[Federal Register: April 5, 2004 (Volume 69, Number 65)]
[Proposed Rules]
[Page 17863-17879]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05ap04-30]
[[Page 17863]]
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Part V
Securities and Exchange Commission
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17 CFR Parts 232, 240, and 249
Proposed Rule Changes of Self-Regulatory Organizations; Proposed Rule
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 232, 240, and 249
[Release No. 34-49505; File No. S7-18-04]
RIN 3235-AJ20
Proposed Rule Changes of Self-Regulatory Organizations
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing to amend certain requirements relating to rule changes
proposed by self-regulatory organizations (``SROs''). Specifically, SRO
proposed rule changes would be required to be filed electronically with
the Commission, rather than in paper form. In addition, the Commission
is proposing to require SROs to post all proposed rule changes, as well
as current and complete sets of their rules, on their websites. The
Commission is also proposing to make certain technical amendments to
the requirements for SRO rule changes under the Securities Exchange Act
of 1934 (``Act''). Together, the proposed amendments are designed to
modernize the SRO rule filing process by making it more efficient and
cost effective. The proposed amendments also should improve the
transparency of the rule filing process and assure that all SRO members
and other interested persons have ready access to an accurate, up-to-
date version of SRO rules.
DATES: Comments should be submitted on or before June 4, 2004.
ADDRESSES: Comments may be submitted electronically or by paper.
Electronic comments may be submitted by: (1) Electronic form on the SEC
website (http://www.sec.gov) or (2) e-mail to rule-comments@sec.gov.
Mail paper comments in triplicate to Jonathan G. Katz, Secretary,
Securities and Exchange Commission, 450 Fifth Street NW., Washington,
DC 20549-0609. All submissions should refer to file number S7-18-04;
this file number should be included on the subject line if e-mail is
used. To help us process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet website (http://www.sec.gov). Comments are
also available for public inspection and copying in the Commission's
Public Reference Room, 450 Fifth Street NW., Washington, DC 20549. We
do not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly.
FOR FURTHER INFORMATION CONTACT: Florence Harmon, Senior Special
Counsel, at (202) 942-0773; Elizabeth Badawy, Accountant, at (202) 942-
0740; Joseph Morra, Special Counsel, at (202) 942-0781; Sonia Trocchio,
Special Counsel, at (202) 942-0753; Cyndi N. Rodriguez, Special
Counsel, at (202) 942-4163; Michael L. Milone, Special Counsel, at
(202) 942-0179 (clearance and settlement SROs), Timothy Fox, Attorney,
at (202) 942-0146, Division of Market Regulation, Securities and
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-1001.
SUPPLEMENTARY INFORMATION:
I. Introduction
Under Section 19(b) of the Act, SROs generally must file proposed
rule changes with the Commission for notice, public comment, and
Commission approval, prior to implementation.\1\ This requirement helps
assure, through Commission review and the public comment process, that
SROs' rules are consistent with the purposes of the Act.
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\1\ 15 U.S.C. 78s(b). Section 3(a)(26) of the Act, 15 U.S.C.
78c(a)(26), defines the term ``self-regulatory organization'' to
mean any national securities exchange, registered securities
association, registered clearing agency, and, for purposes of
Section 19(b) and other limited purposes, the Municipal Securities
Rulemaking Board (``MSRB''). Currently, there are 27 SROs that file
proposed rule changes with the Commission. Section 107 of the
Sarbanes-Oxley Act of 2002 provides that the Public Company
Accounting Oversight Board (``PCAOB'') shall file proposed rule
changes with the Commission ``as if the Board were a registered
securities association for purposes of that section 19(b) * * *.''
15 U.S.C. 7217(b)(4). Because PCAOB rule filings are not tracked by
the SRO Rule Tracking System (``SRTS''), the Division of Market
Regulation's (``Division'') internal tracking database for rule
filings, the Commission is not requiring, at this time, the PCAOB to
file electronically its proposed rules. Further, as the proposal for
web posting of proposed and final SRO rules is designed to make the
SRO rule filings in the SRTS accessible to the public in a uniform
manner, the Commission does not intend for these proposed amendments
to apply to the PCAOB.
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The Commission is proposing changes to the rule filing process that
should make it more efficient and transparent and reduce costs for the
SROs and the public. First, the Commission would require SROs to file
their proposed rule changes with the Commission electronically, rather
than in paper format. By amending Rule 19b-4 and Form 19b-4 to require
electronic filing, the rule filing process would be initiated more
quickly and economically, to the benefit of both the Commission and the
SROs, as well as SRO members, investors, and other interested persons.
In addition, the proposed amendments should permit the Commission to
monitor and process proposed SRO rule changes more efficiently and
effectively. Second, the Commission would mandate that SROs promptly
post on their websites a copy of all proposed rule changes filed with
the Commission. Website posting of SRO proposed rule changes should
facilitate the ability of interested persons to comment on the
proposals and save resources currently used to monitor the Commission's
Public Reference Room for proposed rule changes. The Commission is also
proposing that SROs maintain a current and complete version of their
rules on their websites. Current practices in this area vary
considerably among SROs, often resulting in confusion by SRO members,
others seeking to comply with SRO rules, and other interested parties.
Finally, the Commission is proposing to make certain technical
amendments to clarify Rule 19b-4 and to reflect practice.
II. Background
Section 19(b)(1) of the Act \2\ requires each SRO to file with the
Commission its proposed rule changes,\3\ accompanied by a concise
general statement of the basis for, and purpose of, the proposed rule
change.\4\ Once an SRO files a proposed rule change, the Commission
must publish notice of it and provide an opportunity for public
comment. The proposed rule change may not take effect unless the
Commission approves it, or it is otherwise permitted to become
effective under Section 19(b)(3)(A) or Section 19(b)(7) of the Act.\5\
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\2\ 15 U.S.C. 78s(b)(1).
\3\ Section 19(b)(1) of the Act requires each SRO to file with
the Commission ``any proposed rule or any proposed change in,
addition to, or deletion from the rules of * * * [a] self-regulatory
organization.'' See 15 U.S.C. 78s(b)(1).
\4\ Many proposed rule changes are filed pursuant to Section
19(b)(1) of the Act for a 21-day notice and comment period. 15
U.S.C. 78s(b)(1). The Act requires the Commission, within 35 days of
publication, to either issue an order approving a proposed rule
change or to institute a proceeding to determine whether a proposed
rule change should be disapproved. The Commission may extend this
35-day period up to 90 days if it publishes its findings for doing
so. The Commission also may approve a proposed rule change on an
accelerated basis prior to 30 days after publication of the notice
in the Federal Register if the Commission finds good cause for doing
so and publishes its reasons. 15 U.S.C. 78s(b)(2).
Section 19(b)(3)(A) of the Act and Section 19(b)(7) of the Act
provide that, in certain circumstances, a proposed rule change may
become effective without the approval procedures specified in
Section 19(b)(2) of the Act. 15 U.S.C. 78s(b)(3)(A); 15 U.S.C.
78s(b)(7); 15 U.S.C. 78s(b)(2).
\5\ 15 U.S.C. 78s(b)(3)(A); 15 U.S.C. 78s(b)(7).
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The SRO rule filing process under the Act serves several important
policy goals. First, the notice and comment requirement helps assure
that interested persons have an opportunity to provide input into SRO
actions that could have a significant impact on the market, market
participants--both professionals and individual investors--and
others.\6\ Second, the rule filing process allows the Commission to
review proposed rule changes to determine whether they are consistent
with the Act, including the national market system goals of fair
competition, price transparency, best execution, and investor
protection. Finally, the rule filing process helps assure that SRO
members, among others, are treated fairly in accordance with the Act,
such that there is fair representation of members in the selection of
the SRO's directors and the administration of its affairs, the
equitable allocation of reasonable dues, fees, and other charges, and
the appropriate and fair discipline of members.
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\6\ For example, SROs exercise certain quasi-governmental powers
over members through their ability to impose disciplinary sanctions,
deny membership, and require members to cease doing business
entirely or in specified ways.
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III. Proposed Amendments
A. Electronic Filing
The Commission proposes to modernize the rule filing process by
requiring SROs to file proposed rule changes electronically with the
Commission through a web-based system.\7\ To implement electronic web-
based filing of proposed SRO rule changes, the Commission would amend
Rule 19b-4 and Form 19b-4 to require that all Forms 19b-4, and any
amendments thereto, be submitted electronically to the Commission in
accordance with the procedures, and in the format, specified therein.
Each SRO would have access to a secure website that would enable
authorized individuals at the SRO to file with the Commission an
electronic Form 19b-4 on behalf of the SRO.\8\ The current requirement
in Form 19b-4 that SROs submit multiple, paper copies of proposed rule
changes would be eliminated. Under the proposed amendments, a proposed
rule change would be deemed filed with the Commission on the business
day that it is submitted electronically, so long as the Commission
receives it on or before 5:30 p.m., Eastern Standard Time or Eastern
Daylight Savings Time, and it is filed in accordance with the
requirements of Rule 19b-4 and Form 19b-4, as amended.
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\7\ The Commission previously proposed electronic filing of SRO
proposed rule changes in the Rule 19b-6 proposal. See Securities
Exchange Act Release No. 43860 (January 19, 2001), 66 FR 8912
(February 5, 2001). The Commission has not taken action on this
proposal.
\8\ The SRO would determine which individuals would be supplied
with User IDs and passwords to access the secure website. See infra
Note 13.
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Occasionally, an SRO may find it necessary to file documents that
cannot be submitted in electronic format, such as pre-filing comment
letters from SRO members or other exhibits. In addition, it may not be
appropriate to require proprietary and other information subject to a
request for confidential treatment to be filed electronically.\9\
Accordingly, the proposed amendments to Rule 19b-4 and Form 19b-4
retain the flexibility to permit portions of a rule filing to be made
in paper form under limited circumstances.
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\9\ In a similar context, Section 232.202(c) of Regulation S-T
governing EDGAR filers permits paper filing of confidential
treatment requests and the information with respect to which
confidential treatment is requested. SROs sometimes submit
confidential surveillance procedures or proprietary data to the
Commission in connection with proposed rule changes, which may not
be electronically accessible, and, in any event, is segregated from
the public file pursuant to a Freedom of Information Act (``FOIA'')
exemption request.
