Self-Regulatory Organizations; National Stock Exchange; Notice of Filing of Proposed Rule Change, and Amendment Nos. 1 and 2 Thereto, To Amend the Exchange's Customer Priority Rule To Require Designated Dealers To Implement and Maintain Automated Compliance Systems, 60594-60596 [E5-5726]
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60594
Federal Register / Vol. 70, No. 200 / Tuesday, October 18, 2005 / Notices
One commenter noted the significant
burdens of the proposal and suggested
that NASD allow at least six months for
implementation of the proposed rule
change.11 Another commenter noted the
other significant industry initiatives that
require management and development
resources and requested a reasonable
time to implement the proposed
changes.12 Two commenters opposed
the OATS rules generally, without
specifically commenting on any of the
proposals.13 These commenters cited
the additional costs and burdens to
member firms of complying with the
OATS requirements.14
Although it understands that the
proposed rule change may impose
additional costs and burdens on
members, in part due to the more
manual nature of trading in OTC equity
securities, NASD believes that this
additional OATS data is critical to
NASD’s surveillance and regulatory
program. To address the concerns raised
by commenters, as described above,
NASD has proposed an extended
implementation period, which NASD
believes will provide members adequate
time to make the necessary
technological and systems changes.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) by order approve such proposed
rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NASD–2005–101 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Jonathan G. Katz, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–NASD–2005–101. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of the filing also will be
available for inspection and copying at
the principal office of NASD. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NASD–2005–101 and
should be submitted on or before
November 8, 2005.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.15
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–5718 Filed 10–17–05; 8:45 am]
BILLING CODE 8010–01–P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
11 See
Ameritrade Letter.
FIF Letter.
13 See ML Stern Letter and Bandes Letter.
14 Id.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–52576; File No. SR–NSX–
2005–06]
Self-Regulatory Organizations;
National Stock Exchange; Notice of
Filing of Proposed Rule Change, and
Amendment Nos. 1 and 2 Thereto, To
Amend the Exchange’s Customer
Priority Rule To Require Designated
Dealers To Implement and Maintain
Automated Compliance Systems
October 7, 2005.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 19,
2005, the National Stock Exchange SM
(‘‘NSX’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the NSX. On October 5,
2005, the Exchange filed Amendment
No. 1 to the proposed rule change. On
October 7, 2005, the Exchange filed
Amendment No. 2 to the proposed rule
change. Amendment Nos. 1 and 2 are
incorporated into this notice. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend the
text of Exchange Rule 12.6 (‘‘Customer
Priority Rule’’) to require the Exchange’s
Designated Dealers to implement and
maintain automated systems reasonably
designed to ensure compliance with the
Customer Priority Rule. The text of the
proposed rule change is set forth below.
Proposed new language is in italics.
*
*
*
*
*
Rules of National Stock Exchange
*
*
*
*
*
*
*
*
*
Rule 12.6. Customer Priority
(a)–(c) No change to text
(d) (Reserved).
(e) Designated Dealers executing
customer orders on the Exchange are
required to implement and maintain
automated systems reasonably designed
to ensure compliance with this Rule.
The Exchange will allow any Designated
Dealer to comply manually with the
12 See
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15 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00110
Fmt 4703
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*
Chapter XII Trading Practice Rules
2 17
E:\FR\FM\18OCN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Federal Register / Vol. 70, No. 200 / Tuesday, October 18, 2005 / Notices
provisions of this Rule for a reasonably
limited duration in the event that such
Designated Dealer’s automated systems
become inoperative as a result of any
act, condition or cause beyond the
reasonable control of the Designated
Dealer, including, but not limited to, an
act of God, fire, flood, extraordinary
weather conditions, war, insurrection,
riot, strike, accident, action of
government, communications or power
failure, or any equipment or software
malfunction. Designated Dealers shall
not otherwise disable or disengage their
automated systems. Designated Dealers
shall promptly notify the Exchange of
any changes in the operating status of
their automated systems.
Interpretations and Policies
.01 If a Designated Dealer holds for
execution on the Exchange a customer
buy order and a customer sell order that
can be crossed, the Designated Dealer’s
automated system shall systemically
cross them without interpositioning
itself as a dealer.
.02 No change to text
.03 A member or any associated
person of a member responsible for
entering orders for its own account or
any account in which it is directly or
indirectly interested shall be presumed
to have knowledge of a particular
unexecuted customer order. Such
presumption can be rebutted by
adequate evidence which effectively
demonstrates, to the Exchange’s
satisfaction, that the member has
implemented a reasonable system of
internal policies and procedures and
has an adequate system of internal
controls to prevent the misuse of
information about customer orders by
those responsible for entering such
proprietary orders.
