time of the recommendation is not made in writing, then the member must also provide this disclosure in writing prior to the completion of the transaction. III. Summary of Comments Received and NYSE Response The Commission received two comment letters (the Citigroup Letter and the S&C Letter) on the proposal and a response to the S&C Letter by NYSE. 10 The Citigroup Letter expresses support for the proposed changes to Rule 312(f). 10 S&C Letter. *See* also NYSE Response. Because the Citigroup Letter did not express any disagreement with the proposed rule change, the NYSE Response does not address the Citigroup Letter. The S&C Letter generally expresses support for the proposed rule change, but also notes reservations regarding:
(1)The expansion of the Rule 312(f) restrictions to non-public securities, and
(2)the prohibitions contained in Rule 312(f)(1) concerning solicitation of transactions in the securities of a member organization, its parent or a MAP. 11 11 S&C Letter. In responding to S&C's reservation regarding the extension of the coverage of Rule 312(f) to non-publicly traded securities, NYSE states that there is a “need to assure coverage of all post-distribution transactions by member organizations in affiliated securities, and not solely those which are sold pursuant to public offerings.” 12 NYSE also expresses the view that the proposed change will not impose a significant burden on trading in non-publicly traded securities. 13 12 NYSE Response. 13 *Id.* In responding to S&C's reservation regarding the prohibitions contained in Rule 312(f)(1), NYSE states that it “respectfully disagree[s] with the suggestion that the prohibition against the solicitation of transactions in the securities of the member organization, parent or [MAP] is at present unwarranted [because] [t]he conflicts which the original rule was written to prevent have not disappeared.” 14 NYSE also clarifies that “[i]t is not the transaction which is prohibited, but rather the recommendation of the transaction; the Rule allows unsolicited transactions.” 15 14 *Id.* 15 *Id.* IV. Discussion and Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Exchange Act, and the rules and regulations thereunder applicable to a national securities exchange, and in particular, with the requirements of Section 6(b)(5) 16 of the Exchange Act. Section 6(b)(5) requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and national market system, and in general, to protect investors and the public interest. Section 3(f) of the Exchange Act also requires, among other things, whenever there is a requirement to consider or determine whether an action is necessary or appropriate in the public interest, to also consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. 16 15 U.S.C. 78f(b)(5). The Commission believes that the proposed rule change, as amended, will act to assure adequate and continuing protection for investors while promoting efficiency, competition, and capital formation by permitting the recommendation of purchases and sales of shares of companies controlled by and under common control with member organizations (other than MAPs), subject to appropriate customer disclosure of the relationship, by expanding restrictions on effecting solicited transactions to include non-public securities, and by codifying NYSE interpretations as described above. V. Conclusions *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 17 that the proposed rule change (SR-NYSE-2005-58), as amended, be, and hereby is, approved. 17 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 18 18 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-14563 Filed 8-31-06; 8:45 am] BILLING CODE 8010-01-P DEPARTMENT OF STATE [Public Notice 5534] Culturally Significant Object Imported for Exhibition Determinations: “Cimabue and Early Italian Devotional Painting” *Summary:* Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, *et seq.* ; 22 U.S.C. 6501 note, *et seq.