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As to signature requirements, Form 19b-4 currently requires that a
``duly authorized officer'' of an SRO manually sign all rule
filings.\10\ The Commission proposes to amend Form 19b-4 so that SROs
would be required to file their proposed rule changes with an
electronic signature.\11\ Furthermore, each duly authorized signatory
would be required to obtain a ``digital ID'' in order to provide both
the Commission and the SRO with assurances that the Form 19b-4 has been
transmitted without external interference.\12\ As with the EDGAR
system, any required signatures with respect to an SRO proposed rule
change would appear in typed form.\13\ In addition, each signatory
would be required to manually sign the Form 19b-4, authenticating,
acknowledging, or otherwise adopting his or her electronic signature
that is attached to or logically associated with the filing.\14\ In
accordance with Rule 17a-1 of the Act,\15\ the SRO would be required to
retain that manual signature page of the rule filing, authenticating
the signatory's electronic signature, for not less than five years
after the Form 19b-4 is filed with the Commission \16\ and, upon
request, furnish a copy of it to the Commission or its staff.\17\
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\10\ The signature requirement of Form 19b-4 states that
``pursuant to the requirements of the Act, the [SRO] has caused the
filing to be signed on its behalf by the undersigned thereunto duly
authorized.''
\11\ The Commission notes that the Electronic Signatures in
Global and National Commerce Act, 15 U.S.C. 7001, et seq. does not
apply in this regard.
\12\ A digital ID, sometimes called a ``digital certificate,''
is a file on the computer that identifies the user. Computers can
use a digital ID to create a digital signature that verifies both
that the message originated from a specific person and that the
message has not been altered either intentionally or accidentally.
The user obtains a digital ID from a ``Certificate Authority''
(``CA'') for a modest sum (currently approximately $15 per year).
When the SRO electronically sends the Form 19b-4 to the Commission,
the digital ID will encrypt the data through a system that uses
``key pairs.'' With key pairs, the SRO's software application uses
one key to encrypt the document. When the Commission receives the
SRO's electronic document, the Commission's software will use a
matching key to decrypt the document.
\13\ See Rule 301 of Regulation S-T. 17 CFR 232.301. The
Commission proposes defining ``electronic signature'' as an
electronic entry in the form of a magnetic impulse or other form of
computer data compilation of any letter or series of letters or
characters comprising a name, executed, adopted or authorized as a
signature. This definition is the same as the definition that
governs EDGAR filings in Rule 302 of Regulation S-T, 17 CFR 232.302.
\14\ See Rule 302(b) of Regulation S-T, which requires similar
authentication, acknowledgement, or otherwise adoption of his or her
signature that appears in typed form within the electronic filing.
17 CFR 232.302(b).
\15\ 17 CFR 240.17a-1.
\16\ Id.
\17\ See Proposed Rule 19b-4(j). These requirements were adapted
from Section 232.302 of Regulation S-T, 17 CFR 232.302 for EDGAR
filers.
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In recent years, the Commission has been processing increasing
volumes of SRO rule proposals, as both the number of SROs and SRO
facilities,\18\ and their rulemaking activity, has increased.\19\ The
Commission believes that requiring SROs to file proposed rule changes
electronically would have several benefits.
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\18\ For instance, in February 2000, the Commission approved the
registration of the International Securities Exchange, Inc., and in
October 2001, the Commission approved a proposed Pacific Exchange,
Inc. (``PCX'') rule change to create a facility of PCX, the
Archipelago Exchange, LLC. In addition, in January 2004, the Boston
Stock Exchange, Inc. (``BSE'') created the Boston Options Exchange,
LLC (``BOX'') as a new electronic options facility of the BSE.
Division staff also must quickly review effective-upon-filing rule
changes from new notice-registered exchanges, such as One Chicago,
LLC and NQLX, LLC.
\19\ The Division has processed approximately 28% more rule
filings since fiscal year 2001 and has processed approximately 60%
more rule filings since fiscal year 1999.
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First, electronic filing of proposed rule changes should speed the
initiation of the rule filing process. In today's highly competitive
market environment, SROs are under pressure to complete the rule filing
process quickly.\20\ Under
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the current system, SROs send paper copies of proposed rule changes to
the Commission via messenger, overnight delivery, or U.S. mail. Once
the Commission receives a proposed rule change, internal processing of
paper filings may take several days before the rule filing is received
by the staff person assigned to review it. Electronic filing would
substantially reduce the time it takes to process SRO rule filings by
eliminating paper delivery, copying and distribution.
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\20\ For example, SROs that operate securities markets are
facing increased competition from electronic communication networks
(``ECNs''), which as registered broker-dealers are not subject to
the rule filing requirements that are imposed on SROs, and foreign
markets, which may be subject to less rigorous regulatory
requirements in their home jurisdictions.
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Second, electronic rule filing should reduce costs for the SROs
\21\ and should also result in a more efficient use of Commission
resources. The SROs no longer would incur delivery costs for paper
filings or the SRO staff time currently devoted to preparing filing
packages. The Commission also would benefit from reducing the personnel
time currently associated with manually processing paper filings.
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\21\ See Section VI, infra.
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Finally, by integrating the electronic filing technology with SRTS,
Commission staff could more easily monitor and process proposed SRO
rule changes. Pertinent information regarding proposed rule changes, as
well as amendments, would be captured automatically by SRTS.\22\ As a
result, the Commission would be able to monitor electronically the
progress of SRO rule filings from initial receipt through final
disposition, and thereby enhance its management of the rule filing
process.
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\22\ Such data would include whether the proposed rule change is
filed pursuant to Section 19(b)(3)(A) or Section 19(b)(2) of the
Act. 15 U.S.C. 78s(b)(3)(A); 15 U.S.C. 78s(b)(2).
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B. Posting of Proposed Rule Changes on SRO Websites
The Commission also is proposing to amend Rule 19b-4 to require
each SRO to post all proposed rule changes, and any amendments thereto,
on its public website no later than the next business day after filing
with the Commission. The Commission has chosen the next business day to
provide interested persons with quick access to the proposed rule
change, while at the same time providing SROs with sufficient time to
comply with this posting requirement. A copy of the complete proposed
rule change would continue to be available in the Commission's Public
Reference Room, but in electronic and paper format. The Commission
believes that website accessibility of proposed SRO rule changes would
facilitate the ability of interested persons to comment on the
proposals and save SRO resources currently used to monitor the
Commission's Public Reference Room for competitors' proposed rule
changes. By providing ready access to proposed SRO rule changes,
effective public comment should be facilitated, thus enhancing the
transparency of the rule filing process.\23\ Although practices vary,
several SROs now post selected rule filings on their websites. Nearly
all of the SROs have informally indicated to Commission staff that they
favor such increased accessibility to proposed rule filings, as long as
it is a uniform requirement.
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\23\ It can take as long as seven to ten days for the notice of
the proposed rule change to appear in the Federal Register. All SROs
have websites, and the expeditious posting of the Form 19b-4 should
facilitate the public comment process. If the SRO withdrew the
proposed rule change, the SRO could remove the proposed rule change
from its website.
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C. Posting of Current and Complete Rule Text on SRO Websites
In addition, the Commission proposes to amend Rule 19b-4 to require
SROs to post and maintain a current and complete version of their rules
on their websites. Under the proposal, each SRO would be required to
update its public website to reflect rule changes no later than the
next business day after it has been notified of Commission approval of
the rule change or Commission notice of an effective-upon-filing SRO
rule.\24\ The Commission has chosen the next business day to provide
interested persons with prompt access to the SROs' rules, while at the
same time providing SROs with sufficient time to comply with this
posting requirement. If an approved rule change is not effective for a
certain period after Commission approval, the SRO would be required to
indicate clearly the implementation date in the relevant rule text.
Notification to the SRO would either be done electronically through
SRTS or by faxing the Commission's approval order or the Commission's
notice of effective-upon-filing SRO rules to the SRO. Current practices
with respect to website availability of rules vary considerably among
SROs, often resulting in confusion by SRO members and others seeking to
comply with SRO rules, as well as other interested persons. Members and
other interested parties often need prompt and accurate notification of
SRO rule changes to be able to comply with such rules. The Commission
believes that this proposal should help assure that current, accurate,
and complete versions of the rules of each SRO are readily accessible
to interested parties, thus enhancing compliance with SRO rules.
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\24\ Practices vary among SROs as to the extent to which they
post rule text on their websites and the timeliness with which such
rule text is updated. Prompt posting of SRO rule changes'on a next
business day basis'should reduce confusion and facilitate compliance
by market participants.
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D. Amendments to Rule 19b-4
The Commission is proposing to make two amendments to clarify Rule
19b-4 and reflect current practice. First, the Commission is proposing
to amend Rule 19b-4(e), which addresses rule filing requirements
applicable to ``new derivative securities products,'' to clarify that
that term does not include a single equity option or a security futures
product.\25\ Second, the Commission is proposing to amend Rule 19b-
4(f)(2) to more clearly reflect the Commission's stated position that a
proposed fee change applicable to non-members and non-participants must
be filed under Section 19(b)(2) of the Act for full notice and comment,
and not filed under Section 19(b)(3)(A)(ii) of the Act.\26\
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\25\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998) (``New Product Release''). As
the options markets already had listing standards for single equity
options that addressed relevant regulatory concerns, the Commission
did not intend for SROs to comply with Rule 19b-4(e) for single
equity options. Similarly, the Commission did not intend to include
traditional issuer warrants and traditional convertible securities
in the definition of ``new derivative securities product.'' Id. at
70956.
\26\ See Securities Exchange Act Release No. 35123 (December 20,
1994), 59 FR 66692 (December 28, 1994). (``[A]s a matter of general
policy, an SRO proposed rule change that establishes or changes a
due, fee or other charge applicable to a non-member or non-
participant must be filed under Section 19(b)(2) for full notice and
comment.'' Id. At 66697; see also Securities Exchange Act Release
No. 17258 (October 30, 1980), 45 FR 73906 (November 7,
1980)(footnote 40). The terms ``member'' and ``participant'' are
defined in Section 3(a)(3)(A) and Section 3(a)(24), respectively, of
the Act.
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E. Technical Amendments to Regulation S-T
Regulation S-T \27\ currently states that all Exchange Act filings,
except for Form 25,\28\ must be submitted in paper. Therefore, the
Commission is proposing to make a technical amendment to Regulation S-T
to reflect that the Form 19b-4 will be filed electronically.
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\27\ 17 CFR 232.101.
\28\ 17 CFR 249.25.
