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Code · REGISTER · 2007-01-17 · SECURITIES AND EXCHANGE COMMISSION · Notices

Notices. Notice and request for comments

45,690 words·~208 min read·/register/2007/01/17/07-123

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BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55068; File No. SR-Amex-2006-17] Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Procedures for At-Risk Cross Transactions January 9, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on February 17, 2006, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by the Amex.
On November 9, 2006, the Exchange filed Amendment No. 1 to the proposed rule change. 3 On December 1, 2006, the Exchange filed Amendment No. 2 to the proposed rule change. 4 The Commission is publishing this notice to solicit comments on the proposed rule change, as amended, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 Amendment No. 1 renamed the proposed procedure for equity options as “at-risk” cross transactions; provided that the eligible order size would be at least 50 contracts; clarified certain descriptions of the proposal in Section II.A.1 below; and made minor revisions to the text of the proposed rule change.
Amendment No. 1 replaced and superseded the original filing in its entirety. 4 Amendment No. 2 revised the proposed rule text to clarify that, under Commentary .02(c) of Amex Rule 950—ANTE(d), the member, on behalf of the public customer whose order is subject to facilitation, must establish priority consistent with the Exchange's customer priority rules. Amendment No. 2 also made a technical correction to the Purpose section of the proposed rule change. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Amex proposes to revise the procedures applicable to cross transactions in equity options to provide procedures for at-risk cross transactions.
The text of the proposed rule change is available at the Amex, on the Amex's Web site at *http://amex.com,* and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Amex included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below.
The Amex has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to provide an alternative crossing procedure to supplement the existing facilitation cross procedure in Commentary .02 to Amex Rule 950—ANTE(d). In this manner, the Amex would permit “at-risk” cross transactions by member firms.
The proposal would establish an at-risk crossing procedure in equity options that permits a floor broker, after satisfying all public customer orders, to execute an at-risk cross on behalf of a member organization trading against its own customer's order between the quoted market once priority has been established. Currently, floor brokers are required to follow the facilitation crossing procedure set forth in Commentary .02(c) to Amex Rule 950—ANTE(d), 5 whereby the floor broker representing the member organization must improve the quoted market on behalf of its customer to cross or facilitate the order.
Notwithstanding the procedures set forth in Commentary .02(c), as described above, Commentary .02(d) to Amex Rule 950—ANTE(d) sets forth conditions and procedures by which the member firm facilitating the order is entitled to participate from its proprietary account as the contra-side of that order to the extent of 40 percent of the remaining contracts, provided the order trades at or between the quoted market. 5 Telephone conversation between Jeffrey Burns, Vice President and Associate General Counsel, Amex; and Ira Brandriss, Special Counsel, and Sara Gillis, Attorney, Division of Market Regulation, Commission, on January 4, 2007.
Certain additional technical corrections were made throughout the discussion of the proposed rule change pursuant to the January 4, 2007 telephone conversation with Amex staff. The purpose of the proposed revision is to provide floor brokers with a greater incentive to attract and maintain order flow on the Exchange by permitting at-risk cross transactions in between the quoted market. With an at-risk cross transaction, a customer order has the opportunity for price improvement that does not always exist under the Exchange's current facilitation cross procedure because, under the proposed at-risk cross provisions, the floor broker must cross at a price at least one minimum price variation (“MPV”) better than the best price communicated by the trading crowd.
In addition, the at-risk cross procedure will provide the trading crowd with either the opportunity to buy or sell the entire customer order when represented, or trade against the member firm's quote, which will be at risk to the market. A facilitation order is currently defined by Amex Rule 950—ANTE(e) as “an order which is only executed, in whole or in part, in a cross transaction with an order for a public customer of the member organization.” Commentary .02 to Amex Rule 950—ANTE(d) provides the current procedure for executing facilitation cross transactions.
According to the Commentary, a floor broker holding an order for a member firm's public customer and a facilitation order is permitted to cross the orders if:
(1)The floor broker discloses on its order ticket for the public customer order which is subject to facilitation, all the terms of such order, including, if applicable, any contingency involving other options, underlying securities, or related securities;
(2)the floor broker requests bids and offers for the option series subject to facilitation, then discloses the public customer order and any contingency respecting such order which is subject to facilitation and identifies the order as being subject to facilitation; and
(3)after providing an opportunity for such bids and offers to be made, the floor broker on behalf of the public customer whose order is subject to facilitation, either bids above the highest bid or offers below the lowest offer on the market. After all other market participants are given an opportunity to accept the bid or offer made on behalf of the public customer whose order is subject to facilitation, the floor broker may then cross all or any remaining part of such order and the facilitation order at such customer's bid or offer by announcing in public outcry that he is crossing such orders stating the quantity and price(s). In cases where a floor broker is seeking to facilitate its own public customer order, Commentary .02(d)(1) to Amex Rule 950—ANTE(d) provides that the member firm is entitled to participate in the firm's proprietary account as the contra-side of that order up to 40 percent of the remaining contracts (the “Member Firm Guarantee”), provided that the order trades at a price that matches or improves the market, after public customer orders on the specialist's book or customer orders represented by a floor broker in the crowd have been filled. This Member Firm Guarantee provides, under certain conditions, the ability to cross 40 percent of the customer order on behalf of a member organization before the specialist and/or registered options traders in the crowd can participate in the transaction. The provision generally applies to orders of 400 contracts or more. However, the Exchange is permitted to establish smaller eligible order sizes, on a class-by-class basis, although the size may not be for fewer than 50 contracts. Under the proposal, the Member Firm Guarantee will remain unchanged. However, an at-risk cross transaction will not be subject to the Member Firm Guarantee. The Amex proposes to adopt at-risk crossing procedures by revising its current facilitation cross procedures in two parts. First, the Exchange proposes to change the definition of “facilitation order” such that floor brokers may choose which procedure to use, either the facilitation or the at-risk cross procedure. Amex Rule 950—ANTE(e)(iv) defines a facilitation order as an “order which is *only* executed, in whole or in part, in a cross transaction with an order for a public customer of the member organization” (emphasis added). The proposed rule change would revise the definition so that it is “an order which *may* be executed in a cross transaction with an order for a public customer of the member organization” (emphasis added). Allowing for this change would provide floor brokers with the ability to continue using the facilitation cross procedure set forth in Commentary .02(d) to Amex Rule 950—ANTE(d). Second, the Exchange proposes the following procedure for the use of members who choose to execute at-risk cross transactions. The at-risk cross transaction procedure may only be used by floor brokers attempting to cross an order of a public customer from the same member organization. 6 Floor brokers will be required to take the following steps: 6 The minimum eligible order size for the at-risk cross transaction will be 50 contracts. • Disclose on its order ticket for the public customer order which is subject to the cross, all the terms of the order, including, if applicable, any contingency involving other options, underlying securities or related securities; • The floor broker must request bids and offers for all components of the customer order; • In response to the quoted market from the trading crowd, the floor broker, on behalf of the member organization, must first represent the public customer order to the trading crowd as customer providing the side, size and a price of the order, giving the customer an opportunity for price improvement; • Once the trading crowd has provided a quote in response to the customer order, it will remain in effect until:
(i)A reasonable amount of time has passed,
(ii)there is significant change in the price of the underlying security or
(iii)the market given in response to the request has been improved. In the case of a dispute, the term “significant change” will be interpreted on a case-by-case basis by two Floor Officials based upon the extent of the recent trading in the option and in the underlying security and any other relevant factors; • In response to the trading crowd's quoted market, the floor broker may on behalf of the member organization improve the quoted market establishing priority; and • The floor broker may then attempt to consummate a cross transaction at risk to the market by bidding or offering on behalf of the member firm at one MPV away from the public customer order. 7 7 The Exchange has represented that if there is a public customer order on the book or represented in the trading crowd that has priority over the at-risk cross, the member firm may only participate in those contracts remaining after the public customer's order has been filled. Telephone conversation between Jeffrey Burns, Vice President and Associate General Counsel, Amex; and Ira Brandriss, Special Counsel, and Sara Gillis, Attorney, Division of Market Regulation, Commission, on November 28, 2006. The following is an example of how the at-risk cross procedure will operate. Assume that the posted market at the Amex is 1.00-bid/1.15-offer for 250 contracts. A customer has a limit order to buy 500 contracts at 1.10. The floor broker enters the trading crowd and requests a larger size market and receives 1.00-bid/1.15-offer for 500 contracts. In response to the trading crowd's market, the floor broker bids 1.05 for 500 contracts for the customer. Absent the specialist and/or Registered Options Traders selling to the customer at 1.05, thereby improving the customer's limit price, or improving the offer to 1.10 in response to the customer bid, the floor broker may then make a better offer on behalf of the member organization at 1.10 establishing priority. At this point, the floor broker could invoke the Member Firm Guarantee at 1.10 and would be unable to employ the at-risk crossing procedure. The floor broker may then attempt to cross the customer order at 1.10. In the process of attempting the cross, the crowd could still “break up” the cross by selling to the customer's 1.05 bid or buying the firm's 1.10 offer, which is “at-risk”. As a result, the customer is provided the opportunity to pay 1.05 and achieve price improvement while the marketplace is provided an opportunity for the trading crowd to purchase the firm's offer at 1.10. The member firm effectively relinquishes its guaranteed participation rights ( *i.e.* , the Member Firm Guarantee) in an attempt to cross the entire order. The Exchange believes that the proposed at-risk cross procedure better supports the auction market and provides an opportunity for customers to achieve meaningful price improvement that otherwise may not occur when a member firm is forced to use the current facilitation procedure to interact with its customer's order. Under the current facilitation cross procedure, the floor broker (in the above example) would request a market from the trading crowd and then facilitate the customer order at 1.10 subject to the Member Firm Guarantee. As proposed, in response to the trading crowd's quoted market, the floor broker may determine which procedure best represents the customer and the member firm. For a floor broker to use the at-risk cross procedure outlined above, the floor broker must be attempting to cross an order of a public customer from the same member organization. Once the cross transaction has occurred, the order cannot then be broken up by a superior bid or offer from the trading crowd. As noted above, the Exchange proposes to revise the procedures applicable to cross transactions in equity options to provide procedures for at-risk cross transactions. The purpose of the proposed revision is to provide floor brokers with a greater incentive to attract and maintain order flow on the Exchange and improve the auction marketplace because the at-risk cross procedure allows floor brokers the ability to cross transactions in between the quoted market. The Exchange believes that the at-risk cross procedure will also encourage price improvement because the trading crowd will have a greater incentive to make larger, tighter markets in response to customer orders that it wants to trade against. Section 11(a)(1) of the Act 8 makes it unlawful for a member of an exchange to effect a transaction for its own account on that exchange unless a specific exception applies. The exceptions are set forth in Section 11(a)(1) and in various rules adopted by the Commission subsequent to the enactment of Section 11. In connection with the use of affiliated or “house” floor brokers by Amex members, Section 11(a)(1)(G) of the Act provides an exemption from the prohibitions of Section 11(a) for transactions effected for a member's own account (“G Orders”) if the member meets a business mix test that requires it to be primarily engaged in the business of underwriting and distributing securities, selling securities to customers and/or acting as a broker and provided more than 50 percent of its gross revenues is derived from such businesses and related activities. 9 However, all G Orders must yield priority to any bid or offer at the same price for the account of a person who is not, or is not associated with, a member. Therefore, if a G Order is entered by a floor broker as part of an at-risk cross transaction, the G Order will not be permitted an execution ahead of any non-member order on the book. 10 8 15 U.S.C. 78k(a)(1). 9 Rule 11a1-1(T)(b) under the Act provides additional guidance to members seeking to meet the business mix test requirements of Section 11(a)(1)(G)(i). 17 CFR 240.11a1-1(T). 10 Because the ANTE System is not programmed to recognize “G” orders and provide for the order to yield to all non-member accounts, affiliated floor brokers are prohibited from sending “G” orders in options into the ANTE System. This prohibition is necessary in order to prevent a violation of Section 11(a)(1) of the Act by a member using an affiliated broker to represent a “G” order. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6 of the Act 11 in general and furthers the objectives of Section 6(b)(5) 12 in particular in that it is designed to perfect the mechanisms of a free and open market and the national market system, protect investors and the public interest, to foster cooperation and coordination with persons engaged in facilitating transactions in securities and promote just and equitable principles of trade. 11 15 U.S.C. 78f(b). 12 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The proposed rule change will impose no burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were solicited or received by the Exchange on this proposal. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the Exchange consents, the Commission will:
(A)By order approve such proposed rule change, or
(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-Amex-2006-17 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-Amex-2006-17. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Amex-2006-17 and should be submitted on or before February 7, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 13 13 17 CFR 200.30-3(a)(12). Florence E. Harmon, Deputy Secretary. [FR Doc. E7-538 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55073 File No. SR-BSE-2006-48] Self-Regulatory Organizations; Boston Stock Exchange, Inc.; Order Granting Approval to Proposed Rule Change To Implement a Quote Mitigation Plan January 9, 2007. I. Introduction On November 15, 2006, the Boston Stock Exchange, Inc. (“BSE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend the Boston Options Exchange (“BOX”) Rules to add a Quote Mitigation Plan. The proposed rule change was published for comment in the **Federal Register** on November 27, 2006. 3 The Commission received one comment letter on the proposed rule change. 4 This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 54779 (November 17, 2006), 71 FR 68655. 4 *See* letter to Nancy Morris, Secretary, Commission, from Christopher Nagy, Chair, SIFMA Options Committee (“SIFMA”), dated December 20, 2006. SIFMA supports BSE's quote mitigation proposal discussed herein and recommends its implementation on an industry-wide basis. Specifically, SIFMA believes that the adoption of an industry-wide, uniform “holdback timer” proposal, like the strategy approved by this order, would provide the most effective means of quote mitigation. SIFMA expressed concern that a lack of uniformity among quote mitigation strategies implemented by the various options exchanges may impose a burden on member firms and result in confusion among market participants. Additional concerns raised in SIFMA's December 20, 2006 comment letter relating to other proposed rule changes filed by the options exchanges will be more fully addressed in any subsequent releases issued by the Commission. II. Description of the Proposal The purpose of the proposed rule change is to mitigate quote traffic and address quote capacity issues by, under certain circumstances, “bundling” quotes so that options data is submitted to the Options Price Reporting Authority (“OPRA”) over short intervals rather than on a continuous basis. Specifically, BOX proposes to mitigate quotes in the following manner: • BOX proposes to “let the market decide” which instruments would be considered to be “less interesting” by basing this determination on the open interest in contracts at the Options Clearing Corporation for each instrument. Those series with lower open interest are likely to be of less interest to options traders and investors. The precise threshold of open interest which will determine whether the broadcast of a series is subject to mitigation or not will vary according to the degree BOX is meeting its stated goals of reducing overall traffic. BOX anticipates that this threshold could be as high as 300 to 400 contracts, but that it will be no lower than 50 contracts. BOX does not propose to apply mitigation to instruments which have been listed for fewer than ten trading sessions, regardless of the open interest. • BOX would “bundle” at intervals of up to 1,000 milliseconds (and no less than 200 milliseconds) any changes to its broadcast for those instruments which have fallen below the threshold in the previous point. • BOX would use variable rates of “bundling” delays for the three different types of broadcast updates: changes in price, increases in quantity without a change in price, and decreases in quantity without a change in price. Under this proposal, changes in prices may be subject to less delay than changes to quantity at same price. For example, BOX may apply a “bundling interval” of 400 milliseconds to updates regarding a price change while using a figure of 1,000 milliseconds for updates concerning only a change in quantity at the same price. The appropriate mix will be determined by the relative success BOX is meeting in its overall goals of traffic reduction. The Exchange does not propose to apply the above-described bundling to message traffic relating to price improvement auctions or NBBO exposure mechanisms, nor to trade reporting messages. Furthermore, no bundling of quotes is proposed for inbound orders and quotes which are sent to BOX by users. Instead, messaging will be bundled only for outbound updates. The Exchange believes this proposal is an optimal trade-off between costs and benefits and that it is fully compliant with its firm quote obligations. BOX has indicated that its target reduction in outbound peak traffic is 15% to 20% of what the traffic would have been had no mitigation been applied. Box has also represented that the reduction in overall traffic, as opposed to peaks, will be lower, but still significant, with a target of 8% to 10%. III. Discussion After careful review of the proposal and consideration of the comment letter, 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. 5 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act, 6 which requires, among other things, that the rules of an exchange be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 5 In approving this proposed rule change the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 6 15 U.S.C. 78f(b)(5). The Commission believes that the Exchange's proposal to “bundle” quotes should reduce the volume of options quote traffic disseminated to OPRA and help to address capacity concerns on the Exchange. Because the contemplated delays in data transmission are very brief, the Commission does not believe that “bundling” quotes will adversely affect market transparency or negatively affect market participants or investors. Furthermore, the Commission believes that BOX's quote mitigation proposal is designed to provide the Exchange with a mechanism, that should reduce overall peak market data traffic with a relatively small impact on the quality of information available to options market users. IV. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 7 that the proposed rule change (SR-BSE-2006-48), be, and hereby is approved. 7 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 8 8 17 CFR 200.30-3(a)(12). Florence E. Harmon, Deputy Secretary. [FR Doc. E7-526 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55062; File No. SR-CBOE-2006-88] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Granting Approval to Proposed Rule Change To Codify a Fee Schedule for the Sale of Open and Close Volume Data on CBOE Listed Options by Market Data Express, LLC January 8, 2007. On November 3, 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”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to codify a fee schedule for the sale of open and close volume data on CBOE listed options by Market Data Express, LLC (“MDX”), a wholly-owned subsidiary of CBOE. The proposed rule change was published for comment in the **Federal Register** on November 27, 2006. 3 The Commission received no comments regarding the proposal. This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 54771 (November 16, 2006), 71 FR 68657 (the “Notice”). In the Notice, the Exchange represented that it creates volume data for each CBOE listed option that consists of opening buys and opening sells and closing buys and closing sells (“Open/Close Data”). CBOE further represented that MDX offers this Open/Close Data for sale to CBOE members and non-members and that the fees assessed by MDX for the Open/Close Data are set forth in the Price List on MDX's Web site. CBOE members and non-members are charged the same fees for the Open/Close Data. Under the proposal, customers may purchase Open/Close Data on a subscription basis or by ad hoc request. Daily Open/Close Data covering all CBOE listed options 4 would be available for purchase by subscribing to the Daily Update service at a cost of $600 per month. Subscribers to the Daily Update service would receive a daily data file via download from MDX's Web site. Historical Open/Close Data covering all CBOE listed options may be purchased on an ad hoc request basis and is delivered via DVD. The charge for Historical Open/Close Data covering all CBOE listed options would be $7,200 per year for requests for one to four years of data. Requests for five or more years of Historical Open/Close Data would receive a 50% discount beginning with the fifth year of data ( *i.e.* , MDX charges $7,200 for each of the first four years of data and $3,600 for year five and for each subsequent year of data). Alternatively, a customer may purchase Historical Open/Close Data on an individual CBOE listed option at a cost of $4.50 per listed option per month. This data would be available via download from MDX's Web site. A 50% discount would be applied for requests for ten or more years of data, beginning with the tenth year of data. 4 Although the proposed rule change refers to Open/Close Data covering all CBOE listed securities, the CBOE confirmed that the Open/Close Data is available solely for all CBOE listed options. Telephone conversation between Jaime Galvan, Assistant Secretary, CBOE and David Michehl, Special Counsel, Division of Market Regulation, Commission on January 8, 2007. The Commission has reviewed carefully the proposed rule change and 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 and, in particular, the requirements of Section 6(b)(4) of the Act, 5 which requires, among other things, CBOE's rules be designed to provide for the equitable allocation of reasonable dues, fees, and other charges among CBOE members and issuers and other persons using its facilities. 6 *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 7 that the proposed rule change (SR-CBOE-2006-88) is hereby approved. 5 15 U.S.C. 78f(b)(4). 6 In approving this proposed rule change the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 7 15 U.S.C. 78s(b)(2). 8 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 8 Florence E. Harmon, Deputy Secretary. [FR Doc. E7-540 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55070; File No. SR-CHX-2006-37] Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto Relating to Participant Fees and Credits January 9, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the “Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on November 21, 2006, the Chicago Stock Exchange, Inc. (“CHX” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been substantially prepared by the CHX. On December 21, 2006, the CHX filed Amendment No. 1 to the proposed rule change. The CHX has designated this proposal as one establishing or changing a member due, fee, or other charge imposed by the CHX pursuant to Section 19(b)(3)(A)(ii) of the Act, 3 and Rule 19b-4(f)(2) 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, as amended, 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)(ii). 4 17 CFR 240.19b-4(f)(2). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The CHX proposes to amend its Schedule of Participant Fees and Credits (the “Fee Schedule”) to reduce specialist fixed fees that are applicable during the period when the CHX transitions to its new trading model. The text of this proposed rule change is available at the CHX, on the Exchange's Web site at *http://www.chx.com/rules/proposed_rules.htm* , and in 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 CHX included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The CHX has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose As part of the Exchange's new trading model, the CHX is transitioning from a floor-based exchange, with a single specialist firm assigned to trade designated issues, to a fully-automated electronic facility, with issues eligible for trading by multiple market makers and other eligible CHX participants. This transition commenced during the week of October 23, 2006, and is expected to be completed by mid-January. The CHX's transition to its new trading model is structured on an issue-by-issue basis. Once an issue is “converted,” it is then eligible for trading in the CHX electronic matching engine and is no longer traded by a CHX specialist. In connection with this transition, the CHX previously submitted a series of comprehensive revisions to its Fee Schedule to address various aspects of the new trading model, including the transition away from a specialist system. 5 The initial revision to the Fee Schedule provided that, with respect to the specialist fixed fee, 6 during the transition period, such transitional fixed fees will continue to be charged on securities traded by specialists as the Exchange transitions to its new trading model, on a prorated basis. 7 The proration provision was intended to eliminate the fixed fee as soon as an issue makes the transition to the new trading model and is no longer traded by the CHX specialist. 5 *See* Securities Exchange Act Release No. 54657 (October 26, 2006), 71 FR 64590 (November 2, 2006) (SR-CHX-2006-29). 6 The specialist fixed fee is a long-standing fee that is allocated on a monthly basis among CHX specialist firms. It provides the CHX with a means of allocating certain expenses, relating to systems and infrastructure, that support the CHX specialist system. 7 To determine the amount of the fixed fee during each month of this transition period, the Exchange will calculate the aggregate fixed fees for the month based on the total number of issues traded by specialists as of the day before the Exchange begins to trade the first specialist-traded security in the new model. The Exchange then will only charge a specialist firm the fixed fees associated with the securities that it traded as specialist during each month, prorating the fee based on the date that an issue makes its transition to the Matching System for trading, as applicable. After further consideration and additional dialogue with CHX participants, the Exchange believes that further refinement of this provision is appropriate. Specifically, the Exchange proposes to modify Section K of the Fee Schedule to provide for a monthly credit of $25,000 per specialist firm, to be applied against each firm's monthly transitional fixed fee. The $25,000 monthly credit would be applied against the first $25,000 in monthly specialist fixed fees otherwise due to the CHX from a participant firm. If the participant firm's fixed fee liability is less than $25,000, the CHX would apply a credit equal to the amount of the fixed fee liability, but would not issue a refund to such participant firm for the remaining balance of the credit, nor would the CHX carry forward the balance of the credit for application to future fixed fee liabilities. For example, if a specialist firm's monthly fixed fee liability was $32,000, the CHX would apply the $25,000 credit and the firm would be billed for the remaining balance of $7,000 in net fixed fees. If a specialist firm's monthly fixed fee liability was $10,000, the CHX would apply a credit of $10,000, offsetting the entire liability, and the CHX would not bill the specialist firm for any fixed fees that month. The CHX would not issue a refund of $15,000 to the specialist firm on account of the unused portion of the available credit, and the unused portion would not be available to offset fixed fee liabilities in future months. The CHX believes that this credit, which was negotiated after substantial discussion with its specialist community, is warranted under the circumstances. The credit addresses the contention of certain specialists that specialist fixed fees should be eliminated more quickly, because legacy technology and other pre-new trading model systems (which are funded in part by the specialist fixed fee) are not as useful to them. More significantly, it permits the Exchange to roll out its new trading model on terms that the Exchange believes to be most prudent from a technology perspective, 8 while reducing the costs that must continue to be borne by specialist firms as a result of the rollout schedule. 