Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d-2; Notice of Filing of Amendment to the Plan for the Allocation of Regulatory Responsibilities Among the American Stock Exchange, LLC, the Boston Stock Exchange, Inc., the Chicago Board Options Exchange, Inc., the International Securities Exchange, LLC, the National Association of Securities Dealers, Inc., the New York Stock Exchange, LLC, the NYSE Arca, Inc., and the Philadelphia Stock Exchange, Inc., 3882-3887 [E7-1220]

Download as PDF 3882 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Notices sroberts on PROD1PC70 with NOTICES under which 225,000 shares of applicant’s common stock remain for issuance, representing 0.2% of shares of applicant’s common stock outstanding as of December 31, 2006. The 320,000 shares of applicant’s common stock that may be issued to Non-employee Directors under the Plan represent 0.2% of shares of applicant’s common stock outstanding as of December 31, 2006. Therefore, the maximum number of applicant’s voting securities that would result from the exercise of all outstanding options issued and all options issuable to directors, officers, and employees under the Other Plans and the Plan would be 17,535, 212 shares of applicant’s common stock, or approximately 11.9% of shares of applicant’s common stock outstanding as of December 31, 2006. Applicant has no outstanding warrants, options, or rights to purchase its voting securities, other than the options granted or to be granted to its directors, officers, and employees under the Other Plans and the Plan. Applicant’s Legal Analysis 1. Section 63(3) of the Act permits a BDC to sell its common stock at a price below current net asset value upon the exercise of any option issued in accordance with section 61(a)(3). Section 61(a)(3)(B) provides, in pertinent part, that a BDC may issue to its non-employee directors options to purchase its voting securities pursuant to an executive compensation plan, provided that: (a) The options expire by their terms within ten years; (b) the exercise price of the options is not less than the current market value of the underlying securities at the date of the issuance of the options, or if no market exists, the current net asset value of the voting securities; (c) the proposal to issue the options is authorized by the BDC’s shareholders, and is approved by order of the Commission upon application; (d) the options are not transferable except for disposition by gift, will or intestacy; (e) no investment adviser of the BDC receives any compensation described in section 205(a)(1) of the Investment Advisers Act of 1940, except to the extent permitted by clause (b)(1) or (b)(2) of that section; and (f) the BDC does not have a profitsharing plan as described in section 57(n) of the Act. 2. In addition, section 61(a)(3) provides that the amount of the BDC’s voting securities that would result from the exercise of all outstanding warrants, options, and rights at the time of issuance may not exceed 25% of the BDC’s outstanding voting securities, except that if the amount of voting VerDate Aug<31>2005 17:19 Jan 25, 2007 Jkt 211001 securities that would result from the exercise of all outstanding warrants, options, and rights issued to the BDC’s directors, officers, and employees pursuant to an executive compensation plan would exceed 15% of the BDC’s outstanding voting securities, then the total amount of voting securities that would result from the exercise of all outstanding warrants, options, and rights at the time of issuance will not exceed 20% of the outstanding voting securities of the BDC. 3. Applicant represents that its proposal to grant certain stock options to Non-employee Directors under the Plan meets all the requirements of section 61(a)(3)(B). Applicant states that the Board is actively involved in the oversight of applicant’s affairs and that it relies extensively on the judgment and experience of its Board. In addition to their duties as Board members generally, applicant states that the Nonemployee Directors provide guidance and advice on operational issues, underwriting policies, credit policies, asset valuation and strategic direction, as well as serving on committees. Applicant believes that the availability of options under the Plan will provide significant at-risk incentives to Nonemployee Directors to remain on the Board and devote their best efforts to ensure applicant’s success. Applicant states that the options will provide a means for the Non-employee Directors to increase their ownership interests in applicant, thereby ensuring close identification of their interests with those of applicant and its stockholders. Applicant asserts that by providing incentives such as options, applicant will be better able to maintain continuity in the Board’s membership and to attract and retain the highly experienced, successful and dedicated business and professional people who are critical to applicant’s success as a BDC. 4. Applicant states that the maximum amount of voting securities that would result from the exercise of all outstanding options issued to the directors, officers, and employees under the Other Plans and the Plan would be 14,258,728 shares of applicant’s common stock, or approximately 9.7% of applicant’s shares of common stock outstanding as of December 31, 2006, which is below the percentage limitations in the Act. Applicant asserts that, given the relatively small amount of common stock issuable to Nonemployee Directors upon their exercise of options under the Plan, the exercise of such options would not, absent extraordinary circumstances, have a substantial dilutive effect on the net PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 asset value of applicant’s common stock. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Florence E. Harmon, Deputy Secretary. [FR Doc. E7–1228 Filed 1–25–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55145; File No. S7–966] Program for Allocation of Regulatory Responsibilities Pursuant to Rule 17d– 2; Notice of Filing of Amendment to the Plan for the Allocation of Regulatory Responsibilities Among the American Stock Exchange, LLC, the Boston Stock Exchange, Inc., the Chicago Board Options Exchange, Inc., the International Securities Exchange, LLC, the National Association of Securities Dealers, Inc., the New York Stock Exchange, LLC, the NYSE Arca, Inc., and the Philadelphia Stock Exchange, Inc. January 22, 2007. Pursuant to Sections 17(d) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) and Rule 17d–2 thereunder,2 notice is hereby given that on December 5, 2006, the American Stock Exchange, LLC (‘‘Amex’’), the Boston Stock Exchange, Inc. (‘‘BSE’’), the Chicago Board Options Exchange, Inc. (‘‘CBOE’’), the International Securities Exchange, LLC (‘‘ISE’’), the National Association of Securities Dealers, Inc. (‘‘NASD’’), the New York Stock Exchange, LLC (‘‘NYSE’’), the NYSE Arca, Inc. (‘‘PCX’’), and the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’) (collectively the ‘‘SRO participants’’) filed with the Securities and Exchange Commission (‘‘Commission’’) an amendment to their January 14, 2004 plan for the allocation of regulatory responsibility. I. Introduction Section 19(g)(1) of the Act,3 among other things, requires every national securities exchange and registered securities association (‘‘SRO’’) to examine for, and enforce, compliance by its members and persons associated with its members with the Act, the rules and regulations thereunder, and the SRO’s own rules, unless the SRO is relieved of this responsibility pursuant to Section 17(d) or 19(g)(2) 4 of the Act. 1 15 U.S.C. 78q(d). CFR 240.17d–2. 3 15 U.S.C. 78s(g)(1). 4 15 U.S.C. 78s(g)(2). 2 17 E:\FR\FM\26JAN1.SGM 26JAN1 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Notices sroberts on PROD1PC70 with NOTICES Without this relief, the statutory obligation of each individual SRO could result in a pattern of multiple examinations of broker-dealers that maintain memberships in more than one SRO (‘‘common members’’). This regulatory duplication would add unnecessary expenses for common members and their SROs. Section 17(d)(1) of the Act was intended, in part, to eliminate unnecessary multiple examinations and regulatory duplication.5 With respect to a common member, Section 17(d)(1) authorizes the Commission, by rule or order, to relieve an SRO of the responsibility to receive regulatory reports, to examine for and enforce compliance with applicable statutes, rules and regulations, or to perform other specified regulatory functions. To implement Section 17(d)(1), the Commission adopted two rules: Rule 17d–1 and Rule 17d–2 under the Act.6 Rule 17d–1, adopted on April 20, 1976,7 authorizes the Commission to name a single SRO as the designated examining authority (‘‘DEA’’) to examine common members for compliance with the financial responsibility requirements imposed by the Act, or by Commission or SRO rules. When an SRO has been named as a common member’s DEA, all other SROs to which the common member belongs are relieved of the responsibility to examine the firm for compliance with applicable financial responsibility rules. On its face, Rule 17d–1 deals only with an SRO’s obligations to enforce broker-dealers’ compliance with the financial responsibility requirements. Rule 17d–1 does not relieve an SRO from its obligation to examine a common member for compliance with its own rules and provisions of the federal securities laws governing matters other than financial responsibility, including sales practices, and trading activities and practices. To address regulatory duplication in these other areas, on October 28, 1976, the Commission adopted Rule 17d–2 under the Act.8 This rule permits SROs to propose joint plans allocating regulatory responsibilities with respect to common members. Under paragraph (c) of Rule 17d–2, the Commission may declare such a plan effective if, after 5 See Securities Act Amendments of 1975, Report of the Senate Committee on Banking, Housing, and Urban Affairs to Accompany S. 249, S. Rep. No. 94– 75, 94th Cong., 1st Session. 32 (1975). 6 17 CFR 240.17d–1 and 17 CFR 240.17d–2. 7 See Securities Exchange Act Release No. 12352 (April 20, 1976), 41 FR 18809 (May 3, 1976). 