Joint Industry Plan; Order Approving Options Regulatory Surveillance Authority Plan by the American Stock Exchange LLC, Boston Stock Exchange, Inc., Chicago Board Options Exchange, Incorporated, International Securities Exchange, Inc., Pacific Exchange, Inc. (n/k/a NYSE Arca, Inc.) and Philadelphia Stock Exchange, Inc., 34399-34401 [06-5375]
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Federal Register / Vol. 71, No. 114 / Wednesday, June 14, 2006 / Notices
FOR FURTHER INFORMATION CONTACT:
Privacy Office, United States Postal
Service, 475 L’Enfant Plaza, SW., Room
10407, Washington, DC 20260–2200.
Phone: 202–268–5959.
SUPPLEMENTARY INFORMATION: This
notice is in accordance with the Privacy
Act requirement that agencies publish
their amended systems of records in the
Federal Register when there is a
revision, change, or addition. The Postal
Service has reviewed its systems of
records and has determined that the
Inspector General Investigative Records
system should be revised to modify an
existing routine use regarding the OIG
sharing information with other offices of
inspector general, or councils comprised
of officers from other offices of inspector
general, as authorized by the President
or Congress. Routine use ‘‘d’’ will be
revised to provide clarification
regarding how information is shared in
accordance with the Inspector General
Act of 1978, as amended.
The Postal Service does not expect
this amended notice to have any adverse
effect on individual privacy rights. The
amendment does not change the kinds
of personal information about
individuals that are maintained. Rather,
the amendment clarifies disclosures
related to Inspector General peer
reviews, including the recipients of
disclosures, the legal authority, and the
purpose of the disclosures. Personally
identifiable information derived from
other Postal Service Privacy Act systems
will continue to be redacted prior to
disclosure. Pursuant to 5 U.S.C.
552a(e)(11), interested persons are
invited to submit written data, views, or
arguments on this proposal. A report of
the proposed amendment has been sent
to Congress and to the Office of
Management and Budget for their
evaluation.
Privacy Act System of Record USPS
700.300 was originally published in the
Federal Register on October 15, 1998
(63 FR 55416), and amended on
February 25, 2004 (69 FR 8707) and
April 29, 2005 (70 FR 22516). The Postal
Service proposes amending the system
as shown below:
Handbook AS–353, Guide to Privacy
and the Freedom of Information Act
1 Introduction
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*
*
*
*
rwilkins on PROD1PC63 with NOTICES
Appendix—Privacy Act Systems of
Records
*
*
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*
*
Section C. Index of Systems of Records
*
*
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19:47 Jun 13, 2006
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*
*
*
*
Routine Uses of Records Maintained in
the System, Including Categories of
Users and the Purposes of Such Uses
*
*
*
*
*
[Revise Item d to read as follows:]
d. Records originating exclusively
within this system of records may be
disclosed to other Federal offices of
inspector general and councils
comprised of officials from other
Federal offices of inspector general, as
required by the Inspector General Act of
1978, as amended. The purpose is to
ensure that OIG audit and investigative
operations can be subject to integrity
and efficiency peer reviews, and to
permit other offices of inspector general
to investigate and report on allegations
of misconduct by senior OIG officials as
directed by a council, the President, or
Congress. Records originating from any
other USPS systems of records, which
may be duplicated in or incorporated
into this system, may also be disclosed
with all personally identifiable
information redacted.
*
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*
Neva R. Watson,
Attorney, Legislative.
[FR Doc. E6–9221 Filed 6–13–06; 8:45 am]
BILLING CODE 7710–12–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53940; File No. 4–516]
Joint Industry Plan; Order Approving
Options Regulatory Surveillance
Authority Plan by the American Stock
Exchange LLC, Boston Stock
Exchange, Inc., Chicago Board
Options Exchange, Incorporated,
International Securities Exchange, Inc.,
Pacific Exchange, Inc. (n/k/a NYSE
Arca, Inc.) and Philadelphia Stock
Exchange, Inc.
June 5, 2006.