9 Moreover, the proposed credit would provide specialist firms with a specified reduction in their fixed fees during the transition period, permitting them to budget accordingly. 8 The CHX has given considerable thought to establishing an implementation schedule that minimizes the risks associated with implementing significant new technology. Generally speaking, this schedule involves first migrating issues that customarily have lower trading volumes, followed by issues with higher trading volumes, so that technology staff can assess the impact of gradual increases in trading volumes and more readily identify problems. The CHX believes that this strategy is more prudent than a “hard cutover,” which would involve simultaneous migration of all issues to the new trading model technology. 9 Certain issues have higher fixed fees relative to other issues. Accordingly, the new trading model rollout schedule has economic consequences for CHX specialist firms, because specialist fixed fees are eliminated entirely once an issue transitions to the CHX new trading model and is no longer traded by a specialist. Absent the credit described in this submission, therefore, a specialist firm likely would request immediate transition of issues with the highest fixed fees to the new trading model, whereas the CHX might prefer to delay transition of such issues until later in the overall new trading model implementation process, in order to better manage the overall implementation plan. 2. Statutory Basis The proposed rule change is consistent with Section 6(b)(4) of the Act 10 in that it provides for the equitable allocation of reasonable dues, fees and other charges among its members. 10 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change establishes or changes a member due, fee or other charge imposed by the Exchange, it has become effective pursuant to Section 19(b)(3)(A) of the Act 11 and subparagraph (f)(2) of Rule 19b-4 thereunder. 12 At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. 13 11 15 U.S.C. 78s(b)(3)(A). 12 17 CFR 240.19b-4(f)(2). 13 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change under Section 19(b)(3)(C) of the Act, the Commission considers the period to commence on December 21, 2006, the date on which the CHX filed Amendment No. 1. *See* 15 U.S.C. 78s(b)(3)(C). 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-CHX-2006-37 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-CHX-2006-37. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of the CHX. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-CHX-2006-37 and should be submitted on or before February 7, 2007. 14 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 Florence E. Harmon, Deputy Secretary. [FR Doc. E7-536 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55060; File No. SR-ISE-2006-72] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Special Order Fees January 8, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on December 1, 2006, the International Securities Exchange, LLC (“ISE” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I and II below, which Items have been substantially prepared by ISE. The Exchange filed the proposal as a “non-controversial” proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 3 and Rule 19b-4(f)(6) thereunder, 4 which renders it effective upon filing with the Commission. 5 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A)(iii). 4 17 CFR 240.19b-4(f)(6). 5 The Exchange has asked the Commission to waive the 30-day operative delay required by Rule 19b-4(f)(6)(iii), 17 CFR 240.19b-4(f)(6)(iii). See discussion *infra* Section III. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The ISE is proposing to amend its Schedule of Fees to adopt a customer fee for special orders. The text of the proposed rule change is available at ISE, the Commission's Public Reference Room, and *http://www.iseoptions.com.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, 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 The purpose of this proposed rule change is to amend ISE's Schedule of Fees to adopt a customer fee for special orders. The Exchange currently waives transaction fees for customers, except for when those transactions occur in Premium Products. 6 The Exchange has noted an increase in volume in certain customer order transactions, particularly in transactions that result from customer orders that are entered as responses to special order broadcasts. These special order broadcasts are sent to Exchange members when certain types of orders are entered, such as facilitations, solicitations, block orders, and orders entered in the Exchange's Price Improvement Mechanism. Customers, who have access to highly developed trading systems enter orders in response to these special order broadcasts, much like a broker or dealer would. Customers that possess this advanced trading technology are able to quickly receive and process substantial amounts of market-wide and ISE data, thereby allowing them to selectively respond to special order broadcasts. 6 Premium Products is defined in the Schedule of Fees as the products enumerated therein. The advanced trading systems utilized by these customers provide them with the ability to rapidly respond to updates to the special order broadcasts and market-wide data (such as changes to the NBBO and the underlying market) by aggressively submitting orders within the 3 second exposure period. The Exchange thus proposes to charge an execution and comparison fee of $0.15 and $0.03 per contract, respectively, for these customer orders to put theses customers on more equal footing with ISE members who currently pay a fee for this functionality. The proposed fee will only apply to responses sent by customers during the 3 second exposure period that all special orders are subject to. The Exchange believes that the proposed fee is necessary to equitably allocate the associated costs amongst ISE market participants that fully utilize the special order broadcasts, a functionality that is available only to ISE members and customers who possess highly developed technology. The development and ongoing maintenance associated with the broadcasts of, and updates to, special orders, is a costly expenditure of ISE resources. ISE believes that the proposed fee is objective in that it is based on the behavior of market participants and the type of orders submitted. As noted above, since the behavior of these public customers is similar to the behavior of an ISE member, it is fair for the Exchange to charge these customers the same fees as those charged to ISE members. 2. Statutory Basis The Exchange believes the proposed rule change is consistent with Section 6(b)(5) of the Act, 7 in that it is designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, protect investors and the public interest. 8 7 15 U.S.C. 78f(b)(5). 8 The staff of the SEC revised this language to correct an error in the statutory basis proposed rule change. Telephone Conference between Samir Patel, Assistant General Counsel, ISE, and Ronesha A. Butler, Special Counsel, Division of Market Regulation, Commission, on January 5, 2007. B. Self-Regulatory Organization's Statement on Burden on Competition The proposed rule change does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any 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
(1)significantly affect the protection of investors or the public interest;
(2)impose any significant burden on competition; and
(3)become operative for thirty days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest, it has become effective pursuant to Section 19(b)(3)(A) of the Act 9 and Rule 19b-4(f)(6) 10 thereunder. 11 9 15 U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b-4(f)(6). 11 Pursuant to Rule 19b-4(f)(6)(iii), the Exchange has given the Commission written notice of its intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date on which the Exchange filed the proposed rule change. *See* 17 CFR 240.19b-4(f)(6)(iii). A proposed rule change filed under Commission Rule 19b-4(f)(6) 12 normally does not become operative prior to thirty days after the date of filing. The Exchange requests that the Commission waive the 30-day operative delay, as specified in Rule 19b-4(f)(6)(iii), and designate the proposed rule change to become operative immediately because this proposal is substantially similar to a Boston Options Exchange proposed rule change that was recently approved by the Commission. 13 The Commission hereby grants the request. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest because such waiver will allow the Exchange to allocate reasonable dues, fees, and other charges among its members and other persons using its facilities. For these reasons, the Commission designates the proposed rule change as effective and operative upon filing. 14 12 17 CFR 240.19b-4(f)(6). 13 *See* Securities Exchange Act Release No. 54328 (August 16, 2006), 71 FR 49493 (August 23, 2006). 14 For the purposes only of waiving the operative date of this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File No. SR-ISE-2006-72 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File No. SR-ISE-2006-72. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR-ISE-2006-72 and should be submitted on or before February 7, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 15 15 17 CFR 200.30-3(a)(12). Florence E. Harmon, Deputy Secretary. [FR Doc. E7-478 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55061; File No. SR-NASDAQ-2006-061] Self-Regulatory Organizations; Notice of Filing and Immediate Effectiveness of Proposed Rule Change by the NASDAQ Stock Market LLC To Codify Sponsored Access Rule January 8, 2007. Pursuant to the provisions of Section 19(b)(1) under the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 The NASDAQ Stock Market LLC (“Nasdaq”) is filing with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by Nasdaq. 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. I. Self-Regulatory Organization's Statement of the Terms of the Substance of the Proposed Rule Change Nasdaq is filing with the Commission a proposed rule change to update and clarify the requirements for members that provide electronic access to Nasdaq's execution services, and to codify these requirements in Nasdaq's rules. Nasdaq has designated this proposal as one effecting a change that:
(i)Does not significantly affect the protection of investors or the public interest;
(ii)does not impose any significant burden on competition; and
(iii)by its terms, does not become operative for 30 days after the date of the filing. Nasdaq has provided the Commission with written notice of its intent to file this proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change pursuant to Section 19(b)(3) 3 and Rule 19b-4(f)(6) thereunder. 4 The proposed rule change will become operative 30 days after the date of the filing. 3 15 U.S.C. 78s(b)(3). 4 17 CFR 240.19b-4.(f)(6). The text of the proposed rule change is below. The proposed new language is italicized. 4611. Nasdaq Market Center Participant Registration (a)-(c) No change. *(d) Members may provide sponsored access in accordance with the provisions below:* *(1) Definition. Sponsored Access is the practice by a member firm (“Sponsoring Member”) of providing access to the Nasdaq Execution System (“Nasdaq”) on an agency basis to another firm or customer (“Sponsored Firm”). Sponsored access can be of two forms:
(a)pass-through access, whereby a Sponsored Firm enters orders that pass through the Sponsoring Member's systems and then into Nasdaq (“Pass-through Sponsored Access”), and
(b)direct access, whereby the Sponsored Firm enters orders directly into Nasdaq (“Direct Sponsored Access”).* *(2) Sponsoring Members that provide Sponsored Access to Nasdaq shall be responsible for complying with the obligations in Rule 4611 with respect to any activity conducted by a Sponsored Firm using a market participant identifier (“MPID”) assigned to the Sponsoring Member.* *(3) A Sponsoring Member that provides Direct Sponsored Access to Nasdaq shall execute and file with Nasdaq the Addendum to the Nasdaq Services Agreement for Sponsored Access to Nasdaq (“Sponsored Access Agreement”) and any other such agreements as specified by Nasdaq. Sponsored Firms shall also execute and file with Nasdaq a Sponsored Access Agreement and any other such agreements as specified by Nasdaq.* Interpretive Material 4611-1—Sponsored Access *(1) Compliance with Nasdaq Supervision and Customer Protection Requirements* *Sponsoring Members have responsibility for the conduct of their Sponsored Firms as if the conduct were their own. Sponsoring Members that provide Sponsored Access, whether Pass-through or Direct, have a continuing obligation to comply with all Nasdaq rules and procedures and the federal securities laws and rules, and must, in accordance with Rule 3010, have supervisory systems and written procedures reasonably designed to achieve compliance with these obligations. For example, Sponsoring Members must have systems and written procedures to supervise the activity of Sponsored Firms, including obligations with respect to the Nasdaq and SEC short sale rules (Rule 3350 and SEC Rule 10a-1 and Regulation SHO), and the requirements articulated in Rule 3370. Further, Sponsoring Members must satisfy their obligations under IM-2110-2 or Rule 6440 to not trade ahead of customers. Similarly, a limit order from a Sponsored Firm is subject to the SEC limit order display rule (Rule 604 under Regulation NMS) and the order must be handled in compliance with the rule. Sponsoring Members also must possess sufficient information about their Sponsored Firms to satisfy the “know your customer” obligation that is embedded in the Nasdaq Conduct Rules.*
(2)Compliance With Other Nasdaq Requirements *
(a)Rule 8210. Sponsoring Members are responsible for complying with all requests for information pursuant to Rule 8210. The Sponsored Access Agreement described in Rule 4611(d)(3) shall provide that Sponsored Firms and Sponsoring Members must comply with Rule 8210. * *(b) Fees. Sponsoring Members are responsible for paying all Nasdaq fees accrued under their MPIDs, irrespective of the fact that particular charges may be associated with orders entered by Sponsored Firms.* *(c) Services Agreement; Termination. The fact that a member is providing Sponsored Access does not alter Nasdaq's rights with regard to the Sponsoring Member that are articulated in Nasdaq's agreements with members (e.g., the Nasdaq Services Agreement). In particular, if the Sponsoring Member's provision of Sponsored Access threatens the integrity of Nasdaq systems, Nasdaq reserves the right under the Nasdaq Services Agreement to unilaterally and immediately terminate the Sponsoring Member's access.* *(d) Examinations. Sponsoring Members are reminded that, as a self-regulatory organization responsible for examining the activity of a member, Nasdaq may examine the Sponsoring Member's books, records, and facilities to determine whether a violation of Nasdaq rules and/or federal securities laws, rules, and regulations have occurred. Such examination may include an examination of the Sponsoring Member's internal systems, as well as the member's records regarding its customers and their activity.*
(3)Obligation To Ensure Accuracy of Orders Entered into Nasdaq *Sponsoring Members have an obligation under Nasdaq Rule 3010 to have in place a supervisory system and written supervisory procedures reasonably designed to ensure that orders placed by Sponsored Firms into Nasdaq are not entered in error or in a manner inconsistent with Nasdaq rules. Sponsoring Members should consider the following factors when developing a supervisory system and written supervisory procedures:* *(a) Sponsoring Member order management systems should include controls that limit the use of such systems to authorized persons, check for order accuracy, prevent orders that exceed preset credit- and order-size parameters from being transmitted to Nasdaq, and prevent the unwanted generation, cancellation, repricing, resizing, duplication, or re-transmission of orders.* *(b) Safeguards should be in place to ensure that the operation, testing, or maintenance of a Sponsoring Member's order management system does not result in the inadvertent disabling of Nasdaq, mistaken executions, errors, or other trading problems.* *(c) Sponsoring Members and Direct Sponsored Access Sponsored Firms should ensure that they do not test their systems' connectivity to Nasdaq by sending orders that are not executable, such as by sending orders during normal market hours that are priced far outside a security's current price. Firms must test pursuant to established protocols and test messages should be clearly denoted as such.* *(d) Before sponsoring access to Nasdaq, a Sponsoring Member must have a supervisory system and written supervisory procedures in place reasonably designed to ensure that such orders are not entered in error or in a manner inconsistent with Nasdaq rules (including, but not limited to, Rule 3310 and IM-3310) or with the Nasdaq Services Agreement.* *(e) Procedures that are available to adjudicate clearly erroneous transactions are to be used only in cases of clear or obvious errors and should not be used as a proxy for proper system use or trading procedures. Other errors, whether as a result of a system problem or human error, will not be dealt with through the rules applicable to clearly erroneous transactions.* II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, Nasdaq 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. Nasdaq 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 Nasdaq proposes to amend the rules governing Nasdaq to update and codify the requirements applicable to Nasdaq members that provide access to other firms and customers to the Nasdaq execution system (“Sponsored Access”). With one exception, members will be subject to the requirements articulated in NASD Notice to Members 98-66 (“Notice to Members” or “Notice”) and which were reiterated and updated by the NASD in Notice to Members 04-66. 5 5 The Notice to Members described Sponsored Access as “electronic pass-through services.” Notice to Members 98-66, which was filed with the Commission as an interpretation of the NASD rules and the Nasdaq subscriber agreement, clarified that members could provide Sponsored Access and remain in compliance with their rule and contract obligations to safeguard Nasdaq equipment and to prevent unauthorized access to Nasdaq systems. 6 In addition, the Notice re-emphasized members' existing obligations to monitor the trading activity by their customers, including those being provided Sponsored Access, and to have written procedures governing customer trading. Notice to Members 04-66 also re-asserted that members are responsible for all trading conducted in their name, and that the member is responsible for the fees associated with that trading. 6 Securities Exchange Act Release No. 40354 (Aug. 24, 1998), 63 FR 46264 (Aug. 31, 1998). The proposed rule change amends the Nasdaq rules governing Nasdaq's execution system to articulate specifically that members providing Sponsored Access are responsible for all activity conducted using their market participant identifier (“MPID”). In addition, the proposal adds an Interpretive Material to Rule 4611 (IM-4611-1—Sponsored Access) that discusses members' ongoing responsibilities to comply with all Nasdaq rules and operating procedures, as well as the federal securities laws and rules, and to have systems and written procedures reasonably designed to achieve compliance with these obligations. For example, IM-4611-1 discusses that members must continue to comply with the Nasdaq and SEC short sale rules, including the requirements of Rule 3370, when a firm sells securities under a Sponsored Access arrangement, and that members also must fulfill their “know your customer” obligations that are embedded in the Nasdaq Conduct Rules. The interpretive material also states that members must continue to satisfy any limit order protection and display obligations that arise from limit orders submitted by sponsored firms. The interpretive material also reminds members that they remain responsible for all Nasdaq fees accrued under their MPID, irrespective of the fact that some of the fees may be attributable to orders submitted by sponsored firms. Similarly, the interpretive material states that Nasdaq's rights with regard to the Sponsoring Member that are articulated in Nasdaq's agreements with members ( *e.g.* , the Nasdaq Services Agreement) are not altered by fact that a member is providing Sponsored Access. As stated earlier, with one exception, members will continue to be subject to the same requirements as imposed by the Notice to Members when providing Sponsored Access. Specifically, Nasdaq is eliminating the requirement that orders must be entered into a member's system (or a service bureau's system provided by the member) before being transmitted to Nasdaq ( *i.e.* , the electronic pass-through requirement). Nasdaq does not expect many members to provide such “direct access” to Nasdaq. Nasdaq stresses, however, that eliminating this requirement does not diminish a member's responsibility for ensuring that trading occurring under its MPID is in compliance with Nasdaq's rules and procedures and the federal securities laws. For example, members considering providing such direct access must, in accordance with Rule 3010, have systems and written procedures to supervise the activity of a sponsored firm with direct access to Nasdaq. 7 In addition, members also must fulfill their “know your customer” obligations that are embedded in the Nasdaq Conduct Rules. 7 A member's system and procedures would need to be reasonably designed to achieve compliance with, for example, the requirements of Rule 3370. To limit its exposure in commercial disputes and to protect its intellectual property when a sponsored firm can submit orders to Nasdaq directly, Nasdaq is proposing to require sponsored firms with this type of access to execute an agreement (“Sponsored Access Agreement”) that will require them to abide by the Nasdaq Services Agreement, which is executed by all members accessing Nasdaq's systems. 8 Requiring the Sponsored Access Agreement ensures that Nasdaq has an agreement with the party actually submitting orders to Nasdaq, although the member remains responsible for the trading, including compliance with Nasdaq rules and procedures and the federal securities laws and rules. 8 The Sponsoring Member also would be required to execute the Sponsored Access Agreement. An executed Sponsored Access Agreement will not be necessary when a sponsored firm does not enter orders directly into Nasdaq Market Center ( *i.e.* , submits orders utilizing an electronic pass-through), because the orders are entering Nasdaq through a system provided by a party with whom Nasdaq already has an agreement: A member. 2. Statutory Basis Nasdaq believes that the proposed rule change is consistent with the provisions of section 6 of the Act, 9 in general and with section 6(b)(5) of the Act, 10 in particular, in that it is designed to promote just and equitable principles of trade and to protect investors and the public interest. The proposal is consistent with these obligations because it updates the standards for providing Sponsored Access, and clearly articulates the obligations in the Nasdaq's rules. 9 15 U.S.C. 78f. 10 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition Nasdaq does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to section 19(b)(3)(A) of the Act and subparagraph (f)(6)(iii) of rule 19b-4 thereunder in that it effects a change that does not become operative for 30 days after the date of the filing, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest; provided that the self-regulatory organization has given the Commission written notice of intent to file the proposed rule change, along with a brief description and text of the proposed rule change, at least five business days prior to the date of filing of the proposed rule change, or such shorter time as designated by the Commission. The proposed rule change will become operative 30 days after the date of the filing. At any time within 60 days of the filing of a rule change pursuant to section 19(b)(3)(A) of the Act, the Commission may summarily abrogate the rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov.* Please include File Number SR-NASDAQ-2006-061 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-NASDAQ-2006-061. 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 Nasdaq. 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-NASDAQ-2006-061 and should be submitted on or before February 7, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(12). Florence E. Harmon, Deputy Secretary. [FR Doc. E7-543 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55078; File No. SR-NASD-2006-136] Self-Regulatory Organizations; National Association of Securities Dealers, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Make Technical and Grammatical Corrections to Rule 10308 January 10, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on December 28, 2006, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I and II below, which Items have been prepared by NASD. NASD has filed this proposal pursuant to Section 19(b)(3)(A) of the Act 3 and Rule 19b-4(f)(6) thereunder 4 which renders the proposal effective upon filing with the Commission. 5 The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(6). 5 NASD informed the Commission staff that a clerical error was made in its filing and the word “individual's” in paragraph (a)(5)(B)(iii) of Rule 10308 should be lowercase. Telephone conversation between Jean Feeney, Vice President, NASD; and Michael Hershaft, Special Counsel, Commission (Jan. 9, 2006). Because this is a non-substantive change, this amendment to the proposed rule change will not toll the 60-day abrogation period. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change NASD is proposing to amend paragraph (a)(5)(B) of Rule 10308 of the NASD Code of Arbitration Procedure to delete unnecessary cross references in the definition of “immediate family member,” and to correct a grammatical error. 6 The text of the proposed rule change is below. Proposed new language is in italics; proposed deletions are in brackets. 6 The Commission recently approved amendments to Rule 10308, effective Jan. 15, 2007. Securities Exchange Act Release No. 54607 (Oct. 16, 2006), 71 FR 62026 (Oct. 20, 2006) (file No. SR-NASD-2005-094). 10308. Selection of Arbitrators
(a)Definitions
(1)through
(4)No change.
(5)“public arbitrator”
(A)No change.
(B)For [the] purposes of this Rule, the term “immediate family member” means:
(i)[The] *a person's* parent, stepparent, child, or stepchild[, of a person engaged in the conduct or activities described in paragraphs (a)(4)(A) through (D)];
(ii)A member of [the] *a person's* household [of a person engaged in the conduct or activities described in paragraphs (a)(4)(A) through (D)];
(iii)*An individual to whom* a person [who receives] *provides* financial support of more than 50 percent of *the individual's* annual income [from a person engaged in the conduct or activities described in paragraphs (a)(4)(A) through (D)]; or
(iv)A person who is claimed as a dependent for federal income tax purposes [by a person engaged in the conduct or activities described in paragraphs (a)(4)(A) through (D)].
(6)through
(7)No change.
(b)through
(f)No change. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, NASD included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. NASD has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements.
(A)Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose NASD believes that the cross-references to “a person engaged in the conduct or activities described in paragraph (a)(4)(A) through (D)” in the definition of immediate family member in paragraphs (a)(5)(B)(i)-(iv) of Rule 10308 are redundant when read in conjunction with other provisions of the rule. For example, Rule 10308(a)(5)(A)(vii) provides that a person may be a public arbitrator if he or she “is not the spouse or immediate family member of a person who is engaged in the conduct or activities described in paragraphs (a)(4)(A) through (D).” The definition of “immediate family member” in Rule 10308(a)(5)(B) states, in part, “For the purpose of this Rule, the term “immediate family member” means * * *
(i)the parent, stepparent, child, or stepchild, of a person engaged in the conduct or activities described in paragraphs (a)(4)(A) through (D).” Thus, both the rule and the definition refer redundantly to “a person [who is] engaged in the conduct or activities described in paragraphs (a)(4)(A) through (D).” Moreover, new paragraphs (a)(5)(A)(v) and
(vi)of Rule 10308 were recently added to provide that persons who are otherwise qualified may not serve as public arbitrators if they have certain family members who are employed by, or serve as officers or directors of, entities in a control relationship with a broker-dealer. 7 In these instances, there is no need to refer to paragraphs (a)(4)(A) through
(D)as those paragraphs are not at issue. Rather, what is important is the family relationship itself. 7 *Id.* For these reasons, NASD proposes to amend the examples of family relationships in the definition of “immediate family member” in paragraphs (a)(5)(B)(i)-(iv) of Rule 10308 in a non-substantive way to retain the relationships themselves but omit the references to paragraphs (a)(4)(A) through
(D)of the rule. As noted above, because this reference is in Rule 10308(a)(5)(A)(vii), arbitrators who have an immediate family member engaged in the conduct or activities described in paragraphs (a)(4)(A) through
(D)of the rule will continue to be ineligible to serve as public arbitrators. Arbitrators, who do not have immediate family members engaged in the conduct or activities described in paragraphs (a)(4)(A) through
(D)of the rule, still may be subject to new paragraphs (a)(5)(A)(v) and
(vi)of Rule 10308, which governs public arbitrators. In deleting the references to paragraphs (a)(4)(A) through (D), discussed above, NASD has rearranged phrases to provide additional clarity. In so doing, NASD does not intend to make any change in the substance of the definitions or in how they are construed. Finally, NASD proposes to correct a grammatical error in Rule 10308(a)(5)(B) by replacing the term “for the purpose of” with the more common phrase “for purposes of,” which is used in the remainder of the rule. 8 8 *See, e.g.* , Rule 10308(a)(1), (2), (6), and (7). NASD has filed this proposed rule change for immediate effectiveness so that these proposed non-substantive changes to the definition of “immediate family member” can become operational on January 15, 2007, the same time as the most recent changes to the definition of public arbitrator. 9 NASD believes this proposal will help clarify Rule 10308, and make it easier to determine the proper classification of an arbitrator. 9 *See infra* note 7. 2. Statutory Basis NASD believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act, 10 which requires, among other things, that NASD's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. NASD believes that the proposed rule change is consistent with the provision of the Act noted above because it will assist in the administration of arbitrations by making Rule 10308 easier to understand and apply. 10 15 U.S.C. 78o-3(b)(6).
(B)Self-Regulatory Organization's Statement on Burden on Competition NASD does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act.
