Tap any paragraph to write a margin note. Your notes collect in the Desk below the text and file under cases with @. The side-by-side margin rail opens on a larger screen.

§
Marginalia
Code · REGISTER · 2008-07-22 · RAILROAD RETIREMENT BOARD · Notices

Notices. RAILROAD RETIREMENT BOARD

19,842 words·~90 min read·/register/2008/07/22/08-1460

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

BILLING CODE 7590-01-P RAILROAD RETIREMENT BOARD Actuarial Advisory Committee With Respect to the Railroad Retirement Account; Notice of Public Meeting Notice is hereby given in accordance with Public Law 92-463 that the Actuarial Advisory Committee will hold a meeting on August 5, 2008, at 9:30 a.m. at the office of the Chief Actuary of the U.S. Railroad Retirement Board, 844 North Rush Street, Chicago, Illinois, on the conduct of the 24th Actuarial Valuation of the Railroad Retirement System.
The agenda for this meeting will include a discussion of the assumptions to be used in the 24th Actuarial Valuation. A report containing recommended assumptions and the experience on which the recommendations are based will have been sent by the Chief Actuary to the Committee before the meeting. The meeting will be open to the public. Persons wishing to submit written statements or make oral presentations should address their communications or notices to the RRB Actuarial Advisory Committee, c/o Chief Actuary, U.S.
Railroad Retirement Board, 844 North Rush Street, Chicago, Illinois 60611-2092. Dated: July 15, 2008. Beatrice Ezerski, Secretary to the Board. [FR Doc. E8-16587 Filed 7-21-08; 8:45 am] BILLING CODE 7905-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58173; File No. SR-OPRA-2008-02] Options Price Reporting Authority; Notice of Filing of Proposed Amendment to the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information, as Modified by Amendment No. 1 Thereto, To Amend OPRA's Vendor Agreement and Related Documents and Adopt a New Policy July 16, 2008.
Pursuant to Section 11A of the Securities Exchange Act of 1934 (“Act”) 1 and Rule 608 thereunder, 2 notice is hereby given that on May 30, 2008, the Options Price Reporting Authority (“OPRA”) submitted to the Securities and Exchange Commission (“Commission”) an amendment to the Plan for Reporting of Consolidated Options Last Sale Reports and Quotation Information (“OPRA Plan”). 3 On July 1, 2008, OPRA submitted Amendment No. 1 to the proposed Amendment to the OPRA Plan. 4 The proposed OPRA Plan amendment, as modified by Amendment No. 1, would modify OPRA's Vendor Agreement in several respects, including revising OPRA's definition of the term “Nonprofessional.
” In connection with the revision of the term “Nonprofessional,” the proposed OPRA Plan amendment would also amend OPRA's “Electronic Form of Subscriber Agreement” and “Hardcopy Form of Subscriber Agreement” and adopt a new Policy. The Commission is publishing this notice to solicit comments from interested persons on the proposed OPRA Plan amendment, as modified by Amendment No. 1. 1 15 U.S.C. 78k-1. 2 17 CFR 242.608. 3 The OPRA Plan is a national market system plan approved by the Commission pursuant to Section 11A of the Act and Rule 608 thereunder (formerly Rule 11Aa3-2). *See* Securities Exchange Act Release No. 17638 (March 18, 1981), 22 S.E.C.
Docket 484 (March 31, 1981). The full text of the OPRA Plan is available at *http://www.opradata.com.* The OPRA Plan provides for the collection and dissemination of last sale and quotation information on options that are traded on the participant exchanges. The seven participants to the OPRA Plan are the American Stock Exchange LLC, the Boston Stock Exchange, Inc., the Chicago Board Options Exchange, Incorporated, the International Securities Exchange, LLC, the NASDAQ Stock Market LLC, the NYSE Arca, Inc., and the Philadelphia Stock Exchange, Inc. 4 Amendment No. 1 replaced the original filing in its entirety.
I. Description and Purpose of the Amendment The proposed Amendment to OPRA's Vendor Agreement has several purposes. A. Section 5: Definition of “Nonprofessional”; Revision of Forms of Subscriber Agreement; and New Policy OPRA proposes to revise its definition of the term “Nonprofessional.” The definition currently appears in Section 5 of OPRA's Vendor Agreement and in OPRA's “Electronic Form of Subscriber Agreement” and “Hardcopy Form of Subscriber Agreement.” These two forms are Attachments B-1 and B-2 to OPRA's form of Vendor Agreement. 5 5 OPRA's form of Vendor Agreement and its forms of Subscriber Agreements are available on OPRA's Web site, *http://www.opradata.com.* A person may become an OPRA “Subscriber” in one of two ways.
The first way is that the person may sign a “Professional Subscriber Agreement” with the OPRA exchanges. In this case, the person pays fees directly to OPRA on the basis of the number of the person's “devices” and/or “UserIDs.” The second way is that the person may enter into a “Subscriber Agreement,” not with the OPRA exchanges, but with an OPRA “Vendor”—an entity that has entered into a Vendor Agreement with the OPRA exchanges that authorizes the entity to redistribute OPRA Data to third persons.
In this case, OPRA collects “usage-based” fees from the Vendor, which are often passed through to the Subscriber by the Vendor. If a person qualifies as a “Nonprofessional Subscriber,” OPRA caps the fee that it charges the Vendor, and the fees that the Subscriber is required to pay to the Vendor may be less than they would be if the Subscriber is classified as a “Professional Subscriber.” 6 6 More specifically, if a person qualifies as a “Nonprofessional” and signs a Subscriber Agreement with a Vendor, OPRA either caps the “usage-based fees” that it charges the Vendor for the person's access to OPRA Data at the level specified in its Fee Schedule—currently $1.00/month—or, at the Vendor's option, simply charges the Vendor $1.00/month for the person's access to OPRA Data.
If a person does not qualify as a “Nonprofessional,” the person may still sign a Subscriber Agreement with a Vendor, but OPRA either caps the “usage-based fees” that it charges the Vendor for the person's access to OPRA Data at the Professional Subscriber “per device” rate (currently $21.00/month) or, at the Vendor's option, simply charges the Vendor the Professional Subscriber “per device” rate for the person's access to OPRA Data. OPRA's current definition of the term “Nonprofessional” specifies that a person must be an “individual” in order to qualify as a Nonprofessional.
OPRA has concluded that this aspect of the definition should be revised to state that a “legal person” may qualify as a Nonprofessional if the legal person is either an individual (a “natural person”) or a “qualifying trust.” The term “qualifying trust” is proposed to be defined essentially to refer to a trust established for the benefit of one or more members of the trustee's immediate family. OPRA is proposing changes to Section 5 of its form of Vendor Agreement and in its Electronic Form of Subscriber Agreement and Hardcopy Form of Subscriber Agreement to implement the revised definition.
The Addendum for Nonprofessionals that is attached to OPRA's form of Subscriber Agreement also currently states that a person must use OPRA Data “solely in connection with [the person's] individual personal investment activities” in order to qualify as a Nonprofessional. OPRA has concluded that this language should be revised to clarify that a natural person may qualify as a Nonprofessional if the person uses OPRA Data for the person's own benefit and for the benefit of other members of the person's immediate family and qualifying trusts of which the person is the trustee or custodian, and to include a parallel statement with respect to qualifying trusts to the effect that a qualifying trust may constitute a Nonprofessional only if the trust uses OPRA Data only for the benefit of the trust.
OPRA is also proposing to adopt a new policy entitled “Policy with Respect to Definition of the Term ‘Nonprofessional’.” The purpose of this document is to facilitate implementation of the revised definition of the term “Nonprofessional” as described below under the heading “Manner of Implementation of Amendment.” OPRA believes that the changes that it is proposing in its definition of the term “Nonprofessional” will add clarity to the definition and better align the language of the definition with the understanding of the definition on the part of Vendors and Subscribers who are affected by the definition.
B. Section 14: Reporting and Recordkeeping Requirements OPRA is proposing to change four provisions in Section 14 of the Vendor Agreement, which describes the reports and recordkeeping that OPRA requires of Vendors. Paragraph 14(a) would be revised for several purposes. The current language of the paragraph could be misunderstood as requiring a Vendor to provide either a complete list of all Subscribers, including Subscribers that have entered into Subscriber Agreements with the Vendor, or changes to the previous version of the list, on a monthly basis.
The revised language makes clear that OPRA requires only summary information on a monthly basis with respect to Subscribers that have entered into Subscriber Agreements with the Vendor. The current language of the paragraph requires that a Vendor report monthly with respect to “the number and type of devices” of each Professional Subscriber that has entered into a Professional Subscriber Agreement with OPRA. OPRA has for many years permitted Professional Subscribers to pay fees on the basis of the number of “devices” or “User IDs” on which they receive OPRA Data, 7 and accordingly the revised language requires that a Vendor report monthly with respect to “the number of devices and/or User IDs” of each such Professional Subscriber that receives OPRA Data on Vendor controlled services.
The revised language also states specifically that a Vendor's reports to OPRA pursuant to paragraph 14(a) are to be provided electronically in a form reasonably satisfactory to OPRA. 7 This is reflected in footnote 2 of OPRA's Fee Schedule and in its “Policies with respect to Device Based Fees,” both of which are available on OPRA's Web site. The purpose of the changes in the first sentence of paragraph 14(b) is to preserve the current meaning of the sentence in juxtaposition to revised paragraph 14(a).
In addition to the reports called for by paragraph 14(a) (reports at least monthly), OPRA has the right to require more complete reports pursuant to paragraph 14(b). These reports are submitted no more frequently than quarterly. The revised first sentence of paragraph 14(b) continues to state that, whereas reports made pursuant to paragraph 14(a) may contain summary information with respect to Subscribers that have entered into Subscriber Agreements with the Vendor, reports made pursuant to paragraph 14(b) must include all information in the Vendor's list of Subscribers described in the first sentence of paragraph 14(a).
The change in clause 14(c)(3) would revise the language to make clear that a Vendor is not required to retain hardcopy originals of signed hardcopy Subscriber Agreements and may instead retain copies, either in hardcopy form or in electronic form, provided that copies that are maintained electronically are maintained in a “non-rewriteable, non-eraseable format.” 8 8 This phrase is used in Rule 17a-4(f)(2)(ii)(A), 17 CFR § 240.17a-4(f)(2)(ii)(A). Rule 17a-4(f) describes the circumstances in which brokers and dealers may retain certain records in electronic form.
The changes in new paragraph 14(d) (replacing the final sentence of paragraph 14(c)) refine the statement of OPRA's record retention requirements to shorten OPRA's record retention requirement and to make a distinction between two types of records. The current language requires a Vendor to retain all records “for at least six years after the date Vendor discontinues furnishing OPRA Data to such persons [ *i.e.* , Subscribers].” That phrase is capable of being misunderstood to say that a Vendor must retain its records with respect to *all* Subscribers for at least six years after it ceases furnishing OPRA Data to *any* Subscriber.
