Notices. Proposed rule

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BILLING CODE 4310-55-P 71 225 Wednesday, November 22, 2006 Notices Part III Department of Education Grants and Cooperative Agreements—Notice of Funding Availability; Notice DEPARTMENT OF EDUCATION Office of Special Education and Rehabilitative Services and Overview Information; Personnel Development To Improve Services and Results for Children With Disabilities—Special Education Preservice Training Improvement Grants; Notice Inviting Applications for New Awards for Fiscal Year

(FY)2007 *Catalog of Federal Domestic Assistance

(CFDA)Number:* 84.325T. *Dates: Applications Available* : November 22, 2006. *Deadline for Transmittal of Applications:* January 8, 2007. *Deadline for Intergovernmental Review:* March 7, 2007. *Eligible Applicants:* Institutions of Higher Education (IHEs). Note: Programs in IHEs that are preparing preschool teachers are not eligible to apply under this competition. *Estimated Available Funds:* The Administration has requested $90,626,000 for the Personnel Development to Improve Services and Results for Children with Disabilities program for FY 2007, of which we intend to use an estimated $3,054,944 for the Special Education Preservice Training Improvement Grants competition. The actual level of funding, if any, depends on final congressional action. However, we are inviting applications to allow enough time to complete the grant process if Congress appropriates funds for this program. *Estimated Range of Awards:* $90,000-$100,000. *Estimated Average Size of Awards:* $95,000. *Maximum Award:* We will reject any application that proposes a budget exceeding $100,000 for a single budget period of 12 months. The Assistant Secretary for Special Education and Rehabilitative Services may change the maximum amount through a notice published in the **Federal Register** . *Estimated Number of Awards:* 32. Note: No more than one cooperative agreement will be awarded per IHE. Programs in minority institutions that are preparing special education teachers of children with high incidence disabilities are eligible to apply under this competition. For purposes of this competition, the term “minority institutions” include IHEs with a minority student enrollment of 25 percent or more, which may include Historically Black Colleges and Universities, Tribal Colleges, and Predominantly Hispanic Serving Colleges and Universities. Six awards under this competition will be set aside for minority institutions. Note: The Department is not bound by any estimates in this notice. *Project Period:* Up to 60 months. Full Text of Announcement I. Funding Opportunity Description *Purpose of Program:* The purposes of this program are to

(1)help address State-identified needs for highly qualified personnel—in special education, related services, early intervention, and regular education—to work with infants or toddlers with disabilities, or children with disabilities; and

(2)ensure that those personnel have the skills and knowledge—derived from practices that have been determined through research and experience to be successful—that are needed to serve those children. *Priorities:* In this competition, we are establishing one absolute priority and one competitive preference priority. In accordance with 34 CFR 75.105(b)(2)(v), these priorities are from allowable activities specified in the statute (see sections 662 and 681(c) of the Individuals with Disabilities Education Act). *Absolute Priority:* For FY 2007 this priority is, except as otherwise specified, an absolute priority. Under 34 CFR 75.105(c)(3) we consider only applications that meet this priority. This priority is: Special Education Preservice Training Improvement Grants Background State educational agencies, IHEs, and local districts consistently report that it is necessary to restructure or redesign most preparation programs for kindergarten through grade 12 (K-12) special education teachers to ensure that graduates of these programs are able to meet the highly qualified teacher

(HQT)requirements in the No Child Left Behind Act of 2001 (NCLB), and the Individuals with Disabilities Education Act, as amended by the Individuals with Disabilities Education Improvement Act of 2004 (IDEA). To accomplish this goal, preparation programs need to ensure that their graduates who expect to be providing instruction in core content areas are not only able to meet State certification or licensure requirements, but that they also have the necessary content knowledge, consistent with the HQT requirements in NCLB and IDEA. Children with disabilities are now expected to meet high standards for learning in core academic subjects, regardless of classroom setting. Because this is the case, K-12 special education teacher preparation programs must address content knowledge, standards, assessments, and evidence-based practices. Federal support can assist in improving the quality of IHE programs that prepare special education teachers, and help to ensure that these teachers have the knowledge and skills needed to teach students with disabilities using evidence-based interventions. Priority The purpose of this priority is to improve the quality of K-12 special education teacher preparation programs to ensure that preparation program graduates are able to meet the HQT requirements under sections 602(10) and 612(14) of IDEA and are well prepared to serve children with high incidence disabilities. For purposes of this priority, the term “high incidence disabilities” refers to learning disabilities, emotional disturbance, or mental retardation. In order to be eligible under this priority, applicants must currently prepare personnel (at the baccalaureate or master's level) to serve school-age children with high incidence disabilities. To be considered for an award under this priority, applicants must—

(a)Demonstrate, in the narrative section of the application under “Quality of Project Services,” how—

(1)The first year of the project period will be used for planning an improved or restructured K-12 teacher preparation program that includes induction and mentoring components; revising curriculum for, and integrating evidence-based interventions that improve outcomes for children with high incidence disabilities into the improved or restructured program (including providing research citations for those evidence-based interventions); and coordinating with the National Center to Enhance the Professional Development of School Personnel on the use of its web-based training modules. Applicants must describe first year activities and include a five-year timeline and implementation plan in their applications. This plan must describe the proposed project activities associated with implementation of the improved or restructured program that includes the induction and mentoring components. Prior to the actual implementation of this plan (if the applicant receives a cooperative agreement under this competition), the Office of Special Education Programs

(OSEP)must approve it;

(2)The improved or restructured program is designed to offer integrated training and practice opportunities that will enhance the skills of beginning special education teachers who share responsibility with general education teachers and other personnel for providing effective services and academic content to children with high incidence disabilities in K-12 classrooms;

(3)The improved or restructured program is designed to prepare special education teachers to address the specialized needs of children with high incidence disabilities from diverse cultural and language backgrounds, including limited English proficient children with disabilities, by identifying the skills that special education teachers need to work effectively with culturally and linguistically diverse populations;

(4)The improved or restructured program is designed to provide extended clinical learning opportunities, field experiences, or supervised practica and ongoing high quality mentoring and induction opportunities in local schools. Applicants also must demonstrate how they will coordinate with the National Center on Policy and Practice in Special Education in designing the program to provide extended clinical learning opportunities, field experiences, or supervised practica;

(5)The improved or restructured program is designed to include field-based training opportunities in diverse settings including schools and settings in high-need communities and in schools not making Adequate Yearly

(AYP)Progress under NCLB, especially those schools not making AYP for children with high incidence disabilities;

(6)Upon completion of the improved or restructured program, graduates will be able to meet the HQT requirements in accordance with section 602(10) of IDEA and section 300.18 of the regulations implementing part B of IDEA (34 CFR 300.18); and will be equipped with the knowledge and skills necessary to assist children in achieving State learning standards;

(7)The improved or restructured program is designed to provide support systems (including tutors, mentors, and other innovative practices) to enhance retention and success in the program; and

(8)The improved or restructured program will be maintained once Federal funding ends;

(b)Include in the narrative section of the application under “Quality of Project Evaluation”, a clear, effective plan for collecting data on the extent to which graduates of the improved or restructured program have the knowledge and skills necessary to provide evidence-based instruction and services that result in improved outcomes for children with high incidence disabilities. Projects will be expected to report data in the Annual Performance Report on the extent to which this objective is achieved;

(c)Meet the following statutory requirements of IDEA:

(1)Demonstrate how the proposals for restructuring the teacher preparation program described in the application will be designed to enable graduates of the program to meet State special education teacher licensure standards and HQT requirements in State law or regulation for personnel serving children with disabilities (see section 662(f)(1) and

(2)of IDEA). Letters from one or more States that the applicant serves could be one method for addressing this requirement.

(2)Demonstrate how the project involves individuals with disabilities or parents of individuals with disabilities ages birth through 26 in planning, implementing, and evaluating the project (see section 682(a)(1)(A) of IDEA).

(3)Demonstrate how the project funded under this competition makes positive efforts to employ and advance in employment qualified individuals with disabilities (see section 606 of IDEA); and

(d)Meet the following additional requirements:

(1)Budget for planning and improvement activities, including consultants. This priority does not provide for financial support of scholars.

(2)Budget for a three-day Project Director's meeting in Washington, DC, during each year of the project.

(3)If the project maintains a Web site, include relevant information and documents in a form that meets a government or industry-recognized standard for accessibility.

(4)Include, in the application Appendix, all course syllabi for the existing teacher preparation program.