I. Introduction
On January 31, 2006, pursuant to Rule
608 under the Securities Exchange Act
of 1934 (‘‘Act’’),1 the American Stock
Exchange LLC, Boston Stock Exchange,
Inc., Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’), International
Securities Exchange, Inc., Pacific
Exchange, Inc. (n/k/a NYSE Arca, Inc.) 2
1 17
CFR 242.608
March 6, 2006, the Pacific Exchange, Inc.
(‘‘PCX’’) filed with the Commission a proposed rule
change, which was effective upon filing, to change
2 On
Part I. General Systems
*
USPS 700.300 System Name:
Inspector General Investigative Records
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34399
and Philadelphia Stock Exchange, Inc.
(collectively, ‘‘Exchanges’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’) the
Options Regulatory Surveillance
Authority Plan, a plan providing for the
joint surveillance, investigation and
detection of insider trading on the
markets maintained by the Exchanges
(‘‘ORSA Plan’’).3
On April 10, 2006, a detailed
summary of the ORSA Plan was
published for comment in the Federal
Register.4 The Commission received no
comments on the ORSA Plan. This
Order approves the ORSA Plan as
proposed pursuant to section 11A of the
Act 5 and Rule 608 thereunder.6
II. Summary of the ORSA Plan
The purpose of the ORSA Plan is to
permit the Exchanges to act jointly in
the administration, operation, and
maintenance of a regulatory system for
the surveillance, investigation, and
detection of the unlawful use of
undisclosed, material information in
trading on one or more of their markets.
By sharing the costs of these regulatory
activities and by sharing the regulatory
information generated under the ORSA
Plan, the Exchanges believe they will be
able to enhance the effectiveness and
efficiency with which they regulate
their respective markets and the
national market system for options. The
Exchanges also believe that the ORSA
Plan will avoid duplication of certain
regulatory efforts on the part of the
Exchanges.
A. Policy Committee
The ORSA Plan provides for the
establishment of a Policy Committee, on
which each Exchange will have one
representative and one vote. The Policy
Committee is responsible for overseeing
the operation of the ORSA Plan and for
making all policy decisions pertaining
to the ORSA Plan, including, among
other things, the following:
1. Determining the extent to which
regulatory, surveillance, and
the name of PCX, as well as several other related
entities, to reflect the recent acquisition of PCX
Holdings, Inc., the parent company of PCX, by
Archipelago Holdings, Inc. (‘‘Archipelago’’) and the
merger of the New York Stock Exchange, Inc. with
Archipelago. See File No. SR–PCX–2006–24. All
references herein have been changed to reflect these
transactions.
3 The Exchanges initially filed the ORSA Plan
with the Commission on May 5, 2005. The
Exchanges filed revised versions of the ORSA Plan
on July 6, 2005 and September 29, 2005.
4 See Securities Exchange Act Release No. 53589
(April 4, 2006), 71 FR 18120. The full text of the
plan was made available to interested persons on
the Commission’s Web site.
5 15 U.S.C. 78k–1.
6 17 CFR 242.608
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Federal Register / Vol. 71, No. 114 / Wednesday, June 14, 2006 / Notices
rwilkins on PROD1PC63 with NOTICES
investigative functions will be
conducted on behalf of the Exchanges;
2. Making all determinations
pertaining to contracts with (i) persons
who provide goods and services under
the ORSA Plan, including parties to the
ORSA Plan who provide such goods and
services, and (ii) parties to the ORSA
Plan, and other self-regulatory
organizations who engage in regulatory,
surveillance, or investigative activities
under the ORSA Plan;
3. Reviewing and approving
surveillance standards and other
parameters to be used by self-regulatory
organizations who perform regulatory
and surveillance functions under the
ORSA Plan; and
4. Determining budgetary and
financial matters.
All decisions by the Policy
Committee, except as otherwise
indicated, will be by majority vote,
subject to any required approval of the
Commission. Disputes arising in
connection with the operation of the
ORSA Plan will be resolved by the
Policy Committee acting by majority
vote.