* ), Delegation of Authority No. 234 of October 1, 1999, Delegation of Authority No. 236 of October 19, 1999, as amended, and Delegation of Authority No. 257 of April 15, 2003 [68 FR 19875], I hereby determine that the object to be included in the exhibition “Cimabue and Early Italian Devotional Painting,” imported from abroad for temporary exhibition within the United States, is of cultural significance. The object is imported pursuant to a loan agreement with the foreign owner or custodian. I also determine that the exhibition or display of the exhibit object at The Frick Collection, New York, New York, from on or about October 3, 2006, until on or about December 31, 2006, and at possible additional venues yet to be determined, is in the national interest. Public Notice of these Determinations is ordered to be published in the **Federal Register** . *For Further Information Contact:* For further information, including a description of the exhibit object, contact Paul Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202/453-8052). The address is U.S. Department of State, SA-44, 301 4th Street, SW., Room 700, Washington, DC 20547-0001. Dated: August 25, 2006. C. Miller Crouch, Principal Deputy Assistant Secretary for Educational and Cultural Affairs, Department of State. [FR Doc. E6-14546 Filed 8-31-06; 8:45 am] BILLING CODE 4710-05-P DEPARTMENT OF STATE [Public Notice 5535] Culturally Significant Objects Imported for Exhibition Determinations: “Domenico Tiepolo (1727-1804): A New Testament” *Summary:* Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, *et seq.* ; 22 U.S.C. 6501 note, *et seq.* ), Delegation of Authority No. 234 of October 1, 1999, Delegation of Authority No. 236 of October 19, 1999, as amended, and Delegation of Authority No. 257 of April 15, 2003 [68 FR 19875], I hereby determine that the objects to be included in the exhibition “Domenico Tiepolo (1727-1804): A New Testament,” imported from abroad for temporary exhibition within the United States, are of cultural significance. The objects are imported pursuant to loan agreements with the foreign owners or custodians. I also determine that the exhibition or display of the exhibit objects at The Frick Collection, New York, New York, from on or about October 24, 2006, until on or about January 7, 2007, and at possible additional venues yet to be determined, is in the national interest. Public Notice of these Determinations is ordered to be published in the **Federal Register** . *For Further Information Contact:* For further information, including a list of the exhibit objects, contact Wolodymyr Sulzynsky, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202/453-8050). The address is U.S. Department of State, SA-44, 301 4th Street, SW., Room 700, Washington, DC 20547-0001. Dated: August 25, 2006. C. Miller Crouch, Principal Deputy Assistant Secretary for Educational and Cultural Affairs, Department of State. [FR Doc. E6-14541 Filed 8-31-06; 8:45 am] BILLING CODE 4710-05-P DEPARTMENT OF STATE [Public Notice 5537] Culturally Significant Objects Imported for Exhibition Determinations: “Eye On Europe: Prints, Books, and Multiples, 1960—Now” *Summary:* Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, *et seq.* ; 22 U.S.C. 6501 note, *et seq.* ), Delegation of Authority No. 234 of October 1, 1999, Delegation of Authority No. 236 of October 19, 1999, as amended, and Delegation of Authority No. 257 of April 15, 2003 [68 FR 19875], I hereby determine that the objects to be included in the exhibition “Eye On Europe: Prints, Books, and Multiples, 1960—Now” imported from abroad for temporary exhibition within the United States, are of cultural significance. The objects are imported pursuant to a loan agreement with the foreign owners or custodians. I also determine that the exhibition or display of the exhibit objects at The Museum of Modern Art, New York, New York, from on or about October 10, 2006, until on or about January 1, 2007, and at possible additional venues yet to be determined, is in the national interest. Public Notice of these Determinations is ordered to be published in the **Federal Register** . *For Further Information Contact:* For further information, including a list of the exhibit objects, contact Paul Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202/453-8050). The address is U.S. Department of State, SA-44, 301 4th Street, SW., Room 700, Washington, DC 20547-0001. Dated: August 28, 2006. C. Miller Crouch, Principal Deputy Assistant Secretary for Educational and Cultural Affairs, Department of State. [FR Doc. E6-14539 Filed 8-31-06; 8:45 am] BILLING CODE 4710-05-P DEPARTMENT OF STATE [Public Notice 5536] Culturally Significant Objects Imported for Exhibition Determinations: “Luca Cambiaso 1527-1585” *Summary* : Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, *et seq.* ; 22 U.S.C. 6501 note, *et seq.