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F. Form 19b-4 Amendments; Commission Policy
1. Form 19b-4 Amendments
Form 19b-4 would be amended to eliminate the required submission of
nine paper copies and instead require electronic filing of Form 19b-
4.\29\ To access the secure Internet site for web-based filing of the
Form 19b-4, the SRO
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would submit to the Commission an External Application User
Authentication Form (``EAUF'') \30\ to register each individual at the
SRO who will be submitting Forms 19b-4 on behalf of the SRO. Upon
receipt and verification of the information in the EAUF process, the
Commission would issue each such person a User ID and Password to
permit access to the Commission's secure website. As Form 19b-4 will be
electronic, initially the authorized user at an SRO would access a
screen containing a filing template, referenced as Page 1, in which it
could identify the SRO and the statutory section pursuant to which the
rule filing would be submitted (i.e., Section 19(b)(2), Section
19(b)(3)(A), or Section 19(b)(3)(B)).\31\ Page 1 of Form 19b-4 will
also require a brief description of the proposed rule change, as well
as an indication whether a pilot is being proposed. The SRO would
provide contact information and place the electronic signature of a
duly authorized officer on this Page 1 initial screen.\32\ The second
screen of the electronic Form 19b-4 would provide the SRO with a means
to attach the proposed rule change and related exhibits in Microsoft
Word format.\33\ SRO users would have electronic access to the general
instructions for using the Form, as adapted for electronic filing.\34\
Finally, the SRO would use the electronic Form 19b-4 to amend or
withdraw a rule filing pending with the Commission or to file an
extension of the statutory period in Section 19 of the Act in which the
Commission is required to act on the rule filing.\35\
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\29\ The proposed amendments to Form 19b-4 are attached as
Appendix A.
\30\ This Commission web-based application currently exists and
allows authorized external users to access select Commission
systems.
\31\ The authorized user also would be able to indicate if there
would be a separate filing of any hard copy exhibits that are unable
to be submitted electronically.
\32\ As noted in Section III. A. above, a ``duly authorized
officer'' at the SRO would be required to place his or her
``electronic signature'' on the Form 19b-4 before it is transmitted
electronically to the Commission.
\33\ Exhibits 2 and 3 may not be available in Microsoft Word and
could be submitted in another acceptable electronic format or in
paper.
\34\ For example, the SRO would click separate boxes on the
second screen to attach one Microsoft Word document containing Items
I through IV of the Form 19b-4 and other documents for the different
exhibits: the completed notice of the proposed rule change for
publication in the Federal Register; copies of notices issued by the
SRO soliciting comment and copies of all written comments; copies of
transcripts or summaries of any public meeting; copies of any form,
report, or questionnaire; marked copies of amendments; and separate
rule text, if the SRO wishes to attach such rule text as an exhibit,
instead of including it in Item I of the Form 19b-4.
\35\ 15 U.S.C. 78s(b)(2).
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In addition, the Commission notes that, generally, Form 19b-4
requires, and will continue to require, an SRO to: (1) Submit a
complete description of the terms of its proposal; (2) describe the
impact of the proposed rule change on various segments of the market,
including members, member constituencies, and non-members; and (3)
describe how the filing relates to existing rules of the SRO.\36\ In
addition, a proposed rule change must provide an accurate statement of
the authority and statutory basis for, and purpose of, the proposed
rule change, including its consistency with the Act and rules
thereunder, and its impact on competition, if any, as well as a summary
of any written comments received by the SRO. The proposed rule change
must be consistent with the existing rules of the SRO, including any
other proposed rule changes. Form 19b-4 also contains certain technical
requirements so that information presented in the Form is
comprehensible. Finally, as stated, the chief executive officer,
general counsel, or other officer or director of the SRO that exercises
similar authority must electronically sign the Form 19b-4.
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\36\ 17 CFR 249.819.
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2. Commission Policy: Accurate, Consistent, and Complete Forms 19b-4
The Commission firmly believes that, to provide the public with a
meaningful opportunity to comment, a proposed rule change must be
accurate, consistent, and complete. Form 19b-4 states that ``[t]his
form, including the exhibits, is intended to elicit information
necessary for the public to provide meaningful comment on the proposed
rule change and for the Commission to determine whether the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to the self-regulatory
organization. The SRO must provide all the information called for by
the form, including the exhibits, and must present the information in a
clear and comprehensible manner.'' \37\ The Commission, however,
receives many SRO proposed rule changes that are not carefully prepared
in accordance with Form 19b-4.
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\37\ Id.
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Currently, Commission staff devotes significant time to processing
proposed rule changes, reviewing them for accuracy and completeness,
and preparing them for publication. The Commission encourages SRO staff
to review carefully proposed rule changes to ensure, among other
things, that the filings: (1) Contain a properly completed Form 19b-4;
(2) contain a clear and accurate statement of the authority for, and
basis and purpose of, such rule change, including the impact on
competition; (3) contain a summary of any written comments received by
the SRO; and (4) state that the proposal is not inconsistent with the
existing rules of the SRO, including any other rules proposed to be
amended. As described in the current Form 19b-4, filings that do not
comply with the foregoing are deemed not filed and returned to the SRO.
Consistent with the requirements of Rule 19b-4 and Form 19b-4,
electronically filed proposed rule changes that do not comply with the
foregoing will continue to be returned to the SRO, but in electronic
format, and, consistent with current practice, will be deemed not filed
with the Commission until all required information has been provided.
IV. Request for Comment
The Commission requests the views of commenters on all aspects of
the proposed amendments, discussed above, to Rule 19b-4 and Form 19b-4
under the Act. In particular, the Commission requests comment on the
following:
1. Are there positive or negative implications, in addition to
those discussed above, of the Commission requiring SROs to file all
proposed rule changes electronically?
2. Is there a need for additional exceptions to the electronic rule
filing requirement for SROs? For example, should express accommodation
be made for paper filings in emergency situations when web-based,
electronic filing may be temporarily unavailable? If so, what specific
situations should be excepted, and what accommodations should be made?
Should the existing Rule and Form requirements be available for use in
such a situation?
3. Is the requirement that SROs post all proposed rule changes, and
any amendments, on their websites no later than the next business day
after filing with the Commission appropriate? Should this time period
be longer or shorter?
4. If the SRO proposed rule change is incomplete because it does
not comply with the requirements of Rule 19b-4 and Form 19b-4 and
deemed not properly filed and returned to the SRO, should the SRO
inform the public of the status of the proposed rule change? Similarly,
if the SRO withdraws a proposed rule change, should the SRO inform the
public of the withdrawal? Should that information be required to be
maintained on the SRO's website?
[[Page 17868]]
The Commission believes such requirement may be necessary to provide
needed information to those monitoring the proposed rule change.
5. Is the requirement that SROs update their websites to reflect
rule changes no later than the next business day after notification of
Commission approval appropriate? Should this time period be longer or
shorter? Is the proposed process for Commission notification to the SRO
of its approval order of a SRO proposed rule or the Commission's notice
of an effective-upon-filing SRO rule, through SRTS or facsimile,
adequate? If an SRO rule change is not effective until a certain period
after Commission approval, should the website update be delayed until
the effective date?
6. Are the SRO recordkeeping requirements for the page containing
the manual signature of the Form 19b-4 appropriate?
7. There are currently seven national market system plans that have
been approved by the Commission. Three of these plans are also
transaction reporting plans. In the equity securities market, there are
four plans. The Intermarket Trading System (``ITS'') Plan governs
trading of exchange-listed securities by exchanges and Nasdaq market
makers. The ITS Operating Committee administers the ITS Plan. The
Consolidated Tape Association (``CTA'') administers two plans: the
Consolidated Tape Plan \38\ and the Consolidated Quotation Plan. These
plans address how trades in exchange-listed equity securities are
reported and how quotations for these securities are made public. The
OTC/UTP Plan \39\ addresses how both transaction and quotation
information in Nasdaq-listed securities is consolidated and
disseminated.
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\38\ The Consolidated Tape Plan is also a transaction reporting
plan.
\39\ The formal name of the OTC/UTP Plan is: Joint Self-
Regulatory Organization Plan Governing the Collection,
Consolidation, and Dissemination of Quotation and Transaction
Information for Nasdaq-Listed Securities Traded on Exchanges on an
Unlisted Trading Privilege Basis. The OTC/UTP Plans is also a
transaction reporting plan.
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In the options market, there are three plans. The Plan for
Reporting of Consolidated Options Last Sale Reports and Quotation
Information (``OPRA Plan'') is the transaction reporting plan for
options. The Plan for the Purpose of Creating and Operating an Options
Intermarket Linkage (``Linkage Plan'') governs inter-market trading of
options. The Plan for the Purpose of Developing and Implementing
Procedures Designed to Facilitate the Listing and Trading of
Standardized Options (``Options Listing Procedures Plan'' or ``OLPP'')
governs the listing of standardized options. The OPRA Plan is
administered by the Options Price Reporting Authority (``OPRA''), the
Linkage Plan is administered by the Options Linkage Authority
(``OLA''), and the OLPP is administered by The Options Clearing
Corporation and the options exchanges.
Should the plan administrators for each of these plans post on
their websites or on a separate plan website a current version of the
plans as well as proposed amendments to these plans within the time
periods proposed for SROs?
V. Paperwork Reduction Act
Certain provisions of the proposed rule and form contain
``collection of information requirements'' within the meaning of the
Paperwork Reduction Act of 1995.\40\ The Commission has submitted the
information to the Office of Management and Budget (``OMB'') for review
in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. The Commission is
proposing to submit the current collection of information titled ``Rule
19b-4 Under the Securities Exchange Act of 1934'' (OMB Control Nos.
3235-0045, 3235-0504). The Commission is also proposing to submit the
current collection of information titled ``Form 19b-4 Under the
Securities Exchange Act of 1934'' (OMB Control No. 3235-0045). An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid control number.
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\40\ 44 U.S.C. 3501 et seq.
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A. Summary of Collection of Information
Rule 19b-4 currently requires an SRO seeking Commission approval
for a proposed rule change to provide the information stipulated in
Form 19b-4. Form 19b-4 currently calls for a description of: The terms
of a proposed rule change; the proposed rule change's impact on various
market segments; and the relationship between the proposed rule change
and the SRO's existing rules. Form 19b-4 also currently calls for an
accurate statement of the authority and statutory basis for, and
purpose of, the proposed rule change; the proposal's impact on
competition; and a summary of any written comments received by the SRO
from SRO members. The proposed amendments would not change the
information currently required by Rule 19b-4 or Form 19b-4; the
proposed amendments would only require that such information be
submitted electronically. The proposed amendments, however, would
require website posting of all proposed rule changes, and any
amendments thereto. In addition, the proposed amendments would require
SROs to post a current and complete set of their rules on their
websites. Several SROs currently post some of this information on their
websites. SROs are required by Sections 6(b)(1),\41\ 15A(b)(2),\42\
17A,\43\ and 15B \44\ of the Act to enforce compliance with their
rules. Presumably, each SRO maintains a current and complete set of its
rules to facilitate compliance with this requirement.
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\41\ 15 U.S.C. 78f(b)(1).