8 See Securities Exchange Act Release No. 12935 (October 28, 1976), 41 FR 49093 (November 8, 1976). VerDate Aug<31>2005 17:19 Jan 25, 2007 Jkt 211001 providing for notice and comment, it determines that the plan is necessary or appropriate in the public interest and for the protection of investors, to foster cooperation and coordination among the SROs, to remove impediments to and foster the development of a national market system and a national clearance and settlement system, and in conformity with the factors set forth in Section 17(d) of the Act. Commission approval of a plan filed pursuant to Rule 17d–2 relieves an SRO of those regulatory responsibilities allocated by the plan to another SRO. II. The Plan On September 8, 1983, the Commission approved the SRO participants’ plan for allocating regulatory responsibilities pursuant to Rule 17d–2.9 On May 23, 2000, the Commission approved an amendment to the plan that added the ISE as a participant.10 On November 8, 2002, the Commission approved another amendment that replaced the original plan in its entirety and, among other things, allocated regulatory responsibilities among all the participants in a more equitable manner.11 On February 5, 2004, the parties submitted an amendment to the plan, primarily to include the BSE, which was establishing a new options trading facility to be known as the Boston Options Exchange (‘‘BOX’’), as an SRO participant.12 The plan reduces regulatory duplication for a large number of firms currently members of two or more of the SRO participants by allocating regulatory responsibility for certain options-related sales practice matters to one of the SRO participants. Generally, under the current plan, the SRO participant responsible for conducting options-related sales practice examinations of a firm, and investigating options-related customer complaints and terminations for cause of associated persons of that firm, is known as the firm’s ‘‘Designated Options Examining Authority’’ (‘‘DOEA’’). Pursuant to the current plan, 9 See Securities Exchange Act Release No. 20158 (September 8, 1983), 48 FR 41256 (September 14, 1983). 10 See Securities Exchange Act Release No. 42816 (May 23, 2000), 65 FR 24759 (May 31, 2000). This Amendment also updated the corporate names of the Amex, the Midwest Stock Exchange (now known as the Chicago Stock Exchange, Inc.), and the Pacific Stock Exchange Incorporated (now known as the NYSE Arca, Inc.). 11 See Securities Exchange Act Release No. 46800 (November 8, 2002), 67 FR 69774 (November 19, 2002). 12 See Securities Exchange Act Release No. 49197 (February 5, 2004), 69 FR 7046. (February 12, 2004). PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 3883 any other SRO of which the firm is a member is relieved of these responsibilities during the period the firm is assigned to a DOEA. III. Proposed Amendment to the Plan On December 5, 2006, the parties submitted a proposed amendment to the plan. The purpose of the amendment is to: (i) Provide that NASD and NYSE will be DOEAs under the plan, (ii) provide that the Designated Examination Authority pursuant to Commission Rule 17d–1 under the Act for a broker-dealer that is a member of more than one SRO participant (but not a member of the NASD or the NYSE) shall perform the regulatory responsibility under the agreement as if such DEA were the DOEA, (iii) to incorporate a more formal procedure for updating the list of common rules, and (iv) make certain other changes to the plan. The amended agreement replaces the previous agreement in its entirety. The text of the proposed amended 17d–2 plan is as follows (additions are italicized; deletions are bracketed): 13 * * * * * Agreement by and among the American Stock Exchange, LLC, the Boston Stock Exchange, Inc., the Chicago Board Options Exchange, Inc., the International Securities Exchange, [Inc.] LLC, the National Association of Securities Dealers, Inc., the New York Stock Exchange, [Inc.] LLC, the [Pacific Exchange] NYSE Arca Inc., and the Philadelphia Stock Exchange, Inc., Pursuant to Rule 17d–2 under the Securities Exchange Act of 1934. This agreement (‘‘Agreement’’), by and among the American Stock Exchange, LLC, the Boston Stock Exchange, Inc., the Chicago Board Options Exchange, Inc., the International Securities Exchange, [Inc.] LLC, the National Association of Securities Dealers, Inc. (‘‘NASD’’), the New York Stock Exchange, [Inc.]LLC (‘‘NYSE’’), the [Pacific Exchange] NYSE Arca Inc., and the Philadelphia Stock Exchange, Inc., hereinafter collectively referred to as the Participants, is made this [14th] 1st day of [January, 2004] December, 2006, pursuant to the provisions of Rule 17d–2 under the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’), which allows for plans among self-regulatory organizations to allocate regulatory responsibility. This Agreement shall be administered by a committee known as the Options Self-Regulatory Council (the ‘‘Council’’). 13 Changes are marked from the most recent plan approved by the Commission on February 5, 2004. See supra note 12. E:\FR\FM\26JAN1.SGM 26JAN1 sroberts on PROD1PC70 with NOTICES 3884 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Notices Whereas, the Participants are desirous of allocating regulatory responsibilities with respect to [their common members (members of two or more of the Participants)] broker-dealers, and persons associated therewith, that are members FN1 of more than one Participant (the ‘‘Common Members’’) and conduct a public business for compliance with [common rules] Common Rules (as hereinafter defined) relating to the conduct by broker-dealers of accounts for listed options [or], index warrants, currency index warrants and currency warrants (collectively, ‘‘Covered Securities’’); and Whereas, the Participants are desirous of executing a plan for this purpose pursuant to the provisions of Rule 17d– 2 and filing such plan with the Securities and Exchange Commission (‘‘SEC’’ or the ‘‘Commission’’) for its approval; Now, therefore, in consideration of the mutual covenants contained hereafter, the Participants agree as follows: I. [Except as otherwise provided herein,]As used herein the term Designated Options Examining Authority (‘‘DOEA’’) shall mean the NASD and NYSE insofar as each [Participant] shall [assume] perform Regulatory Responsibility (as hereinafter defined) for its broker-dealer members that also are [both (i)] members of [more than one] another Participant [(hereinafter the ‘‘Common Members’’) and (ii)],and allocated to it in accordance with the terms hereof. [For purposes of this Agreement, a Participant shall be considered to be the Designated Options Examining Authority (‘‘DOEA’’) of each Common Member allocated to it.] The Designated Examination Authority (‘‘DEA’’) pursuant to SEC Rule 17d–1 under the Securities Exchange Act (‘‘Rule 17d–1’’) for a broker-dealer that is a member of more than one Participant (but not a member of a DOEA) shall perform the Regulatory Responsibility under the Agreement as if such DEA were the DOEA. II. As used herein, the term ‘‘Regulatory Responsibility’’ shall mean the [inspection,] examination and enforcement responsibilities relating to compliance by [the] broker-dealers that are members of more than one Participant (the ‘‘Common Members [and persons associated therewith]’’) with the rules of the applicable Participant that are substantially similar to the rules of the other Participants (the FN1 In the case of the Boston Stock Exchange, Inc., members are those persons who are options participants (as defined in BOX Rules). VerDate Aug<31>2005 17:19 Jan 25, 2007 Jkt 211001 ‘‘Common Rules’’) [and the provisions of the Act and the rules and regulations thereunder], insofar as they apply to the conduct of accounts for Covered Securities. [In discharging its Regulatory Responsibility, a DOEA may act directly and perform such responsibilities itself or may make arrangements for the performance of such responsibilities on its behalf by The Options Clearing Corporation, a national securities exchange registered with the SEC under Section 6(a) of the Act or a national securities association registered with the SEC under Section 15A of the Act, but excluding an association registered for the limited purpose of regulating the activities of members who are registered as brokers or dealers in security futures products. Without limiting the foregoing, a non-exhaustive list of the current,] A list of the current Common Rules of each Participant applicable to the conduct of accounts for Covered Securities is attached hereto as Exhibit A. Each year within 30 days of the anniversary date of the commencement of operation of this Agreement, each Participant shall submit in writing to each DOEA and DEA performing as a DOEA for any members of such Participant any revisions to Exhibit A reflecting changes in the rules of the Participant or DOEAs, and confirm that all other rules of the Participant listed in Exhibit A continue to meet the definition of Common Rules as defined in this Agreement. Within 30 days from the date that each DOEA has received revisions and/or confirmation that no change has been made to Exhibit A from all Participants, the DOEAs shall confirm in writing to each Participant whether the rules listed in any updated Exhibit A are Common Rules as defined in this Agreement. Notwithstanding anything herein to the contrary, it is explicitly understood that the term ‘‘Regulatory Responsibility’’ does not include, and each of the Participants shall (unless allocated pursuant to Rule 17d–2 otherwise than under this Agreement) retain full responsibility for, each of the following: (a) [s]Surveillance and enforcement with respect to trading activities or practices involving its own marketplace, including without limitation its rules relating to the rights and obligations of specialists and other market makers; (b) [r]Registration pursuant to its applicable rules of associated persons; (c) [d]Discharge of its duties and obligations as a [Designated Examining Authority pursuant to Rule 17d–1 under the Act]DEA; and; (d) [e]Evaluation of advertising, responsibility for which shall remain with the Participant to which a PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 Common Member submits same for approval[; and (e) any rules of a Participant that are not substantially similar to the rules of all of the other Participants]. III. Apparent violations of another Participant’s rules discovered by a DOEA, but which rules are not within the scope of the discovering DOEA’s Regulatory Responsibility, shall be referred to the relevant Participant for such action as the Participant to which such matter has been referred deems appropriate. Notwithstanding the foregoing, nothing contained herein shall preclude a DOEA in its discretion from requesting that another Participant conduct an enforcement proceeding on a matter for which the requesting DOEA has Regulatory Responsibility. If such other Participants agree[s], the