*
*
*
*
*
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposal and discussed any
comments it received on the proposed
rule change, as amended. The text of
these statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in Sections A, B, and C below,
of the most significant aspects of such
statements.
VerDate Aug<31>2005
17:22 Oct 17, 2005
Jkt 208001
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Customer Priority Rule provides,
in pertinent part, that no member of the
Exchange shall: (i) Personally buy or
initiate the purchase of any security
traded on the Exchange for its own
account or for any account in which it
or any associated person of the member
is directly or indirectly interested while
such member holds or has knowledge
that any person associated with it holds
an unexecuted market or limit price
order to buy such security in the unit of
trading for a customer, or (ii) sell or
initiate the sale of any such security for
any such account while it personally
holds or has knowledge that any person
associated with it holds an unexecuted
market or limit price order to sell such
security in the unit of trading for a
customer.
On May 19, 2005, the Exchange
consented to the entry of an order by the
Commission instituting administrative
and cease-and-desist proceedings
pursuant to Sections 19(b) and 21C of
the Act.3 The Settlement Order found,
among other things, that the Exchange
failed to enforce compliance by its
members with the Customer Priority
Rule. As part of its undertakings in the
Settlement Order, the Exchange agreed
to propose rule changes requiring
Designated Dealers to implement
systems enhancements to comply with
the Customer Priority Rule.
In late 2004, the Exchange
implemented automated daily
surveillance for potential violations of
the Customer Priority Rule. The
Exchange believes that requiring
Designated Dealers to have automated
systems reasonably designed to comply
with the Customer Priority Rule before
and during the process of executing a
proprietary trade would effectively
complement the Exchange’s post-trade
surveillance. Accordingly, the Exchange
proposes to require its Designated
Dealers to implement and maintain
automated systems reasonably designed
to meet this goal. Moreover, the
Exchange believes that the proposed
amendment is designed to further
ensure that executable public orders on
the Exchange are protected to the fullest
possible extent.
The Exchange has long recognized the
utility of information barriers in
preventing the misuse of information by
an associated or affiliated person of a
3 See Exchange Act Release No. 51714 (May 19,
2005) (‘‘Settlement Order’’).
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
60595
member when such information is
acquired or generated by another
associated or affiliated person of such
member under an obligation to protect
such information. For example,
Exchange Rule 5.5 provides for the
establishment by Designated Dealers of
procedures reasonably designed to
prevent misuse by the firms’ associated
and affiliated persons of the information
associated with the firms’ specialist
operations.4 While Rule 5.5 by its terms
is applicable only to Designated Dealers,
the Exchange believes that any member
may establish appropriate functional
separation to prevent the misuse of
information about customer orders by
those responsible for entering
proprietary orders. Members with
effective information barriers can avoid
violations of the Customer Priority Rule
because such information barriers
would prevent the members from
having the requisite knowledge that
they are holding an unexecuted
customer order. In order to clarify and
codify this interpretation, the Exchange
is proposing to add a new interpretation
to the Customer Priority Rule. This
proposed Interpretation .03 to Rule 12.6
indicates that a member or associated
persons of a member responsible for
entering proprietary orders
presumptively has knowledge of a
particular customer order. Any member
or associated person of a member can
rebut this presumption by providing
evidence to the Regulatory Services
Division of the Exchange demonstrating
that the member has a system of internal
policies and procedures and an
adequate system of internal controls in
place to prevent the misuse of
information about customer orders by
those responsible for entering
proprietary orders.5 The evidence
provided by the member or the
associated person of the member may be
subjected to further scrutiny,
investigation and examination by the
Regulatory Services Division to
4 The Exchange’s Examination Department
regularly examines those Designated Dealers that
previously obtained Exchange approval under Rule
5.5 for the functional separation of such firm’s
specialist operations from the firm’s associated and
affiliated persons. These examinations help ensure
the existence of the Designated Dealers’ compliance
and audit procedures reasonably designed to
maintain functional separation as evidenced by
such things as separate physical locations and
limitations on traders’ access to information while
at the firms.
5 The Exchange believes that this proposal is
consistent with the way in which other selfregulatory organizations interpret their trading
ahead rules. See, e.g., Supplementary Material .10
of NYSE Rule 92 and NASD Notice to Members 95–
43 (interpreting NASD IM–2110–2).