As revised, the language requires a Vendor to retain records with respect to its agreements with a Subscriber (these are records described in clauses 14(c)(1),
(2)and (3)) for at least three years after it discontinues furnishing OPRA Data to that Subscriber, and requires a Vendor to retain records with respect to the actual use of OPRA Data (these are records described in paragraph 14(a) and clause 14(c)(4)) for at least three years after the records are created. The revised language is placed in a new paragraph 14(d), rather than being left in paragraph 14(c), to confirm that these record retention requirements apply to the Vendor's records with respect to Subscribers that are described in paragraph 14(a) as well as records described in paragraph 14(c). C. Section 19: Provisions for Modifying the Vendor Agreement Paragraph 19(a) of the Vendor Agreement currently provides that, “[u]pon compliance with any applicable requirements of the Securities Exchange Act of 1934 (including any affirmative action by the SEC, if required),” OPRA may modify the terms of the Vendor Agreement upon not less than 30 days notice to Vendor, and then states that: “Within thirty
(30)days of its receipt of any notice of modifications, Vendor shall notify OPRA in writing whether Vendor consents to the modifications. If Vendor does not consent to the modifications within thirty
(30)days of its receipt of the notice, this Agreement shall immediately terminate.” This language could be read to say that, if OPRA wishes to use paragraph 19(a) to implement a change in the Vendor Agreement after complying with the applicable requirements of the Act, a Vendor must affirmatively “opt in” to the change or its Vendor Agreement will be terminated. OPRA currently has over one hundred and eighty Vendors. It is not realistic to expect all of them to sign and return a written consent to a modification of the Vendor Agreement within thirty days of receipt, and not in the interests of either OPRA or a Vendor to permit the Vendor's Vendor Agreement to terminate automatically if the Vendor fails to meet the thirty-day deadline. To avoid this result, OPRA is proposing to change this language so that it clearly states that, if OPRA wishes to use paragraph 19(a) to implement a change in the Vendor Agreement after complying with the applicable requirements of the Act, OPRA must furnish written notice of the change to the Vendor, following which the Vendor need not “opt in” to the change in order to maintain its status as a Vendor, but may “opt out” of the change by terminating its Vendor Agreement if it is unwilling to accept the change. The revised paragraph makes clear that, if a Vendor timely gives notice of termination of its Vendor Agreement following its receipt of notice of a modification of the Vendor Agreement, the unmodified Vendor Agreement will constitute the agreement between the Vendor and OPRA until the effective date of the Vendor's termination. OPRA also proposes to delete current paragraphs 19(b) and 19(c) of the Vendor Agreement. Current paragraph 19(b) specifically addresses the possibility that OPRA might need to modify the provisions of the Vendor Agreement that relate to the Electronic Subscriber Agreement. Current paragraph 19(c) requires that all modifications to the Vendor Agreement other than those described in paragraph 19(a) (modifications subject to the procedure described in this filing) and 19(b) (modifications relating to Electronic Subscriber Agreements) must be signed by the Vendor. OPRA believes that it is no longer necessary to have a paragraph specifically with respect to modifications of the Electronic Subscriber Agreement and that it is consistent with the changes in paragraph 19(a) described in this filing to delete paragraph 19(c). D. Section 21: “Assignment” Provision Section 21 of the Vendor Agreement currently states that the Vendor may not assign the Vendor Agreement without the consent of OPRA “except to a successor corporation upon merger or consolidation of Vendor, or to a corporation acquiring all or substantially all of the property, assets and business of Vendor.” OPRA is proposing to modify that language to accommodate other business entities in addition to corporations. The text of the proposed amendment to the OPRA Plan is available at OPRA, the Commission's Public Reference Room, and *http://opradata.com. * II. Implementation of the OPRA Plan Amendment Upon approval by the Commission pursuant to Section 11A of the Act 9 and paragraph (b)(1) of Rule 608 thereunder, 10 OPRA will implement a new standard form of Vendor Agreement incorporating the amendments proposed in this filing, and OPRA will require its current population of Vendors to sign either an Amendment in the form set forth as Exhibit I to its filing or the new standard form of Vendor Agreement. After a Vendor has signed either an Amendment or a new form of Agreement, OPRA will permit the Vendor to use the revised forms of Electronic Form of Subscriber Agreement and Hardcopy Form of Subscriber Agreement set forth in its filing as Exhibits III and IV. 9 15 U.S.C. 78k-1. 10 17 CFR 242.608(b)(1). OPRA is not proposing to require that OPRA Vendors replace the agreements that they currently have in place with Nonprofessional Subscribers. Instead, OPRA proposes to state in a new Policy, the form of which is attached as Exhibit V to its filing, that OPRA will interpret all Subscriber Agreements between Vendors and Nonprofessional Subscribers, including Subscriber Agreements that were entered into prior to the date on which this filing becomes effective, as if their language read as shown in Exhibits III and IV, respectively, to this filing. Following approval of this filing, OPRA intends to post the new Policy on its Web site and to send a copy of the new Policy to all current Vendors with the next monthly invoices that will be sent out by OPRA. The changes that OPRA is proposing may enable a person who is currently classified as a Professional to qualify as a Nonprofessional, but will not cause any person who currently qualifies to be a Nonprofessional to cease to be qualified to be a Nonprofessional. OPRA therefore believes that the changes will not work to the disadvantage of any OPRA Vendor or Subscriber. For this reason, it should not be necessary to require that any Subscriber enter into a new Agreement in order to have the benefit of the changes. III. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed OPRA Plan amendment 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-OPRA-2008-02 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-OPRA-2008-02. 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 plan amendment that are filed with the Commission, and all written communications relating to the proposed plan amendment 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, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of OPRA. 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-OPRA-2008-02 and should be submitted on or before August 12, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 11 11 17 CFR 200.30-3(a)(29). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16750 Filed 7-21-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58178; File No. SR-CBOE-2008-40] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Order Approving Proposed Rule Change, as Modified by Amendment No. 1 thereto, To Provide for the Issuance of ITPs July 17, 2008. I. Introduction On April 9, 2008, 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 proposal to provide for the issuance of up to 50 Interim Trading Permits (“ITPs”). The proposed rule change was published for comment in the **Federal Register** on April 17, 2008. 3 The Exchange filed Amendment No. 1 to the proposed rule change on May 20, 2008, which reflected the vote of CBOE members approving the proposal. 4 The Commission received two comment letters regarding the proposal, 5 as well as two letters from CBOE addressing the concerns raised by the commenters. 6 This order approves the proposed rule change, as modified by Amendment No. 1. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 57650 (April 11, 2008), 73 FR 20989 (“Notice”). 4 Amendment No. 1 is technical in nature and is therefore not subject to notice and comment. *See also* General Instruction E to Form 19b-4 (concerning completion of action by a self-regulatory organization on a proposed rule change). In its amendment, CBOE noted that its proposal was approved by an “overwhelming majority” of the CBOE members who voted thereon. CBOE also confirmed that no further action on the part of CBOE is required in connection with this proposed rule change. 5 *See* Letter from Lawrence J. Blum and Michael Mondrus, to Nancy M. Morris, Secretary, Commission, dated April 28, 2008 (“Blum/Mondrus Letter”) and Letter from Mark and Joan Andrew, to Nancy M. Morris, Secretary, Commission, dated May 12, 2008 (“Andrew Letter”). 6 *See* Letter from Joanne Moffic-Silver, Executive Vice President, General Counsel, and Corporate Secretary, CBOE, to Nancy M. Morris, Secretary, Commission, dated May 12, 2008 (“CBOE Letter 1”) and Letter from Joanne Moffic-Silver, Executive Vice President, General Counsel, and Corporate Secretary, CBOE, to Nancy M. Morris, Secretary, Commission, dated May 15, 2008 (“CBOE Letter 2”). The proposed rule change would allow the Exchange to issue up to 50 ITPs, which would grant to the holders thereof the same trading privileges on the Exchange as regular transferable Exchange memberships. Individuals and organizations that obtain ITPs would be able to conduct their activities in a manner similar to holders of Exchange memberships and CBOE rules that apply to the holders of memberships would also apply to the holders of ITPs. The Exchange has proposed the authority to issue these permits in order to address the demand for trading access to the Exchange in the event that a shortage exists from time to time in the number of transferable Exchange memberships available for lease. II. Discussion After careful review of the proposal, the comment letters thereto, and the Exchange's response to comments, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder. 7 In particular, the Commission finds that the Exchange's proposal is consistent with the requirements of Section 6(b)(5) of the Act, 8 which requires that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. The Commission also finds that the Exchange's proposal is consistent with the requirements of Section 6(b)(3) of the Act, 9 which requires that the rules of the exchange assure a fair representation of its members in the selection of its directors and administration of its affairs and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer. The Commission also finds that the Exchange's proposal is consistent with Section 6(b)(8) of the Act, 10 which requires that the rules of an exchange not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 7 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). 8 15 U.S.C 78f(b)(5). 9 15 U.S.C 78f(b)(3). 10 15 U.S.C 78f(b)(8). A. Issuances of ITPs Under Proposed Rule 3.27(b) The Exchange has proposed various requirements and specified certain processes in connection with the issuance of the ITPs. Specifically, an individual or organization would have to satisfy all requirements and be approved for membership in the Exchange to be eligible to apply for an ITP. 11 The Exchange would be able to issue one or more ITPs, subject to a cumulative maximum total of 50, if it determines that:
(1)There are insufficient transferable Exchange memberships available for lease at that time at a rate reasonably related to the indicative lease rate to meet existing demand for such leases; 12 and
(2)it would be in the interest of fair and orderly markets to provide additional trading access under the circumstances (collectively, the “issuance findings”). 11 *See* proposed CBOE Rule 3.27(b). 12 The “indicative lease rate” would be the highest “clearing firm floating monthly rate” of the Clearing Members that assist in facilitating at least 10% of the transferable membership leases. The “clearing firm floating monthly rate” would be the floating rate that a Clearing Member designates, in connection with transferable membership leases that the Clearing Member assisted in facilitating, for leases that utilize that monthly rate. If the Exchange determines to issue ITPs, the Exchange would announce the number of ITPs that it would make available (limited by the number that are available for issuance, up to a cumulative maximum of 50), that the Exchange is taking applications for such permits, the objective process the Exchange would follow in issuing such permits, 13 and the beginning and end dates during which individuals and organizations must submit applications for such permits. 14 To be eligible to apply for an ITP, an individual or organization must meet all of CBOE's requirements for membership in the Exchange and obtain CBOE's approval for having met such requirements. 15 CBOE is not proposing to change any of these requirements. An individual would be eligible to receive no more than one ITP in connection with a particular ITP issuance, with a maximum of eight such permits for a member organization and individuals and member organizations affiliated with the member organization in connection with that issuance. 16 13 The Exchange would issue the ITPs in accordance with one of the following objective processes:
(1)Random lottery,
(2)order in time, or
(3)another objective process adopted pursuant to a rule filing submitted to the Commission under Section 19(b) of the Act, 15 U.S.C. 78s(b). 14 The Commission notes that although the number of permits to be issued is limited to a maximum of 50 permits, the Exchange could allocate ITPs in multiple issuances, each time in accordance with one of the objective processes. For example, the Exchange could decide to issue 10 permits by either an order-in-time process or a random lottery process. 15 *See* proposed CBOE Rule 3.27(b). *See* also, *e.g.* , CBOE Rules 3.2 and 3.3 (setting forth qualification requirements for individuals and member organizations, including, among other things, that the person be registered as a broker or dealer pursuant to Section 15 of the Act). 16 *See* proposed CBOE Rule 3.27(b). Recipients of ITPs and all of their associated persons must remain in good standing and must pay all applicable fees, dues, assessments, and other charges assessed against CBOE members. 17 An ITP would be non-transferable, except that:
(1)A member organization may change the designation of the nominee in respect of each ITP it holds, and
(2)an individual ITP holder may transfer that ITP to a member organization with which such individual is then associated. 18 17 *See* proposed CBOE Rule 3.27(f)(ii). 18 *See* proposed CBOE Rule 3.27(g)(iii). An ITP would remain in effect until the earlier of one of the following events:
(1)CBOE is converted into a stock corporation or memberships in CBOE are converted into stock (collectively, a “Demutualization Transaction”),
(2)the holder of the ITP notifies the Exchange in a form and manner prescribed by the Exchange that the holder is terminating that ITP, 19
(3)the ITP is terminated as a result of a regulatory action by the Exchange, or
(4)the Exchange terminates all ITPs through a rule filing approved by the Commission pursuant to Section 19(b) of the Act. 20 In the event of a Demutualization Transaction, holders of ITPs would be guaranteed to receive trading permits on the same terms as holders of transferable Exchange memberships who are eligible to receive trading permits in connection with that transaction. 21 The Commission notes that this provision is designed to ensure that there is no disruption in trading access in the event of such a Demutualization Transaction, and thus should help to promote the fair and orderly character of the Exchange's markets. 19 If the holder of an ITP fails to notify the Exchange that he or she is terminating that ITP by the fifteenth day of the month, the holder would be required to pay to the Exchange an amount equal to the following month's monthly access fee for an ITP. *See* Notice, *supra* note 3, 73 FR at 20991. The Exchange could reissue an ITP that had been terminated. 20 *See* proposed CBOE Rule 3.27(c). 21 *Se* e proposed CBOE Rule 3.27(e)(ii). The Commission finds that the proposed framework and methodology that the Exchange would follow when issuing ITPs represents an objective methodology for the allocation of trading permits in a fair and reasonable manner and is consistent with the Act. The proposal provides the Exchange with the ability to address, from time to time, situations in which the demand for full trading access to the Exchange exceeds the supply of transferable memberships available for lease. The Commission believes that increasing the number of members in that situation is consistent with the Act because it would promote market liquidity and help to promote the fair and orderly character of CBOE's markets. The Commission also believes that the limit on the number of permits that may be obtained in any one issuance is consistent with the Act, including Section 6(c)(4) of the Act, which permits an exchange to limit the number of members of the exchange. 22 The Commission believes that the limit should help minimize the chance for any broker or dealer to dominate any particular issuance and should provide a broad opportunity for access to the Exchange. Finally, the Commission notes that the additional number of permits that CBOE would have authority to issue represents a small percentage of its 930 outstanding memberships and is consistent with the Act, including Section 6(b)(5) thereunder, in that it should permit the Exchange to offer additional access where demand so warrants, and should facilitate transactions in securities by potentially deepening the pool of liquidity available on the Exchange. Therefore, the Commission finds that the provisions of the proposal governing the issuance and duration of ITPs are consistent with the requirements of the Act. 22 15 U.S.C. 78f(c)(4). B. Fair Representation of ITP Holders The Commission finds that the proposed rule change is consistent with Section 6(b)(3) of the Act, 23 which requires that the rules of the exchange assure a fair representation of its members in the selection of its directors and administration of its affairs and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer. ITP holders would be members of CBOE and would have all rights attendant thereto, except as expressly provided otherwise. 24 23 15 U.S.C. 78f(b)(3). 24 The Commission notes that the voting and representation rights of ITP holders are substantively identical to the provisions addressing the voting and representation rights provided to CBOE Stock Exchange (“CBSX”) permit holders that the Commission previously approved. *See* Securities Exchange Act Release No. 55326 (February 21, 2007), 72 FR 8816 (February 27, 2007) (order approving File No. SR-CBOE-2006-107). In particular, an ITP holder, or an officer of an ITP holder, would be eligible to serve as an at-large director on the Board of Directors of the Exchange (“CBOE Board”) 25 and on any Exchange committee to the same extent that a regular member could serve on that committee, except as provided otherwise. 26 Further, an ITP holder, or an officer of an ITP holder, would be eligible to serve on CBOE's Nominating Committee in one of the six floor member and firm member positions on that committee, notwithstanding the fact that the holder of an ITP would not be a regular member or an officer of a regular member. 27 25 *See* proposed Section 6.1(a) of the CBOE Constitution. The Exchange also proposes to amend Section 6.1(a) to remove a reference to the commencement of the classification of the Board that was implemented in 2002, because the transition period has now passed. 26 *See* proposed CBOE Rule 3.27(e)(i). The Commission notes that an ITP holder would be eligible to serve on Exchange committees that develop and/or review trading rules and would also be eligible for appointment to the Exchange's Business Conduct Committee, whose members are periodically appointed to conduct hearings for specific disciplinary matters. *See* E-mail from Patrick Sexton, Associate General Counsel, CBOE, to Johnna B. Dumler, Special Counsel, Division of Trading and Markets, Commission, dated May 20, 2008. 27 *See* proposed Section 4.1(a) of the CBOE Constitution. ITP holders would have the same voting and petition rights as holders of transferable memberships, except that they would have no right to vote or petition concerning:
(1)Issues that relate to Exchange ownership matters, including without limitation those matters related to demutualization, mergers, consolidations, dissolution, liquidation, transfer, or conversion of assets of the Exchange, and
(2)matters that relate to Article Fifth(b) 28 of CBOE's Certificate of Incorporation. 29 This limitation reflects the fact that ITP holders would have no interest in the assets or property of the Exchange, and would have no right to share in any distribution by the Exchange. 30 28 Article Fifth(b) of CBOE's Certificate of Incorporation provides certain rights to members of the Board of Trade of the City of Chicago, Inc. (“CBOT”) to become members of the CBOE without purchasing a separate CBOE membership (the “Exercise Right”). Pursuant to an interpretation of the Exchange that was recently approved by the Commission, CBOE believes that the acquisition of the CBOT by Chicago Mercantile Exchange Holdings, Inc. resulted in no persons any longer qualifying for the Exercise Right. *See* Securities Exchange Act Release No. 57159 (January 15, 2008), 73 FR 3769 (January 22, 2008) (order approving SR-CBOE-2006-106). 29 *See* Section 2.6 of the CBOE Constitution and proposed CBOE Rule 3.27(g)(i). Under proposed Section 1.1(b) of the CBOE Constitution and proposed CBOE Rule 3.27(e)(i), ITP holders in good standing would be treated the same as members, except as provided in proposed Sections 2.1(c) and 2.6 of the CBOE Constitution, and except for purposes of Article Fifth(b) of the Certificate of Incorporation, Article Tenth of the Certificate of Incorporation, proposed Section 4.1(a) of the CBOE Constitution, proposed Section 6.1(a) of the CBOE Constitution, and as may be provided in the rules. Under Section 2.1(c) of the CBOE Constitution, an ITP holder would have no interest in the assets or property of the Exchange and no right to share in any distribution by the Exchange. Further, Section 2.6 of the CBOE Constitution would grant ITP holders the same voting and petition rights as regular members except that an ITP holder, like a CBSX member, would not have the right to vote or petition concerning the matters discussed above. 30 *See* proposed Section 2.1(c) of the CBOE Constitution and proposed CBOE Rule 3.27(g)(ii). C. Trading Rights of ITP Holders and Jurisdiction of the Exchange Over ITP Holders A holder of an ITP would have the same trading privileges on the Exchange as the holder of a transferable Exchange membership. 31 Those rights would include the right to trade on the CBSX and the trading rights on the Exchange necessary to become a member of OneChicago, LLC. An organization that holds an ITP or that has an ITP registered for it in general would be treated the same as a “member organization” for purposes of the rules. 32 31 *See* proposed CBOE Rule 3.27(e)(i). 32 *See id.* The Exchange notes that this provision is limited to the rules and is subject to the conditions imposed on ITP holder status in the CBOE Constitution and rules, including proposed Section 1.1(b) of the Constitution and proposed Rule 3.27(e)(i). Holders of ITPs would be “members” of the Exchange under Section 3(a)(3) of the Act. 33 As members, ITP holders and their associated persons would be subject to the regulatory jurisdiction of the Exchange under the Act, and the Constitution and rules of the Exchange. 34 In this regard, for instance, ITPs may be suspended or revoked as a result of a disciplinary action under the amendments proposed for Rule 17.1. In particular, the Exchange would have the authority under proposed Rule 2.23 to revoke an ITP if the holder fails to pay any dues, fees, assessments, charges, fines or other amounts due to the Exchange within six months after such payment is due. In addition, the Exchange would have the authority under proposed Rules 16.3(c) and 16.4 to suspend or revoke the ITP of a holder that experiences financial difficulty. The Exchange also would have the authority under proposed Rule 17.1 to suspend or revoke an ITP if the holder has been disciplined by the Exchange. 33 15 U.S.C. 78c(a)(3)(A). 34 *See* proposed CBOE Rule 3.27(f)(i). *See also* 15 U.S.C. 78f(b)(6) and 15 U.S.C. 78f(c)(3). All Exchange members are required to be registered broker dealers. *See* CBOE Rules 3.2(a)(ii) and 3.3(a)(ii). The Commission has jurisdiction over all broker dealers. Accordingly, the Commission finds that the proposed rule change is consistent with Section 6(b)(1) of the Act, 35 which requires an exchange to have the capacity to carry out the purposes of the Act and to enforce compliance by its members and persons associated with its members with the provisions of the Act, the rules and regulations thereunder, and the rules of the Exchange. The Commission also finds that the proposal is consistent with Section 6(b)(5) of the Act, 36 which requires, among other things, that the rules of the Exchange promote just and equitable principles of trade, remove impediments to and perfect the mechanism of a free and open market and a national market system, and not be designed to permit unfair discrimination between customers, issuers, brokers, or dealers. In particular, ITP holders would have the same trading privileges on the Exchange and would be subject to the same regulatory jurisdiction of the Exchange as are applicable to holders of transferable Exchange memberships. 35 15 U.S.C. 78f(b)(1). 36 15 U.S.C. 78f(b)(5). D. Transfer of ITP Holders to Open Leases In connection with determining to issue ITPs, the Exchange sought and received feedback from the Exchange's Lessors Committee. According to the Exchange, some participants on that committee expressed the concern that the issuance of ITPs potentially could have a negative effect on the lease market for CBOE seats by reducing the demand for leases. 37 Further, the commenters to the proposal, while acknowledging CBOE's need to provide additional access to the Exchange, also expressed concern that the proposal would negatively impact the value of existing memberships and dilute the income stream to lessors of current memberships. 38 37 *See* Notice, *supr* a note 3, 73 FR at 20992. 38 *Se* e Blum/Mondrus Letter, *supr* a note 5. *See also* Andrew Letter, *supra* note 5, at 1-2. Specifically, in the Blum/Mondrus Letter, commenters acknowledged CBOE's need to provide more trading access to the Exchange, but criticized the proposed expansion of access as effecting a reduction in the value of existing memberships and diluting the income stream to lessors of memberships. 39 In addition, the Blum/Mondrus Letter argued that the Exchange's proposal to issue 50 access permits to itself would put the Exchange in competition with seat owners, many of whom lease their seats to others. 40 Further, the Blum/Mondrus Letter noted that a petition was being circulated among CBOE members to request that the CBOE Board consider an alternate access proposal, and asked the Commission to hold hearings on the proposal. 41 In the Andrew Letter, commenters similarly criticized the mechanics of the proposed ITP program. 42 In particular, they argued that CBOE would be usurping the historical practice of seat owners pricing floor access and receiving revenue therefrom. 43 39 *See* Blum/Mondrus Letter, *supra* note 5. 40 *See id.* 41 *See id.* 42 *See* Andrew Letter, *supra* note 5. 43 *See id.* at 1. In its response to the commenters, the Exchange noted that the CBOE Board has explicit legal authority in Section 2.1(a) of CBOE's Constitution to adopt the proposed permit plan. 44 CBOE also noted that members would have an opportunity to vote on the merits of the plan. 45 In Amendment No. 1 to the proposed rule change, CBOE confirmed that it obtained both the requisite CBOE Board approval and membership approval, and confirmed that no further action by CBOE in connection with the proposal is necessary. 46 As approximately 82% of CBOE seats are currently leased, 47 the Commission notes that members who lease their seats had an opportunity to be heard on the proposal and have subsequently endorsed CBOE's proposed plan. 44 *See* CBOE Comment Letter 1, *supra* note 6, at 1. 45 *See id.* 46 *See* Amendment No. 1, *supra* note 4. 47 Telephone call with Arthur Reinstein, Deputy General Counsel, CBOE, Patrick Sexton, Associate General Counsel, CBOE, Stan Leimer, Director CBOE Membership Department, CBOE, and Richard Holley III, Senior Special Counsel, and Johnna B. Dumler, Special Counsel, Division of Trading and Markets, Commission, and J. Daniel Aromi, Office of Economic Analysis, Commission, on June 11, 2008 (“June 11 Telephone Call”). CBOE also noted that its members would be the ultimate beneficiaries of the plan and any revenues generated therefrom because they are the owners of the Exchange. 