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Code · REGISTER · 2006-10-04 · DEPARTMENT OF LABOR · Notices

Notices. Notice

31,563 words·~143 min read·/register/2006/10/04/06-8497

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BILLING CODE 4410-15-M DEPARTMENT OF LABOR Employee Benefits Security Administration Advisory Council on Employee Welfare and Pension Benefit Plans Working Group on Plan Asset Rules, Exemptions and Cross Trading, Working Group on a Procedurally Prudent Investment Process, and Working Group on Health Information Technology; Notice of Meeting Pursuant to the authority contained in Section 512 of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. 1142, the Working Groups assigned by the Advisory Council on Employee Welfare and Pension Benefit Plans to study the issues of
(1)Plan asset rules, exemptions and cross trading,
(2)a procedurally prudent investment process, and
(3)health information technology, will hold public teleconference meetings on October 20, 2006. The sessions will take place in Room N4437-A, U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 20210. The purpose of the open meetings is for each Working Group to discuss its report/recommendations for the Secretary of Labor. The meetings will run from 11 a.m. to approximately 5 p.m., starting with the Working Group on Plan Asset Rules, Exemptions and Cross Trading, followed by the Working Group on a Procedurally Prudent Investment Process, followed by the Working Group on Health Information Technology. Organizations or members of the public wishing to submit a written statement pertaining to the topic may do so by submitting 25 copies on or before October 13, 2006 to Larry Good, Executive Secretary, ERISA Advisory Council, U.S. Department of Labor, Suite N-5623, 200 Constitution Avenue, NW., Washington, DC 20210. Statements also may be submitted electronically to *good.larry@dol.gov.* Statements received on or before October 13, 2006 will be included in the record of the meeting. Individuals or representatives of organizations wishing to address the Working Group should forward their requests to the Executive Secretary or telephone
(202)693-8668. Oral presentations will be limited to 10 minutes, time permitting, but an extended statement may be submitted for the record. Individuals with disabilities who need special accommodations should contact Larry Good by October 13 at the address indicated. Signed at Washington, DC, this 27th day of September, 2006. Ann L. Combs, Assistant Secretary, Employee Benefits Security Administration. [FR Doc. E6-16381 Filed 10-3-06; 8:45 am] BILLING CODE 4510-29-P DEPARTMENT OF LABOR Employment and Training Administration [TA-W-59,990] Ademco; a Division of Honeywell Security and Custom Electronics; a Subsidiary of Honeywell International, Inc. Syosset, NY; Amended Certification Regarding Eligibility To Apply for Worker Adjustment Assistance and Alternative Trade Adjustment Assistance In accordance with Section 223 of the Trade Act of 1974 (19 U.S.C. 2273), and Section 246 of the Trade Act of 1974 (26 U.S.C. 2813), as amended, the Department of Labor issued a Certification of Eligibility to Apply for Worker Adjustment Assistance and Alternative Trade Adjustment Assistance on September 19, 2006, applicable to workers of Honeywell International, Inc., Honeywell Security and Custom Electronics, Syosset, New York. The notice will be published soon in the **Federal Register** . At the request of the State agency, the Department reviewed the certification for workers of the subject firm. The workers are engaged in the production of alarm device equipment. New findings show that there was a previous certification, TA-W-53,773, issued on January 6, 2004, for workers of Ademco, a division of Honeywell Security and Custom Electronics, a subsidiary of Honeywell International, Inc., Syosset, New York who were engaged in employment related to the production of alarm device equipment. That certification expires January 6, 2006. To avoid an overlap in worker group coverage, the certification is being amended to change the impact date from August 30, 2005 to January 7, 2006, for workers of the subject firm. The amended notice applicable to TA-W-59,990 is hereby issued as follows: All workers of Ademco a division of Honeywell Security and Custom Electronics, a subsidiary of Honeywell International, Inc., Syosset, New York, who became totally or partially separated from employment on or after January 7, 2006, through September 19, 2008, are eligible to apply for adjustment assistance under Section 223 of the Trade Act of 1974 and are also eligible to apply for alternative trade adjustment assistance under Section 246 of the Trade Act of 1974. Signed at Washington, DC this 28th day of September 2006. Elliott S. Kushner, Certifying Officer, Division of Trade Adjustment Assistance. [FR Doc. E6-16353 Filed 10-3-06; 8:45 am] BILLING CODE 4510-30-P DEPARTMENT OF LABOR Employment and Training Administration [TA-W-60,107] Saint-Gobain Performance Plastics Corporation, Mundelein, IL; Notice of Termination of Investigation Pursuant to Section 221 of the Trade Act of 1974, an investigation was initiated on September 20, 2006 in response to a petition filed by a company official on behalf of workers at Saint-Gobain Performance Plastics Corporation, Mundelein, Illinois. The petitioner has requested that the petition be withdrawn. Consequently, the investigation has been terminated. Signed in Washington, DC, this 27th day of September 2006. Elliott S. Kushner, Certifying Officer, Division of Trade Adjustment Assistance. [FR Doc. E6-16349 Filed 10-3-06; 8:45 am] BILLING CODE 4510-30-P DEPARTMENT OF LABOR Employment and Training Administration [TA-W-59,465] Saint Gobain Crystals, Solon, OH; Notice of Affirmative Determination Regarding Application for Reconsideration By application dated July 7, 2006, the International Chemical Workers Union Council, Local 852C, (Union), requested administrative reconsideration of the Department's Notice of Negative Determination Regarding Eligibility to Apply for Worker Adjustment Assistance, applicable to workers and former workers of the subject firm. The Department's determination was issued on June 7, 2006. The Department's Notice of determination was published in the **Federal Register** on July 14, 2006 (71 FR 40160). In the request for reconsideration, the Union alleges that the Department's initial investigation did not include all of the articles produced at the subject firm. The determination states that the subject worker group produces calcium fluoride crystals. The petition (dated May 24, 2006) filed by the Union on behalf of workers at the subject firm states that the subject facility produces “crystals, crystal products.” The Department has carefully reviewed the Union's request for reconsideration and has determined that the Department will conduct further investigation. Conclusion After careful review of the application, I conclude that the claim is of sufficient weight to justify reconsideration of the Department of Labor's prior decision. The application is, therefore, granted. Signed at Washington, DC, this 4th day of August 2006. Linda G. Poole, Certifying Officer, Division of Trade Adjustment Assistance. [FR Doc. E6-16350 Filed 10-3-06; 8:45 am] BILLING CODE 4510-30-P DEPARTMENT OF LABOR Employment and Training Administration [TA-W-59,952] Schott North America, Inc.; Duryea, PA; Notice of Termination of Investigation Pursuant to Section 221 of the Trade Act of 1974, as amended, an investigation was initiated on August 25, 2006 in response to a petition filed by a United Food and Commercial Workers, Local 1776 Representative and a company official on behalf of workers at Schott North America, Inc., Duryea, Pennsylvania. The petitioner has requested that the petition be withdrawn. Consequently, the investigation has been terminated. Signed at Washington, DC this 26th day of September, 2006. Elliott S. Kushner, Certifying Officer, Division of Trade Adjustment Assistance. [FR Doc. E6-16352 Filed 10-3-06; 8:45 am] BILLING CODE 4510-30-P DEPARTMENT OF LABOR Employment and Training Administration [TA-W-59,950] Stanley-Bostitch, Inc., a Division of Stanley Works Inc., Including On-Site Leased Workers From Admiral Staffing Solutions, Clinton, CT; Certification Regarding Eligibility To Apply for Worker Adjustment Assistance and Alternative Trade Adjustment Assistance In accordance with Section 223 of the Trade Act of 1974 (19 U.S.C. 2273), as amended, the Department of Labor herein presents the results of an investigation regarding certification of eligibility to apply for worker adjustment assistance as a secondarily affected worker group. In order to make an affirmative determination and issue a certification of eligibility for secondary workers to apply for Trade Adjustment Assistance, the group eligibility requirements of paragraph
(b)of Section 222 of the Trade Act, as amended, must be met. It is determined in this case that the requirements of
(b)of Section 222, as amended, have been met. The investigation was initiated on August 24, 2006 in response to a petition filed by a state agency representative on behalf of workers of Stanley-Bostitch, Inc., a division of Stanley Works, Inc., including on-site leased workers of Admiral Staffing Solutions, Clinton, Connecticut. The workers produce wire drawing used in staples, pins, and other fastening devices. The investigation revealed a significant number or proportion of workers at the subject facility are threatened to become separated from employment. The investigation also revealed that the Clinton, Connecticut plant produced wire drawing used as a component by a manufacturer whose workers were certified eligible to apply for adjustment assistance. At least 20 percent of the production or sales of the subject firm went to this manufacturer. In accordance with Section 246 the Trade Act of 1974 (26 U.S.C. 2813), as amended, the Department of Labor herein presents the results of its investigation regarding certification of eligibility to apply for alternative trade adjustment assistance
(ATAA)for older workers. In order for the Department to issue a certification of eligibility to apply for ATAA, the group eligibility requirements of Section 246 of the Trade Act must be met. The Department has determined in this case that the requirements of Section 246 have been met. A significant number of workers at the firm are age 50 or over and possess skills that are not easily transferable. Competitive conditions within the industry are adverse. Conclusion After careful review of the facts obtained in the investigation, I determine that workers of Stanley-Bostitch, Inc., a division of Stanley Works Inc., including on-site leased workers of Admiral Staffing Solutions, Clinton, Connecticut qualify as adversely affected secondary workers under Section 222 of the Trade Act of 1974, as amended. In accordance with the provisions of the Act, I make the following certification: “All workers of Stanley-Bostitch, Inc., a division of Stanley Works Inc., including on-site leased workers of Admiral Staffing Solutions, Clinton, Connecticut who became totally or partially separated from employment on or after August 23, 2005, through two years from the date of certification are eligible to apply for adjustment assistance under Section 223 of the Trade Act of 1974, and are also eligible to apply for alternative trade adjustment assistance under Section 246 of the Trade Act of 1974.” Signed in Washington, DC, this 14th day of September 2006. Richard Church, Certifying Officer, Division of Trade Adjustment Assistance. [FR Doc. E6-16351 Filed 10-3-06; 8:45 am] BILLING CODE 4510-30-P NUCLEAR REGULATORY COMMISSION [Docket Nos. 50-335 and 50-389] Florida Power and Light Company, et al.; Notice of Withdrawal of Application for Amendment to Facility Operating Licenses The U.S. Nuclear Regulatory Commission (the Commission) has granted the request of Florida Power and Light Company, *et al.* (the licensee), to withdraw portions of its April 21, 2005, application for proposed amendments to Facility Operating License Nos. DPR-67 and NPF-16 for St. Lucie Units 1 and 2, respectively, located in St. Lucie County, Florida. The portions of the proposed amendments would have revised the Technical Specifications
(TSs)to adopt certain provisions of the Combustion Engineering Standard TSs regarding remote shutdown and postaccident monitoring instrumentation. The Commission had previously issued a Notice of Consideration of Issuance of Amendment published in the **Federal Register** on July 5, 2005 (70 FR 38720). However, by letter dated September 27, 2006, the licensee withdrew portions of the proposed amendments. For further details with respect to this action, see the application for amendment dated April 21, 2005, and the licensee's letter dated September 27, 2006, which withdrew portions of 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 September 2006. For the Nuclear Regulatory Commission. Brendan T. Moroney, Project Manager, Plant Licensing Branch II-2, Division of Operating Reactor Licensing, Office of Nuclear Reactor Regulation. [FR Doc. E6-16359 Filed 10-3-06; 8:45 am] BILLING CODE 7590-01-P NUCLEAR REGULATORY COMMISSION [ Docket Nos. 50-250 and 50-251] Florida Power & Light Company; Turkey Point Nuclear Plant, Units 3 and 4 Exemption 1.0 Background The Florida Power & Light Company (FPL, the licensee) is the holder of Facility Operating License Nos. DPR-31 and DPR-41, which authorize operation of the Turkey Point Nuclear Plant, Units 3 and 4. The licenses provide, among other things, that the facility is subject to all rules, regulations, and orders of the U.S. Nuclear Regulatory Commission (NRC, the Commission) now or hereafter in effect. The facility consists of two pressurized-water reactors located in Miami-Dade County, approximately 25 miles south of Miami, Florida. 2.0 Request/Action Title 10 of the *Code of Federal Regulations* (10 CFR), Part 50, Appendix R, Subsection III.G.3 addresses fire protection features for assuring alternative or dedicated shutdown capability in the event of a fire, and requires that fire detection and a fixed fire suppression system be installed in the area, room, or zone where equipment or components are relied on for the assured shutdown capability. FPL requests exemption from the requirements of Subsection III.G.3 of 10 CFR 50, Appendix R, for fixed suppression in the Mechanical Equipment Room and for detection and fixed suppression on the Control Room Roof, at Turkey Point, Units 3 and 4, on the basis that the existing fire barriers at Turkey Point, together with fire protection measures, low combustible loading, and administrative controls in place, satisfy the underlying intent of 10 CFR 50, Appendix R, Subsection III.G.3. In summary, by letter dated December 27, 2004, as supplemented May 23, 2005, January 13, 2006, and July 12, 2006, FPL requests exemption from the requirements of 10 CFR 50, Appendix R, Subsection III.G.3, for fixed suppression in the Mechanical Equipment Room and for detection and fixed suppression on the Control Room Roof, at Turkey Point, Units 3 and 4. 3.0 Discussion Pursuant to 10 CFR 50.12, the Commission may, upon application by any interested person or upon its own initiative, grant exemptions from the requirements of 10 CFR part 50 when
(1)the exemptions are authorized by law, will not present an undue risk to public health or safety, and are consistent with the common defense and security, and
(2)when special circumstances are present. The underlying purpose of Subsection III.G.3 of 10 CFR 50, Appendix R is to require alternative or dedicated shutdown capability where
(a)fire protection of systems necessary for hot shutdown does not meet Subsection III.G.2, or
(b)redundant trains of systems necessary for hot shutdown are located in the same fire area and may be subject to damage from fire suppression activities or systems. In addition, III.G.3 requires fire detection and a fixed fire suppression system in the area, room, or zone under consideration. The staff examined information supplied by the licensee in support of the exemption request and concluded that special circumstances exist in that, with the installation of the fire detection system in the Mechanical Equipment Room proposed by the licensee, the existing fire protection features in and accessible for the specific fire zones
(FZs)referenced for Turkey Point Units 3 and 4, and the administrative controls for combustibles, the facility meets the underlying purpose of 10 CFR 50, Appendix R, Subsection III.G.3. The following evaluation provides the basis for this conclusion. 3.1 Background The NRC approved the alternate shutdown capability proposed by the licensee for Turkey Point, Units 3 and 4, for compliance with the requirements of III.G.3, in a safety evaluation dated April 16, 1984. At that time, the licensee identified three fire areas that could be subject to the condition specified in III.G.3.b, which states, “(w)here redundant trains of systems required for hot shutdown located in the same fire area may be subject to damage from fire suppression activities * * *, fire detection and a fixed fire suppression system shall be installed in the area, room, or zone under consideration.” The three affected fire areas were the Control Room, Cable Spreading Room, and North-South Breezeway. To resolve these vulnerabilities, the licensee proposed plant modifications and procedure revisions that the staff found acceptable for compliance with III.G.3. However, in February 2004, during an NRC triennial fire inspection at Turkey Point, the inspection team reviewed fire protection systems, features, and equipment, and found that all FZs supporting the alternate safe shutdown function for the Control Room (Fire Area MM) do not provide full area fire detection and a fixed suppression system in accordance with the requirements of III.G.3, quoted above, for both reactor units. Specifically, the Mechanical Equipment Room, the Main Control Room, and Control Room Roof are identified in the plant fire protection program report as alternative safe shutdown areas for, and thereby part of, the Control Room. However, the Mechanical Equipment Room does not have full area detection and fixed suppression. In response to this inspection finding, the licensee declared the detection and suppression inoperable for the Mechanical Equipment Room (and the Control Room Roof, which also fails to provide detection and fixed suppression) and established an hourly fire watch. An exemption from these detection and suppression requirements is now requested for the Control Room Roof, and an exemption from suppression requirements is requested for the Mechanical Equipment Room. The licensee proposes installation of area detection in the Mechanical Equipment Room. 3.2 Existing Fire Protection Features Fire Area MM is the Unit 3 and 4 Control Room, located at the 42-foot elevation level of the plant. It is a multiple zone area consisting of FZs 106 (the Main Control Room), 106R (the Control Room Roof), and 97 (the Mechanical Equipment Room). FZs 97 and 106R contain redundant trains of air-conditioning equipment that support the habitability and operability of Fire Area MM. The licensee's fire protection program report identifies FZs 97, 106, and 106R as the alternative shutdown capability for Fire Area MM. FZ 106R is located outdoors at the plant's 58-foot elevation on the control building roof. The flooring is tar and gravel on a concrete base, occupying a section of the roof with an area of approximately 640 square feet. Three heating, ventilating, and air conditioning
(HVAC)condensing units for the control room are located here. The licensee's submittal states that motors, cable and raceway protection, and tar material make up its in situ 1 combustible load. 1 Fixed in place as part of the construction, fabrication, or installation of a plant structure, system, or component. The licensee states that redundant safe shutdown components and circuits in this zone are protected by at least 10 feet of separation or by 25-minute rated Thermo-Lag fire barrier. This is in conformance with an exemption from separation and protection requirements for the control room roof, which the NRC granted on May 4, 1999. The licensee's submittal states that the proposed exemption request does not supersede the exemption from separation and protection requirements granted by the NRC in May 1999. The submittal describes the suppression capability for this zone as consisting of three portable fire extinguishers located near the roof access stairs at the 42-foot elevation on the turbine deck, with an additional three extinguishers located at the 30-foot elevation on the mezzanine level. In addition, a hose station with 75 feet of hose is located on the turbine deck near the roof access stairs and a hose station with 100 feet of hose is located at the mezzanine level near the stairway. The hose in this building is 1.5 inches (minimum), with 1.5 inch (minimum) electrically-safe fog nozzles, and threading compatible with that used by local fire departments. No area detection is provided in FZ 106R. FZ 97 is an enclosed room located adjacent to the Cable Spreading Room at the 30-foot elevation, just below the Main Control Room. It has 377 square feet of floor area and houses the safety-related emergency recirculating filter unit and the air handling supply fans for the main control room. The licensee's submittal identifies cable insulation, charcoal, and motors as the in situ combustible loading for this zone. The walls, floor, and ceiling are concrete block or reinforced concrete, providing 3-hour rated fire barrier protection. An ionization smoke detector is installed in FZ 97 inside the air-handling exhaust downstream of the motors and charcoal filter. If actuated, the detector initiates an alarm in the Control Room to alert operators to summon the fire brigade to respond with manual (not fixed) fire suppression. No full area detection is provided in FZ 97. No fixed suppression is provided. The submittal identifies nearby suppression capabilities for this zone consisting of four portable fire extinguishers located at the 30-foot elevation on the mezzanine level. In addition, a hose station is located on the mezzanine level outside the cable spreading room with 100 feet of hose. Area detection and a Halon suppression system are also provided in the cable spreading room adjacent to FZ 97. 3.3 Evaluation The 2001 fire hazards analysis