(5)Agree to submit an Annual Performance Report which is required of each grantee for continuation funding (34 CFR 75.590). *Competitive Preference Priority:* For FY 2007, this priority is a competitive preference priority. Under 34 CFR 75.105(c)(2)(i) we award up to an additional 10 points to an application depending on the extent to which the application meets this priority. *This priority is:* Competitive Preference Points Based on Number of Special Education Teacher Graduates from Program in a Recent Year In order to earn competitive preference points under this priority, applicants must document the number of K-12 special education teachers who have graduated from a preparation program that prepares personnel (at the baccalaureate or master's level) to serve school-age children with high incidence disabilities in any recent year, regardless of whether the graduates received support from a Federal grant. For purposes of this competitive preference priority, the term “recent year” is defined as any of the past three fiscal years (i.e., FY 2003, FY 2004, or FY 2005). For example, an applicant that documents 10 graduates during FY 2005 earns 2 competitive preference points. An applicant that documents 16 graduates during FY 2003 earns 6 competitive preference points. An applicant that documents 24 or more graduates during FY 2004 earns 10 competitive preference points. Number of students graduating (new K-12 special education teachers) from program in a recent year (including non-OSEP funded graduates) Number of competitive preference points awarded 8-11 graduates 2 points. 12-15 graduates 4 points. 16-19 graduates 6 points. 20-23 graduates 8 points. 24+ graduates 10 points. The number of students graduating from the program must be documented in the application. *Waiver of Proposed Rulemaking:* Under the Administrative Procedure Act

(APA)(5 U.S.C. 553) the Department generally offers interested parties the opportunity to comment on proposed priorities and requirements. However, section 681(d) of IDEA makes the public comment requirements of the APA inapplicable to the priorities in this notice. Program Authority: 20 U.S.C. 1462 and 1481. *Applicable Regulations:*

(a)The Education Department General Administrative Regulations (EDGAR) in 34 CFR Parts 74, 75, 77, 79, 80, 81, 82, 84, 85, 86, 97, 98, and 99.

(b)The regulations for this program in 34 CFR part 304. II. Award Information *Type of Award:* Cooperative agreement. *Estimated Available Funds:* The Administration has requested $90,626,000 for the Personnel Development to Improve Services and Results for Children with Disabilities program for FY 2007, of which we intend to use an estimated $3,054,944 for the Special Education Preservice Training Improvement Grants competition. The actual level of funding, if any, depends on final congressional action. However, we are inviting applications to allow enough time to complete the grant process if Congress appropriates funds for this program. *Estimated Range of Awards:* $90,000-$100,000. *Estimated Average Size of Awards:* $95,000. *Maximum Award:* We will reject any application that proposes a budget exceeding $100,000 for a single budget period of 12 months. The Assistant Secretary for Special Education and Rehabilitative Services may change the maximum amount through a notice published in the **Federal Register** . *Estimated Number of Awards:* 32. Note: No more than one cooperative agreement will be awarded per IHE. Programs in minority institutions that are preparing special education teachers of children with high incidence disabilities are eligible to apply under this competition. For purposes of this competition, the term “minority institutions” include IHEs with a minority student enrollment of 25 percent or more, which may include Historically Black Colleges and Universities, Tribal Colleges, and Predominantly Hispanic Serving Colleges and Universities. Six awards under this competition will be set aside for minority institutions. Note: The Department is not bound by any estimates in this notice. *Project Period:* Up to 60 months. III. Eligibility Information 1. *Eligible Applicants:* IHEs. Note: Programs in IHEs that are preparing preschool teachers are not eligible to apply under this competition. 2. *Cost Sharing or Matching:* This competition does not involve cost sharing or matching. IV. Application and Submission Information 1. *Address to Request Application Package:* Education Publications Center (ED Pubs), P.O. Box 1398, Jessup, MD 20794-1398. Telephone (toll free): 1-877-433-7827. FAX:

(301)470-1244. If you use a telecommunications device for the deaf (TDD), you may call (toll free): 1-877-576-7734. You may also contact ED Pubs at its Web site: *http://www.ed.gov/pubs/edpubs.html* or you may contact ED Pubs at its e-mail address: *edpubs@inet.ed.gov.* *If you request an application from ED Pubs, be sure to identify this competition as follows:* CFDA number 84.325T. Individuals with disabilities may obtain a copy of the application package in an alternative format ( *e.g.* , Braille, large print, audiotape, or computer diskette) by contacting the Grants and Contracts Services Team listed under FOR FURTHER INFORMATION CONTACT in section VII of this notice. 2. *Content and Form of Application Submission:* Requirements concerning the content of an application, together with the forms you must submit, are in the application package for this competition. *Page Limit:* The application narrative (Part III of the application) is where you, the applicant, address the selection criteria that reviewers use to evaluate your application. You must limit Part III to the equivalent of no more than 50 pages, using the following standards: • A “page” is 8.5″ x 11″, on one side only, with 1″ margins at the top, bottom, and both sides. • Double space (no more than three lines per vertical inch) all text in the application narrative, including titles, headings, footnotes, quotations, references, and captions, as well as all text in charts, tables, figures, and graphs. • Use a font that is either 12-point or larger or no smaller than 10 pitch (characters per inch). The page limit does not apply to Part I, the cover sheet; Part II, the budget section, including the narrative budget justification; Part IV, the assurances and certifications; or the one-page abstract, the resumes, the bibliography, the references, or the letters of support. However, you must include all of the application narrative in Part III. We will reject your application if— • You apply these standards and exceed the page limit; or • You apply other standards and exceed the equivalent of the page limit. 3. *Submission Dates and Times:* *Applications Available:* November 22, 2006. *Deadline for Transmittal of Applications:* January 8, 2007. Applications for grants under this competition may be submitted electronically using the Grants.gov Apply site (Grants.gov), or in paper format by mail or hand delivery. For information (including dates and times) about how to submit your application electronically, or by mail or hand delivery, please refer to section IV. 6. *Other Submission Requirements* in this notice. We do not consider an application that does not comply with the deadline requirements. *Deadline for Intergovernmental Review:* March 7, 2007. 4. *Intergovernmental Review:* This program is subject to Executive Order 12372 and the regulations in 34 CFR part 79. Information about Intergovernmental Review of Federal Programs under Executive Order 12372 is in the application package for this competition. 5. *Funding Restrictions:* We reference regulations outlining funding restrictions in the *Applicable Regulations* section of this notice. 6. *Other Submission Requirements:* Applications for grants under this competition may be submitted electronically or in paper format by mail or hand delivery. a. *Electronic Submission of Applications.* We have been accepting applications electronically through the Department's e-Application system since FY 2000. In order to expand on those efforts and comply with the President's Management Agenda, we are continuing to participate as a partner in the new governmentwide Grants.gov Apply site in FY 2007. The Special Education Preservice Training Improvement Grants competition—CFDA number 84.325T is one of the competitions included in this project. We request your participation in *Grants.gov.* If you choose to submit your application electronically, you must use the *Grants.gov* Apply site at *http://www.Grants.gov.* Through this site, you will be able to download a copy of the application package, complete it offline, and then upload and submit your application. You may not e-mail an electronic copy of a grant application to us. You may access the electronic grant application for the Special Education Preservice Training Improvement Grants competition—CFDA number 84.325T at: *http://www.grants.gov.* You must search for the downloadable application package for this program by the CFDA number. Do not include the CFDA number's alpha suffix in your search. *Please note the following:* • Your participation in Grants.gov is voluntary. • When you enter the Grants.gov site, you will find information about submitting an application electronically through the site, as well as the hours of operation. • Applications received by Grants.gov are time and date stamped. Your application must be fully uploaded and submitted, and must be date/time stamped by the Grants.gov system no later than 4:30 p.m., Washington, DC time, on the application deadline date. Except as otherwise noted in this section, we will not consider your application if it is date/time stamped by the Grants.gov system later than 4:30 p.m., Washington, DC time, on the application deadline date. When we retrieve your application from Grants.gov, we will notify you if we are rejecting your application because it was date/time stamped by the Grants.gov system after 4:30 p.m., Washington, DC time, on the application deadline date. • The amount of time it can take to upload an application will vary depending on a variety of factors including the size of the application and the speed of your Internet connection. Therefore, we strongly recommend that you do not wait until the application deadline date to begin the application process through Grants.gov. • You should review and follow the Education Submission Procedures for submitting an application through Grants.gov that are included in the application package for this competition to ensure that you submit your application in a timely manner to the Grants.gov system. You can also find the Education Submission Procedures pertaining to Grants.gov at *http://e-Grants.ed.gov/help/GrantsgovSubmissionProcedures.pdf.* • To submit your application via Grants.gov, you must complete all of the steps in the Grants.gov registration process (see *http://www.grants.gov/applicants/get_registered.jsp).* These steps include