B. Delegation of Functions
The ORSA Plan permits the
Exchanges, as and to the extent
determined by the Policy Committee, to
delegate all or part of the regulatory and
surveillance functions under the ORSA
Plan (other than the Policy Committee’s
own functions) to one or more
Exchanges or other self-regulatory
organizations. The Policy Committee
has determined to delegate the
operation of the surveillance and
investigative facility contemplated by
the ORSA Plan to CBOE. The Exchanges
have entered into a Regulatory Services
Agreement (‘‘RSA’’) with CBOE, as
service provider, pursuant to which
CBOE will perform certain regulatory
and surveillance functions under the
ORSA Plan and use its automated
insider trading surveillance system to
perform these functions on behalf of the
Exchanges.
Although CBOE will be delegated
responsibility for these activities, the
ORSA Plan specifically provides that
each Exchange will remain responsible
for the regulation of its market and for
bringing enforcement proceedings
whenever it appears that persons subject
to its regulatory jurisdiction may have
violated the Exchange’s own rules, the
Act, or the rules of the Commission
thereunder.
C. Review of Service Provider
The Policy Committee must
periodically, but not less frequently
than annually, review the performance
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19:47 Jun 13, 2006
Jkt 208001
of persons to whom regulatory and
surveillance activities have been
delegated under the ORSA Plan. The
Policy Committee must evaluate
whether such activities have been
performed by the service provider in a
reasonably acceptable manner
consistent with any contract governing
the performance of such services and
whether the costs of such services are
reasonable. If the Policy Committee
determines that the performance of
delegated activities is not reasonably
acceptable or that the costs are
unreasonable, the Policy Committee
may terminate the delegation of
activities to such persons subject to
applicable contractual terms.
D. Potential Insider Trading Violations
When in the course of performing
regulatory and surveillance functions
the Exchanges acting under the ORSA
Plan, or a self-regulatory organization to
whom such functions have been
delegated, obtain information indicating
that there may have been an insider
trading violation by members or
associated persons of one or more of the
Exchanges, the Exchanges or such
delegatee will promptly inform all such
parties of the relevant facts. The
Exchanges acting jointly will not have
authority to take disciplinary action
against members or associated persons
of any individual Exchange. All such
authority will remain that of the
Exchanges acting in their individual
capacities.
E. Other Regulatory or Surveillance
Functions
The ORSA Plan permits the
Exchanges to provide for the joint
performance of any other regulatory or
surveillance functions or activities that
the Exchanges determine to bring within
the scope of the ORSA Plan, but any
determination to expand the functions
or activities under the ORSA Plan
would require an amendment to the
ORSA Plan subject to Commission
approval and the requirements for
amendments described below.
F. Allocation of Costs
The costs under the ORSA Plan to be
allocated among the Exchanges will
consist of all costs duly incurred by any
Exchange as a direct result of its
performing regulatory or surveillance
functions under the ORSA Plan,
together with any amounts charged
under the ORSA Plan (or charged to any
Exchange authorized to incur such
charges under the ORSA Plan) by any
other person for goods or services
provided under the ORSA Plan. The
costs incurred by CBOE in developing
PO 00000
Frm 00101
Fmt 4703
Sfmt 4703
the insider trading surveillance system
to be used by CBOE as the ORSA Plan
service provider will be borne by CBOE
without reimbursement. Costs incurred
by CBOE in maintaining and upgrading
its system going forward will be
allocated among the Exchanges,
provided that such costs have been
authorized by the Exchanges.
Costs in each calendar quarter will be
allocated among the Exchanges in
accordance with a three element
formula: (1) Fifty percent of costs will
be allocated equally among the
Exchanges (with a pro rata adjustment
for any exchange that was not an
Exchange for the entire calendar
quarter); (ii) twenty-five percent of costs
will be allocated among the Exchanges
in accordance with their respective
contract volume market shares during
the calendar quarter; and (iii) twentyfive percent of costs will be allocated
among the Exchanges in accordance
with their respective numbers of classes
of securities options traded at any time
during the calendar quarter.
G. New Parties to the ORSA Plan;
Participation Fee
Any other self-regulatory organization
that maintains a market for the trading
of securities options in accordance with
rules approved by the Commission may
become a party to the ORSA Plan,
subject to agreeing to the terms and
conditions of the ORSA Plan, agreeing
to the terms and conditions of any
contract pursuant to which the parties
to the ORSA Plan have delegated
regulatory and surveillance functions
under the ORSA Plan, and payment of
a participation fee.