(FHA)in the Turkey Point Fire Protection Program Report describes each fire area, including details (i.e., listings of essential equipment, combustible loadings, fire boundaries and barriers, detection capability, suppression systems, and venting capability) for each FZ in the fire area. The NRC staff reviewed these details for FZs 106R and 97 to determine what fire protection features were relied on to assure the defense-in-depth elements of adequate fire suppression and detection. In situ combustible loading must be considered in determining the level of suppression and detection needed. The staff's evaluation of in situ combustible loadings for each FZ is discussed below. For transient combustibles, Turkey Point has implemented administrative controls through programs and procedures such as the Transient Combustible Permit Program and designated Transient Combustible Control Areas. Associated procedures include such controls as visual posting of transient fire loads, labeling of storage containers, and required attendance while certain types of combustibles are located in the specific FZ. During plant activities, these controls also ensure that restrictions are placed on fire loading added and/or that appropriate fire suppression is available during temporary increases in combustible loading. They also control the location and duration of hot work. These administrative controls for the transport and storage of combustible material apply throughout the plant, including FZs 106R and 97, and are based on the in situ combustible load and ignition sources in the zone (identified in the FHA), the types and amounts of combustibles introduced into the area, how the transient combustibles are stored, and on the potential for spillage (which is minimized by procedure). 3.3.1 FZ 106R—Control Room Roof The safe shutdown equipment in this FZ consists of three HVAC condensing units for the control room. Fire protection features include an absence of significant fire loading, separation and fire barriers to protect redundant trains of equipment, nearby suppression capabilities, and an open air configuration. The in situ combustible load for this zone is identified in the licensee's submittal as motors, cable and raceway protection, and tar and gravel roofing materials. However, the staff found that the FHA list of in situ combustibles for this FZ (on page 9.6A-230 (Rev. 8) of the Updated Final Safety Analysis Report (UFSAR)) excludes the tar roofing material. Therefore, as stated in its July 12, 2006, letter, the licensee intends to revise this page of the FHA to include the combustible tar material in the list of combustibles. In addition, the licensee estimated the potential heat load contribution from the tar material, using the specific heat value for petroleum-based materials ( *i.e.* , 20,000 British Thermal Units
(BTU)per pound), as 52,000 BTU per square foot. The FHA considers a significant combustible load for outdoor areas to be greater than the equivalent of 200 gallons of combustible liquid, or 68 million BTU. Therefore, with approximately 640 square feet of floor area in this zone, the revised heat load estimate would be 34 million BTU, which is not a significant combustible load. However, since it is not a negligible quantity, the FHA heat load characterization for this FZ on UFSAR page 9.6A-230 will also be revised accordingly. This revision to the FHA will not significantly affect the results of the FHA, but will provide completeness and consistency with the description in the licensee's submittal. The FHA page revisions will be handled under the licensee's normal process for UFSAR updates. The licensee's evaluation and supporting calculations confirmed the staff's expectation that the roofing material is not a significant fire load. This, together with the licensee's actions to include the roofing material in the FHA, resolved the staff's concern. The licensee's December 27, 2004, submittal states that “redundant safe shutdown components and circuits are protected by at least 10 feet of separation or by 25-minute Thermo-Lag fire rated barrier” for FZ 106R. The licensee further states that “this exemption request does not supersede the exemption from separation and protection requirements granted by the NRC in May 4, 1999.” These issues refer to an earlier review of an exemption request for this FZ which relates to this review. In 1998, the staff denied the licensee's exemption request for FZ 106R from the requirements of III.G.2.a, based on the uncertainty of the combustibility and fire classification of the roof. In 1999, the staff granted the licensee an exemption for FZ 106R from the requirements of III.G.2.a, based on raceway protection and separation consistent with that described in Section 3.2 above. Also, based on the licensee's evaluation of the construction of the roof flooring composite ( *e.g.* , the type and amount of tar material used, the specifications of gravel applied over the tar material to improve its fire protection performance, and its similarity to other Class A 2 roofing configurations), the staff concluded there was reasonable assurance that the level of fire safety provided by the roof is equivalent to a Class A design. 2 According to the Underwriters Laboratories, Inc., Roofing Materials and Systems Directory, Class A includes roof coverings which are effective against severe fire exposures. Under such exposures roof coverings of this class are not readily flammable and do not carry or communicate fire; afford a fairly high degree of fire protection to the roof deck; do not slip from position; possess no flying brand hazard; and do not require frequent repairs in order to maintain their fire resisting properties. The licensee now seeks an exemption from III.G.3 for this FZ since it functions as a component of Fire Area MM, which provides an alternate shutdown capability in accordance with III.G.3. The staff's conclusion in 1999 was based on the licensee's comparative evaluation and the existing separation and protection configuration. However, the exemption request currently under review applies to III.G.3, which does not impose separation and protection requirements for safety-related equipment in the area. Because the composite tar and gravel flooring in FZ 106R was not tested by the Underwriters Laboratories
(UL)and, therefore, is not listed by UL, and the licensee has performed no separate combustible loading analysis on this unique flooring, the licensee's comparative evaluation in 1999 requires the additional defense-in-depth element of the separation and protection (or comparable) configuration, described in Section 3.2 above, to provide reasonable assurance that the control room roof will provide an adequate level of fire safety for post-fire safe shutdown. Primary suppression for this FZ is supplied by eleven nearby portable fire extinguishers. The licensee's submittal identifies six extinguishers in FZs 105 and 117 (described in Section 3.2). The staff found that the FHA (on page 9.6A-230 of the UFSAR) also identifies the five fire extinguishers in the Control Room for primary suppression in this zone. Therefore, operators responding to a fire in this zone, from the Control Room or from nearby areas, can minimize their response times by using those extinguishers that are most accessible. The licensee stated in its July 12, 2006, letter that it intends to revise this page of the FHA to include all eleven extinguishers. Secondary suppression is provided by nearby hose stations. The nearest hose station, which is located at the 42-foot elevation (the turbine deck) just outside the roof access stairway, has 75 feet of hose for additional suppression capability, providing stream access to all points in FZ 106R located on the 58-foot elevation. The combination of the primary and secondary sources of suppression provide reasonable assurance of adequate suppression capability, given the open air configuration and absence of any significant combustible and ignition source loading in this zone. 3.3.2 FZ 97—Mechanical Equipment Room The safe shutdown equipment in this FZ consists of the emergency recirculating filter unit and the air handling supply fans for the control room. Fire protection features in FZ 97 include nearby suppression capabilities, a component-specific detector, administrative controls for combustibles, ventilation capability, and rated fire barriers for the walls, floor, and ceiling. In situ combustible loadings are identified in the FHA as cable insulation, oil (motor), pipe insulation, and charcoal. Cable insulation was quantified as 252 pounds (lbs), for a potential heat load of 3.3 million BTU, and Charcoal as 250 lbs, with a potential heat load of 4.5 million BTU. Oil and pipe insulation are present in such small quantities that they contribute a negligible heat load. The staff, therefore, concludes that the combustible and ignition source loading in this zone is not significant. The walls, floor, and ceiling are concrete block or reinforced concrete, providing 3-hour rated fire barrier protection. Although no full area detection is provided in FZ 97, the licensee proposes to install area detection to satisfy the detection requirements of III.G.3. New ionization detectors that meet the requirements of the latest edition of National Fire Protection Association Standard 72 will be installed outside of any direct, forced-air flow paths in FZ 97. If actuated, the detectors will initiate an alarm in the Main Control Room to alert operators to summon the fire brigade to respond with manual fire suppression. An existing ionization smoke detector is located inside the air handling duct work downstream of the motors and charcoal filter, also with a Main Control Room alarm. With the installation of area detection as described above, the detection provided in FZ 97 will be acceptable for compliance with III.G.3. No fixed suppression is located in this zone. However, four nearby portable fire extinguishers (described in Section 3.2) provide an adequate primary suppression capability for the combustible and ignition source loading in this zone, with the hose station at the 30-foot elevation (the mezzanine level) as a secondary means of suppression with 100 feet of hose providing stream access to all points in FZ 97. The primary and secondary sources of suppression provide reasonable assurance of adequate suppression capability, given the installation of detection, as described above, and the absence of any significant combustible and ignition source loading in this zone. The staff asked the licensee to provide information on whether a fire that caused failure of the safety-related equipment in either FZ 97 or 106R, resulting in loss of Main Control Room HVAC equipment, would challenge the safe shutdown capability of the plant. The licensee responded that, with no reduction in the Main Control Room heat load, the rise in Main Control Room temperature for this scenario, although not analyzed for these FZs specifically, is expected to be consistent with or bounded by the rate of temperature increase during a complete loss of HVAC for other individual rooms in the Control Building, including the Computer Room, which results in bulk ambient temperatures that remain below 104° F during the first hour of the event without compensatory cooling. Therefore, there is reasonable assurance that a minimum of greater than 30 minutes would be available before a loss of Control Room habitability. If the Control Room is evacuated, the plant is shut down from the Alternate Shutdown Panel. Each unit has an Alternate Shutdown Panel, located in the Unit's “B” Switchgear Room, with adequate controls to bring the plant to hot standby. A minimum of greater than 30 minutes is sufficient time for operators to either shut down the plant from the Main Control Room or to evacuate the Main Control Room due to high temperature and safely shut down the plant from the Alternate Shutdown Panel. 3.3.3 Risk Analysis Because the combustibles and ignition source loading are not significant for this zone and the suppression capability more than adequate, no risk analysis was performed by the licensee for lack of detection and fixed suppression. However, the NRC's Turkey Point Triennial Fire Inspection Report, dated March 2004 (ADAMS Accession No. ML040890083), states that the NRC staff analyzed the safety significance of the lack of detection and fixed suppression using NRC Inspection Manual Chapter 609, “Significance Determination Process,” Appendix F. The staff concluded that the condition had very low safety significance. 3.3.4 Defense-in-Depth Section II of 10 CFR 50, Appendix R, states that a licensee's fire protection program shall extend the concept of defense-in-depth to fire protection with the following objectives: • To prevent fires from starting, • To detect rapidly, control, and extinguish promptly those fires that do occur, and • To provide protection for structures, systems and components important to safety so that a fire that is not promptly extinguished by the fire suppression activities will not prevent the safe shutdown of the plant. Regulatory Guide 1.174, “An Approach for Using Probabilistic Risk Assessment in Risk-Informed Decisions on Plant-Specific Changes to the Licensing Basis,” also identifies factors to be considered when evaluating defense-in-depth for a risk-informed change. The staff has evaluated the elements of defense-in-depth used for fire protection at Turkey Point Nuclear Plant that are applicable to the FZs under review. For FZ 106R, based on a configuration of separation and fire barrier protection of redundant trains of safety-related equipment, the absence of significant fire loading, adequate primary and secondary suppression capabilities, the open-air configuration, implementation of transient combustibles controls, and sufficient time for operators to respond to a fire in this zone, the staff finds that fixed suppression and detection are not necessary to ensure safe shutdown of the plant and meet the underlying intent of the rule (Subsection III.G.3 to 10 CFR 50, Appendix R). For FZ 97, based on fire barrier protection in the walls, floor and ceiling; existing (and installation of proposed) fire detection, adequate primary and secondary suppression capabilities, implementation of transient combustibles controls, sufficient time for operators to respond to a fire in this zone, and the absence of significant fire loading, the staff finds that fixed suppression is not necessary to ensure safe shutdown of the plant and meet the underlying intent of the rule. Therefore, based on the staff's analysis, defense-in-depth is maintained. *Special Circumstances.* Special circumstances, in accordance with 10 CFR 50.12(a)(2)(ii), are present whenever application of the regulation in the particular circumstances would not serve the underlying purpose of the rule or is not necessary to achieve the underlying purpose of the rule. The underlying purpose of 10 CFR 50, Appendix R, Subsection III.G.3. is to assure alternative or dedicated shutdown capability in the event of a fire. Based on the evaluation presented in Section 3.3, the staff finds that fixed suppression and detection in FZ 106R and fixed suppression in FZ 97 are not necessary to ensure safe shutdown of the plant and meet the underlying intent of the rule. For FZ 106R, the combination of the primary and secondary sources of suppression provide reasonable assurance of adequate suppression capability, given the open air configuration and absence of any significant combustible and ignition source loading in this zone. For FZ 97, the primary and secondary sources of suppression provide reasonable assurance of adequate suppression capability, given the proposed installation of detection, as described above, and the absence of any significant combustible and ignition source loading in this zone. Also, for a fire in either zone, there would be adequate time to evacuate the Control Room, if necessary, and shut down the plant from the Alternate Shutdown Panel. Therefore, since the underlying purpose of 10 CFR 50, Appendix R, Subsection II.G.3 is achieved, the special circumstances required by 10 CFR 50.12 for the granting of an exemption from 10 CFR 50 exist. *Authorized by Law.* This exemption would waive the requirements of Subsection III.G.3 of 10 CFR 50, Appendix R, for fixed suppression in the Mechanical Equipment Room and for fixed suppression and detection on the Control Room Roof, at Turkey Point, Units 3 and 4. As stated above, 10 CFR 50.12 allows the NRC to grant exemptions from the requirements of 10 CFR Part 50. The NRC staff has determined that granting of the licensee's proposed exemption is permissible under the Atomic Energy Act of 1954, as amended, and the Commission's regulations. Therefore, the exemption is authorized by law. *No Undue Risk to Public Health and Safety.* The underlying purpose of 10 CFR 50, Appendix R, Subsection III.G.3. is to assure alternative or dedicated shutdown capability in the event of a fire. As noted above, the staff finds that the proposed exemption utilizes the existing fire barriers at Turkey Point, together with fire protection measures, low combustible loading, and administrative controls in place, to satisfy the underlying intent of 10 CFR 50, Appendix R, Subsection III.G.3. Thus, no new accident precursors are created by the proposed exemption, and the probability of postulated accidents is not increased. Similarly, the consequences of postulated accidents are not increased. Therefore, there is no undue risk [since risk is probability × consequences] to public health and safety. *Consistent with Common Defense and Security.* The proposed exemption would waive the requirements of Subsection III.G.3 of 10 CFR 50, Appendix R, for fixed suppression in the Mechanical Equipment Room and for fixed suppression and detection on the Control Room Roof, at Turkey Point, Units 3 and 4. This change in fire protection requirements has no relation to security issues. Therefore, the common defense and security are not impacted by this exemption. 4.0 Conclusion Accordingly, the Commission has determined that, pursuant to 10 CFR 50.12(a), special circumstances are present such that application of the regulation in the particular circumstances would not serve the underlying purpose of the rule or is not necessary to achieve the underlying purpose of the rule. In addition, the Commission has determined that the exemption is authorized by law, will not present an undue risk to the public health and safety, and is consistent with the common defense and security. Therefore, the Commission hereby grants FPL an exemption from the requirements of 10 CFR 50, Appendix R, Section III.G.3, to provide area detection and a fixed fire suppression system in FZ 106R and to provide a fixed fire suppression system in FZ 97 for the Turkey Point Nuclear Plant, Units 3 and 4, subject to the installation of proposed area fire detection in FZ 97 (discussed in Section 3.3.2 above). The granting of this exemption is contingent upon installation of the proposed area fire detection in FZ 97, maintaining existing or comparable separation and protection for redundant safe shutdown equipment in FZ 106R, the availability of manual firefighting and associated firefighting equipment, and maintaining existing or comparable administrative controls for combustibles. Pursuant to 10 CFR 51.32, the Commission has determined that the granting of this exemption will not have a significant effect on the quality of the human environment (71 FR 56188, dated September 26, 2006). This exemption is effective upon issuance. Dated at Rockville, Maryland, this 27th day of September 2006. For the Nuclear Regulatory Commission. Catherine Haney, Director, Division of Operating Reactor Licensing, Office of Nuclear Reactor Regulation. [FR Doc. E6-16357 Filed 10-3-06; 8:45 am] BILLING CODE 7590-01-P OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE Andean Trade Preference Act (ATPA), as Amended: Notice Regarding the 2004 and 2005 Annual Reviews AGENCY: Office of the United States Trade Representative. ACTION: Notice. SUMMARY: The Office of the United States Trade Representative
(USTR)received petitions in September 2005 to review certain practices in certain beneficiary developing countries to determine whether such countries are in compliance with the ATPA eligibility criteria. In a November 22, 2005 notice, USTR published a list of responsive petitions that were accepted for review. In a February 27, 2006 notice, USTR specified the results of the preliminary review of those petitions as well as the status of the petitions filed in 2004 that have remained under review. This notice provides an update on the status of those reviews. FOR FURTHER INFORMATION CONTACT: Bennett M. Harman, Deputy Assistant U.S. Trade Representative for Latin America, at
(202)395-9446. SUPPLEMENTARY INFORMATION: The ATPA (19 U.S.C. 3201 *et seq.* ), as renewed and amended by the Andean Trade Promotion and Drug Eradication Act of 2002 (ATPDEA) in the Trade Act of 2002 (Public Law 107-210), provides trade benefits for eligible Andean countries. Pursuant to section 3103(d) of the ATPDEA, USTR promulgated regulations (15 CFR part 2016) (68 FR 43922) regarding the review of eligibility of countries for the benefits of the ATPA, as amended. In a **Federal Register** notice dated August 18, 2005, USTR initiated the 2005 ATPA Annual Review and announced a deadline of September 19, 2005 for the filing of petitions (69 FR 51138). Several of these petitions requested the review of certain practices in certain beneficiary developing countries regarding compliance with the eligibility criteria set forth in sections 203(c) and
(d)and section 204(b)(6)(B) of the ATPA, as amended (19 U.S.C. 3203(c) and (d); 19 U.S.C. 3203(b)(6)(B)). In a **Federal Register** notice dated November 22, 2005, USTR published a list of the responsive petitions filed pursuant to the announcement of the annual review (69 FR 65674). In a **Federal Register** notice dated February 27, 2006, USTR announced the results of the preliminary review by the Trade Policy Staff Committee
(TPSC)of these petitions. The notice also indicated that the TPSC would continue to review the remaining 2004 petitions. The TPSC has now determined that the issues raised in the petition filed by LeTourneau of Peru, Inc. with respect to Peru have been resolved. Therefore, that petition does not require further action, and the TPSC is terminating its review. With respect to the remaining petitions, the TPSC is modifying the schedule for this review, in accordance with 15 CFR 2016.2(b). This review will continue through December 31, 2006, which is the period that the ATPDEA is in effect. Following is the list of all petitions that remain under review: *Peru:* Engelhard; *Peru:* Princeton Dover; *Peru:* Duke Energy; *Ecuador:* AFL-CIO; Human Rights Watch; and US/LEAP; *Ecuador:* Chevron Texaco. Carmen Suro-Bredie, Chairman, Trade Policy Staff Committee. [FR Doc. E6-16421 Filed 10-3-06; 8:45 am] BILLING CODE 3190-W6-P OFFICE OF PERSONNEL MANAGEMENT Civilian Acquisition Workforce Personnel Demonstration Project; Department of Defense AGENCY: Office of Personnel Management. ACTION: Notice of amendment to this demonstration to facilitate the transition of Acquisition Demonstration Project employees to the National Security Personnel System
(NSPS)by authorizing an out-of-cycle Contribution-based Compensation and Appraisal System
(CCAS)payout and amending conversion-out procedures. SUMMARY: The Department of Defense (DoD or “the Department”), with the approval of the Office of Personnel Management (OPM), received authority to conduct a personnel demonstration project within DoD's civilian acquisition workforce and those supporting personnel assigned to work directly with it. [See Section 4308 of the National Defense Authorization Act for Fiscal Year 1996 (Pub. L. 104-106; 10 U.S.C.A. section 1701 note), as amended by section 845 of the National Defense Authorization Act for Fiscal Year 1998 (Pub. L. 105-85)]. The project was developed under legislative authority granted in Fiscal Year 1996 and modified in Fiscal Year 1998. Subsequent legislation authorized establishment of NSPS, a human resources management system for DoD under 5 U.S.C. 9902, as enacted by section 1101 of the National Defense Authorization Act for Fiscal Year 2004 (Pub. L. 108-136). This notice provides authorization for an out-of-cycle payout under CCAS prior to transition to NSPS and addresses procedures for conversion of employees from this demonstration project to NSPS. DATES: This amendment is effective upon publication of this notice. FOR FURTHER INFORMATION CONTACT: *DoD:* Mary S. Thomas, Civilian Acquisition Workforce Personnel Demonstration Project, 2001 North Beauregard Street, Suite 210, Alexandria, VA 22311, 703-681-3508. *OPM:* Michael Carmichael, U.S. Office of Personnel Management, 1900 E Street NW., Room 7412, Washington, DC 20415, 202-606-1868. SUPPLEMENTARY INFORMATION: 1. Background OPM approved and published the project plan for the Civilian Acquisition Workforce Personnel Demonstration Project in the **Federal Register** on January 8, 1999 (Volume 64, Number 5, Part VII). Since that time, three amendments have been published. The first amendment was published in the May 21, 2001, **Federal Register** , Volume 66, Number 98, to