* ), Delegation of Authority No. 234 of October 1, 1999, Delegation of Authority No. 236 of October 19, 1999, as amended, and Delegation of Authority No. 257 of April 15, 2003 [68 FR 19875], I hereby determine that the art object to be included in the exhibition “Luca Cambiaso 1527-1585,” imported from abroad for temporary exhibition within the United States, is of cultural significance. The art object is imported pursuant to a loan agreement with the foreign owner or custodian. I also determine that the exhibition or display of the exhibit object at The Blanton Museum of Art, The University of Texas at Austin, Austin, Texas, from on or about September 15, 2006, until on or about January 14, 2007, and at possible additional venues yet to be determined, is in the national interest. Public Notice of these Determinations is ordered to be published in the **Federal Register** . *For Further Information Contact:* For further information, including a list of the exhibit objects, contact Richard Lahne, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202/453-8058). The address is U.S. Department of State, SA-44, 301 4th Street, SW., Room 700, Washington, DC 20547-0001. Dated: August 25, 2006. C. Miller Crouch, Principal Deputy Assistant Secretary for Educational and Cultural Affairs, Department of State. [FR Doc. E6-14540 Filed 8-31-06; 8:45 am] BILLING CODE 4710-05-P DEPARTMENT OF STATE [Public Notice 5532] Culturally Significant Objects Imported for Exhibition Determinations: “Rembrandt and the Golden Age of Dutch Art: Treasures From the Rijksmuseum, Amsterdam” *Summary:* Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681, *et seq.* ; 22 U.S.C. 6501 note, *et seq.* ), Delegation of Authority No. 234 of October 1, 1999, Delegation of Authority No. 236 of October 19, 1999, as amended, and Delegation of Authority No. 257 of April 15, 2003 [68 FR 19875], I hereby determine that the objects to be included in the exhibition “Rembrandt and the Golden Age of Dutch Art: Treasures from the Rijksmuseum, Amsterdam,” imported from abroad for temporary exhibition within the United States, are of cultural significance. The objects are imported pursuant to loan agreements with the foreign owners or custodians. I also determine that the exhibition or display of the exhibit objects at The Dayton Art Institute, Dayton, Ohio, from on or about September 24. 2006, until on or about January 7, 2007, at The Phoenix Art Museum, beginning on or about January 27, 2007, until on or about May 6, 2007, at The Portland Art Museum, beginning on or about May 26, 2007, until on or about September 16, 2007, and at possible additional venues yet to be determined, is in the national interest. Public Notice of these Determinations is ordered to be published in the **Federal Register** . *For Further Information Contact:* For further information, including a list of the exhibit objects, contact Julianne Simpson, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202/453-8049). The address is U.S. Department of State, SA-44, 301 4th Street, SW., Room 700, Washington, DC 20547-0001. Dated: August 25, 2006. C. Miller Crouch, Principal Deputy Assistant Secretary for Educational and Cultural Affairs, Department of State. [FR Doc. E6-14547 Filed 8-31-06; 8:45 am] BILLING CODE 4710-05-P DEPARTMENT OF TRANSPORTATION Office of the Secretary [Docket OST-2006-25612] Notice of Request for Comments; Request by Hawaiian Airlines for Declaratory Order Concerning Hawaiian's American Samoa Service AGENCY: Office of the Secretary, Department of Transportation. SUMMARY: The Department is inviting all interested persons to comment on a petition submitted by Hawaiian Airlines for a declaratory order regarding an Executive Order issued by the Honorable Togiola T.A. Tulafono, the Governor of American Samoa, that proposes to bar Hawaiian from continuing to serve American Samoa if the Governor finds another airline that will provide service between Honolulu and Pago Pago. DATES: Comments must be submitted on or before September 15, 2006. Replies must be filed by September 22, 2006. ADDRESSES: Objections and answers to objections must be filed in Docket number OST-2006-25612 by one of the following means:
(1)By mail to the Docket Management Facility, U.S. Department of Transportation, room PL-401, 400 Seventh Street, SW., Washington, DC 20590-0001.
(2)By hand delivery to room PL-401 on the Plaza level of the Nassif Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The telephone number is 202-366-9329.