E:\FR\FM\18OCN1.SGM
18OCN1
60596
Federal Register / Vol. 70, No. 200 / Tuesday, October 18, 2005 / Notices
determine whether the presumption has
been adequately rebutted.6
the Act. Comments may be submitted by
any of the following methods:
2. Statutory Basis
Electronic Comments
The Exchange believes the proposed
rule change, as amended, is consistent
with Section 6(b) of the Act 7 in general,
and furthers the objectives of Section
6(b)(5) 8 in particular, in that it is
designed to promote just and equitable
principles of trade and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system and,
generally, in that it protects investors
and the public interest.
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NSX–2005–06 on the
subject line.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change, as amended,
will impose any inappropriate burden
on competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
The Exchange has neither solicited
nor received written comments on the
proposed rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission will:
(a) By order approve such proposed
rule change, as amended; or
(b) institute proceedings to determine
whether the proposed rule change, as
amended, should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as amended, is consistent with
6 It is important to note that the Exchange only
conducts routine examinations of its Designated
Dealers. Any member that is not the subject of a
routine examination and that seeks to rely on
proposed Interpretation .03, when confronted with
an inquiry concerning its trading practices under
the Customer Priority Rule, must be prepared to
provide evidence to the Exchange of its information
barrier policies and procedures for review so the
Exchange can determine whether such evidence
rebuts the presumption of knowledge of a particular
unexecuted customer order.
7 15 U.S.C. 78f(b).
8 15 U.S.C. 78f(b)(5).
VerDate Aug<31>2005
17:22 Oct 17, 2005
Jkt 208001
SMALL BUSINESS ADMINISTRATION
[Disaster Declaration #10180 and #10181]
AL Disaster Number AL–00003
Small Business Administration.
Amendment 3.
AGENCY:
ACTION:
SUMMARY: This is an amendment of the
Presidential declaration of a major
disaster for the State of Alabama
(FEMA–1605–DR), dated August 29,
2005.
Paper Comments
Incident: Hurricane Katrina.
Incident Period: August 29, 2005
• Send paper comments in triplicate
through September 26, 2005.
to Jonathan G. Katz, Secretary,
Effective Date: October 5, 2005.
Securities and Exchange Commission,
Physical Loan Application Deadline
100 F Street, NE., Washington, DC
Date: October 28, 2005.
20549–9303.
EIDL Loan Application Deadline Date:
All submissions should refer to File
May 29, 2006.
Number SR–NSX–2005–06. This file
ADDRESSES: Submit completed loan
number should be included on the
applications to: Small Business
subject line if e-mail is used. To help the Administration, Processing and
Commission process and review your
Disbursement Center, 14925 Kingsport
comments more efficiently, please use
Road, Fort Worth, TX 76155.
only one method. The Commission will FOR FURTHER INFORMATION CONTACT: A.
post all comments on the Commission’s Escobar, Office of Disaster Assistance,
Internet Web site (https://www.sec.gov/
U.S. Small Business Administration,
rules/sro.shtml). Copies of the
409 3rd Street, Suite 6050, Washington,
submission, all subsequent
DC 20416.
amendments, all written statements
SUPPLEMENTARY INFORMATION: The notice
with respect to the proposed rule
of the Presidential disaster declaration
change, as amended, that are filed with
for the State of Alabama, dated August
the Commission, and all written
29, 2005 is hereby amended to include
communications relating to the
the following areas as adversely affected
proposed rule change, as amended,
by the disaster:
between the Commission and any
Primary Counties:
person, other than those that may be
Marengo
withheld from the public in accordance Contiguous Counties:
with the provisions of 5 U.S.C. 552, will
Alabama, Dallas
be available for inspection and copying
All other information in the original
in the Commission’s Public Reference
declaration remains unchanged.
Room. Copies of such filing also will be (Catalog of Federal Domestic Assistance
available for inspection and copying at
Numbers 59002 and 59008)
the principal office of the NSX. All
S. George Camp,
comments received will be posted
Acting Associate Administrator for Disaster
without change; the Commission does
Assistance.
not edit personal identifying
[FR Doc. 05–20727 Filed 10–17–05; 8:45 am]
information from submissions. You
BILLING CODE 8025–01–P
should submit only information that
you wish to make available publicly. All
submissions should refer to File
SMALL BUSINESS ADMINISTRATION
Number SR–NSX–2005–06 and should
[Disaster Declaration #10207 and #10208]
be submitted on or before November 8,
2005.
FL Disaster # FL–00010
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.9
Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5–5726 Filed 10–17–05; 8:45 am]
BILLING CODE 8010–01–P
9 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00112
Fmt 4703
Sfmt 4703
Small Business Administration.