(1)correct discrepancies in the list of occupational series included in the project and
(2)authorize managers to offer a buy-in to Federal employees entering the project after initial implementation. A second amendment was published in the April 24, 2002, **Federal Register** , Volume 67, Number 79, to
(1)make employees in the top broadband level of their career path eligible to receive a “very high” overall contribution score and
(2)reduce the minimum rating period under CCAS to 90 consecutive calendar days. Finally, the third amendment was published in the July 1, 2002, **Federal Register,** Volume 67, Number 126, to
(1)list all organizations that are eligible to participate in the project and
(2)make the resulting adjustments to the table that describes the project's workforce demographics and union representation. This demonstration project involves hiring and appointment authorities; broadbanding; simplified classification; a contribution-based compensation and appraisal system; revised reduction-in-force procedures; academic degree and certificate training; and sabbaticals. 2. Overview This amendment provides the authority to individual DoD Components to conduct an out-of-cycle CCAS payout prior to transition to NSPS. Prior to transition of any demonstration project employees to NSPS, a CCAS closeout appraisal must be accomplished and an out-of-cycle payout may be made. The required funding floors [not less than two percent of an activity's total salary budget for Contribution Rating Increases
(CRIs)and not less than one percent of an activity's total salary budget for Contribution Awards (CAs)] may be suspended for any out-of-cycle payout. This amendment also provides authority to convert employees from this demonstration project to NSPS in accordance with DoD implementing issuances pursuant to 5 U.S.C. 9902. Office of Personnel Management. Linda M. Springer, Director. I. Executive Summary The project was designed by a Process Action Team
(PAT)under the authority of the Under Secretary of Defense for Acquisition and Technology, with the participation of and review by DoD and OPM. The purpose of the project is to enhance the quality, professionalism, and management of the DoD acquisition workforce through improvements in the human resources management system. II. Introduction This demonstration project provides managers, at the lowest practical level, the authority, control, and flexibility they need to achieve quality acquisition processes and quality products. This project not only provides a system that retains, recognizes, and rewards employees for their contribution, but also supports their personal and professional growth. A. Purpose The purpose of this amendment is to ensure that demonstration employees are not inadvertently penalized, but receive their earned contribution-based permanent pay increases and/or contribution awards, upon transition to NSPS. Additionally, since the current demonstration project plan only contains conversion-out procedures for employees converting back to General Schedule positions, this amendment will authorize conversion-out procedures for employees transitioning to NSPS. Pursuant to 5 CFR 470.315, an amendment is hereby made to the **Federal Register** , Civilian Acquisition Workforce Personnel Demonstration Project; Department of Defense; Notice, Friday, January 8, 1999, Volume 64, Number 5, Part VII. B. Employee Notification and Collective Bargaining Requirements The demonstration project program office shall notify employees of this amendment by posting it on the demonstration's Web site ( *http://www.acq.osd.mil/dpap/policy/acqdemo/ index.htm* ). Participating organizations must fulfill any collective bargaining obligations to unions that represent employees covered by the demonstration. III. Personnel System Changes [64 FR 1452] Section III.D.1. Contribution-Based Compensation and Appraisal System. Insert the following new paragraph after the 2nd paragraph: “As described in detail below, the CCAS uses performance factors to measure contributions for appraisal purposes. Any AcqDemo organization scheduled to transition to the National Security Personnel System
(NSPS)may notify affected employees that, as of a specified date, the performance appraisal provisions of Section III.D. shall cease to apply, and that appropriate performance management standards may be substituted for CCAS performance factors until the organization is covered by NSPS.” [64 FR 1477] Section III.D.4. Pay Pools. Amend the last sentence of the last paragraph to read, “The funds to be included in the pay pool will be computed based on the salaries of the employees in the pay pool as of the last calendar day of the CCAS appraisal period.” [64 FR 1478] Section III.D.5. Salary Adjustment Guidelines. Insert as last sentence in 4th paragraph (that begins “The contribution rating increase* * *”): In the event of an out-of-cycle payout (see Section V.C.), this funding floor may be suspended. [64 FR 1478] Section III.D.5. Salary Adjustment Guidelines. Insert as last sentence in 5th paragraph (that begins “The contribution award fund* * *”): In the event of an out-of-cycle payout (see Section V.C.), this funding floor may be suspended. [64 FR 1484] Section V.C. [Added.] C. Conversion to the National Security Personnel System (NSPS). Prior to transition of any demonstration project employees to NSPS, a CCAS closeout appraisal must be accomplished and an out-of-cycle payout may be made. Funding levels for out-of-cycle payouts may be reduced on a pro rata basis if the period between the previous CCAS payout and the out-of-cycle payout was less than one year. Funding that corresponds to the general pay increase shall not form part of the pay pools for any out-of-cycle payouts. Thereafter, conversion of employees covered by this demonstration to NSPS shall be accomplished in accordance with NSPS implementing issuances published by the Department. The General Schedule conversion procedures regarding reduction-in-force service credit ( *i.e.* , Section V.B.4. of the existing demonstration project plan) shall not apply to employees converted from the demonstration to NSPS, because after conversion to NSPS, the Department will determine retention standing solely on the basis of the NSPS final regulations at 5 CFR part 9901, subpart F, and related implementing issuances. [FR Doc. E6-16261 Filed 10-3-06; 8:45 am] BILLING CODE 6325-43-P SECURITIES AND EXCHANGE COMMISSION [SEC File No. 270-135] Proposed Collection; Comment Request Upon written request, copies available from: Securities and Exchange Commission, Office of Filings and Information Services, Washington, DC 20549. Extension: Rules 8b-1 to 8b-33; OMB Control No. 3235-0176. Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 *et seq.* ), the Securities and Exchange Commission (“Commission”) is soliciting comments on the collections of information summarized below. The Commission plans to submit these existing collections of information to the Office of Management and Budget (“OMB”) for extension and approval. Rules 8b-1 to 8b-33 (17 CFR 270.8b-1 to 8b-33) under the Investment Company Act of 1940 (15 U.S.C. 80a-1 *et seq.* ) (the “Act”) are the procedural rules an investment company must follow when preparing and filing a registration statement. These rules were adopted to standardize the mechanics of registration under the Act and to provide more specific guidance for persons registering under the Act than the information contained in the statute. For the most part, these procedural rules do not require the disclosure of information. Two of the rules, however, require limited disclosure of information. 1 The information required by the rules is necessary to ensure that investors have clear and complete information upon which to base an investment decision. The Commission uses the information that investment companies provide on registration statements in its regulatory, disclosure review, inspection and policy-making roles. The respondents to the collection of information are investment companies filing registration statements under the Act. 1 Rule 8b-3 (17 CFR 270.8b-3) provides that whenever a registration form requires the title of securities to be stated, the registrant must indicate the type and general character of the securities to be issued. Rule 8b-22 (17 CFR 270.8b-22) provides that if the existence of control is open to reasonable doubt, the registrant may disclaim the existence of control, but it must state the material facts pertinent to the possible existence of control. The Commission does not estimate separately the total annual reporting and recordkeeping burden associated with rules 8b-1 to 8b-33 because the burden associated with these rules are included in the burden estimates the Commission submits for the investment company registration statement forms ( *e.g.* , Form N-1A, Form N-2, Form N-3, and Form N-4). For example, a mutual fund that prepares a registration statement on Form N-1A must comply with the rules under section 8(b), including rules on riders, amendments, the form of the registration statement, and the number of copies to be submitted. Because the fund only incurs a burden from the section 8(b) rules when preparing a registration statement, it would be impractical to measure the compliance burden of these rules separately. The Commission believes that including the burden of the section 8(b) rules with the burden estimates for the investment company registration statement forms provides a more accurate and complete estimate of the total burdens associated with the registration process. Written comments are invited on:
(a)Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(b)the accuracy of the agency's estimate of the burden of the collection of information;
(c)ways to enhance the quality, utility, and clarity of the information collected; and
(d)ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to R. Corey Booth, Director/Chief Information Officer, Securities and Exchange Commission, C/O Shirley Martinson 6432 General Green Way, Alexandria, Virginia, 22312; or send an e-mail to: *PRA_Mailbox@sec.gov.* Dated: September 27, 2006. Nancy M. Morris, Secretary. [FR Doc. E6-16330 Filed 10-3-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 27506; 812-12799] RiverSource Diversified Income Series, Inc., et al.; Notice of Application September 28, 2006. AGENCY: Securities and Exchange Commission (“Commission”). ACTION: Notice of an application for an order under
(a)section 6(c) of the Investment Company Act of 1940 (“Act”) granting an exemption from sections 18(f) and 21(b) of the Act;
(b)section 12(d)(1)(J) of the Act granting an exemption from section 12(d)(1) of the Act;
(c)sections 6(c) and 17(b) of the Act granting an exemption from sections 17(a)(1) and 17(a)(3) of the Act; and
(d)section 17(d) of the Act and rule 17d-1 under the Act to permit certain joint transactions. *Summary of the Application:* Applicants request an order that would permit certain registered open-end management investment companies to participate in a joint lending and borrowing facility. *Applicants:* RiverSource Diversified Income Series, Inc., RiverSource California Tax-Exempt Trust, RiverSource Bond Series, Inc., RiverSource Equity Series, Inc., RiverSource High Yield Income Series, Inc., RiverSource Government Income Series, Inc., RiverSource Global Series, Inc., RiverSource Large Cap Series, Inc., RiverSource Tax-Exempt Income Series, Inc., RiverSource International Series, Inc., RiverSource Investment Series, Inc., RiverSource Strategic Allocation Series, Inc., RiverSource Market Advantage Series, Inc., RiverSource Money Market Series, Inc., RiverSource Dimensions Series, Inc., RiverSource International Managers Series, Inc., RiverSource Managers Series, Inc., RiverSource Selected Series, Inc., RiverSource Short Term Investments Series, Inc., RiverSource Income Series, Inc., RiverSource Strategy Series, Inc., RiverSource Special Tax-Exempt Series Trust, RiverSource Tax-Exempt Series, Inc., RiverSource Tax-Exempt Money Market Series, Inc., RiverSource Sector Series, Inc., RiverSource Variable Portfolio-Income Series, Inc., RiverSource Variable Portfolio-Investment Series, Inc., RiverSource Variable Portfolio-Managed Series, Inc., RiverSource Variable Portfolio-Money Market Series, Inc., RiverSource Variable Portfolio-Managers Series, Inc., RiverSource Variable Portfolio-Select Series, Inc., RiverSource Retirement Series Trust (collectively, the “Companies”), RiverSource Investments, LLC (“RiverSource”), and Ameriprise Financial, Inc. (“Ameriprise”). *Filing Dates:* The application was filed on March 26, 2002, and amended on September 27, 2006. *Hearing or Notification of Hearing:* An order granting the application will be issued unless the Commission orders a hearing. Interested persons may request a hearing by writing to the Commission's Secretary 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 October 23, 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 who wish to be notified of a hearing may request notification by writing to the Commission's Secretary. ADDRESSES: Secretary, Commission, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. Applicants: Companies, 901 Marquette Avenue South, Suite 2810, Minneapolis, MN 55402-3268; and RiverSource and Ameriprise, 200 Ameriprise Financial Center, Minneapolis, MN 55474. FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel at
(202)551-6873 or Nadya B. Roytblat, Assistant Director, at
(202)551-6821 (Division of Investment Management, Office of Investment Company Regulation). SUPPLEMENTARY INFORMATION: The following is a summary of the application. The complete application may be obtained for a fee at the Commission's Public Reference Desk, 100 F Street, NE., Washington, DC 20549-0102 (tel.
(202)551-5850). Applicants' Representations 1. The Companies are organized as Minnesota corporations or Massachusetts business trusts and are registered under the Act as open-end management investment companies. 1 Most Companies offer one or more series, each with a different investment objective and different investment policies. RiverSource is registered as an investment adviser under the Investment Advisers Act of 1940. RiverSource has entered into an investment management services agreement with each Fund. Ameriprise serves as the administrator to each Fund under the terms of its administrative services agreement with the Fund. RiverSource is a wholly-owned subsidiary of Ameriprise. 1 Applicants request that the order also apply to any existing or future series of the Companies and to any other registered open-end management investment company or its series for which RiverSource or a person controlling, controlled by, or under common control with RiverSource serves as investment adviser (collectively, together with the Companies, the “Funds”). All existing registered investment companies that currently intend to rely on the requested order have been named as applicants. Any other existing or future Fund that relies on the requested order in the future will comply with the terms and conditions of the application. 2. The Funds may lend cash to banks or other entities by entering into repurchase agreements either directly or through the “Joint Accounts” (as defined below), purchasing short-term investments or under arrangements whereby custodian fees are reduced. Each Fund may deposit uninvested daily balances into one or more joint trading accounts administered by RiverSource and its affiliates (“Joint Accounts”) and invest the daily balance of the Joint Accounts in repurchase agreements. An existing Commission order also permits each Fund to invest uninvested cash and cash collateral in one or more money market Funds that comply with rule 2a-7 under the Act. 3. Currently, the Funds have a committed line of credit from a bank. Each Fund can borrow money from the bank to complete security transactions suspended by the closing of the electronic money transfer systems or to meet redemptions on a timely basis regardless of whether sale transactions are awaiting settlement. The amount of each Fund's borrowing under the committed line of credit is limited to the amount permitted by the Fund's fundamental investment policies. 4. If the Funds were to borrow money from the bank under their committed line of credit, the Funds would pay interest on the borrowed cash at a rate which would likely be significantly higher than the rate that would be earned by other non-borrowing Funds on investments in repurchase agreements and other short-term instruments of the same maturity as the bank loan. Applicants believe this differential represents the bank's profit for serving as the middleman between a borrower and a lender. The Funds pay an annual commitment fee for the committed line of credit. 5. Applicants request an order that would permit the Funds to enter into a master interfund lending agreement (“Interfund Lending Agreement”) under which the Funds would lend and borrow money for temporary purposes directly to and from each other through a credit facility (“Interfund Loan”). Applicants state that the proposed credit facility would reduce potential borrowing Funds' costs and enhance lending Funds' ability to earn higher rates of interest on short-term loans. Although the proposed credit facility would reduce the Funds' need to borrow from banks, the Funds would be free to establish and/or continue committed lines of credit or other borrowing arrangements with banks. 6. The credit facility may be used when the cash position of a Fund is insufficient to meet a day's cash requirements, such as when shareholder redemptions exceed anticipated volumes. When a Fund sells portfolio securities to meet redemption requests, it may not receive payment in settlement for up to three days, or longer in the case of certain foreign transactions, even though redemption requests are normally satisfied immediately. Other reasons that cash may not be available in a timely fashion to meet redemptions or settle transactions are: circumstances such as following September 11, 2001; when a sale of securities fails; or improper delivery instructions by the broker effecting the transaction delays delivery of cash to the custodian. In such cases, the credit facility could provide a source of immediate, short-term liquidity pending receipt of cash and result in savings to the borrowing Fund and increased returns to the lending Funds. 7. While bank borrowings generally could supply needed cash to cover unanticipated redemptions and sales fails, under the proposed credit facility a borrowing Fund would pay lower interest rates than those offered by banks on short-term loans. In addition, Funds making short-term cash loans directly to other Funds would earn interest at a rate higher than they otherwise could obtain from investing their cash in repurchase agreements. Thus, applicants believe that the proposed credit facility would benefit both borrowing and lending Funds. The interest rate charged to a Fund on any loan made pursuant to the proposed credit facility (“Interfund Loan Rate”) would be determined daily and would be the average of the “Joint Accounts Repo Rate” and the “Bank Loan Rate,” both as defined below. The Joint Accounts Repo Rate for any day would be the current overnight repurchase agreement rate available through the Joint Accounts. The Bank Loan Rate for any day would be calculated by the “Credit Facility Team” (as defined below) on each day an Interfund Loan is made according to a formula established by each Fund's board of directors or trustees (“Board”) intended to approximate the lowest interest rate at which a bank short-term loan would be available to the Fund. The formula would be based upon a publicly available rate ( *e.g.* , Federal funds plus 25 basis points) and would vary with this rate so as to reflect changing bank loan rates. The Board of each Fund would periodically review the continuing appropriateness of using the publicly available rate, as well as the relationship between the Bank Loan Rate and current bank loan rates that would be available to the Fund. The initial formula and any subsequent modifications to the formula would be subject to the approval of each Fund's Board. 8. The credit facility would be administered by the Fund's treasurer, a representative from Ameriprise's treasury department, and a representative from compliance, all of whom are employees of Ameriprise (collectively, the “Credit Facility Team”). Under the proposed credit facility, the portfolio managers for each participating Fund could provide standing instructions to participate daily as a borrower or lender. The Credit Facility Team on each business day would collect data on the uninvested cash and borrowing requirements of all participating Funds from the Funds' custodians. Once it determined the aggregate amount of cash available for loans and borrowing demand, the Credit Facility Team would allocate loans among borrowing Funds without any further communication from portfolio managers. Applicants expect far more available uninvested cash each day than borrowing demand. After the Credit Facility Team has allocated cash for Interfund Loans, the Credit Facility Team would invest any remaining cash in accordance with the standing instructions of portfolio managers or return remaining amounts to the Funds. The money market Funds typically would not participate as borrowers because they rarely need to borrow cash to meet redemptions. 9. The Credit Facility Team would allocate borrowing demand and cash available for lending among the Funds on what the Credit Facility Team believes to be an equitable basis, subject to certain administrative procedures applicable to all Funds, such as the time of filing requests to participate, minimum loan lot sizes, and the need to minimize the number of transactions and associated administrative costs. To reduce transaction costs, each Interfund Loan normally would be allocated in a manner intended to minimize the number of participants necessary to complete the loan transaction. 10. The Credit Facility Team would
(a)Monitor the interest rates charged and the other terms and conditions of the Interfund Loans;
(b)limit the borrowings and loans entered into by each Fund to ensure that they comply with the Fund's investment policies and limitations;
(c)ensure equitable treatment of each Fund; and
(d)make quarterly reports to the Board of each Fund concerning any transactions by the Fund under the credit facility and the interest rates charged. The method of allocation and related administrative procedures would be approved by each Fund's Board, including a majority of directors or trustees who are not “interested persons” of the Fund, as defined in section 2(a)(19) of the Act (“Independent Board Members”), to ensure that both borrowing and lending Funds participate on an equitable basis. 11. Ameriprise, through the Credit Facility Team, would administer the credit facility as part of its duties under its existing administrative services agreement with each Fund and would receive no additional compensation for its services. No Fund may participate in the credit facility unless:
(a)The Fund has obtained shareholder approval for its participation, if such approval is required by law;
(b)the Fund has fully disclosed all material information concerning the credit facility in its prospectus or statement of additional information (“SAI”); and
(c)the Fund's participation in the credit facility is consistent with its investment objectives, limitations, and organizational documents. 12. In connection with the credit facility, applicants request an order under
(a)section 6(c) of the Act granting relief from sections 18(f) and 21(b) of the Act;
(b)section 12(d)(1)(J) of the Act granting relief from section 12(d)(1) of the Act;
(c)sections 6(c) and 17(b) of the Act granting relief from sections 17(a)(1) and 17(a)(3) of the Act; and
(d)under section 17(d) of the Act and rule 17d-1 under the Act to permit certain joint arrangements. Applicants' Legal Analysis 1. Section 17(a)(3) generally prohibits any affiliated person, or affiliated person of an affiliated person, from borrowing money or other property from a registered investment company. Section 21(b) generally prohibits any registered management company from lending money or other property to any person if that person controls or is under common control with the company. Section 2(a)(3)(C) of the Act defines an “affiliated person” of another person, in part, to be any person directly or indirectly controlling, controlled by, or under common control with, the other person. Applicants state that the Funds may be under common control by virtue of having RiverSource as their common investment adviser and/or by reason of having common officers and/or directors or trustees. 2. Section 6(c) provides that an exemptive order may be granted where an exemption 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. Section 17(b) authorizes the Commission to exempt a proposed transaction from section 17(a) provided that the terms of the transaction, including the consideration to be paid or received, are reasonable and fair and do not involve overreaching on the part of any person concerned, and the transaction is consistent with the policy of the investment company as recited in its registration statement and with the general purposes of the Act. Applicants believe that the proposed arrangements satisfy these standards for the reasons discussed below. 3. Applicants submit that sections 17(a)(3) and 21(b) were intended to prevent a person with strong potential adverse interests to, and some influence over the investment decisions of, a registered investment company from causing or inducing the investment company to engage in lending transactions that unfairly inure to the benefit of such person and that are detrimental to the best interests of the investment company and its shareholders. Applicants assert that the proposed credit facility transactions do not raise these concerns because:
(a)Ameriprise, through the Credit Facility Team, would administer the program as a disinterested party;
(b)all Interfund Loans would consist only of uninvested cash reserves that a Fund otherwise would invest in short-term repurchase agreements or other short-term instruments;
(c)the Interfund Loans would not involve a greater risk than such other investments;
(d)the lending Fund would receive interest at a rate higher than it could obtain through such other investments; and
(e)the borrowing Fund would pay interest at a rate lower than otherwise available to it under its bank loan agreements and avoid the quarterly commitment fees associated with committed lines of credit. Moreover, applicants believe that the other conditions in the application would effectively preclude the possibility of any Fund obtaining an undue advantage over any other Fund. 4. Section 17(a)(1) generally prohibits an affiliated person of a registered investment company, or an affiliated person of an affiliated person, from selling any securities or other property to the company. Section 12(d)(1) generally makes it unlawful for a registered investment company to purchase or otherwise acquire any security issued by any other investment company except in accordance with the limitations set forth in that section. Applicants state that the obligation of a borrowing Fund to repay an Interfund Loan may constitute a security under sections 17(a)(1) and 12(d)(1). Section 12(d)(1)(J) provides that the Commission may exempt persons or transactions from any provision of section 12(d)(1) if and to the extent that such exemption is consistent with the public interest and the protection of investors. Applicants contend that the standards under sections 6(c), 17(b), and 12(d)(1)(J) are satisfied for all the reasons set forth above in support of their request for relief from sections 17(a)(3) and 21(b) and for the reasons discussed below. 5. Applicants state that section 12(d)(1) was intended to prevent the pyramiding of investment companies in order to avoid imposing on investors additional and duplicative costs and fees attendant upon multiple layers of investment companies. Applicants submit that the proposed credit facility does not involve these abuses. Applicants note that there will be no duplicative costs or fees to the Funds or to the Funds' shareholders, and that Ameriprise will receive no additional compensation for its services in administering the credit facility. Applicants also note that the purpose of the proposed credit facility is to provide economic benefits for all of the participating Funds. 6. Section 18(f)(1) of the Act prohibits registered open-end investment companies from issuing any senior security except that a company is permitted to borrow from any bank, if immediately after the borrowing, there is asset coverage of at least 300 per centum for all borrowings of the company. Under section 18(g) of the Act, the term “senior security” includes any bond, debenture, note or similar obligation or instrument constituting a security and evidencing indebtedness. Applicants request relief from section 18(f)(1) to the limited extent necessary to implement the credit facility (because the lending Funds are not banks). 7. Applicants believe that granting relief under section 6(c) of the Act is appropriate because the Funds would remain subject to the requirement of section 18(f)(1) of the Act that all borrowings of a Fund, including combined Interfund Loans and bank borrowings, have at least 300 per centum asset coverage. Based on the conditions and safeguards described in the application, applicants also submit that to allow the Funds to borrow from other Funds pursuant to the proposed credit facility is consistent with the purposes and policies of section 18(f)(1) of the Act. 8. Section 17(d) and rule 17d-1 generally prohibit any affiliated person of a registered investment company, or any affiliated person of an affiliated person, when acting as principal, from effecting any joint transaction in which the company participates unless the transaction is approved by the Commission. Rule 17d-1(b) provides that in passing upon applications filed under the rule, the Commission will consider whether the participation of a registered investment company in a joint enterprise on the basis proposed is consistent with the provisions, policies, and purposes of the Act and the extent to which the company's participation is on a basis different from or less advantageous than that of other participants. 9. Applicants submit that the purpose of section 17(d) is to avoid overreaching by and unfair advantage to investment company insiders. Applicants believe that the credit facility is consistent with the provisions, policies, and purposes of the Act in that it offers both reduced borrowing costs and enhanced returns on loaned funds to all participating Funds and their shareholders. Applicants note that each Fund would have an equal opportunity to borrow and lend on equal terms consistent with its investment policies and fundamental investment limitations. Applicants therefore believe that each Fund's participation in the credit facility will be on terms that are no different from or less advantageous than that of other participating Funds. Applicants' Conditions Applicants agree that any order granting the requested relief will be subject to the following conditions: 1. The Interfund Loan Rate to be charged to the Funds under the credit facility will be the average of the Joint Accounts Repo Rate and the Bank Loan Rate. 2. On each business day, the Credit Facility Team will compare the Bank Loan Rate with the Joint Accounts Repo Rate and will make cash available for Interfund Loans only if the Interfund Loan Rate is
(a)more favorable to the lending Fund than the Joint Accounts Repo Rate and
(b)more favorable to the borrowing Fund than the Bank Loan Rate. 3. If a Fund has outstanding borrowings, any Interfund Loans to the Fund
(a)will be at an interest rate equal to or lower than any outstanding bank loan;
(b)will be secured at least on an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding bank loan that requires collateral;
(c)will have a maturity no longer than any outstanding bank loan (and in any event not over seven days); and
(d)will provide that, if an event of default occurs under any agreement evidencing an outstanding bank loan to the Fund, that event of default will automatically (without need for action or notice by the lending Fund) constitute an immediate event of default under the Interfund Lending Agreement entitling the lending Fund to call the Interfund Loan (and exercise all rights with respect to any collateral) and that such call will be made if the lending bank exercises its right to call its loan under its agreement with the borrowing Fund. 4. A Fund may make an unsecured borrowing through the credit facility if its outstanding borrowings from all sources immediately after the interfund borrowing total 10% or less of its total assets, provided that if the Fund has a secured loan outstanding from any other lender, including but not limited to another Fund, the Fund's interfund borrowing will be secured on at least an equal priority basis with at least an equivalent percentage of collateral to loan value as any outstanding loan that requires collateral. If a Fund's total outstanding borrowings immediately after an interfund borrowing would be greater than 10% of its total assets, the Fund may borrow through the credit facility only on a secured basis. A Fund may not borrow through the credit facility or from any other source if its total outstanding borrowings immediately after the interfund borrowing would exceed the limits imposed by section 18 of the Act. 5. Before any Fund that has outstanding interfund borrowings may, through additional borrowings, cause its outstanding borrowings from all sources to exceed 10% of its total assets, the Fund must first secure each outstanding Interfund Loan by the pledge of segregated collateral with a market value at least equal to 102% of the outstanding principal value of the loan. If the total outstanding borrowings of a Fund with outstanding Interfund Loans exceed 10% of its total assets for any other reason (such as a decline in net asset value or because of shareholder redemptions), the Fund will within one business day thereafter
(a)repay all its outstanding Interfund Loans;
(b)reduce its outstanding indebtedness to 10% or less of its total assets; or
(c)secure each outstanding Interfund Loan by the pledge of segregated collateral with a market value at least equal to 102% of the outstanding principal value of the loan until the Fund's total outstanding borrowings cease to exceed 10% of its total assets, at which time the collateral called for by this condition
(5)shall no longer be required. Until each Interfund Loan that is outstanding at any time that a Fund's total outstanding borrowings exceed 10% of its total assets is repaid or the Fund's total outstanding borrowings cease to exceed 10% of its total assets, the Fund will mark the value of the collateral to market each day and will pledge such additional collateral as is necessary to maintain the market value of the collateral that secures each outstanding Interfund Loan at least equal to 102% of the outstanding principal value of the loan. 6. No Fund may lend to another Fund through the credit facility if the loan would cause the lending Fund's aggregate outstanding loans through the credit facility to exceed 15% of its net assets at the time of the loan. 7. A Fund's Interfund Loans to any one Fund shall not exceed 5% of the lending Fund's current net assets. 8. The duration of Interfund Loans will be limited to the time required to receive payment for securities sold, but in no event more than seven days. Loans effected within seven days of each other will be treated as separate loan transactions for purposes of this condition. 9. A Fund's borrowings through the credit facility, as measured on the day when the most recent loan was made, will not exceed the greater of 125% of the Fund's total net cash redemptions or 102% of sales fails for the preceding seven calendar days. 10. Each Interfund Loan may be called on one business day's notice by a lending Fund and may be repaid on any day by a borrowing Fund. 11. A Fund's participation in the credit facility must be consistent with its investment policies and limitations and organizational documents. 12. The Credit Facility Team will calculate total Fund borrowing and lending demand through the credit facility, and allocate interfund loans on an equitable basis among the Funds, without the intervention of any portfolio manager of the Funds. The Credit Facility Team will not solicit cash for the credit facility from any Fund or prospectively publish or disseminate loan demand data to portfolio managers. The Credit Facility Team will invest amounts remaining after satisfaction of borrowing demand in accordance with the standing instructions from portfolio managers or return remaining amounts to the Funds. 13. The Credit Facility Team will monitor the interest rates charged and the other terms and conditions of the Interfund Loans and will make a quarterly report to the Board of each Fund concerning the participation of the Fund in the credit facility and the terms and other conditions of any extensions of credit under the credit facility. 14. The Board of each Fund, including a majority of the Independent Board Members, will:
(a)Review no less frequently than quarterly the Fund's participation in the credit facility during the preceding quarter for compliance with the conditions of any order permitting the transactions;
(b)establish the Bank Loan Rate formula used to determine the Interfund Loan Rate and review no less frequently than annually the continuing appropriateness of the Bank Loan Rate formula; and
(c)review no less frequently than annually the continuing appropriateness of the Fund's participation in the credit facility. 15. Each Fund will maintain and preserve for a period of not less than six years from the end of the fiscal year in which any transaction under the credit facility occurred, the first two years in an easily accessible place, written records of all such transactions setting forth a description of the terms of the transaction, including the amount, the maturity and the rate of interest on the loan, the rate of interest available at the time on short-term repurchase agreements and bank borrowings, and such other information presented to the Fund's Board in connection with the review required by conditions 13 and 14. 16. In the event an Interfund Loan is not paid according to its terms and the default is not cured within two business days from its maturity or from the time the lending Fund makes a demand for payment under the provisions of the Interfund Lending Agreement, the Credit Facility Team promptly will refer the loan for arbitration to an independent arbitrator selected by the Board of any Fund involved in the loan who will serve as the arbitrator of disputes concerning Interfund Loans. 2 The arbitrator will resolve any problem promptly, and the arbitrator's decision will be binding on both Funds. The arbitrator will submit, at least annually, a written report to the Board of each Fund setting forth a description of the nature of any dispute and the actions taken by the Funds to resolve the dispute. 2 If the dispute involves Funds with separate Boards, the Board of each Fund will select an independent arbitrator that is satisfactory to each Fund. 17. The Credit Facility Team will prepare and submit to the Board of each Fund for review an initial report describing the operations of the credit facility and the procedures to be implemented to ensure that all Funds are treated fairly. After the commencement of operations of the credit facility, the Credit Facility Team will report on the operations of the credit facility at the quarterly meetings of each Fund's Board. In addition, for two years following the commencement of the credit facility, the independent public accountant for each Fund shall prepare an annual report that evaluates the Credit Facility Team's assertion that it has established procedures reasonably designed to achieve compliance with the conditions of the order. The report shall be prepared in accordance with the Statements on Standards for Attestation Engagements No. 10 and it shall be filed pursuant to Item 77Q3 of Form N-SAR as such Statements or Form may be revised, amended, or superseded from time to time. In particular, the report shall address procedures designed to achieve the following objectives:
(a)That the Interfund Loan Rate will be higher than the Joint Accounts Repo Rate, but lower than the Bank Loan Rate;
(b)compliance with the collateral requirements as set forth in the application;
(c)compliance with the percentage limitations on interfund borrowing and lending;
(d)allocation of interfund borrowing and lending demand in an equitable manner and in accordance with procedures established by the Board; and
(e)that the Interfund Loan Rate does not exceed the interest rate on any third party borrowings of a borrowing Fund at the time of the Interfund Loan. After the final report is filed, each Fund's independent public accountant, in connection with its audit examinations, will continue to review the operation of the credit facility for compliance with the conditions of the application and its review will form the basis, in part, of the auditor's report on internal accounting controls in Form N-SAR. 18. No Fund will participate in the credit facility upon receipt of requisite regulatory approval unless it has fully disclosed in its prospectus or SAI all material facts about its intended participation. For the Commission, by the Division of Investment Management, under delegated authority. Nancy M. Morris, Secretary. [FR Doc. E6-16365 Filed 10-3-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release Nos. 33-8743; 34-54519; File No. 4-526] SEC Government-Business Forum on Small Business Capital Formation AGENCY: Securities and Exchange Commission. ACTION: Request for public comment in connection with Forum on Small Business Capital Formation. SUMMARY: The Securities and Exchange Commission is providing for additional public input in connection with its annual Government-Business Forum on Small Business Capital Formation, to be held Friday, September 29, 2006, beginning at 9 a.m. EDT, at its Washington, DC headquarters. The morning sessions of the Forum will be Webcast on the Commission's Web site at *www.sec.gov.* The public is invited to submit written statements in connection with the Forum. This year's Forum program will include two roundtable discussions in the morning. The first roundtable will discuss the advantages to smaller public companies of filing interactive data with the SEC. The second roundtable will discuss current issues in capital raising techniques for small business, such as the status of the IPO (initial public offering) market and PIPE (private investment in public equity) offerings. The Commission expects that the Forum will develop recommendations for government and private action to facilitate small business capital formation. The afternoon sessions of the Forum, which will not be Webcast, will be devoted to breakout sessions to develop recommendations. More information about the Forum is available at *www.sec.gov/info/smallbus/sbforum.shtml.* DATES: Written statements should be received on or before October 15, 2006. ADDRESSES: Written statements may be submitted by any of the following methods: Electronic Statements • Use the Commission's Internet submission form ( *http://www.sec.gov/info/smallbus/sbforum.shtml* ); or • Send an e-mail message to *rule-comments@sec.gov.* Please include File Number 4-526 on the subject line; or Paper Statements • Send paper statements in triplicate to Nancy M. Morris, Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File No. 4-526. This file number should be included on the subject line if e-mail is used. To help us process and review your statement more efficiently, please use only one method. The Commission staff will post all statements submitted on the Forum Web page at *http://www.sec.gov./info/smallbus/sbforum.shtml.* Statements also will be available for public inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Room 1580, Washington, DC 20549. All statements received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: Anthony G. Barone, Special Counsel, at