Regulatory Responsibility in such case shall be deemed transferred to the accepting Participant. Each Participant agrees, upon request, to make available promptly all relevant files, records and/ or witnesses necessary to assist another Participant in an investigation or enforcement proceeding. IV. [This Agreement shall be administered by a committee known as the Options Self-Regulatory Council (the ‘‘Council’’).] The Council shall be composed of one representative designated by each of the Participants. Each Participant shall also designate one or more persons as its alternate representative(s). In the absence of the representative of a Participant, such alternate representative shall have the same powers, duties and responsibilities as the representative. Each Participant may, at any time, by notice to the then Chair of the Council, replace its representative and/or its alternate representative on such Council. A majority of the Council shall constitute a quorum and, unless specifically otherwise required, the affirmative vote of a majority of the Council members present (in person, by telephone or by written consent) shall be necessary to constitute action by the Council. From time to time, the Council shall elect one member [of the Council] from the DOEAs to serve as Chair and another from the Council to serve as Vice Chair (to substitute for the Chair in the event of his or her unavailability at a meeting of the Council) [for such term as shall be designated and until his or her successor is duly elected, provided that in the event a Participant replaces a representative who is acting as Chair or Vice Chair, such representative shall also assume the position of Chair or Vice Chair, as applicable]. All notices and other communications for the E:\FR\FM\26JAN1.SGM 26JAN1 sroberts on PROD1PC70 with NOTICES Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Notices Council shall be sent to it in care of the Chair or to each of the representatives. V. The Council shall determine the times and locations of Council meetings, provided that the Chair, acting alone, may also call a meeting of the Council in the event the Chair determines that there is good cause to do so. To the extent reasonably possible, notice of any meeting shall be given at least ten business days prior thereto. Notwithstanding anything herein to the contrary, representatives shall always be given the option of participating in any meeting telephonically at their own expense rather than in person. VI. For the purpose of fulfilling the Participants’ [DOEA] Regulatory Responsibilities, the [Council] DOEAs shall allocate Common Members that conduct a public [options] business in Covered Securities among [Participants] DOEAs from time to time in such manner as the [Council] DOEAs deem[s] appropriate, provided that any such allocation shall be based on the following principles except to the extent affected [Participants] DOEAs consent: (a) The [Council] DOEAs may not allocate a member to a [Participant] DOEA unless the member is a member of that [Participant] DOEA, nor shall any member be allocated to a Participant that is not a DOEA or DEA acting as a DOEA. (b) To the extent practical and desired by the DOEAs, Common Members that conduct a public [options] business in Covered Securities shall be allocated among the [Participants] DOEAs of which they are members in such manner as to equalize as nearly as possible the allocation [among such Participants. For example, if sixteen Common Members that conduct a public options business are members only of three Participants, such members shall be allocated among such Participants such that no Participant is allocated more than six such members and no Participant is allocated less than five such members] of such Common Members among such DOEAs. (c) To the extent practical and desired by the DOEAs, the allocation of Common Members shall take into account the amount of customer activity conducted by each member in Covered Securities such that Common Members shall be allocated among the [Participants] DOEAs of which they are members in such manner as most evenly divides the Common Members with the largest amount of customer activity among such [Participants] DOEAs. (d) [Insofar as practical, it is intended that allocation of Common Members to Participants will be rotated among the applicable Participants and, more VerDate Aug<31>2005 17:19 Jan 25, 2007 Jkt 211001 specifically, that Common Members shall not be allocated to a Participant as to which such member was allocated within the previous two years. (e)] The [Council] DOEAs shall make general reallocations of Common Members from time to time, as it deems appropriate. ([f]e) All Participants shall promptly notify the DOEAs no later than the next scheduled meeting of any change in membership of Common Members. Whenever a Common Member ceases to be a member of its DOEA, [the] that DOEA shall promptly inform the [Council] other DOEAs, which [shall] will promptly review the matter and reallocate the Common Member to [another Participant] the extent practical. ([g]f) A DOEA may request that a Common Member that is allocated to it be reallocated to another [Participant] DOEA by giving thirty days written notice thereof. The [Council] DOEAs, in [its] their discretion[,] may approve such request and reallocate such Common Member to another [Participant] DOEA. ([h]g) All determinations by the [Council] DOEAs with respect to allocations, if there are more than two DOEAs, shall be by the affirmative vote of a majority of the DOEAs of which such firm is a Common Member, otherwise by negotiation and consensus. [Participants that, at the time of such determination, share the applicable Common Member being allocated; a Participant shall not be entitled to vote on any allocation relating to a Common Member unless the Common Member is a member of such Participant. (i) Allocations for calendar years 2004 and 2005 shall also be subject to the provisions set forth at Appendix A hereof, which provisions shall control in the event of any conflict between them and the provisions set forth above.] VII. Each DOEA shall conduct [a routine inspection and] an examination of each Common Member allocated to it on a cycle not less frequently than [determined by the Council] agreed upon by all DOEAs. The other Participants agree that, upon request, relevant information in their respective files relative to a Common Member will be made available to the applicable DOEA. At each meeting of the Council, each [Participant] DOEA shall be prepared to report on the status of its examination program for the previous quarter and any period prior thereto that has not previously been reported to the Council. In the event a DOEA believes it will not be able to complete the examination cycle for its allocated PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 3885 firms, it will so advise the Council. The [Council will] DOEAs may undertake to remedy this situation by reallocating selected firms [and, if necessary,] or lengthening the cycles for selected firms, with the approval of all other DOEAs. VIII. Each [Participant] DOEA will[, upon request,] promptly furnish a copy of the Examination report[, or applicable portions thereof] relating to Covered Securities, of any examination made pursuant to the provisions of this Agreement to each other Participant of which the Common Member examined is a member. IX. [Each Participant will routinely forward to each other Participant of which a Common Member is a member, copies of all communications regarding deficiencies relating to Covered Securities noted in a report of examination conducted by each Participant. If an examination relating to Covered Securities conducted by a Participant reveals no deficiencies, such fact will also, upon request, be communicated to each other Participant of which the Common Member concerned is a member. X.] Each DOEA’s Regulatory Responsibility shall for each Common Member allocated to it include investigations into terminations ‘‘for cause’’ of associated persons relating to Covered Securities, unless such termination is related solely to another Participant’s market. In the latter instance, that Participant to whose market the termination for cause relates shall discharge Regulatory Responsibility with respect to such termination for cause. In connection with a DOEA’s examination, investigation and/or enforcement proceeding regarding a Covered Security-related termination for cause, the other Participants of which the Common Member is a member shall furnish, upon request, copies of all pertinent materials related thereto in their possession. As used in this Section, ‘‘for cause’’ shall include, without limitation, terminations characterized on Form U5 under the label ‘‘Permitted to Resign,’’ ‘‘Discharge’’ or ‘‘Other.’’ X[I]. Each DOEA shall discharge the Regulatory Responsibility for each Common Member allocated to it relative to a Covered Securities-related customer complaintFN2 [or Form U4 filing] unless such complaint [or filing] is uniquely related to another Participant’s market. In the latter instance, the DOEA shall FN2 For purposes of complaints, they can be reported pursuant to Form U4, Form U5 or RE–3 and any amendments thereto. E:\FR\FM\26JAN1.SGM 26JAN1 sroberts on PROD1PC70 with NOTICES 3886 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Notices forward the matter to that Participant to whose market the matter relates, and the latter shall discharge Regulatory Responsibility with respect thereto. If a Participant receives a customer complaint for a Common Member related to a Covered Security for which the Participant is not the DOEA, the Participant shall promptly forward a copy of such complaint to the DOEA. XI[I]. Any written notice required or permitted to be given under this Agreement shall be deemed given if sent by certified mail, return receipt requested, or by a comparable means of electronic communication to each Participant entitled to receipt thereof, to the attention of the Participant’s representative on the Council at the Participant’s then principal office or by e-mail at such address as the representative shall have filed in writing with the Chair. [XIII. The costs incurred by each Participant in discharging its Regulatory Responsibility under this Agreement are not reimbursable. However, any Participants may agree that one or more will compensate the other(s) for costs.] [XIV]XII. The Participants shall notify the Common Members of this Agreement by means of a uniform joint notice approved by the Council. [XV]XIII. This Agreement may be