The participation fee will be an
amount determined by a majority of the
Exchanges to be fair and reasonable
compensation for the costs incurred in
developing and maintaining the
facilities used under the ORSA Plan and
in providing for participation by the
new party. In determining the amount of
the participation fee, the Exchanges
must consider the following factors:
1. The portion of costs previously
paid for the development, expansion
and maintenance of facilities used
under the ORSA Plan which, under
generally accepted accounting
principles, would have been treated as
capital expenditures and would have
been amortized over the five years
preceding the admission of the new
party;
2. an assessment of costs incurred and
to be incurred, if any, to accommodate
the new party, which are not otherwise
required to be paid by the new party;
and
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Federal Register / Vol. 71, No. 114 / Wednesday, June 14, 2006 / Notices
3. previous participation fees paid by
other new parties.
If the Exchanges and a new party cannot
agree on the amount of the participation
fee, the matter will be subject to review
by the Commission.
A self-regulatory organization that
does not maintain a market for the
trading of securities options may
become a party to the ORSA Plan, and
a self-regulatory organization that ceases
to maintain such a market may continue
to be a party to the ORSA Plan, only if
permitted by a majority of the other
parties.
H. Term and Termination
The ORSA Plan will remain in effect
for so long as there are two or more
parties to the ORSA Plan. Any Exchange
may withdraw from the ORSA Plan at
any time on not less than six months
prior written notice to each of the other
parties. Any Exchange withdrawing
from the ORSA Plan will remain liable
for its proportionate share of costs
allocated to it for the period during
which it was a party, but it will have no
further obligations under the ORSA Plan
or to any of the other Exchanges with
respect to the period following the
effectiveness of its withdrawal. The
right of an Exchange to participate in
joint regulatory services under the
ORSA Plan is not transferable without
the consent of the other Exchanges.
I. Amendments
The ORSA Plan may be amended by
the affirmative vote of all of the parties,
provided that the provisions pertaining
to the allocation of costs may be
amended by the affirmative vote of not
less than two-thirds of the parties,
subject in each case to any required
approval of the Commission.
rwilkins on PROD1PC63 with NOTICES
III. Discussion
In section 11A of the Act,7 Congress
directed the Commission to facilitate the
development of a national market
system consistent with the objectives of
the Act. In particular, section
11A(a)(3)(B) of the Act 8 authorizes the
Commission ‘‘by rule or order, to
authorize or require self-regulatory
organizations to act jointly with respect
to matters as to which they share
authority under this title in planning,
developing, operating, or regulatory a
national market system (or a subsystem
thereof) or one or more facilities
thereof.’’ Rule 608 under the Act
establishes the procedures for filing,
amending, and approving national
market system plans.9 Pursuant to
paragraph (b)(2) of Rule 608, the
Commission’s approval of a national
market system plan is conditioned upon
a finding that the proposed plan ‘‘is
necessary or appropriate in the public
interest, for the protection of investors
and the maintenance of fair and orderly
markets, to remove impediments to, and
perfect the mechanisms of, a national
market system, or otherwise in
furtherance of the purposes of the
Act.’’ 10 After carefully considering the
ORSA Plan, the Commission finds that
the ORSA Plan is appropriate in the
public interest, for the protection of
investors and the maintenance of fair
and orderly markets, to remove
impediments to, and perfect the
mechanisms of, a national market
system, and in furtherance of the
purposes of the Act. In particular, the
Commission finds that the ORSA Plan is
consistent with Section 11A of the
Act 11 and Rule 608 thereunder.12
The Commission believes that the
ORSA Plan, which would permit the
Exchanges to pool their resources for the
regulation and surveillance of insider
trading, should allow the Exchanges to
more efficiently implement an enhanced
surveillance program for the detection
of insider trading, while eliminating
redundant effort. In this regard, the
Commission believes that the ORSA
Plan should promote more effective
regulation and surveillance of insider
trading across all the options markets
maintained by the Exchanges.