\42\ 15 U.S.C. 78o-3(b)(2).
\43\ 15 U.S.C. 78q-1.
\44\ 15 U.S.C. 78o-4.
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B. Proposed Use of Information
The information provided via EAUF, as required by the proposed
amendments to Form 19b-4, would be used by the Commission to verify the
identity of the SRO individual and provide such individual access to a
secure Commission website for filing of the Form 19b-4. The Commission
proposes to require that SROs post their proposed rule changes on their
websites so that these proposals could be viewed by the general public,
SRO members, competing SROs, other market participants, and Commission
staff. The information would enable interested parties to more easily
access SRO rules and rule filings, which would facilitate public
comment on proposed SRO rules. Additionally, SRO staff, members,
industry participants, and Commission staff would utilize the accurate
and current version of SRO rules that are posted on the SRO website to
facilitate compliance with such rules.
C. Respondents
There are currently 27 SROs subject to the collection of
information, though that number may vary owing to the consolidation of
SROs or the introduction of new entities. In fiscal year 2003, these
respondents filed 769 rule change proposals and 510 amendments to those
proposed rule change proposals, for a total of 1279 filings that are
subject to the current collection of information. Of these 769 proposed
rule changes filed by SROs, 705 ultimately became effective because the
SROs withdrew 64 proposed rule changes.
D. Total Annual Reporting and Recordkeeping Burden
The proposed amendments to Rule 19b-4 and Form 19b-4 are designed
to
[[Page 17869]]
modernize the SRO rule filing process and to make the process more
efficient by conserving both SRO and Commission resources. Rule 19b-4
and Form 19b-4 would be amended to require SROs to electronically file
their proposed rule changes. In addition, Form 19b-4 would be revised
to accommodate electronic submission. The Commission expects that an
electronic form would reduce by one hour the amount of SRO clerical
time required to prepare the average filing. The proposed amendments
would also require SROs to post all proposed rule changes, and any
amendments, on their websites, as well as maintain a current and
complete set of their rules on their websites. The Commission staff
estimates that it would take an SRO 30 minutes to post a filing on its
website, irrespective of whether this filing is an SRO rule change
proposal, amendment, or final SRO rule.
An SRO rule change proposal is generally filed with the Commission
after an SRO's staff has obtained approval by its Board. The time
required to complete a filing varies significantly and is difficult to
separate from the time an SRO spends in developing internally the
proposed rule change. However, several SROs have estimated at 35 hours
the amount of time required to complete an average rule filing using
present Form 19b-4. This figure includes an estimated 25 hours of in-
house legal work and ten hours of clerical work. The amount of time
required to prepare amendments varies because some amendments are
comprehensive, while other amendments are submitted in the form of a
one-page letter. The Commission staff estimates that, under current
rules, four hours is the amount of time required to prepare an
amendment to the rule proposal. This figure includes an estimated two
hours of in-house legal work and two hours of clerical work.
With the proposed electronic filing, the Commission staff estimates
that 34 hours is the amount of time that would be required to complete
an average rule filing and at three hours the amount of time required
to complete an average amendment. These figures reflect the one hour in
savings in clerical hours that would result from the use of an
electronic form for both the rule filings and the amendments.\45\ The
Commission staff estimates that the reporting burden for filing rule
change proposals and amendments with the Commission under the proposed
amendments would be 27,676 hours (769 rule change proposals x 34 hours
+ 510 amendments x 3 hours).
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\45\ The SROs' one hour time savings would result from the
elimination of tasks such as making multiple copies of the Form 19b-
4 and amendments, arranging for couriers, and making follow-up
telephone calls to ensure Commission receipt.
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The Commission staff estimates that 30 minutes is the amount of
time that would be required to post a proposed rule on an SRO's website
and that 30 minutes is the amount of time that would be required to
post an amendment on an SRO's website. The Commission staff estimates
that the reporting burden for posting rule change proposals and
amendments on the SRO websites would be 640 hours (769 rule change
proposals \46\ x 0.5 hours + 510 amendments x 0.5 hours).
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\46\ This number includes SRO proposed rule changes that the
Commission notices pursuant to Section 19(b)(3)(A) of the Act, which
are effective-upon-filing, and SRO proposed rule changes that the
Commission notices and accelerates approval in the same document
pursuant to Section 19(b)(2) of the Act, along with notices issued
by the Commission pursuant to Section 19(b)(2) of the Act.
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The Commission staff estimates that one hour would be the amount of
time required to post an SRO's current rules on its website. Currently,
22 of the 27 SROs have posted their rules on their websites; five have
not.\47\ The Commission staff estimates that the total reporting burden
for posting current rules on the SROs' websites would be 27 hours (27
SROs x 1 hour) because each SRO should have a current version of its
rules available for posting on its website.
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\47\ The National Stock Exchange, Inc. (f/k/a Cincinnati Stock
Exchange, Inc.), Chicago Stock Exchange, Inc., Boston Stock Exchange
Clearing Corporation, INET Futures Exchange, LLC, and Pacific
Clearing Corporation do not appear to post their final rules on
their websites.
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The Commission staff estimates that two hours is the amount of time
that would be required to update the SRO's website when the SRO's
proposed rule becomes effective. Therefore, each time the Commission
approves an SRO rule change or does not abrogate an SRO effective-upon-
filing rule change (total of 705 rules in fiscal year 2003), the
Commission staff estimates that the reporting burden for updating the
already website posted SRO rules on the SRO website would be 1410 hours
(705 SRO Commission approved or non-abrogated rules x 2 hours).
The Commission staff estimates that the total annual reporting
burden under the proposed rule would be 29,753 hours (27,676 hours for
filing proposed rule changes and amendments + 640 hours for posting
proposed rule changes and amendments on the SROs' websites + 27 hours
for initial posting of accurate SRO rule text on SRO websites + 1410
hours for updating SRO final rules on SRO websites).
The Commission does not expect that the proposed amendments with
regard to electronic filing would impose any material additional costs
on SROs. Instead, the Commission believes that the proposed amendments
to Rule 19b-4 and Form 19b-4, on balance, would reduce paperwork costs
related to the submission of SRO proposed rule changes. The technology
for electronic filing would be web-based; therefore, the SROs should
not have any technology expenditures for electronic filing because all
SROs currently have access to the Internet.
However, each SRO would be required to obtain a digital ID from a
certificating authority. The Commission staff estimates the annual cost
of the ID to be $15 for each SRO. The Commission staff estimates that
SROs would purchase two such digital IDs for their staff. Thus, the
annual cost of the ID for all SROs would be $810 (27 SROs x $15 x 2).
As previously stated, the SROs could incur nominal costs on posting
on their website their proposed rules, amendments thereto, no later
than the next business day after filing with or approval by the
Commission. With regard to posting of accurate and complete text of SRO
final rules, the Commission notes that most of the SROs currently post
some of this information, if not all of this information, on their
websites. Some SROs currently rely on CCH, Incorporated (``CCH'') to
maintain a current version of their rules, and a cost may be involved
in expediting prompt publication of rule changes with CCH. However, the
Commission notes that SROs are required by Sections 6(b)(1),\48\
15A(b)(2),\49\ 17A,\50\ and 15B \51\ of the Act to enforce compliance
with their rules. Therefore, at all times, each SRO should maintain a
current and complete set of its rules to facilitate compliance with
this requirement. Accordingly, the Commission does not believe that
SROs would incur material costs in simply posting this information on
their websites.
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\48\ 15 U.S.C. 78f(b)(1).
\49\ 15 U.S.C. 78o-3(b)(2).
\50\ 15 U.S.C. 78q-1.
\51\ 15 U.S.C. 78o-4.
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E. Retention Period of Recordkeeping Requirements
The SROs would be required to retain records of the collection of
information (the manually signed signature page of the Form 19b-4) for
a period of not less than five years, the first two years in an easily
accessible place, according to the
[[Page 17870]]
current recordkeeping requirements set forth in Rule 17a-1 of the
Act.\52\ The SROs would be required to retain proposed rule changes,
and any amendments, on their websites until the proposal is either
approved or disapproved. The SRO would be required at all times to
maintain an accurate and up-to-date copy of all of its rules on its
website.
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\52\ SROs may also destroy or otherwise dispose of such records
at the end of five years according to Rule 17a-6 of the Act. 17 CFR
240.17a-6.
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F. Collection of Information Is Mandatory
Any collection of information pursuant to the proposed amendments
to Rule 19b-4 and Form 19b-4 to require electronic filing with the
Commission of SRO proposed rule changes would be a mandatory collection
of information filed with the Commission as a means for the Commission
to review, and, as required, take action with respect to SRO proposed
rule changes. Any collection of information pursuant to the proposed
amendments to require website posting by the SROs of their proposed and
final rules would also be a mandatory collection of information;
however, it would not be a collection of information filed with the
Commission upon which the Commission would review and take action.
G. Responses to Collection of Information Will Not Be Kept Confidential
Other than information for which an SRO requests confidential
treatment and which may be withheld from the public in accordance with
the provisions of 5 U.S.C. 522, and the posting of proposed and final
rules on the SRO website, and thus not information filed with the
Commission, the collection of information pursuant to the proposed
amendments to Rule 19b-4 and Form 19b-4 under the Act would not be
confidential and would be publicly available.\53\
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\53\ However, consistent with applicable law, proposed SRO rule
changes containing proprietary or otherwise sensitive information
may be kept confidential and nonpublic.
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H. Request for Comment
Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comments to:
(1) Evaluate whether the proposed collection of information is
necessary for the performance of the functions of the agency, including
whether the information shall have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden of
the proposed collection of information;
(3) Enhance the quality, utility and clarity of the information to
be collected; and
(4) Minimize the burden of collection of information on those who
are to respond, including through the use of automated collection
techniques or other forms of information technology.
Persons wishing to submit comments on the collection of information
requirements should direct them to the following persons: (1) Desk
Officer for the Securities and Exchange Commission, Office of
Information and Regulatory Affairs, Office of Management and Budget
(``OMB''), Room 3208, New Executive Office Building, Washington, DC
20503; and (2) Jonathan G. Katz, Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609 with
reference to File No. S7-18-04. OMB is required to make a decision
concerning the collection of information between 30 and 60 days after
publication, so a comment to OMB is best assured of having its full
effect if OMB receives it within 30 days of publication. The Commission
has submitted the proposed collection of information to OMB for
approval. Requests for the materials submitted to OMB by the Commission
with regard to this collection of information should be in writing,
refer to File No. S7-18-04, and be submitted to the Securities and
Exchange Commission, Records Management, Office of Filings and
Information Services, 450 Fifth Street, NW., Washington, DC 20549.