amended in writing duly approved by each Participant. [XVI]XIV. Any of the Participants may manifest its intention to cancel its participation in this Agreement at any time [upon the] by giving [to] the Council [of] written notice thereof at least 90 days prior to the effective date of such cancellation. Upon receipt of such notice the Council shall allocate, in accordance with the provisions of this Agreement, [those] any Common Members for which the petitioning party was the DOEA. Until such time as the Council has completed the reallocation described above, the petitioning Participant shall retain all its rights, privileges, duties and obligations hereunder. XV[II]. The cancellation of its participation in this Agreement by any Participant shall not terminate this Agreement as to the remaining Participants. This Agreement will only terminate following notice to the Commission, in writing, by the then Participants that they intend to terminate the Agreement and the expiration of the applicable notice period. Such notice shall be given at least six months prior to the intended date of termination, provided that in the event a notice of cancellation is received from a Participant that, assuming the effectiveness thereof, would result in VerDate Aug<31>2005 17:19 Jan 25, 2007 Jkt 211001 there being just one remaining member of the Council, notice to the Commission of termination of this Agreement shall be given promptly upon the receipt of such notice of cancellation, which termination shall be effective upon the effectiveness of the cancellation that triggered the notice of termination to the Commission. Exhibit A 14—Participant Rules Applicable to the Conduct of Covered Securities: Rules Enforced Under 17d-2 Agreement Opening Of Accounts No Participant nor the Council nor any of their respective directors, governors, officers, employees or representatives shall be liable to any other Participant in this Agreement for any liability, loss or damage resulting from or claimed to have resulted from any delays, inaccuracies, errors or omissions with respect to the provision of Regulatory Responsibility as provided hereby or for the failure to provide any such Responsibility, except with respect to such liability, loss or damages as shall have been suffered by one or more of the Participants and caused by the willful misconduct of one or more of the other participants or their respective directors, governors, officers, employees or representatives. No warranties, express or implied, are made by any or all of the Participants or the Council with respect to any Regulatory Responsibility to be performed by each of them hereunder. AMEX—Rules 411 [and], 921 and 1101 CBOE—Rule 9.7 ISE—Rule 608 NASD—Rules 2860(b)(16)[;], IM–2860–2 & 2843 NYSE—Rule[s] 721 [and 405] PHLX—Rule 1024(b) [PCX] NYSE Arca—Rule 9.2(a) and Rule 9.18(b) BSE/BOX Supervision—Chapter XI, Section 9 AMEX—Rules 411 [and], 922 and 1104 CBOE—Rule 9.8 ISE—Rule 609 NASD—Rules 2860(b)(20), 2860(b)(17)(B), 2846 & 2849 NYSE—Rule[s] 722[, 342 and 343] PHLX—Rule 1025 [PCX] NYSE Arca—Rule 9.2(b) BSE/BOX Suitability—Chapter XI, Section 10 AMEX—Rules 923 & 1102 CBOE—Rule 9.9 ISE—Rule 610 NASD—Rule 2860(b)(19) & 2844 NYSE—Rule 723 PHLX—Rule 1026 [PCX] NYSE Arca—Rule 9.18(c) BSE/BOX—Chapter XI, Section 11 * * * * * Relief From Responsibility IV. Solicitation of Comments Pursuant to Section 17(d)(1)(A) of the Securities Exchange Act of 1934 and Rule 17d–2 promulgated pursuant thereto, the Participants join in requesting the Securities and Exchange Commission, upon its approval of this Agreement or any part thereof, to relieve those Participants which are from time to time participants in this Agreement which are not the DOEA as to a Common Member of any and all Regulatory Responsibility with respect to the matters allocated to the DOEA. In Witness Whereof, the Participants hereto have executed this Agreement as of the date and year first above written. 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: Limitation of Liability [Appendix A—Allocation Provisions for Calendar Years 2004 and 2005 The allocation for calendar year 2004 shall be performed in accordance with the provisions of Section VI, provided that there shall be a partial allocation to the Boston Stock Exchange, Inc. whereby the Boston Stock Exchange, Inc. is allocated one-half of its share of the total number of Common Members. For calendar year 2005, there shall be a reallocation whereby the Boston Stock Exchange, Inc. shall receive from the other DOEAs a number of Common Members to make the allocation equitable.] PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number S7–966 on the subject line. Paper Comments • Send paper comments in triplicate to Nancy M. Morris, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number S7–966. This file number should be included on the subject line if e-mail is used. To help the 14 This is a partial list of the rules provided to the Commission. The full list of rules provided to the Commission is available at the principal offices of each of the SROs and at the Commission’s Public Reference Room. E:\FR\FM\26JAN1.SGM 26JAN1 Federal Register / Vol. 72, No. 17 / Friday, January 26, 2007 / Notices Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission’s Public Reference Room. Copies of such filing also will be available for inspection and copying at the principal office of each of the SROs. 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 S7–966 and should be submitted on or before February 16, 2007. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.15 Florence E. Harmon, Deputy Secretary. [FR Doc. E7–1220 Filed 1–25–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION sroberts on PROD1PC70 with NOTICES Sunshine Act Meetings Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Pub. L. 94–409, that the Securities and Exchange Commission will hold the following meetings during the week of January 29, 2007: Open Meetings will be held on Wednesday, January 31, 2007 at 10 a.m. and 2 p.m. in the Auditorium, Room LL–002, and Closed Meetings will be held on Wednesday, January 31, 2007 at 11 a.m. and Thursday, February 1, 2007 at 2 p.m. Commissioners, Counsels to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meetings. Certain staff members who have an interest in the matters may also be present. The General Counsel of the Commission, or his designee, has 15 17 CFR 200.30–3(a)(34). VerDate Aug<31>2005 17:19 Jan 25, 2007 Jkt 211001 certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a) (3), (5), (7), 9(ii) and (10) permit consideration of the scheduled matters at the Closed Meetings. Commissioner Casey, as duty officer, voted to consider the items listed for the closed meetings in closed session. The subject matter of the Open Meeting scheduled for Wednesday, January 31, 2007 at 10 a.m. will be: The Commission will hear oral argument on an appeal by Phlo Corporation, a beverage manufacturer and an issuer of publicly traded securities that also acts as transfer agent for its own securities, its president and chief executive officer James B. Hovis (‘‘J. Hovis’’), and its executive vice president and secretary, Anne P. Hovis (‘‘A. Hovis’’), who also served as Phlo’s general counsel, (together, ‘‘Respondents’’) from the decision of an administrative law judge. The law judge found that Phlo willfully violated provisions requiring transfer agents to turnaround at least ninety percent of all routine items received in a month within three business days and willfully failed to make records available for examination by Commission staff. The law judge concluded that A. Hovis willfully aided and abetted and was a cause of Phlo’s failure to complete transfers in a timely manner and failure to make records available for examination. The law judge further found that Phlo failed to make timely filings of annual and quarterly reports with the Commission between March 2003 and November 2005. The law judge found that J. Hovis willfully aided and abetted and was a cause of Phlo’s violations of the periodic reporting requirements. The law judge assessed civil money penalties of $100,000 against Phlo, $25,000 against J. Hovis, and $50,000 against A. Hovis, revoked Phlo’s registration as a transfer agent, barred A. Hovis from associating with any transfer agent, and imposed cease-and-desist orders as to all Respondents. Among the issues likely to be argued are whether Respondents violated the provisions charged, and, if so, whether and to what extent sanctions should be imposed. The subject matter of the Closed Meeting scheduled for January 31, 2007 at 11 a.m. will be: Post-argument discussion. The subject matter of the Open Meeting scheduled for January 31, 2007 at 2 p.m. will be: 1. The Commission will consider whether to propose amendments to extend its interactive data voluntary reporting program to permit mutual funds to submit as exhibits to their registration statements supplemental tagged information contained in the risk/ return summary section of their prospectuses. The risk/return summary section contains key mutual fund information, including investment objectives and strategies, risks, and costs. PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 3887 2. The Commission will consider whether to propose rules to implement provisions of the Credit Rating Agency Reform Act of 2006. The subject matter of the Closed Meeting scheduled for Thursday, February 1, 2007 will be: Formal orders of investigation; Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings of an enforcement nature; Resolution of litigation claims; An adjudicatory matter; and Other matters relating to enforcement proceedings At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Dated: January 24, 2007. Nancy M. Morris, Secretary. [FR Doc. 07–372 Filed 1–24–07; 3:57 pm] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–55136; File No. SR–FICC– 2006–17] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change Relating to Clearing Fund Deficiency Calls January 19, 2007. I. Introduction October 16, 2006, the Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 to adjust the deadline for satisfying a clearing fund deficiency call from 10:30 a.m. to 9:30 a.m. in the Schedule of Timeframes in FICC’s Government Securities Division (‘‘GSD’’) rulebook. The proposed rule change was published for comment in the Federal Register on December 6, 2006.2 No comment letters were received on the proposal. This order approves the proposal. 1 15 U.S.C. 78s(b)(1). Exchange Act Release No. 54819 (Nov. 27, 2006), 71 FR 70817. 2 Securities E:\FR\FM\26JAN1.SGM 26JAN1