(1)registering your organization,

(2)registering yourself as an Authorized Organization Representative (AOR), and

(3)getting authorized as an AOR by your organization. Details on these steps are outlined in the Grants.gov 3-Step Registration Guide (see *http://www.grants.gov/section910/Grants.govRegistrationBrochure.pdf)* . You also must provide on your application the same D-U-N-S Number used with this registration. Please note that the registration process may take five or more business days to complete, and you must have completed all registration steps to allow you to successfully submit an application via Grants.gov. • You will not receive additional point value because you submit your application in electronic format, nor will we penalize you if you submit your application in paper format. • You may submit all documents electronically, including all information typically included on the following forms: Application for Federal Assistance (SF 424), the Department of Education Supplemental Information for SF 424, Budget Information—Non-Construction Programs (ED 524), and all necessary assurances and certifications. Please note that two of these forms—the SF 424 and the Department of Education Supplemental Information for SF 424—have replaced the ED 424 (Application for Federal Education Assistance). If you choose to submit your application electronically, you must attach any narrative sections of your application as files in a .DOC (document), .RTF (rich text), or .PDF (Portable Document) format. If you upload a file type other than the three file types specified above or submit a password protected file, we will not review that material. • Your electronic application must comply with any page limit requirements described in this notice. • After you electronically submit your application, you will receive an automatic acknowledgment from Grants.gov that contains a Grants.gov tracking number. The Department will retrieve your application from Grants.gov and send you a second confirmation by e-mail that will include a PR/Award number (an ED-specified identifying number unique to your application). • We may request that you provide us original signatures on forms at a later date. Application Deadline Date Extension in Case of System Unavailability If you are prevented from electronically submitting your application on the application deadline date because of technical problems with the Grants.gov system, we will grant you an extension until 4:30 p.m., Washington, DC time, the following business day to enable you to transmit your application electronically, or by hand delivery. You also may mail your application by following the mailing instructions as described elsewhere in this notice. If you submit an application after 4:30 p.m., Washington, DC time, on the deadline date, please contact the person listed elsewhere in this notice under FOR FURTHER INFORMATION CONTACT , and provide an explanation of the technical problem you experienced with Grants.gov, along with the Grants.gov Support Desk Case Number (if available). We will accept your application if we can confirm that a technical problem occurred with the Grants.gov system and that that problem affected your ability to submit your application by 4:30 p.m., Washington, DC time, on the application deadline date. The Department will contact you after a determination is made on whether your application will be accepted. Note: Extensions referred to in this section apply only to the unavailability of or technical problems with the Grants.gov system. We will not grant you an extension if you failed to fully register or submit your application to Grants.gov before the deadline date and time or if the technical problem you experienced is unrelated to the Grants.gov system. b. *Submission of Paper Applications by Mail.* If you submit your application in paper format by mail (through the U.S. Postal Service or a commercial carrier), you must mail the original and two copies of your application, on or before the application deadline date, to the Department at the applicable following address: *By mail through the U.S. Postal Service:* U.S. Department of Education, Application Control Center, Attention: (CFDA Number 84.325T), 400 Maryland Avenue, SW., Washington, DC 20202-4260; or *By mail through a commercial carrier:* U.S. Department of Education, Application Control Center—Stop 4260, Attention: (CFDA Number 84.325T), 7100 Old Landover Road, Landover, MD 20785-1506. *Regardless of which address you use, you must show proof of mailing consisting of one of the following:*

(1)A legibly dated U.S. Postal Service postmark,

(2)A legible mail receipt with the date of mailing stamped by the U.S. Postal Service,

(3)A dated shipping label, invoice, or receipt from a commercial carrier, or

(4)Any other proof of mailing acceptable to the Secretary of the U.S. Department of Education. If you mail your application through the U.S. Postal Service, we do not accept either of the following as proof of mailing:

(1)A private metered postmark, or

(2)A mail receipt that is not dated by the U.S. Postal Service. If your application is postmarked after the application deadline date, we will not consider your application. Note: The U.S. Postal Service does not uniformly provide a dated postmark. Before relying on this method, you should check with your local post office. c. *Submission of Paper Applications by Hand Delivery.* If you submit your application in paper format by hand delivery, you (or a courier service) must deliver the original and two copies of your application by hand, on or before the application deadline date, to the Department at the following address: U.S. Department of Education, Application Control Center, Attention: (CFDA Number 84.325T), 550 12th Street, SW., Room 7041, Potomac Center Plaza, Washington, DC 20202-4260. The Application Control Center accepts hand deliveries daily between 8 a.m. and 4:30 p.m., Washington, DC time, except Saturdays, Sundays and Federal holidays. *Note for Mail or Hand Delivery of Paper Applications:* If you mail or hand deliver your application to the Department:

(1)You must indicate on the envelope and—if not provided by the Department—in Item 11 of SF 424 the CFDA number—and suffix letter, if any—of the competition under which you are submitting your application.

(2)The Application Control Center will mail a grant application receipt acknowledgment to you. If you do not receive the grant application receipt acknowledgment within 15 business days from the application deadline date, you should call the U.S. Department of Education Application Control Center at

(202)245-6288. V. Application Review Information 1. *Selection Criteria:* The selection criteria for this competition are from 34 CFR 75.210 and are listed in the application package. 2. *Treating A Priority As Two Separate Competitions:* In the past, there have been problems in finding peer reviewers without conflicts of interest for competitions in which many entities throughout the country submit applications. The Standing Panel requirements under IDEA also have placed additional constraints on the availability of reviewers. Therefore, the Department has determined that, for some discretionary competitions, applications may be separated into two or more groups and ranked and selected for funding within the specific group. This procedure will ensure the availability of a much larger group of reviewers without conflicts of interest. It also will increase the quality, independence and fairness of the review process and permit panel members to review applications under discretionary competitions for which they have also submitted applications. However, if the Department decides to select for funding an equal number of applications in each group, this may result in different cut-off points for fundable applications in each group. Award Administration Information 1. *Award Notices:* If your application is successful, we notify your U.S. Representative and U.S. Senators and send you a Grant Award Notification (GAN). We may also notify you informally. If your application is not evaluated or not selected for funding, we notify you. 2. *Administrative and National Policy Requirements:* We identify administrative and national policy requirements in the application package and reference these and other requirements in the *Applicable Regulations* section of this notice. We reference the regulations outlining the terms and conditions of an award in the *Applicable Regulations* section of this notice and include these and other specific conditions in the GAN. The GAN also incorporates your approved application as part of your binding commitments under the grant. 3. *Reporting:* At the end of your project period, you must submit a final performance report, including financial information, as directed by the Secretary. If you receive a multi-year award, you must submit an annual performance report that provides the most current performance and financial expenditure information as specified by the Secretary in 34 CFR 75.118. 4. *Performance Measures:* Under the Government Performance and Results Act of 1993 (GPRA), the Department has developed annual performance measures that will yield information on various aspects of the effectiveness of the Personnel Development to Improve Services and Results for Children with Disabilities program. These measures include:

(1)The percentage of projects that incorporate scientifically-based or evidence-based practices;

(2)the percentage of scholars who exit training programs prior to completion due to poor academic performance;

(3)the percentage of degree or certification recipients employed upon program completion who are working in the area(s) for which they were trained; and

(4)the percentage of degree or certification recipients employed upon program completion who are working in the area(s) for which they were trained and are fully qualified under IDEA. The Department also has developed long-term measures that are designed to yield information on various aspects of program quality. These measures include:

(1)The percentage of scholars completing IDEA-funded training programs who are knowledgeable and skilled in scientifically-based or evidence-based practices for infants, toddlers, children and youth with disabilities; and

(2)the percentage of program graduates who maintain employment for three or more years in the area(s) for which they were trained). Grantees may be asked to participate in assessing and providing information on these long-term aspects of program quality. VII. Agency Contact FOR FURTHER INFORMATION CONTACT: Bonnie Jones, U.S. Department of Education, 400 Maryland Avenue, SW., Room 4153, Potomac Center Plaza, Washington, DC 20202-2600. Telephone:

(202)245-7395. If you use a telecommunications device for the deaf (TDD), you may call the Federal Relay Service

(FRS)at 1-800-877-8339. Individuals with disabilities may obtain this document in an alternative format (e.g., Braille, large print, audiotape, or computer diskette) on request by contacting the following office: The Grants and Contracts Services Team, U.S. Department of Education, 400 Maryland Avenue, SW., Potomac Center Plaza, Washington, DC 20202-2550. Telephone:

(202)245-7363. VIII. Other Information *Electronic Access to This Document:* You may view this document, as well as all other documents of this Department published in the **Federal Register** , in text or Adobe Portable Document Format

(PDF)on the Internet at the following site: *http://www.ed.gov/news/fedregister.* To use PDF you must have Adobe Acrobat Reader, which is available free at this site. If you have questions about using PDF, call the U.S. Government Printing Office (GPO), toll free, at 1-888-293-6498; or in the Washington, DC, area at

(202)512-1530. Note: The official version of this document is the document published in the **Federal Register** . Free Internet access to the official edition of the **Federal Register** and the Code of Federal Regulations is available on GPO Access at: *http://www.gpoaccess.gov/nara/index.html.* Dated: November 15, 2006. John H. Hager, Assistant Secretary for Special Education and Rehabilitative Services. [FR Doc. E6-19706 Filed 11-21-06; 8:45 am] BILLING CODE 4000-01-P 71 225 Wednesday, November 22, 2006 Proposed Rules Part IV Securities and Exchange Commission 17 CFR Part 230 Covered Securities Pursuant to Section 18 of the Securities Act of 1933; Proposed Rule SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 230 [Release No. 33-8754; File No. S7-18-06] RIN 3235-AJ73 Covered Securities Pursuant to Section 18 of the Securities Act of 1933 AGENCY: Securities and Exchange Commission. ACTION: Proposed rule. SUMMARY: The Securities and Exchange Commission (“SEC” or “Commission”) proposes for comment an amendment to a Rule under Section 18 of the Securities Act of 1933 (“Securities Act”), as amended, to designate certain securities listed on The NASDAQ Stock Market LLC (“Nasdaq”) as covered securities for purposes of Section 18 of the Securities Act. Covered securities under Section 18 of the Securities Act are exempt from state law registration requirements. DATES: Comments should be received on or before December 22, 2006. ADDRESSES: Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/proposed.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number S7-18-06 on the subject line; or • Use the Federal eRulemaking Portal ( *http://www.regulations.gov* ). Follow the instructions for submitting comments. 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 S7-18-06. This file number should be included on the subject line if e-mail is used. To help us 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/proposed.shtml* ). Comments are also available for public inspection and copying in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549. All comments 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: Heather Seidel, Senior Special Counsel,