48 CBOE further noted that it is not unusual for an exchange to retain trading access fees, and noted that it currently does so with respect to CBSX permits. 49 48 *See* CBOE Comment Letter 1, *supra* note 6, at 2. 49 *See id.* In addition, CBOE proposed certain features designed to address the concerns of lessors of CBOE memberships. To minimize any potential negative impact on the market for leased CBOE memberships, the proposal provides a process by which CBOE would endeavor to facilitate the transfer of holders of ITPs to leases that become available or, if necessary, compensate a lessor who holds an unleased seat with a monthly payment equal to the indicative lease rate. In particular, if the Exchange is notified by one or more lessors that they have transferable Exchange memberships available for lease (“open leases”) at a rate reasonably related, as determined by the Exchange in its sole discretion, to the indicative lease rate, then the Exchange would notify each ITP holder of the number of open leases and the names of the lessors with those open leases. The ITP holder could contact those lessors if the holder is interested in transferring to an open lease. 50 Transfer to an open lease would be entirely voluntary for ITP holders. 51 50 The Exchange would provide a similar notification to each person who is a Temporary Member under Interpretation and Policy .02 of Rule 3.19, and transfer to an open lease would be entirely voluntary. *See* Notice, *supra* note 3, 73 FR at 20992, n.16. 51 *See* Notice, *supra* note 3, 73 FR at 20992. If, after a reasonable period of time following the process set forth in the paragraph above, a lessor notifies the Exchange that the lessor continues to have an open lease, the Exchange would compensate that lessor through a monthly payment equal to the indicative lease rate, provided the lessor is offering for lease the transferable membership subject to the open lease at a rate reasonably related to the indicative lease rate, as determined by the Exchange in its sole discretion. 52 The lessor may, at any time thereafter, lease that membership to any qualified individual or organization and would be required to notify the Exchange in the event of such a lease. The Exchange would cease compensating the lessor if it receives such a notification or otherwise learns the lessor has leased that membership. 52 The “indicative lease rate” would be determined in accordance with proposed Rule 3.27(b). *See supra* note 12 (further describing the indicative lease rate). In the event that the number of lessors receiving compensation pursuant to this provision becomes greater than the number of outstanding ITPs, the Exchange would compensate each such lessor on a pro-rated basis. The Commission finds that the aspects of the proposal that relate to the Exchange's intention to facilitate the transfer of ITP holders to open leases, as well as the Exchange's proposal to compensate lessors who hold unleased seats that are offered for lease at a market rate when ITPs are outstanding, are consistent with the Act, including Section 6(b)(5) thereunder. 53 In particular, transfers of ITP holders to an open lease would be on a voluntary basis at the option of the ITP holder. Further, compensation to holders of CBOE transferable memberships that are unable to lease their seats at market rates when ITPs are outstanding is a business decision of the Exchange that does not raise any issues under the Act. 53 15 U.S.C. 78f(b)(5). The Commission does not believe that the necessary result of CBOE's ITP proposal is a reduction in the value of a CBOE membership or a decrease over time in the seat lease income paid to CBOE members. To the contrary, as CBOE provides additional trading access to the Exchange, the result could be an increase in liquidity that in turn increases the value of access to the Exchange. Further, the Commission notes that the Exchange has explicit authority in its Constitution to issue permits, and that CBOE members were informed of the proposal and have voted decidedly in favor of it. The Commission also notes that the Exchange currently receives trading access fees for permits to access CBSX, and the Commission notes CBOE's point that CBOE members, as owners of the Exchange, are the ultimate beneficiaries of the proposed permit plan and any revenues generated in connection therewith. Similarly, the Commission does not believe that the proposal places the Exchange in competition with its members. When the Exchange determines to issue ITPs, consistent with the issuance findings, there would be insufficient seats available for lease at a rate reasonably related to the indicative lease rate. Thus, at the point in time of an issuance, the Exchange generally would not be in competition with any of its members who have open seats for lease at market rates. Further, the Exchange's use of the indicative lease rate is designed so that the Exchange will not issue ITPs at below-market rates. In particular, the indicative lease rate is an objective metric that is derived from lease rates determined by entities unaffiliated with the Exchange 54 in which there is a liquid market for leased seats. 55 Further, the Commission notes that the Exchange considers the highest of the “clearing firm floating monthly rates” when it establishes the “indicative lease rate,” which the Commission believes alleviates the potential for any downward pressure on the market lease rate. 56 54 *See supra* note 12 (further describing the indicative lease rate). 55 *See* Notice, *supra* note 3, 73 FR at 20990 (discussing the indicative lease rate) and June 11 Telephone Call, *supra* note 47. The Commission notes that, of the seats that are leased, more than 83% are currently facilitated by two clearing firms, such that the “clearing firm floating monthly rate” and the corresponding “indicative lease” rate are based on a significant and representative portion of the overall leased seat market. 56 *See supra* note 12 (further describing the indicative lease rate). Accordingly, the Commission does not believe that the ITP proposal imposes any burden on competition, consistent with Section 6(b)(8) of the Act, 57 that is not necessary or appropriate in furtherance of the purposes of the Act. Specifically, the Exchange would issue ITPs, consistent with the issuance findings, when doing so would be in the interest of fair and orderly markets. In CBOE's judgment, therefore, the issuance of a limited number of permits through an objective methodology would contribute to the vitality of its market, thereby increasing the attractiveness of CBOE's market and consequently enhancing its value to CBOE members and other users of CBOE's facilities. In addition, as discussed above, the Exchange has proposed to provide compensation to holders of CBOE memberships that are unable to lease their seats at market rates when ITPs are outstanding, which the Commission believes would mitigate any potential burden that the proposal might represent to lessors of CBOE memberships. 57 15 U.S.C 78f(b)(8). Finally, the Commission notes the desire of a commenter to have CBOE delay the proposal and have the Commission hold hearings on the proposal. 58 Section 19(b)(1) of the Act 59 requires CBOE to file with the Commission any proposed changes to, or interpretations of, its rules and the Commission is thereafter obligated to consider CBOE's proposal. In this instance, given the member vote and approval, the Commission is acting on CBOE's proposal. 58 *See* Blum/Mondrus Letter, *supra* note 5. 59 15 U.S.C. 78s(b)(1). E. ITP Fees Holders of ITPs would be required to pay to the Exchange a monthly access fee. The monthly access fee would be established and adjusted through a proposed rule change that would be filed with the Commission under Section 19(b) of the Act. 60 Such fees would be due and payable in accordance with the provisions of the Exchange fee schedule and would be the same for all ITP holders. 61 Commenters suggested that CBOE provide better justification for its claim to floor access revenue. 62 In response, CBOE stated that, because its members own the Exchange, they are the ultimate beneficiaries of any revenues that may be generated by the permit plan and that the members will have an opportunity to be heard on that aspect of the proposal when they vote on the proposal. 63 CBOE also noted that the commenter incorrectly suggested that it is unusual for an exchange to set the level of and retain trading access fees, and noted that the CBSX permit plan is based on that model. 64 The Commission is not today approving the level of the monthly access fee for ITPs and notes that such fees would be the subject of a separate proposed rule change. Nevertheless, the Commission agrees with CBOE that it is consistent with Section 6(b)(4) of the Act 65 for exchanges to charge for access to their facilities. 66 60 15 U.S.C. 78s(b). 61 *See* proposed CBOE Rule 3.27(f)(ii). 62 *See* Andrew Letter, *supra* note 5, at 2. 63 *See* CBOE Letter 2, *supra* note 6, at 2. On May 19, 2008, the CBOE membership approved the ITP plan. *See* Amendment No. 1, *supra* note 4. 64 *See* CBOE Letter 2, *supra* note 6, at 2. CBOE also sought to clarify a reference in the Andrew Letter to trading access funds that, according to the Andrew Letter, are being held in “escrow.” CBOE noted that the fees to be collected under its ITP proposal would not be held in escrow and no escrowed funds would be affected by its proposal. *See id.* 65 15 U.S.C. 78f(b)(4). 66 *See* , *e.g.* , Securities Exchange Act Release No. 53382 (February 27, 2006), 71 FR 11251, 11268 (March 6, 2006) (SR-NYSE-2005-77) (approving a process to determine an access fee for trading licenses and noting that the exchange would later file a separate proposed rule change to amend its fee schedule to establish the price). F. Conforming Rule Changes To Accommodate ITPs and Clarifying Changes Relating to CBSX Permits The Exchange proposed several conforming changes in its rules to ensure that individuals and organizations that receive ITPs can conduct their activities in a manner similar to holders of Exchange memberships. 67 These changes relate to, among other things, registration, designation of nominees, and qualifications. Other conforming changes have been made to the rules so that certain requirements related to the holders of memberships would apply to the holders of ITPs. For example, CBOE would amend Rule 3.2(c) to specify that individual ITP holders would be required to have authorized trading functions. 68 67 *See* Notice, *supra* note 3, 73 FR at 20992-94 (describing each such proposed rule change). 68 *See* Notice, *supra* note 3, 73 FR at 20993. Additionally, though unrelated to the ITP proposal, CBOE also proposed to adopt several changes to clarify how CBSX permits currently are treated under the Certificate of Incorporation, Constitution, and rules. These changes, which adopt certain language that is also being proposed for ITPs, are non-substantive in nature and do not modify the rights of the holders of such permits or materially alter the status quo with respect to the Exchange's operation of CBSX. 69 69 For example, the Exchange proposes to change the terminology in CBOE Rule 3.26(c) to note that (except as indicated therein) CBSX permit holders are treated the “same as” members, rather than being “deemed to be” members for purposes of the Certificate of Incorporation, Constitution, and rules. In addition, the Exchange is proposing to amend CBOE Rule 3.26(c) to clarify that an organization that holds a CBSX permit or that has a CBSX permit registered for it shall be treated the same as a “member organization” for purposes of the CBOE rules. *See* Notice, *supra* note 3, 73 FR at 20993. The Commission finds that the conforming and clarifying changes proposed by the Exchange are consistent with the requirements of Section 6 of the Act. In particular, the clarifying and conforming changes are non-substantive in nature and should provide greater clarity to market participants, including CBOE's members and CBSX permit holders, regarding the application and operation of the Exchange's rules. III. Conclusion *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, 70 that the proposed rule change (SR-CBOE-2008-40), as modified by Amendment No. 1 thereto, be, and hereby is approved. 70 15 U.S.C. 78s(b)(2). By the Commission. Florence E. Harmon, Acting Secretary. [FR Doc. E8-16747 Filed 7-21-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58164; File No. SR-ISE-2008-56] Self-Regulatory Organizations; International Securities Exchange, LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Fee Waivers July 15, 2008. 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 July 1, 2008, International Securities Exchange, LLC (the “ISE” or the “Exchange”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The ISE filed the proposal pursuant to Section 19(b)(3)(A) 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 from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 15 U.S.C. 78s(b)(3)(A). 4 17 CFR 240.19b-4(f)(2). 