(C)Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change has become effective upon filing pursuant to Section 19(b)(3)(A) of the Act 11 and Rule 19b-4(f)(6) thereunder 12 because the proposed rule change does not:
(i)Significantly affect the protection of investors or the public interest;
(ii)impose any significant burden on competition; and
(iii)become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate if consistent with the protection of investors and the public interest. As required under Rule 19b-4(f)(6)(iii), 13 NASD provided the Commission with written notice of NASD's intent to file the proposed rule change along with a brief description and text of the proposed rule change, at least five business days prior to the filing date of the proposed rule change. 11 15 U.S.C. 78s(b)(3)(A). 12 17 CFR 240.19b-4(f)(6). 13 17 CFR 240.19b-4(f)(6)(iii). NASD has requested that the Commission waive the 30-day operative delay so that the proposed rule change will become immediately effective upon filing. The Commission believes that waiving the 30-day operative delay is consistent with the protection of investors and the public interest, 14 as such waiver is necessary so that the proposed rule changes will become effective with other amendments to Rule 10308 on January 15, 2007. For these reasons, the Commission designates that the proposed rule change has become effective and operative immediately. 14 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. 15 U.S.C. 78c(f). At any time within 60 days of the filing of such proposed rule change, the Commission may summarily abrogate such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: *Electronic Comments* • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-NASD-2006-136 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-NASD-2006-136. 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 at the principal office of NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to the File Number SR-NASD-2006-136 and should be submitted on or before February 7, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 15 15 17 CFR 200.30-3(a)(12). Florence E. Harmon, Deputy Secretary. [FR Doc. E7-525 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55079; File No. SR-NYSE-2006-97] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving Proposed Rule Change Relating to Exchange Rule 342 (“Offices—Approval, Supervision and Control”) January 10, 2007. I. Introduction On October 26, 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 amending NYSE Rule 342.30 (“Annual Reports”) to require submission of the process report prepared in connection with the Chief Executive Officer (“CEO”) certification, as required under Rule 342.30(e)(iii), to the Board of Directors and Audit Committee (if such committee exists) of the member organization on or before April 1st of each year. The proposed rule change was published for comment in the **Federal Register** on December 7, 2006. 3 The Commission received no comments on the proposal. This order approves the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 See Exchange Act Release No. 54847 (November 30, 2006), 71 FR 71012 (December 7, 2006) (the “Notice”). II. Description of the Proposed Rule Change A. Description of the Proposal 1. Background NYSE Rule 342 requires supervision of the offices, departments and business activities of members and member organizations. NYSE Rule 342.30 requires members and member organizations to prepare an Annual Report addressing specified compliance issues by April 1 of each year. The Exchange proposed to amend Rule 342.30 to require the report required pursuant to Rule 342.30(e)(iii) (the “Process Report”) in connection with a member organization's CEO certification to be submitted to the member organization's board of directors and audit committee (if such committee exists) on or before April 1st of each year. The purpose of the rule change was to better harmonize the requirements of Rule 342.30 with those of NYSE Rule 354 (“Reports to Control Persons”). Background Rule 342.30 Rule 342.30 requires each member not associated with a member organization and each member organization to file with the Exchange, by April 1st of each year, a report (the “Annual Report”) outlining its supervision and compliance efforts in prescribed regulatory areas during the preceding year and assessing the adequacy of its ongoing compliance processes and procedures. The Annual Report submitted to the Exchange is also required to include, pursuant to Rule 342.30(e), a certification by the CEO of each member organization confirming that the member organization has in place processes to:
(A)Establish and maintain policies and procedures reasonably designed to achieve compliance with applicable Exchange rules and Federal securities laws and regulations;
(B)modify such policies and procedures as business, regulatory and legislative changes and events dictate; and
(C)test the effectiveness of such policies and procedures on a periodic basis, the timing and extent of which is reasonably designed to ensure continuing compliance with Exchange and Federal securities laws and regulations. Subsection (e)(iii) of Rule 342.30 requires these processes to be evidenced in the Process Report, which is to be reviewed by the CEO, the Chief Compliance Officer, and any other officers that the member organization may deem necessary to make the certification. Subsection (e)(iii) also requires the Process Report to be submitted to the member organization's board of directors and audit committee (if such committee exists), although the timing of this submission was not explicitly stated in the rule. Prior to the proposed rule change, the Exchange interpreted the rule to require the submission prior to CEO certification. Rule 354 Subsection
(a)of Rule 354 requires, in relevant part, that each member organization submit, by April 1st of each year, a copy of the Rule 342.30 Annual Report (also due to the Exchange by April 1st) to one or more of its control persons or, if the member organization has no control person, to the audit committee of its board of directors or its equivalent committee or group. In order to better harmonize the Process Report submission requirements of Rule 342.30(e)(iii) with the Annual Report submission requirements of Rule 354(a), the Exchange proposed to amend Rule 342.30(e)(iii) to require each member organization to submit the Process Report to its board of directors and audit committee (if such committee exists) on or before April 1st of each year, consistent with the timing requirements of Rule 354(a) with respect to submission of the Annual Report. The Exchange stated that it believed that this would promote timely submission of the Process Report to member organizations' boards of directors and audit committees, while also serving the practical purpose of allowing member organizations to submit the Process Report together with the Annual Report so that the two may be reviewed as a single comprehensive package. III. Discussion After careful review, the Commission finds that the proposed rule change is consistent with Section 6(b) 4 of the Act in general and Section 6(b)(5) of the Act“ 5 in particular, which require that the rules of the Exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade and, in general, to protect investors and the public interest. 6 The proposed rule change promotes timely submission of substantive regulatory material to member organizations' governing bodies by coordinating the timing requirements of Rule 342.30(e)(iii) (Process Report) and Rule 354(a) (Submission of Annual Report to Control Persons). This should promote compliance by allowing member organizations' governing bodies to review both reports at the same time. The proposed rule change will also clarify the appropriate timing for submission of the Process Report and the Annual Report. 4 15 U.S.C. 78f(b) 5 15 U.S.C. 78f(b)(5) 6 In approving this proposed rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f). V. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act 7 that the proposed rule change (SR-NYSE-2006-97) be, and hereby is, approved. 7 15 U.S.C. 78s(b)(2). 8 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 8 Florence E. Harmon, Deputy Secretary. [FR Doc. E7-528 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55067; File No. SR-NYSE-2006-80] Self-Regulatory Organizations; New York Stock Exchange LLC; Order Approving a Proposed Rule Change and Amendment No. 1 Relating to NYSE Rule 1300 (Gold Shares) and NYSE Rule 51 (Hours of Business) January 9, 2007. I. Introduction On October 2, 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, as amended (“Act”) 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend NYSE Rule 1300 (Gold Shares) and NYSE Rule 51 (Hours for Business) to allow streetTRACKS® Gold Shares (“Gold Shares”) to open for trading at 8:20 a.m. On November 6, 2006, the Exchange filed Amendment No. 1. 3 The proposed rule change, as amended, was published for comment in the **Federal Register** on November 28, 2006. 4 The Commission received no comments on the proposal. This order approves the proposed rule change, as modified by Amendment No. 1. 1 15 U.S.C. 78s(b)(l). 2 17 CFR 240.19b-4. 3 *See* Form 19b-4 dated November 6, 2006 (“Amendment No. 1”). Amendment No. 1 replaced the original filing in its entirety. 4 *See* Securities Exchange Act Release No. 54801 (November 21, 2006), 71 FR 68870 (SR-NYSE-2006-80). II. Description of the Proposal The Exchange proposed to amend NYSE Rule 1300 (Gold Shares) and NYSE Rule 51 (Hours for Business) to allow Gold Shares to open for trading at 8:20 a.m. 5 Gold Shares represent units of fractional undivided interest in and ownership of the streetTRACKS® Gold Trust (the “Trust”). The Trust holds gold bullion and the investment objective of the Trust is to reflect the performance of the price of gold bullion, less the Trust's expenses. 5 Trading in Gold Shares has been offered on the Exchange since 2004. Except for the new opening time, trading in Gold Shares will operate as it does today. The current assigned specialist will continue as the assigned specialist and the stock will continue to trade at its current post and panel. All Exchange systems will be operative beginning at 8:20 a.m. and throughout the trading day including those systems that provide audit trail information. The Exchange surveillances that currently operate during market hours will be in place to coincide with the 8:20 a.m. opening. Further, either a Floor Governor or two Floor Officials will be available upon the 8:20 a.m. opening. All Exchange Rules will apply upon the open at 8:20 a.m. and throughout the trading day. The Exchange represented that the updated spot price of gold and the Intraday Indicative Value (“IIV”) for Gold Shares would be available at 8:20 a.m. on the Trust's Web site ( *www.streettracksgoldshares.com* ). The IIV is calculated by the Trust's Sponsor, World Trust Gold Services, LLC. The Exchange's Web site ( *http://www.nyse.com* ) provides a link to the Trust's Web site. The spot price of gold and the IIV on the Trust's Web site are subject to a 5 to 10 second delay. III. Discussion and Commission Findings After careful consideration, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange. 6 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act, 7 which requires that an exchange have rules designed, among other things, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. 6 In approving this rule change, the Commission notes that it has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 7 15 U.S.C. 78f(b)(5). The Exchange stated that it proposes to amend its Rules 1300 and 51 to allow the opening of Gold Shares for trading at 8:20 a.m. in order to remain competitive and in light of the fact that interest in commodity-based securities has increased. An 8:20 a.m. opening would coincide with the opening of COMEX® trading in gold futures and gold options and thus permit trading in Gold Shares to start at the same time as other gold-based instruments. The Commission believes that an 8:20 a.m. opening would give customers the opportunity to trade an equity product based on the price of gold from the time that gold futures and options on gold futures begin trading on the COMEX® and would, therefore, provide the Exchange customers with better opportunities for exercising their investment choices. IV. Conclusion *It is therefore ordered* , pursuant to Section 19(b)(2) of the Act, 8 that the proposed rule change (SR-NYSE-2006-80), as modified by Amendment No. 1, be, and it hereby is, approved. 8 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 9 9 17 CFR 200.30-3(a)(12). Nancy M. Morris, Secretary. [FR Doc. E7-535 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55072; File Nos. SR-NYSE-2006-78; SR-NASD-2006-113] Self-Regulatory Organizations; New York Stock Exchange LLC and the National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Changes To Amend NYSE Rules 472 and 344, and NASD Rules 1050 and 2711 Relating to Research Analyst Conflicts of Interest January 9, 2007. 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 27, 2006, the New York Stock Exchange LLC (“NYSE” or the “Exchange”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change. On December 20, 2006, NYSE filed Amendment No. 1 to its proposed rule change. 3 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 NYSE Amendment No. 1 makes minor revisions to the original filing. On September 27, 2006, the National Association of Securities Dealers, Inc. (“NASD”) filed with the Commission the proposed rule change. On November 17, 2006, NASD filed Amendment No. 1 to its proposed rule change. 4 4 NASD Amendment No. 1 makes minor revisions to the original filing. The proposed rule changes are described in Items I, II, and III below, which Items have substantially been prepared by the NYSE and NASD (the “SROs”). The Commission is publishing this notice to solicit comments on the proposed rule changes, as amended, from interested persons. I. Self-Regulatory Organizations' Statements of the Terms of Substance of the Proposed Rule Changes The Exchange proposes to amend certain provisions of NYSE Rules 472 and 344. These amendments eliminate the exception for pre-publication factual verification review of research reports by non-research personnel; change the quiet periods surrounding securities offerings and the release of lock-up agreements; allow member organizations to develop policies and procedures if they choose to prohibit research analysts from holding securities for companies they cover; alter the format for certain disclosures in research reports; and extend the anti-retaliation prohibitions to all employees of a member organization, not just investment banking. NASD is proposing to amend NASD Rules 1050 and 2711 to implement certain recommendations contained in the December 2005 *Joint Report by NASD and the NYSE on the Operation and Effectiveness of the Research Analyst Conflict of Interest Rules.* 5 NASD believes that the proposed rule changes are intended to improve the effectiveness of the research analyst conflict of interest rules and registration requirements by making certain changes to the existing provisions regarding, among other things: Disclosure of conflicts; quiet periods; restrictions on review of research reports by non-research personnel; and restrictions on personal trading by research analysts. 5 *http://www.nasd.com/web/groups/rules_regs/documents/rules_regs/nasdw_015803.pdf* Below is the text of the proposed rule changes. 6 Proposed new language is *italicized* ; proposed deletions are in [brackets]. 6 The rule text reflects the changes contained in SR-NYSE-2006-77 and SR-NASD-2006-112, which were filed for immediate effectiveness on September 27, 2006. A. NYSE's Proposed Rule Text Rule 472. Communications With the Public Approval of Communications and Research Reports (a)(1) through
(2)No Change. Investment Banking, Research Department and Subject Company Relationships and Communications (b)(1) Research analysts may not be subject to the supervision, or control, of any employee of the member organization's investment banking department and personnel engaged in investment banking activities may not have any influence or control over the compensatory evaluation of a research analyst.
(2)Research reports may not be subject to review or approval prior to publication by Investment Banking personnel or any other employee of the member organization who is not directly responsible for investment research (“non-research personnel”) other than Legal or Compliance personnel. [(3) Non-research personnel may review research reports prior to publication only to verify the factual accuracy of information in the research report or to identify any potential conflicts of interest that may exist, provided that:
(i)Any written communication concerning the content of research reports between non-research personnel and Research personnel must be made either through Legal or Compliance personnel or in a transmission copied to Legal or Compliance personnel; and
(ii)any oral communication concerning the content of research reports between non-research personnel and Research personnel must be documented and made either with Legal or Compliance personnel acting as intermediary or in a conversation conducted in the presence of Legal or Compliance personnel.] (b)(4) through
(6)renumbered as (b)(3) through (5). Written Procedures
(c)No change. Retention of Communications
(d)No change. Restrictions on Trading Securities by Associated Persons (e)(1) No research analyst or household member may purchase or receive an issuer's securities prior to its initial public offering ( *e.g.* , so-called pre-IPO shares), if the issuer is principally engaged in the same types of business as companies (or in the same industry classification) which the research analyst usually covers in research reports.
(2)No research analyst or household member may trade in any subject company's securities or derivatives of such securities that the research analyst follows for a period of thirty
(30)calendar days prior to and five
(5)calendar days after the member organization's publication of research reports concerning such security or a change in rating or price target of a subject company's securities.
(3)No research analyst or household member may effect trades in a manner inconsistent with the research analyst's most current recommendations ( *i.e.* , sell securities while maintaining a “buy” or “hold” recommendation, buy securities while maintaining a “sell” recommendation, or effecting a “short sale” in a security while maintaining a “buy” or “hold” recommendation on such security).
(4)No change. *(5) The prohibitions in paragraphs (e)(1) through (e)(3) do not apply when the following conditions are satisfied:* *(A) The research analyst is employed by a member organization that has adopted an internal policy that prohibits research analysts from owning any securities issued by the subject company for which the research analyst provides coverage and requires analysts to completely divest themselves of their existing holdings in such securities;* *(B) The research analyst abides by a reasonable plan of liquidation under which all securities issued by subject companies that the analyst follows are to be sold within 120 days of the effective date of the member organization's policy;* *(C) The research analyst files such liquidation plan with the member organization's legal or compliance department within fifteen
(15)days of the effective date of the member organization's policy;* *(D) The research analyst receives written approval of the liquidation plan from the member organization's legal or compliance department prior to the sale of any securities under the plan; and* *(E) The member organization must maintain written records sufficient to document compliance with each liquidation plan approved by its legal or compliance department for three years following the date on which the liquidation plan is approved.* (e)(5) through
(6)renumbered as (e)(6) through (7). Restrictions on Member Organization's Issuance of Research Reports and Participation in Public Appearances (f)(1) A member organization may not publish or otherwise distribute research reports regarding an issuer and a research analyst may not recommend or offer an opinion on an issuer's securities in a public appearance, for which the member organization acted as manager [or] *,* co-manager *, underwriter or dealer* [of] *for* an initial public offering within [forty (40)] *twenty-five (25)* calendar days following the offering date. [(2) A member organization may not publish or otherwise distribute research reports regarding an issuer and a research analyst may not recommend or offer an opinion on an issuer's securities in a public appearance, for which the member organization acted as manager or co-manager of a secondary offering within ten
(10)calendar days following the offering date. This prohibition shall not apply to public appearances or research reports published or otherwise distributed under Securities Act Rule 139 regarding issuers whose securities are actively traded, as defined in Securities Exchange Act Rule 101(c)(1) of Regulation M.
(3)No member organization that has agreed to participate or is participating as an underwriter or dealer (other than as manager or co-manager) of an issuer's initial public offering may publish or otherwise distribute a research report regarding that issuer and a research analyst may not recommend or offer an opinion on that issuer's securities in a public appearance for twenty-five
(25)calendar days following the offering date.] [(4)] *(2)* No member organization which has acted as a manager or co- manager of a securities offering may publish or otherwise distribute a research report and a research analyst may not recommend or offer an opinion on an issuer's securities in a public appearance within [fifteen (15)] *five (5)* days prior to or after the expiration, waiver or termination of a lock-up agreement or any other agreement that the member organization has entered into with a subject company and its shareholders that restricts or prohibits the sale of the subject company's or its shareholders' securities after the completion of a securities offering. This prohibition shall not apply to public appearances or research reports published or otherwise distributed under Securities Act Rule 139 regarding issuers whose securities are actively traded, as defined in Securities Exchange Act Rule 101(c)(1) of Regulation M. [(5)] *(3)* A member organization may permit exceptions to the prohibitions in paragraphs (f)(1)[,] *and* (2)[, and (4)] (consistent with other securities laws and rules) for research reports that are published or otherwise distributed or recommendations or opinions on an issuer's securities made in a public appearance due to significant news or events, *e.g. an announcement of earnings* , provided that such research reports are pre-approved in writing by the member organization's Legal or Compliance personnel. [(6)] *(4)* If a member organization intends to terminate its research coverage of a subject company, notice of this termination must be made. The member organization must make available a final research report on the subject company using the means of dissemination equivalent to those it ordinarily uses to provide the customer with its research reports on the subject company. The report must be comparable in scope and detail to prior research reports and must include a final recommendation or rating, unless it is impracticable for the member organization to produce a comparable report (e.g., if the research analyst covering the subject company or sector has left the employ of the member organization, or where the member organization terminates coverage on the industry or sector). In instances where it is impracticable for the member organization to provide a final recommendation or rating, the member organization must provide the rationale for the decision to terminate coverage. Prohibition of Offering Favorable Research for Business (g)(1) No change.
(2)No member organization and no employee of a member organization [who is involved with the member organization's investment banking activities] may, directly or indirectly, retaliate against or threaten to retaliate against any research analyst employed by the member organization or its affiliates as a result of an adverse, negative, or otherwise unfavorable research report written or public appearance made by the research analyst that may adversely affect the member organization's present or prospective investment banking relationship with the subject company of a research report. This prohibition shall not limit a member organization's authority to discipline or terminate a research analyst, in accordance with the member organization's policies and procedures, for any cause other than the writing of such an unfavorable research report or the making of such unfavorable public appearance. Restrictions on Compensation to Research Analysts
(h)No change. General Standards for All Communications
(i)No change. Specific Standards for Communications
(j)No change. Disclosure (k)(1) Disclosures Required in Research Reports. Disclosure of Member Organization's, and Research Analyst's Ownership of Securities, Receipt of Compensation, and Subject Company Relationships [The front page cover of a research report either must include the disclosures required under this Rule or must refer the reader to the page(s) on which each such disclosure is found.] *Any member organization that has a conflict of interest or whose research analyst has a conflict of interest concerning the subject company of a research report must disclose that conflict of interest either
(i)on its Web site and prominently state the following on the front page of the research report: “[Name of firm and/or the research analyst preparing this report] has a conflict of interest that may affect the ability of the firm or the analyst to provide objective analysis about the company. For more information about this conflict of interest, please see [Reference to the firm's Web site]” or
(ii)the front page cover of a research report either must include the disclosures required under this Rule or must refer the reader to the page(s) on which each such disclosure is found.* Disclosures, and references to disclosures, must be clear, comprehensive, and prominent. *For purposes of paragraph (k)(1), “conflict of interest” shall include any of the following:*
(i)A member organization must disclose in research reports: a. If the member organization or its affiliates: 1. Has managed or co-managed a public offering of securities for the subject company in the past twelve
(12)months; 2. Has received compensation for investment banking services from the subject company in the past twelve
(12)months; or 3. Expects to receive or intends to seek compensation for investment banking services from the subject company in the next three
(3)months. b. If the member organization is making a market in the subject company's securities at the time the research report is issued; c. If, as of the last day of the month immediately preceding the date the publication (or the end of the second most recent month if the publication is less than ten
(10)calendar days after the end of the most recent month), the member organization or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company. The member organization must make the required beneficial ownership computation no later than ten
(10)calendar days after the end of the prior month. Computation of beneficial ownership of securities must be based upon the same standards used to compute ownership for purposes of the reporting requirements under Section 13(d) of the Securities Exchange Act of 1934; d. If, as of the last day of the month immediately preceding the date of publication of the research report (or the end of the second most recent month if the publication date is less than thirty
(30)calendar days after the end of the most recent month): 1. The subject company currently is a client of the member organization or was a client of the member organization during the twelve (12)-month period preceding the date of distribution of the research report (In such instances, the member organization also must disclose the types of services provided to the subject company. For purposes of this paragraph, the types of services provided to the subject company may be described as investment banking services, non-investment banking-securities related services, and non-securities services.); 2. The member organization received any compensation for products or services other than for investment banking services from the subject company in the past twelve
(12)months. e. If a research report contains a price target, the valuation methods used, and any price objectives must have a reasonable basis and include a discussion of risks; f. If a research report contains a rating, the meanings of all ratings used by the organization in its ratings system (For example, a member organization might disclose that a “strong buy” rating means that the rated security's price is expected to appreciate at least 10% faster than other securities in its sector over the next twelve (12)-month period. Definitions of ratings terms also must be consistent with their plain meaning. Therefore, for example, a “hold” rating should not mean or imply that an investor should sell a security.); g. If a research report contains a rating, the percentage of all securities that the member organization recommends an investor “buy,” “hold,” or “sell.” Within each of the three
(3)categories, a member organization must also disclose the percentage of subject companies that are investment banking services clients of the member organization within the previous twelve
(12)months (see Rule 472.70 for further information); h. If a research report contains either a rating or a price target, and the member organization has assigned a rating or price target to the subject company for at least one
(1)year, the research report must include a chart that depicts the price of the subject company's stock over time and indicates points at which a member organization assigned or changed a rating or price target. This provision would apply only to securities that have been assigned a rating or price target for at least one
(1)year, and need not extend more than three
(3)years prior to the date of the research report. The information in the price chart must be current as of the end of the most recent calendar quarter (or the second most recent calendar quarter if the publication date is less than fifteen
(15)calendar days after the most recent calendar quarter).
(ii)A member organization must include the following disclosures in research reports: a. If a research analyst received any compensation: 1. From the subject company in the past twelve
(12)months; 2. That is based upon (among other factors) the member organization's overall investment banking revenues. b. If, to the extent the research analyst or an employee of the member organization with the ability to influence the substance of a research report, knows: 1. The subject company currently is a client of the member organization or was a client of the member organization during the twelve (12)-month period preceding the date of distribution of the research report. In such instances, such member organization also must disclose the types of services provided to the subject company (For purposes of paragraph (k)(1) of this Rule, the types of services provided to the subject company may be described as investment banking services, non-investment banking-securities related services, and non-securities services.). (For purpose of paragraph (k)(1) of this Rule, an employee of a member organization with the ability to influence the substance of the research report is an employee who, in the ordinary course of that person's duties, has the authority to review the particular research report and to change that research report prior to publication.); 2. That the member organization or any affiliate thereof, received any compensation for products or services other than investment banking services from the subject company in the past twelve
(12)months.
(iii)A research analyst and a member organization must disclose in research reports: a. If, to the extent the research analyst or member organization has reason to know, an affiliate of the member organization received any compensation for products or services other than investment banking services from the subject company in the past twelve
(12)months; 1. This requirement will be deemed satisfied if such compensation is disclosed in research reports within thirty
(30)days after completion of the most recent calendar quarter, provided that the member organization has taken steps reasonably designed to identify such compensation during that calendar quarter. 2. The member organization and the research analyst will be presumed not to have reason to know whether an affiliate received compensation for other than investment banking services from the subject company in the past twelve
(12)months if the member organization maintains and enforces policies and procedures reasonably designed to prevent all research analysts and employees of the member organization with the ability to influence the substance of research reports from, directly or indirectly, receiving information from the affiliate concerning such compensation. 3. Paragraph 472(k)(1)(iii)a. shall not apply to any subject company as to which the member organization initiated coverage since the beginning of the current calendar quarter. b. If the research analyst or a household member has a financial interest in the securities of the subject company, and the nature of the financial interest, including, without limitation, whether it consists of any option, right, warrant, futures contract, long or short position; c. If the research analyst or a household member is an officer, director, or advisory board member of the subject company; d. Any other actual, material conflict of interest of the research analyst, or member organization, of which the research analyst knows, or has reason to know, at the time the research report is published or otherwise distributed. When a member organization publishes or otherwise distributes a research report covering six
(6)or more subject companies (a “compendium report”) for purposes of the disclosures required in paragraph (k)(1) of this Rule, the compendium report may direct the reader in a clear and prominent manner as to where the reader may obtain applicable current disclosures. Electronic compendium reports may include a hyperlink to the required disclosures. Paper-based compendium reports must provide either a toll-free number to call or a postal address to write for the required disclosures and may also include a web address of the member organization where the disclosures can be found. (k)(2) Disclosures Required in Public Appearances Disclosure of Member Organization's, and Research Analyst's Ownership of Securities, Receipt of Compensation, and Subject Company Relationships
(i)A research analyst must disclose *the following conflicts of interest* in public appearances: a. If, as of the last day of the month before the appearance (or the end of the second most recent month if the appearance is less than ten
(10)calendar days after the end of the most recent month), the member organization or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company. The member organization must make the required beneficial ownership computation no later than ten
(10)calendar days after the end of the prior month. Computation of beneficial ownership of securities must be based upon the same standards used to compute ownership for purposes of the reporting requirements under Section 13(d) of the Securities Exchange Act of 1934; b. If the research analyst or a household member has a financial interest in the securities of the subject company, and the nature of the financial interest, including, without limitation, whether it consists of any option, right, warrant, futures contract, long or short position; c. If, to the extent the research analyst knows or has reason to know: 1. The subject company currently is a client of the member organization or was a client of the member organization during the twelve (12)-month period preceding the date of the public appearance by the research analyst. In such instances, the research analyst also must disclose the types of services provided to the subject company (For purposes of this paragraph, the types of services provided to the subject company may be described as investment banking services, non-investment banking-securities related services, and non-securities services.); 2. The member organization or any affiliate thereof, received any compensation from the subject company in the past twelve
(12)months. d. Any other actual, material conflict of interest of the research analyst, or member organization, of which the research analyst knows, or has reason to know, at the time the public appearance is made; e. If the research analyst or a household member is an officer, director, or advisory board member of the subject company; f. If the research analyst received any compensation from the subject company in the past twelve
(12)months. (k)(3) Exceptions to the Required Disclosures
(i)A member organization or a research analyst will not be required to make a disclosure required by Rule 472(k)(l)(i)a.2. and 3., (k)(1)(i)d.1., (k)(1)(ii)b.1., and (k)(2)(i)c. to the extent such disclosure would reveal material non-public information regarding specific potential future investment banking services transactions of the subject company. (k)(4) Third-Party Research Reports
(i)Subject to paragraph (k)(4)(ii), if a member organization distributes or makes available research reports produced by another member organization, a non-member organization affiliate of a member organization, such as a foreign or domestic broker-dealer or investment adviser, or an independent third party, the member organization must accompany the research report with the applicable disclosures, as they pertain to the member organization, that are required by paragraphs (k)(1)(i)c, (k)(1)(i)a, (k)(1)(i)b and (k)(1)(iii)d of this Rule. a. A supervisory analyst qualified under NYSE Rule 344 must approve, pursuant to Rule 472(a)(2), by signature or initial any third-party research distributed by a member organization; and b. A supervisory analyst or qualified person designated pursuant to Rule 342(b)(1) (e.g., a person who has taken and passed the Series 9/10, or another examination acceptable to the Exchange which demonstrates competency relevant to assigned responsibilities, including the Series 24 if taken and passed after July 1, 2001) must review third-party research distributed by a member organization to determine that the disclosures required by Rule 472(k)(1)(i)c, (k)(1)(i)a, (k)(1)(i)b and (k)(1)(iii)d are complete and accurate, and that the content of the research report is consistent with all applicable standards regarding communications with the public.