VI. Costs and Benefits of the Proposed Rulemaking
The Commission is considering the costs and benefits of the
proposed amendments to Rule 19b-4 and Form 19b-4 discussed above. As
noted above, the Commission staff estimates that the total annual
paperwork reporting burden under the proposed rule would be 29,753
hours. The Commission staff, however, believes that there would be an
overall reduction of costs based on the proposed amendments.\54\ The
Commission encourages commenters to identify, discuss, analyze, and
supply relevant data regarding any such costs or benefits.
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\54\ As noted in the Paperwork Reduction Act analysis, the
Commission staff based this total reporting burden of 29,753 hours
on 27,676 hours for filing proposed rule changes and amendments +
640 hours for posting proposed rule changes and amendments on the
SROs' websites + 27 hours for initial posting of accurate SRO rule
text on SROs' websites + 1410 hours for updating SRO final rules on
SROs' websites.
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A. Benefits
The proposed amendments are designed to modernize the filing,
receipt, and processing of SRO proposed rule changes and to make the
SRO rule filing process more efficient by conserving both SRO and
Commission resources. The Commission believes that the proposed changes
to Rule 19b-4 and Form 19b-4 would permit SROs to file proposed rule
changes with the Commission more quickly and economically. For example,
SROs are currently required to pay for delivery costs of multiple paper
copies to the Commission as well as the costs associated with
monitoring the Commission's Public Reference Room for competitors' rule
filings. Requiring SROs to file electronically proposed rule changes
should reduce expenses associated with clerical time, postage, and
copying and should increase the speed, accuracy, and availability of
information beneficial to investors, other SROs, and financial markets.
Because Commission staff would no longer manually process the
receipt and distribution of SRO rule filings, electronic filing would
also expedite the Commission's receipt of SRO proposed rule changes and
provide the SROs with the certainty that the Commission has received
the proposed rule changes and has captured pertinent information about
the rule changes in SRTS. The Commission believes that integrating the
electronic filing technology with SRTS should also enhance the
Commission's ability to monitor and process SRO proposed rule changes.
Moreover, requiring SROs to post proposed rule changes on their
websites no later than the next business day after filing with the
Commission should increase availability of SRO proposed rules, and
thereby facilitate the ability of interested parties to comment on
proposed rule changes. For instance, the posting of proposed rule
changes would provide the public with access to the filings on the
SROs' websites and thereby reduce the burden on SRO and Commission
staff of providing information about proposed rule changes to
interested parties. The Commission believes that the posting of the
proposed rule changes would also save SRO resources that are currently
being used to monitor the Commission's Public Reference Room for
competitors' proposed rule changes. Furthermore, requiring an SRO to
post and maintain on its website a current and complete set of its
rules could eliminate the confusion among SROs, members of the
industry, and the public regarding the accuracy of SRO rule text and
facilitate
[[Page 17871]]
immediate availability of an SRO's rule text.
B. Costs
As noted, the Commission staff estimates that there would be
paperwork reporting costs of 29,753 hours under the proposed rule. The
Commission, however, does not expect that the proposed amendments would
impose additional costs on SROs. Instead, the Commission believes that
the proposed amendments to Rule 19b-4 and Form 19b-4, on balance, would
reduce costs related to the submission of SRO proposed rule changes.
The technology for electronic filing would be web-based; therefore, the
SRO should not have any technology expenditures for electronic filing
because all SROs currently have access to the Internet. Most of the
information that would be required to be submitted by the SROs
electronically is currently submitted in multiple paper copies to the
Commission. There are personnel and delivery costs associated with
paper filings that would not be incurred with electronic filing.
Accordingly, the Commission believes that the proposed amendments to
Rule 19b-4 and Form 19b-4, by requiring the SROs to submit proposed
rule changes in electronic format, would reduce their costs.
If the proposed changes were adopted, the Commission believes that
SROs could incur some costs associated with training their personnel
about the procedures for submitting proposed rule changes in electronic
format and submission of the information via EAUF. However, the
Commission believes that such costs would be one-time costs and
insubstantial since the SROs are already familiar with the information
required in filing a proposed rule change with the Commission and would
only be required to submit the same information electronically under
this proposal. The Commission staff believes that the SROs could also
incur some minimal costs (currently $15 per year) associated with
purchasing digital IDs for each duly authorized officer electronic
signatories.\55\ The Commission also believes that the SROs would have
to make temporary adjustments to their recordkeeping procedures since,
under the proposal, the SROs would be required to print out the Form
19b-4 signature block, manually sign proposed rule changes, and retain
the manual signature for not less than five years. However, there
should be no additional costs associated with such recordkeeping as
SROs are currently required to retain the Form 19b-4 for not less than
five years. The Commission requests comment on the anticipated costs,
if any, on SROs to comply with the proposed requirement of retaining a
manual signature of each proposed rule change submitted electronically.
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\55\ The Commission staff estimates that each SRO will purchase
two of their staff such digital IDs. Thus, the annual cost of the
digital ID for all SROs would be $810 (27 SROs x $15 x 2).
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Moreover, the Commission believes that the proposed requirement
that SROs post proposed rule changes, as well as a current and complete
version of their rules, on their websites would impose some but not
substantial costs on most SROs. The Commission notes that most of the
SROs currently post some of this information, if not all of this
information, on their websites. Some SROs currently rely on CCH to
maintain a current version of their rules, and a cost could be involved
in expediting prompt publication of rule changes with CCH or
maintaining a current version of their rules at the SRO. However, the
Commission notes that SROs are required by Sections 6(b)(1),\56\
15A(b)(2),\57\ 17A,\58\ and 15B \59\ of the Act to enforce compliance
with their rules. Therefore, at all times, each SRO should maintain a
current and complete set of its rules to facilitate compliance with
this requirement. Accordingly, the Commission does not believe that
SROs would incur substantial costs in simply posting this information
on their websites because if the SRO does not currently maintain a
current and complete set of its rules, it should have done so and have
provided for such administrative costs.
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\56\ 15 U.S.C. 78f(b)(1).
\57\ 15 U.S.C. 78o-3(b)(2).
\58\ 15 U.S.C. 78q-1.
\59\ 15 U.S.C. 78o-4.
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C. Request for Comment
The Commission requests data to quantify the costs and the benefits
above. The Commission seeks estimates of these costs and benefits, as
well as any costs and benefits not already defined, which could result
from the adoption of these proposed amendments to Rule 19b-4 and Form
19b-4. Specifically, the Commission requests commenters to address
whether proposed amendments to Rule 19b-4 and Form 19b-4 that would
require electronic filing of SRO proposed rule changes, the posting of
these proposed rule changes on the SROs' websites, as well as the
posting and maintenance of current and complete sets of rules on the
SROs' websites, would generate the anticipated benefits or impose any
unanticipated costs on the SROs and the public.
VII. Consideration of the Burden on Competition, Promotion of
Efficiency, and Capital Formation
Section 3(f) of the Act \60\ requires the Commission, whenever it
engages in rulemaking and is required to consider or determine whether
an action is necessary or appropriate in the public interest, to
consider whether the action will promote efficiency, competition, and
capital formation. In addition, Section 23(a)(2) of the Act \61\
requires the Commission, when promulgating rules under the Act, to
consider the impact any such rules would have on competition. Section
23(a)(2) further provides that the Commission may not adopt a rule that
would impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Act.
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\60\ 15 U.S.C. 78c(f).
\61\ 15 U.S.C. 78w(a)(2).
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The proposed amendments to Rule 19b-4 and Form 19b-4 are intended
to modernize the receipt and review of SRO proposed rule changes and to
make the SRO rule filing process more efficient by conserving both SRO
and Commission resources. They also are intended to improve the
transparency of the SRO rule filing process and facilitate access to
current and complete sets of SRO rules. All of these changes should
help to foster innovation, increase competition, efficiency, and
capital formation and thereby benefit investors.
The Commission generally requests comment on the competitive or
anticompetitive effects of these amendments to Rule 19b-4 and Form 19b-
4 on any market participants if adopted as proposed. The Commission
also requests comment on what impact the amendments, if adopted, would
have on efficiency and capital formation. Commenters should provide
analysis and empirical data to support their views on the costs and
benefits associated with the proposal.
VIII. Initial Regulatory Flexibility Analysis
Section 3(a) of the Regulatory Flexibility Act \62\ requires the
Commission to undertake an initial regulatory flexibility analysis of
the proposed rule on small entities unless the Commission certifies
that the rule, if adopted, would not have a significant economic impact
on a substantial number of small entities.\63\ Twenty-
[[Page 17872]]
seven SROs \64\--the 13 national securities exchanges, the 11 clearing
agencies, and the two national securities associations and the
Municipal Securities Rulemaking Board--would be required to provide the
Commission with information pursuant to Rule 19b-4 and Form 19b-4. Rule
19b-4 and Form 19b-4 apply only to SROs and no SRO is a small entity.
Accordingly, the Commission certifies that the proposed amendments, if
adopted, would not have a significant economic impact on a substantial
number of small entities.\65\
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\62\ 5 U.S.C. 603(a).
\63\ 5 U.S.C. 605(b).
\64\ American Stock Exchange LLC, Boston Stock Clearing
Corporation, Boston Stock Exchange, Inc., Chicago Board Options
Exchange, Inc., Chicago Mercantile Exchange, Inc., Chicago Stock
Exchange, Inc., The Depository Trust Co., Emerging Markets Clearing
Corporation, Fixed Income Clearing Corporation, INET Futures
Exchange, LLC, International Securities Exchange, Inc., Midwest
Clearing Corporation, Midwest Securities Trust Co., Municipal
Securities Rulemaking Board, National Association of Securities
Dealers, Inc., National Futures Association, National Securities
Clearing Corporation, The National Stock Exchange, Inc. (f/k/a
Cincinnati Stock Exchange, Inc.), New York Stock Exchange, Inc.,
NQLX, LLC, One Chicago, LLC, The Options Clearing Corporation,
Pacific Exchange, Inc., Pacific Clearing Corporation, Pacific
Securities Depository Trust, Co., Philadelphia Stock Exchange, Inc.,
and Stock Clearing Corporation of Philadelphia.