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 by adopting fee waivers related to the execution on ISE of public customer orders exposed to members before those orders are sent out for execution on another exchange through the intermarket linkage (“Linkage”). The text of the proposed rule change is available at the Exchange, *http://www.ise.com* , and 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 self-regulatory organization 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 self-regulatory organization 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 Before a Primary Market Maker (“PMM”) sends a customer order through the Linkage when ISE is not at the national best bid or offer (“NBBO”), the Exchange exposes these customer orders to all its members to give them an opportunity to match the NBBO. 5 5 *See* Securities Exchange Act Release No. 58038 (June 26, 2008), 73 FR 38261 (July 3, 2008) (SR-ISE-2008-50) (Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Exposure of Public Customer Orders to all ISE Members). Specifically, before the PMM sends a Linkage Order on behalf of a public customer, the public customer order is exposed at the NBBO price for a period established by the Exchange not to exceed one second. During this exposure period, Exchange members may enter responses up to the size of the order being exposed in the regular trading increment applicable to the option. If at the end of the exposure period, the order is executable at the then-current NBBO and the ISE is not at the then-current NBBO, the order is executed against responses that equal or better the then-current NBBO. The exposure period is terminated if the exposed order becomes executable on the ISE at the prevailing NBBO or if the Exchange receives an unrelated order that could trade against the exposed order at the prevailing NBBO price. If, after an order is exposed, the order is not executed in full on the Exchange at the then-current NBBO or better, and it is marketable against the then-current NBBO, the PMM sends a Linkage Order on the customer's behalf for the balance of the order as provided in Rule 803(c)(2)(ii). If the balance of the order is not marketable against the then-current NBBO, it is placed on the ISE book. To encourage ISE members to respond to the exposure of these public customer orders, ISE proposes to waive the Firm Proprietary, ISE Market Maker and Payment for Order Flow fees incurred by members who step up and match or improve the NBBO during the exposure period so these public customer orders can be executed on the Exchange. 6 6 *See* e-mail from Samir Patel, Assistant General Counsel, ISE to Jennifer Colihan and Christopher Chow, Special Counsels, Commission, dated July 11, 2008. The Exchange notes that the proposed rule change will allow ISE to retain more flow by giving these customer orders additional opportunity to be executed at the NBBO at ISE and will also reduce PMM costs by reducing the number of Linkage orders they must send to other exchanges. 7 7 *See id.* 2. Statutory Basis The basis under the Act for this proposed rule change is the requirement under Section 6(b)(4) that an exchange have an equitable allocation of reasonable dues, fees and other charges among its members and other persons using its facilities. 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 unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing proposed rule change has been designated as a fee change pursuant to Section 19(b)(3)(A) of the Act 8 and Rule 19b-4(f)(2) thereunder, 9 because it establishes or changes a due, fee, or other charge imposed on members by ISE. Accordingly, the proposal is effective upon filing with the Commission. 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. 8 15 U.S.C. 78s(b)(3)(A). 9 17 CFR 240.19b-4(f)(2). IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ); or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-ISE-2008-56 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-ISE-2008-56. 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, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. 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-ISE-2008-56 and should be submitted on or before August 12, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 10 Florence E. Harmon, Acting Secretary. 10 17 CFR 200.30-3(a)(12). [FR Doc. E8-16686 Filed 7-21-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58174; File No. SR-NYSEArca-2008-54] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval to a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To Amend Rules 6.62 and 6.91 Describing Complex Orders, Complex Order Priority, and Complex Order Execution July 16, 2008. I. Introduction On May 23, 2008, NYSE Arca, Inc. (“NYSE Arca” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 a proposed rule change to amend NYSE Arca Rules 6.62 and 6.91 describing complex orders, complex order priority, and complex order execution. On June 5, 2008, the Exchange filed Amendment No. 1 to the proposed rule change. The proposal, as modified by Amendment No. 1, was published for comment in the **Federal Register** on June 11, 2008. 3 The Commission received no comments on the proposal. This order approves the proposed rule change, as amended. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. 3 *See* Securities Exchange Act Release No. 57927 (June 5, 2008), 73 FR 33131. II. Description of the Proposal The Exchange proposes to amend NYSE Arca Rules 6.62 and 6.91 describing complex orders, complex order priority, and complex order execution. Proposed NYSE Arca Rule 6.62 eliminates specific definitions for a number of complex order types and adopts a generic definition for Complex Orders that is consistent with the definition for Complex Orders approved for use for exemption from Trade Through Liability by the Options Linkage Authority as described in the *Plan For The Purpose Of Creating And Operating An Intermarket Option Linkage* (“Linkage Plan”). Proposed NYSE Arca Rule 6.91 describes the entry of Complex Orders in the Consolidated Book and the operation of the mechanism, called the Complex Order Matching Engine, in which Complex Orders will be executed against each other or against individual quotes and orders in the Consolidated Book. Complex Orders will be ranked in the Consolidated Book in price-time priority based on the strategy and the total or net debit or credit. OTP Holders and OTP Firms will have the ability to view Complex Orders in the Consolidated Book via an electronic interface and to submit orders to the Complex Matching Engine to trade against such orders. Complex Orders eligible for execution in the Complex Matching Engine are defined to be consistent with the Linkage Plan Trade Through exemption. Therefore execution prices for the individual legs of a Complex Order that are outside of the National Best Bid or Offer may be reported. The Complex Matching Engine will never, however, execute any of the legs of a Complex Order at a price outside of the NYSE Arca best bid or offer (“NYSE Arca BBO”) for that leg. Under proposed NYSE Arca Rule 6.91, Complex Orders submitted to NYSE Arca will attempt to execute against other Complex Orders in the Consolidated Book before attempting to execute against the individual leg markets in the Consolidated Book, provided that if individual orders or quotes residing in the Consolidated Book can execute against the incoming Complex Order in full (or in a permissible ratio) at the same total or net debit or credit as a Complex Order in the Consolidated Book, the individual orders or quotes will have priority. Complex Orders that are not executable when submitted to NYSE Arca will be entered into the Consolidated Book. The Complex Matching Engine then will monitor individual quotes and orders in the leg markets. If a new order(s) or quote(s) enters the Consolidated Book so that the Complex Order becomes executable in full (or in a permissible ratio), the Complex Order will be executed against the individual quotes and orders. The Exchange also proposes that Lead Market Makers not be afforded any guaranteed allocation either
(a)in the execution of a complex strategy or
(b)if present at the NYSE Arca BBO, when a Complex Order executes against the individual leg markets since. III. Discussion and Commission Findings After careful review of the proposal, 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. 4 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act, 5 which requires, among other things, that the rules of an exchange be designed to prevent fraudulent and manipulative acts and practices, 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. 4 In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. *See* 15 U.S.C. 78c(f). 5 15 U.S.C. 78f(b)(5). The Commission believes that adopting a generic definition for Complex Orders that is consistent with the definition for Complex Orders approved for use for exemption from the Linkage Plan's Trade-Through Liability is consistent with the Act. The Commission notes that a generic definition for Complex Orders would provide increased flexibility in the use of orders that represent investment strategies designed to limit risk or unwind an already established position in a portfolio. The Commission also believes that the Complex Matching Engine should increase the transparency of Complex Orders and could facilitate the execution of Complex Orders. The Commission notes that the priority of the individual leg markets will continue to be maintained. In this regard, if individual orders or quotes residing in the Consolidated Book can execute against the incoming Complex Order in full (or in a permissible ratio) at the same or better total or net debit or credit as a Complex Order in the Consolidated Book, the individual orders or quotes in the leg markets will have priority. Finally, the Commission believes that the Exchange's proposal not to provide a guaranteed allocation to LMMs with respect to Complex Orders executed in the Complex Matching Engine is reasonable and consistent with the Act, because LMMs do not have any quoting obligations for complex strategies. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 6 that the proposed rule change (SR-NYSEArca-2008-54), as modified by Amendment No. 1, be, and hereby is, approved. 6 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16751 Filed 7-21-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58168; File No. SR-Phlx-2008-53] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of a Proposed Rule Change Relating to an Exchange Member's Conduct of Doing Business With the Public July 16, 2008. Pursuant to Section 19(b)(1) of the Securities and Exchange Act of 1934 (“Act”), 1 and Rule 19b-4 thereunder, 2 notice is hereby given that on July 11, 2008, the Philadelphia Stock Exchange, Inc. (“Phlx” or “Exchange”) filed with the Securities and Exchange Commission (“Commission” or “SEC”) the proposed rule change as described in Items I, II, and III below, which items have been substantially prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Phlx Rules 1024 (Conduct of Accounts for Options Trading), 1025 (Supervision of Accounts), 1027 (Discretionary Accounts), and 1049 (Communications to Customers) that govern an Exchange member's conduct of doing business with the public. Specifically, the proposed rule change would require that member organizations integrate the responsibility for supervision of a member organizations' public customer options business into their overall supervisory and compliance programs. In addition, the proposed rule change would strengthen member organizations' supervisory procedures and internal controls as they relate to a members' public customer options business. The text of the proposed rule change is available at the Phlx, the Commission's Public Reference Room and *http://www.phlx.com/regulatory/reg_rulefilings.aspx.* 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 a. Integration of Options Supervision The purpose of the proposed rule change is to create a supervisory structure for options that is similar to that required by New York Stock Exchange (“NYSE”) Rule 342 and National Association of Securities Dealers (“NASD”) Rule 3010. 3 The proposed rule change would eliminate the requirement that member organizations qualified to do a public customer business in options must designate a single person to act as Senior Registered Options Principal (“SROP”) for the member organization and that each such member organization designate a specific individual as a Compliance Registered Options Principal (“CROP”). Instead member organizations would be required to integrate the SROP and CROP functions into their overall supervisory and compliance programs. The proposed rule change is substantively similar to recent amendments to the rules of the Chicago Board Options Exchange, Inc. (“CBOE”) which were approved by the Commission. 4 3 On July 26, 2007, the Commission approved a proposed rule change filed by NASD to amend NASD's Certificate of Incorporation to reflect its name change to Financial Industry Regulatory Authority, Inc., or FINRA, in connection with the consolidation of the member firm regulatory functions of NASD and NYSE Regulation, Inc. *See* Securities Exchange Act Release No. 56146 (July 26, 2007), 72 FR 42190 (August 1, 2007). The FINRA rule book currently consists of both NASD rules and certain NYSE Rules that FINRA has incorporated. 4 *See* Securities Exchange Act Release No. 56971 (December 14, 2007), 72 FR 72804 (December 21, 2007) (SR-CBOE-2007-106). The SROP concept was first introduced by Phlx and other options exchanges during the early years of the development of the listed options market. Initially, member organizations were required to designate one or more persons qualified as Registered Options Principals (“ROPs”) having supervisory responsibilities in respect of the member organization's options business. As the number of ROPs at larger member organizations began to increase, Phlx imposed an additional requirement that member organizations designate one of their ROPs as the SROP. This was intended to eliminate confusion as to where the compliance and supervisory responsibilities lay by centralizing in a single supervisory officer overall responsibility for the supervision of a member organization's options activities. 5 Subsequently, following the recommendation of the Commission's Options Study, Phlx and other options exchanges required member organizations to designate a CROP to be responsible for the member organization's overall compliance program in respect of its options activities. 6 The CROP may be the same person who is designated as SROP. 5 *See* Securities and Exchange Commission, 96th Cong., 1st Sess., Report of the Special Study of the Options Markets (Comm. Print 1978) 316 fn. 11. 6 *Id.