In approving the ORSA Plan, the
Commission is authorizing the
Exchanges to work together according to
the procedures provided for under the
ORSA Plan. The Commission is not
approving or disapproving the terms of
the RSA, nor is the Commission passing
judgment on the surveillance
performance of CBOE or the other
Exchanges, acting individually or jointly
under the ORSA Plan, or on the quality
of their surveillance standards or any
other parameters used for regulatory and
surveillance functions. The ultimate
responsibility and primary liability for
self-regulatory failures remains with
each Exchange, and the ORSA Plan does
not relieve an Exchange of its
obligations as a self-regulatory
organization under the Act. In this
regard, the ORSA Plan specifically
provides that each Exchange remains
responsible to enforce compliance by
persons subject to its regulatory
jurisdiction with its own rules, the Act,
and the rules and regulations
thereunder.
IV. Conclusion
It is hereby ordered, pursuant to
section 11A of the Act,13 and Rule 608
thereunder,14 that the ORSA Plan
submitted by the Exchanges is
approved.
By the Commission.
Jill M. Peterson
Assistant Secretary.
[FR Doc. 06–5375 Filed 6–13–06; 8:45 am]
BILLING CODE 8010–01–M
SECURITIES AND EXCHANGE
COMMISSION
[Release NO. 34–53950; File No. SR–Amex–
2006–54]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Order Granting
Accelerated Approval to a Proposed
Rule Change To Extend the Pilot
Program for the Quote Assist Feature
in the ANTE System
June 6, 2006.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on May 23,
2006, the American Stock Exchange LLC
(‘‘Amex’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been
substantially prepared by the Exchange.
The Commission is publishing this
notice and order to solicit comments on
the proposed rule change from
interested persons and to grant
accelerated approval to the proposed
rule change.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Amex Rule 958A—ANTE(e) to extend
until April 30, 2007, its pilot program
implementing a quote-assist feature in
the Exchange’s ANTE system (‘‘Pilot
Program’’).
The text of the proposed rule change
is available at the Exchange’s Web site
(https://www.amex.com/), the Exchange’s
principal office, and the Commission’s
Public Reference Room.
8 15
U.S.C. 78k–1.
U.S.C. 78k–1(a)(3)(B).
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19:47 Jun 13, 2006
Jkt 208001
9 17
13 15
10 17
7 15
CFR 242.608.
CFR 242.608(b)(2).
11 15 U.S.C. 78k–1
12 17 CFR 242.608
14 17
PO 00000
Frm 00102
Fmt 4703
U.S.C. 78k–1.
CFR 242.608.
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
Sfmt 4703
34401
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14JNN1
]]>Agencies
[Federal Register Volume 71, Number 114 (Wednesday, June 14, 2006)]
[Notices]
[Pages 34399-34401]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-5375]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53940; File No. 4-516]
Joint Industry Plan; Order Approving Options Regulatory
Surveillance Authority Plan by the American Stock Exchange LLC, Boston
Stock Exchange, Inc., Chicago Board Options Exchange, Incorporated,
International Securities Exchange, Inc., Pacific Exchange, Inc. (n/k/a
NYSE Arca, Inc.) and Philadelphia Stock Exchange, Inc.
June 5, 2006.
I. Introduction
On January 31, 2006, pursuant to Rule 608 under the Securities
Exchange Act of 1934 (``Act''),\1\ the American Stock Exchange LLC,
Boston Stock Exchange, Inc., Chicago Board Options Exchange,
Incorporated (``CBOE''), International Securities Exchange, Inc.,
Pacific Exchange, Inc. (n/k/a NYSE Arca, Inc.) \2\ and Philadelphia
Stock Exchange, Inc. (collectively, ``Exchanges'') filed with the
Securities and Exchange Commission (``Commission'') the Options
Regulatory Surveillance Authority Plan, a plan providing for the joint
surveillance, investigation and detection of insider trading on the
markets maintained by the Exchanges (``ORSA Plan'').\3\
---------------------------------------------------------------------------
\1\ 17 CFR 242.608
\2\ On March 6, 2006, the Pacific Exchange, Inc. (``PCX'') filed
with the Commission a proposed rule change, which was effective upon
filing, to change the name of PCX, as well as several other related
entities, to reflect the recent acquisition of PCX Holdings, Inc.,
the parent company of PCX, by Archipelago Holdings, Inc.