Notice.
AGENCY:
ACTION:
SUMMARY: This is a notice of an
Administrative declaration of a disaster
for the State of Florida dated October 4,
2005.
Incident: Hurricane Rita.
Incident Period: September 20, 2005.
Effective Date: October 4, 2005.
E:\FR\FM\18OCN1.SGM
18OCN1
]]>Agencies
[Federal Register Volume 70, Number 200 (Tuesday, October 18, 2005)]
[Notices]
[Pages 60594-60596]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-5726]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-52576; File No. SR-NSX-2005-06]
Self-Regulatory Organizations; National Stock Exchange; Notice of
Filing of Proposed Rule Change, and Amendment Nos. 1 and 2 Thereto, To
Amend the Exchange's Customer Priority Rule To Require Designated
Dealers To Implement and Maintain Automated Compliance Systems
October 7, 2005.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on July 19, 2005, the National Stock Exchange SM (``NSX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the NSX. On October 5,
2005, the Exchange filed Amendment No. 1 to the proposed rule change.
On October 7, 2005, the Exchange filed Amendment No. 2 to the proposed
rule change. Amendment Nos. 1 and 2 are incorporated into this notice.
The Commission is publishing this notice to solicit comments on the
proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend the text of Exchange Rule 12.6
(``Customer Priority Rule'') to require the Exchange's Designated
Dealers to implement and maintain automated systems reasonably designed
to ensure compliance with the Customer Priority Rule. The text of the
proposed rule change is set forth below. Proposed new language is in
italics.
* * * * *
Rules of National Stock Exchange
* * * * *
Chapter XII Trading Practice Rules
* * * * *
Rule 12.6. Customer Priority
(a)-(c) No change to text
(d) (Reserved).
(e) Designated Dealers executing customer orders on the Exchange
are required to implement and maintain automated systems reasonably
designed to ensure compliance with this Rule. The Exchange will allow
any Designated Dealer to comply manually with the
[[Page 60595]]
provisions of this Rule for a reasonably limited duration in the event
that such Designated Dealer's automated systems become inoperative as a
result of any act, condition or cause beyond the reasonable control of
the Designated Dealer, including, but not limited to, an act of God,
fire, flood, extraordinary weather conditions, war, insurrection, riot,
strike, accident, action of government, communications or power
failure, or any equipment or software malfunction. Designated Dealers
shall not otherwise disable or disengage their automated systems.
Designated Dealers shall promptly notify the Exchange of any changes in
the operating status of their automated systems.
Interpretations and Policies
.01 If a Designated Dealer holds for execution on the Exchange a
customer buy order and a customer sell order that can be crossed, the
Designated Dealer's automated system shall systemically cross them
without interpositioning itself as a dealer.
.02 No change to text
.03 A member or any associated person of a member responsible for
entering orders for its own account or any account in which it is
directly or indirectly interested shall be presumed to have knowledge
of a particular unexecuted customer order. Such presumption can be
rebutted by adequate evidence which effectively demonstrates, to the
Exchange's satisfaction, that the member has implemented a reasonable
system of internal policies and procedures and has an adequate system
of internal controls to prevent the misuse of information about
customer orders by those responsible for entering such proprietary
orders.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposal and discussed
any comments it received on the proposed rule change, as amended. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Customer Priority Rule provides, in pertinent part, that no
member of the Exchange shall: (i) Personally buy or initiate the
purchase of any security traded on the Exchange for its own account or
for any account in which it or any associated person of the member is
directly or indirectly interested while such member holds or has
knowledge that any person associated with it holds an unexecuted market
or limit price order to buy such security in the unit of trading for a
customer, or (ii) sell or initiate the sale of any such security for
any such account while it personally holds or has knowledge that any
person associated with it holds an unexecuted market or limit price
order to sell such security in the unit of trading for a customer.
On May 19, 2005, the Exchange consented to the entry of an order by
the Commission instituting administrative and cease-and-desist
proceedings pursuant to Sections 19(b) and 21C of the Act.\3\ The
Settlement Order found, among other things, that the Exchange failed to
enforce compliance by its members with the Customer Priority Rule. As
part of its undertakings in the Settlement Order, the Exchange agreed
to propose rule changes requiring Designated Dealers to implement
systems enhancements to comply with the Customer Priority Rule.
---------------------------------------------------------------------------
\3\ See Exchange Act Release No. 51714 (May 19, 2005)
(``Settlement Order'').