* at P. 335 Since the SROP and CROP requirements were first imposed, the supervisory function in respect of the options activities of most securities firms has been integrated into the matrix of supervisory and compliance functions in respect of the firms' other securities activities. This not only reflects the maturity of the options market, but also recognizes the ways in which the uses of options themselves have become more integrated with other securities in the implementation of particular strategies. Thus, the current requirement for a separately designated senior supervisor in respect of all aspects of a member organization's options activities, rather than clarifying the allocation of supervisory responsibilities within the member organization, may have just the opposite effect by failing to take into account the way in which these responsibilities are actually assigned. By permitting supervision of a member organization's options activities to be handled in the same manner as the supervision of its other securities and futures activities, the proposed rule change will ensure that supervisory responsibility over each segment of the member organization's business is assigned to the best qualified person in the member organization, thereby enhancing the overall quality of supervision. The same holds true for the compliance function. For example, member organizations generally designate one person to have supervisory responsibility over the application of margin requirements and other matters pertaining to the extension of credit. The proposed rule change would enable a member organization to include within the scope of such a person's duties the supervision over the proper margining of options accounts, thereby assuring that the most qualified person is charged with this responsibility and at the same time eliminating any uncertainty that might now exist as to whether this responsibility lies with the senior credit supervisor or with the SROP. Similarly, the proposed rule change would allow a member organization to specifically designate one or more individuals as being responsible for approving a ROP's acceptance of discretionary accounts 7 and exceptions to a member organization's suitability standards for trading uncovered short options. 8 The proposed rule changes would allow member organizations the flexibility to assign such responsibilities, which formerly rested with the SROP and/or CROP, to more than one ROP qualified individual where the member organization believes it advantageous to do so to enhance its supervisory or compliance structure. Typically, a member organization may wish to divide these functions on the basis of geographic region or functional considerations. Phlx Rule 1024 would be amended to clarify the qualification requirements of individuals designated as ROPs. 9 Rule 1024 would also be amended to specify the registration requirements of individuals who accept orders from non-broker-dealer customers. 10 7 *See* proposed Phlx Rule 1027(a)(i). 8 *See* proposed Phlx Rule 1024(c). 9 *See* proposed Commentaries .06 and .07 to Phlx Rule 1024. 10 *See* proposed Commentary .08 to Phlx Rule 1024. The proposed rule change would call for options discretionary accounts, the acceptance of which must be approved by a ROP qualified individual (other than the ROP who accepted the account), to be supervised in the same manner as the supervision of other securities accounts that are handled on a discretionary basis. 11 The proposed rule change would eliminate the requirement that discretionary options orders be approved on the day of entry by a ROP (with one exception as described below). 12 This requirement predates the Options Study and is not consistent with the use of supervisory tools in computerized format or exception reports generated after the close of a trading day. No similar requirement exists for supervision of other securities accounts that are handled on a discretionary basis. 13 Discretionary orders must be reviewed in accordance with a member organization's written supervisory procedures. The proposed rule change would ensure that supervisory responsibilities are assigned to specific ROP qualified individuals, thereby enhancing the quality of supervision. 11 *See* proposed Phlx Rule 1025. 12 *See* proposed Phlx Rule 1027(a). 13 *See e.g.* , NYSE Rule 408. Phlx Rule 1027 would be revised by adding, as Commentary .01, a requirement that any member organization that does not utilize computerized surveillance tools for the frequent and appropriate review of discretionary account activity must establish and implement procedures to require ROP qualified individuals who have been designated to review discretionary accounts to approve and initial each discretionary order on the day entered. The Exchange believes that any member organization that does not utilize computerized surveillance tools to monitor discretionary account activity should continue to be required to perform the daily manual review of discretionary orders. Under the proposed rule change, options discretionary accounts will continue to receive frequent appropriate supervisory review by designated ROP qualified individuals. Additionally, member organizations will continue to be required to designate ROP qualified individuals to review and approve the acceptance of options discretionary accounts in order to determine whether the ROP accepting the account had a reasonable basis for believing that the customer was able to understand and bear the risks of the proposed strategies or transactions. 14 This requirement provides an additional level of supervisory audit over options discretionary accounts that does not exist for other securities discretionary accounts. 14 *See* proposed Phlx Rule 1027(a). In addition, the proposed rule change would require that each member organization submit to the Exchange a written report by April 1 of each year, that details the member organization's supervision and compliance effort, including its options compliance program, during the preceding year and reports on the adequacy of the member organization's ongoing compliance processes and procedures. 15 15 *See* proposed Phlx Rule 1025(g), which is modeled after NYSE Rule 342.30. Proposed Phlx Rule 1025(h) would require that each member organization submit, by April 1st of each year, a copy of the Phlx Rule 1025(g) annual report 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. 16 16 *See* proposed Phlx Rule 1025(h) which is modeled after NYSE Rule 354. Proposed Phlx Rule 1025(g) would provide that a member organization that specifically includes its options compliance program in a report that complies with substantially similar NYSE and NASD rule requirements will be deemed to have satisfied the requirements of Phlx Rules 1025(g) and 1025(h). Although the proposed rule change would eliminate entirely the positions and titles of the SROP and CROP, member organizations would still be required to designate a single general partner or executive officer to assume overall authority and responsibility for internal supervision, control of the member organization and compliance with securities laws and regulations. 17 Member organizations would also be required to designate specific qualified individuals as having supervisory or compliance responsibilities over each aspect of the member organization's options activities and to set forth the names and titles of these individuals in their written supervisory procedures. 18 This is consistent with the integration of options supervision into the overall supervisory and compliance structure of a member organization. In connection with the approval of these proposed rule changes, the Exchange intends to review member organizations' written supervisory and compliance procedures in the course of the Exchange's routine examination of member organizations to ensure that supervisory and compliance responsibilities are adequately defined. 17 *See* proposed Phlx Rule 1025(a). 18 *See* proposed Commentary .02 to Phlx Rule 1025. The Exchange believes that the proposed rule changes recognize that options are no longer in their infancy, have become more integrated with other securities in the implementation of particular strategies, and thus should not continue to be regulated as though they are new and experimental products. The Exchange believes that the proposed rule change is appropriate and would not materially alter the supervisory operations of member organizations. The Exchange believes the supervisory and compliance structure in place for non-options products at most member organizations is not materially different from the structure in place for options. b. Supervisory Procedures and Internal Controls The Exchange also proposes to amend certain rules to strengthen member and member organizations' supervisory procedures and internal controls as they relate to the members' public customer options business. The proposed rule changes described below are modeled after NYSE and NASD rules approved by the Commission in 2004. 19 The Exchange believes the following proposal to strengthen member supervisory procedures and internal controls is appropriate and consistent with the preceding proposal to integrate options and non-options sales practice supervision and compliance functions. 19 *See* Securities Exchange Act Release Nos. 49882 (June 17, 2004), 69 FR 35108 (June 23, 2004) (SR-NYSE-2002-36) and 49883 (June 17, 2004), 69 FR 35092 (June 23, 2004) (SR-NASD-2002-162). Phlx Rule 1025(a)(iii) would be revised to require the development and implementation of written policies and procedures reasonably designed to supervise sales managers and other supervisory personnel who service customer options accounts (i.e., who act in the capacity of a registered representative). 20 This requirement would apply to branch office managers, sales managers, regional/district sales managers, or any person performing a similar supervisory function. Such policies and procedures are expected to encompass all options sales-related activities. Proposed Phlx Rule 1025(a)(iii)(A) would require that supervisory reviews of producing sales managers be conducted by a qualified ROP who is either senior to, or otherwise “independent of”, the producing manager under review. 21 This provision is intended to ensure that all options sales activity of a producing manager is monitored for compliance with applicable regulatory requirements by persons who do not have a personal interest in such activity. 20 *See* proposed Phlx Rule 1025(a)(iii) which is modeled after NYSE Rule 342.19. 21 An “otherwise independent” person is defined in proposed Phlx Rule 1025(a)(iii)(A) as one who: may not report either directly or indirectly to the producing manager under review; must be situated in an office other than the office of the producing manager; must not otherwise have supervisory responsibility over the activity being reviewed; and must alternate such review responsibility with another qualified person every two years or less. Further, if a person designated to review a producing manager receives an override or other income derived from that producing manager's customer activity that represents more than 10% of the designated person's gross income derived from the member organization over the course of a rolling twelve-month period, the member organization must establish alternative senior or otherwise independent supervision of that producing manager to be conducted by a qualified Registered Options Principal other than the designated person receiving the income. Proposed Phlx Rule 1025(a)(iii)(B) would provide a limited exception for members so limited in size and resources that there is no qualified person senior to, or otherwise independent of, the producing manager to conduct the review. In this case, the reviews may be conducted by a qualified ROP to the extent practicable. Under proposed Phlx Rule 1025(a)(iii)(C), a member relying on the limited size and resources exception must document the factors used to determine that compliance with each of the “senior” or “otherwise independent” standards of Phlx Rule 1025(a)(iii)(A) is not possible, and that the required supervisory systems and procedures in place with respect to any producing manager comply with the provisions of Phlx Rule 1025(a)(iii)(A) to the extent practicable. 22 22 Paragraph 1025(a)(iii)(D) of Phlx Rule 1025 would provide that a member organization that complies with requirements of the NYSE or the NASD that are substantially similar to the requirements in Phlx Rules 1025(a)(iii)(A), (a)(iii)(B) and (a)(iii)(C) will be deemed to have met such requirements. Proposed Phlx Rule 1025(c)(i) would require member organizations to develop and maintain adequate controls over each of their business activities. 23 The proposed rule would further require that such controls include the establishment of procedures to independently verify and test the supervisory systems and procedures for those business activities. Member organizations would be required to include in the annual report prepared pursuant to Phlx Rule 1025(g) a review of their efforts in this regard, including a summary of the tests conducted and significant exceptions identified. The Exchange believes proposed Phlx Rule 1025(c)(i) would enhance the quality of member organizations' supervision. 24 23 Current Phlx Rule 1025(c) regarding designation of foreign currency options principals was renumbered as 1025(i). 24 *See* proposed Phlx Rule 1025(c)(i) which is modeled after NYSE Rule 342.23. Paragraph (c)(ii) of Phlx Rule 1025 would provide that a member organization that complies with requirements of the NYSE or the NASD that are substantially similar to the requirements in Phlx Rule 1025(c)(i) will be deemed to have met such requirements. Proposed Phlx Rule 1025(d) would establish requirements for branch office inspections similar to the requirements of NYSE Rule 342.24. Specifically, Phlx Rule 1025(d) would require a member organization to inspect, at least annually, each supervisory branch office and inspect each non-supervisory branch office at least once every three years. 25 The proposed rule would further require that persons who conduct a member organization's annual branch office inspection must be independent of the direct supervision or control of the branch office (i.e., not the branch office manager, or any person who directly or indirectly reports to such manager, or any person to whom such manager directly reports). The Exchange believes that requiring branch office inspections to be conducted by someone who has no significant financial interest in the success of a branch office should lead to more objective and vigorous inspections. 25 Proposed Phlx Rules 1025(d)(i)(A) and
(B)would provide members with two exceptions from the annual branch office inspection requirement: a member may demonstrate to the satisfaction of the Exchange that other arrangements may satisfy the Rule's requirements for a particular branch office, or based upon a member organization's written policies and procedures providing for a systematic risk-based surveillance system, the member organization submits a proposal to the Exchange and receives, in writing, an exemption from this requirement pursuant to Phlx Rule 1025(e). Under proposed Phlx Rule 1025(e), any member organization seeking an exemption, pursuant to Phlx Rule 1025(d)(ii), from the annual branch office inspection requirement would be required to submit to the Exchange written policies and procedures for systematic risk-based surveillance of its branch offices, as defined in Phlx Rule 1025(e). Proposed Phlx Rule 1025(f) would require that annual branch office inspection programs include, at a minimum, testing and verification of specified internal controls. 26 Paragraph (d)(3) of Phlx Rule 1025 would provide that a member organization that complies with requirements of the NYSE or the NASD that are substantially similar to the requirements in Phlx Rules 1025(d),