(ii)The requirements in paragraph (k)(4)(i) shall not apply to research reports prepared by an independent third party that the member organization makes available to its customers either upon request or through a member organization-maintained Web site. Other Communications Activities
(l)No change. Small Firm Exception
(m)The provisions of Rule 472(b)(1)[,] *and*
(2)[and (3)] do not apply to member organizations that over the three previous years, on average per year, have participated in ten
(10)or fewer investment banking services transactions as manager or co-manager and generated $5 million or less in gross investment banking services revenues from those transactions. For purposes of this paragraph, the term “investment banking services transactions” shall include both debt and equity underwritings but not municipal securities underwritings. Member organizations that qualify for this exemption must maintain records for three
(3)years of any communications that, but for this exemption, would be subject to paragraphs (b)(1)[,] *and* (2)[, and (3)] of this Rule. * * * Supplementary Material: .10 Definitions
(1)No change.
(2)Research Report—“Research report” is generally defined as a written or electronic communication which includes an analysis of equity securities of individual companies or industries ( *other than an open-end registered investment company that is not listed or traded on an exchange or a public direct participant program* ), and provides information reasonably sufficient upon which to base an investment decision. This term does not include:
(a)The following communications, provided that they do not include an analysis, narrative discussion, recommendation or rating of individual securities or issuers:
(1)Reports discussing broad-based indices, e.g. the Russell 2000 or S&P 500 index;
(2)Reports commenting on economic, political or market conditions;
(3)Technical analysis concerning the demand and supply for a sector, index or industry based on trading volume and price;
(4)Statistical summaries of multiple companies' financial data (including listings of current ratings);
(5)Reports that recommend increasing or decreasing holdings in particular industries or sectors; or
(6)Notices of ratings or price target changes, provided that the member organization simultaneously directs the readers of the notice as to where to obtain the most recent research report on the subject company that includes the current applicable disclosures required by this rule and that such research report does not contain materially misleading disclosures, including disclosures that are outdated or no longer applicable;
(b)The following communications, even if they include information reasonably sufficient upon which to base an investment decision or a recommendation or rating of individual securities or companies:
(1)Any communication distributed to fewer than 15 persons;
(2)Periodic reports, solicitations or other communications prepared for investment company shareholders or discretionary investment account clients that discuss individual securities in the context of a fund's or account's past performance or the basis for previously made discretionary investment decisions; or
(3)Internal communications that are not given to customers; and
(c)Communications that constitute statutory prospectuses that are filed as part of the registration statement. For purposes of approval by a supervisory analyst pursuant to Rule 472(a)(2), the term research report includes, but is not limited to, a report which recommends equity securities, derivatives of such securities, including options, debt and other types of fixed income securities, single stock futures products, and other investment vehicles subject to market risk. .10
(3)through
(5)No change. .20 through .30 No change. .40 For purposes of this Rule, the term “research analyst” includes an allied member, associated person or employee of a member organization primarily responsible for, and any person who reports directly or indirectly to such research analyst in connection with, the preparation of the substance of a research report whether or not any such person has the job title of “research analyst”. For purposes of this Rule, the term “household member” means any individual whose principal residence is the same as the research analyst's principal residence. This term does not include an unrelated person who shares the same residence as a research analyst, provided that the research analyst and unrelated person are financially independent of one another. Paragraphs (e)(1), (2), (3), (4)(i), (ii), (iii),
(iv)and (v), (k)(1)(iii)b., c., and (k)(2)(i)b. and e. apply to any account in which a research analyst has a financial interest, or over which the research analyst exercises discretion or control[, other than an investment company registered under the Investment Company Act of 1940]. The trading restrictions applicable to research analysts and household members (i.e., paragraphs (e)(1), (2), (3), (4)(i), (ii), (iii),
(iv)and (v))[;] *shall not include an investment company registered under the Investment Company Act of 1940 over which the research analyst or a household member has discretion or control, provided that the research analyst or household member has no financial interest in such investment company, other than a performance or management fee, and* do not apply to a “blind trust” account that is controlled by a person other than the research analyst or research analyst's household member where neither the research analyst nor household member knows of the account's investments or investment transactions. .50 through .140 No change. Rule 344. Research Analysts and Supervisory Analysts Research analysts and supervisory analysts must be registered with, qualified by, and approved by the Exchange. * * * Supplementary Material: .10 [For purposes of this Rule, the term “research analyst” includes a member, allied member, associated person or employee who is primarily responsible for the preparation of the substance of a research report and/or whose name appears on such report. Such research analysts must pass a qualification examination acceptable to the Exchange.] *For the purposes of this Rule, “research analyst” shall mean an associated person whose primary job function is to provide investment research and who is primarily responsible for the preparation of the substance of a research report or whose name appears on the report.* .11 For purposes of this Rule, the term “supervisory analyst” includes [a member,] *an* allied member or employee who is responsible for preparing or approving research reports under Rule 472(a)(2). In order to show evidence of acceptability to the Exchange as a supervisory analyst, [a member,] *an* allied member, or employee may do one of the following:
(1)Present evidence of appropriate experience and pass an Exchange Supervisory Analyst Examination (Series 16).
(2)Present evidence of appropriate experience and successful completion of a specified level of the Chartered Financial Analysts Examination prescribed by the Exchange and pass only that portion of the Exchange Supervisory Analyst Examination (Series 16) dealing with Exchange rules on research standards and related matters. The Exchange publishes a Study Outline for the Research Analyst Examination and the Supervisory Analyst Examination (Series 16). .12 No change. B. NASD's Proposed Rule Text 1050. Registration of Research Analysts
(a)No change.
(b)For the purposes of this Rule 1050, “research analyst” shall mean an associated person *whose primary job function is to provide investment research and* who is primarily responsible for the preparation of the substance of a research report or whose name appears on a research report.
(c)through
(f)No change. 2711. Research Analysts and Research Reports
(a)Definitions For purposes of this rule, the following terms shall be defined as provided.
(1)through
(6)No Change.
(7)“Research analyst account” means any account in which a research analyst or member of the research analyst's household has a financial interest[,] or over which such analyst has discretion or control[, other than an investment company registered under the Investment Company Act of 1940]. *The term “research analyst account” shall not include an investment company registered under the Investment Company Act of 1940 over which the research analyst or a member of the research analyst's household has discretion or control, provided that the research analyst or household member has no financial interest in such investment company, other than a performance or management fee.* This term *also shall* [does] not include a “blind trust” account that is controlled by a person other than the research analyst or member of the research analyst's household where neither the research analyst nor a member of the research analyst's household knows of the account's investments or investment transactions.
(8)No Change.
(9)“Research Report” means any written (including electronic) communication that includes an analysis of equity securities of individual companies or industries[,] *(other than an open-end registered investment company that is not listed or traded on an exchange or a public direct participation program)* and that provides information reasonably sufficient upon which to base an investment decision. This term does not include:
(A)through
(C)No Change.
(10)No Change.
(b)Restrictions on Relationship With Research Department
(1)No Change.
(2)[Except as provided in paragraph (b)(3), n] *No* employee of the investment banking department or any other employee of the member who is not directly responsible for investment research (“non-research personnel”), other than legal or compliance personnel, may review or approve a research report of the member before its publication. [(3) Non-research personnel may review a research report before its publication as necessary only to verify the factual accuracy of information in the research report or identify any potential conflict of interest, provided that:] [(A) Any written communication between non-research personnel and research department personnel concerning the content of a research report must be made either through authorized legal or compliance personnel of the member or in a transmission copied to such personnel; and] [(B) Any oral communication between non-research personnel and research department personnel concerning the content of a research report must be documented and made either through authorized legal or compliance personnel acting as intermediary or in a conversation conducted in the presence of such personnel.]
(c)Restrictions on Communications With the Subject Company
(1)through
(4)No Change.
(5)A research analyst is prohibited from directly or indirectly:
(A)No Change.
(B)Engaging in any communication with a current or prospective customer *or internal sales personnel* in the presence of investment banking department personnel or company management about an investment banking services transaction.
(6)through
(7)No Change.
(d)through
(e)No Change.
(f)Restrictions on Publishing Research Reports and Public Appearances; Termination of Coverage [(1) No member may publish or otherwise distribute a research report and no research analyst may make a public appearance regarding a subject company for which the member acted as manager or co-manager of:] [(A) An initial public offering, for 40 calendar days following the date of the offering; or] [(B) A secondary offering, for 10 calendar days following the date of the offering; provided that:] [(i) Paragraphs (f)(1)(A) and (f)(1)(B) will not prevent a member from publishing or otherwise distributing a research report, or prevent a research analyst from making a public appearance, concerning the effects of significant news or a significant event on the subject company within such 40- and 10-day periods, and provided further that legal or compliance personnel authorize publication of that research report before it is issued or authorize the public appearance before it is made; and] [(ii) paragraph (f)(1)(B) will not prevent a member from publishing or otherwise distributing a research report pursuant to SEC Rule 139 regarding a subject company with “actively-traded securities,” as defined in Regulation M, 17 CFR 242.101(c)(1), and will not prevent a research analyst from making a public appearance concerning such a company.] ([2] *1* ) No member that has agreed to participate or is participating as an underwriter or dealer [(other than as manager or co-manager)] of an issuer's initial public offering may publish or otherwise distribute a research report or make a public appearance regarding that issuer for 25 calendar days after the date of the offering. *This paragraph will not prevent a member from publishing or otherwise distributing a research report, or prevent a research analyst from making a public appearance, concerning the effects of significant news or a significant event on the subject company within such 25-day period, provided further that legal or compliance personnel authorize publication of that research report before it is issued or authorize the public appearance before it is made.* ([3] *2* ) For purpose[s] of paragraph (f)(1)[and (f)(2)], the term “date of the offering” refers to the later of the effective date of the registration statement or the first date on which the security was bona fide offered to the public. [(4) No member that has acted as a manager or co-manager of a securities offering may publish or otherwise distribute a research report or make a public appearance concerning a subject company 15 days prior to and after the expiration, waiver or termination of a lock-up agreement or any other agreement that the member has entered into with a subject company or its shareholders that restricts or prohibits the sale of securities held by the subject company or its shareholders after the completion of a securities offering. This paragraph will not prevent a member from publishing or otherwise distributing a research report concerning the effects of significant news or a significant event on the subject company within such period, provided legal or compliance personnel authorize publication of that research report before it is issued. In addition, this paragraph shall not apply to the publication or distribution of a research report pursuant to SEC Rule 139 regarding a subject company with “actively traded securities,” as defined in Regulation M, 17 CFR 242.101(c)(1), or to a public appearance concerning such a subject company.] *(3) Any member that has acted as a manager or co-manager of a securities offering and publishes or otherwise distributes a research report concerning a subject company during a period 15 days prior to and after the expiration, waiver or termination of a lock-up agreement or any other agreement that the member has entered into with a subject company or its shareholders that restricts or prohibits the sale of securities held by the subject company or its shareholders after the completion of a securities offering shall provide with the research report a certification, in such form as prescribed by NASD, stating that the member has a bona fide reason for issuing the research report.* ([5] *4* ) If a member intends to terminate its research coverage of a subject company, notice of this termination must be made. The member must make available a final research report on the subject company using the means of dissemination equivalent to those it ordinarily uses to provide the customer with its research reports on the subject company. The report must be comparable in scope and detail to prior research reports and must include a final recommendation or rating, unless it is impracticable for the member to produce a comparable report (e.g., if the research analyst covering the subject company or sector has left the member or if the member terminates coverage of the industry or sector). If it is impracticable to produce a final recommendation or rating, the final research report must disclose the member's rationale for the decision to terminate coverage.
(g)Restrictions on Personal Trading by Research Analysts
(1)through
(4)No Change.
(5)The prohibitions in paragraphs (g)(1) through (g)(3) do not apply to a purchase or sale of the securities of[:] [(A) Any registered diversified investment company as defined under Section (5)(b)(1) of the Investment Company Act of 1940; or ] [(B)] Any [other] investment fund over which neither the research analyst nor a member of the research analyst's household has any investment discretion or control, provided that *the research analyst and household member are not made aware of the fund's holdings or transactions other than through periodic shareholder reports and sales material based on such reports* [:] *and* [(i)] The research analyst accounts collectively own interests representing no more than 1% of the assets of the fund[;]. [(ii) The fund invests no more than 20% of its assets in securities of issuers principally engaged in the same types of business as companies that the research analyst follows; and] [(iii) If the investment fund distributes securities in kind to the research analyst or household member before the issuer's initial public offering, the research analyst or household member must either divest those securities immediately or the research analyst must refrain from participating in the preparation of research reports concerning that issuer.] *(6) The prohibitions in paragraphs (g)(1) through (g)(3) do not apply when the following conditions are satisfied:* *(A) The research analyst is employed by a member that has adopted an internal policy that prohibits research analysts from owning any securities issued by subject companies for which the research analyst provides coverage and requires those analysts to completely divest themselves of their existing holdings in such securities;* *(B) The research analyst abides by a reasonable plan of liquidation under which all securities issued by companies that the analyst follows are to be sold within 120 days of the effective date of the member's policy;* *(C) The research analyst files such liquidation plan with the member's legal or compliance department within 15 days of the effective date of the member's policy;* *(D) The research analyst receives written approval of the liquidation plan from the member's legal or compliance department prior to the sale of any securities under the plan; and* *(E) The member must maintain written records sufficient to document compliance with each liquidation plan approved by its legal or compliance department for three years following the date on which the liquidation plan is approved.* ([6] *7* ) Legal or compliance personnel of the member shall pre-approve all transactions of persons who oversee research analysts to the extent such transactions involve equity securities of subject companies covered by the research analysts that they oversee. This pre-approval requirement shall apply to all persons, such as the director of research, supervisory analyst, or member of a committee, who have direct influence or control with respect to the preparation of the substance of research reports or establishing or changing a rating or price target of a subject company's equity securities.
(h)Disclosure Requirements
(1)[Ownership and Material] *Definition of “* Conflict of Interest *”* [A member must disclose in research reports and a research analyst must disclose in public appearances] *For the purposes of paragraph (h)(2), “conflict of interest” shall include any of the following:*
(A)If the research analyst or a member of the research analyst's household has a financial interest in the securities of the subject company, and the nature of the financial interest (including, without limitation, whether it consists of any option, right, warrant, future, long or short position);
(B)If, as of the end of the month immediately preceding the date of publication of the research report or the public appearance (or the end of the second most recent month if the publication date is less than 10 calendar days after the end of the most recent month), the member or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company. Computation of beneficial ownership of securities must be based upon the same standards used to compute ownership for purposes of the reporting requirements under Section 13(d) of the Securities Exchange Act of 1934; [(C) Any other actual, material conflict of interest of the research analyst or member of which the research analyst knows or has reason to know at the time of publication of the research report or at the time of the public appearance.] [(2) Receipt of Compensation] [(A) A member must disclose in research reports:] ([i] *C* ) If the research analyst received compensation: [a.] *(i)* Based upon (among other factors) the member's investment banking revenues; or [b.] *(ii)* From the subject company in the past 12 months. ([ii]D) If the member or *any* affiliate *of the member* : [a.] *(i)* Managed or co-managed a public offering of securities for the subject company in the past 12 months; [b.] *(ii)* Received compensation for investment banking services from the subject company in the past 12 months; or [c.] *(iii)* Expects to receive or intends to seek compensation for investment banking services from the subject company in the next 3 months. ([iii]E) If ([1] *i* ) as of the end of the month immediately preceding the date of publication of the research report (or the end of the second most recent month if the publication date is less than 30 calendar days after the end of the most recent month) or ([2] *ii* ) to the extent the research analyst or an employee of the member with the ability to influence the substance of the research knows: a. The member received any compensation for products or services other than investment banking services from the subject company in the past 12 months; or b. The subject company currently is, or during the 12-month period preceding the date of distribution of the research report was, a client of the member. In such cases, the member also must disclose the types of services provided to the subject company. For purposes of this Rule 2711(h)(1), the types of services provided to the subject company shall be described as investment banking services, non-investment banking securities-related services, and non-securities services. ([iv] *F* ) If, to the extent the research analyst or an employee of the member with the ability to influence the substance of the research report knows an affiliate of the member received any compensation for products or services other than investment banking services from the subject company in the past 12 months. ([v] *G* ) If, to the extent the research analyst or member has reason to know, an affiliate of the member received any compensation for products or services other than investment banking services from the subject company in the past 12 months. [a.] *(i)* [This] *The* requirement *to disclose this conflict of interest* will be deemed satisfied if such compensation is disclosed in research reports *or on a member's Web site* within 30 days after completion of the last calendar quarter, provided that the member has taken steps reasonably designed to identify any such compensation during that calendar quarter. [This] *The disclosure* requirement shall not apply to any subject company as to which the member initiated coverage since the beginning of the current calendar quarter. [b.] *(ii)* The research analyst and the member will be presumed not to have reason to know whether an affiliate received any compensation for products or services other than investment banking services from the subject company in the past 12 months if the member maintains and enforces policies and procedures reasonably designed to prevent the research analysts and employees of the member with the ability to influence the substance of research reports from, directly or indirectly, receiving information from the affiliate concerning whether the affiliate received such compensation. *(H) If the research analyst or member of a research analyst's household serves as an officer, director or advisory board member of the subject company.* *(I) If the member was making a market in the subject company's securities at the time that the research report was published; and* *(J) Any other actual, material conflict of interest of the research analyst or member of which the research analyst knows or has reason to know at the time of publication of the research report or at the time of the public appearance.* ([vi] *K* ) For the purposes of this Rule 2711(h)([2] *1* ), an employee of the member with the ability to influence the substance of the research report is an employee who, in the ordinary course of that person's duties, has the authority to review the particular research report and to change that research report prior to publication.
(2)Disclosure of Conflicts of Interest *(A) Any member that has a conflict of interest or whose research analyst has a conflict of interest concerning the subject company of a research report must disclose that conflict of interest either:* *(i) On its Web site and prominently state the following on the front page of the research report:* *“[Name of firm and/or the research analyst preparing this report] has a conflict of interest that may affect the ability of the firm or the analyst to provide objective analysis about the company. For more information about this conflict of interest, please see [Reference to the firm's Web site]” or* *(ii) In the research report in accordance with paragraph (h)(8).*
(B)A research analyst must disclose in public appearances: *(i) The conflicts of interest described in paragraphs (h)(1)(A),
(B)and (J);*
(ii)If, to the extent the research analyst knows or has reason to know, the member or any affiliate received any compensation from the subject company in the past 12 months;
(iii)If the research analyst received any compensation from the subject company in the past 12 months; or ([iii] *iv* ) If, to the extent the research analyst knows or has reason to know, the subject company currently is, or during the 12-month period preceding the date of distribution of the research report, was, a client of the member. In such cases, the research analyst also must disclose the types of services provided to the subject company, if known by the research analyst *;[* .] *or* *(v) If the research analyst or a member of the research analyst's household serves as an officer, director or advisory board member of the subject company.*
(C)A member or research analyst will not be required to make a disclosure required by paragraphs *(h)(1)(D)(ii) and (iii)* [(h)(2)(A)(ii)(b) and (c)],
(h)*(1)(E)(b)* [(2)(A)(iii)(b),] or (h)(2)(B)(i *i* ) and ( *iv* [iii]) to the extent such disclosure would reveal material non-public information regarding specific potential future investment banking transactions of the subject company. [(3) Position as Officer or Director] [A member must disclose in research reports and a research analyst must disclose in public appearances if the research analyst or a member of the research analyst's household serves as an officer, director or advisory board member of the subject company.] ([4] *3* ) Meaning of Ratings If a research report contains a rating, the member must define in the research report the meaning of each rating used by the member in its rating system. The definition of each rating must be consistent with its plain meaning. ([5] *4* ) Distribution of Ratings
(A)Through
(B)No Change.
(C)The information that is disclosed under paragraphs (h)([5] *4* )(A) and (h)([5] *4* )(B) must be current as of the end of the most recent calendar quarter (or the second most recent calendar quarter if the publication date is less than 15 calendar days after the most recent calendar quarter) and must reflect the distribution of the most recent ratings issued by the member for all subject companies, unless the most recent rating was issued more than 12 months ago.
(D)The requirements of paragraph (h)([5] *4* ) shall not apply to any research report that does not contain a rating. ([6] *5* ) Price Chart If a research report contains either a rating or a price target, and the member has assigned a rating or price target to the subject company's securities for at least one year, the research report must include a line graph of the security's daily closing prices for the period that the member has assigned any rating or price target or for a three-year period, whichever is shorter. The line graph must:
(A)through
(C)No Change. ([7] *6* ) Price Targets If a research report contains a price target, the member must disclose in the research report the valuation methods used to determine the price target. Price targets must have a reasonable basis and must be accompanied by a disclosure concerning the risks that may impede achievement of the price target. [(8) Market Making A member must disclose in research reports if it was making a market in the subject company's securities at the time that the research report was published.] ([9] *7* ) Disclosure Required by Other Provisions In addition to the disclosure required by this rule, members and research analysts must provide disclosure in research reports and public appearances that is required by applicable law or regulation, including NASD Rule 2210 and the antifraud provisions of the federal securities laws. ([10] *8* ) Prominence of Disclosure The disclosures required by this paragraph
(h)*, other than those made pursuant to paragraph (h)(2)(A)(i),* must be presented on the front page of research reports or the front page must refer to the page on which disclosures are found. Disclosures and references to disclosures must be clear, comprehensive and prominent. ([11] *9* ) Disclosures in Research Reports Covering Six or More Companies When a member distributes a research report covering six or more subject companies (a “compendium report”), for purposes of the disclosures required in paragraph (h), *other than those required by paragraph (h)(2),* the compendium report may direct the reader in a clear manner as to where they may obtain applicable current disclosures. Electronic compendium reports may include a hyperlink to the required disclosures. Paper-based compendium reports must provide either a toll-free number to call or a postal address to write for the required disclosures and may also include a web address of the member where the disclosures can be found. (1[2] *0* ) Records of Public Appearances Members must maintain records of public appearances by research analysts sufficient to demonstrate compliance by those research analysts with the applicable disclosure requirements under paragraph
(h)of this Rule. Such records must be maintained for three years from the date of the public appearance. (1[3] *1* ) Third-Party Research Reports
(A)Subject to paragraph (h)(1[3] *1* )(B), if a member distributes or makes available any research report that is produced by another member, a non- member affiliate of the member or an independent third party, the member must accompany the research report with the current applicable disclosures, as they pertain to the member, that are required by paragraphs (h)(1)(B), [(h)(1)(C), (h)(2)(A)(ii) and (h)(8)] *(h)(1)(D), (h)(1)(I) and (h)(1)(J)* of this Rule.
(B)The requirements of paragraph (h)(1[3] *1* )(A) shall not apply to research reports prepared by an independent third party that the member makes available to its customers either upon request or through a member-maintained Web site.
(C)No Change.
(i)Supervisory Procedures Each member subject to this rule must adopt and implement written supervisory procedures reasonably designed to ensure that the member and its employees comply with the provisions of this rule (including the attestation requirements of Rule 2711(d)(2)), and a senior officer of such a member must [attest] annually [to] *file with the* NASD *Member Regulation Department* by April 1 of each year *an attestation* that it has adopted and implemented those procedures.
(j)Prohibition of Retaliation Against Research Analysts No member and no [employee of a member who is involved with the member's investment banking activities] *non-research personnel as defined in paragraph (b)(2)* may, directly or indirectly, retaliate against or threaten to retaliate against any research analyst employed by the member or its affiliates as a result of an adverse, negative, or otherwise unfavorable research report or public appearance written or made by the research analyst that may adversely affect the member's present or prospective investment banking relationship with the subject company of a research report. This prohibition shall not limit a member's authority to discipline or terminate a research analyst, in accordance with the member's policies and procedures, for any cause other than the writing of such an unfavorable research report or the making of such an unfavorable public appearance.