(202)551-5608, Hong-anh Tran, Special Counsel,

(202)551-5637 or Michou Nguyen, Special Counsel,

(202)551-5634, Division of Market Regulation (“Division”), Commission, 100 F Street, NE., Washington, DC 20549-6628. SUPPLEMENTARY INFORMATION: I. Introduction In 1996, Congress amended Section 18 of the Securities Act to exempt from state registration requirements securities listed, or authorized for listing, on the New York Stock Exchange LLC (“NYSE”), the American Stock Exchange LLC (“Amex”), or the National Market System of The NASDAQ Stock Market LLC (“Nasdaq/NGM”) 1 (collectively, the “Named Markets”), or any national securities exchange designated by the Commission to have substantially similar listing standards to those markets. 2 More specifically, Section 18(a) of the Securities Act provides that “no law, rule, regulation, or order, or other administrative action of any State * * * requiring, or with respect to, registration or qualification of securities * * * shall directly or indirectly apply to a security that—(A) is a covered security.” 3 Covered securities are defined in Section 18(b)(1) of the Securities Act to include those securities listed, or authorized for listing, on the Named Markets, or securities listed, or authorized for listing, on a national securities exchange (or tier or segment thereof) that has listing standards that the Commission determines by rule are “substantially similar” to the Named Markets. 4 1 As of July 1, 2006, the National Market System of The NASDAQ Stock Market LLC is known as the National Global Market. *See* Securities Exchange Act Release Nos. 53799 (May 12, 2006), 71 FR 29195 (May 19, 2006) and 54071 (June 29, 2006), 71 FR 38922 (July 10, 2006). 2 *See* National Securities Markets Improvement Act of 1996, Pub. L. 104-290, 110 Stat. 3416 (October 11, 1996). 3 15 U.S.C. 77r(a). 4 15 U.S.C. 77r(b)(1)(A) and (B). In addition, securities of the same issuer that are equal in seniority or senior to a security listed on a Named Market or national securities exchange designated by the Commission as having substantially similar listing standards to a Named Market are covered securities for purposes of Section 18 of the Securities Act. 15 U.S.C. 77r(b)(1)(C). Pursuant to Section 18(b)(1)(B) of the Securities Act, the Commission adopted Rule 146. 5 Rule 146(b) lists those national securities exchanges, or segments or tiers thereof, that the Commission has determined to have listing standards substantially similar to those of the Named Markets and thus securities listed on such exchanges are deemed covered securities. 6 Nasdaq has petitioned the Commission to amend Rule 146(b) to determine that its listing standards for securities listed on the Nasdaq Capital Market (“NCM”) 7 are substantially similar to those of the Named Markets and, accordingly, that securities listed pursuant to such listing standards are covered securities for purposes of Section 18(b) of the Securities Act. 8 If the Commission makes this determination, then securities listed on the NCM would be exempt from state law registration requirements. 9 5 Securities Exchange Act Release No. 39542 (January 13, 1998), 63 FR 3032 (January 21, 1998). 6 17 CFR 230.146(b). 7 The Nasdaq Capital Market was previously named the Nasdaq SmallCap Market. 8 *See* letter from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq, to Nancy M. Morris, Secretary, Commission, dated March 1, 2006 (File No. 4-513). 9 15 U.S.C. 77r. II. Background In 1998, the Chicago Board Options Exchange, Incorporated (“CBOE”), Pacific Exchange, Inc. (“PCX”) (now known as NYSE Arca, Inc.), the Philadelphia Stock Exchange, Inc. (“Phlx”), and the Chicago Stock Exchange (“CHX”) petitioned the Commission to adopt a rule determining that specified portions of the exchanges' listing standards were substantially similar to the listing standards of the Named Markets. 10 In response to the petitions, and after extensive review of the petitioners' listing standards, the Commission adopted Rule 146(b), determining that the listing standards of the CBOE, Tier 1 of the PCX, and Tier 1 of the Phlx were substantially similar to those of the Named Markets and that securities listed pursuant to those standards would be deemed covered securities for purposes of Section 18 of the Securities Act. 11 Further, in 2004, the International Stock Exchange, Inc. (“ISE”) petitioned the Commission to amend Rule 146(b) to determine that its listing standards for securities listed on ISE are substantially similar to those of the Named Markets and, accordingly, that securities listed pursuant to such listing standards are covered securities for purposes of Section 18(b) of the Securities Act. 12 The Commission subsequently amended Rule 146(b) to designate options listed on ISE as covered securities. 13 10 *See* letter from David P. Semak, Vice President, Regulation, PCX, to Arthur Levitt, Jr., Chairman, Commission, dated November 15, 1996; letter from Alger B. Chapman, Chairman, CBOE, to Jonathan G. Katz, Secretary, Commission, dated November 18, 1996; letter from J. Craig Long, Esq., Foley & Lardner, Counsel to CHX, to Jonathan G. Katz, Secretary, Commission, dated February 4, 1997 (“CHX Petition”); and letter from Michele R. Weisbaum, Vice President and Associate General Counsel, Phlx, to Jonathan G. Katz, Secretary, Commission, dated March 31, 1997. 11 Securities Exchange Act Release No. 39542, *supra* note 5. 12 *See* letter from Michael Simon, Senior Vice President and General Counsel, ISE, to Jonathan G. Katz, Secretary, Commission, dated October 9, 2003. 13 Securities Act Release No. 8442 (July 14, 2004), 69 FR 43295 (July 20, 2004). Nasdaq has petitioned the Commission to amend Rule 146(b) with a determination that its listing standards for securities listed on the NCM are substantially similar to those of the Named Markets, and that NCM securities are “covered securities” under Section 18(b) of the Securities Act. III. Discussion Under Section 18(b)(1)(A) of the Securities Act, 14 the Commission has the authority to compare the listing standards of a petitioner with those of either the NYSE, Amex, or Nasdaq/NGM. The Commission initially has compared Nasdaq's listing standards for all NCM securities with only one of the Named Markets. If the listing standards in a particular category did not meet the standards of that market, the Commission compared the standards to the other two markets. 15 In addition, the Commission has interpreted the “substantially similar” standard to require listing standards at least as comprehensive as those of the Named Markets. 16 If a petitioner's listing standards are higher than the Named Markets, then the Commission may still determine that the petitioner's listing standards are substantially similar to the Named Markets. Finally, the Commission notes that differences in language or approach would not necessarily lead to a determination that the listing standards of the petitioner are not substantially similar to those of a Named Market. 14 15 U.S.C. 77r(b)(1)(A). 15 This approach is consistent with the approach that the Commission has previously taken. *See* Securities Act Release Nos. 7422 (June 9, 1997), 62 FR 32705 (June 17, 1997) and 7494 (January 13, 1998), 63 FR 3032 (January 21, 1998). 16 Securities Act Release No. 7422, *supra* note 15. The Commission has reviewed listing standards for securities traded on NCM 17 and, for the reasons discussed below, preliminarily believes that the standards overall are not substantially similar to those of a Named Market. However, Nasdaq has filed a proposed rule change to amend its quantitative listing standards for NCM securities. 18 In view of Nasdaq's proposed rule change, the Commission preliminarily believes that it could make a finding that the NCM's listing standards are substantially similar to those of a Named Market, and thus amend Rule 146(b) to include securities listed on the NCM. The Commission also notes that Nasdaq's qualitative listing standards for NCM securities are identical to the qualitative listing standards for Nasdaq/NGM securities. 19 17 *See* generally Nasdaq Rules 4310, 4320, and 4350. 18 *See* Securities Exchange Act Release No. 54378 (August 28, 2006), 71 FR 52351 (September 5, 2006) (“Nasdaq Proposed Rule Change”); *see also* letter from Edward S. Knight, Executive Vice President and General Counsel, Nasdaq, to Heather Seidel, Senior Special Counsel, Division of Market Regulation (“Division”), Commission, dated August 11, 2006 (“Nasdaq Letter”). 19 Such qualitative listing standards relate to, among other things, the number of independent directors required, conflicts of interest, composition of the audit committee, executive compensation, shareholder meeting requirements, voting rights, quorum, code of conduct, proxies, shareholder approval of certain corporate actions, and the annual and interim reports requirements. *See* Nasdaq Rule 4350. A. Common Stock As discussed below, the Commission preliminarily believes that some, but not all, of the requirements in Nasdaq's quantitative initial listing standards for common stock listing on the NCM are substantially similar to those of Amex's common stock listing standards. The Commission therefore preliminarily believes that the NCM common stock initial listing standards are not currently substantially similar to those of Amex's common stock listing standards. Specifically the Commission preliminarily believes that the NCM listing requirements are substantially similar to Amex Standard 1 through 3 requirements relating to operating history, bid price, round lot holders, 20 and shares held by the public. 21 However, under the NCM standards, an issuer may qualify for listing by satisfying either a shareholder equity requirement (at least $5 million), 22 a market value of listed securities test (at least $50 million), 23 or an income test (at least $750,000 in after tax net income from continuing operations in the last fiscal year or two out of the last three fiscal years). 24 Amex's common stock listing Standards 1 and 3 not only require the satisfaction of an equity test, but Standard 1 also requires the satisfaction of an income test (at least $750,000 in pre-tax income from continuing operations in the last fiscal year or two of the last three fiscal years), 25 and Standard 3 also requires the satisfaction of a market value test (at least $50 million). 26 Amex Standard 2 does not require an income test or a market value test but does require an operating history of two years 27 as compared to the NCM, which requires only one year. 28 An additional difference is that Amex Standards 2 and 3 require the aggregate market value of publicly held shares to be $15 million, whereas Nasdaq's requirement is $5 million. 29 The Commission preliminarily believes that these differences preclude the Commission from making a determination that the NCM common stock initial listing standards are substantially similar to those of the Amex. 20 The Commission notes that the NCM listing standards require at least 300 round lot holders, while Amex's listing standards require 400 or 800 (depending upon the number of shares held by the public), or 300 or 600 for its alternate listing standards. The Commission preliminarily does not believe this difference precludes a determination of substantial similarity between the standards. 21 *See* generally Section 101 of the Amex Company Guide and Nasdaq Rule 4310. 22 Nasdaq Rule 4310(c)(2)(A)(i). 23 Nasdaq Rule 4310(c)(2)(A)(ii). The market value of listed securities refers to the closing bid price multiplied by the number of securities listed on Nasdaq or listed on another self-regulatory organization (“SRO”). *See* Nasdaq Rule 4200. 24 Nasdaq Rule 4310(c)(2)(A)(iii). 25 *See* Amex Rule 101(a)(1)-(2). 26 *See* Amex Rule 101(c)(1)-(2). 27 *See* Amex Rule 101(b)(1). 28 *See* Nasdaq Rule 4310(c)(3). 29 Specifically, Amex Standard 3, which allows an issuer to meet a requirement for the market value of listed securities of $50 million (rather than an income test), requires an aggregate market value of publicly held shares of $15 million (Amex Standard 2, which requires a two-year operating history, also requires an aggregate market value of publicly held shares of $15 million). The NCM standard, which permits an issuer to meet either a market value of listed securities test or an income test, in either instance only requires an aggregate market value of publicly held shares of $5 million. *See* Sections 101(b)(4) and (c)(3) of the Amex Company Guide and Nasdaq Rule 4310(c)(7)(A). Nasdaq has filed a proposed rule change under Section 19 of the Exchange Act 30 to modify its NCM initial listing standards for common stock. Specifically, Nasdaq's proposal would require an issuer to have:

(i)Shareholder's equity of $4 million and net income from continuing operations of $750,000 in the most recently completed fiscal year or in two of the last three most recently completed fiscal years;

(ii)shareholder's equity of $4 million and a market value of listed securities of $50 million; or

(iii)shareholder's equity of $5 million and a two-year operating history. 31 Moreover, Nasdaq's proposal also would increase the aggregate market value of publicly held shares from $5 million to $15 million in scenario

(ii)and

(iii)above. 32 If these rule changes were approved prior to Commission action on this rule proposal, the Commission preliminarily believes it could find the NCM listing standards for common stock to be substantially similar to those of Amex. 30 15 U.S.C. 78s. 31 *See* Nasdaq Proposed Rule Change, *supra* note 18. 32 *Id.* The Commission preliminarily believes that the continued listing requirements for common stock listed on the NCM, while not identical, are substantially similar to those of Amex. Amex's delisting criteria are triggered by poor financial conditions or operating results of the issuer. 33 Specifically, Amex will consider delisting an equity issue if:

(i)Stockholders' equity is less than $2 million and such issuer has sustained losses from continuing operations and/or net losses in two of its three most recent fiscal years;

(ii)stockholders' equity is less than $4 million and such issuer has sustained losses from continuing operations and/or net losses in three of its four most recent fiscal years;

(iii)stockholders' equity is less than $6 million if such issuer has sustained losses from continuing operations and/or net losses in its five most recent fiscal years; or

(iv)the issuer has sustained losses which are so substantial in relation to its overall operations or its existing financial resources, or its financial condition has become so impaired that it appears questionable, in the opinion of the Exchange, as to whether such company will be able to continue operations and/or meet its obligations as they mature. 34 33 *See* generally Sections 1001 through 1006 of the Amex Company Guide. 34 *See* Section 1003(a) of the Amex Company Guide. Amex also will consider delisting if:

(i)an issuer has sold or otherwise disposed of its principal operating assets or has ceased to be an operating company or has discontinued a substantial portion of its operations or business;

(ii)if substantial liquidation of the issuer has been made; or

(iii)if advice has been received, deemed by the Exchange to be authoritative, that the security is without value, or in the case of a common stock, such stock has been selling for a substantial period of time at a low price. *See* Section 1003(c) and (f)(v) of the Amex Company Guide. Although the NCM does not have the same continued listing provisions, Nasdaq also looks at the financial condition and operating results of the issuer. Specifically, for continued inclusion, Nasdaq requires shareholder's equity of at least $2.5 million, market value of listed securities of at least $35 million, or net income of $500,000 from continuing operations in the past fiscal year or two out of three past fiscal years. 35 Further, Nasdaq requires a minimum bid price for continued listing of $1 per share. 36 In addition, for continued listing, Nasdaq requires an issuer to have a minimum number of publicly held shares of at least 500,000 shares with a market value of at least $1 million. 37 35 Nasdaq Rule 4310(c)(2)(B)(i)-(iii). 36 Nasdaq Rule 4310(c)(4). Amex will consider delisting if the price per share is “low.” *See* Amex Rule 1003(f)(v). 37 Nasdaq Rule 4310(c)(7)(A). Amex will consider delisting the common stock of an issuer if the aggregate market value of such publicly held shares is less than $1 million for more than 90 consecutive days, the number of publicly held shares is less than 200,000 shares, or the number of its public stockholders is less than 300. *See* Section 1003(b) of the Amex Company Guide. The Commission preliminarily believes that the differences in the maintenance criteria for common stock listed on Amex and on the NCM are not material and that, taken as a whole, the criteria are substantially similar. 38 38 As noted above, the Commission has interpreted the substantially similar standard to require listing standards at least as comprehensive as those of the Named Markets, and differences in language or approach of the listing standards are not dispositive. The Commission requests comment on whether the NCM's common stock listing rules are “substantially similar” to Amex's rules. B. Secondary Classes of Common Stock and Preferred Stocks The Commission notes that only Nasdaq has listing standards for the trading of a secondary class of common stock. A secondary class of common stock is a class of common stock of an issuer that has another class of common stock listed on an exchange. The Commission compared the secondary classes of common stock listing standards of the NCM with the listing standards of the Nasdaq/NGM. The Commission also compared the NCM listing standards for preferred stocks with those of Nasdaq's NGM. With respect to the number of round lot holders, 39 bid price, 40 and number of publicly held shares 41 requirements, 42 the Commission preliminarily believes that Nasdaq's initial and continued listing requirements for secondary classes of common stock and preferred stocks listing on the NCM are substantially similar to the listing standards for the Nasdaq/NGM. The Commission preliminarily believes, however, that the initial and continued listing requirements for market value of publicly held shares for NCM are not substantially similar to Nasdaq/NGM standards. In particular, the NCM listing standards require that there be at least 200,000 publicly held shares having a market value of at least $2 million for initial listing and 100,000 publicly held shares having a market value of $500,000 for continued listing. 43 The Nasdaq/NGM standards require that there shall be at least 200,000 publicly held shares having a market value of at least $4 million for initial listing and 100,000 publicly held shares having a market value of $1 million for continued listing. 44 39 Both Nasdaq NCM and NGM require 100 round lot holders. *See* NASD Rules 4310(c)(6)(B) and 4420(k)(4). Nasdaq/NGM also requires 100 round lot holders for continued listing. Although the NCM requirements do not explicitly require a continuing number of round lot holders, Nasdaq has filed a proposed rule change to clarify that the 100 round lot holders requirement also will apply as a continued listing requirement for the NCM preferred and secondary classes of common stock standards. *See* Nasdaq Proposed Rule Change, *supra* note 18. 40 While the NCM bid price requirement for initial listing is $4 and the Nasdaq/NGM requirement is $5, the Commission preliminary does not believe this difference is material. Both NGM and NCM require a $1 bid price for continued listing. *See* Nasdaq Rules 4310(c)(4), 4420(k)(3), and 4450(h)(3). 41 Both Nasdaq NCM and NGM require 200,000 publicly held shares for initial listing, and 100,000 publicly held shares for continued listing. *See* Nasdaq Rules 4310(c)(7)(B), 4420(k)(1), and 4450(h)(1). 42 The Commission notes that these requirements apply to instances when the common stock or common stock equivalent security of the issuer is listed on Nasdaq/NGM, NCM, Global Select Market (“GSM”) (the GSM is a segment of the NGM, *see* Securities Exchange Act Release Nos. 53799 and 54071, *supra* note 1), or another national securities exchange. If the common stock or common stock equivalent is not listed on one of these markets then the security must meet the common stock listing requirements for the relevant market (either Nasdaq/NGM or NCM). *See* generally NASD Rules 4310(c)(6)(B) and 4420(k). 43 *See* Nasdaq Rules 4310(c)(7)(B). 44 *See* NASD Rules 4420(k)(1)-(2) and 4450(h)(1)-(2). Nasdaq has filed a proposed rule change to increase the requirements for its NCM listing standards for both preferred and secondary classes of common stock for the market value of publicly held shares to $3.5 million for initial listing and $1 million for continued listing. 45 Nasdaq also has proposed to amend its initial and continued NCM listing rules for secondary classes of common stock and preferred stock to require that the common stock or common stock equivalent of the issuer either be listed on Nasdaq or be a covered security as defined in Rule 146(b). 46 Given these proposed revisions to the NCM's initial and continued listing standards for secondary classes of common stock and preferred stocks, the Commission preliminarily believes it could find that such standards are substantially similar to those of Nasdaq's NGM. 45 *See* Nasdaq Proposed Rule Change, *supra* note 18. 46 *Id.* The Commission requests comment on whether the NCM secondary classes of common stock and preferred stock rules are “substantially similar” to Nasdaq/NGM's rules. C. Convertible Debt The Commission has compared the NCM listing standards for convertible debt to Amex's listing standards for debt. 47 The Commission preliminarily does not believe that Nasdaq's standards are substantially similar to Amex's standards. Although the NCM's initial listing standards require a higher level of principal amount outstanding (the NCM standards require $10 million versus $5 million for Amex), Amex also requires that either