(e)and
(f)will be deemed to have met such requirements. 26 *See* proposed Phlx Rules 1025(e) and
(f)which are modeled after NYSE Rules 342.25 and 342.26. In conjunction with the proposed changes to Phlx Rules 1025(d),
(e)and (f), the Exchange proposes to add new Commentary .09 to Phlx Rule 1024 to define “branch office” in a way that is substantially similar to the definition of branch office in NYSE Rule 342.10. Proposed Phlx Rule 1024(g)(iv) would require a member organization to designate a Chief Compliance Officer (CCO). Proposed Phlx Rule 1025(g)(v) would require each member organization's Chief Executive Officer (CEO), or equivalent, to certify annually per subsection
(A)that the member organization has in place processes to:
(1)Establish and maintain policies and procedures reasonably designed to achieve compliance with applicable Exchange rules and federal securities laws and regulations;
(2)modify such policies and procedures as business, regulatory, and legislative changes and events dictate; and
(3)test the effectiveness of such policies and procedures on a periodic basis, the timing of which is reasonably designed to ensure continuing compliance with Exchange rules and federal securities laws and regulations. Proposed Phlx Rule 1025(g)(v) would further require that the CEO attest the CEO has conducted one or more meetings with the CCO in the preceding 12 months to discuss the compliance processes in proposed Phlx Rule 1025(g)(v), that the CEO has consulted with the CCO and other officers to the extent necessary to attest to the statements in the certification, and the compliance processes are evidenced in a report, reviewed by the CEO, CCO, and such other officers as the member organization deems necessary to make the certification, that is provided to the member organization's board of directors and audit committee (if such committee exists). 27 27 *See* proposed Phlx Rule 1025(g)(v) which is modeled after NASD Rule 3013 and NYSE Rule 342.30(e). Under proposed Phlx Rule 1025(b)(ii), a member, upon a customer's written instructions, may hold mail for a customer who will not be at his or her usual address for no longer than two months if the customer is on vacation or traveling, or three months if the customer is going abroad. This provision would help ensure that members that hold mail for customers who are away from their usual addresses, do so only pursuant to the customer's written instructions and for a specified, relatively short period of time. 28 28 *See* proposed Phlx Rule 1025(b)(ii) which is modeled after NASD Rule 3110(i). Proposed Phlx Rule 1025(b)(iii) would require that, before a customers options order is executed, the account name or designation must be placed upon the memorandum for each transaction. In addition, only a qualified ROP may approve any changes in account names or designations. The ROP also must document the essential facts relied upon in approving the changes and maintain the record in a central location. A member would be required to preserve any account designation change documentation for a period of not less than three years, with the documentation preserved for the first two years in an easily accessible place, as the term “easily accessible place” is used in Exchange Act Rule 17a-4. 29 The Exchange believes the proposed rule would help to protect account name and designation information from possible fraudulent activity. 30 29 *See* 17 CFR 240.17a-4. 30 *See* proposed Phlx Rule 1025(b)(iii) which is modeled after NASD Rule 3110(j). Phlx Rule 1027(e) allows member organizations to exercise time and price discretion on orders for the purchase or sale of a definite number of options contracts in a specified security. The Exchange proposes to amend its Rule 1027(e) to limit the duration of this discretionary authority to the day it is granted, absent written authorization to the contrary. In addition, the proposed rule would require any exercise of time and price discretion to be reflected on the customer order ticket. The proposed one-day limitation would not apply to time and price discretion exercised for orders effected with or for an institutional account (as defined in the rule) pursuant to valid Good-Till-Cancelled instructions issued on a “not held” basis. The Exchange believes that investors will receive greater protection by clarifying the time such discretionary orders remain pending. 31 31 *See* proposed Phlx Rule 1027(e) which is modeled after NASD Rule 2510(d)(1). 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act, 32 in general, and furthers the objectives of Section 6(b)(5), specifically, 33 in that it is designed to perfect the mechanism of a free and open market and the national market system, protect investors and the public interest and promotes just and equitable principles of trade. The proposal would achieve this by enabling the Exchange to amend its rules to require member organizations to integrate the responsibility for supervision of a member organization's public customer options business into their overall supervisory and compliance programs, and to strengthen member organizations' supervisory procedures and internal controls as they relate to a member's public customer options business. 32 15 U.S.C. 78f(b). 33 15 U.S.C. 78f(b)(5). B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange does not believe that the proposed rule change will impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange did not solicit comments or receive any written comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 35 days of the date of publication on 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 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-Phlx-2008-53 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number *SR-Phlx-2008-53.* 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, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the Phlx. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-Phlx-2008-53 and should be submitted on or before August 12, 2008. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority. 34 34 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16685 Filed 7-21-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58165; File No. SR-DTC-2008-03] Self-Regulatory Organizations; The Depository Trust Company; Notice of Filing of Proposed Rule Change To Establish a Fee Relating to DTC's Settlement Procedures for the Maturity of Money Market Instruments With Unknown Rates July 15, 2008. 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 May 30, 2008, The Depository Trust Company (“DTC”) filed with the Securities and Exchange Commission (“Commission”) the proposed rule change described in Items I, II, and III below, which items have been prepared primarily by DTC. The Commission is publishing this notice to solicit comments on the proposed rule change from interested parties. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b-4. I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The proposed rule change seeks to establish a fee that relates to DTC's settlement procedures for the maturity of Money Market Instruments (“MMI”) with unknown rates (“Unknown Rate Maturities”). II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, DTC included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. DTC has prepared summaries, set forth in sections (A), (B), and
(C)below, of the most significant aspects of these statements. 3 3 The Commission has modified the text of the summaries prepared by DTC. A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change DTC initiates MMI maturity processing automatically each morning by electronically sweeping all maturing positions of MMI CUSIPs from investors' custodian accounts and generating the appropriate maturity payments. The MMI then is delivered to the account of the appropriate Issuing Agent or Paying Agent (collectively, “IPA”). On the day of delivery, DTC debits the IPA's account in the amount of the maturity proceeds for settlement and credits the same amount of the maturity proceeds to the investor's custodian account for payment to the investor. In order for DTC to process settlement for Unknown Rate Maturities the IPA currently is required to send notice to DTC by 6 p.m.
(ET)on the day the amount of variable income or principal becomes known to the IPA, but in no event later than 3 p.m.
(ET)on the day prior to maturity or periodic payment date. In certain circumstances, DTC may accept an IPA's notice after the applicable deadlines until 2:30 p.m.
(ET)on the date of maturity. If no maturity rate is provided by 2:30 p.m.
(ET)on the date of maturity, then the maturity will roll-over to the next processing day. This rollover continues until a rate is provided. The process to monitor the resolution of payments on Unknown Rate Maturities is time-consuming because it involves, among other things, DTC verifying the IPA of the Unknown Rate Maturity, calling the IPA at minimum on a daily basis, and coordinating within DTC to get the issue resolved as quickly as possible. Accordingly, DTC is proposing to implement a disincentive fee to encourage timely receipt of the appropriate maturity rates. DTC submits that this is an appropriate fee to assess in order to compensate for the operational expenses associated with monitoring the resolution of payments on Unknown Rate Maturities and expects such fee to serve as a disincentive to IPAs' delayed notice of the maturity rate. Under the proposed rule change, if the maturity rate is not populated in DTC's system by 2:30 p.m.
(ET)on the date of maturity, DTC will charge a fee of $5,000 on the maturity date and for each subsequent MMI business day, or part thereof, until the rate is submitted. 4 DTC has met with various industry organizations, all of whom support the implementation of this fee. 4 DTC also will report any pattern of late submission of maturity rates to the Commission. DTC believes that the proposed rule change is consistent with the requirements of Section 17A of the Act 5 and the rules and regulations thereunder because the proposed change will deter late submission of maturity rates, thereby promoting prompt and accurate clearance and settlement of securities transactions. 5 15 U.S.C. 78q-1. B. Self-Regulatory Organization's Statement on Burden on Competition DTC does not believe that the proposed rule change will have any impact or impose any burden on competition. C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments relating to the proposed rule change have not been solicited or received. DTC will notify the Commission of any written comments received by DTC. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within thirty-five 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 ninety days of such date if it finds such longer period to be appropriate and publishes its reasons for so finding or
(ii)as to which the self-regulatory organization consents, the Commission will:
(A)By order approve such proposed rule change or
(B)Institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission's Internet comment form ( *http://www.sec.gov/rules/sro.shtml* ) or • Send an e-mail to *rule-comments@sec.gov* . Please include File Number SR-DTC-2008-03 on the subject line. Paper Comments • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-DTC-2008-03. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site ( *http://www.sec.gov/rules/sro.shtml* ). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Section, 100 F Street, NE., Washington, DC 20549, on official business days between the hours of 10 am and 3 pm. Copies of such filings also will be available for inspection and copying at the principal office of DTC and on DTC's Web site at *http://www.dtcc.com/downloads/legal/rule_filings/2008/dtc/2008-03.pdf* . All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-DTC-2008-03 and should be submitted on or before August 12, 2008. For the Commission by the Division of Trading and Markets, pursuant to delegated authority. 6 6 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16717 Filed 7-21-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [Release No. 34-58158; File No. SR-OCC-2007-20] Self-Regulatory Organizations; The Options Clearing Corporation; Order Granting Approval of a Proposed Rule Change Relating to the System for Theoretical Analysis and Numerical Simulations July 15, 2008. I. Introduction On December 14, 2007, The Options Clearing Corporation (“OCC”) filed with the Securities and Exchange Commission (“Commission”) proposed rule change SR-OCC-2007-20 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”). 1 Notice of the proposal was published in the **Federal Register** on February 12, 2008. 2 No comment letters were received. For the reasons discussed below, the Commission is granting approval of the proposed rule change. 1 15 U.S.C. 78s(b)(1). 2 Securities Exchange Act Release No. 57270 (February 5, 2008), 73 FR 8098. II. Description The proposed rule change permits the incorporation of certain forms of securities deposited as margin collateral into OCC's System for Theoretical Analysis and Numerical Simulations (“STANS”) risk management methodology. The purpose of the proposed rule change is to more accurately measure the risk in clearing members' accounts and thereby permit OCC to set margin requirements that more precisely reflect that risk. In connection with this rule change, it is also necessary to include additional flexibility in determining the amount of replacement collateral required when securities deposited as margin are withdrawn. In addition, because OCC believes that certain existing concentration limits and requirements regarding minimum share prices are no longer appropriately applied to securities that are underlying securities or to fund shares that track an index that is an underlying index for covered contracts, OCC is eliminating such requirements with respect to such securities. *Overview of Rule Changes.* OCC will incorporate certain common stocks and ETFs (defined as “fund shares” in Article I of OCC's By-Laws) into the STANS margin calculation process. 