Commission Takes Action at Open Meeting on Intermarket Linkage Plan, Other Items

FOR IMMEDIATE RELEASE
2002-74

Washington, D.C., May 29, 2002 -- The Commission today took the following actions at an open meeting:

1. The Commission voted to issue an order under the Public Utility Holding Company Act of 1935, as amended, approving an application filed by Xcel Energy Inc., a registered holding company, and its wholly owned subsidiary, NRG Acquisition Company, LLC. These companies requested authority to acquire the outstanding publicly held stock of Xcel Energy's majority owned subsidiary, NRG Energy Inc., by means of a tender or exchange offer and to engage in related transactions. According to the order, NRG Energy will become a wholly owned subsidiary of Xcel Energy. The Commission also denied the request from a shareholder of Xcel Energy for a hearing.
    
2. The Commission decided to issue notices of two applications from Barclays Global Fund Advisors seeking certain exemptions from the Investment Company Act of 1940 relating to exchange-traded funds, or ETFs. An ETF is a registered investment company that offers shares that are redeemable from the ETF in large blocks only. Individual shares are listed on a national securities exchange and trade at market prices in the secondary market. One of the applications seeks exemptions to permit Barclays to introduce the first ETFs based on fixed income securities indices. All existing ETFs seek to track the performance of equity securities indices. The other application seeks an exemption to allow dealers to sell the shares of the proposed fixed income ETFs, and shares of Barclays' equity index ETFs, in the secondary market without delivering a prospectus, unless prospectus delivery is required by the Securities Act of 1933. The Commission previously has granted prospectus delivery relief to other ETFs. Interested persons will have 25 days to request a hearing on the applications. If no hearing request is received, and if the Commission does not otherwise conclude that a hearing is appropriate, the Commission will issue orders granting the exemptive relief.
    
3. The Commission will publish for comment a proposed amendment to Rule 15c3-3(b)(3) that would allow for the expansion of the categories of collateral that broker-dealers may pledge when borrowing fully paid and excess margin securities from customers. Currently, broker-dealers are required to provide cash, U.S. Treasury bills and notes, or irrevocable bank letters of credit. The amendment would allow them to pledge such other collateral as the Commission, by order, designates. There will be a sixty-day comment period following publication of the proposal in the Federal Register.
    
4. The Commission approved measures to implement options intermarket linkage. Since the August 1999 expansion of multiple listing of options, the Commission has taken several actions to encourage the options exchanges to develop mechanisms to ensure that customers' orders are executed at the best-published price. The intermarket options linkage plan developed by the options exchanges and approved by the Commission in July 2000 is designed, once implemented, to limit the execution of customer orders at prices inferior to the best-published quote — called an intermarket trade-through. The following items would facilitate the implementation of the options intermarket linkage:
   

   Amendments to the Linkage Plan

   The Commission approved amendments proposed by the options exchanges to the linkage plan. These amendments will, for the first time, establish clear dates by which the exchanges must test and implement the linkage. Specifically, the options exchanges proposed amendments to the Linkage Plan to implement the linkage by specified dates in the following two phases:
    
   
   • The first phase will comprise those elements of the linkage that are necessary to send and receive orders required under the Linkage Plan to be automatically executed by the exchange receiving the order. The options exchanges propose to begin full intermarket testing of the first phase by Dec. 1, 2002, and to implement this phase no later than Feb. 1, 2003.
      
   • The second phase will comprise the remaining elements of the linkage. The exchanges propose to begin testing of this second phase by Feb. 28, 2003, and to implement this phase no later than April 30, 2003.
      
   In addition, these amendments will eliminate the provision in the Linkage Plan that permits an exchange to withdraw from the Linkage Plan with 30 days written notice. Instead, the amendments to the Linkage Plan will permit an exchange to withdraw from participation in the Linkage Plan only if it can satisfy the Commission that it can accomplish, by alternative means, the same goals as the Linkage Plan of limiting intermarket trade-throughs of prices on other markets. Accordingly, these amendments will assure continuing participation by each options exchange in the linkage, until such time as the Commission determines that there is an alternative, satisfactory means to limit intermarket trade-throughs of customer orders and approves an exchange's withdrawal from the Linkage Plan.
   

   Proposed Repeal of the Trade-Through Disclosure Rule

   The Commission also voted to publish a proposal to repeal the Trade-Through Disclosure Rule. Because the Commission did not mandate participation in the Linkage Plan, the Commission adopted the Trade-Through Disclosure Rule to encourage market participants to obtain the best price for customers by executing their orders on linked markets or by disclosing to customers when their options order were executed at prices inferior to the best-published price. The amendments to the Linkage Plan discussed above, if approved by the Commission, would preclude an exchange from withdrawing from participation in the Linkage Plan unless it can satisfy the Commission that it can accomplish, by alternative means, the same goals as the Linkage Plan of limiting intermarket trade-throughs of prices on other markets. Thus, the amended Linkage Plan would accomplish the principal purposes of the Trade-Through Disclosure Rule. There will be a forty-five-day comment period following publication in the Federal Register of the proposal to repeal this rule.
   

   Extension of Temporary Exemption from the Trade-Through Disclosure Rule

   Finally, the Commission decided to extend until Jan. 1, 2003, the exemption for broker-dealers from the Trade-Through Disclosure Rule. As noted above, the Commission today approved the proposed amendments to the Linkage Plan and the publication of the proposal to repeal the Trade-Through Disclosure Rule. This exemption will allow time for the Commission to carefully consider any comments on the proposed repeal.
    
5. The Commission voted to issue, jointly with the Commodity Futures Trading Commission, an order to permit certain foreign security index futures to continue to be treated as broad-based index futures.
    
6. The Commission approved publication of a release proposing amendments to Rule 10b-10 under the Securities Exchange Act of 1934 and new Exchange Act Rule 11d2-1, which are designed to clarify the disclosures that broker-dealers effecting transactions in security futures products in customers' futures accounts must make in the confirmations sent to customers regarding those transactions. There will be a thirty-day comment period following publication of this proposal in the Federal Register. The Commission also decided to issue an exemptive order providing that broker-dealers effecting transactions in security futures products in customers' futures accounts are exempted from the requirements of Exchange Act Rule 10b-10 and Exchange Act Section 11(d)(2) until the amendments to Exchange Act Rule 10b-10 and new Rule 11d2-1 become effective.