(202)551-3260, at Office of Small Business Policy, Division of Corporation Finance, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-3628. Dated: September 26, 2006. Nancy M. Morris, Secretary. [FR Doc. E6-16331 Filed 10-3-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54530; File No. SR-NYSE-2006-49] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Relating to Amending Rule 123D (Openings and Halts in Trading) and Rule 15 To Shorten the Minimum Required Time Periods Between Tape Indications and Openings or Reopenings September 28, 2006. On June 30, 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 Rules 123D and 15 to shorten the minimum time periods between tape indications and openings or reopenings of a security and after an “Equipment Changeover.” 3 On August 14, 2006, the Exchange submitted Amendment No. 1 to the proposed rule change. 4 The proposed rule change, as amended, was published for comment in the **Federal Register** on August 28, 2006. 5 The Commission received no comments regarding the proposal. This order approves the proposed rule change, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Exchange Rule 123D(2). 4 In Amendment No. 1, NYSE made minor revisions to the proposed rule text and clarified that all market participants may react to published price indications. 5 *See* Securities Exchange Act Release No. 54337 (August 21, 2006), 71 FR 50963 (“Notice”). The Exchange proposes to amend NYSE Rules 123D and 15 to shorten the minimum time periods between tape indications and openings or reopenings of a security and after an “Equipment Changeover.” In connection with a delayed opening of trading in a security, Exchange Rule 123D currently requires a minimum of ten minutes to elapse between the first price indication and the opening of the stock, and where there is more than one indication, a minimum of five minutes to elapse after the last indication, provided in all cases that at least ten minutes have elapsed since the first indication. The Exchange's proposal would reduce these minimum time periods from ten to three minutes after the first indication, and to one minute after the last indication, provided that a minimum of three minutes have elapsed since the first indication. With respect to the reopening of trading after a stock has been halted during the trading day, Exchange Rule 123D currently requires a minimum of five minutes to elapse between the first indication and the reopening of trading, and a minimum of three minutes to elapse after the last indication, provided that at least five minutes has elapsed since the first indication. The Exchange's proposal would reduce these minimum time periods to three minutes after the first indication, and to one minute after the last indication, provided that a minimum of three minutes has elapsed since the first indication. With respect to the reopening of trading after a stock has been halted during the trading day because of “Equipment Changeover,” Exchange Rule 123D currently requires a minimum of five minutes to elapse before trading resumes following an Equipment Changeover. Further, if, during the “Equipment Changeover” trading halt, a significant order imbalance 6 develops or a regulatory condition occurs, the nature of the halt will be changed and notice must be disseminated and trading cannot resume until ten minutes after the first indication of the new halt condition. The Exchange's proposal would reduce these minimum time periods to one minute after an “Equipment Changeover” and to three minutes after an “Equipment Changeover” during which a significant order imbalance or regulatory condition develops. 6 The Exchange indicated in the Notice that a “significant order imbalance” is one which would result in a price change from the last sale of one point or more for stocks under $10, the lesser of 10% or three points for stocks between $10-$99.99 and five points for stocks $100 or more—unless a Floor Governor deems circumstances warrant a lower parameter. Lastly, NYSE proposes to amend Exchange Rule 15 to conform with a recent amendment to the Intermarket Trading System Plan (“ITS Plan”). In particular, the Exchange's proposal would require that, when more than one indication is disseminated, a stock may reopen one minute after the last indication if three minutes have elapsed after the first indication. The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 7 Specifically, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act, 8 which requires, among other things, 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. The proposal appears designed to strike a reasonable balance between preserving the opportunity for price discovery before a stock opens or reopens while providing timely opportunities for investors to participate in the market. 7 In approving this proposed rule change the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). 8 15 U.S.C. 78f(b)(5). It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 9 that the proposed rule change (SR-NYSE-2006-49), as amended, is approved. 9 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 10 10 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E6-16367 Filed 10-3-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54526; File No. SR-CBOE-2006-70] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving a Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 1 Thereto To Adopt Rules Relating to Regulation NMS September 27, 2006. I. Introduction On August 18, 2006, the Chicago Board Options Exchange, Incorporated (“CBOE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) 1 and Rule 19b-4 thereunder, 2 a proposal to modify its rules relating to the trading of non-option securities to conform with Regulation NMS. The proposal was published for comment in the **Federal Register** on August 25, 2006. 3 The Commission received no comments on the proposal. The Exchange filed Amendment No. 1 with the Commission on September 27, 2006. 4 This notice and order requests comment on Amendment No. 1 and approves the proposal, as amended, on an accelerated basis. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 53112 (January 12, 2006), 71 FR 3579. 4 Amendment No. 1 replaced the original filing in its entirety. II. Description of the Proposal The Commission recently approved the Exchange's proposal to establish a new electronic trading system for non-option securities known as “Stock Trading on CBOE *direct* ” or “STOC.” 5 In this filing, CBOE proposes additional rules and additional system functionality to STOC designed to comply with Regulation NMS and to enable CBOE to qualify as automated trading center whose quotations will be protected under Regulation NMS. In its release extending the compliance dates for Rules 610 (the Access Rule) and 611 (the Order Protection Rule) of Regulation NMS, 6 the Commission established a “Specifications Date” of October 16, 2006, by which final technical specifications for interaction with Regulation NMS-compliant trading systems of automated trading centers must be published on SRO Web sites. Among other things, these specifications must address:
(1)The identification of quotations as automated or manual to meet the requirements of Rule 600(b)(4); 7
(2)an immediate-or-cancel order (“IOC”) functionality that meets the requirements of Rule 600(b)(3); 8 and
(3)an intermarket sweep order (“ISO”) functionality that allows other industry participants to meet the requirements of Rule 600(b)(30). 9 The proposed rules would modify the existing STOC rules to address these requirements as well as other matters relating to Regulation NMS. 5 5 See Securities Exchange Act Release No. 54422 (September 11, 2006), 71 FR 54537 (September 15, 2006) (SR-CBOE-2004-21). 6 Securities Exchange Act Release No. 53829 (May 18, 2006), 71 FR 30038 (May 24, 2006) (“Regulation NMS Compliance Date Release”). 7 17 CFR 242.604(b)(4). 8 17 CFR 242.604(b)(3). 9 17 CFR 242.604(b)(30). Unless execution of an order would cause an impermissible trade-through of a protected quotation of another trading center, all marketable orders would automatically execute on the STOC system against the system's best bid or offer (which incorporates resting limit orders and interest from CBOE market-makers). There would be no manual quotations, and STOC is designed to provide quotations that are always “automated” for purposes of Rule 600(b)(4). If CBOE were to experience a technical failure, it would cease disseminating quotations (as opposed to disseminating manual quotations). 10 10 *See* proposed CBOE Rule 52.13(a). The Exchange also proposes to modify its existing rule defining and governing the handling of IOC orders to make clear that, consistent with the requirements of Regulation NMS, IOC orders routed to the STOC System would either be immediately executed (in part or in full) or canceled. 11 The Exchange also is proposing to adopt a rule providing that, consistent with the requirements of Regulation NMS, ISOs routed to CBOE would be immediately and automatically executed on receipt without regard for better-priced protected quotations displayed by other trading centers. 12 11 Such orders would not be “held up” for manual processing or for potential price improvement above CBOE's disseminated quotation. *See* proposed CBOE Rule 51.8(g)(4). 12 *See* proposed CBOE Rule 51.8(n). CBOE has proposed additional rules relating to Regulation NMS. First, as required by Rule 610(d) of Regulation NMS, 13 CBOE has proposed to add language providing that members should reasonably avoid displaying quotations that lock or cross protected quotations from other trading centers. 14 13 17 CFR 242.610(d) 14 *See* proposed CBOE Rule 52.12. Second, the Exchange is proposing language that will allow it to invoke the “self-help” exception contained in Rule 611(b)(1) of Regulation NMS. 15 CBOE could invoke self-help and bypass quotations displayed by a trading center if the trading center repeatedly fails to respond within one second to orders attempting to access its protected quotations, provided the failures are attributable to the trading center and not to transmission delays outside its control. CBOE must immediately notify the trading center of its determination to invoke self-help. 16 15 17 CFR 242.611(b)(1). 16 *See* proposed CBOE Rule 52.13(b). Third, when appropriate functionality is available on CBOE, the Exchange would provide outbound routing, through a third-party service provider (“Routing Service Provider”), to other trading centers displaying better-priced protected quotations on behalf of orders that may be routed. 17 This outbound routing would be provided directly and automatically by CBOE pursuant to three separate agreements:
(1)An agreement between the Exchange and each member on whose behalf orders would be routed;
(2)an agreement between the Exchange and each third-party broker-dealer that would serve as a “give-up” on an away trading center; and
(3)an agreement between the Exchange and the Routing Service Provider, pursuant to which the Exchange would transmit to the Routing Service Provider orders for outbound routing, with embedded routing instructions as determined by the STOC System, which orders would then be routed via the Routing Service Provider's connectivity to the appropriate market centers for automatic execution. 18 With respect to these routing services, CBOE would establish and maintain procedures and internal controls reasonably designed to adequately restrict the flow of confidential and proprietary information between the Exchange (including its facilities) and the Routing Service Provider. To the extent the Routing Service Provider reasonably receives confidential and proprietary information, its use of such information would be restricted to legitimate business purposes necessary for providing routing services. 17 Prior to that time, however, CBOE would access better-priced quotations through the ITS Plan (or its successor). Under previously approved STOC rules, when STOC receives a marketable order that cannot be executed without causing a trade-through (and assuming that the order is not an IOC order), the system will display the order to market participants at the NBBO price for a short time (three seconds or less, to be determined by the Exchange's STOC Trading Committee). If no market participant “steps up” to the NBBO during the display period, the system will route the order to the STOC DPM for manual handling. The STOC DPM may either itself step up to the NBBO price and execute the order, or route the order via the ITS Plan (or its successor) to the other market(s) disseminating the NBBO. If a better price becomes available prior to the DPM routing away, such better price must be taken into account by the DPM. *See* CBOE Rule 52.6. 18 *See* proposed CBOE Rule 52.10. Fourth, the Exchange has proposed a change to CBOE Rule 53.56(b)(6). This provision sets forth the obligation of a designated primary market-maker on the STOC System (“STOC DPM”) 19 to act as agent for orders that are not executed on the system because CBOE is not at the NBBO, and requires the STOC DPM to accord priority to such public customer orders over the STOC DPM's principal transactions. In Amendment No. 1, the Exchange proposes to delete language that permits the STOC DPM to trade on parity with the public customer order the STOC DPM represents as agent in this situation if the customer consents to giving up its priority. 19 *See* CBOE Rule 53.50 (defining STOC DPM). Finally, in Amendment No. 1, the Exchange has proposed to delete portions of existing CBOE Rules 52.1(d) and 53.24(b) relating to the priority of automatically regenerated quotations of STOC market-makers. As a result, an automatically regenerated quotation of a STOC market-maker would be assigned the same priority that a newly generated quotation by the market-maker would have at the time of regeneration. 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. 20 In particular, the Commission believes that the proposal is consistent with the requirements of Section 6(b)(5) of the Act, 21 which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade; to facilitate 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. The Commission also finds that the proposal is consistent with Section 6(b)(8) of the Act, 22 which prohibits an exchange's rules from imposing a burden on competition that is not necessary or appropriate in furtherance of the Act. Finally, the Commission believes that the proposal is consistent with Section 11A(a)(1)(C) of the Act, 23 in which Congress found that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure:
(1)Economically efficient execution of securities transactions;
(2)fair competition among brokers and dealers and among exchange markets, and between exchange markets, and markets other than exchange markets;
(3)the availability to brokers, dealers, and investors of information with respect to quotations and transactions in securities;
(4)the practicability of brokers executing investors' orders in the best market; and
(5)an opportunity for investors' orders to be executed without the participation of a dealer. 20 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 21 15 U.S.C. 78f(b)(5). 22 15 U.S.C. 78f(b)(8). 23 15 U.S.C. 78k-1(a)(1)(C). The Commission did not receive any comments on the proposal. This order approves the rule change, as amended. A. Compliance With Regulation NMS 1. Automated Quotations/Automated Trading Center CBOE seeks to qualify as an automated trading center under Regulation NMS. To do so, an exchange must display automated quotations. 24 An automated quotation is a quotation displayed by a trading center that, among other things, permits an incoming order to be marked immediate-or-cancel, immediately and automatically executes an order so marked against the displayed quotation or cancels without routing elsewhere, immediately transmits a response, and immediately and automatically displays information that updates the displayed quotation to reflect any change to its material terms. 25 24 *See* 17 CFR 242.600(b)(4)(i). 25 *See* 17 CFR 242.600(b)(3). The Commission finds that the Exchange's proposed rules are consistent with the requirements of Regulation NMS with respect to automated quotations. CBOE Rule 51.8(g)(4) provides for submission of IOC orders that are either immediately executed (in whole or in part) or canceled. Moreover, CBOE Rule 52.6 has been amended to clarify that orders marked IOC will not be delayed for potential price improvement on the STOC System. Automated trading centers are also required to identify all quotations other than automated quotations as manual quotations, and to adopt reasonable standards limiting when the exchange's quotations change to manual quotations. 26 CBOE has elected not to display manual quotations, but rather would cease disseminating quotations when a technical failure renders it unable to display automated quotations. The Commission finds that CBOE's election not to disseminate quotations when its quotations are not automated is consistent with the Act in general, and with Regulation NMS in particular. 26 *See* 17 CFR 242.600(b)(4). 2. Protection of Automated Quotations The Order Protection Rule requires trading centers to establish, maintain, and enforce written policies and procedures that are reasonably designed to prevent trade-throughs on that trading center of protected quotations in NMS stocks, unless an exception applies. 27 The provisions discussed below relate to the protection of automated quotations by the STOC System. a. Intermarket Sweep Order 27 *See* 17 CFR 242.611(a)(1). Rule 600(b)(30) of Regulation NMS details the requirement for an ISO functionality that allows other industry participants to meet the requirements of the Order Protection Rule. CBOE's proposed rules define an ISO as a limit order in an NMS stock that is received by the system from a member which is to be executed:
(1)Immediately at the time such order is received;
(2)without regard for better-priced protected quotations displayed at one or more other market centers; and
(3)at prices equal to or better than the limit price, with any portion not so executed to be treated as canceled. 28 The Commission believes that CBOE's proposed definition of intermarket sweep order is consistent with the requirements of Regulation NMS and thus is consistent with the Act. 28 However, if an order is received through the communications network operated pursuant to the ITS Plan or any successor to the ITS Plan, the order would trade only at a single price. *See* proposed CBOE Rule 51.8(n). b. Routing of Orders As described above, the Exchange would enter into agreements that govern the routing of orders to away markets displaying better-priced protected quotations. 29 Proposed CBOE Rule 52.10 describes the arrangement between the Exchange and a Routing Service Provider. The Commission believes that engaging a Routing Service Provider, as set forth in the rule, is a reasonable means of promoting compliance with Rule 611 of Regulation NMS. The Exchange would be responsible for routing decisions and would retain control of the routing logic. The Commission also notes that the rule contemplates procedures and internal controls designed to protect confidential and proprietary information, which should help ensure that the Routing Service Provider does not misuse routing information obtained from the Exchange. In addition, the rule requires the equitable allocation of reasonable dues, fees, and other charges among Exchange members and other persons using the Exchange's facilities, and forbids unfair discrimination in connection with the routing services provided by the Exchange. 29 The Exchange intends to enter into the routing agreements described in proposed CBOE Rule 52.10 prior to the “Trading Phase Date” of February 5, 2007. *See* Regulation NMS Compliance Date Release. Until such time as the Exchange enters into a routing agreement with a Routing Service Provider, CBOE would access better priced quotations through the ITS Plan (or its successor). 30 Marketable orders that the system cannot execute at the NBBO (with the exception of IOC orders) are routed to the STOC DPM for manual handling. The STOC DPM may either step up to the NBBO price and execute the order, or route the order via the ITS Plan (or its successor) to the other market(s) disseminating better-priced quotations, as required by the ITS Plan. 31 30 *See supra* note 17. 31 *See* CBOE Rule 52.6. The Commission believes that CBOE's order routing rules are reasonably designed to prevent trade-throughs on the STOC System, and therefore are consistent with the Exchange Act and Regulation NMS. c. Self-Help Paragraph (b)(1) of Rule 611 permits a trade-through of a protected quotation if the trading center displaying the protected quotation was experiencing a failure, material delay, or malfunction of its systems or equipment when the trade-through occurred. The Commission stated in the Regulation NMS Adopting Release that, “th[is] exception gives trading centers a self-help remedy if another trading center repeatedly fails to provide an immediate response (within one second) to incoming orders attempting to access its quotes.” 32 The Commission believes that proposed CBOE Rule 52.13(b), which provides that the Exchange may, subject to certain conditions, bypass the quotations displayed by another trading center if such trading center repeatedly fails to respond within one second to orders attempting to access such trading center's protected quotations, is reasonably designed to allow CBOE to invoke self-help in a manner consistent with Rule 611 of Regulation NMS and is, therefore, consistent with the Act. 32 *See* Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37495, 37535 (June 29, 2005). d. Outbound ISOs and the Identification of Permissible Trade-Throughs In Amendment No. 1, the Exchange proposed a new rule governing generation of outbound ISOs by the STOC System. The system would generate an outbound ISO to any away trading center displaying a protected quotation simultaneously with the execution of a transaction on the Exchange at a price inferior to a protected quotation, unless a specified exception to the Order Protection Rule applies. 33 The proposed rule also requires the Exchange to identify all trades executed pursuant to an exception to or exemption from the Order Protection Rule in accordance with specifications approved by the operating committee of the relevant national market system plan. 34 The provision of the rule requiring identification of trade-through exceptions is designed to create uniformity across the markets regarding how permissible trade-throughs are reported, and should create more transparency for investors and regulators. The Commission believes, therefore, that proposed CBOE Rule 52.7 furthers the public interest and is consistent with the Act. 33 *See* proposed CBOE Rule 52.7(a). The permitted exceptions in the Exchange's rule are consistent with those set forth in Rule 611 of Regulation NMS. *See* 17 CFR 242.611(b). 34 In addition, if a trade is executed pursuant to both the intermarket sweep order exception of Rule 611(b)(5) or
(6)and the self-help exception of Rule 611(b)(1), such trade shall be identified as executed pursuant to the intermarket sweep order exception. *See* proposed CBOE Rule 52.7(b). 3. Access Rule Paragraph
(a)of the Access Rule 35 prohibits a national securities exchange from imposing unfairly discriminatory terms that prevent or inhibit any person from obtaining efficient access through a member of the exchange to a quotation in an NMS stock displayed through the SRO quoting facility. The Commission believes that the STOC rules and the STOC System have been reasonably designed to meet the standard in paragraph
(a)of the Access Rule. In addition, paragraph
(d)of the Access Rule 36 requires a national securities exchange to establish, maintain, and enforce rules that, among other things, require its members reasonably to avoid displaying quotations that lock or cross any protected quotation in an NMS stock and prohibit its members from engaging in a pattern or practice of doing so. Proposed CBOE Rule 52.12 requires members of the Exchange to reasonably avoid displaying, and to not engage in a practice of displaying, any quotations that lock or cross a protected quotation, and any manual quotations that lock or cross a quotation previously disseminated pursuant to an effective national market system plan, subject to certain limited exceptions. The Commission believes that this rule is consistent with Rule 610(d) of Regulation NMS. 35 17 CFR 242.610(a). 36 17 CFR 242.610(d). B. Accelerated Approval of Amendment No. 1 Pursuant to Section 19(b)(2) of the Act, 37 the Commission finds good cause for approving the amended proposal prior to the thirtieth day after the publication of Amendment No. 1 in the **Federal Register** . In Amendment No. 1, the Exchange revised the proposal:
(1)To add proposed CBOE Rule 52.7, relating to the generation of outbound ISOs and the identification of trade-through exceptions;
(2)to clarify that, until the Exchange's automated outbound routing capabilities are in place, the STOC System will route certain non-IOC orders to the STOC DPM for manual handling;
(3)to clarify proposed CBOE Rule 52.10 regarding the Exchange's planned order routing arrangements;
(4)to delete language from CBOE Rule 53.56(b)(6) that allows a STOC DPM who is acting as agent for a customer order that is not executed on the system because there is a better price on another exchange to be on parity with the customer if the customer consents;