\65\ See 17 CFR 240.0-10(d) and (e). Paragraph (d) of Rule 0-10
of the Act states that the term ``small business,'' when referring
to a clearing agency, means a clearing agency that: (1) Compared,
cleared and settled less than $500 million in securities
transactions during the preceding fiscal year (or in the time that
it has been in business, if shorter); (2) had less than $200 million
of funds and securities in its custody or control at all times
during the preceding fiscal year (or in the time that it has been in
business, if shorter); and (3) is not affiliated with any person
(other than a natural person) that is not a small business or small
organization as defined in Rule 0-10. Paragraph (e) of Rule 0-10
states that the term ``small business,'' when referring to an
exchange, means any exchange that has been exempted from the
reporting requirements of Rule 11Aa3-1 under the Act, 17 CFR
2450.11Aa3-1, and is not affiliated with any person (other than a
natural person) that is not a small business or small organization
as defined in Rule 0-10. The Commission also has found that the NASD
is not a small business.
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IX. Statutory Basis and Text of Proposed Amendments
The amendments to Regulation S-T under the Securities Act of 1933,
Rule 19b-4 and Form 19b-4 under the Act are being proposed pursuant to
15 U.S.C. 78a et seq., particularly sections 3(a)(26), 3(a)(27), 3(b),
6, 15A, 15B, 17A, 19(b), 23(a) and 36(a) of the Act.
List of Subjects in 17 CFR Parts 232, 240, and 249
Reporting and recordkeeping requirements, Securities.
In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is proposed to be amended as follows:
PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR
ELECTRONIC FILINGS
1. The authority citation for part 232 continues to read in part as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a),
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80a-30 and 80a-37.
* * * * *
2. Section 232.101 is amended by:
a. Removing the word ``and'' at the end of paragraph (a)(1)(vii);
b. Removing the period at the end of paragraph (a)(1)(viii) and in
its place adding ``; and'';
c. Adding paragraph (a)(1)((ix); and
d. Revising paragraph (c)(9).
The additions and revisions read as follows:
Sec. 232.101 Mandated electronic submissions and exceptions.
(a) * * *
(1) * * *
(ix) Form 19b-4 (Sec. 249.819 of this chapter).
* * * * *
(c) * * *
(9) Exchange Act filings submitted to the Division of Market
Regulation, except for Form 19b-4 (Sec. 249.819 of this chapter).
* * * * *
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
3. The authority citation for part 240 continues to read in part as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5,
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless
otherwise noted.
* * * * *
4. Section 240.19b-4 is amended by:
a. Adding a preliminary note;
b. Revising paragraph (a), the introductory text of paragraph (e),
paragraph (f)(2); and
c. Adding paragraphs (j), (k), (l), and (m).
The additions and revisions read as follows:
Sec. 240.19b-4 Filings with respect to proposed rule changes by self-
regulatory organizations.
Preliminary Note: A self-regulatory organization must also refer to
Form 19b-4 (17 CFR 249.819) for further requirements with respect to
the filing of proposed rule changes.
(a) Filings with respect to proposed rule changes by a self-
regulatory organization, except filings with respect to proposed rules
changes by self-regulatory organizations submitted pursuant to section
19(b)(7) of the Act (15 U.S.C. 78s(b)(7), shall be made electronically
on Form 19b-4 (17 CFR 249.819).
* * * * *
(e) For the purposes of this paragraph, new derivative securities
product means any type of option, warrant, hybrid securities product or
any other security, other than a single equity option or a security
futures product, whose value is based, in whole or in part, upon the
performance of, or interest in, an underlying instrument.
* * * * *
(f) * * *
(2) Establishing or changing a due, fee, or other charge applicable
only to a member;
* * * * *
(j) Filings with respect to proposed rule changes by a self-
regulatory organization submitted on Form 19b-4 (17 CFR 249.819)
electronically shall contain an electronic signature. For the purposes
of this section, the term electronic signature means an electronic
entry in the form of a magnetic impulse or other form of computer data
compilation of any letter or series of letters or characters comprising
a name, executed, adopted or authorized as a signature. Each signatory
to an electronically submitted rule filing shall manually sign a
signature page or other document, in the manner prescribed by Form 19b-
4, authenticating, acknowledging or otherwise adopting his or her
signature that appears in typed form within the electronic filing. Such
document shall be executed before or at the time the rule filing is
electronically submitted and shall be retained by the filer in
accordance with Sec. 240.17a-1.
(k) If the conditions of this section and Form 19b-4 (17 CFR
249.819) are otherwise satisfied, all filings submitted electronically
on or before 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving
Time, whichever is currently in effect, on a business day, shall be
deemed filed on that business day, and all filings submitted after 5:30
p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever
is currently in effect, shall be deemed filed on the next business day.
(l) The self-regulatory organization shall post the proposed rule
change, and any amendments thereto, on its website no later than the
next business day after the filing of the proposed rule change,
[[Page 17873]]
and any amendments thereto, with the Commission.
(m) The self-regulatory organization shall post and maintain a
current and complete version of its rules on its website. The self-
regulatory organization shall update its website to reflect rule
changes no later than the next business day after it has been notified
of the Commission's approval of a proposed rule change filed pursuant
to section 19(b)(2) of the Act (15 U.S.C. 78s(b)) or of the
Commission's notice of a proposed rule change filed pursuant to section
19(b)(3)(A) or section 19(b)(7) of the Act (15 U.S.C. 78s(b)(3)(A) or
15 U.S.C. 78s(b)(7)). If a rule change is not effective for a certain
period, the self-regulatory organization shall clearly indicate the
effective date in the relevant rule text.
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
5. The authority citation for Part 249 continues to read in part as
follows:
Authority: 15 U.S.C. 78a, et seq. and 7201 et seq.; and 18
U.S.C. 1350, unless otherwise noted.
* * * * *
6. Section 249.819 and Form 19b-4 are revised to read as follows:
[Note: Form 19b-4 is attached as Appendix A to this document.]
Sec. 249.819 Form 19b-4, for electronic filing with respect to
proposed rule changes by all self-regulatory organizations.
This form shall be used by all self-regulatory organizations, as
defined in section 3(a)(26) of the Securities Exchange Act of 1934 (15
U.S.C. 78c(a)(26)), to file electronically proposed rule changes with
the Commission pursuant to section 19(b) of the Act and Sec. 240.19b-4
of this chapter.
By the Commission.
Dated: March 30, 2004.
Margaret H. McFarland,
Deputy Secretary.
[Note: Appendix A to the preamble will not appear in the Code of
Federal Regulations.]
Appendix A--General Instructions for Form 19b-4
A. Use of the Form
All self-regulatory organization proposed rule changes, except
filings with respect to proposed rule changes by self-regulatory
organizations submitted pursuant to Section 19(b)(7) \66\ of the
Securities Exchange Act of 1934 (``Act''), shall be filed in an
electronic format through the SRO Rule Tracking System (``SRTS'')
operated by the Commission. This form shall be used for filings of
proposed rule changes by all self-regulatory organizations pursuant
to Section 19(b) of the Act, except filings with respect to proposed
rule changes by self-regulatory organizations submitted pursuant to
Section 19(b)(7) of the Act. National securities exchanges,
registered securities associations, registered clearing agencies,
and the Municipal Securities Rulemaking Board are self-regulatory
organizations for purposes of this form.
---------------------------------------------------------------------------
\66\ Because section 19(b)(7)(C) of the Act states that filings
abrogated pursuant to this section should be re-filed pursuant to
paragraph (b)(1) of section 19 of the Act, SROs are required to file
electronically such proposed rule changes in accordance with this
form.
---------------------------------------------------------------------------
B. Need for Careful Preparation of the Completed Form, Including
Exhibits
This form, including the exhibits, is intended to elicit
information necessary for the public to provide meaningful comment
on the proposed rule change and for the Commission to determine
whether the proposed rule change is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to
the self-regulatory organization. The self-regulatory organization
must provide all the information called for by the form, including
the exhibits, and must present the information in a clear and
comprehensible manner.
The proposed rule change shall be considered filed on the date
on which the Commission receives the proposed rule change if the
filing complies with all requirements of this form. Any filing that
does not comply with the requirements of this form may be returned
to the self-regulatory organization at any time before the issuance
of the notice of filing. Any filing so returned shall for all
purposes be deemed not to have been filed with the Commission. See
also Rule 0-3 under the Act (17 CFR 240.0-3).
C. Documents Comprising the Completed Form
The completed form filed with the Commission shall consist of
the Form 19b-4 Page 1, numbers and captions for all items, responses
to all items, and exhibits required in Item 9. In responding to an
item, the completed form may omit the text of the item as contained
herein if the response is prepared to indicate to the reader the
coverage of the item without the reader having to refer to the text
of the item or its instructions. Each filing shall be marked on the
Form 19b-4 with the initials of the self-regulatory organization,
the four-digit year, and the number of the filing for the year
(i.e., SRO-YYYY-XX). If the SRO is filing Exhibit 2 and 3 via paper,
the exhibits must be filed within 5 days of the electronic
submission of all other required documents.
D. Amendments
If information on this form is or becomes inaccurate before the
Commission takes action on the proposed rule change, the self-
regulatory organization shall file amendments correcting any such
inaccuracy. Amendments shall be filed as specified in Instruction F.
Amendments to a filing shall include the Form 19b-4 Page 1
marked to number consecutively the amendments, numbers and captions
for each amended item, amended response to the item, and required
exhibits. The amended response to Item 3 shall explain the purpose
of the amendment and, if the amendment changes the purpose of or
basis for the proposed rule change, the amended response shall also
provide a revised purpose and basis statement for the proposed rule
change. Exhibit 1 shall be re-filed if there is a material change
from the immediately preceding filing in the language of the
proposed rule change or in the information provided.
If the amendment alters the text of an existing rule, the
amendment shall include the text of the existing rule, marked in the
manner described in Item 1(a) using brackets to indicate words to be
deleted from the existing rule and underscoring to indicate words to
be added. The purpose of this marking requirement is to maintain a
current copy of how the text of the existing rule is being changed.
If the amendment alters the text of the proposed rule change as
it appeared in the immediately preceding filing (even if the
proposed rule change does not alter the text of an existing rule),
the amendment shall include, as Exhibit 4, the entire text of the
rule as altered. This full text shall be marked, in any convenient
manner, to indicate additions to and deletions from the immediately
preceding filing. The purpose of Exhibit 4 is to permit the staff to
identify immediately the changes made from the text of the rule with
which it has been working.
If the self-regulatory organization is amending only part of the
text of a lengthy proposed rule change, it may, with the
Commission's permission, file only those portions of the text of the
proposed rule change in which changes are being made if the filing
(i.e., partial amendment) is clearly understandable on its face.
Such partial amendment shall be clearly identified and marked to
show deletions and additions.
If, after the rule change is filed but before the Commission
takes final action on it, the self-regulatory organization receives
or prepares any correspondence or other communications reduced to
writing (including comment letters) to and from such self-regulatory
organization concerning the proposed rule change, the communications
shall be filed as Exhibit 2. If information in the communication
makes the rule change filing inaccurate, the filing shall be amended
to correct the inaccuracy. If such communications cannot be filed
electronically in accordance with Instruction F, the communications
shall be filed in accordance with Instruction G.