(3)Electronically through the Web site for the Docket Management System at *http://dms.dot.gov.* Comments must be filed in Docket OST-2006-25612. FOR FURTHER INFORMATION CONTACT: Thomas Ray, Office of the General Counsel (C-30, Room 4102), U.S. Department of Transportation, 400 Seventh St. SW., Washington, DC 20590,
(202)366-4731, or Nancy Kessler, Office of the General Counsel (C-10, Room 10102), U.S. Department of Transportation, 400 Seventh St., SW., Washington, DC 20590,
(202)366-9301. SUPPLEMENTARY INFORMATION: Hawaiian Airlines, which has been flying between Honolulu and Pago Pago since 1984, is the only airline currently providing scheduled passenger service between American Samoa and another U.S. state or territory. Governor Tulafono has expressed his dissatisfaction with the quality and price of Hawaiian's service. On July 26, 2006, he issued an executive order stating that American Samoa intends to find another airline to replace Hawaiian's service and that he will issue a second executive order barring Hawaiian from continuing to operate to American Samoa when a replacement airline is ready to begin flying between Honolulu and Pago Pago. On August 10, 2006, Hawaiian filed a petition for a declaratory order in Docket OST-2006-25612 that contends that the Governor may not lawfully block Hawaiian from serving the Honolulu-Pago Pago market. Hawaiian argues in particular that a Federal statute, 49 U.S.C. 41713, bars American Samoa and all other states and territories from regulating the routes, rates, and services of interstate airlines and that American Samoa therefore may not stop Hawaiian from serving Pago Pago. Hawaiian, noting that the Governor has stated that his proposed action is within American Samoa's customs and border control authority, contends that that authority would not support the Governor's plans. Hawaiian's petition includes as attachments the Governor's July 26, 2006 order and the Governor's response to a letter from the Manager of the Federal Aviation Administration's Airports District Office, Western-Pacific Region, that had suggested that the Governor's proposed action appeared to be unlawful. No one has answered Hawaiian's petition. We do not wish to rule on the petition for a declaratory order without obtaining the views of American Samoa. Hawaiian itself states that it “requests that the government of American Samoa be given the opportunity to participate in this matter.” We therefore invite American Samoa and all other interested persons to submit comments on the Hawaiian petition for a declaratory order. Comments should address the issues raised in Hawaiian's petition and the Governor's response to the FAA official's letter as well as any other relevant matters of concern to the commenter. We are placing a copy of the FAA official's letter in the docket. Hawaiian's petition and the letter are accessible on-line at the Web site for the Department's Docket Management System at *http://dms.dot.gov.* To ensure that American Samoa and other interested persons have an adequate opportunity to prepare and submit comments, we will allow them to file their comments by September 15, 2006. Interested persons, including Hawaiian, may then file replies to the comments by September 22, 2006. Dated: August 28, 2006. Michael W. Reynolds, Acting Assistant Secretary for Aviation and International Affairs. [FR Doc. E6-14565 Filed 8-31-06; 8:45 am] BILLING CODE 4910-9X-P DEPARTMENT OF TRANSPORTATION National Highway Traffic Safety Administration Petition for Exemption From the Vehicle Theft Prevention Standard; Ford Motor Company AGENCY: National Highway Traffic Safety Administration (NHTSA), Department of Transportation (DOT). ACTION: Grant of petition for exemption. SUMMARY: This document grants in full the petition of Ford Motor Company,
(Ford)in accordance with 49 CFR Part 543, *Exemption from the Theft Prevention Standard* , for the Five Hundred vehicle line beginning with model year
(MY)2007. This petition is granted because the agency has determined that the antitheft device to be placed on the line as standard equipment is likely to be as effective in reducing and deterring motor vehicle theft as compliance with the parts-marking requirements of the Theft Prevention Standard. DATES: The exemption granted by this notice is effective beginning with model year