(5)to delete portions of CBOE Rules 52.1(d) and 53.24(b) relating to the priority of automatically regenerated quotations of STOC market-makers; and
(6)to make additional non-substantive changes to the proposed rule text. These changes do not raise any novel or substantive regulatory issues. Therefore, the Commission finds good cause for approving the proposal, with these changes, on an accelerated basis. Doing so will help enable the Exchange to meet the requirements of Regulation NMS in an expeditious manner. 37 15 U.S.C. 78s(b)(2). IV. Solicitation of Comments Concerning Amendment No. 1 Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 1, including whether it is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-CBOE-2006-70 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-CBOE-2006-70. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CBOE-2006-70 and should be submitted on or before October 25, 2006. V. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 38 that the proposed rule change (File No. SR-CBOE-2006-70), as amended, is approved on an accelerated basis. 38 *Id.* 39 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 39 Nancy M. Morris, Secretary. [FR Doc. E6-16364 Filed 10-3-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54531; File No. SR-ISE-2006-52] Self-Regulatory Organizations; International Securities Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Block Order Mechanism September 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 September 6, 2006, the International Securities Exchange, Inc. (“ISE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by the ISE. The ISE filed the proposed rule change pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(6). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange is proposing to reduce the exposure period for orders entered into the Block Order Mechanism under Rule 716 to three seconds. The text of the proposed rule change is available on the ISE's Web site ( *http://www.iseoptions.com* ), at the ISE's Office of the Secretary, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the ISE included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The ISE has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Under ISE Rule 716, members can seek liquidity for a single-sided order of at least fifty contracts (a “block order”) by entering such order into the Block Order Mechanism. Currently, upon entry of an order, the Block Order Mechanism gives market participants thirty seconds to respond with contra-side trading interest. 5 The ISE has reduced the exposure period for the other special order mechanisms contained in Rule 716, the Facilitation Mechanism and the Solicited Order Mechanism, to three seconds and has found that this is more than enough time for market participants to respond. Because the longer exposure period introduces unnecessary market risk to orders entered into the Block Order Mechanism, the Exchange proposes to reduce the Block Order Mechanism exposure period to three seconds. 5 At the conclusion of this time period, either an execution occurs automatically, or the order is cancelled. Bids (offers) on the Exchange at the time the block order is executed that are priced higher (lower) than the block execution price, as well as responses that are priced higher (lower) than the block execution price, are executed at the block execution price. Responses, quotes and non-customer orders at the block execution price participate in the execution of the block order according to the allocation method set forth in ISE Rule 713(e). *See* ISE Rule 716(c). 2. Statutory Basis The basis under the Act for this proposed rule change is found in Section 6(b)(5), 6 in that the proposed rule change is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest. In particular, the proposed rule change will reduce unnecessary market risk for orders entered into the Block Order Mechanism. 6 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The proposed rule change does not impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not:
(i)Significantly affect the protection of investors or the public interest;
(ii)impose any significant burden on competition; and
(iii)become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 7 and Rule 19b-4(f)(6) thereunder. 8 7 15 U.S.C. 78s(b)(3)(A). 8 17 CFR 240.19b-4(f)(6). At any time within 60 days of the filing of the proposed rule change, the Commission may summarily abrogate 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. A proposed rule change filed under Rule 19b-4(f)(6) normally may not become operative prior to 30 days after the date of filing. 9 However, Rule 19b-4(f)(6)(iii) 10 permits the Commission to designate a shorter time if such action is consistent with the protection of investors and the public interest. The ISE provided the Commission with written notice of its intent to file this proposed rule change at least five business days prior to the date of filing of the proposed rule change. In addition, the ISE has requested that the Commission waive the 30-day operative delay. The Commission has previously stated its belief that in an electronic environment—such as that of the ISE options market—reducing the exposure period for orders to three seconds could facilitate the prompt execution of such orders, while providing market participants with an adequate opportunity to compete for them. 11 Thus, the Commission believes that waiving the 30-day operative delay for the instant proposed rule change is consistent with the protection of investors and the public interest. For this reason, the Commission designates the proposal to be effective and operative immediately. 12 9 17 CFR 240.19b-4(f)(6)(iii). 10 *Id.* 11 See, *e.g.* , Securities Exchange Act Release Nos. 52711 (November 1, 2005), 70 FR 67508 (November 7, 2005) (SR-ISE-2004-04); 53384 (February 27, 2006), 71 FR 11280 (March 6, 2006) (SR-PCX-2005-135); and 53567 (March 29, 2006), 71 FR 17529 (April 6, 2006) (SR-CBOE-2006-09). 12 For purposes only of waiving the 30-day operative delay, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-ISE-2006-52 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-ISE-2006-52. 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 ISE. 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-ISE-2006-52 and should be submitted on or before October 25, 2006. 13 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 13 Nancy M. Morris, Secretary. [FR Doc. E6-16363 Filed 10-3-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54528; File No. SR-ISE-2006-48] Self-Regulatory Organizations; International Securities Exchange, Inc. (n/k/a International Securities Exchange, LLC); Order Approving Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval of Amendment No. 1 Thereto Relating to the Adoption of Rules To Govern Its Electronic Trading System for Equities September 28, 2006. I. Introduction On August 4, 2006, the International Securities Exchange, Inc. (n/k/a International Securities Exchange, LLC) (“ISE” or “Exchange”) 1 filed with the Securities and Exchange Commission (“Commission”) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) 2 and Rule 19b-4 thereunder, 3 to adopt rules to govern its electronic trading system for equity securities. The proposed rule change was published for comment in the **Federal Register** on August 15, 2006. 4 The Commission received no comments on the proposal. On September 27, 2006, the Exchange filed Amendment No. 1 to the proposal. 5 This order approves the proposed rule change, grants accelerated approval to Amendment No. 1, and solicits comments from interested persons on Amendment No. 1. 1 On September 1, 2006, the Exchange adopted a holding company structure by forming a new parent company, International Securities Exchange Holdings, Inc. (“Holdings”). As part of the restructuring, International Securities Exchange, Inc. (“ISE Inc.”), the registered national securities exchange, merged into a newly formed entity, International Securities Exchange, LLC (“ISE LLC”), a wholly-owned subsidiary of Holdings. ISE LLC continues to conduct the business operations of the exchange and is the successor to the registration of ISE Inc. as a national securities exchange. *See* Securities Exchange Act Release No. 53705 (April 21, 2006), 71 FR 25260 (April 28, 2006) (File No. SR-ISE-2006-04). Holdings is also the parent company of ISE Stock Exchange, LLC, the facility to which the proposed rule change relates. All references herein to “ISE” or the “Exchange” refer to ISE Inc. or ISE LLC, as appropriate. 2 15 U.S.C. 78s(b)(1). 3 17 CFR 240.19b-4. 4 *See* Securities Exchange Act Release No. 54287 (August 8, 2006), 71 FR 46947. 5 In Amendment No. 1, the Exchange:
(i)Amended proposed ISE Rule 2110 (Minimum Price Variation) to conform with the language of Rule 612 of Regulation NMS;
(ii)amended proposed ISE Rule 2106 (Opening Process) to reflect all order types that cannot participate in the opening process and to add a provision addressing closing procedures;
(iii)changed the term “partial round lot” to “mixed lots” to correspond to the current industry term and clarified corresponding proposed ISE Rule 2105 (Order Entry);
(iv)amended proposed ISE Rule 2107 (Priority and Execution of Orders) to address how orders entered into the ISE Stock Exchange will interact with MidPoint Match orders;
(v)amended proposed ISE Rule 2118 (Trade Modifiers) to incorporate applicable requirements of Rule 611 of Regulation NMS;
(vi)made clarifying changes to the clearing requirements;
(vii)made conforming changes to the proposed rules to match, where applicable, the rules filed under the Form PILOT relating to MidPoint Match;
(viii)added proposed ISE Rule 2120 (Taking or Supplying Securities);
(ix)clarified routing procedures before and after February 5, 2007, the Regulation NMS “Trading Phase Date”; and
(x)made other minor clarifying changes to various proposed rules. The complete text of Amendment No. 1 is available on the Commission's Web site ( *http://www.sec.gov/rules/sro.shtml* ), at the Commission's Public Reference Room, and at the Exchange. II. Summary Description of the Proposal The Exchange proposes to adopt new rules and amend existing ISE rules to govern the operation of the ISE Stock Exchange, LLC (“ISE Stock Exchange”), a new electronic trading system for equity securities (“System”). 6 In addition, the Exchange proposes to apply certain of its options rules to the trading of equity securities on the ISE Stock Exchange. The ISE Stock Exchange will trade equity securities only pursuant to unlisted trading privileges (“UTP”). 7 6 On September 1, 2006, the Commission approved a proposed rule change establishing the ISE Stock Exchange as a “facility,” as defined in Section 3(a)(2) of the Act, of the Exchange. *See* Securities Exchange Act Release No. 54399, 71 FR 53728 (September 12, 2006) (SR-ISE-2006-45). 7 While the proposed rules would allow the ISE Stock Exchange to trade common stock, Commodity-Based Trust Shares, Currency Trust Shares, Partnership Units, Trust Issued Receipts including those based on Investment Shares, and Investment Company Units by either listing and/or trading pursuant to UTP, the Commission notes that, to list equity securities, the Exchange would need to amend its rules to comply with Rule 10A-3 under the Act, 17 CFR 240.10A-3, and to incorporate qualitative listing criteria by filing a proposed rule change under Section 19(b)(1) of the Act. The System will provide for the electronic execution and display of orders, as well as a midpoint matching feature (“MidPoint Match”). The class of members who will be eligible to trade on the ISE Stock Exchange are electronic access members (“EAMs”) of the Exchange whom ISE specifically authorizes to trade on the ISE Stock Exchange (“Equity EAMs”). Orders will be ranked in the System based on price-time priority, regardless of the identity of the entering Equity EAM. Executions will take place automatically and immediately upon order entry if trading interest is available. The System will provide a routing service for orders when trading interest is not present on the ISE Stock Exchange. The ISE Stock Exchange will not have any market makers, only Equity EAMs who will provide liquidity to the ISE Stock Exchange. The ISE Stock Exchange will be an order-driven marketplace. The proposed rules incorporate the ISE Stock Exchange's compliance with Rule 611 of Regulation NMS 8 by requiring that, for any execution to occur on the ISE Stock Exchange during regular trading hours, the price must be equal to, or better than, any “protected quotation” within the meaning of Regulation NMS (“Protected Quotation”), 9 unless an exception to Rule 611 of Regulation NMS is available. 10 The Exchange proposes to direct to away markets for execution all or a portion of the orders that cannot be executed at the Protected Quotation on the ISE Stock Exchange, and are not cancelled. 11 The proposed rules also incorporate the prohibition in Regulation NMS on locking or crossing Protected Quotations, 12 except in certain circumstances. 13 8 17 CFR 242.611. 9 *See* proposed ISE Rule 2100(c)(16). 10 *See* proposed ISE Rule 2107(c). 11 *See* proposed ISE Rule 2107(d). 12 17 CFR 242.610(d). 13 *See* proposed ISE Rule 2112. The MidPoint Match feature of the System will be a mechanism for trading equity securities in a continuous matching system. 14 Users will enter unpriced orders into MidPoint Match, and MidPoint Match will continuously monitor buy and sell orders in MidPoint Match and, subject to certain limitations discussed more fully below, will execute orders at the midpoint of the NBBO when interest is resident in MidPoint Match on both sides of the market. 15 14 *See* proposed ISE Rule 2129. 15 The Exchange previously filed with the Commission pursuant to Rule 19b-5 under the Act, 17 CFR 240.19b-5, a Form PILOT setting forth rules governing MidPoint Match. *See* PILOT-ISE-2006-01 (July 28, 2006). ISE commenced operation of MidPoint Match on September 8, 2006. The rules filed under the Form PILOT, with minor modifications, were incorporated into the Exchange's proposed rule change, as amended. Upon the Commission's approval of the proposed rule change, the rules relating to the fully displayed market will be effective, but will not be operative until ISE launches its fully displayed market, and the rules pertaining to MidPoint Match that are incorporated into the proposed rule change will be operative immediately. Prior to launch of the fully displayed market, the Exchange intends to file a proposed rule change with the Commission to indicate that the rules relating to the fully displayed market have become operative. The Exchange represents that it intends to commence trading in the displayed market prior to February 5, 2007, the Regulation NMS “Trading Phase Date.” A more complete discussion of the features of the ISE Stock Exchange is contained below. III. Discussion After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the Act and the rules and regulations promulgated thereunder applicable to a national securities exchange 16 and, in particular, with the requirements of Section 6(b) of the Act. 17 Specifically, the Commission finds that approval of the proposed rule change is consistent with Section 6(b)(5) of the Act 18 in that it is designed to facilitate transactions in securities; 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. 16 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). 17 15 U.S.C. 78f(b). 18 15 U.S.C. 78f(b)(5). A. Access to ISE Stock Exchange The class of members who will be eligible to trade on the ISE Stock Exchange are Equity EAMs. All current EAMs of the Exchange are eligible to become Equity EAMs. Any broker-dealer that is not currently an EAM can become an Equity EAM first by applying for EAM status through the existing membership process and then by connecting to the ISE Stock Exchange through the FIX or CMS protocols and paying any applicable fees. Such fees will be the same for current and new EAMs seeking to become Equity EAMs. The Commission believes that the proposed definition of, and the procedures relating to authorization of an EAM to act as, an Equity EAM are consistent with the Act. B. Order Types The following order types will be eligible for execution on the ISE Stock Exchange, including MidPoint Match orders, which are described below. *Market Orders:* A Market Order is an order to buy or sell a stated amount of a security that is to be executed immediately and automatically at the best available price(s) 19 when the order reaches the ISE Stock Exchange, to the greatest extent possible without causing an execution during regular trading hours at a price that is inferior to a Protected Quotation (“Trade-Through”). Any unexecuted shares of a Market Order may be routed in whole or in part to other Trading Centers 20 with Protected Quotations. 19 The “best available price” means the highest bid price and the lowest offer price, including orders with executable undisplayed interest to buy or sell and interest to buy or sell that may exist in MidPoint Match. *See* proposed ISE Rule 2100(c)(3). 20 A “Trading Center” is a national securities exchange or national securities association that operates an SRO trading facility, an alternative trading system, an exchange market maker, an OTC market maker, or any other broker or dealer that executes orders internally by trading as principal or crossing orders as agent. *See* proposed ISE Rule 2100(c)(20). *Limit Orders:* A Limit Order is a one-sided order to buy or sell a stated quantity of a security at a specified price or better. The types of Limit Orders that the ISE Stock Exchange will accept include Reserve Orders, Immediate-or-Cancel (“IOC”) Orders, Intermarket Sweep Orders (“ISOs”), Fill-or-Kill (“FOK”) Orders, Not Routable Orders, and Post Only Orders. Reserve Orders will have a portion of their size displayed, while a reserve portion of their size at the same price will not be displayed. The reserve size will be used to refresh the displayed size when the displayed size is executed in full. When the displayed size of a Reserve Order is replenished from the reserve size, the displayed order is considered newly entered for purposes of time priority. IOC Orders will be executed immediately and automatically against existing orders on the System at the best available price(s) to the greatest extent possible without causing a Trade-Through, and any unexecuted balance will be cancelled. Any Equity EAM may use an IOC Order to immediately and automatically execute against the full size of the displayed quotation on the System (including any undisplayed or reserve size available at the price of the displayed quotation). With respect to orders received by the ISE Stock Exchange, ISOs are orders to be executed in whole or in part upon receipt against existing orders on the System at their executable price, in order of their ranking and without regard to better-priced quotations displayed at other Trading Centers, and if not so executed are to be cancelled. With respect to orders sent by the ISE Stock Exchange to other Trading Centers, ISOs are orders to be executed in whole or in part at such Trading Centers without regard to better-priced quotations displayed at other Trading Centers, and if not so executed are to be cancelled. 21 21 The Exchange intends the ISO order type to be equivalent to the “intermarket sweep order” defined in Rule 600(b)(30) of Regulation NMS under the Act, 17 CFR 242.600(b)(30). FOK Orders are to be executed in their entirety or cancelled upon receipt. Not Routable Orders are to be executed in whole or in part upon receipt, and if not fully executed, displayed on the ISE Stock Exchange, as long as the order would not be executable against a Protected Quotation. Post Only Orders are to be displayed on the ISE Stock Exchange upon receipt or cancelled if they are executable upon entry, either on the ISE Stock Exchange or at another Trading Center. *Pegged Orders:* Pegged Orders are Limit Orders to buy or sell a stated amount of a security at a displayed price set to track the current NBBO. The tracking of the relevant NBBO for Pegged Orders will occur on a real-time basis. If the calculated price for the Pegged Order would exceed its limit price, it will no longer track the NBBO and will remain displayed at its limit price. The Commission believes that these order types are appropriate in the context of the trading services proposed to be offered by the ISE Stock Exchange. In addition, these order types should help provide market participants with flexibility in executing transactions that meet the specific requirements of the order type. C. Operating Hours and Opening Process The ISE Stock Exchange will operate during regular trading hours. 22 The System will accept orders each day prior to the opening. 23 The ISE Stock Exchange will open based upon the opening of the primary market for a security. 24 When the primary market is either the NYSE or the Amex, the opening trade will be executed at the midpoint of the first reported NBBO subsequent to a reported trade on the primary market. When the primary market is Nasdaq, the opening trade will be executed at the midpoint of the first reported NBBO. All orders eligible to trade at the midpoint will be processed in time sequence, beginning with the oldest order. Matches will occur until there is no remaining volume or there is an imbalance of orders. Following the opening execution process in an individual security, all orders remaining will be executed in accordance with the proposed ISE rules, as more fully discussed in the following section. All unexecuted orders will be displayed on the order book, cancelled, or routed to other Trading Centers in accordance with the proposed rules. 22 For common stock, the hours of business for the ISE Stock Exchange will be 9:30 a.m. until 4 p.m. (ET). For securities other than common stock, the hours of business are set forth in proposed ISE Rules 2123 through 2127. *See* proposed ISE Rule 2102. 23 All order types other than Stop, Stop Limit, No MPM, Post Only, FOK, and IOC may participate in the opening transaction. 24 Proposed ISE Rule 2106(c) defines the primary market as the listing market for a security. If a security is traded on both the NYSE and the Amex, the primary market would be considered the NYSE. If a security is listed on both the NYSE and Nasdaq, the NYSE would be considered the primary market. The Commission believes that the proposed rules relating to the System's operating hours and opening procedures are consistent with the Act. D. Order Execution and Priority Once the opening occurs for individual securities, the ISE Stock Exchange will operate during regular trading hours. All orders will be ranked automatically by the ISE Stock Exchange following price-time priority as soon they are entered in the order book. Orders are ranked beginning with the highest priced orders to buy and the lowest priced orders to sell. 25 For the purposes of ranking, the System will use the price at which the order is displayed. Within each price, orders will be ranked in time priority based on the time that an order is displayed or “updated” at that price, except that the undisplayed portions of Reserve Orders will be ranked after all other orders and displayed portions of Reserve Orders at the same price. When the displayed size of a Reserve Order is replenished from the reserve size, the displayed order is considered newly entered for the purposes of time priority. 25 *See* proposed ISE Rule 2107. In addition, all orders will be available for price improvement at the midpoint of the NBBO if contra-side interest exists in MidPoint Match, unless the order is marked “No MPM.” 26 Except as indicated below, incoming orders will be executed at or within the NBBO. The Commission believes that the proposed rules relating to order priority and order execution are consistent with the Act. 27 26 Equity EAMs can choose to place orders into MidPoint Match or into the displayed market. Orders placed into the displayed market will be eligible, by default, to interact with MidPoint Match orders for purposes of gaining price improvement. Optionally, orders in the displayed market can bypass MidPoint Match by being marked as No MPM. 27 Section 11(a) of the Act, 15 U.S.C. 78k(a)(1), 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 an associated person exercises discretion, unless an exception applies. Rule 11a2-2(T) under the Act, 17 CFR 240.11a2-2(T), commonly known as the “effect versus execute” rule, provides exchange members with an exemption from this prohibition. The Exchange represents that, consistent with this rule, the System's time-priority execution parameters will place all participants on the “same footing,” and no participant will enjoy any special control over the timing of execution or any special order handling advantages. According to the Exchange, all orders will be transmitted directly to the System by electronic means, and, once submitted, all orders will be executed, displayed, cancelled, or routed automatically by the System, based on established trading rules. The Commission notes that the Exchange would enforce this requirement pursuant to its obligation under Section 6(b)(1) of the Act, 15 U.S.C. 78f(b)(1), to enforce compliance by its members and persons associated with its members with the Federal securities laws and rules thereunder. E. Compliance With Regulation NMS Under the Act The System is designed to automatically prevent Trade-Throughs of Protected Quotations. The System will accomplish this in two principal ways:
(i)By providing outbound routing for those orders that will be available to route; and
(ii)by displaying orders at prices that would not cause a Trade-Through when executed. Additionally, the System will take advantage of various exceptions to Rule 611 of Regulation NMS under the Act. 28 The Exchange has proposed to adopt an exception (“self-help”) to allow for the System to Trade-Through a Protected Quotation displayed by a Trading Center that is experiencing a failure, material delay, or malfunction of its systems or equipment. If another Trading Center repeatedly fails to respond within one second to incoming orders attempting to access its Protected Quotations, the System may bypass those Protected Quotations by:
(i)Notifying the non-responding Trading Center immediately after (or at the same time as) electing self-help; and
(ii)assessing whether the cause of the problem lies with its own systems and, if so, taking immediate steps to resolve the problem. ISOs may, by definition, trade at a price inferior to a Protected Quotation. In addition, transactions may be executed at a time when the Protected Quotations are crossed. 28 *See* proposed ISE Rule 2107(c). The ISE Stock Exchange will not intentionally lock or cross any Protected Quotations on another Trading Center, 29 except in certain circumstances. For instance, the System may lock or cross a Protected Quotation:
(i)When a Protected Bid is higher than a Protected Offer; 30 or
(ii)if the locking or crossing quotation is an automated quotation and an ISO has simultaneously been routed to execute against the full displayed size of the locked or crossed Protected Quotation. 29 *See* proposed ISE Rule 2112. 30 *See* proposed ISE Rule 2100(c)(15). The Commission believes that the proposed rule change is consistent with the requirements of Rule 610(d) and Rule 611 of Regulation NMS. F. Order Routing The ISE Stock Exchange will offer a routing service for Equity EAMs, when it does not have interest equal to or better than the Protected Bid or Protected Offer. 31 Certain order types, including Market Orders and Limit Orders, are eligible to be routed. 32 To be eligible to enter routable orders into the ISE Stock Exchange, Equity EAMs must, among other things, enter into a Routing Agreement with the outbound routing facility of the Exchange. 33 31 Prior to February 5, 2007, the Regulation NMS “Trading Phase Date,” the ISE Stock Exchange will not execute orders at a price that is inferior to the best bid or offer of other Trading Centers. 32 *See* proposed ISE Rule 2107(d). 33 *See* proposed ISE Rule 2105(d). A “Routing Agreement” is an agreement between an Equity EAM and the outbound routing facility of the ISE Stock Exchange, under which the outbound routing facility agrees to act as agent for routing orders of the Equity EAM entered into the ISE Stock Exchange to other market centers or broker-dealers for execution, other than orders excluded by the terms of the Routing Agreement, whenever such routing is required. *See* proposed ISE Rule 2100(c)(18). The System will accept the following orders to be handled on the ISE Stock Exchange, without routing to another Trading Center: IOC Orders, FOK Orders, Not Routable Orders, and Post Only Orders. 34 No Equity EAM may enter any other type of order unless it has entered into a Routing Agreement with the outbound routing facility of the Exchange. 35 34 *See* proposed ISE Rules 2107(b)(2)(i), (ii), (iii), and (iv), respectively. In addition, MidPoint Match orders would not be routed, because MidPoint Match will execute all trades at the midpoint of the NBBO. 35 *See* proposed ISE Rule 2105(d) . *Market Orders and Routable Limit Orders Executable on the ISE Stock Exchange.* For orders that are routable, an IOC or ISO will automatically be sent to one or more Trading Centers with a Protected Quotation that is better than the ISE Stock Exchange quote for the lesser of the full displayed size of the Protected Quotation or the balance of the order. Any additional balance of the order will be executed on the ISE Stock Exchange simultaneously. If the market is crossed, the order will be handled as described below. *Routable Limit Orders Unexecutable on the ISE Stock Exchange.* If display of a Limit Order (or any balance thereof) on the ISE Stock Exchange would lock or cross a Protected Quotation, an ISO will automatically be sent to one or more Trading Centers with a Protected Quotation that would be locked or crossed by the display of the order for up to the full displayed size of the Protected Quotation. Any additional balance of the order will be displayed on the ISE Stock Exchange immediately. *Market Orders Unexecutable on the ISE Stock Exchange.* An IOC will automatically be sent to one or more Trading Centers with a Protected Quotation for the full size of the Market Order that is not executable on the ISE Stock Exchange. The Commission finds that the proposed rules governing the routing of orders to other Trading Centers are consistent with the Act. G. Outbound Routing Facility In connection with the proposed trading rules described above, the Exchange intends to enter into a contractual relationship with a broker-dealer that will function solely as the outbound routing facility (“ORF”) of the Exchange. The ORF will be a member of both the National Association of Securities Dealers, Inc. (“NASD”) and ISE. The ORF will provide an optional routing service for the Exchange, in which the ORF will route orders from the ISE Stock Exchange to Trading Centers with Protected Quotations through other brokers (“Access Brokers”) that are members or participants of those Trading Centers. As an outbound router, the ORF will receive routing instructions from the System, route orders to another Trading Center through an Access Broker, and be responsible for reporting resulting executions back to the System, which in turn will report resulting executions back to the Equity EAM. All orders routed through the ORF will be subject to the Exchange's rules. The ORF would not be able to change the terms of an order or the routing instructions, nor would it have any discretion about where to route an order. The ORF includes the clearing functions that the ORF may perform for trades with respect to orders routed to other Trading Centers. Use of the ORF is optional for Equity EAMs. The outbound router function of the ORF will operate as a facility (as defined in Section 3(a)(2) of the Act) of the Exchange. 36 As such, the outbound router function of the ORF is subject to the Commission's continuing oversight. In particular, and without limitation, under the Act, the Exchange is responsible for filing with the Commission proposed rule changes and fees relating to the ORF outbound router function, and the ORF is subject to exchange non-discrimination requirements. 37 36 15 U.S.C. 78c(a)(2). 37 15 U.S.C. 78f(b)(5). Pursuant to Rule 17d-1 under the Act, 38 where a member of the Securities Investor Protection Corporation is a member of more than one self-regulatory organization (“SRO”), the Commission will designate to one of such organizations the responsibility for examining such member for compliance with the applicable financial responsibility rules. 39 The SRO designation by the Commission is referred to as a “Designated Examining Authority” (“DEA”). As noted above, the ORF will apply to become a member organization of the Exchange and a member of the NASD. The NASD is an SRO not affiliated with the Exchange or its affiliates and is a DEA pursuant to Rule 17d-1 under the Act. 40 Furthermore, the Exchange represents that it will enter into a 17d-2 Agreement with the NASD to delegate to the NASD all regulatory oversight and enforcement responsibilities with respect to the ORF pursuant to applicable laws. The Exchange represents that it will submit the 17d-2 Agreement to the Commission under Rule 17d-2 within 90 days of the date of this order. 38 17 CFR 240.17d-1. 39 Pursuant to Rule 17d-1 under the Act, in making such designation the Commission will take into consideration the regulatory capabilities and procedures of the SROs, availability of staff, convenience of location, unnecessary regulatory duplication, and such other factors as the Commission may consider germane to the protection of investors, the cooperation and coordination among SROs, and the development of a national market system for the clearance and settlement of securities transactions. 40 17 CFR 240.17d-1. The Exchange will establish and maintain procedures and internal controls to restrict the flow of confidential and proprietary information between the Exchange and the ORF and any other entity or affiliate of the ORF. 41 The books, records, premises, officers, directors, agents, and employees of the ORF, as a facility of the Exchange, shall be deemed to be the books, records, premises, officers, directors, agents, and employees of the Exchange for purposes of and subject to oversight pursuant to the Act. The books and records of the ORF, as a facility of the Exchange, shall be subject at all times to inspection and copying by the Exchange and the Commission. 41 *See* proposed ISE Rule 2108. The Commission agrees with the Exchange that the ORF's services would qualify it as a “facility” of the Exchange, and, consequently, the operation of the ORF will be subject to Exchange oversight, as well as Commission oversight. The Commission notes that the outbound routing functionality is not the exclusive means for accessing better-priced orders in other market centers should an order not be executable on the ISE Stock Exchange. Accordingly, the ORF's routing services are optional, and an Equity EAM is free to route its orders to other market centers through alternative means. In light of the protections afforded by the conditions discussed above, the Commission believes that the Exchange's outbound routing function, and the rules and procedures governing the ORF, are appropriate and consistent with the Act. H. MidPoint Match MidPoint Match is a mechanism of the ISE Stock Exchange for trading common stocks and similar securities in a continuous midpoint matching system. 42 Equity EAMs will be able to enter MidPoint Match orders to buy or sell at the midpoint of the NBBO. Although orders in MidPoint Match will be unpriced, members may specify a boundary price above which they will not buy (or below which they will not sell). The System will continuously monitor buy and sell orders in MidPoint Match and will execute orders at the midpoint of the NBBO as long as the execution does not violate the boundary price on an order. 42 *See* proposed ISE Rule 2129. When entering an order, a member can specify what, if any, information the System should disseminate:
(i)The member can specify that the System not disseminate any information regarding the order (“Standard Order”); or
(ii)The member can specify that the System disseminate that there is a pending order in a particular security, but not identify the side or the size of the order (“Solicitation of Interest” or “SOI”). 43 43 However, an SOI must be for a minimum of 2000 shares, so users would be aware that the SOI represented interest of at least that size. MidPoint Match will reject an SOI (but not a Standard Order) with a boundary price that is not then currently executable. Upon arrival of an SOI, MidPoint Match will immediately generate a single broadcast internally to all Equity EAMs that have programmed their systems to accept this message announcing the arrival of the order. An Equity EAM entering an SOI may not cancel that SOI for five seconds. In addition, if an SOI is not executed within ten seconds, the SOI will convert into a Standard Order. Because MidPoint Match will execute all trades at the midpoint of the NBBO, MidPoint Match will never execute a trade outside of the NBBO. In addition, MidPoint Match will not execute a trade if the quotation for a security is “crossed,” with the national best bid being greater than the national best offer. In that situation, MidPoint Match will suspend executions, since both buyers and sellers may be able to receive executions in other markets at prices better than the NBBO midpoint. If the quotation is “locked,” with the national best bid equaling the national best offer, MidPoint Match will execute all trades at the locked price. Unless marked otherwise, all incoming orders to the ISE Stock Exchange will be eligible for price improvement at the midpoint of the NBBO if contra-side interest exists in MidPoint Match. As set forth in the proposed rules, incoming orders will be executed at the best available price on the ISE Stock Exchange, which means the highest bid price and the lowest offer price, including undisplayed orders to buy or sell that may exist in MidPoint Match. Orders marked “No MPM” will not be executed against orders residing in MidPoint Match. The Commission believes that the order types and execution parameters established in MidPoint Match are consistent with the Act. I. Anonymity Except as described below, transactions executed on the ISE Stock Exchange will be processed anonymously. 44 This means that the ISE Stock Exchange transaction reports will indicate the details of the transaction but will not reveal contra-party identities. 45 The Commission notes that post-trade anonymity should not compromise an Equity EAM's ability to settle an erroneous trade, because under proposed ISE Rule 2128, the clearly erroneous execution resolution process is coordinated by the Exchange, without the need for contra parties to know each other's identities. 44 *See* proposed ISE Rule 2117. 45 ISE intends to submit a request for a limited exemption from paragraph (a)(2)(i)(A) of Rule 10b-10 under the Act, 17 CFR 240.10b-10, on behalf of Equity EAMs that execute trades on the ISE Stock Exchange for their customers and a request for no-action relief with respect to the corresponding books and records requirements of Rules 17a-3 and 17a-4 under the Act, 17 CFR 240.17a-3 and 17a-4, respectively. Rule 10b-10, among other things, requires a broker-dealer to disclose to its customers the identity of the party the broker-dealer sold to, or bought from, to fill the customer's order. The ISE Stock Exchange will not routinely reveal the identity of the actual contra-party when the order is executed against another Equity EAM. Therefore, the Equity EAMs will not be able to comply with the contra-party identification requirement of Rule 10b-10. To permit Equity EAMs to utilize the ISE Stock Exchange without violating Rule 10b-10, the Exchange is seeking an exemption, on behalf of such Equity EAMs, from the contra-party identification requirement. Additionally, the Exchange has asked the Commission not to recommend enforcement action for violations of the corresponding books and records requirements of Rules 17a-3 and 17a-4 if, in lieu of making and preserving a separate record, a broker-dealer relies on the Exchange's retention of the identities of Equity EAMs that execute anonymous trades on the ISE Stock Exchange. The Exchange represents that it will not commence operation of the displayed market unless the Exchange receives an exemption from Rule 10b-10 with respect to that market. The Exchange will only reveal the identity of the Equity EAM or the Equity EAM's clearing firm in the following circumstances:
(i)For regulatory purposes or to comply with an order of a court or arbitrator;
(ii)when the National Securities Clearing Corporation (“NSCC”) ceases to act for the Equity EAM or the Equity EAM's clearing firm, and NSCC determines not to guarantee the settlement of the Equity EAM's trades; or
(iii)on risk management reports provided to the contra-party of the Equity EAM or Equity EAM's clearing firm each day after 4:00 p.m. that discloses trading activity on an aggregate dollar value basis. Also, the Exchange will reveal to an Equity EAM, no later than the end of the day on the date an anonymous trade was executed, when that Equity EAM submits an order that has executed against an order submitted by that same Equity EAM. The Commission finds that the Exchange's proposed anonymity provisions are appropriate and consistent with the Act. J. Clearly Erroneous Executions Pursuant to proposed ISE Rule 2128, an Equity EAM that receives an execution on an order that was submitted erroneously to the ISE Stock Exchange for its own or a customer account may request that Market Control, along with a member of the regulatory staff, review the transaction under proposed ISE Rule 2128(b) within the time limits described therein. Market Control will review the transaction with a view toward maintaining a fair and orderly market and the protection of investors and the public interest. A member of the regulatory staff will advise and participate in all steps of Market Control's review of the transaction. Based upon this review, Market Control will decline to “break” a disputed transaction if Market Control believes that the transaction under dispute is not clearly erroneous. However, if Market Control determines that the transaction in dispute is clearly erroneous, Market Control will declare that the transaction is null and void or modify one or more terms of the transaction. When adjusting the terms of a transaction, Market Control will seek to adjust the price and/or size of the transaction to achieve an equitable rectification of the error that would place the parties to a transaction in the same position, or as close as possible to the same position, as they would have been in had the error not occurred. For purposes of the clearly erroneous rule, the terms of a transaction are “clearly erroneous” when there is an obvious error in any term, such as price, number of shares or other unit of trading, or identification of the security. Market Control may, on its own motion, review transactions on the ISE Stock Exchange that arose during any disruption or malfunction in the use or operation of any electronic communications or trading facilities of the ISE Stock Exchange, or extraordinary market conditions or other circumstances in which the nullification or modification of transactions may be necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest. Each affected Equity EAM will be notified as soon as practicable, and the Equity EAM aggrieved by the action may appeal such action to the Trade Panel. The Commission believes that proposed ISE Rule 2128 is consistent with the Act because it is reasonably designed to promote fair and orderly markets by setting forth procedures for reviewing and, if necessary, nullifying or adjusting a clearly erroneous trade. The Commission previously has determined that it is consistent with the Act for an exchange to be able to nullify or adjust trades that are clearly erroneous. 46 46 *See* , *e.g.* , NYSE Arca Equities Rule 7.10 (Clearly Erroneous Executions) and Nasdaq Rule 11890 (Clearly Erroneous Transactions). K. Miscellaneous Rules Proposed ISE Rules 2123 (Investment Company Unit), 2124 (Trust Issued Receipts), 2125 (Commodity-Based Trust Shares), 2126 (Currency Trust Shares), and 2127 (Partnership Units) would permit the trading of derivative products on the ISE Stock Exchange. While these proposed ISE rules would allow the ISE Stock Exchange to trade such products by either listing and/or trading pursuant to UTP, the ISE Stock Exchange will only trade these products pursuant to UTP. In order to list such products, the Exchange would first need to seek Commission approval and amend its applicable rules. Proposed ISE Rule 2117 (Settlement Through Clearing Corporations) adds provisions governing the settlement and clearing of equity securities. Proposed ISE Rule 2101 (Equity Securities Traded) provides that, if the Exchange trades its own securities, or the securities of an affiliate or any entity that operates and/or owns a trading system or facility of the Exchange, on the ISE Stock Exchange, the Exchange will file a report each quarter with the SEC describing:
(i)The Exchange's monitoring of the issuer's compliance with the Exchange's listing standards (in the event the Exchange adopts such listing standards); and