(``Archipelago'') and the merger of the New York Stock Exchange,
Inc. with Archipelago. See File No. SR-PCX-2006-24. All references
herein have been changed to reflect these transactions.
\3\ The Exchanges initially filed the ORSA Plan with the
Commission on May 5, 2005. The Exchanges filed revised versions of
the ORSA Plan on July 6, 2005 and September 29, 2005.
---------------------------------------------------------------------------
On April 10, 2006, a detailed summary of the ORSA Plan was
published for comment in the Federal Register.\4\ The Commission
received no comments on the ORSA Plan. This Order approves the ORSA
Plan as proposed pursuant to section 11A of the Act \5\ and Rule 608
thereunder.\6\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 53589 (April 4,
2006), 71 FR 18120. The full text of the plan was made available to
interested persons on the Commission's Web site.
\5\ 15 U.S.C. 78k-1.
\6\ 17 CFR 242.608
---------------------------------------------------------------------------
II. Summary of the ORSA Plan
The purpose of the ORSA Plan is to permit the Exchanges to act
jointly in the administration, operation, and maintenance of a
regulatory system for the surveillance, investigation, and detection of
the unlawful use of undisclosed, material information in trading on one
or more of their markets. By sharing the costs of these regulatory
activities and by sharing the regulatory information generated under
the ORSA Plan, the Exchanges believe they will be able to enhance the
effectiveness and efficiency with which they regulate their respective
markets and the national market system for options. The Exchanges also
believe that the ORSA Plan will avoid duplication of certain regulatory
efforts on the part of the Exchanges.
A. Policy Committee
The ORSA Plan provides for the establishment of a Policy Committee,
on which each Exchange will have one representative and one vote. The
Policy Committee is responsible for overseeing the operation of the
ORSA Plan and for making all policy decisions pertaining to the ORSA
Plan, including, among other things, the following:
1. Determining the extent to which regulatory, surveillance, and
[[Page 34400]]
investigative functions will be conducted on behalf of the Exchanges;
2. Making all determinations pertaining to contracts with (i)
persons who provide goods and services under the ORSA Plan, including
parties to the ORSA Plan who provide such goods and services, and (ii)
parties to the ORSA Plan, and other self-regulatory organizations who
engage in regulatory, surveillance, or investigative activities under
the ORSA Plan;
3. Reviewing and approving surveillance standards and other
parameters to be used by self-regulatory organizations who perform
regulatory and surveillance functions under the ORSA Plan; and
4. Determining budgetary and financial matters.
All decisions by the Policy Committee, except as otherwise
indicated, will be by majority vote, subject to any required approval
of the Commission. Disputes arising in connection with the operation of
the ORSA Plan will be resolved by the Policy Committee acting by
majority vote.
B. Delegation of Functions
The ORSA Plan permits the Exchanges, as and to the extent
determined by the Policy Committee, to delegate all or part of the
regulatory and surveillance functions under the ORSA Plan (other than
the Policy Committee's own functions) to one or more Exchanges or other
self-regulatory organizations. The Policy Committee has determined to
delegate the operation of the surveillance and investigative facility
contemplated by the ORSA Plan to CBOE. The Exchanges have entered into
a Regulatory Services Agreement (``RSA'') with CBOE, as service
provider, pursuant to which CBOE will perform certain regulatory and
surveillance functions under the ORSA Plan and use its automated
insider trading surveillance system to perform these functions on
behalf of the Exchanges.
Although CBOE will be delegated responsibility for these
activities, the ORSA Plan specifically provides that each Exchange will
remain responsible for the regulation of its market and for bringing
enforcement proceedings whenever it appears that persons subject to its
regulatory jurisdiction may have violated the Exchange's own rules, the
Act, or the rules of the Commission thereunder.