Agencies

[Federal Register Volume 72, Number 17 (Friday, January 26, 2007)]
[Notices]
[Pages 3882-3887]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-1220]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55145; File No. S7-966]


Program for Allocation of Regulatory Responsibilities Pursuant to 
Rule 17d-2; Notice of Filing of Amendment to the Plan for the 
Allocation of Regulatory Responsibilities Among the American Stock 
Exchange, LLC, the Boston Stock Exchange, Inc., the Chicago Board 
Options Exchange, Inc., the International Securities Exchange, LLC, the 
National Association of Securities Dealers, Inc., the New York Stock 
Exchange, LLC, the NYSE Arca, Inc., and the Philadelphia Stock 
Exchange, Inc.

January 22, 2007.
    Pursuant to Sections 17(d) \1\ of the Securities Exchange Act of 
1934 (``Act'') and Rule 17d-2 thereunder,\2\ notice is hereby given 
that on December 5, 2006, the American Stock Exchange, LLC (``Amex''), 
the Boston Stock Exchange, Inc. (``BSE''), the Chicago Board Options 
Exchange, Inc. (``CBOE''), the International Securities Exchange, LLC 
(``ISE''), the National Association of Securities Dealers, Inc. 
(``NASD''), the New York Stock Exchange, LLC (``NYSE''), the NYSE Arca, 
Inc. (``PCX''), and the Philadelphia Stock Exchange, Inc. (``Phlx'') 
(collectively the ``SRO participants'') filed with the Securities and 
Exchange Commission (``Commission'') an amendment to their January 14, 
2004 plan for the allocation of regulatory responsibility.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78q(d).
    \2\ 17 CFR 240.17d-2.
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I. Introduction

    Section 19(g)(1) of the Act,\3\ among other things, requires every 
national securities exchange and registered securities association 
(``SRO'') to examine for, and enforce, compliance by its members and 
persons associated with its members with the Act, the rules and 
regulations thereunder, and the SRO's own rules, unless the SRO is 
relieved of this responsibility pursuant to Section 17(d) or 19(g)(2) 
\4\ of the Act.

[[Page 3883]]

Without this relief, the statutory obligation of each individual SRO 
could result in a pattern of multiple examinations of broker-dealers 
that maintain memberships in more than one SRO (``common members''). 
This regulatory duplication would add unnecessary expenses for common 
members and their SROs.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78s(g)(1).
    \4\ 15 U.S.C. 78s(g)(2).
---------------------------------------------------------------------------

    Section 17(d)(1) of the Act was intended, in part, to eliminate 
unnecessary multiple examinations and regulatory duplication.\5\ With 
respect to a common member, Section 17(d)(1) authorizes the Commission, 
by rule or order, to relieve an SRO of the responsibility to receive 
regulatory reports, to examine for and enforce compliance with 
applicable statutes, rules and regulations, or to perform other 
specified regulatory functions.
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    \5\ See Securities Act Amendments of 1975, Report of the Senate 
Committee on Banking, Housing, and Urban Affairs to Accompany S. 
249, S. Rep. No. 94-75, 94th Cong., 1st Session. 32 (1975).
---------------------------------------------------------------------------

    To implement Section 17(d)(1), the Commission adopted two rules: 
Rule 17d-1 and Rule 17d-2 under the Act.\6\ Rule 17d-1, adopted on 
April 20, 1976,\7\ authorizes the Commission to name a single SRO as 
the designated examining authority (``DEA'') to examine common members 
for compliance with the financial responsibility requirements imposed 
by the Act, or by Commission or SRO rules. When an SRO has been named 
as a common member's DEA, all other SROs to which the common member 
belongs are relieved of the responsibility to examine the firm for 
compliance with applicable financial responsibility rules.
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    \6\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2.
    \7\ See Securities Exchange Act Release No. 12352 (April 20, 
1976), 41 FR 18809 (May 3, 1976).
---------------------------------------------------------------------------