(MY)2007. FOR FURTHER INFORMATION CONTACT: Ms. Deborah Mazyck, Office of International Vehicle, Fuel Economy and Consumer Standards, NHTSA, 400 Seventh Street, SW., Washington, DC 20590. Ms. Mazyck's telephone number is
(202)366-0846. Her fax number is
(202)493-2290. SUPPLEMENTARY INFORMATION: In a petition dated April 28, 2006, Ford requested exemption from the parts-marking requirements of the theft prevention standard (49 CFR Part 541) for the MY 2007 Five Hundred vehicle line. The petition requested exemption from parts-marking pursuant to 49 CFR Part 543, *Exemption from Vehicle Theft Prevention Standard* , based on the installation of an antitheft device as standard equipment for an entire vehicle line. Under § 543.5(a), a manufacturer may petition NHTSA to grant exemptions for one line of its vehicle lines per year. In its petition, Ford provided a detailed description and diagram of the identity, design, and location of the components of the antitheft device for the Five Hundred vehicle line. Ford will install its antitheft device, the SecuriLock Passive Anti-Theft Electronic Powertrain Immobilizer System (SecuriLock) as standard equipment on the Ford Five Hundred vehicle line beginning with MY 2007. Features of the antitheft device will include an electronic key, ignition lock, and a passive immobilizer. Additionally, the Ford Five Hundred will have an optional perimeter alarm system which will monitor all the doors, decklid and hood of the vehicle. Ford's submission is considered a complete petition as required by 49 CFR 543.7, in that it meets the general requirements contained in 543.5 and the specific content requirements of 543.6. The Ford SecuriLock is a transponder-based electronic immobilizer system. Ford stated that the integration of the transponder into the normal operation of the ignition key assures activation of the system. When the ignition key is turned to the start position, the transceiver module reads the ignition key code and transmits an encrypted message to the cluster. Validation of the key is determined and start of the engine is authorized once a separate encrypted message is sent to the powertrain's electronic control module (PCM). The powertrain will function only if the key code matches the unique identification key code previously programmed into the PCM. If the codes do not match, the powertrain engine starter will be disabled. The effectiveness of Ford's SecuriLock device was first introduced as standard equipment on its MY 1996 Mustang GT and Cobra. In My 1997, the SecuriLock system was installed on the entire Mustang vehicle line as standard equipment. Ford stated that the 1997 model year Mustang with SecuriLock shows a 70% reduction in theft compared to the MY 1995 Mustang, according to National Insurance Crime Bureau
(NICB)theft statistics. There were 149 reported theft for 1997 compared to 500 reported thefts in 1995. In addressing the specific content requirements of 543.6, Ford provided information on the reliability and durability of its proposed device. To ensure reliability and durability of the device, Ford conducted tests based on its own specified standards. Ford also provided a detailed list of the tests conducted and believes that the device is reliable and durable since the device complied with its specified requirements for each test. Ford also stated that the SecuriLock electronic engine immobilizer device makes conventional theft methods such as hot-wiring or attacking the ignition lock cylinder ineffective and virtually eliminates drive-away thefts. Ford also compared the device proposed for its vehicle line with other devices which NHTSA has determined to be as effective in reducing and deterring motor vehicle theft as would compliance with the parts-marking requirements. Ford finds that the lack of an alarm or attention attracting device does not compromise the theft deterrent performance of a system such as the SecuriLock. Ford stated that its proposed device is functionally equivalent to the systems used in previous vehicle lines which were deemed effective and granted exemptions from the parts-marking requirements of the theft prevention standard. Additionally, theft data have indicated a decline in theft rates for vehicle lines that have been equipped with antitheft devices similar to that which Ford proposes to install on the new line. In these instances, the agency has concluded that the lack of a visual or audio alarm has not prevented these antitheft devices from being