(i)the issuer of the debt security (or an issuer that controls or is under common control with such issuer or that has guaranteed such issuer's debt) have equity securities listed on Amex, the NYSE, or Nasdaq/NGM, or

(ii)that the debt security have a certain level of rating. 48 47 *See* generally Nasdaq Rule 4310(c)(5) and Sections 104 and 1003 of the Amex Company Guide. 48 *See* Section 104 of the Amex Company Guide and Nasdaq Rule 4310(c)(5). Amex also will generally not list a convertible bond or debenture unless current last sale information is available in the United States, with respect to the underlying security into which the bond or debenture is convertible. Further, Amex will not list a convertible debt issue containing a provision permitting an issuer discretion to reduce the conversion price unless the issuer establishes a minimum 10-day period within which such price reduction will be in effect. *See* Section 104 of the Amex Company Guide. The Commission preliminarily believes that these provisions are not material to its determination. *See* Securities Act Releases No. 7494, *supra* note 15 (the Commission found PCX listing standards to be substantially similar to Amex even with the absence of these provisions). Specifically, Amex will not list a debt security unless one of the following conditions is met:

(i)The issuer of the debt security also has equity securities listed on Amex, the NYSE, or Nasdaq/NGM;

(ii)an issuer of equity securities listed on Amex, the NYSE, or Nasdaq/NGM directly or indirectly owns a majority interest in, or is under common control with, the issuer of the debt security;

(iii)an issuer of equity securities listed on Amex, the NYSE, or Nasdaq/NGM has guaranteed the debt security;

(iv)a nationally recognized securities rating organization (an “NRSRO”) has assigned a current rating to the debt security that is no lower than an S&P Corporation “B” rating or equivalent rating by another NRSRO; or