(k)No Change II. Self-Regulatory Organizations' Statements of the Purpose of, and Statutory Basis for, the Proposed Rule Changes In their filings with the Commission, the Exchange and NASD included statements concerning the purpose of and basis for the proposed rule changes and discussed any comments they received on the proposed rule changes. The text of these statements may be examined at the places specified in Item IV below. The Exchange and NASD have prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statements of the Purpose of, and Statutory Basis for, the Proposed Rule Changes 1. NYSE's Purpose Background Beginning in 2002, the Exchange and the National Association of Securities Dealers, Inc. implemented a series of rule changes (“SRO Rules”) to improve objectivity and transparency in equity research and provide investors with more reliable and useful information to make investment decisions. The NYSE believes that the rules were intended to restore public confidence in the validity of research and the veracity of research analysts, who are expected to function as unbiased intermediaries between issuers and the investors who buy and sell their securities. According to the NYSE, the trustworthiness of research had eroded due to the pervasive influences of investment banking and other conflicts that had manifest themselves during the market boom of the late 1990s. Generally, the SRO Rules require clear, comprehensive and prominent disclosure of conflicts of interest in research reports and public appearances by research analysts. The rules further prohibit certain conduct—investment banking personnel involvement in the content of research and determination of analyst compensation, for example—when the conflicts are considered too pronounced to be cured by disclosure. The SROs enacted the research analyst conflict rules in two primary tranches and, more recently, adopted additional amendments prohibiting analysts from participating in road shows. In addition, the SROs supplemented their rulemaking with two joint memoranda that provided interpretive guidance to their members on a number of issues. 7 The NASD and NYSE rules and interpretations are virtually identical and are intended to operate uniformly. 7 *See* NYSE Information Memos 02-26 and 04-10 and *NASD Notices to Members* 02-39 (July 2002) and 04-18 (March 2004). On May 10, 2002, the SEC approved the first round of proposed SRO Rules (“Round 1 Amendments”)—new NASD Rule 2711 (“Research Analysts and Research Reports”) and amendments to NYSE Rules 351 (“Reporting Requirements”) and 472 (“Communications with the Public”)—which implemented basic reforms to separate research from investment banking and to provide more extensive disclosure of conflicts of interest in research reports and public appearances. 8 8 *See* Securities Exchange Act Release No. 45908 (May 10, 2002), 67 FR 34968 (May 16, 2002) (order approving SR-NASD-2002-021 and SR-NYSE-2002-09). On July 29, 2003, the SEC approved a second set of amendments to the SRO Rules (“Round 2 Amendments”) 9 that achieved two purposes. First, the Round 2 Amendments implemented SRO initiatives to further promote analyst objectivity and transparency of conflicts in research reports. Second, the Round 2 Amendments implemented changes mandated by the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). 10 Sarbanes-Oxley required adoption by July 30, 2003 of rules “reasonably designed to address conflicts of interest that can arise when securities analysts recommend equity securities in research reports and public appearances,” and set forth certain specific rules to be promulgated. Many of those rules had already been adopted in the first round of SRO rulemaking. The Round 2 Amendments therefore implemented those specific Sarbanes-Oxley rules that did not already exist and conformed the language of the SRO Rules as necessary. 9 *See* Securities Exchange Act Release No. 48252 (July 29, 2003), 68 FR 45875 (Aug. 4, 2003) (order approving SR-NASD-2002-154 and SR-NYSE-2002-49). 10 *See* Section 15D(a) of the Act, 15 U.S.C. 78o-6. As part of the Round 2 Amendments, the SEC approved rules requiring registration and qualification requirements for research analysts. NYSE Rule 344 requires an associated person who functions as a research analyst on behalf of a member organization to register as such and pass a qualification examination. For the purposes of this requirement, a “research analyst” is defined as an associated person or employee who is primarily responsible for the preparation of the substance of a research report and/or whose name appears on such “research report,” as that term is defined in NYSE Rule 472. The SROs jointly developed and implemented the Research Analyst Qualification Examination (Series 86/87). The examination consists of an analysis part (Series 86) and a regulatory part (Series 87). Prior to taking either the Series 86 or 87, a candidate also must have passed the General Securities Registered Representative Examination (Series 7), the Limited Registered Representative Examination (Series 17), or the Canada Module of Series 7 (Series 37 or 38). The SRO Rules provide three exemptions from the Series 86 examination. First, there is an exemption for research analysts who have passed Levels I and II of the Chartered Financial Analyst (“CFA”) examination and have either
(1)completed the CFA Level II within 2 years of application or registration, or
(2)functioned as a research analyst continuously since having passed the CFA Level II. 11 11 *See* Securities Exchange Act Release No. 49464 (March 24, 2004), 69 FR 16628 (March 30, 2004) (order approving SR-NASD-2004-020 and SR-NYSE-2004-03). A second exemption is available to research analysts who have passed Levels I and II of the Chartered Market Technician Examination and produce only “technical research reports,” as that term is defined under the SRO Rules. 12 12 *See* Securities Exchange Act Release No. 51240 (February 23, 2005), 70 FR 10451 (March 3, 2005) (notice of immediate effectiveness of SR-NASD-2005-022 and SR-NYSE-2005-12). A third exemption—from both the Series 86 and Series 87—is available to persons who may be “associated persons” of a member who are employed by that member's foreign affiliate but who produce research on behalf of the U.S. member. To be eligible for the exemption, three primary conditions must be met:
(1)A foreign analyst must comply with the registration and qualification requirements or other standards in an SRO-approved foreign jurisdiction whose regulatory scheme reflects a recognition of principles that are consonant with the SRO Rules and qualification standards;
(2)the U.S. member must apply all of the other SROs rules and other member firm standards to the research produced by the foreign affiliate and foreign research analysts that qualify for, and rely upon, the exemption; and
(3)the U.S. member must include a specific disclosure that the research report has been prepared in whole or part by foreign research analysts who may be associated persons of the member who are not registered/qualified as a research analyst with the NYSE or NASD, but instead have satisfied the registration/qualification requirements or other research-related standards of a foreign jurisdiction that has been recognized for these purposes by the NYSE and NASD. Currently, the following jurisdictions satisfy the applicable SRO standards noted above: China, Hong Kong, Japan, Malaysia, Singapore, Thailand and the United Kingdom. On April 21, 2005, the Commission approved an amendment to the SRO Rules that prohibits research analysts from participating in a road show related to an investment banking services transaction and from communicating with current or prospective customers in the presence of investment banking department personnel or company management about such an investment banking services transaction. 13 Additionally, the amendment prohibits investment banking personnel from directing a research analyst to engage in sales and marketing efforts and other communications with a current or prospective customer about an investment banking services transaction. 13 *See* Securities Exchange Act Release No. 51593 (April 21, 2005), 70 FR 22168 (April 28, 2005) (order approving SR-NASD-2004-141 and SR-NYSE-2005-24). As defined under NASD Rule 2711(a)(3) and NYSE Rule 472.20, “investment banking services” includes, without limitation, acting as an underwriter in an offering for the issuer; acting as a financial adviser in a merger or acquisition; providing venture capital, equity lines of credit, PIPEs (private investment, public equity transactions), or similar investments; serving as placement agent for the issuer; or acting as a member of a selling group in a securities underwriting. Joint SRO Report As part of its May 2002 order approving new NASD Rule 2711 and amendments to NYSE Rule 472, the SEC noted that it would require NASD and the NYSE to assess the success of the rules after they have been in place for a suitable amount of time. In April 2005, the SEC staff requested a joint comprehensive report on the operation and effectiveness of the rules, together with any recommendations for changes or additions to the rules. The SRO staffs submitted that report to the SEC on December 22, 2005. The SRO staffs concluded in the report that the SRO Rules have been effective in helping to restore integrity to research by minimizing the influences of investment banking and promoting transparency of other potential conflicts of interest. However, the SRO staffs further expressed their belief that certain changes to the SRO Rules would further improve their effectiveness by striking an even better balance between ensuring objective and reliable research on the one hand and permitting the flow of information to investors and minimizing costs and burdens to members on the other. In formulating the recommendations for rule changes in the report, the SROs considered extensive data and qualitative feedback regarding the range of activities under the SRO Rules, including examinations, sweeps, enforcement activities, interpretive issues and registration and qualification of research analysts. The SROs also surveyed academic studies and media reports about the impact of the rules; compared the SRO Rules to the provisions of the so-called “Global Settlement” among the SROs, the Commission, the North American Securities Administrators Association and ten 14 of the largest investment banks; reviewed industry comment letters; and consulted with various industry representatives. The proposed rule changes would implement the recommendations of the SROs in the SRO report. A discussion of the proposed rule changes is set out below. 14 In August 2004, two additional firms settled with regulators under the same terms as the April 2003 Global Settlement. Exception to Definition of “Research Report” “Research report” is defined in NYSE Rule 472.10(2) as a “written or electronic communication which includes an analysis of equity securities of individual companies or industries, and provides information reasonably sufficient upon which to base an investment decision.” The proposed rule change would expressly exclude from the definition of “research report,” sales material regarding open-end registered investment companies that are not listed or traded on an exchange and public direct participation programs (“DPPs”). Since these investment companies and DPPs are “equity securities” as defined in Section 3(a)(11) 15 of the Exchange Act, related sales material that contains an analysis of those securities and information sufficient upon which to base an investment decision technically is covered by the definition. For the following reasons, the Exchange believes sales material for both types of products should be excluded from the definition of “research report.” 15 15 U.S.C. 78c(a)(11). Sales material regarding investment companies is already subject to a separate regulatory regime, including NASD Rule 2210 and Securities Act Rule 482, 16 and all advertisements and sales literature regarding registered investment companies must be filed with the NASD Advertising Regulation Department (the “Department”) within ten
(10)business days of first use. 17 Moreover, the Exchange staff does not believe that the conflicts underpinning the SRO Rules are manifest to the same extent with respect to research on open-end investment companies that are not listed or traded on an exchange. 16 17 CFR 230.482. 17 An advertisement or sales literature concerning a registered investment company that includes a performance ranking or performance comparison of the investment company with other investment companies that is not generally published or are created by the fund or its affiliates must be filed with the Department at least 10 business days prior to first use or publication. NASD Rule 2210(c)(4)(A). Similarly, the NYSE believes that sales material for public DPPs also do not present the same conflicts of interest or other regulatory concerns as research on exchange-traded securities. Publicly offered DPPs typically are limited partnerships or limited liability companies whose equity interests do not trade on an exchange and do not have an active secondary market. The DPP sponsor generally produces its sales material and sells interests in the DPP during an initial public offering on a best efforts basis. According to the NYSE, this sales material typically consists of “tombstone” advertisements whose content is strictly limited under Securities Act Rule 134, 18 or supplemental sales literature that must be accompanied or preceded by a prospectus for the DPP. Additionally, unlike equity research, NASD Rule 2210(c)(2)(B) requires members to file advertisements and sales literature concerning public DPPs with the Department within ten business days of first use. Thus, NASD staff review such sales material before or shortly after it is distributed to the public. 18 17 CFR 230.134. Although exchange-traded funds (“ETFs”) are open-end investment companies, they trade on an exchange and therefore those funds would not be excepted from the definition of “research report.” The Exchange requests comment on whether ETFs should also be excluded from the definition. In addition, the NYSE believes that NASD Advertising Regulation Department review of registered investment company and public DPP sales material reduces the likelihood that it will contain content that is not fair and balanced. Exception to Registration and Qualification Requirements for Non-Research Personnel That Produce “Research Reports” The SRO Rules, in accordance with the mandates of Sarbanes-Oxley, 19 are constructed such that the author of a communication that meets the definition of a “research report” is a “research analyst,” irrespective of his or her title or primary job. This prevents firms from circumventing the rules by redirecting through other channels, such as registered representatives or traders, potentially biased research that is not subject to the SRO objectivity safeguards. 19 *See* Section 15D of the Act. The Exchange believes it is important to maintain such communications as research reports subject to the SRO Rules and those principally responsible for their preparation as research analysts. However, the proposed rule changes would create a limited exemption from the NYSE Rule 344 registration requirements for non-research personnel that produce research reports. Thus, for example, the registration requirements would not apply to a registered representative who occasionally produces communications that technically meet the definition of a research report and are distributed to fifteen
(15)or more clients, or a trader who similarly produced market commentary that included an analysis of an individual security—also considered a research report under NYSE rules. The Exchange believes that the registration and qualification requirements were intended for those individuals whose principal job function is to produce research, while the balance of the SRO Rules are intended to foster objective analysis of equity securities and transparency of certain conflicts and to provide beneficial information to investors. Restrictions on Investment Banking Department Relationship With Research Department Exchange Rule 472(b)(3) permits investment banking and other non-research employees, other than legal and compliance personnel, to review a research report before publication only to verify the factual accuracy of information in the report or identify a potential conflict of interest. This provision also requires that an authorized legal or compliance official act as intermediary for all such permissible communications. The proposed rule changes eliminate the pre-publication review of research by investment banking and other non-research personnel, other than by legal and compliance. The NYSE believes that the factual review of a research report by investment banking personnel is unnecessary in light of the numerous other sources available to verify factual information, including the subject company, and only raises concerns about the objectivity of the report. According to the NYSE, such review may invite pressure on a research analyst from investment banking personnel that could be difficult to monitor. Such factual reviews are not permitted under the terms of the Global Settlement and the Exchange staff is not aware of any evidence that the factual accuracy of research produced by firms subject to the Global Settlement has suffered. Moreover, the NYSE believes that legal and compliance can adequately perform a conflict review without sharing draft research reports with investment banking personnel and other non-research personnel. Restrictions on Publishing Research Reports and Public Appearances NYSE Rule 472(f) sets forth “quiet periods” during which a member organization is prohibited from publishing or otherwise distributing a research report and a research analyst is prohibited from making a public appearance. These quiet periods apply in two circumstances:
(1)After a public offering of securities and
(2)before and after the expiration, waiver or termination of a lock-up agreement entered into by a member organization with a subject company that restricts the sale of securities by that company or its shareholders. With respect to the former, NYSE Rule 472 establishes different quiet periods depending on whether the offering is an initial public offering (“IPO”) or a secondary offering and whether the member organization acted as manager or co-manager or as an underwriter or dealer. In the current NYSE Rule 472, a member organization that acted as a manager or co-manager of an IPO may not publish or otherwise distribute research for 40 calendar days following the date of the offering; all other member organizations that participated as an underwriter or dealer in the offering are subject to a 25-day quiet period. For secondary offerings, a ten-day quiet period applies only to the manager and co-manager of the offering. NYSE Rule 472(f)(5) contains an exception that permits publication and distribution of research or a public appearance concerning the effects of significant news or a significant event on the subject company during the quiet period. Prior guidance by the Exchange has interpreted this exception to apply only to news or events that have a material impact on, or cause a material change to, a company's operation, earnings or financial condition. There is also an exception in NYSE Rule 472(f)(2) to the secondary offering quiet period, which permits publication or distribution of research pursuant to Securities Act Rule 139 20 regarding a subject company with “actively-traded securities” as defined in Regulation M of the Act. 21 20 17 CFR 230.139. 21 17 CFR 242.101. The Exchange proposes several changes to the quiet periods surrounding public offerings and the releases of lock-up agreements:
(a)*Quiet periods following public offerings of securities* The proposed rule changes to NYSE Rule 472(f) create a uniform IPO quiet period for all underwriters and dealers participating in the public offering. The amended rule applies a 25-day quiet period to managers, co-managers, underwriters and dealers that participate in an IPO. The NYSE believes that the objectivity and disclosure safeguards of NYSE Rule 472 and other research rule provisions have obviated the need for a longer quiet period for managers and co-managers than other underwriters and dealers participating in an IPO. The NYSE believes that these changes will promote an enhanced flow of valuable information to investors and maintain consistency with SEC regulations. In addition, the proposed rule changes eliminate quiet periods following a secondary offering. According to the NYSE, the success of the SRO Rules in mitigating research analyst conflicts of interest supports the repeal of the quiet periods following secondary offerings. The NYSE believes this will expand the ability of member organizations to release more information regarding a subject company's prospects and financial condition, without sacrificing the reliability of the research.
(b)*Quiet periods around releases of lock-up agreements* The proposed rule changes reduce the quiet period surrounding the expiration, termination or waiver of a lock-up agreement from the current 15-day period to a five-day period. The Exchange believes that some quiet period must be maintained around the release of lock-up agreements because an analyst can conceivably write a research report after an offering with an honestly held positive opinion, but advantageously time the publication of the report for inappropriate reasons. Also, the NYSE believes that absent a quiet period around the expiration, termination or waiver of a lock-up agreement, member organizations may selectively time the issuance of “booster shot” reports intended to raise the stock price of a company just before locked-up shares become freely saleable into the market by a company or its major shareholders. NYSE believes a five-day quiet period strikes a balance between guarding investors against the selective timing of the issuance of research and allowing the prompt dissemination of valuable information flow to the marketplace. While the Exchange may not have jurisdiction over some of the participants to such agreements ( *e.g.,* the company and its shareholders), it does retain jurisdiction over its member organizations that can issue research and, as such, can limit the potential for any untoward conduct by maintaining this prohibition. Lastly, the Exchange notes the recent strength of the IPO market and that such offerings generally contain lock-up agreements. Accordingly, the Exchange believes that at this juncture it is appropriate to maintain a form of prohibition absent some compelling empirical data/evidence to the contrary.
(c)*Exceptions to quiet periods* As noted above, Exchange Rule 472(f)(5) contains an exception that permits publication and distribution of research or a public appearance concerning the effects of significant news or a significant event on the subject company during the quiet period, provided the reports are pre-approved in writing by legal or compliance personnel. The Exchange has interpreted this exception to apply only to news or events that have a material impact on, or cause a material change to, a company's operations, earnings or financial condition and that generally would trigger the filing requirements of SEC Form 8-K. The Exchange has previously not interpreted the exception to include earnings announcements absent some other significant news or significant event because these announcements generally are not causal events or news items that materially affect a company's operations, earnings or financial condition. The Exchange believes that an amendment to NYSE Rule 472 is necessary to include earnings announcements in this exception. Accordingly, the proposed rule changes provide that an announcement of earnings is included in the exception to the quiet periods for significant news or events. The NYSE believes that this amendment will promote the flow of potentially important or noteworthy information to the market and investors in a timely manner. 22 According to the NYSE, the announcement of a change to earnings estimates or a release of earnings that vary from street expectations will, in many instances, be accompanied by an announcement of some type of causal events. Further, the NYSE believes that earnings announcements and guidance are necessary pipelines of information for research analysts to support the basis of their investment recommendations. 22 *See* Securities Act Release No. 8400 and Securities Exchange Act Release No. 49424 (March 16, 2004), 69 FR 15594 (March 25, 2004). Restrictions on Personal Trading by Research Analysts NYSE Rule 472(e) generally restricts the trading of securities by research analyst accounts. 23 Specifically, the Rule prohibits any research analyst account from: 23 According to the NYSE, although NYSE Rule 472 does not employ the term “research analyst account,” the trading restrictions of NYSE Rule 472(e) and NASD Rule 2711(g) are coterminous. *See* NYSE Rule 472.40. • Purchasing or receiving any securities before the issuer's initial public offering if the issuer is principally engaged in the same types of business as companies that the research analyst follows; • Purchasing or selling any security issued by a company that the research analyst follows, or any option or derivative of such a security, for a period beginning thirty
(30)days before and ending five
(5)days after the publication of a research report concerning the company or a change in a rating or price target of the company's securities; and • Purchasing or selling any security or option or derivative of such a security in a manner inconsistent with the analyst's most recent recommendation. NYSE Rule 472(e)(4) includes exceptions to these trading restrictions for certain trades that: • Are due to unanticipated significant changes in an analyst's personal financial circumstances; • Occur within the 30-day/five-day trading blackout around the publication of a report if the report is issued due to a significant news event; • Occur within 30 days after an analyst initiates coverage of a company; • Involve shares of diversified registered investment companies; and • Involve interests in an investment fund over which neither the analyst nor a household member has any investment discretion or control, the research analyst accounts collectively own no more than 1% of the fund's assets, and the fund invests no more than 20% of its assets in securities of issuers principally engaged in the same types of business as companies that the analyst follows. NYSE Rule 472(e)(5) currently requires legal or compliance personnel to pre-approve all trades of persons who oversee research analysts to the extent such trades involve equity securities of subject companies covered by the analysts they oversee. The proposed rule changes would revise the exceptions to the personal trading restrictions to create an exemption for member organizations that voluntarily choose to prohibit their analysts from owning shares of the companies they cover. The proposed exemption allows such a firm to adopt policies that permit research analysts to divest their holdings in an orderly and controlled manner with the oversight of the firm's legal and compliance personnel. With the proposed changes, NYSE Rule 472 allows member organizations that adopt ownership bans to implement the same divestiture procedures, regardless of when they adopted such a policy, that were permitted when NYSE Rule 472 first became effective, to allow analysts to divest their holdings. NASD has chosen to amend their Rule 2711(g)(5) by expanding the exceptions to the personal trading restrictions for investment funds to include investments in any fund (including a registered diversified investment company), so long as neither the analyst nor a member of his or her household is aware of the fund's holdings or transactions other than through periodic shareholder reports and sales material based on such reports, and provided that the research analyst account owns no more than 1% of the assets of the fund, eliminating the 20% asset diversification threshold. NYSE understands that the NASD reasons that this change will simplify the ability of analysts to invest in, for example, mutual funds and hedge funds that do not disclose their holdings other than through periodic reports or sales material based on such reports. Also, according to the NYSE, NASD reasons that absent discretion or control of an account or the contemporaneous knowledge of the account's transactions, a minimal investment by a research analyst will not influence the analyst to compromise research objectivity to benefit the account. The Exchange is not proposing to make this change. The Exchange believes that the 20% asset diversification threshold must be retained for an account to be eligible for the exception. The Exchange believes that maintaining the 20% asset diversification threshold has the potential for limiting possible conflicts of interest in the issuance research reports by analysts with a vested interest in a fund. The Exchange seeks comment on whether to maintain this separate requirement. Disclosure Requirements NYSE Rule 472(k) imposes a number of disclosure requirements on member organization research reports and research analyst public appearances in which the analyst makes a recommendation or offers an opinion concerning an equity security. NYSE Rule 472(k) requires specific disclosures of conflicts of interest, including whether the member organization, the research analyst or a member of the analyst's household has a financial interest in the subject company's securities or the member organization or its affiliates have received compensation from the subject company. NYSE Rule 472(k) also requires a number of non-conflicts related disclosures in research reports, including the meanings of ratings used in the member organization's rating system if the research report contains a rating, the distribution of buy, hold, and sell ratings assigned by the member organization if a research report contains a rating, and a price chart that plots the assignment or changes of the analyst's ratings and price targets for the subject company against the movement of the subject company's stock price over time if the research report contains a rating or a price target. According to the NYSE, the required disclosures must be presented on the front page of research reports or the front page must refer to the page on which the disclosures are found. Electronic research reports may utilize hyperlinks to the disclosures. Disclosures and references to disclosures must be clear, comprehensive and prominent. The Exchange is concerned that the sheer volume of the disclosures required presently may obscure the overall message that the disclosures are attempting to convey: That the member organization or research analyst faces conflicts of interest with respect to the subject company. The NYSE believes that this problem is compounded by the fact that many member organizations include additional disclosures required by other jurisdictions, as well as sometimes lengthy disclaimers for their own purposes. To better realize the goal of the disclosure requirements, the Exchange believes that it would be more effective and useful to investors to know immediately whether the member organization or research analyst producing the research report is conflicted, while providing the reader the means to learn more about these conflicts if he or she chooses to do so. The NYSE believes that this disclosure requirement would ensure that investors obtain prominent disclosure that a research-related conflict exists, and would permit investors to find additional information about the conflict on the member organization's Web site. To that end, the proposed rule changes would amend NYSE Rule 472(k)(1) to permit members, in lieu of publication in the research report itself, to disclose their conflicts of interest by including a prominent warning on the cover of a research report that such conflicts of interest exist, together with information on how the reader may obtain more detail about these conflicts on the member's Web site. This alternative method of disclosure would then require a member to include detailed conflicts information on its Web site. According to the NYSE, member organizations could still opt to make all of the disclosures in the report itself; however, a Web-based disclosure system can effectively alert investors that the firm has a conflict of interest that could affect the objectivity of a research report. The NYSE believes that it also provides a streamlined disclosure alternative by placing disclosures in an accessible and convenient location and minimizes costs for many firms. Specifically, the proposed rule changes would require any member that has a conflict of interest or whose research analyst has a conflict of interest to state prominently on the front page of the research report the following: “[Name of firm and/or the research analyst preparing this report] has a conflict of interest that may affect the ability of the firm or the analyst to provide objective analysis about the company. For more information about this conflict of interest, please see [Reference to the firm's Web site].” According to the NYSE, conflicts of interest, as defined by the proposed rule, include any of the circumstances that currently require disclosure under NYSE Rule 472(k)(1), including if the research analyst or household member has a financial interest in the subject company; if the member organization owns 1% or more of any class of common equity securities of the subject company; receipt by the member organization of investment banking and other compensation from the subject company or the expectation to seek investment banking compensation; if the member makes a market in the subject company's securities; if the research analyst or household member serves as an officer, director or advisory board member of the subject company; and any other actual, material conflict of interest of the research analyst or member organization of which the research analyst knows or has reason to know at the time of publication of the research report. The proposed amendment would still require the Web-based disclosures concern actual conflicts of interest, rather than the possibility of such conflicts. According to the NYSE, a general “health warning” that conflicts of interest “may or may not” exist are neither useful nor effective. The Exchange seeks comment on whether a similar approach could be used for disclosure of conflicts in public appearances. The proposed rule changes would not permit Web site disclosure for certain other disclosures, such as the meanings of the member's ratings and the price chart showing the subject company's price movements against the analyst's assignments of ratings and price targets, which still require disclosure in the research report. The NYSE believes that these disclosures provide useful information that should be accessible to investors in the report and do not lend themselves easily to the terse material conflict warning that would appear on the cover of the report. Accordingly, they must be readily available to investors in the report itself. Prohibition on Retaliation Against Research Analysts NYSE Rule 472(g)(2) prohibits any member organization and any employee of a member organization who is involved with the member organization's investment banking activities from directly or indirectly retaliating against a research analyst as a result of an unfavorable research report or public appearance that may adversely affect the member organization's current or prospective investment banking relationship with a subject company. The Exchange believes that under no circumstances is retaliation appropriate against a research analyst who expresses his or her genuine beliefs about a subject company. As such, the proposed rule changes extend the retaliation prohibition to all employees, not just those involved in investment banking activities. Other Changes The proposed rule amendments would also make certain other changes. First, the proposal would amend NYSE Rule 472.40 to clarify that the trading restrictions applicable to research analysts and household members excludes an investment company registered under the Investment Company Act of 1940 over which the research analyst or household member has discretion or control, provided that the research analyst or household member has no financial interest in such investment company, other than a performance or management fee. Second, the proposed rule changes would amend NYSE Rule 472(b) to extend the prohibition on research analysts from engaging in communications about an investment banking services transaction with a current or prospective customer in the presence of investment banking department personnel or company management to communications with internal sales personnel. This amendment is intended to further mitigate potential conflicts of interest in intra-office communications. In addition, changes are proposed to delete the term “member” as used in NYSE Rule 344 to reflect the recent reorganization of the Exchange. 