effective protection against theft. On the basis of this comparison, Ford has concluded that the antitheft device proposed for its Five Hundred vehicle line is no less effective than those devices in the lines for which NHTSA has already granted full exemption from the parts-marking requirements. Based on the evidence submitted by Ford, the agency may grant a petition for an exemption from the parts-marking requirements of 541 if it determines that the standard antitheft device for the vehicle line is likely to be as effective in reducing and deterring motor vehicle theft as compliance with the parts-marking requirements of the Theft Prevention Standard (49 CFR Part 541). Pursuant to 49 U.S.C. 33106 and 49 CFR 543.7(b), the agency finds that Ford has provided adequate reasons for its belief that the antitheft device for the Five Hundred vehicle line will reduce and deter theft. This conclusion is based on the information Ford provided about its device. The agency concludes that the device will provide four of the five types of performance listed in § 543.6(a)(3): promoting activation; preventing defeat or circumvention of the device by unauthorized persons; preventing operation of the vehicle by unauthorized entrants; and ensuring the reliability and durability of the device. For the foregoing reasons, the agency hereby grants in full Ford's petition for exemption for the Five Hundred vehicle line from the parts-marking requirements of 49 CFR Part 541. The agency notes that 49 CFR Part 541, Appendix A-1, identifies those lines that are exempted from the Theft Prevention Standard for a given model year. 49 CFR Part 543.7(f) contains publication requirements incident to the disposition of all Part 543 petitions. Advanced listing, including the release of future product nameplates, the beginning model year for which the petition is granted and a general description of the antitheft device is necessary in order to notify law enforcement agencies of new vehicle lines exempted from the parts-marking requirements of the Theft Prevention Standard. If Ford decides not to use the exemption for this line, it must formally notify the agency, and, thereafter, the line must be fully marked as required by 49 CFR Parts 541.5 and 541.6 (marking of major component parts and replacement parts). NHTSA notes that if Ford wishes in the future to modify the device on which this exemption is based, the company may have to submit a petition to modify the exemption. Part 543.7(d) states that a Part 543 exemption applies only to vehicles that belong to a line exempted under this part and equipped with the anti-theft device on which the line's exemption is based. Further, § 543.9(c)(2) provides for the submission of petitions “to modify an exemption to permit the use of an antitheft device similar to but differing from the one specified in that exemption.” The agency wishes to minimize the administrative burden that Part 543.9(c)(2) could place on exempted vehicle manufacturers and itself. The agency did not intend Part 543 to require the submission of a modification petition for every change to the components or design of an antitheft device. The significance of many such changes could be *de minimis* . Therefore, NHTSA suggests that if the manufacturer contemplates making any changes the effects of which might be characterized as *de minimis* , it should consult the agency before preparing and submitting a petition to modify. Authority: 49 U.S.C. 33106; delegation of authority at 49 CFR 1.50. Issued on: August 29, 2006. Stephen R. Kratzke, Associate Administrator for Rulemaking. [FR Doc. E6-14583 Filed 8-31-06; 8:45 am] BILLING CODE 4910-59-P DEPARTMENT OF TRANSPORTATION Surface Transportation Board [STB Finance Docket No. 34918] Keokuk Junction Railway Co., d/b/a Peoria & Western Railway—Lease and Operation Exemption—BNSF Railway Company Keokuk Junction Railway Co., d/b/a/ Peoria & Western Railway (PWRY), 1 a Class III rail carrier, has filed a verified notice of exemption under 49 CFR 1150.41 to lease from BNSF Railway Company