(v)if no NRSRO has assigned a rating to the issue, an NRSRO has currently assigned an investment grade rating to an immediately senior issue or a rating that is no lower than an S&P Corporation “B” rating, or an equivalent rating by another NRSRO, to a *pari passu* or junior issue. 49 This requirement is designed to ensure that the issuer (or guarantor) of a debt security listed on Amex is in reasonably sound financial condition, while also providing Amex with considerable flexibility in determining which debt issues qualify for listing on the Exchange. 50 The Commission preliminarily believes that the absence of these provisions would make the NCM's initial listing standards for debt securities not substantially similar to those of Amex. 49 *See* Section 104 of the Amex Company Guide. 50 *See* Securities Exchange Act Release No. 7422, *supra* note 15. Nasdaq has filed a proposed rule change to adopt a debt rating provision similar to Amex's provision to make its NCM initial listing standards more comparable to Amex's initial listing standards. 51 In light of this proposal, the Commission preliminarily believes it could find that the NCM's listing standards for convertible debt are substantially similar to those of Amex. 51 *See* Nasdaq Proposed Rule Change, *supra* note 18. The Commission preliminarily believes that the continued listing requirements for convertible debt securities listed on the NCM are substantially similar to the Amex requirements. The NCM requires that the principal amount outstanding be maintained at $5 million. 52 Amex generally will delist a bond if the aggregate market value or the principal amount of the bond publicly held is less than $400,000, or if the issuer is not able to meet its obligations on the listed debt. 53 Although not identical, the Commission preliminarily believes that both standards are designed to ensure the continued liquidity of the debt security, and are substantially similar. 52 *See* Nasdaq Rule 4310(c)(5). 53 *See* Section 1003(b)(iv) of the Amex Company Guide. Section 1003(e) of the Amex Company Guide states that convertible bonds will be reviewed when the underlying security is delisted and will be delisted when the underlying security is no longer the subject of real-time reporting in the United States. The Commission does not believe that this is material because although Nasdaq does not have an identical rule, it does have the discretion to delist beyond its standards. The Commission requests comment on whether the NCM convertible debt listing rules are “substantially similar” to Amex's listing standards for debt securities. D. Warrants The Commission has compared the NCM's standards for warrants to Nasdaq's NGM standards, and preliminarily believes that the NCM standards are not substantially similar to the Nasdaq/NGM standards. The NCM initial listing standards require that 100,000 warrants be outstanding for initial listing, whereas Nasdaq/NGM requires that there be 450,000 warrants outstanding. 54 Further, the NCM standards require the issuer's underlying security to be traded on Nasdaq/NGM, NCM, GSM or any national securities exchange. 55 Nasdaq therefore allows the underlying security to be traded on markets that the Commission has not determined to be substantially similar to Amex, the NYSE, or Nasdaq/NGM under Rule 146(b). 56 In addition, the NCM does not have any continuing maintenance standards for warrants whereas Nasdaq/NGM requires that the underlying security of the issuer must continue to be listed on Nasdaq/NGM. 57 54 *See* Nasdaq Rules 4310(c)(9)(A)-(B) and 4420(d). 55 *See* Nasdaq Rule 4310(c)(9)(A)-(B). 56 In contrast, Nasdaq's NGM standards require the issuer of the warrant to meet its common stock “price and earnings” listing requirements. *See* Nasdaq Rule 4420(d). 57 *See* Nasdaq Rule 4450(d). Nasdaq has filed a proposed rule change with the Commission to increase the required number of warrants outstanding for initial listing on the NCM from 100,000 to 400,000. 58 Nasdaq's proposal also would require for initial listing that the security underlying the warrant that is to be listed on the NCM be a covered security as defined in Rule 146(b) (if it is listed on a market other than Nasdaq). 59 Further, Nasdaq would require that the security of the issuer underlying the warrant continue to be listed on Nasdaq or be a covered security as defined in Rule 146(b). 60 Given these proposed revisions to the NCM's warrant listing standards, the Commission preliminarily believes it could find the NCM's listing standards for warrants to be substantially similar to those of Nasdaq/NGM. 58 *See* Nasdaq Proposed Rule Change, *supra* note 18. 59 *Id.* 60 *Id.* The Commission requests comment on whether the NCM's listing rules for warrants are “substantially similar” to Nasdaq/NGM's listing rules. E. Index Warrants For index warrants traded on the NCM, Nasdaq has adopted the same standards (both initial and continuing) that it applies to index warrants traded on the Nasdaq/NGM market. 61 Therefore, the Commission preliminarily believes that the listing standards for index warrants traded on the NCM are substantially similar to the standards applicable to index warrants traded on the Nasdaq/NGM market. 61 *See* generally Nasdaq Rule 4310(c)(9)(C). F. Units The NCM, Amex, and Nasdaq/NGM all evaluate the initial and continued listing of a unit by looking to its components. 62 If all of the components of a unit individually meet the standards for listing, then the unit would meet the standards for listing. 63 The Commission preliminarily believes that it would be able to make a finding that the NCM listing standards for units are substantially similar to a Named Market in light of Nasdaq's proposed revisions to its NCM's listing standards for the different categories of securities that could make up the components of a unit, as discussed above. 64 62 A unit is a type of security consisting of two or more different types of securities ( *e.g.* , a combination of common stocks and warrants). *See* Securities Exchange Act Release No. 48464 (September 9, 2003), 68 FR 54250 (September 16, 2003). 63 *See* generally Section 101(g) of the Amex Company Guide and Nasdaq Rules 4310(c)(10) and 4420(h)(1)(a)-(c). 64 *See* Nasdaq Proposed Rule Change, *supra* note 18. G. Other Changes Sections (b)(1) and (b)(2) of Rule 146 use the term “Nasdaq/NMS” to refer to the National Market System of The NASDAQ Stock Market LLC. In addition, Rule 146(b)(1)(i) refers to the Pacific Exchange Incorporated, Rule 146(b)(1)(ii) refers to the Philadelphia Stock Exchange, Incorporated, and Rule 146(b)(1)(iv) refers to the International Securities Exchange, Incorporated. As noted above, on July 1, 2006, what was the National Market System of The NASDAQ Stock Market LLC became known as the Nasdaq Global Market. 65 Further, in April 2006, the Pacific Exchange, Incorporated was renamed NYSE Arca, Inc., 66 and in September 2006, the International Securities Exchange, Incorporated was renamed the International Securities Exchange, LLC. The proposed rule change includes changes to Rule 146(b) to account for these name changes. Finally, the proposal includes a change to reflect the legal name of the Philadelphia Stock Exchange, Inc. 65 The NGM includes a new segment known as the Nasdaq Global Select Market. *See* Securities Exchange Act Release Nos. 53799 and 54071, *supra* note 1. 66 *See* Securities Exchange Act Release No. 53615 (April 7, 2006), 71 FR 19226 (April 13, 2006). H. Comments The Commission has received three comment letters on Nasdaq's petition. 67 The State Regulation of Securities Committee of the American Bar Association Section of Business Law (“ABA Committee”) expressed support of the petition, assuming that Nasdaq's representation of the data and analysis contained in the petition is accurate. 68 The North American Securities Administrator's Association (“NASAA”), stated that it does not oppose the Nasdaq petition but is concerned generally about what it perceives to be deficiencies in listing standards at several of the Named Markets and encourages the Commission to undertake an SRO oversight initiative to set uniform principles for these Named Markets. 69 67 *See* File No. 4-513, *supra* note 8. 68 *See* letter to Nancy M. Morris, Secretary, Commission, from Alan M. Parness, Vice Chair, ABA Committee, dated April 3, 2006. 69 *See* letter to Nancy M. Morris, Secretary, Commission, from Patricia D. Struck, NASAA President and Wisconsin Securities Administrator, dated March 29, 2006; and electronic mail to Robert L.D. Colby, Acting Director, Division Commission, from Randall Schumann, Legal Counsel, Wisconsin DFI-Division of Securities, NASAA Corporation Finance Section Member, dated June 1, 2006. In addition, the Commission's Advisory Committee on Smaller Public Companies recommended on April 23, 2006 that the Commission make NCM stocks “covered securities.” SEC Advisory Committee on Smaller Public Companies, Final Report, at 97-100 (2006). IV. Solicitation of Comments The Commission seeks comment generally on the desirability of amending Rule 146(b) to include securities of the NCM. As discussed above, based on its review of Nasdaq's listing rules for its NCM, the Commission preliminarily believes that the current original and continued listing standards for the NCM are not substantially similar to those of the Amex, the NYSE, or Nasdaq/NGM. The Commission seeks comments on its preliminary analysis. The Commission also seeks comments on whether the proposed changes to its NCM standards that Nasdaq has filed would make the NCM's initial listing and continued listing standards substantially similar to those of a Named Market. In addition, if the NCM securities are designated as covered securities under Rule 146(b)(1), then the NCM's listing standards would be subject to Rule 146(b)(2) under the Securities Act. Rule 146(b)(2) conditions the designation of securities as “covered securities” under Rule 146(b)(1) on the identified exchange's listing standards continuing to be substantially similar to those of the Named Markets. Thus, under Rule 146(b)(2), the designation of certain securities as covered securities would be conditioned on Nasdaq maintaining listing standards for NCM securities that were found to be substantially similar to those of the Named Markets. Commenters may wish to address the application and effect of Rule 146(b)(2) on the proposal. The Commission also invites commenters to provide views and data as to the costs, benefits, and effects associated with the proposed amendments. In addition to the questions posed above, commenters are welcome to offer their views on any other matter raised by the proposed amendment to Rule 146(b). Finally, the Commission requests comment on whether it could use a different methodology to determine whether the NCM's listing standards are “substantially similar” to the Named Markets. V. Paperwork Reduction Act The Paperwork Reduction Act of 1995 does not apply because the proposed amendment to Rule 146(b) does not impose recordkeeping or information collection requirements or other collection of information, which require the approval of the Office of Management and Budget under 44 U.S.C. 3501 *et seq.* VI. Cost and Benefits of Proposed Rulemaking Congress amended Section 18 of the Securities Act to exempt covered securities from state registration requirements. These securities are listed on the Named Markets or any other national securities exchange determined by the Commission to have substantially similar listing standards to the Named Markets. 70 Consistent with statutory authority, the Commission proposes to determine (if the Commission were to approve the rule changes that Nasdaq has filed) that the listing standards for securities listed on the NCM are substantially similar to those of either Amex, the NYSE, or Nasdaq/NGM. Securities listed on the NCM therefore would be covered securities subject only to federal regulation. 70 15 U.S.C. 77r(b)(1)(B). By exempting securities listed on the NCM from state law registration requirements, the Commission expects that the listing process for those securities would become easier as one layer of regulation is eliminated. Moreover, the Commission also expects adoption of the rule would reduce the administrative burden the issuers of covered securities face inasmuch as compliance with state blue sky law requirements would be preempted. 71 71 A 1996 Report relating to Securities Market Reform: State Registration of Securities—Costs and Benefits stated that up to 1 percent of an issue's cost, which is generally covered by the offering's underwriter, could be apportioned to the legal/administrative costs of state level regulation. One benefit of this proposal would be to eliminate this type of legal/administrative cost with respect to NCM securities. The Commission also preliminarily believes that the proposed amendment to Rule 146(b) should permit Nasdaq to compete with other markets whose listed securities are exempt from state law registration requirements for new securities products and listings. This result would likely enhance competition and, potentially, liquidity, thus benefiting market participants and the public. The proposed amendment would eliminate state registration of securities listed on the NCM. There may be a cost to investors through the loss of benefits of state registration and oversight, although the cost is difficult to quantify. The Commission believes that Congress contemplated these costs in relation to the economic benefits of exempting covered securities from state regulation. The Commission, however, is considering the costs and benefits of the proposed amendment to Rule 146(b) and requests commenters to provide views and supporting information as to the costs and benefits associated with this proposal. VII. Consideration of Promotion of Efficiency, Competition, and Capital Formation As required under the Securities Act, 72 the Commission has preliminarily considered the proposed rule's impact on efficiency, competition, and capital formation. National securities exchanges compete for the listing of securities. Thus, the Commission preliminarily believes that amending Rule 146(b) to designate securities traded on the NCM as covered securities (if the Commission were to approve the rule changes that Nasdaq has filed) would offer potential benefits for investors because it would facilitate the ability of Nasdaq to compete for listings, which should increase competition and enhance the overall liquidity, and thus the efficiency of the U.S. securities markets. The Commission also preliminarily believes that the proposed rule would serve to reduce the cost of raising capital because it would streamline the registration process for issuers listing on the NCM. In addition, the Commission believes that the proposed rule amendment, consistent with Congressional action, is designed to promote efficiency by removing a layer of duplicative regulation. The Commission also preliminarily believes that the proposed amendment to Rule 146(b) should permit Nasdaq to compete with other markets whose securities are exempt from state law registration requirements for new securities products and listings. Finally, the proposed amendment to Rule 146(b) should not impair efficiency, competition, and capital formation because it would impose no recordkeeping or compliance burdens, but would provide a limited purpose exemption under the federal securities laws. 72 15 U.S.C. 77b(b). Thus, the Commission preliminarily believes that the proposed amendment to Rule 146(b) would promote efficiency, competition, and capital formation. Commenters should consider the proposed amendment's effect on efficiency, competition, and capital formation. VIII. Regulatory Flexibility Act Certification Section 603(a) of the Regulatory Flexibility Act 73 requires the Commission to undertake an initial regulatory flexibility analysis of the proposed amendment to Rule 146 on small entities, unless the Commission certifies that the proposed amendment, if adopted, would not have a significant economic impact on a substantial number of small entities. 74 For purposes of Commission rulemaking in connection the Regulatory Flexibility Act, an issuer is a small business if its “total assets on the last day of its most recent fiscal year were $5 million or less.” 75 An exchange is a small business if it has been exempt from the reporting requirements of Rule 601 76 and it is not affiliated with any person other than a natural person that is not a small business. 77 73 5 U.S.C. 603(a). 74 5 U.S.C. 605(b). 75 17 CFR 230.157. *See also* 17 CFR 240.0-10(a). 76 17 CFR 242.601 (formerly Rule 11Aa3-1 under the Act). 77 17 CFR 240.0-10(e). The Commission believes that the proposal to amend Rule 146(b) would not affect a substantial number of small entities because to list its securities on the NCM, an issuer's aggregate market value of publicly held shares must be at least $5 million. 78 If an entity's market value of publicly held shares is at least $5 million, it is reasonable to believe that its assets are worth at least $5 million. Therefore, an entity seeking to list securities on the NCM generally will have assets with a market value of at least equal to $5 million and thus would not be considered a small entity. Further, Nasdaq itself is not a small entity for purposes of the RFA. 79 78 As of June 30, 2006, the Division estimates that there were 557 listed issuers of securities on the NCM. 79 17 CFR 240.0-10(e). Accordingly, the Commission hereby certifies, pursuant to Section 605(b) of the Regulatory Flexibility Act, 80 that amending Rule 146(b) as proposed would not have a significant economic impact on a substantial number of small entities. The Commission encourages written comments regarding this certification. The Commission solicits comment as to whether the proposed amendment to Rule 146(b) could have an effect that has not been considered. The Commission requests that commenters describe the nature of any impact on small entities and provide empirical data to support the extent of such impact. 80 5 U.S.C. 605(b). IX. Small Business Regulatory Enforcement Fairness Act of 1996 For purposes of the Small Business Enforcement Fairness Act of 1996, a rule is “major” if it results or is likely to result in:

(i)An annual effect on the economy of $100 million or more;

(ii)a major increase in costs or prices for consumers or individual industries; or

(iii)significant adverse effects on competition, investment, or innovation. 81 81 Pub. L. 104-121, Title II, 110 Stat. 857

(1996)(codified in various sections of 5 U.S.C., 15 U.S.C., and as a note to 5 U.S.C. 601). The Commission requests comment regarding the potential impact of the proposed amendment on the economy on an annual basis. Commenters should provide empirical data to support their views to the extent possible. X. Statutory Authority The Commission is proposing an amendment to Rule 146 pursuant to the Securities Act of 1933, 82 particularly Sections 18(b)(1)(B) and 19(a). 83 82 15 U.S.C. 77a *et seq.* 83 15 U.S.C. 77r(b)(1)(B) and 77s(a). Text of the Proposed Rule List of Subjects in 17 CFR Part 230 Securities. For the reasons set forth in the preamble, Title 17, Chapter II of the *Code of Federal Regulations* is proposed to be amended as follows: PART 230—GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933 1. The general authority citation for Part 230 is revised to read as follows: Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78 *l* , 78m, 78n, 78o, 78t, 78w, 78 *ll* (d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, unless otherwise noted. 2. Section 230.146 is amended by revising paragraphs (b)(1) and (b)(2) to read as follows: § 230.146 Rules under Section 18 of the Act.

(b)* * *

(1)For purposes of Section 18(b) of the Act (15 U.S.C. 77r), the Commission finds that the following national securities exchanges, or segments or tiers thereof, have listing standards that are substantially similar to those of the New York Stock Exchange (“NYSE”), the American Stock Exchange (“Amex”), or the National Market System of the Nasdaq Stock Market (“Nasdaq/NGM”), and that securities listed on such exchanges shall be deemed covered securities:

(i)Tier I of the NYSE Arca, Inc.;

(ii)Tier I of the Philadelphia Stock Exchange, Inc.;

(iii)The Chicago Board Options Exchange, Incorporated;

(iv)Options listed on the International Securities Exchange, LLC; and

(v)The Nasdaq National Capital Market.

(2)The designation of securities in paragraphs (b)(1)(i) through

(v)of this section as covered securities is conditioned on such exchanges' listing standards (or segments or tiers thereof) continuing to be substantially similar to those of the NYSE, Amex, or Nasdaq/NGM. Dated: November 16, 2006. By the Commission. Nancy M. Morris, Secretary. [FR Doc. E6-19740 Filed 11-21-06; 8:45 am] BILLING CODE 8011-01-P 71 225 Wednesday, November 22, 2006 Rules and Regulations Part V Department of Defense General Services Administration National Aeronautics and Space Administration 48 CFR Chapter 1 and Parts 2, 4, et al. Federal Acquisition Regulation; Interim and Final Rules DEPARTMENT OF DEFENSE GENERAL SERVICES ADMINISTRATION NATIONAL AERONAUTICS AND SPACE ADMINISTRATION 48 CFR Chapter 1 [Docket FAR—2006-0023, Sequence 7] Federal Acquisition Regulation; Federal Acquisition Circular 2005-14; Introduction AGENCIES: Department of Defense (DoD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA). ACTION: Summary presentation of final and interim rules, and technical amendments and corrections. SUMMARY: This document summarizes the Federal Acquisition Regulation

(FAR)rules agreed to by the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council in this Federal Acquisition Circular

(FAC)2005-14. A companion document, the Small Entity Compliance Guide (SECG), follows this FAC. The FAC, including the SECG, is available via the Internet at *http://www.regulations.gov* . DATES: For effective dates and comment dates, see separate documents, which follow. FOR FURTHER INFORMATION CONTACT: The analyst whose name appears in the table below in relation to each FAR case or subject area. Please cite FAC 2005-14 and specific FAR case number(s). For information pertaining to status or publication schedules, contact the FAR Secretariat at

(202)501-4755. List of Rules in FAC 2005-14 Item Subject FAR case Analyst I Common Identification Standard for Contractors 2005-015 Jackson. II Removal of Sanctions Against Certain EU Countries 2005-045 Olson. III Free Trade Agreements—Bahrain and Guatemala (Interim) 2006-017 Parnell. IV Free Trade Agreements—Morocco 2006-001 Parnell. V Technical Amendments SUPPLEMENTARY INFORMATION: Summaries for each FAR rule follow. For the actual revisions and/or amendments to these FAR cases, refer to the specific item number and subject set forth in the documents following these item summaries. FAC 2005-14 amends the FAR as specified below: Item I—Common Identification Standard for Contractors (FAR Case 2005-015) This rule converts the interim rule published at 71 FR 208, January 3, 2006, to a final rule with changes. The rule amends the Federal Acquisition Regulation

(FAR)by addressing the contractor personal identification requirements in Homeland Security Presidential Directive

(HSPD)12, “Policy for a Common Identification Standard for Federal Employees and Contractors,” and Federal Information Processing Standards Publication (FIPS PUB) Number 201, “Personal Identity Verification

(PIV)of Federal Employees and Contractors.” The primary objectives of HSPD-12 are to establish a process to enhance security, increase Government efficiency, reduce identity fraud, and protect personal privacy by establishing a mandatory, Governmentwide standard for secure and reliable forms of identification issued by the Federal Government to its employees and contractors who require routine physical access to Federally-controlled facilities, and/or routine access to Federally-controlled information systems. Item II—Removal of Sanctions Against Certain EU Countries (FAR Case 2005-045) This rule converts the interim rule published at 71 FR 20305, April 19, 2006, to a final rule without change. The interim rule removed the sanctions in FAR Part 25 against Austria, Belgium, Denmark, Finland, France, Ireland, Italy, Luxembourg, the Netherlands, Sweden, and the United Kingdom on acquisitions not covered by the World Trade Organization Government Procurement Agreement. These sanctions did not apply to small business set-asides, to acquisition below the simplified acquisition threshold using simplified acquisition procedures, or to acquisitions by the Department of Defense. Contracting officers may now consider offers of end products, services, and construction that were previously prohibited by the sanctions. Item III—Free Trade Agreements—Bahrain and Guatemala (FAR Case 2006-017) (Interim) This interim rule allows contracting officers to purchase the goods and services of Guatemala and Bahrain without application of the Buy American Act if the acquisition is subject to the Free Trade Agreements. These trade agreements with Guatemala and Bahrain join the North American Free Trade Agreement (NAFTA), the Australia, Chile, Morocco, and Singapore Free Trade Agreements, and the CAFTA-DR with respect to El Salvador, Honduras, and Nicaragua, which are already in the FAR. The threshold for applicability of the Dominican Republic—Central America-United States Free Trade Agreement is $64,786 for supplies and services (the same as other Free Trade Agreements to date except Morocco and Canada) and $7,407,000 for construction (the same as all other Free Trade Agreements to date except NAFTA). The threshold for applicability of the Bahrain Free Trade Agreement is $193,000 (the same as the Morocco FTA and the WTO GPA) and $8,422,165 for construction (the same as NAFTA). Item IV—Free Trade Agreements—Morocco (FAR Case 2006-001) This final rule converts the interim rule published in the **Federal Register** at 71 FR 20306, April 19, 2006, to a final rule without change. This rule allows contracting officers to purchase the products of Morocco without application of the Buy American Act if the acquisition is subject to the Morocco Free Trade Agreements. The U.S. Trade Representative negotiated a Free Trade Agreement with Morocco, which went into effect January 1, 2006. This agreement joins the North American Free Trade Agreement (NAFTA) and the Australia, Chile, and Singapore Free Trade Agreements, which are already in the FAR. The threshold for applicability of the Morocco Free Trade Agreement is $193,000 for supplies and services and $7,407,000 for construction. Item V—Technical Amendments Editorial changes are made at FAR 15.404-1, 22.1006, 22.1304, 28.202, 52.212-5, 52.222-43, 52.228-15, and 52.228-16, in order to update references. Dated: November 15, 2006. Ralph De Stefano, Director, Contract Policy Division. Federal Acquisition Circular Federal Acquisition Circular

(FAC)2005-14 is issued under the authority of the Secretary of Defense, the Administrator of General Services, and the Administrator for the National Aeronautics and Space Administration. Unless otherwise specified, all Federal Acquisition Regulation

(FAR)and other directive material contained in FAC 2005-14 is effective November 22, 2006. Dated: November 12, 2006. Shay D. Assad, Director, Defense Procurement and Acquisition Policy. Dated: November 8, 2006. Roger D. Waldron, Acting Senior Procurement Executive, General Services Administration. Dated: November 6, 2006. Tom Luedtke, Assistant Administrator for Procurement, National Aeronautics and Space Administration. [FR Doc. 06-9309 Filed 11-21-06; 8:45 am]

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