    On its face, Rule 17d-1 deals only with an SRO's obligations to 
enforce broker-dealers' compliance with the financial responsibility 
requirements. Rule 17d-1 does not relieve an SRO from its obligation to 
examine a common member for compliance with its own rules and 
provisions of the federal securities laws governing matters other than 
financial responsibility, including sales practices, and trading 
activities and practices.
    To address regulatory duplication in these other areas, on October 
28, 1976, the Commission adopted Rule 17d-2 under the Act.\8\ This rule 
permits SROs to propose joint plans allocating regulatory 
responsibilities with respect to common members. Under paragraph (c) of 
Rule 17d-2, the Commission may declare such a plan effective if, after 
providing for notice and comment, it determines that the plan is 
necessary or appropriate in the public interest and for the protection 
of investors, to foster cooperation and coordination among the SROs, to 
remove impediments to and foster the development of a national market 
system and a national clearance and settlement system, and in 
conformity with the factors set forth in Section 17(d) of the Act. 
Commission approval of a plan filed pursuant to Rule 17d-2 relieves an 
SRO of those regulatory responsibilities allocated by the plan to 
another SRO.
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49093 (November 8, 1976).
---------------------------------------------------------------------------

II. The Plan

    On September 8, 1983, the Commission approved the SRO participants' 
plan for allocating regulatory responsibilities pursuant to Rule 17d-
2.\9\ On May 23, 2000, the Commission approved an amendment to the plan 
that added the ISE as a participant.\10\ On November 8, 2002, the 
Commission approved another amendment that replaced the original plan 
in its entirety and, among other things, allocated regulatory 
responsibilities among all the participants in a more equitable 
manner.\11\ On February 5, 2004, the parties submitted an amendment to 
the plan, primarily to include the BSE, which was establishing a new 
options trading facility to be known as the Boston Options Exchange 
(``BOX''), as an SRO participant.\12\
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    \9\ See Securities Exchange Act Release No. 20158 (September 8, 
1983), 48 FR 41256 (September 14, 1983).
    \10\ See Securities Exchange Act Release No. 42816 (May 23, 
2000), 65 FR 24759 (May 31, 2000). This Amendment also updated the 
corporate names of the Amex, the Midwest Stock Exchange (now known 
as the Chicago Stock Exchange, Inc.), and the Pacific Stock Exchange 
Incorporated (now known as the NYSE Arca, Inc.).
    \11\ See Securities Exchange Act Release No. 46800 (November 8, 
2002), 67 FR 69774 (November 19, 2002).
    \12\ See Securities Exchange Act Release No. 49197 (February 5, 
2004), 69 FR 7046. (February 12, 2004).
---------------------------------------------------------------------------

    The plan reduces regulatory duplication for a large number of firms 
currently members of two or more of the SRO participants by allocating 
regulatory responsibility for certain options-related sales practice 
matters to one of the SRO participants. Generally, under the current 
plan, the SRO participant responsible for conducting options-related 
sales practice examinations of a firm, and investigating options-
related customer complaints and terminations for cause of associated 
persons of that firm, is known as the firm's ``Designated Options 
Examining Authority'' (``DOEA''). Pursuant to the current plan, any 
other SRO of which the firm is a member is relieved of these 
responsibilities during the period the firm is assigned to a DOEA.

III. Proposed Amendment to the Plan

    On December 5, 2006, the parties submitted a proposed amendment to 
the plan. The purpose of the amendment is to: (i) Provide that NASD and 
NYSE will be DOEAs under the plan, (ii) provide that the Designated 
Examination Authority pursuant to Commission Rule 17d-1 under the Act 
for a broker-dealer that is a member of more than one SRO participant 
(but not a member of the NASD or the NYSE) shall perform the regulatory 
responsibility under the agreement as if such DEA were the DOEA, (iii) 
to incorporate a more formal procedure for updating the list of common 
rules, and (iv) make certain other changes to the plan. The amended 
agreement replaces the previous agreement in its entirety. The text of 
the proposed amended 17d-2 plan is as follows (additions are 
italicized; deletions are bracketed): \13\
---------------------------------------------------------------------------

    \13\ Changes are marked from the most recent plan approved by 
the Commission on February 5, 2004. See supra note 12.
---------------------------------------------------------------------------

* * * * *
Agreement by and among the American Stock Exchange, LLC, the Boston 
Stock Exchange, Inc., the Chicago Board Options Exchange, Inc., the 
International Securities Exchange, [Inc.] LLC, the National Association 
of Securities Dealers, Inc., the New York Stock Exchange, [Inc.] LLC, 
the [Pacific Exchange] NYSE Arca Inc., and the Philadelphia Stock 
Exchange, Inc., Pursuant to Rule 17d-2 under the Securities Exchange 
Act of 1934.
    This agreement (``Agreement''), by and among the American Stock 
Exchange, LLC, the Boston Stock Exchange, Inc., the Chicago Board 
Options Exchange, Inc., the International Securities Exchange, [Inc.] 
LLC, the National Association of Securities Dealers, Inc. (``NASD''), 
the New York Stock Exchange, [Inc.]LLC (``NYSE''), the [Pacific 
Exchange] NYSE Arca Inc., and the Philadelphia Stock Exchange, Inc., 
hereinafter collectively referred to as the Participants, is made this 
[14th] 1st day of [January, 2004] December, 2006, pursuant to the 
provisions of Rule 17d-2 under the Securities Exchange Act of 1934 (the 
``Exchange Act''), which allows for plans among self-regulatory 
organizations to allocate regulatory responsibility. This Agreement 
shall be administered by a committee known as the Options Self-
Regulatory Council (the ``Council'').

[[Page 3884]]

    Whereas, the Participants are desirous of allocating regulatory 
responsibilities with respect to [their common members (members of two 
or more of the Participants)] broker-dealers, and persons associated 
therewith, that are members \FN1\ of more than one Participant (the 
``Common Members'') and conduct a public business for compliance with 
[common rules] Common Rules (as hereinafter defined) relating to the 
conduct by broker-dealers of accounts for listed options [or], index 
warrants, currency index warrants and currency warrants (collectively, 
``Covered Securities''); and
---------------------------------------------------------------------------

    \FN1\ In the case of the Boston Stock Exchange, Inc., members 
are those persons who are options participants (as defined in BOX 
Rules).
---------------------------------------------------------------------------