(BNSF)and operate an approximately 42.1-mile portion of BNSF's line of railroad known as the Yates City Subdivision, extending between milepost 94.3 at Vermont, and milepost 52.20 at Farmington, in Fulton County, IL, including the Dunfermline industrial spur. 1 PWRY is controlled by Pioneer Railcorp. *See Pioneer Railcorp.—Continuance in Control Exemption—Gettysburg & Northern Railroad Co.* , STB Finance Docket No. 34010 (STB served Feb. 27, 2001). PWRY certifies that its projected annual revenues as a result of the transaction will not result in the creation of a Class II or Class I rail carrier. PWRY had intended to consummate the transaction on August 15, 2006. However, by decision served on August 10, 2006, the effective date of the exemption was stayed until further order of the Board. Accordingly, consummation of the transaction cannot occur until further order of the Board. Also on that date, a motion for protective order was filed. A protective order was served on August 25, 2006. If the verified notice contains false or misleading information, the exemption is void *ab initio* . Petitions to revoke the exemption under 49 U.S.C. 10502(d) may be filed at any time. The filing of a petition to revoke will not automatically stay the transaction. An original and 10 copies of all pleadings, referring to STB Finance Docket No. 34918, must be filed with the Surface Transportation Board, 1925 K Street, NW., Washington, DC 20423-0001. In addition, a copy of each pleading must be served on Daniel A. LaKemper, General Counsel, Keokuk Junction Railway Co., d/b/a Peoria & Western Railway, 1318 S. Johanson Road, Peoria, IL 61607. Board decisions and notices are available on our Web site at *www.stb.dot.gov* . Decided: August 25, 2006. By the Board, Joseph H. Dettmar, Acting Director, Office of Proceedings. Vernon A. Williams, Secretary. [FR Doc. E6-14407 Filed 8-31-06; 8:45 am] BILLING CODE 4915-01-P DEPARTMENT OF VETERANS AFFAIRS Advisory Committee on CARES Business Plan Studies; Notice of Meeting The Department of Veterans Affairs
(VA)gives notice under the Public Law 92-463 (Federal Advisory Committee Act) that the Advisory Committee on CARES Business Plan Studies will meet as indicated below. The meetings are open to the public. Location Date Time The Shaw's Center, 1 Lexington Avenue, Brockton, MA 02301 September 18, 2006 10 a.m. until 5:15 p.m. VA Medical Center, 2250 Leestown Road Division, Auditorium, Building 1, Lexington, KY 40511 September 20, 2006 1 p.m. until 5 p.m. VA Medical Center, Walla Walla Theatre, 77 Wainwright Drive, Building 74, Walla Walla, WA September 25, 2006 9 a.m. until 12 noon. The purpose of the Committee is to provide advice to the Secretary of Veterans Affairs on proposed business plans at those VA facility sites identified in May 2004 as requiring further study by the Capital Asset Realignment for Enhanced Services (CARES) Decision document. The objectives of the meetings in Brockton, MA and Lexington, KY are to communicate the Secretary's decision on the specific options to be evaluated and the timeframe for the completion of the studies. Additional presentations will focus on the VA-selected contractor's methodology and tools to evaluate the remaining options. The agendas will also accommodate public commentary on implementation issues associated with each option. Featured agenda items of the meeting in Walla Walla, WA include a discussion of the summary of the proposed space plan and siting of the new multi-specialty outpatient clinic on the VA Medical Center Walla Walla campus. Interested persons may attend and present oral or written statements to the Committee. For additional information regarding the meetings, please contact Mr. Jay Halpern, Designated Federal Officer, (00CARES), 810 Vermont Avenue, NW., Washington, DC 20024 by phone at
(202)273-5994, or by e-mail at *jay.halpern@hq.med.va.gov.* Dated: August 28, 2006. By direction of the Secretary. E. Philip Riggin, Committee Management Officer. [FR Doc. 06-7386 Filed 8-31-06; 8:45 am]
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U.S. Code
20 references not yet in our index
  • 14 CFR 1216
  • 10 CFR 71
  • Pub. L. 104-13
  • 10 CFR 2
  • 10 CFR 51
  • 10 CFR 40
  • 10 CFR 20
  • 17 CFR 240.19
  • 17 CFR 240.6
  • 17 CFR 240.11
  • 15 USC 80a
  • 79 Stat. 985
  • 49 CFR 543
  • 49 CFR 541
  • 49 CFR 543.7
  • 49 CFR 543.7(b)
  • 49 CFR 543.7(f)
  • 49 CFR 1.50
  • 49 CFR 1150.41
  • Pub. L. 92-463
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cites case law
Notices
Finding of No Significant Impact
U.S.C.§ 4321
C.F.R.§ 50.91
C.F.R.§ 50.92
C.F.R.§ 2.309
C.F.R.§ 40.4
C.F.R.§ 40.13
C.F.R.§ 20.1401
C.F.R.§ 20.1301
U.S.C.§ 78s
Cite14 CFR 1216
Cite10 CFR 71
Pub. L.Pub. L. 104-13
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