E. Completion of Action by the Self-Regulatory Organization on the
Proposed Rule Change
The Commission will not approve a proposed rule change before
the self-regulatory organization has completed all action required
to be taken under its constitution, articles of incorporation,
bylaws, rules, or instruments corresponding thereto (excluding
action specified in any such instrument with respect to (i)
compliance with the procedures of the Act or (ii) the formal filing
of amendments pursuant to state law). Nevertheless, proposed rule
changes (other than proposed rule changes that are to take, or to be
put into, effect pursuant to Section 19(b)(3) of the Act) may be
initially filed before the completion of all
[[Page 17874]]
such action if the self-regulatory organization consents, under Item
6 of this form, to an extension of the period of time specified in
Section 19(b)(2) or Section 19(b)(7)(D) of the Act until at least
thirty-five days after the self-regulatory organization has filed an
appropriate amendment setting forth the taking of all such action.
If a proposed rule change to be filed for review under Section
19(b)(2) or Section 19(b)(7)(D) of the Act is in preliminary form,
the self-regulatory organization may elect to file initially Exhibit
1 setting forth a description of the subjects and issues expected to
be involved.
F. Signature and Filing of the Completed Form
All proposed rule changes, amendments, and withdrawals of
proposed rule changes shall be filed through the SRTS. In order to
file Form 19b-4 through SRTS, self-regulatory organizations must
request access to the SEC's External Application Server by
completing a request for an external account user ID and password.
Initial requests will be received by contacting the Market
Regulation Administrator located on our website (http://www.sec.gov
). E-mail will be sent to the requestor that will provide
a link to a secure website where basic profile information will be
requested.
A duly authorized officer of the self-regulatory organization
shall electronically sign the completed Form 19b-4 as indicated on
Page 1 of the form. In addition, a duly authorized officer of the
self-regulatory organization shall manually sign one copy of the
completed Form 19b-4, and the manually signed signature page shall
be maintained pursuant to Section 17 of the Act. A registered
clearing agency for which the Commission is not the appropriate
regulatory agency shall also file with its appropriate regulatory
agency three copies of the form, one of which shall be manually
signed, including exhibits. The Municipal Securities Rulemaking
Board shall also file copies of the form, including exhibits, with
the Board of Governors of the Federal Reserve System, the
Comptroller of the Currency, and the Federal Deposit Insurance
Corporation.
G. Procedures for Submission of Paper Documents for Exhibits 2 and
3
To the extent that Exhibits 2 and 3 cannot be filed
electronically in accordance with Instruction F, four copies of
Exhibits 2 and 3 shall be filed with the Division of Market
Regulation, Securities and Exchange Commission, 450 Fifth Street,
NW., Washington, DC 20549-1001. Page 1 of the electronic Form 19b-4
shall accompany paper submissions of Exhibits 2 and 3. If the SRO is
filing Exhibit 2 and 3 via paper, they must be filed within five
days of the electronic filing of all other required documents.
H. Withdrawals of Proposed Rule Changes
If a self-regulatory organization determines to withdraw a
proposed rule change, it must complete Page 1 of the Form 19b-4 and
indicate by selecting the appropriate check box to withdraw the
filing.
I. Procedures for Granting an Extension of Time for Commission
Final Action
After the Commission publishes notice of a proposed rule change,
if a self-regulatory organization wishes to grant the Commission an
extension of the time to take final action as specified in Section
19(b)(2), the self-regulatory organization shall indicate on the
Form 19b-4 Page 1 the granting of said extension as well as the date
the extension expires.
BILLING CODE 8010-01-P
[[Page 17875]]
[GRAPHIC] [TIFF OMITTED] TP05AP04.012
[[Page 17876]]
[GRAPHIC] [TIFF OMITTED] TP05AP04.013
Information To Be Included in the Completed Form (``Form 19b-4
Information'')
1. Text of the Proposed Rule Change
(a) Include the text of the proposed rule change. Changes in,
additions to, or deletions from, any existing rule shall be set forth
with brackets used to indicate words to be deleted and underscoring
used to indicate words to be added.
If any form, report, or questionnaire or the completion of such is
(i) proposed to be used in connection with the implementation or
operation of the proposed rule change, or
(ii) prescribed or referred to in the proposed rule change, or
(iii) voluntary or required pursuant to an existing rule of the
self-regulatory organization, such form, report, or questionnaire,
together with a statement identifying any existing rule that requires
completion of the form, report, or questionnaire, shall be attached as
Exhibit 3. If the form, report, or questionnaire cannot be filed
electronically in accordance with Instruction F, the documents shall be
filed in accordance with Instruction G.
(b) If the self-regulatory organization reasonably expects that the
proposed rule change will have any direct effect, or significant
indirect effect, on the application of any other rule of the self-
regulatory organization, set forth the designation or title of any such
rule and describe the anticipated effect of the proposed rule change on
the application of such other rule.
(c) Include the file numbers for prior filings with respect to any
existing rule specified in response to Item 1(b).
[[Page 17877]]
2. Procedures of the Self-Regulatory Organization
Describe action on the proposed rule change taken by the members or
board of directors or other governing body of the self-regulatory
organization (by amendment if initial filing is prior to completion of
final action). See Instruction E.
3. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
Provide a statement of the purpose of the proposed rule change and
its basis under the Act and the rules and regulations thereunder
applicable to the self-regulatory organization. With respect to
proposed rule changes filed pursuant to Section 19(b)(1) of the Act,
except for proposed rule changes that have been abrogated pursuant to
Section 19(b)(7)(C) of the Act, the statement should be sufficiently
detailed and specific to support a finding under Section 19(b)(2) of
the Act that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to the self-regulatory organization. With respect to
proposed rule changes filed pursuant to Section 19(b)(1) of the Act
that have been abrogated pursuant to Section 19(b)(7)(C) of the Act,
the statement should be sufficiently detailed and specific to support a
finding under Section 19(b)(7)(D) of the Act that the proposed rule
change does not unduly burden competition or efficiency, does not
conflict with the securities laws, and is not inconsistent with the
public interest or the protection of investors. At a minimum, the
statement should:
(a) Describe the reasons for adopting the proposed rule change, any
problems the proposed rule change is intended to address, the manner in
which the proposed rule change will resolve those problems, the manner
in which the proposed rule change will affect various persons (e.g.,
brokers, dealers, issuers, and investors), and any significant problems
known to the self-regulatory organization that persons affected are
likely to have in complying with the proposed rule change; and
(b) With respect to the proposed rule changes filed pursuant to
both Sections 19(b)(1) and 19(b)(2) of the Act, explain why the
proposed rule change is consistent with the requirements of the Act and
the rules and regulations thereunder applicable to the self-regulatory
organization. A mere assertion that the proposed rule change is
consistent with those requirements is not sufficient. With respect to a
proposed rule change filed pursuant to Section 19(b)(1) of the Act that
has been abrogated pursuant to Section 19(b)(7)(C) of the Act, explain
why the proposed rule change does not unduly burden competition or
efficiency, does not conflict with the securities laws, and is not
inconsistent with the public interest and the protection of investors,
in accordance with Section 19(b)(7)(D) of the Act. A mere assertion
that the proposed rule change satisfies these requirements is not
sufficient. In the case of a registered clearing agency, also explain
how the proposed rule change will be implemented consistently with the
safeguarding of securities and funds in its custody or control or for
which it is responsible. Certain limitations that the Act imposes on
self-regulatory organizations are summarized in the notes that follow.
Note 1: National Securities Exchanges and Registered Securities
Associations. Under Sections 6 and 15A of the Act, rules of a
national securities exchange or registered securities association
may not permit unfair discrimination between customers, issuers,
brokers, or dealers, and may not regulate, by virtue of any
authority conferred by the Act, matters not related to the purposes
of the Act or the administration of the self-regulatory
organization. Rules of a registered securities association may not
fix minimum profits or impose any schedule of or fix rates of
commissions, allowances, discounts, or other fees to be charged by
its members.
Under Section 11A(c)(5) of the Act, a national securities
exchange or registered securities association may not limit or
condition the participation of any member in any registered clearing
agency.
Note 2: Registered Clearing Agencies. Under Section 17A of the
Act, rules of a registered clearing agency may not permit unfair
discrimination in the admission of participants or among
participants in the use of the clearing agency, may not regulate, by
virtue of any authority conferred by the Act, matters not related to
the purposes of Section 17A of the Act or the administration of the
clearing agency, and may not impose any schedule of prices, or fix
rates or other fees, for services rendered by its participants.
Note 3: Municipal Securities Rulemaking Board. Under Section 15B
of the Act, rules of the Municipal Securities Rulemaking Board may
not permit unfair discrimination between customers, issuers,
municipal securities brokers, or municipal securities dealers, may
not fix minimum profits, or impose any schedule or fix rates of
commissions, allowances, discounts, or other fees to be charged by
municipal securities brokers or municipal securities dealers, and
may not regulate, by virtue of any authority conferred by the Act,
matters not related to the purposes of the Act with respect to
municipal securities or the administration of the Board.
4. Self-Regulatory Organization's Statement on Burden on Competition
State whether the proposed rule change will have an impact on
competition and, if so, (i) state whether the proposed rule change will
impose any burden on competition or whether it will relieve any burden
on, or otherwise promote, competition and (ii) specify the particular
categories of persons and kinds of businesses on which any burden will
be imposed and the ways in which the proposed rule change will affect
them. If the proposed rule change amends an existing rule, state
whether that existing rule, as amended by the proposed rule change,
will impose any burden on competition. If any impact on competition is
not believed to be a significant burden on competition, explain why.
Explain why any burden on competition is necessary or appropriate in
furtherance of the purposes of the Act. In providing those
explanations, set forth and respond in detail to written comments as to
any significant impact or burden on competition perceived by any person
who has made comments on the proposed rule change to the self-
regulatory organization. The statement concerning burdens on
competition should be sufficiently detailed and specific to support a
Commission finding that the proposed rule change does not impose any
unnecessary or inappropriate burden on competition.
5. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
If written comments were received (whether or not comments were
solicited) from members of or participants in the self-regulatory
organization or others, summarize the substance of all such comments
received and respond in detail to any significant issues that those
comments raised about the proposed rule change. If an issue is
summarized and responded to in detail under Item 3 or Item 4, that
response need not be duplicated if appropriate cross-reference is made
to the place where the response can be found. If comments were not or
are not to be solicited, so state.