    Whereas, the Participants are desirous of executing a plan for this 
purpose pursuant to the provisions of Rule 17d-2 and filing such plan 
with the Securities and Exchange Commission (``SEC'' or the 
``Commission'') for its approval;
    Now, therefore, in consideration of the mutual covenants contained 
hereafter, the Participants agree as follows:
    I. [Except as otherwise provided herein,]As used herein the term 
Designated Options Examining Authority (``DOEA'') shall mean the NASD 
and NYSE insofar as each [Participant] shall [assume] perform 
Regulatory Responsibility (as hereinafter defined) for its broker-
dealer members that also are [both (i)] members of [more than one] 
another Participant [(hereinafter the ``Common Members'') and (ii)],and 
allocated to it in accordance with the terms hereof. [For purposes of 
this Agreement, a Participant shall be considered to be the Designated 
Options Examining Authority (``DOEA'') of each Common Member allocated 
to it.] The Designated Examination Authority (``DEA'') pursuant to SEC 
Rule 17d-1 under the Securities Exchange Act (``Rule 17d-1'') for a 
broker-dealer that is a member of more than one Participant (but not a 
member of a DOEA) shall perform the Regulatory Responsibility under the 
Agreement as if such DEA were the DOEA.
    II. As used herein, the term ``Regulatory Responsibility'' shall 
mean the [inspection,] examination and enforcement responsibilities 
relating to compliance by [the] broker-dealers that are members of more 
than one Participant (the ``Common Members [and persons associated 
therewith]'') with the rules of the applicable Participant that are 
substantially similar to the rules of the other Participants (the 
``Common Rules'') [and the provisions of the Act and the rules and 
regulations thereunder], insofar as they apply to the conduct of 
accounts for Covered Securities. [In discharging its Regulatory 
Responsibility, a DOEA may act directly and perform such 
responsibilities itself or may make arrangements for the performance of 
such responsibilities on its behalf by The Options Clearing 
Corporation, a national securities exchange registered with the SEC 
under Section 6(a) of the Act or a national securities association 
registered with the SEC under Section 15A of the Act, but excluding an 
association registered for the limited purpose of regulating the 
activities of members who are registered as brokers or dealers in 
security futures products. Without limiting the foregoing, a non-
exhaustive list of the current,] A list of the current Common Rules of 
each Participant applicable to the conduct of accounts for Covered 
Securities is attached hereto as Exhibit A. Each year within 30 days of 
the anniversary date of the commencement of operation of this 
Agreement, each Participant shall submit in writing to each DOEA and 
DEA performing as a DOEA for any members of such Participant any 
revisions to Exhibit A reflecting changes in the rules of the 
Participant or DOEAs, and confirm that all other rules of the 
Participant listed in Exhibit A continue to meet the definition of 
Common Rules as defined in this Agreement. Within 30 days from the date 
that each DOEA has received revisions and/or confirmation that no 
change has been made to Exhibit A from all Participants, the DOEAs 
shall confirm in writing to each Participant whether the rules listed 
in any updated Exhibit A are Common Rules as defined in this Agreement. 
Notwithstanding anything herein to the contrary, it is explicitly 
understood that the term ``Regulatory Responsibility'' does not 
include, and each of the Participants shall (unless allocated pursuant 
to Rule 17d-2 otherwise than under this Agreement) retain full 
responsibility for, each of the following:
    (a) [s]Surveillance and enforcement with respect to trading 
activities or practices involving its own marketplace, including 
without limitation its rules relating to the rights and obligations of 
specialists and other market makers;
    (b) [r]Registration pursuant to its applicable rules of associated 
persons;
    (c) [d]Discharge of its duties and obligations as a [Designated 
Examining Authority pursuant to Rule 17d-1 under the Act]DEA; and;
    (d) [e]Evaluation of advertising, responsibility for which shall 
remain with the Participant to which a Common Member submits same for 
approval[; and
    (e) any rules of a Participant that are not substantially similar 
to the rules of all of the other Participants].
    III. Apparent violations of another Participant's rules discovered 
by a DOEA, but which rules are not within the scope of the discovering 
DOEA's Regulatory Responsibility, shall be referred to the relevant 
Participant for such action as the Participant to which such matter has 
been referred deems appropriate. Notwithstanding the foregoing, nothing 
contained herein shall preclude a DOEA in its discretion from 
requesting that another Participant conduct an enforcement proceeding 
on a matter for which the requesting DOEA has Regulatory 
Responsibility. If such other Participants agree[s], the Regulatory 
Responsibility in such case shall be deemed transferred to the 
accepting Participant. Each Participant agrees, upon request, to make 
available promptly all relevant files, records and/or witnesses 
necessary to assist another Participant in an investigation or 
enforcement proceeding.
    IV. [This Agreement shall be administered by a committee known as 
the Options Self-Regulatory Council (the ``Council'').] The Council 
shall be composed of one representative designated by each of the 
Participants. Each Participant shall also designate one or more persons 
as its alternate representative(s). In the absence of the 
representative of a Participant, such alternate representative shall 
have the same powers, duties and responsibilities as the 
representative. Each Participant may, at any time, by notice to the 
then Chair of the Council, replace its representative and/or its 
alternate representative on such Council. A majority of the Council 
shall constitute a quorum and, unless specifically otherwise required, 
the affirmative vote of a majority of the Council members present (in 
person, by telephone or by written consent) shall be necessary to 
constitute action by the Council. From time to time, the Council shall 
elect one member [of the Council] from the DOEAs to serve as Chair and 
another from the Council to serve as Vice Chair (to substitute for the 
Chair in the event of his or her unavailability at a meeting of the 
Council) [for such term as shall be designated and until his or her 
successor is duly elected, provided that in the event a Participant 
replaces a representative who is acting as Chair or Vice Chair, such 
representative shall also assume the position of Chair or Vice Chair, 
as applicable]. All notices and other communications for the

[[Page 3885]]

Council shall be sent to it in care of the Chair or to each of the 
representatives.
    V. The Council shall determine the times and locations of Council 
meetings, provided that the Chair, acting alone, may also call a 
meeting of the Council in the event the Chair determines that there is 
good cause to do so. To the extent reasonably possible, notice of any 
meeting shall be given at least ten business days prior thereto. 
Notwithstanding anything herein to the contrary, representatives shall 
always be given the option of participating in any meeting 
telephonically at their own expense rather than in person.
    VI. For the purpose of fulfilling the Participants' [DOEA] 
Regulatory Responsibilities, the [Council] DOEAs shall allocate Common 
Members that conduct a public [options] business in Covered Securities 
among [Participants] DOEAs from time to time in such manner as the 
[Council] DOEAs deem[s] appropriate, provided that any such allocation 
shall be based on the following principles except to the extent 
affected [Participants] DOEAs consent:
    (a) The [Council] DOEAs may not allocate a member to a 
[Participant] DOEA unless the member is a member of that [Participant] 
DOEA, nor shall any member be allocated to a Participant that is not a 
DOEA or DEA acting as a DOEA.
    (b) To the extent practical and desired by the DOEAs, Common 
Members that conduct a public [options] business in Covered Securities 
shall be allocated among the [Participants] DOEAs of which they are 
members in such manner as to equalize as nearly as possible the 
allocation [among such Participants. For example, if sixteen Common 
Members that conduct a public options business are members only of 
three Participants, such members shall be allocated among such 
Participants such that no Participant is allocated more than six such 
members and no Participant is allocated less than five such members] of 
such Common Members among such DOEAs.
    (c) To the extent practical and desired by the DOEAs, the 
allocation of Common Members shall take into account the amount of 
customer activity conducted by each member in Covered Securities such 
that Common Members shall be allocated among the [Participants] DOEAs 
of which they are members in such manner as most evenly divides the 
Common Members with the largest amount of customer activity among such 
[Participants] DOEAs.
    (d) [Insofar as practical, it is intended that allocation of Common 
Members to Participants will be rotated among the applicable 
Participants and, more specifically, that Common Members shall not be 
allocated to a Participant as to which such member was allocated within 
the previous two years.
    (e)] The [Council] DOEAs shall make general reallocations of Common 
Members from time to time, as it deems appropriate.
    ([f]e) All Participants shall promptly notify the DOEAs no later 
than the next scheduled meeting of any change in membership of Common 
Members. Whenever a Common Member ceases to be a member of its DOEA, 
[the] that DOEA shall promptly inform the [Council] other DOEAs, which 
[shall] will promptly review the matter and reallocate the Common 
Member to [another Participant] the extent practical.
    ([g]f) A DOEA may request that a Common Member that is allocated to 
it be reallocated to another [Participant] DOEA by giving thirty days 
written notice thereof. The [Council] DOEAs, in [its] their 
discretion[,] may approve such request and reallocate such Common 
Member to another [Participant] DOEA.
    ([h]g) All determinations by the [Council] DOEAs with respect to 
allocations, if there are more than two DOEAs, shall be by the 
affirmative vote of a majority of the DOEAs of which such firm is a 
Common Member, otherwise by negotiation and consensus. [Participants 
that, at the time of such determination, share the applicable Common 
Member being allocated; a Participant shall not be entitled to vote on 
any allocation relating to a Common Member unless the Common Member is 
a member of such Participant.
    (i) Allocations for calendar years 2004 and 2005 shall also be 
subject to the provisions set forth at Appendix A hereof, which 
provisions shall control in the event of any conflict between them and 
the provisions set forth above.]
    VII. Each DOEA shall conduct [a routine inspection and] an 
examination of each Common Member allocated to it on a cycle not less 
frequently than [determined by the Council] agreed upon by all DOEAs. 
The other Participants agree that, upon request, relevant information 
in their respective files relative to a Common Member will be made 
available to the applicable DOEA. At each meeting of the Council, each 
[Participant] DOEA shall be prepared to report on the status of its 
examination program for the previous quarter and any period prior 
thereto that has not previously been reported to the Council. In the 
event a DOEA believes it will not be able to complete the examination 
cycle for its allocated firms, it will so advise the Council. The 
[Council will] DOEAs may undertake to remedy this situation by 
reallocating selected firms [and, if necessary,] or lengthening the 
cycles for selected firms, with the approval of all other DOEAs.
    VIII. Each [Participant] DOEA will[, upon request,] promptly 
furnish a copy of the Examination report[, or applicable portions 
thereof] relating to Covered Securities, of any examination made 
pursuant to the provisions of this Agreement to each other Participant 
of which the Common Member examined is a member.
    IX. [Each Participant will routinely forward to each other 
Participant of which a Common Member is a member, copies of all 
communications regarding deficiencies relating to Covered Securities 
noted in a report of examination conducted by each Participant. If an 
examination relating to Covered Securities conducted by a Participant 
reveals no deficiencies, such fact will also, upon request, be 
communicated to each other Participant of which the Common Member 
concerned is a member.
    X.] Each DOEA's Regulatory Responsibility shall for each Common 
Member allocated to it include investigations into terminations ``for 
cause'' of associated persons relating to Covered Securities, unless 
such termination is related solely to another Participant's market. In 
the latter instance, that Participant to whose market the termination 
for cause relates shall discharge Regulatory Responsibility with 
respect to such termination for cause. In connection with a DOEA's 
examination, investigation and/or enforcement proceeding regarding a 
Covered Security-related termination for cause, the other Participants 
of which the Common Member is a member shall furnish, upon request, 
copies of all pertinent materials related thereto in their possession. 
As used in this Section, ``for cause'' shall include, without 
limitation, terminations characterized on Form U5 under the label 
``Permitted to Resign,'' ``Discharge'' or ``Other.''
    X[I]. Each DOEA shall discharge the Regulatory Responsibility for 
each Common Member allocated to it relative to a Covered Securities-
related customer complaintFN2 [or Form U4 filing] unless such complaint 
[or filing] is uniquely related to another Participant's market. In the 
latter instance, the DOEA shall