3 STANS is a large-scale Monte Carlo-based risk management methodology used to measure risk associated with portfolios of cleared contracts. Currently, these forms of securities when deposited as collateral to satisfy margin requirements are priced on a nightly basis and are assigned a value equal to their end-of-day market price minus the haircut applicable to that form of collateral, an amount that varies according to asset type. While this method of valuing collateral has generally served OCC well in the past, it does not take into account the potential risk-reducing impact that the deposited collateral might have on a clearing member's portfolio. Under the rule change, cleared options positions and underlying securities in the forms indicated above will be analyzed as a single portfolio using STANS, thus providing a more accurate valuation of securities deposited as collateral in relation to the other positions in the account. The rule change will align risk management techniques utilized to manage market risk of options portfolios with those used to value margin deposits. There are two primary benefits expected from the rule change. First, margin requirements will be based on the risk of the combined portfolio that includes both cleared contracts and deposited collateral, thereby allowing the relevant intercorrelations of cleared contracts and deposited collateral to be taken into consideration rather than treating securities deposited as collateral as having fixed values. Second, the coverage provided by a particular asset class ( *e.g.* , shares of IBM common stock) will be based on the historical volatility of that particular asset rather than by taking a flat “haircut” rate across a much broader class of assets ( *e.g.* , 30% haircut for common stock). For the period from August 16, 2007, to September 10, 2007, OCC staff computed margin requirements for all existing accounts according to this proposed approach. The result showed an average daily reduction in risk margin requirements of approximately $1.2 billion, or 5%, as compared to OCC's current approach. At the same time that average daily collateral requirements will be reduced, the STANS calculations will also measure and compensate for added risk arising where risks are positively correlated rather than offsetting. 3 For a description of STANS, refer to Securities Exchange Act Release No. 53322 (February 15, 2006) 71 FR 9403 (February 23, 2006) (File No. SR-OCC-2004-20). OCC is also adding an exception to collateral minimum price and concentration limits with respect to certain securities deposited as collateral. Currently, eligible collateral securities deposited with OCC must
(1)have a market value greater than $10 per share and
(2)be traded on a national securities exchange, the Nasdaq Global Market, or the Nasdaq Capital Market. Additionally, the aggregate value of margin attributed to a single security cannot exceed 10% of a clearing member's total margin requirement. These criteria were designed to limit deposits to liquid, readily marketable securities and to avoid concentrations of deposits in a single security. OCC is adding an exception to these eligibility and concentration requirements for securities that are deliverable upon exercise of a contract cleared by OCC or, in the case of ETFs, that track an index underlying cleared contracts whether or not the particular ETF is an underlying security. OCC believes that this exception will permit and encourage the use of collateral that closely hedges related options positions. The exception will apply only to the approximately 2,800 exchange-listed equity securities that currently underlie listed options. Thus, OCC's existing minimum value and concentration restrictions will continue to apply to the approximate 7,200 exchange-listed equity securities that do not underlie listed options. OCC is also making a minor amendment to the current requirement that the aggregate value of margin attributed to a single security cannot exceed 10% of the total margin requirement in an account. The amendment will base the calculation on the clearing member's actual margin deposits rather than the clearing member's total margin requirement in the account. Thus, the requirement as amended will limit the value given to deposits in any single security to no more than 10% of the market value of a member's aggregate margin deposits in the account. This test is very similar in purpose and effect to the current test, but OCC believes it will be much easier to administer than the current test when collateral is included in STANS. In addition, OCC will need a different means for addressing substitutions of collateral where a security that has been valued in STANS is being replaced during the business day. STANS performs multiple portfolio revaluations during the business day using current prices of collateral and cleared contracts. While the revaluations include updated positions in cleared contracts reflecting intraday trading activity, they do not at present include updated collateral positions reflecting withdrawals and substitutions. In addition, it is operationally too intensive, given the complexity of the STANS methodology and the frequency of substitution requests, to recalculate the STANS requirement for each such collateral withdrawal/deposit. Although OCC intends ultimately to make further systems changes to address these issues in more efficient ways, OCC has developed an approach that provides the necessary protection to the clearing system by taking a conservative view of the estimated impact that a withdrawal/deposit would have on the member's requirement. OCC will treat margin collateral substitutions and withdrawals in the same manner that substitutions and withdrawals of specific and escrow deposits are treated. In the case of a margin withdrawal or deposit, OCC will incorporate an adjustment factor, based on the historical volatility of the security, equal to the estimated impact (within the 99% confidence interval) of the security on the projected liquidating value of the account. For example, if a clearing member deposited $300 in IBM stock and IBM is given a risk adjustment factor of 10%, the deposited stock would be given a value of $270 ($300 × [100% −10%]) in intraday excess collateral value to be used against releases to account for the potential negative risk impact of adding the stock to the portfolio. If the clearing member then released $200 of Google stock and Google is given a risk adjustment factor of 12%, the clearing member would be required to maintain $224 ($200 × [100% + 12%]) in excess collateral to account for the negative impact of removing Google from the portfolio. *Changes to OCC's Rules to Implement the Foregoing Concepts.* OCC's Rule 601, “Margin Requirements,” currently states in paragraph
(c)that margin assets may be incorporated into the Monte Carlo calculations as an alternative to valuing such assets under Rule 604, “Form of Margin Assets.” OCC now proposes merely to add an Interpretation to Rule 601 to indicate that OCC is implementing this alternative to the extent that it will be incorporating common stocks and ETFs into the STANS calculation of expected net liquidating value. Rule 604(b)(4), which governs the deposit of equity and debt issues to satisfy margin requirements, would be amended to provide exceptions to the per share minimum price and concentration limits and to provide that concentration limits will be measured in relation to the aggregate margin on deposit rather than to the margin requirement in an account. Rule 604(b)(4) is also proposed to be amended to reflect the fact that Nasdaq is now registered as a national securities exchange. An Interpretation is proposed to be added to Rule 608, “Withdrawals of Margin,” to give OCC the flexibility to adopt the interim method of dealing with collateral withdrawals and substitutions as described above. The proposed changes in Rules 609, “Intraday Margin,” and 706(c), “Cross-Margining Settlement Procedures,” would reflect minor conforming changes and nonsubstantive updates to streamline the rules and add flexibility. OCC proposes to put all of the foregoing proposed rule changes into effect simultaneously upon appropriate notice to clearing members once systems changes needed for full implementation are in place. The published text of OCC's Rules would not be modified until that time although this rule change would be published as pending approval or approved but not yet implemented, as the case may be. III. Discussion Section 17A(b)(3)(F) of the Act requires, among other things, that the rules of a clearing agency be designed to assure the safeguarding of securities and funds which are in its custody or control or for which it is responsible. 4 The Commission approved OCC's STANS risk management methodology for the purpose of calculating clearing member margin in February 2006 and has monitored the results of the methodology through quarterly reports from OCC. 5 The proposed rule change to include certain common stocks and fund shares deposited by OCC members as margin in the daily STANS risk calculation is consistent with the purpose of the methodology, which is to provide an accurate measure of the market risk in a clearing member's account. The proposed rule change also amends OCC's rules regarding the calculation of concentration limits and collateral substitution to allow OCC to more easily implement the inclusion of margin deposits in the STANS calculation. As noted above, OCC expects to collect approximately 5 percent less margin under the proposed rule change than it currently collects. However, this is because of the increased diversification benefit allowed by the risk measurement under STANS and not because of a decrease in OCC's risk tolerance in calculating margin. Accordingly, because the proposed rule change should not affect the purpose of the STANS methodology to provide OCC with sufficient collateral in the event a member becomes insolvent or otherwise fails to meet its obligations to OCC, it should assure the safeguarding of securities and funds which are in OCC's custody or control or for which it is responsible. 4 15 U.S.C. 78q-1(b)(3)(F). 5 Securities Exchange Act Release No. 53322 (February 15, 2006), 71 FR 9403 (February 25, 2006) (File No. SR-OCC-2004-20). The proposed rule change also adds an exception to the collateral minimum price and concentration limits in OCC's rules for securities that are deliverable upon exercise of a contract cleared by OCC or, in the case of ETFs, that track an index underlying cleared contracts whether or not the particular ETF is an underlying security. The minimum price and concentration limits in OCC's rules are designed to assure that OCC will be able to collect sufficient collateral in the event it needs to liquidate securities deposited as margin. This type of liquidity risk should not apply if the security deposited as margin is deliverable upon exercise of the clearing member's cleared contracts or if the security is an exchange traded fund that tracks an index underlying the clearing member's cleared contracts. Accordingly, the proposed rule change to add this exception to the collateral minimum price and concentration limits should not affect OCC's ability to assure the safeguarding of securities and funds which are in OCC's custody or control or for which it is responsible. IV. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular Section 17A of the Act and the rules and regulations thereunder. 6 6 In approving the proposed rule change, the Commission considered the proposal's impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). *It is therefore ordered,* pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-OCC-2007-20) be and hereby is approved. For the Commission by the Division of Trading and Markets, pursuant to delegated authority. 7 7 17 CFR 200.30-3(a)(12). Florence E. Harmon, Acting Secretary. [FR Doc. E8-16687 Filed 7-21-08; 8:45 am] BILLING CODE 8010-01-P SECURITIES AND EXCHANGE COMMISSION [File No. 500-1] In the Matter of Typhoon Touch Technologies, Inc.; Order of Suspension of Trading July 18, 2008. It appears to the Securities and Exchange Commission that the public interest and the protection of investors require a suspension of trading in the securities of Typhoon Touch Technologies, Inc., because there is a lack of current and accurate information concerning its securities. Questions have arisen regarding a recent increase in the share price from $8 to $25 following a 100 for one forward split and during a period when no material information about the company would explain such a price increase. Also, questions have been raised about the accuracy and adequacy of publicly-disseminated information concerning, among other things, the availability of shares for trading and delivery, and the current shareholders of the company. Typhoon Touch Technologies, Inc., is quoted on the Pink Sheets and the Over the Counter Bulletin Board under the ticker symbol TYTT. The Commission is of the opinion that the public interest and the protection of the investors require a suspension of trading in securities of the above-listed company. Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the above-listed company is suspended for the period from 9:30 a.m. EDT, July 18, 2008, through 11:59 p.m. EDT, on July 31, 2008. By the Commission. Jill M. Peterson, Assistant Secretary. [FR Doc. 08-1460 Filed 7-18-08; 1:25 pm]
Connectionstraces to 8
3 references not yet in our index
  • Pub. L. 92-463
  • 17 CFR 240.17
  • 17 CFR 240.19
Citation graph
cites case law
Notices
RAILROAD RETIREMENT BOARD
U.S.C.§ 78k–1
C.F.R.§ 242.608
U.S.C.§ 552
C.F.R.§ 200.30-3
U.S.C.§ 78s
U.S.C.§ 78c
U.S.C.§ 78f
U.S.C.§ 78q–1
Pub. L.Pub. L. 92-463
Cite17 CFR 240.17
Cite17 CFR 240.19
Cites 11Cited by 0 across 0 sources
★   the supreme law of the land   ★
Don't Tread on Me
E Pluribus Unum — out of many, one

"If you don't know your rights, you don't have any."

Marginalia · a citizen's law index
A research desk, not legal advice. Always read the cited source before relying on a summary.
Questions or an issue? support@self-law.org
disclaimerMarginalia is a research index, not a law firm. Nothing on this site is legal, tax, or financial advice and no attorney–client relationship is formed by using it. Statutes, regulations, and case law change; summaries, search results, AI output, and member posts may be incomplete, out of date, or wrong. Any interpretation drawn from material on this site should be validated by a licensed attorney in your jurisdiction before you act on it.