---------------------------------------------------------------------------
In late 2004, the Exchange implemented automated daily surveillance
for potential violations of the Customer Priority Rule. The Exchange
believes that requiring Designated Dealers to have automated systems
reasonably designed to comply with the Customer Priority Rule before
and during the process of executing a proprietary trade would
effectively complement the Exchange's post-trade surveillance.
Accordingly, the Exchange proposes to require its Designated Dealers to
implement and maintain automated systems reasonably designed to meet
this goal. Moreover, the Exchange believes that the proposed amendment
is designed to further ensure that executable public orders on the
Exchange are protected to the fullest possible extent.
The Exchange has long recognized the utility of information
barriers in preventing the misuse of information by an associated or
affiliated person of a member when such information is acquired or
generated by another associated or affiliated person of such member
under an obligation to protect such information. For example, Exchange
Rule 5.5 provides for the establishment by Designated Dealers of
procedures reasonably designed to prevent misuse by the firms'
associated and affiliated persons of the information associated with
the firms' specialist operations.\4\ While Rule 5.5 by its terms is
applicable only to Designated Dealers, the Exchange believes that any
member may establish appropriate functional separation to prevent the
misuse of information about customer orders by those responsible for
entering proprietary orders. Members with effective information
barriers can avoid violations of the Customer Priority Rule because
such information barriers would prevent the members from having the
requisite knowledge that they are holding an unexecuted customer order.
In order to clarify and codify this interpretation, the Exchange is
proposing to add a new interpretation to the Customer Priority Rule.
This proposed Interpretation .03 to Rule 12.6 indicates that a member
or associated persons of a member responsible for entering proprietary
orders presumptively has knowledge of a particular customer order. Any
member or associated person of a member can rebut this presumption by
providing evidence to the Regulatory Services Division of the Exchange
demonstrating that the member has a system of internal policies and
procedures and an adequate system of internal controls in place to
prevent the misuse of information about customer orders by those
responsible for entering proprietary orders.\5\ The evidence provided
by the member or the associated person of the member may be subjected
to further scrutiny, investigation and examination by the Regulatory
Services Division to
[[Page 60596]]
determine whether the presumption has been adequately rebutted.\6\
---------------------------------------------------------------------------
\4\ The Exchange's Examination Department regularly examines
those Designated Dealers that previously obtained Exchange approval
under Rule 5.5 for the functional separation of such firm's
specialist operations from the firm's associated and affiliated
persons. These examinations help ensure the existence of the
Designated Dealers' compliance and audit procedures reasonably
designed to maintain functional separation as evidenced by such
things as separate physical locations and limitations on traders'
access to information while at the firms.
\5\ The Exchange believes that this proposal is consistent with
the way in which other self-regulatory organizations interpret their
trading ahead rules. See, e.g., Supplementary Material .10 of NYSE
Rule 92 and NASD Notice to Members 95-43 (interpreting NASD IM-2110-
2).
\6\ It is important to note that the Exchange only conducts
routine examinations of its Designated Dealers. Any member that is
not the subject of a routine examination and that seeks to rely on
proposed Interpretation .03, when confronted with an inquiry
concerning its trading practices under the Customer Priority Rule,
must be prepared to provide evidence to the Exchange of its
information barrier policies and procedures for review so the
Exchange can determine whether such evidence rebuts the presumption
of knowledge of a particular unexecuted customer order.
---------------------------------------------------------------------------
2. Statutory Basis
The Exchange believes the proposed rule change, as amended, is
consistent with Section 6(b) of the Act \7\ in general, and furthers
the objectives of Section 6(b)(5) \8\ in particular, in that it is
designed to promote just and equitable principles of trade and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system and, generally, in that it protects
investors and the public interest.
---------------------------------------------------------------------------
\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change, as
amended, will impose any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
(a) By order approve such proposed rule change, as amended; or
(b) institute proceedings to determine whether the proposed rule
change, as amended, should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as amended, is consistent with the Act. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NSX-2005-06 on the subject line.
Paper Comments
Send paper comments in triplicate to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-9303.
All submissions should refer to File Number SR-NSX-2005-06. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change, as
amended, that are filed with the Commission, and all written
communications relating to the proposed rule change, as amended,
between the Commission and any person, other than those that may be
withheld from the public in accordance with the provisions of 5 U.S.C.
552, will be available for inspection and copying in the Commission's
Public Reference Room. Copies of such filing also will be available for
inspection and copying at the principal office of the NSX. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File Number SR-NSX-2005-06 and should be
submitted on or before November 8, 2005.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
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\9\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. E5-5726 Filed 10-17-05; 8:45 am]
BILLING CODE 8010-01-P