[[Page 3886]]

forward the matter to that Participant to whose market the matter 
relates, and the latter shall discharge Regulatory Responsibility with 
respect thereto. If a Participant receives a customer complaint for a 
Common Member related to a Covered Security for which the Participant 
is not the DOEA, the Participant shall promptly forward a copy of such 
complaint to the DOEA.
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    FN2 For purposes of complaints, they can be reported pursuant to 
Form U4, Form U5 or RE-3 and any amendments thereto.
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    XI[I]. Any written notice required or permitted to be given under 
this Agreement shall be deemed given if sent by certified mail, return 
receipt requested, or by a comparable means of electronic communication 
to each Participant entitled to receipt thereof, to the attention of 
the Participant's representative on the Council at the Participant's 
then principal office or by e-mail at such address as the 
representative shall have filed in writing with the Chair.
    [XIII. The costs incurred by each Participant in discharging its 
Regulatory Responsibility under this Agreement are not reimbursable. 
However, any Participants may agree that one or more will compensate 
the other(s) for costs.]
    [XIV]XII. The Participants shall notify the Common Members of this 
Agreement by means of a uniform joint notice approved by the Council.
    [XV]XIII. This Agreement may be amended in writing duly approved by 
each Participant.
    [XVI]XIV. Any of the Participants may manifest its intention to 
cancel its participation in this Agreement at any time [upon the] by 
giving [to] the Council [of] written notice thereof at least 90 days 
prior to the effective date of such cancellation. Upon receipt of such 
notice the Council shall allocate, in accordance with the provisions of 
this Agreement, [those] any Common Members for which the petitioning 
party was the DOEA. Until such time as the Council has completed the 
reallocation described above, the petitioning Participant shall retain 
all its rights, privileges, duties and obligations hereunder.
    XV[II]. The cancellation of its participation in this Agreement by 
any Participant shall not terminate this Agreement as to the remaining 
Participants. This Agreement will only terminate following notice to 
the Commission, in writing, by the then Participants that they intend 
to terminate the Agreement and the expiration of the applicable notice 
period. Such notice shall be given at least six months prior to the 
intended date of termination, provided that in the event a notice of 
cancellation is received from a Participant that, assuming the 
effectiveness thereof, would result in there being just one remaining 
member of the Council, notice to the Commission of termination of this 
Agreement shall be given promptly upon the receipt of such notice of 
cancellation, which termination shall be effective upon the 
effectiveness of the cancellation that triggered the notice of 
termination to the Commission.

Limitation of Liability

    No Participant nor the Council nor any of their respective 
directors, governors, officers, employees or representatives shall be 
liable to any other Participant in this Agreement for any liability, 
loss or damage resulting from or claimed to have resulted from any 
delays, inaccuracies, errors or omissions with respect to the provision 
of Regulatory Responsibility as provided hereby or for the failure to 
provide any such Responsibility, except with respect to such liability, 
loss or damages as shall have been suffered by one or more of the 
Participants and caused by the willful misconduct of one or more of the 
other participants or their respective directors, governors, officers, 
employees or representatives. No warranties, express or implied, are 
made by any or all of the Participants or the Council with respect to 
any Regulatory Responsibility to be performed by each of them 
hereunder.

Relief From Responsibility

    Pursuant to Section 17(d)(1)(A) of the Securities Exchange Act of 
1934 and Rule 17d-2 promulgated pursuant thereto, the Participants join 
in requesting the Securities and Exchange Commission, upon its approval 
of this Agreement or any part thereof, to relieve those Participants 
which are from time to time participants in this Agreement which are 
not the DOEA as to a Common Member of any and all Regulatory 
Responsibility with respect to the matters allocated to the DOEA.
    In Witness Whereof, the Participants hereto have executed this 
Agreement as of the date and year first above written.

[Appendix A--Allocation Provisions for Calendar Years 2004 and 2005

    The allocation for calendar year 2004 shall be performed in 
accordance with the provisions of Section VI, provided that there 
shall be a partial allocation to the Boston Stock Exchange, Inc. 
whereby the Boston Stock Exchange, Inc. is allocated one-half of its 
share of the total number of Common Members. For calendar year 2005, 
there shall be a reallocation whereby the Boston Stock Exchange, 
Inc. shall receive from the other DOEAs a number of Common Members 
to make the allocation equitable.]

Exhibit A \14\--Participant Rules Applicable to the Conduct of Covered 
Securities: Rules Enforced Under 17d-2 Agreement
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    \14\ This is a partial list of the rules provided to the 
Commission. The full list of rules provided to the Commission is 
available at the principal offices of each of the SROs and at the 
Commission's Public Reference Room.
---------------------------------------------------------------------------

Opening Of Accounts

AMEX--Rules 411 [and], 921 and 1101
CBOE--Rule 9.7
ISE--Rule 608
NASD--Rules 2860(b)(16)[;], IM-2860-2 & 2843
NYSE--Rule[s] 721 [and 405]
PHLX--Rule 1024(b)
[PCX] NYSE Arca--Rule 9.2(a) and Rule 9.18(b)
BSE/BOX Supervision--Chapter XI, Section 9
AMEX--Rules 411 [and], 922 and 1104
CBOE--Rule 9.8
ISE--Rule 609
NASD--Rules 2860(b)(20), 2860(b)(17)(B), 2846 & 2849
NYSE--Rule[s] 722[, 342 and 343]
PHLX--Rule 1025
[PCX] NYSE Arca--Rule 9.2(b)
BSE/BOX Suitability--Chapter XI, Section 10
AMEX--Rules 923 & 1102
CBOE--Rule 9.9
ISE--Rule 610
NASD--Rule 2860(b)(19) & 2844
NYSE--Rule 723
PHLX--Rule 1026
[PCX] NYSE Arca--Rule 9.18(c)
BSE/BOX--Chapter XI, Section 11
* * * * *

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number S7-966 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, Station Place, 100 F 
Street, NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-966. This file number 
should be included on the subject line if e-mail is used. To help the

[[Page 3887]]

Commission process and review your comments more efficiently, please 
use only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for inspection and copying in the 
Commission's Public Reference Room. Copies of such filing also will be 
available for inspection and copying at the principal office of each of 
the SROs. 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 S7-966 
and should be submitted on or before February 16, 2007.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(34).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-1220 Filed 1-25-07; 8:45 am]
BILLING CODE 8011-01-P