24 24 *See* Securities Exchange Act Release No. 53382 (February 27, 2006), 71 FR 11251 (March 6, 2006) (order approving SR-NYSE-2005-77). The Exchange will announce the effective date of the proposed rule change in an Information Memo to be published no later than 60 days following Commission approval. 2. NYSE's Statutory Basis The statutory basis for the proposed rule changes is Section 6(b)(5) of the Act 25 which requires, among other things, that the rules of the Exchange are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to perfect the mechanism of a free and open market and national market system, and in general to protect investors and the public interest. The Exchange believes that the proposed rule changes will enhance the clarity and consistency of the research analyst rules, thereby facilitating the goals of reducing conflicts of interest and fraudulent and manipulative practices, and providing investors with more objective, reliable information upon which to base investment decisions. 25 15 U.S.C. 78f(b)(5). 3. NASD's Purpose Background Beginning in 2002, NASD and the New York Stock Exchange implemented a series of rule changes to improve objectivity and transparency in equity research and provide investors with more reliable and useful information to make investment decisions. The rules were intended to restore public confidence in the validity of research and the veracity of research analysts, who are expected to function as unbiased intermediaries between issuers and the investors who buy and sell their securities. The trustworthiness of research had eroded due to the pervasive influences of investment banking and other conflicts that had manifest themselves during the market boom of the late 1990s. Generally, the SRO Rules require clear, comprehensive and prominent disclosure of conflicts of interest in research reports and public appearances by research analysts. The rules further prohibit certain conduct—investment banking personnel involvement in the content of research and determination of analyst compensation, for example—when the conflicts are considered too pronounced to be cured by disclosure. The SROs enacted the research analyst conflict rules in two primary tranches and, more recently, adopted additional amendments prohibiting analysts from participating in road shows. In addition, the SROs supplemented their rulemaking with two joint memoranda that provided interpretive guidance to their members on a number of issues. 26 The NASD and NYSE rules and interpretations are virtually identical and are intended to operate uniformly. 26 *See NASD Notices to Members* 02-39 (July 2002) and 04-18 (March 2004). On May 10, 2002, the SEC approved the first round of SRO Rules (“Round 1 Amendments”)—new NASD Rule 2711(”Research Analysts and Research Reports”) and amendments to NYSE Rules 351 (“Reporting Requirements”) and 472 (“Communications with the Public”)—which implemented basic reforms to separate research from investment banking and to provide more extensive disclosure of conflicts of interest in research reports and public appearances. 27 On July 29, 2003, the SEC approved a second set of amendments to the SRO Rules (“Round 2 Amendments”) 28 that achieved two purposes. First, the Round 2 Amendments implemented SRO initiatives to further promote analyst objectivity and transparency of conflicts in research reports. Second, the Round 2 Amendments implemented changes mandated by the Sarbanes-Oxley. 29 Sarbanes-Oxley required adoption by July 30, 2003 of rules “reasonably designed to address conflicts of interest that can arise when securities analysts recommend equity securities in research reports and public appearances,” and set forth certain specific rules to be promulgated. Many of those rules had already been adopted in the first round of SRO rulemaking. The Round 2 Amendments therefore implemented those specific Sarbanes-Oxley rules that did not already exist and conformed the language of the SRO Rules as necessary. 27 *See* Securities Exchange Act Release No. 45908 (May 10, 2002), 67 FR 34968 (May 16, 2002) (order approving SR-NASD-2002-021 and SR-NYSE-2002-09). 28 *See* Securities Exchange Act Release No. 48252 (July 29, 2003), 68 FR 45875 (August 4, 2003) (order approving SR-NASD-2002-154 and SR-NYSE-2002-49). 29 *See* Section 15D of the Act, 15 U.S.C. 78o-6. As part of the Round 2 Amendments, the SEC approved rules requiring registration and qualification of research analysts. NASD Rule 1050 requires an associated person who functions as a research analyst on behalf of a member to register as such and pass a qualification examination. For the purposes of this requirement, a “research analyst” is defined as “an associated person who is primarily responsible for the preparation of the substance of a research report or whose name appears on a ‘research report,’ ” as that term is defined in NASD Rule 2711. The SROs jointly developed and implemented the Research Analyst Qualification Examination (Series 86/87). The examination consists of an analysis part (Series 86) and a regulatory part (Series 87). Prior to taking either the Series 86 or 87, a candidate also must have passed the General Securities Registered Representative Examination (Series 7), the Limited Registered Representative Examination (Series 17), or the Canada Module of Series 7 (Series 37 or 38). The SRO Rules provide three exemptions from the Series 86 examination. First, there is an exemption for research analysts who have passed Levels I and II of the Chartered Financial Analyst (“CFA”) examination and have either
(1)completed the CFA Level II within 2 years of application or registration, or
(2)functioned as a research analyst continuously since having passed the CFA Level II. 30 A second exemption is available to research analysts who have passed Levels I and II of the Chartered Market Technician Examination and produce only “technical research reports” as that term is defined under the SRO Rules. 31 A third exemption—from both the Series 86 and Series 87—is available to persons who may be “associated persons” of a member who are employed by that member's foreign affiliate but who produce research on behalf of the U.S. member. To be eligible for the exemption, three primary conditions must be met:
(1)A foreign analyst must comply with the registration and qualification requirements or other standards in an SRO-approved foreign jurisdiction whose regulatory scheme reflects a recognition of principles that are consonant with the SRO Rules and qualification standards;
(2)the U.S. member must apply all of the other SROs rules and other member firm standards to the research produced by the foreign affiliate and foreign research analysts that qualify for, and rely upon, the exemption; and
(3)the U.S. member must include a specific disclosure that the research report has been prepared in whole or part by foreign research analysts who may be associated persons of the member who are not registered/qualified as a research analyst with the NYSE or NASD, but instead have satisfied the registration/qualification requirements or other research-related standards of a foreign jurisdiction that have been recognized for these purposes by the NYSE and NASD. Currently, the following jurisdictions satisfy the applicable SRO standards noted above: China, Hong Kong, Japan, Malaysia, Singapore, Thailand and the United Kingdom. 30 *See* Securities Exchange Act Release No. 49464 (March 24, 2004), 69 FR 16628 (March 30, 2004) (order approving SR-NASD-2004-020 and SR-NYSE-2004-03). 31 *See* Securities Exchange Act Release No. 51240 (February 23, 2005), 70 FR 10451 (March 3, 2005) (notice of immediate effectiveness of SR-NASD-2005-022 and SR-NYSE-2005-12). On April 21, 2005, the Commission approved an amendment to the SRO Rules that prohibits research analysts from participating in a road show related to an investment banking services transaction and from communicating with current or prospective customers in the presence of investment banking department personnel or company management about such an investment banking services transaction. 32 Additionally, the amendment prohibits investment banking personnel from directing a research analyst to engage in sales and marketing efforts and other communications with a current or prospective customer about an investment banking services transaction. 32 *See* Securities Exchange Act Release No. 51593 (April 21, 2005), 70 FR 22168 (April 28, 2005) (order approving SR-NASD-2004-141 and SR-NYSE-2005-24). As defined under NASD Rule 2711(a)(3) and NYSE Rule 472.20, “investment banking services” includes, without limitation, acting as an underwriter or participating in a selling group in an offering for the issuer; acting as a financial adviser in a merger or acquisition; providing venture capital, equity lines of credit, private investment, public equity transactions (PIPEs), or similar investments; or serving as placement agent for the issuer. Joint SRO Report As part of its May 2002 order approving new NASD Rule 2711, the SEC noted that it would require NASD and the NYSE to assess the success of the rules after they have been in place for a suitable amount of time. In April 2005, the SEC staff requested a joint comprehensive report on the operation and effectiveness of the rules, together with any recommendations for changes or additions to the rules. The SRO staffs submitted that report to the SEC on December 22, 2005. The SRO staffs concluded in the report that the SRO Rules have been effective in helping to restore integrity to research by minimizing the influences of investment banking and promoting transparency of other potential conflicts of interest. However, the SRO staffs further expressed their belief that certain changes to the SRO Rules would further improve their effectiveness by striking an even better balance between ensuring objective and reliable research on the one hand and permitting the flow of information to investors and minimizing costs and burdens to members on the other. In formulating the recommendations for rule changes in the report, the SROs considered extensive data and qualitative feedback regarding the range of activities under the rule, including examinations, sweeps, enforcement activities, interpretive issues and registration and qualification of research analysts. The SROs also surveyed academic studies and media reports about the impact of the rules; compared the SRO Rules to the provisions of the “Global Settlement” among the SROs, the Commission, the North American Securities Administrators Association and ten 33 of the largest investment banks; reviewed industry comment letters; and consulted with various industry representatives. If approved, the proposed rule changes would implement NASD staff's recommendations in the SRO report. A discussion of the proposed rule changes is set out below. 33 *See* SEC Litigation Release No. 18438, 2003 SEC LEXIS 2601 (October 31, 2003). In August 2004, two additional firms settled with regulators under the same terms as the April 2003 Global Settlement. Exception to Definition of “Research Report” The proposed rule changes would expressly exclude from the definition of “research report” sales material regarding open-end registered investment companies that are not listed or traded on an exchange and public direct participation programs (“DPPs”). “Research report” is defined in Rule 2711(a)(9) as a “written (including electronic) communication that includes an analysis of equity securities of individual companies or industries, and that provides information reasonably sufficient upon which to base an investment decision.” Since these investment companies and DPPs are “equity securities” as defined in Section 3(a)(11) of the Securities Exchange Act of 1934, related sales material that contains an analysis of those securities and information sufficient upon which to base an investment decision technically is covered by the definition. For the following reasons, NASD believes sales material for both types of products should be excluded from the definition of “research report.” According to NASD, sales material regarding investment companies is already subject to a separate regulatory regime, including NASD Rule 2210 and SEC Rule 482, and all advertisements and sales literature regarding registered investment companies must be filed with the NASD Advertising Regulation Department within ten business days of first use. 34 Moreover, the NASD staff does not believe that the conflicts underpinning the SRO Rules are manifest to the same extent with respect to research on open-end investment companies that are not listed or traded on an exchange. 34 An advertisement or sales literature concerning a registered investment company that includes a performance ranking or performance comparison of the investment company with other investment companies that is not generally published or is created by the fund or its affiliates must be filed with the NASD Advertising Regulation Department at least ten business days prior to first use or publication. NASD Rule 2210(c)(4)(A). Similarly, NASD believes that sales material for public DPPs also do not present the same conflicts of interest or other regulatory concerns as research on exchange-traded securities. Publicly offered DPPs typically are limited partnerships or limited liability companies whose equity interests do not trade on an exchange and do not have an active secondary market. The DPP sponsor generally produces its sales material and sells interests in the DPP during an initial public offering on a best efforts basis. This sales material typically consists of “tombstone” advertisements whose content is strictly limited under SEC Rule 134, or supplemental sales literature that must be accompanied or preceded by a prospectus for the DPP. Additionally, unlike equity research, NASD Rule 2210(c)(2)(B) requires members to file advertisements and sales literature concerning public DPPs with the Department within ten business days of first use. Thus, NASD staff reviews such sales material before or shortly after it is distributed to the public. Although ETFs are open-end investment companies, they trade on an exchange and therefore those funds would not be excepted from the definition of “research report.” NASD requests comment on whether ETFs should also be excluded from the definition. In addition, NASD believes that NASD Advertising Regulation Department review of registered investment company and public DPP sales material reduces the likelihood that it will contain content that is not fair and balanced. Exception to Registration and Qualification Requirements for Non-Research Personnel that Produce “Research Reports” The SRO Rules, in accordance with the mandates of Sarbanes-Oxley, are constructed such that the author of a communication that meets the definition of a “research report” is a “research analyst,” irrespective of his or her title or primary job. NASD believes that this prevents firms from circumventing the rules by redirecting through other channels, such as registered representatives or traders, potentially biased research that is not subject to the SRO objectivity safeguards. NASD believes it is important to maintain such communications as “research reports” subject to the rules and those principally responsible for their preparation as “research analysts.” However, the proposed rule changes would create a limited exemption from the NASD Rule 1050 registration requirements for non-research personnel that produce research reports. Thus, for example, the registration requirements would not apply to a registered representative who occasionally produces communications that technically meet the definition of a research report and are distributed to 15 or more clients, or a trader who similarly produced market commentary that included an analysis of an individual security—also considered a research report under NASD rules. NASD believes that the registration and qualification requirements were intended for those individuals whose principal job function is to produce research, while the balance of the SRO Rules are intended to foster objective analysis of equity securities and transparency of certain conflicts and to provide beneficial information to investors. Restrictions on Investment Banking Department Relationship With Research Department Currently, NASD Rule 2711(b) permits investment banking and other non-research employees, other than legal and compliance personnel, to review a research report before publication only to verify the factual accuracy of information in the report or identify a potential conflict of interest. The rule further requires that an authorized legal or compliance official act as intermediary for all such permissible communications. The proposed rule change would eliminate paragraph (b)(3) of NASD Rule 2711 that permits pre-publication review of research by investment banking and other non-research personnel, other than by legal and compliance. NASD believes that review of facts in a report by investment banking and other non-research personnel is unnecessary in light of the numerous other sources available to verify factual information, including the subject company, and only raises concerns about the objectivity of the report. According to NASD, such review may invite pressure on a research analyst from such personnel that could be difficult to monitor. Such factual review is not permitted under the terms of the Global Settlement, and NASD staff is not aware of any evidence that the factual accuracy of research produced by Global Settlement firms has suffered. Moreover, NASD believes that legal and compliance can adequately perform a conflict review without sharing draft research reports with investment banking or other non-research personnel. Restrictions on Publishing Research Reports and Public Appearances NASD Rule 2711(f) sets forth “quiet periods” during which a member is prohibited from publishing or otherwise distributing a research report and a research analyst is prohibited from making a public appearance. These quiet periods apply in two circumstances:
(1)After a public offering of securities and
(2)before and after the expiration, waiver or termination of a lock-up agreement entered into by a member with a subject company that restricts the sale of securities by that company or its shareholders. With respect to the former, NASD Rule 2711(f) establishes different quiet periods depending on whether the offering is an IPO or secondary offering and whether the member acted as manager or co-manager. A member that acted as a manager or co-manager of an IPO may not publish or otherwise distribute research for 40 calendar days following the date of the offering; all other members that participated as an underwriter or dealer in the offering are subject to a 25-day quiet period. A ten-day quiet period applies only to the manager and co-manager of a secondary offering. NASD Rule 2711(f) contains an exception that permits publication and distribution of research or a public appearance concerning the effects of “significant news or a significant event on the subject company” during the quiet period. The SRO staffs have interpreted this exception to apply only to news or events that have a material impact on, or cause a material change to, a company's operation, earnings or financial condition. Another exception to the secondary offering quiet period permits publication or distribution of research pursuant to SEC Rule 139 regarding a subject company with “actively-traded securities” as defined in SEC Regulation M. The proposed rule changes would make several changes to the quiet period requirements surrounding public offerings and lock-up expirations. First, the proposed rule changes would unify the IPO quiet periods for all underwriters and dealers participating in the offering. As such, the proposed rule change would amend the rules to apply a 25-day quiet period to managers, co-managers, underwriters and dealers that participate in an IPO. NASD believes that the lengthier quiet period for managers and co-managers was intended to allow other voices to publicly analyze and value a subject company before managers and co-managers—those members vested with the greatest interest in seeing the stock price of the subject company go up—weighed in with their reports and public appearances. According to NASD, at the time this provision was enacted, it had been commonplace for managers and co-managers to initiate coverage with a positive rating on a company they just brought public, irrespective of whether the stock price had already risen well beyond the public offering price. However, NASD recently has observed more circumstances in which managers and co-managers have been neutral or even negative with their initial post-quiet period report based on price appreciation or other factors. Accordingly, NASD believes that the objectivity safeguards of the SRO Rules and the certification requirement of SEC Regulation AC have obviated the need for a longer quiet period for managers and co-managers than other underwriters and dealers participating in an IPO. NASD also believes the change would promote more information flow to investors and consistency in rule application. For some of the same reasons, the proposed rule changes would eliminate the quiet periods following a secondary offering. Coupled with the protections of SEC Regulation AC and other SRO Rule provisions, NASD believes that repeal of this provision would advance the SEC's purpose in its Securities Offering Reform rules 35 to increase the flow of information to investors about issuers, without sacrificing the reliability of the research. Along those lines, the existing SRO Rules already provide exceptions for research reports on issuers with “actively-traded securities” as defined in SEC Regulation M. 35 *See* Securities Act Release No. 8591 (July 19, 2005), 70 FR 44722 (August 3, 2005). Second, the proposed rule changes would eliminate the quiet periods around the expiration, waiver or termination of a lock-up agreement provided, as discussed below, that members provide an additional certification, similar to Regulation AC, to having a bona fide reason for issuing research during such periods. According to NASD, the quiet periods surrounding lock-up releases are intended to prevent abusive “booster shot” reports by members to raise the stock price of a company just before previously locked-up shares become freely saleable into the market by a company or its major shareholders. While NASD remains concerned that these periods pose heightened concerns about biased research, the changes to internal structure of investment banks and the other safeguards imposed by the current rules appear to have addressed these concerns and obviate the need for a quiet period that inhibits the flow of information to the marketplace. NASD has observed, for example, that negative information about a subject company is sometimes released by that company during the quiet periods, but the quiet periods prevent some members from providing analysis of this negative information to investors in a timely fashion. NASD believes that elimination of the quiet periods around lock-ups will permit such information to flow to investors without sacrificing the overall objectivity of the research. 36 36 NASD believes that practical limitations inhibit effective administration of the provision. Most notably, NASD rules do not require lock-up agreements, and NASD often has no jurisdiction over parties to them, including the subject company and its non-member shareholders. NASD therefore cannot always be the arbiter of whether certain facts constitute, for example, a waiver or termination of a lock-up—a significant impediment to our ability to enforce this provision. NASD Rule 2711(f) would continue to require a reasonable basis for any recommendation or price target and the valuation method used to determine a price target, while SEC Regulation AC requires certification that any such recommendation or price target is genuinely held. Accordingly, NASD believes that an effective alternative to the quiet periods would be to require that members provide an additional certification, similar to Regulation AC, to having a bona fide reason for issuing research within 15 days before and after a lock-up expiration and was not otherwise issued for any reason pertaining to conditioning the market price of the security that was the subject of the research report. NASD would set forth the language of the certification in a *Notice to Members* upon approval of the proposed rule change. In the Joint Report, NYSE recommends an alternative proposal to reduce the duration of the quiet periods and expand the exception for research concerning the effects of significant news or a significant event on the subject company to include earnings related announcements. NASD believes its proposal is a more viable means to ensure timely information flow to investors than such an alternative approach. As the SROs have previously noted in their March 2004 joint interpretive memorandum, earnings announcements do not generally fall within the exception because “an earnings announcement itself generally is not a causal event or news item that materially affects a company's operations, earnings or financial condition.” NASD believes that a carve-out for earnings related announcements could lead to lock-up expirations timed to coincide with such announcements—many of which are scheduled regularly—thereby essentially negating the quiet period altogether. NASD believes that this is problematic because the significant news exception applies not only to quiet periods around lock-up expirations, but also to the quiet periods after an IPO and the blackout periods during which analysts are prohibited from trading in securities they cover. Restrictions on Personal Trading by Research Analysts NASD Rule 2711(g) generally restricts the trading of securities by “research analyst accounts.” 