C. Review of Service Provider
The Policy Committee must periodically, but not less frequently
than annually, review the performance of persons to whom regulatory and
surveillance activities have been delegated under the ORSA Plan. The
Policy Committee must evaluate whether such activities have been
performed by the service provider in a reasonably acceptable manner
consistent with any contract governing the performance of such services
and whether the costs of such services are reasonable. If the Policy
Committee determines that the performance of delegated activities is
not reasonably acceptable or that the costs are unreasonable, the
Policy Committee may terminate the delegation of activities to such
persons subject to applicable contractual terms.
D. Potential Insider Trading Violations
When in the course of performing regulatory and surveillance
functions the Exchanges acting under the ORSA Plan, or a self-
regulatory organization to whom such functions have been delegated,
obtain information indicating that there may have been an insider
trading violation by members or associated persons of one or more of
the Exchanges, the Exchanges or such delegatee will promptly inform all
such parties of the relevant facts. The Exchanges acting jointly will
not have authority to take disciplinary action against members or
associated persons of any individual Exchange. All such authority will
remain that of the Exchanges acting in their individual capacities.
E. Other Regulatory or Surveillance Functions
The ORSA Plan permits the Exchanges to provide for the joint
performance of any other regulatory or surveillance functions or
activities that the Exchanges determine to bring within the scope of
the ORSA Plan, but any determination to expand the functions or
activities under the ORSA Plan would require an amendment to the ORSA
Plan subject to Commission approval and the requirements for amendments
described below.
F. Allocation of Costs
The costs under the ORSA Plan to be allocated among the Exchanges
will consist of all costs duly incurred by any Exchange as a direct
result of its performing regulatory or surveillance functions under the
ORSA Plan, together with any amounts charged under the ORSA Plan (or
charged to any Exchange authorized to incur such charges under the ORSA
Plan) by any other person for goods or services provided under the ORSA
Plan. The costs incurred by CBOE in developing the insider trading
surveillance system to be used by CBOE as the ORSA Plan service
provider will be borne by CBOE without reimbursement. Costs incurred by
CBOE in maintaining and upgrading its system going forward will be
allocated among the Exchanges, provided that such costs have been
authorized by the Exchanges.
Costs in each calendar quarter will be allocated among the
Exchanges in accordance with a three element formula: (1) Fifty percent
of costs will be allocated equally among the Exchanges (with a pro rata
adjustment for any exchange that was not an Exchange for the entire
calendar quarter); (ii) twenty-five percent of costs will be allocated
among the Exchanges in accordance with their respective contract volume
market shares during the calendar quarter; and (iii) twenty-five
percent of costs will be allocated among the Exchanges in accordance
with their respective numbers of classes of securities options traded
at any time during the calendar quarter.
G. New Parties to the ORSA Plan; Participation Fee
Any other self-regulatory organization that maintains a market for
the trading of securities options in accordance with rules approved by
the Commission may become a party to the ORSA Plan, subject to agreeing
to the terms and conditions of the ORSA Plan, agreeing to the terms and
conditions of any contract pursuant to which the parties to the ORSA
Plan have delegated regulatory and surveillance functions under the
ORSA Plan, and payment of a participation fee.
The participation fee will be an amount determined by a majority of
the Exchanges to be fair and reasonable compensation for the costs
incurred in developing and maintaining the facilities used under the
ORSA Plan and in providing for participation by the new party. In
determining the amount of the participation fee, the Exchanges must
consider the following factors:
1. The portion of costs previously paid for the development,
expansion and maintenance of facilities used under the ORSA Plan which,
under generally accepted accounting principles, would have been treated
as capital expenditures and would have been amortized over the five
years preceding the admission of the new party;
2. an assessment of costs incurred and to be incurred, if any, to
accommodate the new party, which are not otherwise required to be paid
by the new party; and
[[Page 34401]]
3. previous participation fees paid by other new parties.
If the Exchanges and a new party cannot agree on the amount of the
participation fee, the matter will be subject to review by the
Commission.
A self-regulatory organization that does not maintain a market for
the trading of securities options may become a party to the ORSA Plan,
and a self-regulatory organization that ceases to maintain such a
market may continue to be a party to the ORSA Plan, only if permitted
by a majority of the other parties.