6. Extension of Time Period for Commission Action
State whether the self-regulatory organization consents to an
extension of the time period specified in Section 19(b)(2) or Section
19(b)(7)(D) of the Act and the duration of the extension, if any, to
which the self-regulatory organization consents.
Note: The self-regulatory organization may elect to consent to
an extension of the time period specified in Section 19(b)(2) or
Section 19(b)(7)(D) of the Act until it shall file an amendment
which specifically states that the time period specified in Section
19(b)(2) or Section 19(b)(7)(D) of the Act shall begin to run on the
date of filing such amendment.
7. Basis for Summary Effectiveness Pursuant to Section 19(b)(3) or for
Accelerated Effectiveness Pursuant to Section 19(b)(2) or Section
19(b)(7)(D)
(a) If the proposed rule change is to take, or to be put into,
effect, pursuant to Section 19(b)(3), state whether the filing is made
pursuant to paragraph (A) or (B) thereof.
(b) In the case of paragraph (A) of Section 19(b)(3), designate
that the proposed rule change:
(i) is a stated policy, practice, or interpretation with respect to
the meaning, administration, or enforcement of an existing rule,
(ii) establishes or changes a due, fee, or other charge applicable
only to a member,
(iii) is concerned solely with administration of the self-
regulatory organization,
(iv) effects a change in an existing service of a registered
clearing agency that (A) does not adversely affect the safeguarding of
securities or funds in the custody or control of the clearing agency or
for which it is responsible and (B) does not significantly affect the
respective rights or obligations of the clearing agency or persons
using the
[[Page 17878]]
service, and set forth the basis on which such designation is made,
(v) effects a change in an existing order-entry or trading system
of a self-regulatory organization that (A) does not significantly
affect the protection of investors or the public interest; (B) does not
impose any significant burden on competition; and (C) does not have the
effect of limiting the access to or availability of the system, or
(vi) effects a change that (A) does not significantly affect the
protection of investors or the public interest; (B) does not impose any
significant burden on competition; and (C) by its terms, does not
become operative for 30 days after the date of the filing, or such
shorter time as the Commission may designate if consistent with the
protection of investors and the public interest; provided that the
self-regulatory organization has given the Commission written notice of
its intent to file the proposed rule change, along with a brief
description and text of the proposed rule change, at least five
business days prior to the date of filing of the proposed rule change,
or such shorter time as designated by the Commission. If it is
requested that the proposed rule change become operative in less than
30 days, provide a statement explaining why the Commission should
shorten this time period.
(c) In the case of paragraph (B) of Section 19(b)(3), set forth the
basis upon which the Commission should, in the view of the self-
regulatory organization, determine that the protection of investors,
the maintenance of fair and orderly markets, or the safeguarding of
securities and funds requires that the proposed rule change should be
put into effect summarily by the Commission.
Note: The Commission has the power under Section 19(b)(3)(C) of
the Act to abrogate summarily within sixty days of its filing any
proposed rule change which has taken effect upon filing pursuant to
Section 19(b)(3)(A) of the Act or was put into effect summarily by
the Commission pursuant to Section 19(b)(3)(B) of the Act. In
exercising its summary power under Section 19(b)(3)(B), the
Commission is required to make one of the findings described above
but may not have a full opportunity to make a determination that the
proposed rule change otherwise is consistent with the requirements
of the Act and the rules and regulations thereunder. The Commission
will generally exercise its summary power under Section 19(b)(3)(B)
on condition that the proposed rule change to be declared effective
summarily shall also be subject to the procedures of Section
19(b)(2) of the Act. Accordingly, in most cases, a summary order
under Section 19(b)(3)(B) shall be effective only until such time as
the Commission shall enter an order, pursuant to Section 19(b)(2)(A)
of the Act, to approve such proposed rule change or, depending on
the circumstances, until such time as the Commission shall institute
proceedings to determine whether to disapprove such proposed rule
change or, alternatively, such time as the Commission shall, at the
conclusion of such proceedings, enter an order, pursuant to Section
19(b)(2)(B), approving or disapproving such proposed rule change.
(d) If accelerated effectiveness pursuant to Section 19(b)(2) or
Section 19(b)(7)(D) of the Act is requested, provide a statement
explaining why there is good cause for the Commission to accelerate
effectiveness.
8. Proposed Rule Change Based on Rules of Another Self-Regulatory
Organization or of the Commission
State whether the proposed rule change is based on a rule either of
another self-regulatory organization or of the Commission, and, if so,
identify the rule and explain any differences between the proposed rule
change and that rule, as the filing self-regulatory organization
understands it. In explaining any such differences, give particular
attention to differences between the conduct required to comply with
the proposed rule change and that required to comply with the other
rule.
9. Exhibits
List of exhibits to be filed, as specified in Instructions C and D:
Exhibit 1. Completed Notice of Proposed Rule Change for publication
in the Federal Register. Amendments to Exhibit 1 should be filed in
accordance with Instruction D and F.
Exhibit 2. (a) Copies of notices issued by the self-regulatory
organization soliciting comment on the proposed rule change and copies
of all written comments on the proposed rule change received by the
self-regulatory organization (whether or not comments were solicited),
presented in alphabetical order, together with an alphabetical listing
of such comments. If such notices and comments cannot be filed
electronically in accordance with Instruction F, the notices and
comments shall be filed in accordance with Instruction G.
(b) Copies of any transcript of comments on the proposed rule
change made at any public meeting or, if a transcript is not available,
a copy of the summary of comments on the proposed rule change made at
such meeting. If such transcript of comments or summary of comments
cannot be filed electronically in accordance with Instruction F, the
transcript of comments or summary of comments shall be filed in
accordance with Instruction G.
(c) If after the proposed rule change is filed but before the
Commission takes final action on it, the self-regulatory organization
prepares or receives any correspondence or other communications reduced
to writing (including comment letters) to and from such self-regulatory
organization concerning the proposed rule change, the communications
shall be filed in accordance with Instruction F. If such communications
cannot be filed electronically in accordance with Instruction F, the
communications shall be filed in accordance with Instruction G.
Exhibit 3. Copies of any form, report, or questionnaire covered by
Item 1(a). If such form, report, or questionnaire cannot be filed
electronically in accordance with Instruction F, the form, report, or
questionnaire shall be filed in accordance with Instruction G.
Exhibit 4. For amendments to a filing, marked copies, if required
by Instruction D, of the text of the proposed rule change as amended.
Exhibit 5. The SRO may choose to attach as Exhibit 5 proposed
changes to rule text in place of providing it in Item I and which may
otherwise be more easily readable if provided separately from Form 19b-
4. Exhibit 5 shall be considered part of the proposed rule change.
Specific Instructions for Exhibit 1--Notice of Proposed Rule Change
Exhibit 1
Securities and Exchange Commission
[Release No. 34- ; File No. SR ]
Self-Regulatory Organizations
Proposed Rule Change By (Name of Self-Regulatory Organization)
Relating to (brief description of subject matter of proposed rule
change)
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General Instructions
A. Format Requirements
Leave a 1-inch margin at the top, bottom, and right hand side, and
a 1\1/2\ inch margin at the left hand side. Number all pages
consecutively. Double space all primary text and single space lists of
items, quoted material when set apart from primary text, footnotes, and
notes to tables.
B. Need for Careful Preparation of the Notice
The self-regulatory organization must provide all information
required in the notice and present it in a clear and comprehensible
manner. It is the responsibility of the self-regulatory organization to
prepare Items I, II and III of the notice. The Commission cautions
self-regulatory organizations to pay particular attention to assure
that the notice accurately reflects the information provided in the
Form 19b-4 it accompanies. Any filing that does not comply with the
requirements of Form 19b-4, including the requirements applicable to
the notice, may, at any time before the Commission issues a notice of
filing, be returned to the self-regulatory organization. Any document
so returned shall for all purposes be deemed not to have been filed
with the Commission. See Instruction B to Form 19b-4.
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Pursuant to Section 19(b)(1) of the Securities Exchange Act of
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on (date),\67\
the (name of self-regulatory organization) filed with the Securities
and Exchange Commission the proposed rule change as described in Items
I, II and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\67\ To be completed by the Commission. This date will be the
date on which the Commission receives the proposed rule change
filing if the filing complies with all requirements of this form.
See Instruction B to Form 19b-4.
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Information to Be Included in the Completed Notice
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
(Supply a brief statement of the terms of substance of the proposed
rule change. If the
[[Page 17879]]
proposed rule change is relatively brief, a separate statement need not
be prepared, and the text of the proposed rule change may be inserted
in lieu of the statement of the terms of substance. If the proposed
rule change amends an existing rule, indicate changes in the rule by
brackets for words to be deleted and underlined for words to be added.)
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. (Reproduce the
headings, and summarize briefly the most significant aspects of the
responses, to Items 3, 4, and 5 of Form 19b-4, redesignating them as
(A), (B), and (C), respectively.)
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
(If the proposed rule change is to be considered by the Commission
pursuant to Section 19(b)(2), the following paragraph should be used.)
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
(If the proposed rule change is to take, or to be put into, effect
pursuant to Section 19(b)(3) and subparagraph (f) of Securities
Exchange Act Rule 19b-4, the following paragraph should be used.)
The foregoing rule change has become effective pursuant to Section
19(b)(3) of the Act and paragraph (f) of Rule 19b-4 thereunder. At any
time within 60 days of the filing of the proposed rule change, the
Commission may summarily abrogate the rule change if it appears to the
Commission that such action is necessary or appropriate in the public
interest, for the protection of investors, or otherwise in furtherance
of the purposes of the Act.
(If the proposed rule change is to be considered by the Commission
pursuant to Section 19(b)(7)(D) of the Act, the following paragraph
should be used.)
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve such proposed rule change, or
(B) After consultation with the Commodity Futures Trading
Commission, 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
electronically or by paper. Electronic comments may be submitted by:
(1) Electronic form on the SEC website (http://www.sec.gov) or (2) e-
mail to rule-comments@sec.gov. Mail paper comments in triplicate to
Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450
Fifth Street, NW., Washington, DC 20549-0609. All submissions should
refer to file number XX; this file number should be included on the
subject line if e-mail is used. To help us process and review your
comments more efficiently, please use only one method. The Commission
will post all comments on the Commission's internet website (http://www.sec.gov
). Comments are also available for public inspection and
copying in the Commission's Public Reference Room, 450 Fifth Street,
NW., Washington, DC 20549. We do not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All comments should be submitted
on or before April 26, 2004.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\68\
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\68\ 17 CFR 200.30-3(a).
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Jonathan G. Katz,
Secretary.
[FR Doc. 04-7538 Filed 4-2-04; 8:45 am]
BILLING CODE 8010-01-P