37 Specifically, the rule prohibits any research analyst account from: 37 NASD Rule 2711(a)(7) defines the term “research analyst account” to include any account in which a research analyst or member of the analyst's household has a financial interest, or over which the analyst has discretion or control, other than an investment company registered under the Investment Company Act of 1940. The proposed rule change would clarify that this definition is intended to except from the definition those registered investment companies that are managed by a research analyst or member of the research analyst's household, provided that the research analyst or household member has no financial interest in such investment other than a performance or management fee. *See* infra page 46. The term does not include a “blind trust” account that is controlled by a person other than the research analyst or household member and neither the analyst nor any household member knows of the account's investments or investment transactions. • Purchasing or receiving any securities before the issuer's initial public offering if the issuer is principally engaged in the same types of business as companies that the research analyst follows; • Purchasing or selling any security issued by a company that the research analyst follows, or any option or derivative of such a security, for a period beginning 30 days before and ending five days after the publication of a research report concerning the company or a change in a rating or price target of the company's securities; and • Purchasing or selling any security or option or derivative of such a security in a manner inconsistent with the analyst's most recent recommendation. NASD Rule 2711(g) includes certain limited exceptions to these trading restrictions. The proposal would make two principal changes to the personal trading restrictions. First, the proposed rule changes would revise the exceptions to the personal trading restrictions for investment funds in paragraph (g)(5). Under the proposed rule changes, the personal trading restrictions would not apply to investments in any fund (including a registered diversified investment company), so long as neither the analyst nor a member of his or her household is aware of the fund's holdings or transactions other than through periodic shareholder reports and sales material based on such reports, and provided that the research analyst account owns no more than 1% of the assets of the fund. NASD believes that this change would simplify the ability of analysts to invest in, for example, mutual funds and hedge funds that do not disclose their holdings other than through periodic reports or sales material based on such reports. According to NASD, absent discretion or control of an account or the contemporaneous knowledge of the account's transactions, a minimal investment by a research analyst will not influence the analyst to compromise research objectivity to benefit the account. NASD understands that NYSE is proposing to retain the 20% asset diversification threshold to be eligible for the exception. NASD seeks comment on whether to maintain that separate requirement. Second, the proposed rule changes would create an exemption for firms that voluntarily choose to prohibit their analysts from owning shares of the companies they cover. The exemption would provide a means for analysts at such firms to divest their holdings without violating the blackout period and trading against recommendation prohibitions. The exemption would allow such a firm to adopt policies that permit research analysts to divest their holdings in an orderly and controlled way with the oversight of the firm's legal and compliance personnel. The SROs permitted firms to allow their analysts to divest their holdings in the same manner when the rule first became effective by delaying for a certain time period implementation of the personal trading restrictions for firms that wished to ban ownership. With the recommended change, NASD Rule 2711(g) would allow firms that adopt ownership bans to implement the same divestiture procedures regardless of when they adopted such a policy. Disclosure Requirements NASD Rule 2711(h) imposes a number of disclosure requirements on member research reports and research analyst public appearances in which the analyst makes a recommendation or offers an opinion concerning an equity security. NASD Rule 2711(h) requires specific disclosures of conflicts of interest, including where the member firm, the research analyst or a member of the analyst's household has a financial interest in the subject company's securities or the member or its affiliates have received compensation from the subject company. NASD Rule 2711(h) also requires a number of other disclosures in research reports that are not directly related to conflicts of interest with the subject company, including the meanings of ratings used in the member's rating system, the distribution of buy, hold, and sell ratings assigned by the member, and a price chart that plots the assignment or changes of the analyst's ratings and price targets for the subject company against the movement of the subject company's stock price over time. The required disclosures must be presented on the front page of research reports or the front page must refer to the page on which the disclosures are found. Electronic research reports may utilize hyperlinks to the disclosures. Disclosures and references to disclosures must be clear, comprehensive and prominent. According to NASD, these required disclosures promote transparency and provide important information to enable investors to assess the value of the research in making their investment decision. However, NASD believes that it would be equally effective and useful for investors to know immediately whether the member firm or research analyst producing the research report is conflicted, while providing the reader the means to learn more about these conflicts if he or she chooses to do so. To that end, the proposed rule changes would amend the rules to permit members, in lieu of publication in the research report itself, to disclose their conflicts of interest by including a prominent warning on the cover of a research report that such conflicts of interest exist, together with information on how the reader may obtain more detail about these conflicts on the member's Web site. This alternative method of disclosure would then require a member to include detailed conflicts information on its Web site. Members could still opt to make all of the disclosures in the report itself; however, NASD believes that a Web-based disclosure system would be at least as effective and would minimize costs for many firms. Specifically, the proposed rule changes would require any member that has a conflict of interest or whose research analyst has a conflict of interest to state prominently on the front page of the research report the following: [Name of firm and/or the research analyst preparing this report] has a conflict of interest that may affect the ability of the firm or the analyst to provide objective analysis about the company. For more information about this conflict of interest, please see [Reference to the firm's Web site]. The proposed rule changes would define “conflict of interest” to include any of the circumstances that currently require disclosure under NASD Rule 2711(h), including if the research analyst or member of the research analyst's household has a financial interest in the subject company; if the member owns 1% or more of any class of common equity securities of the subject company; receipt by the member of investment banking and other compensation from the subject company or the intention to seek investment banking compensation; if the member makes a market in the subject company's securities; if the research analyst or a member of the research analyst's household serves as an officer, director or advisory board member of the subject company; and any other actual, material conflict of interest of the research analyst or member of which the research analyst knows or has reason to know at the time of publication of the research report. The proposed amendment would still require that Web-based disclosure concern actual conflicts of interest, rather than the possibility of such conflicts. A general “health warning” that conflicts of interest “may or may not” exist are neither useful nor effective. NASD specifically seeks comment on whether a similar approach could be used for disclosure of conflicts in public appearances. The proposed rule changes would not permit Web site disclosure for certain other disclosures, such as the meanings of the member's ratings and the price chart showing the subject company's price movements against the analyst's assignments of ratings and price targets. NASD believes that those disclosures do not lend themselves easily to the terse material conflict warning that would appear on the cover of the report. Accordingly, NASD believes that they should be readily available to investors in the report itself. Prohibition on Retaliation Against Research Analysts NASD Rule 2711(j) currently prohibits any member and any employee of a member who is involved with the member's investment banking activities from directly or indirectly retaliating against a research analyst as a result of an unfavorable research report or public appearance that may adversely affect the member's current or prospective investment banking relationship with a subject company. Under no circumstances is retaliation appropriate against a research analyst who expresses his or her truly held beliefs about a subject company. As such, the proposed rule changes would amend this provision to extend the retaliation prohibition to all employees, not just those involved in investment banking activities. Other Changes The proposed rule changes also would make certain other changes. First, the proposed rule change would amend the definition of “research analyst account” in NASD Rule 2711(a)(7) to clarify that it excludes an investment company registered under the Investment Company Act of 1940 over which the research analyst or household member has discretion or control, provided that the research analyst or household member has no financial interest in such investment company, other than a performance or management fee. Second, the proposed rule changes would amend NASD Rule 2711(c)(5)(B) to extend the prohibition on research analysts from engaging in communications about an investment banking services transaction with a current or prospective customer in the presence of investment banking department personnel or company management to also apply to communications with internal sales personnel. NASD believes such change would make the provision consistent with respect to a research analyst's ability to educate investors and sales personnel about an investment banking services transaction. Finally, the proposed rule changes would clarify that the annual attestation required by NASD Rule 2711(i) must be filed with NASD's Member Regulation Department. NASD notes that the Member Regulation Department has developed a form, available on the NASD Web site, that may be used to make the attestation electronically. NASD will announce the effective date of the proposed rule changes in a *Notice to Members* to be published no later than 60 days following Commission approval. 4. NASD's Statutory Basis NASD believes that the proposed rule changes are consistent with the provisions of Section 15A(b)(6) of the Act, 38 which requires, among other things, that NASD rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. NASD believes that the proposed rule changes are consistent with the provisions of the Act because it promotes both objective research and increased information flow to investors and does so in an efficient and effective manner. 38 15 U.S.C. 78o-3(b)(6). B. Self-Regulatory Organizations' Statements on Burden on Competition The NYSE and NASD do not believe that the proposed rule changes will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organizations' Statements on Comments on the Proposed Rule Changes Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Changes and Timing for Commission Action Within 35 days of the date of publication of this notice in the **Federal Register** or within such longer period
(i)as the Commission may designate up to 90 days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the self-regulatory organization consents, the Commission will:
(A)By order approve such proposed rule changes, or
(B)Institute proceedings to determine whether the proposed rule changes should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views and arguments concerning the foregoing, including whether the proposed rule changes are consistent with the Act and whether there are any differences between the NYSE and NASD proposals that present compliance or interpretive issues. We solicit comment as to how the proposals to relocate disclosures to a member firm's Web site would affect the utility of this information to investors. Please also provide comment on whether relocating disclosures to a member firm's Web site would provide a substantial cost benefit to firms. 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 Numbers SR-NYSE-2006-78 and/or SR-NASD-2006-113 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 Numbers SR-NYSE-2006-78 and/or SR-NASD-2006-113. The file numbers 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 changes that are filed with the Commission, and all written communications relating to the proposed rule changes between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filings also will be available for inspection and copying at the principal office of the NYSE and NASD. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Numbers SR-NYSE-2006-78 and/or SR-NASD-2006-113 and should be submitted on or before March 5, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 39 39 17 CFR 200.30-3(a)(12). Florence E. Harmon, Deputy Secretary. [FR Doc. E7-548 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-55071; File No. SR-Phlx-2006-84] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto To Adopt an Appeal Fee January 9, 2007. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on December 8, 2006, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III below, which Items have been substantially prepared by the Exchange. On December 20, 2006, the Exchange filed Amendment No. 1 to the proposed rule change. 3 The Exchange has designated this proposal as one establishing or changing a due, fee, or other charge imposed by a self-regulatory organization pursuant to Section 19(b)(3)(A)(ii) of the Act 4 and Rule 19b-4(f)(2) thereunder, 5 which renders the proposal effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change, as modified by Amendment No. 1, from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 In Amendment No. 1, the Exchange modified the scope of its proposal to exempt appeals of decisions of the Nominating, Elections and Governance Committee from the proposed fee. Amendment No. 1 replaced the original filing in its entirety. 4 15 U.S.C. 78s(b)(3)(A)(ii). 5 17 CFR 240.19b-4(f)(2). I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to adopt a $250.00 appeal fee for Appeals to the Board of Governors from decisions of Standing Committees 6 (“Appeal Fee”). An appeal from a decision of the Business Conduct Committee, the Hearing Officer, or a Hearing Panel, pursuant to Exchange Rule 960.9 and By-Law Article XI, Section 11-3, as well as an appeal from a decision of the Nominating, Elections and Governance Committee, pursuant to By-Law Article XI, Section 11-1, will not be subject to the Appeal Fee. 7 The Appeal Fee, which will be paid by appellant at the time of filing an appeal, will be refunded to the appellant in the event the Board of Governors overturns the decision of the Standing Committee. 6 *See* Exchange By-Law Article X, Section 10-1 for the list of Standing Committees of the Exchange. 7 Telephone conversation between Leah Mesfin, Special Counsel, Division of Market Regulation, Commission, and Angela Dunn, Director and Counsel, Phlx, on December 21, 2006. This fee became effective January 1, 2007. The text of the proposed rule change is available at the Commission's Public Reference Room, the Exchange's Web site at *http://www.phlx.com/exchange/rulefilings/2006/SR-2006-84.pdf* , and at the Exchange. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange represents that the purpose of the proposed rule change is to reduce the number of frivolous appeals by assessing a fee for all appeals that are upheld. Currently, three Governors hear appeals from decisions of Standing Committees, with the exception of an appeal from the Nominating, Elections and Governance Committee, which is heard by a majority of Governors who are not then candidates for office. The appeal may require several hours of time from each Governor. The Exchange believes that the appeal process is subject to abuse by members, participants, member organizations and participant organizations who incur no downside to filing repeated appeals, whether valid or otherwise. The Exchange believes that, currently, the ease with which an appeal can be filed and receive a “second look” at no cost creates a potential for abuse. This fee will become effective January 1, 2007. An appeal from a decision of the Business Conduct Committee, the Hearing Officer or a Hearing Panel, pursuant to Exchange Rule 960.9 and By-Law Article XI, Section 11-3, and an appeal from a decision of the Nominating, Elections and Governance Committee, pursuant to By-Law Article XI, Section 11-1, will not be subject to the Appeal Fee. The Appeal Fee, which will be paid by appellant at the time of filing an appeal, will be refunded to the appellant in the event the Board of Governors overturns the decision of the Standing Committee. 2. Statutory Basis The Exchange believes that its proposal to amend its schedule of fees is consistent with Section 6(b) of the Act 8 in general, and furthers the objectives of Section 6(b)(5) 9 in particular in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principals of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, and to remove the impediments to and perfect the mechanism of a free and open market and a national market system. Finally, the proposed rule change furthers the objectives of Section 6(b)(4) of the Act 10 in particular, in that it is an equitable allocation of reasonable fees and other charges among Exchange members. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78(f)(b)(5). 10 15 U.S.C. 78f(b)(4). B. Self-Regulatory Organization's Statement on Burden on Competition The Phlx does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were either solicited or received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act 11 and subparagraph (f)(2) of Rule 19b-4 thereunder 12 because it establishes or changes a due, fee, or other charge. 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. 13 11 15 U.S.C. 78s(b)(3)(A)(ii). 12 17 CFR 240.19b-4(f)(2). 13 For purposes of calculating the 60-day period within which the Commission may summarily abrogate the proposed rule change the Commission considers the period to commence on December 20, 2006, the date on which the Exchange filed Amendment No. 1. *See* 15 U.S.C. 78s(b)(3)(C). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-Phlx-2006-84 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-Phlx-2006-84. 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-Phlx-2006-84 and should be submitted on or before February 7, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority. 14 14 17 CFR 200.30-3(a)(12). Florence E. Harmon, Deputy Secretary. [FR Doc. E7-479 Filed 1-16-07; 8:45 am] BILLING CODE 8011-01-P SMALL BUSINESS ADMINISTRATION Data Collection Available for Public Comments and Recommendations ACTION: Notice and request for comments. SUMMARY: In accordance with the Paperwork Reduction Act of 1995, this notice announces the Small Business Administration's intentions to request approval on a new and/or currently approved information collection. DATES: Submit comments on or before March 19, 2007. ADDRESSES: Send all comments regarding whether these information collections are necessary for the proper performance of the function of the agency, whether the burden estimates are accurate, and if there are ways to minimize the estimated burden and enhance the quality of the collections, to Cynthia Pitts, Administrative Officer, Office of Disaster Assistance, Small Business Administration, 409 3rd Street SW., 6th Floor, Washington, DC 20416. FOR FURTHER INFORMATION CONTACT: Cynthia Pitts, Administrative Officer, Office of Disaster Assistance 202-205-7570, *cynthia.pitts#@sba.gov* . Curtis B. Rich, Management Analyst, 202-205-7030, *curtis.rich@sba.gov* . SUPPLEMENTARY INFORMATION: *Title:* “Disaster Business Loan Application” *Description of Respondents:* Personnel that assist in the processing of loan applications and disbursement of loan funds to victims of Hurricanes Katrina, Rita and Wilma. *Form No:* 5,1368. *Annual Responses:* 12,742. *Annual Burden:* 29,754. *Title:* “Alternative Creditworthiness Assessment” *Description of Respondents:* Personnel that assist in the processing of loan applications and disbursement of loan funds to victims of Hurricanes Katrina, Rita and Wilma. *Form No.:* 2294. *Annual Responses:* 1,849. *Annual Burden:* 8. ADDRESSES: Send all comments regarding whether this information collection is necessary for the proper performance of the function of the agency, whether the burden estimates are accurate, and if there are ways to minimize the estimated burden and enhance the quality of the collection, to Charles W. Thomas, Director, Office of Program Development, Small Business Administration, 409 3rd Street SW., 8th Floor, Washington, DC 20416. FOR FURTHER INFORMATION CONTACT: Charles W. Thomas, Director, Office of Program Development, 202-205-6656, *charles.thomas@sba.gov* . Curtis B. Rich, Management Analyst, 202-205-7030, *curtis.rich@sba.gov.* SUPPLEMENTARY INFORMATION: *Title:* “Microloan Program Electronic Reporting System (MPERS).” *Description of Respondents:* Microloan Program Intermediary Lenders. *Form No:* N/A. *Annual Responses:* 2,500. *Annual Burden:* 625. Jacqueline White, Chief, Administrative Information Branch. [FR Doc. E7-489 Filed 1-16-07; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10776 and # 10777] Illinois Disaster # IL-00005 AGENCY: U.S. Small Business Administration. ACTION: Notice. SUMMARY: This is a notice of an Administrative declaration of a disaster for the State of Illinois dated 01/05/2007. *Incident:* Severe storms and flooding. *Incident Period:* 09/04/2006 through 09/05/2006. *Effective Date:* 01/05/2007. *Physical Loan Application Deadline Date:* 03/06/2007. *Economic Injury
(EIDL)Loan Application Deadline Date:* 10/05/2007. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator's disaster declaration, applications for disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: *Primary Counties:* Winnebago. *Contiguous Counties:* Illinois; Boone, Dekalb, Ogle, Stephenson. Wisconsin; Green, Rock. *The Interest Rates are:* Percent Homeowners With Credit Available Elsewhere 6.250 Homeowners Without Credit Available Elsewhere 3.125 Businesses With Credit Available Elsewhere 7.934 Businesses & Small Agricultural Cooperatives Without Credit Available Elsewhere 4.000 Other (Including Non-Profit Organizations) With Credit Available Elsewhere 5.000 Businesses And Non-Profit Organizations Without Credit Available Elsewhere 4.000 The number assigned to this disaster for physical damage is 10776 6 and for economic injury is 10777 0. The States which received an EIDL Declaration # are: Illinois, Wisconsin. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Dated: January 5, 2007. Steven C. Preston, Administrator. [FR Doc. E7-481 Filed 1-16-07; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10780] Missouri Disaster # MO-00007 AGENCY: U.S. Small Business Administration. ACTION: Notice. SUMMARY: This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Missouri (FEMA-1673-DR), dated 12/29/2006. *Incident:* Severe Winter Storms. *Incident Period:* 11/30/2006 through 12/02/2006 *Effective Date:* 12/29/2006. *Physical Loan Application Deadline Date:* 02/27/2007. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing And Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the President's major disaster declaration on 12/29/2006, private non-profit organizations that provide essential services of a governmental nature may file disaster loan applications at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Boone, Cole, Greene, Iron, Reynolds, St. Francois, St. Louis, St. Louis (City), Ste. Genevieve, Washington. *The Interest Rates are:* Percent Other (Including Non-Profit Organizations) With Credit Available Elsewhere 5.250 Businesses And Non-Profit Organizations Without Credit Available Elsewhere 4.000 The number assigned to this disaster for physical damage is 10780. (Catalog of Federal Domestic Assistance Number 59008). Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. E7-480 Filed 1-16-07; 8:45 am] BILLING CODE 8025-01-P SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10779] Oregon Disaster # OR-00016 AGENCY: U.S. Small Business Administration. ACTION: Notice. SUMMARY: This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Oregon (FEMA-1672-DR), dated 12/29/2006. *Incident:* Severe storms, flooding, landslides, and mudslides. *Incident Period:* 11/05/2006 through 11/08/2006. *Effective Date:* 12/29/2006. *Physical Loan Application Deadline Date:* 02/27/2007. ADDRESSES: Submit Completed Loan Applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the President's major disaster declaration on 12/29/2006, private non-profit organizations that provide essential services of a governmental nature may file disaster loan applications at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: *Primary Counties:* Clatsop, Hood River, Lincoln, Tillamook. *The Interest Rates are:* Percent Other (Including Non-Profit Organizations) With Credit Available Elsewhere 5.250 Businesses and Non-Profit Organizations Without Credit Available Elsewhere 4.000 The number assigned to this disaster for physical damage is 10779. (Catalog of Federal Domestic Assistance Number 59008). Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. E7-482 Filed 1-16-07; 8:45 am] BILLING CODE 8025-01-P SOCIAL SECURITY ADMINISTRATION Agency Information Collection Activities: Proposed Request and Comment Request The Social Security Administration
(SSA)publishes a list of information collection packages that will require clearance by the Office of Management and Budget
(OMB)in compliance with Public Law 104-13, the Paperwork Reduction Act of 1995, effective October 1, 1995. The information collection packages that may be included in this notice are for new information collections, approval of existing information collections, revisions to OMB-approved information collections, and extensions (no change) of OMB-approved information collections. SSA is soliciting comments on the accuracy of the agency's burden estimate; the need for the information; its practical utility; ways to enhance its quality, utility, and clarity; and on ways to minimize burden on respondents, including the use of automated collection techniques or other forms of information technology. Written comments and recommendations regarding the information collection(s) should be submitted to the OMB Desk Officer and the SSA Reports Clearance Officer. The information can be mailed and/or faxed to the individuals at the addresses and fax numbers listed below: (OMB), Office of Management and Budget, Attn: Desk Officer for SSA, Fax: 202-395-6974. (SSA), Social Security Administration, DCFAM, Attn: Reports Clearance Officer, 1333 Annex Building, 6401 Security Blvd., Baltimore, MD 21235. Fax: 410-965-6400. I. The information collections listed below are pending at SSA and will be submitted to OMB within 60 days from the date of this notice. Therefore, your comments should be submitted to SSA within 60 days from the date of this publication. You can obtain copies of the collection instruments by calling the SSA Reports Clearance Officer at 410-965-0454 or by writing to the address listed above. 1. *Questionnaire about Employment or Self-Employment Outside the United States—20 CFR 404.401(b)(1), 404.415, 404.417—0960-0050* . The information collected on the SSA-7163 is needed to determine whether work performed by beneficiaries outside the United States is cause for deductions from their monthly Social Security Title II benefits; to determine which of two work tests (foreign test or regular test) is applicable; and to determine the months, if any, for which deductions should be imposed. The respondents are Title II beneficiaries living and working outside the United States. *Type of Request:* Extension of an OMB-approved information collection. *Number of Respondents:* 20,000. *Frequency of Response:* 1. *Average Burden Per Response:* 12 minutes. *Estimated Annual Burden:* 4,000 hours. 2. *Complaint Form for Allegations of Discrimination in Programs or Activities Conducted by the Social Security Administration—0960-0585* . The information collected on form SSA-437 is used by SSA to investigate and formally resolve complaints of discrimination based on race, color, sex, age, religion, disability, retaliation, and national origin, including limited or no ability with English in any program or activity conducted by SSA. A person who believes that he or she has been discriminated against on any of the above bases may file a written complaint of discrimination. The information will be used to identify the complainant; identify the alleged discriminatory act; ascertain the date of such alleged act; obtain the identity of any individual(s) with information about the alleged discrimination; and ascertain other relevant information that would assist in the investigation and resolution of the complaint. The respondents are individuals who believe they have been discriminated against by SSA or by SSA's employees, contractors or agents in programs or activities conducted by SSA. *Type of Request:* Extension of an OMB-approved information collection. *Number of Respondents:* 140. *Frequency of Response:* 1. *Average Burden Per Response:* 60 minutes. *Estimated Annual Burden:* 140 hours. 3. *Work Incentives Planning and Assistance Program (formerly the BPAO Program)—0960-0629.* Like the Benefits Planning Assistance Outreach
(BPAO)program which it replaces, the Work Incentives Planning and Assistance
(WIPA)program collects identifying information from the project sites and the community work incentives coordinators. In addition, data are collected from the beneficiaries on background employment, training, benefits and work incentives. SSA is interested in identifying beneficiary outcomes under the WIPA program to determine the extent to which beneficiaries with disabilities achieve their employment, financial and health care goals. The data will also be valuable to SSA in its analysis and future planning for Social Security Disability Insurance and Supplemental Security Income
(SSI)programs. *Type of Request:* Revision of an OMB-approved information collection. *Estimated Annual Burden:* 5,019 hours. Respondent Number of annual responses Frequency of response Average burden per response (minutes) Estimated annual burden hours Site 147 1 2 5 CWIC 422 1 2 14 Beneficiary 60,000 1 5 5,000 Totals 60,569 5,019 4. *Expanded Monitoring Site Review Questionnaire for Volume and Fee for Service Payees (SSA-637); Expanded Monitoring Site Review Beneficiary Interview Form (SSA-639)—20 CFR 404.2035, 404.2065, 416.665, 416.701, 416.708—0960-0633.* In situations where a Social Security beneficiary or SSI recipient is incompetent or physically unable to take care of his or her own affairs, SSA may pay Social Security benefits and/or SSI payments to a relative, another person, or an organization when the best interest of the beneficiary will be served. In certain situations, SSA conducts site reviews to ensure that payees are carrying out their responsibilities according to representative payment policies and procedures. SSA is also able to identify poor payee performance, uncover misuse and initiate corrective action. Triennial site reviews are conducted for fee-for-service payees and all volume payees ( *i.e.* , organizations serving 100 or more beneficiaries and individuals serving 20 or more beneficiaries). The reviews include a face-to-face meeting with the payee (and appropriate staff), examination/verification of a sample of beneficiary records and supporting documentation, and usually include beneficiary (if competent adult) or custodian (if different from payee) interviews. Forms SSA-637 and SSA-639 are used to record the information collected during these interviews. The respondents are certain representative payees and also competent Social Security beneficiaries. *Type of Request:* Revision of an OMB-approved information collection. *Estimated Annual Burden:* 3,538 hours. Form No. Number of respondents Reports annually Time per response (minutes) Total hours SSA-637 1,763 1 75 2,204 SSA-639 8,001 1 10 1,334 Totals 9,764 3,538 5. *Direct Deposit Sign-Up Form (Country)—31 CFR 210—0960-0686.* This form captures the direct deposit information for an account at a foreign financial institution. Our International Direct Deposit program allows beneficiaries living abroad to have their benefits deposited to an account at a financial institution outside the U.S. Routing account number information varies slightly for each country, so we use a variation of the SF-1199 A for each country. The respondents are Social Security beneficiaries residing abroad. *Type of Request:* Extension of an OMB-approved information collection. *Number of Respondents:* 5,000. *Frequency of Response:* 1. *Average Burden Per Response:* 5 minutes. *Estimated Annual Burden:* 417 hours. 6. *Certification of Prisoner Identity Information—20 CFR 422.107—0960-0688.* When a valid agreement is in place, prison officials will verify the identity of certain incarcerated U.S. citizens who need replacement Social Security cards. Information the prison officials provide will be taken from the official prison files and will be transcribed on their letterhead. This information will be used to establish the applicant's identity in the Social Security card process. The respondents are prison officials that certify identity of prisoners applying for replacement Social Security cards. *Type of Request:* Extension of an OMB-approved information collection. *Number of Respondents:* 1,000. *Frequency of Response:* 200. *Average Burden Per Response:* 3 minutes. *Estimated Annual Burden:* 10,000 hours. II. The information collections listed below have been submitted to OMB for clearance. Your comments on the information collections would be most useful if received by OMB and SSA within 30 days from the date of this publication. You can obtain a copy of the OMB clearance packages by calling the SSA Reports Clearance Officer at 410-965-0454, or by writing to the address listed above. 1. *Certification of Period of Temporary Institutionalization and Need to Maintain Home—20 CFR 416.212(b)(1)—0960-0516.* SSA is required by law to collect the information necessary to establish eligibility for continued SSI payments for temporarily institutionalized individuals. Sections 1611(e)(1)(G)&(H) of the Social Security Act require the Commissioner to establish procedures for determining that a physician has certified that the period of confinement is not likely to exceed 3 months, and for determining that the recipient needs to continue to maintain and provide for the expense of a home or living arrangement. *Type of Request:* Extension of an OMB-approved information collection. *Number of Respondents:* 60,000. *Frequency of Response:* 1. *Average Burden Per Response:* 5 minutes. *Estimated Annual Burden:* 5,000 hours. 2. *Blood Donor Locator Service (BDLS)—20 CFR 401.200—0960-0501.* This regulation requires requesting State agencies to provide the names and Social Security Numbers of blood donors, and a statement that the donor's blood tested positive for Human Immunodeficiency Virus