H. Term and Termination
The ORSA Plan will remain in effect for so long as there are two or
more parties to the ORSA Plan. Any Exchange may withdraw from the ORSA
Plan at any time on not less than six months prior written notice to
each of the other parties. Any Exchange withdrawing from the ORSA Plan
will remain liable for its proportionate share of costs allocated to it
for the period during which it was a party, but it will have no further
obligations under the ORSA Plan or to any of the other Exchanges with
respect to the period following the effectiveness of its withdrawal.
The right of an Exchange to participate in joint regulatory services
under the ORSA Plan is not transferable without the consent of the
other Exchanges.
I. Amendments
The ORSA Plan may be amended by the affirmative vote of all of the
parties, provided that the provisions pertaining to the allocation of
costs may be amended by the affirmative vote of not less than two-
thirds of the parties, subject in each case to any required approval of
the Commission.
III. Discussion
In section 11A of the Act,\7\ Congress directed the Commission to
facilitate the development of a national market system consistent with
the objectives of the Act. In particular, section 11A(a)(3)(B) of the
Act \8\ authorizes the Commission ``by rule or order, to authorize or
require self-regulatory organizations to act jointly with respect to
matters as to which they share authority under this title in planning,
developing, operating, or regulatory a national market system (or a
subsystem thereof) or one or more facilities thereof.'' Rule 608 under
the Act establishes the procedures for filing, amending, and approving
national market system plans.\9\ Pursuant to paragraph (b)(2) of Rule
608, the Commission's approval of a national market system plan is
conditioned upon a finding that the proposed plan ``is necessary or
appropriate in the public interest, for the protection of investors and
the maintenance of fair and orderly markets, to remove impediments to,
and perfect the mechanisms of, a national market system, or otherwise
in furtherance of the purposes of the Act.'' \10\ After carefully
considering the ORSA Plan, the Commission finds that the ORSA Plan is
appropriate in the public interest, for the protection of investors and
the maintenance of fair and orderly markets, to remove impediments to,
and perfect the mechanisms of, a national market system, and in
furtherance of the purposes of the Act. In particular, the Commission
finds that the ORSA Plan is consistent with Section 11A of the Act \11\
and Rule 608 thereunder.\12\
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\7\ 15 U.S.C. 78k-1.
\8\ 15 U.S.C. 78k-1(a)(3)(B).
\9\ 17 CFR 242.608.
\10\ 17 CFR 242.608(b)(2).
\11\ 15 U.S.C. 78k-1
\12\ 17 CFR 242.608
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The Commission believes that the ORSA Plan, which would permit the
Exchanges to pool their resources for the regulation and surveillance
of insider trading, should allow the Exchanges to more efficiently
implement an enhanced surveillance program for the detection of insider
trading, while eliminating redundant effort. In this regard, the
Commission believes that the ORSA Plan should promote more effective
regulation and surveillance of insider trading across all the options
markets maintained by the Exchanges.
In approving the ORSA Plan, the Commission is authorizing the
Exchanges to work together according to the procedures provided for
under the ORSA Plan. The Commission is not approving or disapproving
the terms of the RSA, nor is the Commission passing judgment on the
surveillance performance of CBOE or the other Exchanges, acting
individually or jointly under the ORSA Plan, or on the quality of their
surveillance standards or any other parameters used for regulatory and
surveillance functions. The ultimate responsibility and primary
liability for self-regulatory failures remains with each Exchange, and
the ORSA Plan does not relieve an Exchange of its obligations as a
self-regulatory organization under the Act. In this regard, the ORSA
Plan specifically provides that each Exchange remains responsible to
enforce compliance by persons subject to its regulatory jurisdiction
with its own rules, the Act, and the rules and regulations thereunder.
IV. Conclusion
It is hereby ordered, pursuant to section 11A of the Act,\13\ and
Rule 608 thereunder,\14\ that the ORSA Plan submitted by the Exchanges
is approved.
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\13\ 15 U.S.C. 78k-1.
\14\ 17 CFR 242.608.
By the Commission.
Jill M. Peterson
Assistant Secretary.
[FR Doc. 06-5375 Filed 6-13-06; 8:45 am]
BILLING CODE 8010-01-M