(ii)the Exchange's monitoring of the trading of the security. If the Exchange adopts listing standards, an independent accounting firm must annually review the listing standards for the subject security to ensure that the issuer is in compliance with the applicable listing requirements. If the Exchange determines that the subject issuer is non-compliant with any listing standard, the Exchange must file a report with the Commission at the same time that the Exchange notifies the issuer of its non-compliance. The following Rules have been incorporated from the Exchange's options rules: ISE Rule 100 (Definitions) is being expanded to include equities in the following definitions: Bid, clearing corporation, offer and order; ISE Rule 500 (Designation of Securities) is being amended to accommodate for the newly adopted rules in Chapter 21; and ISE Rules 702 and 703 (Trading Halts and Trading Halts Due to Extraordinary Market Volatility, respectively) are being amended to account for halting trading in equity securities. 47 47 In addition, the Exchange proposes to apply certain of its options rules to the trading of equity securities on the ISE Stock Exchange, as set forth in Appendix A to proposed Chapter 21 of the ISE rules. The Commission finds that these various proposed ISE rules are consistent with the Act. L. Accelerated Approval of Amendment No. 1 The Commission finds good cause for approving Amendment No. 1 to the proposed rule change prior to the thirtieth day after publishing notice of Amendment No. 1 in the **Federal Register** pursuant to Section 19(b)(2) of the Act. 48 48 15 U.S.C. 78s(b)(2). In Amendment No. 1, the Exchange amended proposed ISE Rule 2110 (Minimum Price Variation) to conform with the language of Rule 612 of Regulation NMS and amended proposed ISE Rule 2118 (Trade Modifiers) to incorporate applicable requirements of Rule 611 of Regulation NMS. The Exchange also amended proposed Rule 2106 (Opening Process) to reflect that Stop Orders, Stop Limit Orders, No MPM Orders, Post Only Orders, FOK Orders and IOC Orders cannot participate in the opening process and to add a provision that the System would cease matching orders in a security upon the close of the primary market for that security. In addition, the Exchange changed the term “partial round lot” to “mixed lots” to correspond to the current industry term and clarified corresponding proposed ISE Rule 2105 (Order Entry). The Exchange also added proposed ISE Rule 2120 (Taking or Supplying Securities), which governs situations in which an Equity EAM can, upon receipt of a customer order, take or supply securities named in the order on behalf of itself or related parties. In Amendment No. 1, the Exchange made certain revisions to the proposed rules to provide for the interaction of MidPoint Match orders with other orders entered into the ISE Stock Exchange, as described more fully above. The Exchange also revised the text of proposed ISE Rule 2107(d) to clarify that, prior to February 5, 2007, the ISE Stock Exchange will not trade through the best bid or offer of other Trading Centers, while on and after February 5, 2007, the ISE Stock Exchange will not trade through a Protected Quotation. Finally, the Exchange made clarifying changes to the clearing requirements and other proposed rules and made changes to the proposed rules to conform them to the rules filed with the Commission on the Form PILOT relating to MidPoint Match. 49 49 *See supra* note 15. The Commission notes that Amendment No. 1 is intended to clarify various provisions of the Exchange's proposed rules. The Commission believes that Amendment No. 1 proposes revisions that are non-substantive in nature and do not raise novel issues, and that Amendment No. 1 is consistent with the Act. Therefore, the Commission finds good cause to accelerate approval of Amendment No. 1, 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. 1, including whether Amendment No. 1 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-ISE-2006-48 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 Amendment No. 1 to File No. SR-ISE-2006-48. 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 will also 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. 1 to File No. SR-SE-2006-48 and should be submitted on or before October 25, 2006. V. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 51 that the proposed rule change (SR-ISE-2006-48) be, and it hereby is, approved, and Amendment No. 1 is approved on an accelerated basis. 51 15 U.S.C. 78s(b)(2). 52 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 52 Nancy M. Morris, Secretary. [FR Doc. E6-16366 Filed 10-3-06; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-54514; File No. SR-OCC-2006-05] Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to Expiration Date Exercise Procedures September 26, 2006. I. Introduction On April 6, 2006, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change SR-OCC-2006-05 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). 1 Notice of the proposal was published in the **Federal Register** on August 18, 2006. 2 No comment letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 54306, (August 11, 2006), 71 FR 47853. II. Description The proposed rule change will amend OCC Rule 805, Expiration Date Exercise Procedure, to reduce the threshold amounts used to determine which equity options are in the money for purposes of “exercise by exception” processing. A conforming change would also be made to OCC Rule 1106, Open Positions, which concerns the treatment of open positions following the suspension of a clearing member. OCC has for years maintained an “exercise by exception” procedure. Under that procedure, options that are in the money at expiration by more than a specified threshold amount are exercised automatically unless the clearing member carrying the position instructs OCC otherwise. Equity options are determined to be in the money or not in the money based on the difference between the exercise price and the closing price of the underlying equity interest on the last trading day before expiration. In September 2004, in order to streamline expiration processing, OCC reduced the threshold amounts from $.75 to $.25 for equity options in a clearing member's customers' account and from $.25 to $.15 for equity options in any other account ( *i.e.* , firm and market makers' accounts). 3 The September 2004 change, which was implemented at the request of the OCC Roundtable, 4 immediately yielded significant benefits to both OCC and clearing members as evidenced by the fact that the time for submitting exercise instructions was reduced by one to three hours on an average expiration weekend. 3 Securities Exchange Act Release No. 50178 (August 10, 2004), 69 FR 51343 (August 18, 2004) [File No. SR-OCC-2004-04]. 4 The OCC Roundtable is an OCC sponsored advisory group comprised of representatives from OCC's participant exchanges, OCC, a cross-section of OCC clearing members, and industry service bureaus. The OCC Roundtable considers operational improvements that may be made to increase efficiencies and lower costs in the options industry. Increasing options volumes in 2004 and 2005 prompted the OCC Roundtable to review the threshold amounts used for equity options in an effort to further reduce operational risks and improve expiration processing. Initially, the OCC Roundtable proposed that the threshold amount for all account types be set at $.01, but an OCC survey of clearing members found that while 65% of responding clearing members supported such a change, 35% were against it. A second OCC survey determined that 75% of responding clearing members were in favor of and 25% were opposed to changing the threshold amount change to $.05 for all account types. The OCC Roundtable then requested that OCC establish $.05 as the threshold amount applicable to equity options exercises for all account types. In response to this request, OCC analyzed equity options exercise information from the June 2004 through December 2005 expirations. OCC analysis determined from its members that 70% of equity option contracts carried in clearing members' customers' accounts that were in the money by amounts of $.05 to $.24 ( *i.e.* , the proposed change to the “in-the-money” amount represented by the proposed threshold change) were exercised. OCC analysis also determined from its members that exercise activity in other account types supported the proposed threshold amount change. OCC surveyed all clearing members to obtain their views and comments on the proposed change to $.05 as the threshold amount for equity options for all account types. Survey results demonstrated strong support across the membership for the change. Eighty-seven clearing members responded to the survey with sixty-five clearing members (75%) being in favor of the threshold change and 22 clearing members (25%) being opposed. 5 Clearing members supporting the change confirmed the OCC Roundtable's view that such a change would significantly reduce the number of instructions clearing members are currently required to submit at expiration and thereby would shorten the time frame for completing their instructions to OCC. 5 OCC contacted clearing members that did not respond to its survey. These firms expressed no opinion on the matter. OCC contacted each firm that expressed opposition to the $.05 threshold amount change. These firms are generally midsize to small retail clearing members. Their opposition to the change reflected their principal concern that they would have to submit more “do not exercise” instructions. Some indicated concerns about the need to educate customers and about the possibility that commission costs could make an exercise unprofitable. 6 However, all of these firms indicated that they could adapt to a $.05 threshold amount if it was supported by the majority of clearing members. OCC further reviewed the positions carried by these firms and determined that, on average, they generally carry positions in fewer than 10 expiring series per expiration that are below the current threshold amount of $.25. This review led OCC to conclude that the threshold amount change to $.05 would result in only a slight increase in processing time for these firms and that they would not be unduly burdened by its implementation. 6 As noted, clearing members are able to instruct OCC not to exercise an expiring equity option. OCC's survey of clearing members also asked firms to provide an estimate of the time they would need to accommodate the threshold change based upon supplied time frames (e.g., 0-3 months or 4-6 months). The majority of firms indicated that they could complete the necessary systems development and customer notifications within six months. OCC contacted every firm that commented on the proposed time frames, and all expressed the view that their efforts would be completed in the six month time period. The OCC Roundtable has recommended that this change be implemented for the October 2006 expiration. Therefore, OCC requests that the Commission approve the proposed rule change with an effective date of October 1, 2006, and that the Commission authorize OCC to implement the threshold change thereafter based upon its assessment of clearing member readiness. OCC would provide at least ten days advance notice to clearing members of the effective date for the new threshold amounts by information memoranda and by other forms of electronic notice such as e-mail. Additionally, OCC would allow clearing members additional time to complete preparations for the threshold change if necessary. III. Discussion Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to promote the prompt and accurate clearance and settlement of securities transactions. 7 OCC Rule 805 is based on the assumption that when an option is in-the-money by at least a minimum fixed threshold level, most OCC members and their customers would choose to exercise the option. The rule has the effect, therefore, of reducing the number of exercise instructions that must be submitted to and processed by OCC. As OCC notes in its description of the proposed rule change, if a threshold amount is set too low, the result could be that some members would have to submit a greater number of “do not exercise” instructions than they would have to submit if the threshold amount was set at a higher amount. However, the Commission is satisfied that by consulting with an industry advisory group, by surveying its clearing members, and by its analysis, OCC has made a reasoned determination in deciding to set the threshold amount for equity options in all account types at $.05. Furthermore, we note that OCC consulted with its clearing members to ensure that even those that did not actively support the proposed rule change would not be adversely affected in a significant manner by the new threshold amount. Accordingly, because the proposed rule change is designed to reduce the amount of processing required for in-the-money equity options, we find that it is designed to promote the prompt and accurate clearance and settlement of securities transactions. 7 15 U.S.C. 78q-1(b)(3)(F). IV. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular Section 17A of the Act and the rules and regulations thereunder. *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-OCC-2006-05) be and hereby is approved. 8 17 CFR 200.30-3(a)(12). For the Commission by the Division of Market Regulation, pursuant to delegated authority. 8 Nancy M. Morris, Secretary. [FR Doc. E6-16332 Filed 10-3-06; 8:45 am] BILLING CODE 8010-01-P SMALL BUSINESS ADMINISTRATION Notice of NMTC Pilot Loan Program AGENCY: U.S. Small Business Administration (“SBA”). ACTION: Notice. SUMMARY: SBA is creating the New Markets Tax Credit
(NMTC)Pilot Loan Program. Under this program, certain Community Development Entities will be able to purchase a participation interest in up to 90% of a SBAExpress or CommunityExpress Section 7(a) guaranteed business loan as part of their investment in low-income communities under the New Markets Tax Credit Program administered by the U.S. Department of Treasury. SBA will use its authority under 13 CFR 120.3 to waive section 120.432(a) of SBA regulations for this pilot program. DATES: *Effective date:* The NMTC Pilot Loan Program will take effect on November 3, 2006. *Expiration date:* The NMTC Loan Pilot Program will expire on September 30, 2011, unless extended by SBA. FOR FURTHER INFORMATION CONTACT: James W. Hammersley, Director, Loan Programs Division at *james.hammersley@sba.gov* . SUPPLEMENTARY INFORMATION: New Markets Tax Credit Program The New Markets Tax Credit
(NMTC)Program permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in entities designated as Community Development Entities
(CDEs)by the U.S. Department of Treasury's Community Development Financial Institutions
(CDFI)Fund. Substantially all of the qualified equity investment must in turn be used by the CDE to make “qualified low-income community investments,” as defined in § 45D(d)(1) of the IRS Tax Code (“QLCI”), which includes a loan made to a “qualified active low-income community business,” as defined in § 45(d)(2) of the IRS Tax Code (“QLCI loans”). The credit provided to the investor totals 39% of the investment made by that investor, which may claim the credit against taxable income over a seven-year credit allowance period. In each of the first three years, the investor may claim five percent of the total amount of the NMTC; in the final four years, the investor may claim six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period. NMTCs are allocated annually by the CDFI Fund to CDEs under a competitive application process. These CDEs then offer the credits to taxable investors in exchange for stock or a capital interest in the CDEs. To qualify as a CDE, an entity must be a domestic corporation or partnership that:
(1)Has a mission of serving, or providing investment capital for, low-income communities or low-income persons;
(2)maintains accountability to residents of low-income communities through their representation on a governing board of or advisory board to the entity; and
(3)has been certified as a CDE by the CDFI Fund. Throughout the life of the NMTC Program, the CDFI Fund is authorized to allocate up to $16 billion in NMTCs to CDEs. To date, the CDFI Fund has conducted four rounds of allocations and issued 233 awards totaling $12.1 billion in allocation authority. The CDFI Fund plans to release its fifth annual NMTC Program Notice of Allocation Availability
(NOAA)on December 1, 2006. This NOAA will invite CDEs to compete for NMTC allocations in support of an aggregate amount of $3.9 billion in qualified equity investments in CDEs. More information about the NMTC program, including the applicable statutes and regulations, is available at the CDFI Fund's Web site at: *http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=5* . SBA's NMTC Pilot Loan Program SBA will implement a NMTC Pilot Loan Program on the effective date of this Notice. The pilot will encourage lenders, as defined in 13 CFR 120.10 (“Lenders”), that participate in SBA's 7(a) guaranteed loan program to increase the amount of credit, equity and financial services they provide to entrepreneurs and small businesses located in urban and rural distressed communities (“new markets”), and support the President's domestic economic priority of stimulating growth, investment and jobs in new markets, by increasing SBA's support for the NMTC program. New markets are “low-income communities” as defined in § 45D(e) of the IRS Tax Code. As part of the pilot, SBA will use its authority under 13 CFR 120.3 to waive the regulation that states, “A Lender may not sell any of its interest in a 7(a) loan to a nonparticipating Lender.” 13 CFR 120.432(a). This regulation requires that any holder of any portion of an SBA-guaranteed 7(a) loan, as defined in 13 CFR 120.1 and 120.2(a) (“7(a) loan”), other than through a sale in the secondary market, must be a Lender. Waiver of this rule is necessary to allow CDEs that are not also Lenders to hold 7(a) loans. Allowing CDEs to purchase and hold a portion of a 7(a) loan will enable CDEs with NMTC allocations to attract additional participation from Lenders to provide loans, as well as equity financing and financial services to entrepreneurs and small businesses in new markets. Under the pilot, only CDEs holding a NMTC allocation awarded by the CDFI Fund will be allowed to purchase portions of 7(a) loans. Through the pilot, SBA plans to test a process which permits CDEs to purchase a participation interest in 7(a) loans made by Lenders under either the SBAExpress or CommunityExpress programs, as a means of providing additional financing to businesses located in new markets. The CDEs would bring additional funds to various underserved business communities located in new markets. SBA hopes that such CDEs will also provide a package of services to borrowers, including mentoring, coaching and counseling to these businesses. Under SBA's SBAExpress loan program, a Lender approved by SBA to make such loans makes a 7(a) loan to a small business using the Lender's own processes, procedures, and forms. Certain types of loans are not eligible for the SBAExpress loan program. The maximum loan amount is $350,000, and the maximum SBA guaranty is 50% of the loan amount. More information about the SBAExpress program is available at: *http://www.sba.gov/financing/lendinvest/sbaexpress.html,* or from any SBA district office. Although the maximum size of an SBAExpress loan is $350,000, SBAExpress loans that are larger than $150,000 will not be eligible for the NMTC Pilot Loan Program. Under SBA's CommunityExpress program, a Lender approved by SBA to make such loans makes a 7(a) loan to a small business using Lender's own processes, procedures, and forms. Borrowers must receive pre- and post-loan closing technical and management assistance from local non-profit providers and/or from the Lender, with that assistance coordinated, arranged and, when necessary, paid for by the Lender. Certain types of loans are not eligible for the CommunityExpress program. The maximum loan amount is $250,000, and the SBA guaranty is up to 85% of the loan amount for loans of $150,000 or less. More information about the CommunityExpress program is available at: *http://www.sba.gov/financing/lendinvest/comexpress.html.* or from any SBA District Office. Although the maximum size of a CommunityExpress loan is $250,000, CommunityExpress loans that are larger than $150,000 will not be eligible for the NMTC Pilot Loan Program. Waiver Pursuant to 13 CFR 120.3, I am hereby waiving the requirement in 13 CFR 120.432(a) on sales of participating interests in 7(a) loans to allow lenders to sell participating interests in 7(a) loans to CDEs. This waiver is needed in order for the NMTC Pilot Loan Program to function. Beginning on the effective date of the NMTC Program, CDEs that hold an NMTC allocation may acquire, hold and assign a portion of an eligible SBAExpress or CommunityExpress 7(a) loan notwithstanding the prohibition in 13 CFR 120.432(a). In addition to the waiver of this regulation, SBA is implementing the following restrictions on Lenders and on the sale of 7(a) loans under this pilot:
(a)Only new SBAExpress and CommunityExpress 7(a) loans made after the effective date of the pilot are eligible for the pilot.
(b)Lenders must sign a Supplemental Lender Program Participation Agreement for the NMTC Pilot Loan Program in order to participate in this program.
(c)The maximum loan size eligible for the pilot is $150,000.
(d)Only 7(a) loans held in the portfolio of the originating Lender and made after the effective date of the pilot are eligible; 7(a) loans sold on the secondary market are not eligible.
(e)The originating Lender must perform the initial underwriting for the 7(a) loan, close the 7(a) loan, and retain all servicing responsibility for the 7(a) loan even after the Lender sells participation interests in such loan to CDEs, and perform liquidation of the loan unless it is not required to do so by SBA.
(f)The originating Lender must retain at least 10% of the principal balance of the 7(a) loan, excluding any premium amount paid, throughout the entire term of the loan. The 10% of any loan retained by the Lender must be a portion of the unguaranteed interest. The Lender must continue to administer the loans during their entire term and remains responsible for all SBA requirements and fees.
(g)A participation agreement, in a form that is acceptable to SBA, must be used by the originating Lender when a participation interest in a 7(a) loan is sold to a CDE and an agreement for assignment of a CDE-held participation interest, in a form that is acceptable to SBA, must be used by the CDE for all subsequent transfers of a participation interest.
(h)CDEs purchasing any portion of a 7(a) loan made under the pilot must have a NMTC allocation.
(i)Purchasers of participation interests in loans will not be permitted any input into the closing, servicing or liquidation of the 7(a) loan, and Lenders must not allow any such input.
(j)A CDE may sell its interest in a 7(a) loan made under the pilot only to either a Lender or to another CDE with a NMTC allocation. The CDE must use an assignment of participation interest form that is acceptable to SBA.
(k)Small Business Investment Companies (SBICs) and New Market Venture Capital Companies (NMVCCs) are prohibited from participating in the pilot.
(l)SBA's waiver of its regulation for purposes of this pilot is based on a requirement that the SBAExpress and CommunityExpress 7(a) loans made by Lenders under this pilot also will qualify as QLCI loans under the IRS Tax Code and regulations governing the NMTC program. The originating Lender is responsible for meeting the eligibility criteria to qualify the 7(a) loan as a QLCI loan. However, CDEs and their investors bear the responsibility of demonstrating to the IRS the eligibility of the loan for NMTCs, and SBA makes no legal or tax representations and assumes no responsibility in this regard. If SBA does not make this program permanent or extend this pilot program beyond September 30, 2011, the CDE may continue to hold in its portfolio any participation interests in 7(a) loans until the loan is paid in full or the full NMTC is earned, whichever occurs first. If a CDE has fully earned its allocated NMTCs, but the 7(a) loan in which it holds a participation interest is still outstanding, the CDE may transfer its participation interest to either a Lender or to another CDE that holds an NMTC allocation. Steven C. Preston, Administrator. [FR Doc. 06-8497 Filed 10-3-06; 8:45 am]
Connectionstraces to 27
Traces to 27 documents
14 references not yet in our index
  • 26 USC 2813
  • 10 CFR 50
  • Pub. L. 107-210
  • 15 CFR 2016
  • Pub. L. 104-106
  • Pub. L. 105-85
  • Pub. L. 108-136
  • 5 CFR 470.315
  • 5 CFR 9901
  • 17 CFR 270.8
  • 17 CFR 240.19
  • 17 CFR 240.10
  • 17 CFR 240.11
  • 17 CFR 240.17
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Notices
Notice
U.S.C.§ 1142
U.S.C.§ 2273
C.F.R.§ 50.12
C.F.R.§ 51.32
U.S.C.§ 3201
U.S.C.§ 3203
C.F.R.§ 2016.2
U.S.C.§ 1701
U.S.C.§ 9902
Cite26 USC 2813
Cite10 CFR 50
Pub. L.Pub. L. 107-210
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