(HIV)to SSA's Blood Donor Locator Service when blood donor facilities have identified donors as testing positive for HIV. This information is used by SSA to furnish the State agencies with the blood donors' address information for the purpose of notifying them. Respondents are State agencies acting on behalf of blood donor facilities. *Type of Request:* Extension of an OMB-approved information collection. *Number of Respondents:* 10. *Frequency of Response:* 5. *Number of Responses:* 50. *Average Burden Per Response:* 15 minutes. *Estimated Annual Burden:* 13 hours. 3. *Pre-1957 Military Service—Federal Benefit Questionnaire—20 CFR 404.1301-404.1371—0960-0120.* Sections 217(a) through
(e)of the Social Security Act provide for the crediting of military service before 1957 to the wage earner's record. This form collects specific information about other Federal, military or civilian benefits the wage earner may receive when the applicant indicates both pre-1957 military service and the receipt of Federal benefit. This data is then used in the claims adjudication process to grant gratuitous military wage credits when applicable. This form is used to solicit sufficient information to make a determination of eligibility. Respondents are applicants for Social Security benefits on a record where the wage earner has pre-1957 military service. *Type of Request:* Extension of an OMB-approved information collection. *Number of Respondents:* 5,000. *Frequency of Response:* 1. *Average Burden Per Response:* 10 minutes. *Estimated Annual Burden:* 833 hours. 4. *Statement of Household Expenses and Contributions—20 CFR 416.1130-416.1148—0960-0456.* SSA needs the information about household expenses and contributions, which is collected on Form SSA-8011-F3, to determine whether the individual receives in-kind support and maintenance. This is necessary to determine eligibility for SSI and the amount payable. This form is not used for all claims and post eligibility determinations; rather, it is used only when it is necessary to document in-kind support and maintenance and only in cases where the householder's corroboration is needed. Respondents are SSI applicants and/or recipients. *Type of Request:* Extension of an OMB-approved information collection. *Number of Respondents:* 400,000. *Frequency of Response:* 1. *Average Burden Per Response:* 15 minutes. *Estimated Annual Burden:* 100,000 hours. Dated: January 10, 2007. Elizabeth A. Davidson, Reports Clearance Officer, Social Security Administration. [FR Doc. E7-555 Filed 1-16-07; 8:45 am] BILLING CODE 4191-02-P DEPARTMENT OF STATE [Public Notice 5672] 30-Day Notice of Proposed Information Collection: DS-5090e, Human Rights Abuses Reporting Site; OMB No. 1405-0175 ACTION: Notice of request for public comment and submission to OMB of proposed collection of information. SUMMARY: The Department of State has submitted the following information collection request to the Office of Management and Budget
(OMB)for approval in accordance with the Paperwork Reduction Act of 1995. *Title of Information Collection:* Human Rights Abuses Reporting Site. *OMB Control Number:* 1405-0175. *Type of Request:* Extension of a Currently Approved Collection. *Originating Office:* Bureau of Western Hemisphere Affairs, Office of Cuban Affairs (WHA/CCA). *Form Number:* DS-5090e, Human Rights Abuses Reporting Site. *Respondents:* Victims of human rights abuses in Cuba. *Estimated Number of Respondents:* 7,300 annually. *Estimated Number of Responses:* 7,300 annually. *Average Hours Per Response:* 15 minutes per response. *Total Estimated Burden:* 1,825 hours. *Frequency:* On occasion. *Obligation to Respond:* Voluntary. DATES: Submit comments to the Office of Management and Budget
(OMB)for up to 30 days from January 17, 2007. ADDRESSES: Direct comments and questions to Katherine Astrich, the Department of State Desk Officer in the Office of Information and Regulatory Affairs at the Office of Management and Budget (OMB), who may be reached at 202-395-4718. You may submit comments by any of the following methods: • *E-mail:* *kastrich@omb.eop.gov* . You must include the DS form number, information collection title, and OMB control number in the subject line of your message. • *Mail (paper, disk, or CD-ROM submissions):* Office of Information and Regulatory Affairs, Office of Management and Budget, 725 17th Street, NW., Washington, DC 20503. • *Fax:* 202-395-6974 FOR FURTHER INFORMATION CONTACT: You may obtain copies of the proposed information collection and supporting documents from the Coordinator of Cuban Affairs; Department of State; 2201 C Street, NW.; Washington, DC 20520, who may be reached at 202-647-9272, or by e-mail at *CubaHRVL@state.gov* . SUPPLEMENTARY INFORMATION: We are soliciting public comments to permit the Department to: • Evaluate whether the proposed information collection is necessary to properly perform our functions. • Evaluate the accuracy of our estimate of the burden of the proposed collection, including the validity of the methodology and assumptions used. • Enhance the quality, utility, and clarity of the information to be collected. • Minimize the reporting burden on those who are to respond. *Abstract of proposed collection:* The President has asked the interagency community to use the temporary transfer of power from Fidel Castro to his brother Raul Castro in August 2006 as an historic moment to work to encourage a democratic transition in Cuba. In keeping with the recommendations of the Commission for Assistance to a Free Cuba report, the State Department will seek information from the public about human rights abuses committed by Cuban authorities, including the military and members of the security forces. The information is sought in accordance with, inter alia, 22 U.S.C. 2656 and 2304(a)(1). The principal purpose for collecting the information is to prepare and maintain a database of human rights abusers in Cuba. The Department may use this information in connection with its responsibilities for the protection and promotion of human rights and for the conduct of foreign affairs, as well as for other appropriate purposes as a routine part of the Department's activities. *Methodology:* Information will be collected through electronic submission. *Additional Information:* None. Dated: January 5, 2007. Caleb McCarry, Cuba Transition Coordinator, Bureau of Western Hemisphere Affairs, Department of State. [FR Doc. E7-513 Filed 1-16-07; 8:45 am] BILLING CODE 4710-29-P DEPARTMENT OF TRANSPORTATION Federal Highway Administration Environmental Impact Statement: City of Coronado, CA AGENCY: Federal Highway Administration (FHWA), DOT. ACTION: Notice of Intent. SUMMARY: The FHWA is issuing this notice to advise the public that an Environmental Impact Statement
(EIS)and Environmental Impact Report
(EIR)will be prepared for a project in San Diego, California, known as the State Route
(SR)75/282 Transportation Corridor Project. FOR FURTHER INFORMATION CONTACT: Steve Healow, Federal Highway Administration, 650 Capitol Mall Suite 4-100, Sacramento, California 95814, Telephone:
(916)498-5849 or Jason A. Reynolds, California Department of Transportation, 4050 Taylor Street San Diego, CA 92110, Telephone
(619)688-0291. SUPPLEMENTARY INFORMATION: The FHWA is issuing this notice to advise the public that an EIS will be prepared for proposed improvements to the State Routes 75 and 282 (SR 75/282) corridor between the San Diego-Coronado Bridge and the Naval Air Station North Island (NASNI) within the City of Coronado, CA. SR 75/282 serves Coronado residents, visitors and NASNI, a military airport and aircraft carrier berthing facility. The project will address current and forecast traffic congestion within the SR75/282 Transportation Corridor. The study area along the corridor varies in width, but is narrowest at the bridge and widest where Third Street and Fourth Street intersect Orange Avenue. Alternatives under consideration include
(1)Taking no action;
(2)Transportation Systems Management (TSM)/Transportation Demand Management (TDM);
(3)Third Street/Fourth Street couplet with grade separations at Orange Avenue;
(4)Twin cell cut-and-cover tunnel with refined west portal layout and early daylight alignment compatible with NASNI Third Street Main Gate;
(5A)Twin bore tunnel with refined west portal layout for improved compatibility with NASNI Third Street Main Gate; and
(5B)Twin bore restricted access tunnel with entry control gate at the east portal and west portal with access directly onto McCain Boulevard at NASNI. Alternatives under consideration incorporated into and studied with the various build alternatives will be design variations of grade and alignment. Property acquisitions and utility relocations may be necessary. To ensure that the full range of issues related to this proposed action are addressed and all significant issues identified, comments and suggestions are invited from all interested parties. Comments or questions concerning this proposed action and the EIS should be directed to the contacts provided above. Key environmental issues to be studied include, but are not limited to, air quality, noise, traffic, socioeconomic impacts, business relocations, hazardous materials, biological, water quality, coastal zone, flood plain, wetlands, visual impacts, impacts to open space and cultural resources and parking. Other key issues may arise at scoping meetings or during the environmental review process. Resources subject to Section 106 of the National Historic Preservation Act may be affected. Section 4(f) resources may also be affected. Letters describing the proposed action and soliciting comments will be sent to appropriate Federal, State and local agencies, and to private organizations and citizens who have previously expressed, or are known to have an interest in, this proposal. The draft EIS will be available for public and agency review prior to the public hearing. (Catalog of Federal Domestic Assistance Program Number 20.205, Highway Planning and Construction. The regulations implementing Executive Order 12372 regarding intergovernmental consultation on Federal programs and activities apply to this program.) Issued on: January 10, 2007. Steve Healow, Federal Highway Administration, Sacramento, California. [FR Doc. E7-491 Filed 1-16-07; 8:45 am] BILLING CODE 4910-22-P DEPARTMENT OF TRANSPORTATION Federal Railroad Administration Proposed Agency Information Collection Activities; Comment Request AGENCY: Federal Railroad Administration, DOT. ACTION: Notice. SUMMARY: In accordance with the Paperwork Reduction Act of 1995 and its implementing regulations, the Federal Railroad Administration
(FRA)hereby announces that it is seeking renewal of the following currently approved information collection activities. Before submitting these information collection requirements for clearance by the Office of Management and Budget (OMB), FRA is soliciting public comment on specific aspects of the activities identified below. DATES: Comments must be received no later than March 19, 2007. ADDRESSES: Submit written comments on any or all of the following proposed activities by mail to either: Mr. Robert Brogan, Office of Safety, Planning and Evaluation Division, RRS-21, Federal Railroad Administration, 1120 Vermont Ave., NW., Mail Stop 25, Washington, DC 20590, or Ms. Gina Christodoulou, Office of Support Systems Staff, RAD-43, Federal Railroad Administration, 1120 Vermont Ave., NW., Mail Stop 35, Washington, DC 20590. Commenters requesting FRA to acknowledge receipt of their respective comments must include a self-addressed stamped postcard stating, “Comments on OMB control number 2130-___.” Alternatively, comments may be transmitted via facsimile to
(202)493-6230 or
(202)493-6170, or via E-mail to Mr. Brogan at *robert.brogan@dot.gov,* or to Ms. Christodoulou at *gina.christodoulou@dot.gov.* Please refer to the assigned OMB control number in any correspondence submitted. FRA will summarize comments received in response to this notice in a subsequent notice and include them in its information collection submission to OMB for approval. FOR FURTHER INFORMATION CONTACT: Mr. Robert Brogan, Office of Planning and Evaluation Division, RRS-21, Federal Railroad Administration, 1120 Vermont Ave., NW., Mail Stop 25, Washington, DC 20590 (telephone:
(202)493-6292) or Ms. Gina Christodoulou, Office of Support Systems Staff, RAD-43, Federal Railroad Administration, 1120 Vermont Ave., NW., Mail Stop 35, Washington, DC 20590 (telephone:
(202)493-6139). (These telephone numbers are not toll-free.) SUPPLEMENTARY INFORMATION: The Paperwork Reduction Act of 1995 (PRA), Public Law 104-13, section 2, 109 Stat. 163
(1995)(codified as revised at 44 U.S.C. 3501-3520), and its implementing regulations, 5 CFR Part 1320, require Federal agencies to provide 60-days notice to the public for comment on information collection activities before seeking approval for reinstatement or renewal by OMB. 44 U.S.C. 3506(c)(2)(A); 5 CFR 1320.8(d)(1), 1320.10(e)(1), 1320.12(a). Specifically, FRA invites interested respondents to comment on the following summary of proposed information collection activities regarding
(i)Whether the information collection activities are necessary for FRA to properly execute its functions, including whether the activities will have practical utility;
(ii)the accuracy of FRA's estimates of the burden of the information collection activities, including the validity of the methodology and assumptions used to determine the estimates;
(iii)ways for FRA to enhance the quality, utility, and clarity of the information being collected; and
(iv)ways for FRA to minimize the burden of information collection activities on the public by automated, electronic, mechanical, or other technological collection techniques or other forms of information technology ( *e.g.* , permitting electronic submission of responses). *See* 44 U.S.C. 3506(c)(2)(A)(i)-(iv); 5 CFR 1320.8(d)(1)(i)-(iv). FRA believes that soliciting public comment will promote its efforts to reduce the administrative and paperwork burdens associated with the collection of information mandated by Federal regulations. In summary, FRA reasons that comments received will advance three objectives:
(i)Reduce reporting burdens;
(ii)ensure that it organizes information collection requirements in a “user friendly” format to improve the use of such information; and
(iii)accurately assess the resources expended to retrieve and produce information requested. *See* 44 U.S.C. 3501. Below is a brief summary of currently approved information collection activities that FRA will submit for clearance by OMB as required under the PRA: *Title:* Passenger Train Emergency Preparedness. *OMB Control Number:* 2130-0545. *Abstract:* The collection of information is due to the passenger train emergency preparedness regulations set forth in 49 CFR Parts 223 and 239 which require railroads to meet minimum Federal standards for the preparation, adoption, and implementation of emergency preparedness plans connected with the operation of passenger trains, including freight railroads hosting operations of rail passenger service. The regulations require luminescent or lighted emergency markings so that passengers and emergency responders can readily determine where the closest and most accessible exit routes are located and how the emergency exit mechanisms are operated. Windows and doors intended for emergency access by responders for extrication of passengers must be marked with retro-reflective material so that emergency responders, particularly in conditions of poor visibility, can easily distinguish them from the less accessible doors and windows. Records of the inspection, maintenance and repairs of emergency windows and door exits, as well as records of operational efficiency tests, will be used to ensure compliance with the regulations. *Affected Public:* Businesses. *Respondent Universe:* 18 railroads. *Frequency of Submission:* On occasion. *Reporting Burden:* CFR section Respondent universe Total annual responses Average time per response Total annual burden hours Total annual burden cost 223.9(d); 239.107—Marking of Emergency Exits 18 railroads 10,475 decals 5 minutes 873 $27,936 —Marking door and window exits w clear instructions 18 railroads 6,320/1,300 decals 4 min./5 min 614 19,648 239.107(b)—Records of Inspection, Maintenance, & repair 18 railroads 1,800 window rcds. + 1,800 door records 20 min./3 min 690 22,080 239.101, 239.201—Filing of Emergency Preparedness Plan 2 railroads 1 plan 158 hours 158 9,638 —Amendments to Emergency Plans 2 railroads 1 amendment 2 hours 2 74 239.101 (ii)—Maintenance of Current Emergency Phone Numbers 2 railroads 2 records 1 hour 2 74 —Subsequent Years 18 railroads 19 records 30 minutes 10 370 239.101(a)(3)—Joint Operations 2 railroad pairs 2 plans 16 hours 32 1,568 —Subsequent Years 1 railroad pair 1 plan 16 hours 16 784 239.101(a)(5)—Liaison with Emergency Responders 2 railroads 1 plan 6 hours 6 222 —Subsequent Years 20 railroads 40 plans/1,200 copies 40 hrs./5 min. 1,700 71,400 239.101(a)(7)(ii) Passenger Safety Information 5/12 railroads 1,300 cards/5 progs./5 safety messages/12 progs./12 msgs 5 min./16 hrs./48 hrs./8 hrs 812 31,088 239.105—Debriefing and Critique 20 railroads 5 debrief sess 27 hours 135 2,160 239.301—Operational Efficiency Tests 20 railroads 11,075 tests/rcds 15 minutes 2,768 127,328 *Total Responses:* 35,376. *Estimated Total Annual Burden:* 7,818 hours. *Status:* Extension of a Currently Approved Collection. *OMB Control Number:* 2130-0511. *Abstract:* The collection of information is used to prevent the unsafe movement of defective freight cars. Railroads are required to inspect freight cars for compliance and to determine restrictions on the movements of defective cars. *Form Number(s):* None. *Affected Public:* Businesses. *Respondent Universe:* 685 railroads. *Frequency of Submission:* On occasion. *Total Estimated Annual Burden:* 40 hours. *Total Responses:* 1,200. *Type of Request:* Extension of a Currently Approved Collection. Pursuant to 44 U.S.C. 3507(a) and 5 CFR 1320.5(b), 1320.8(b)(3)(vi), FRA informs all interested parties that it may not conduct or sponsor, and a respondent is not required to respond to, a collection of information unless it displays a currently valid OMB control number. Authority: 44 U.S.C. 3501-3520. Issued in Washington, DC on January 11, 2007. D.J. Stadtler, Director, Office of Budget, Federal Railroad Administration. [FR Doc. E7-487 Filed 1-16-07; 8:45 am] BILLING CODE 4910-06-P DEPARTMENT OF TRANSPORTATION Maritime Administration [Docket No. MARAD-2007-26841] Utilization of U.S. Vessels and Mariners in the Marine Transportation of Liquefied Natural Gas AGENCY: Maritime Administration, Department of Transportation. ACTION: Notice and Request for Comments. SUMMARY: The Maritime Administration (MARAD) seeks public comment on the use of United States vessels and mariners in the transportation of Liquefied Natural Gas
(LNG)through the nation's offshore deepwater port receiving facilities. Comments should focus on the development of programs to maximize the utilization and availability of U.S. vessels and qualified U.S. citizen officers and unlicensed crews serving the international LNG tanker fleet. Comments may also include issues related to the overall safe and secure operation of deepwater port facilities. DATES: Comments are due by February 16, 2007. ADDRESSES: You may submit comments [identified by DOT DMS Docket Number MARAD-2007-26841] by any of the following methods: • *Web Site:* *http://dms.dot.gov* . Follow the instructions for submitting comments on the DOT electronic docket site. • *Mail:* Docket Management Facility; U.S. Department of Transportation, 400 7th St., SW., Nassif Building, Room PL-401, Washington, DC 20590-0001. • *Hand Delivery:* Room PL-401 on the plaza level of the Nassif Building, 400 7th St., SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal Holidays. *Instructions:* All submissions must include the agency name and docket number for this action. Note that all comments received will be posted without change to *http://dms.dot.gov* including any personal information provided. Please see the Privacy Act heading below. *Docket:* For access to the docket to read background documents or comments received, go to *http://dms.dot.gov* at any time or to Room PL-401 on the plaza level of the Nassif Building, 400 7th St., SW., Washington, DC, between 9 a.m. and 5 p.m., Monday through Friday, except Federal Holidays. *Privacy Act:* Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit *http://dms.dot.gov* . FOR FURTHER INFORMATION CONTACT: H. Keith Lesnick, Director, Office of Deepwater Port Licensing, Maritime Administration, 400 Seventh Street, SW., Washington, DC 20590; fax:
(202)366-5123; or e-mail *Keith.Lesnick@dot.gov* . SUPPLEMENTARY INFORMATION: As the lead federal agency for the licensing of offshore LNG and oil deepwater port terminals, the Maritime Administration is charged with ensuring that each facility is constructed and operated in a safe and secure manner. While LNG importation has historically had an impeccable safety record, MARAD is continually seeking additional ways to ensure the safe and secure operations of deepwater port facilities to help preserve the nation's security, environmental resources, and energy supply, and to improve transportation efficiencies. To promote the security of the United States, Congress recently amended the Deepwater Port Act through the Coast Guard and Maritime Transportation Act of 2006 (Pub. L. 109-241, (2006)) to direct the Secretary (and, by delegation, the Maritime Administrator) to develop and implement a program to promote the transportation of liquefied natural gas to the United States on United States flag vessels. The Act further directed the Secretary to give top priority to the processing of deepwater port licenses to LNG facilities that will be supplied with natural gas by United States flag vessels. Further, the Act directed that the nation of registry for, and the nationality or citizenship of, officers and crew serving on board vessels transporting natural gas to a deepwater port be considered when granting a license. The enactment of the Coast Guard and Maritime Transportation Act of 2006 places a firm emphasis on the safe and secure transport of LNG to and from our nation's facilities. In keeping with Congressional directives, MARAD seeks public comment on efforts to expand and maximize utilization of U.S. vessels and U.S. crews on LNG vessels. In addition, MARAD seeks comments on the availability of qualified officers and crew as well as the advantages of using U.S. crews. Authority: 49 CFR 1.66. Dated: January 11, 2007. By Order of the Maritime Administrator. Daron T. Threet, Secretary, Maritime Administration. [FR Doc. E7-554 Filed 1-16-07; 8:45 am] BILLING CODE 4910-81-P DEPARTMENT OF TRANSPORTATION Maritime Administration [Docket No. MARAD-2006-26754] Requested Administrative Waiver of the Coastwise Trade Laws AGENCY: Maritime Administration, Department of Transportation. ACTION: Invitation for public comments on a requested administrative waiver of the Coastwise Trade Laws for the vessel EASY RIDER. SUMMARY: As authorized by Public Law 105-383 and Public Law 107-295, the Secretary of Transportation, as represented by the Maritime Administration (MARAD), is authorized to grant waivers of the U.S.-build requirement of the coastwise laws under certain circumstances. A request for such a waiver has been received by MARAD. The vessel, and a brief description of the proposed service, is listed below. The complete application is given in DOT docket MARAD-2006-26754 at *http://dms.dot.gov.* Interested parties may comment on the effect this action may have on U.S. vessel builders or businesses in the U.S. that use U.S.-flag vessels. If MARAD determines, in accordance with Public Law 105-383 and MARAD's regulations at 46 CFR Part 388 (68 FR 23084; April 30, 2003), that the issuance of the waiver will have an unduly adverse effect on a U.S.-vessel builder or a business that uses U.S.-flag vessels in that business, a waiver will not be granted. Comments should refer to the docket number of this notice and the vessel name in order for MARAD to properly consider the comments. Comments should also state the commenter's interest in the waiver application, and address the waiver criteria given in § 388.4 of MARAD's regulations at 46 CFR Part 388. DATES: Submit comments on or before February 16, 2007. ADDRESSES: Comments should refer to docket number MARAD-2006-26754. Written comments may be submitted by hand or by mail to the Docket Clerk, U.S. DOT Dockets, Room PL-401, Department of Transportation, 400 7th St., SW., Washington, DC 20590-0001. You may also send comments electronically via the Internet at * http:// dmses.dot.gov/submit/. * All comments will become part of this docket and will be available for inspection and copying at the above address between 10 a.m. and 5 p.m., E.T., Monday through Friday, except federal holidays. An electronic version of this document and all documents entered into this docket is available on the World Wide Web at *http://dms.dot.gov.* FOR FURTHER INFORMATION CONTACT: Joann Spittle, U.S. Department of Transportation, Maritime Administration, MAR-830 Room 7201, 400 Seventh Street, SW., Washington, DC 20590. Telephone 202-366-5979. SUPPLEMENTARY INFORMATION: As described by the applicant, the intended service of the vessel EASY RIDER is: *Intended Use:* “Day charters for pleasure cruising only.” *Geographic Region:* Southern California coastal waters from Santa Barbara, south to San Diego. Privacy Act Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit *http://dms.dot.gov.* Dated: January 11, 2007. By order of the Maritime Administrator. Daron T. Threet, Secretary, Maritime Administration. [FR Doc. E7-542 Filed 1-16-07; 8:45 am] BILLING CODE 4910-81-P DEPARTMENT OF TRANSPORTATION Maritime Administration [Docket No. MARAD-2006-26755] Requested Administrative Waiver of the Coastwise Trade Laws AGENCY: Maritime Administration, Department of Transportation. ACTION: Invitation for public comments on a requested administrative waiver of the Coastwise Trade Laws for the vessel ENA'S HAVEN. SUMMARY: As authorized by Public Law 105-383 and Public Law 107-295, the Secretary of Transportation, as represented by the Maritime Administration (MARAD), is authorized to grant waivers of the U.S.-build requirement of the coastwise laws under certain circumstances. A request for such a waiver has been received by MARAD. The vessel, and a brief description of the proposed service, is listed below. The complete application is given in DOT docket MARAD-2006-26755 at *http://dms.dot.gov* . Interested parties may comment on the effect this action may have on U.S. vessel builders or businesses in the U.S. that use U.S.-flag vessels. If MARAD determines, in accordance with Public Law 105-383 and MARAD's regulations at 46 CFR Part 388 (68 FR 23084; April 30, 2003), that the issuance of the waiver will have an unduly adverse effect on a U.S.-vessel builder or a business that uses U.S.-flag vessels in that business, a waiver will not be granted. Comments should refer to the docket number of this notice and the vessel name in order for MARAD to properly consider the comments. Comments should also state the commenter's interest in the waiver application, and address the waiver criteria given in § 388.4 of MARAD's regulations at 46 CFR Part 388. DATES: Submit comments on or before February 16, 2007. ADDRESSES: Comments should refer to docket number MARAD-2006-26755. Written comments may be submitted by hand or by mail to the Docket Clerk, U.S. DOT Dockets, Room PL-401, Department of Transportation, 400 7th St., SW., Washington, DC 20590-0001. You may also send comments electronically via the Internet at *http://dmses.dot.gov/submit/* . All comments will become part of this docket and will be available for inspection and copying at the above address between 10 a.m. and 5 p.m., E.T., Monday through Friday, except federal holidays. An electronic version of this document and all documents entered into this docket is available on the World Wide Web at *http://dms.dot.gov.* FOR FURTHER INFORMATION CONTACT: Joann Spittle, U.S. Department of Transportation, Maritime Administration, MAR-830 Room 7201, 400 Seventh Street, SW., Washington, DC 20590. Telephone 202-366-5979. SUPPLEMENTARY INFORMATION: As described by the applicant the intended service of the vessel ENA'S HAVEN is: *Intended Use:* “Harbor tours of Marina del Rey. Possible trips to Catalina Island in the future” *Geographic Region:* Marina del Rey, CA, Santa Monica Bay, CA, Channel Islands, CA. Privacy Act Anyone is able to search the electronic form of all comments received into any of our dockets by the name of the individual submitting the comment (or signing the comment, if submitted on behalf of an association, business, labor union, etc.). You may review DOT's complete Privacy Act Statement in the **Federal Register** published on April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit *http://dms.dot.gov.* Dated: January 11, 2007. By order of the Maritime Administrator. Daron T. Threet, Secretary, Maritime Administration, [FR Doc. E7-544 Filed 1-16-07; 8:45 am] BILLING CODE 4910-81-P DEPARTMENT OF THE TREASURY Departmental Offices; Debt Management Advisory Committee Meeting Notice is hereby given, pursuant to 5 U.S.C. App. 2, § 10(a)(2), that a meeting will be held at the Hay-Adams Hotel, 16th Street and Pennsylvania Avenue, NW., Washington, DC on January 30, 2007 at 10:30 a.m. of the following debt management advisory committee. Treasury Borrowing Advisory Committee of the Bond Market Association (“Committee”). The agenda for the meeting provides for a charge by the Secretary of the Treasury or his designate that the Committee discuss particular issues, and a working session. Following the working session, the Committee will present a written report of its recommendations. The meeting will be closed to the public, pursuant to 5 U.S.C. App. 2 section 10(d) and Public Law 103-202, section 202(c)(1)(B)(31 U.S.C. 3121 note). This notice shall constitute my determination, pursuant to the authority placed in heads of agencies by 5 U.S.C. App. 2, section 10(d) and vested in me by Treasury Department Order No. 101-05, that the meeting will consist of discussions and debates of the issues presented to the Committee by the Secretary of the Treasury and the making of recommendations of the Committee to the Secretary, pursuant to Public Law 103-202, section 202(c)(1)(B). Thus, this information is exempt from disclosure under that provision and 5 U.S.C. 552b(c)(3)(B). In addition, the meeting is concerned with information that is exempt from disclosure under 5 U.S.C. 552b(c)(9)(A). The public interest requires that such meetings be closed to the public because the Treasury Department requires frank and full advice from representatives of the financial community prior to making final decisions on major financing operations. Historically, this advice has been offered by debt management advisory committees established by the several major segments of the financial community. When so utilized, such a committee is recognized to be an advisory committee under 5 U.S.C. App. 2, section 3. Although the Treasury's final announcement of financing plans may not reflect the recommendations provided in reports of the Committee, premature disclosure of the Committee's deliberations and reports would be likely to lead to significant financial speculation in the securities market. Thus, this meeting falls within the exemption covered by 5 U.S.C. 552b(c)(9)(A). Treasury staff will provide a technical briefing to the press on the day before the Committee meeting, following the release of a statement of economic conditions, financing estimates and technical charts. This briefing will give the press an opportunity to ask questions about financing projections and technical charts. The day after the Committee meeting, Treasury will release the minutes of the meeting, any charts that were discussed at the meeting, and the Committee's report to the Secretary. The Office of Debt Management is responsible for maintaining records of debt management advisory committee meetings and for providing annual reports setting forth a summary of Committee activities and such other matters as may be informative to the public consistent with the policy of 5 U.S.C. 552(b). The Designated Federal Officer or other responsible agency official who may be contacted for additional information is Karthik Ramanathan, Director, Officer of Debt Management, at
(202)622-2042. Dated: January 10, 2007. Anthony W. Ryan, Assistant Secretary, Financial Markets. [FR Doc. 07-123 Filed 1-16-07; 8:45 am]
Connectionstraces to 24
Traces to 24 documents
19 references not yet in our index
  • 17 CFR 240.19
  • 17 CFR 240.11
  • 15 USC 78(f)(b)(5)
  • Pub. L. 104-13
  • 31 CFR 210
  • 20 CFR 404.1301-404
  • 20 CFR 416.1130-416
  • 109 Stat. 163
  • 44 USC 3501-3520
  • 5 CFR 1320
  • 5 CFR 1320.8(d)(1)
  • 5 CFR 1320.8(d)(1)(i)
  • 5 CFR 1320.5(b)
  • Pub. L. 109-241
  • 49 CFR 1.66
  • Pub. L. 105-383
  • Pub. L. 107-295
  • 46 CFR 388
  • Pub. L. 103-202
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cites case law
Notices
Notice and request for comments
U.S.C.§ 78s
U.S.C.§ 78k
U.S.C.§ 78f
U.S.C.§ 552
C.F.R.§ 200.30-3
U.S.C.§ 78c
U.S.C.§ 78o–3
C.F.R.§ 242.101
U.S.C.§ 78o–6
Cite17 CFR 240.19
Cite17 CFR 240.11
Cite15 USC 78(f)(b)(5)
Cites 43 · showing 12Cited by 0 across 0 sources
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