[Federal Register Volume 69, Number 159 (Friday, October 8, 2004)]
[Rules and Regulations]
[Pages 60287-60307]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-22628]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232, 240, and 249

[Release No. 34-50486; File No. S7-18-04]
RIN 3235-AJ20


Proposed Rule Changes of Self-Regulatory Organizations

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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[[Page 60288]]

SUMMARY: The Securities and Exchange Commission (``Commission'') is 
adopting rule amendments that require self-regulatory organizations 
(``SROs'') to file proposed rule changes electronically with the 
Commission, rather than in paper form. In addition, the Commission is 
requiring SROs to post all proposed rule changes, as well as current 
and complete sets of their rules, on their Web sites. The Commission is 
also requiring all participants in National Market System Plans (``NMS 
Plans'') to arrange for posting on a designated Web site a current and 
complete version of the NMS Plan. Finally, the Commission is making 
certain technical amendments to the requirements for SRO rule changes. 
Together, the amendments are designed to modernize the SRO rule filing 
process by making it more efficient and cost effective. The amendments 
also should improve the transparency of the rule filing process and 
assure that all SRO members and other interested persons have ready 
access to an accurate, up-to-date version of SRO rules.

DATES: Effective November 8, 2004, except Sec.  240.11Aa3-2(b)(8) and 
Sec.  240.19b-4(m), shall be effective May 9, 2005.

FOR FURTHER INFORMATION CONTACT: Florence Harmon, Senior Special 
Counsel (202-942-0773); Elizabeth Badawy, Accountant (202-942-0740); 
Joseph Morra, Special Counsel (202-942-0781); Sonia Trocchio, Special 
Counsel (202-942-0753); Cyndi N. Rodriguez, Special Counsel (202-942-
4163); Michael L. Milone, Special Counsel (202-942-0179) (clearance and 
settlement SROs); Timothy Fox, Attorney (202-942-0146); Molly Kim, 
Attorney (202-942-8987), Division of Market Regulation, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-1001.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On March 30, 2004, the Commission proposed changes to the process 
by which SROs file proposed rule changes with the Commission that were 
designed to make the process more efficient and transparent, while 
reducing costs for the SROs and the public.\1\ The Commission proposed 
amending Rule 19b-4 and Form 19b-4 to (1) require SROs to file proposed 
rule changes with the Commission electronically, rather than in paper 
format; (2) mandate that SROs promptly post on their Web sites a copy 
of all proposed rule changes filed with the Commission; (3) require 
SROs to maintain a current and complete version of their rules on their 
Web sites; and (4) make certain technical amendments to clarify Rule 
19b-4 and to reflect current practice. The Commission also solicited 
comment on whether the participants in NMS Plans should be required to 
post on a public Web site to be designated by the Plan participants a 
current version of the applicable Plans, as well as amendments to such 
Plans, no later than the next business day after effectiveness of such 
Plan or amendment.
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    \1\ Securities Exchange Act Release No. 49505 (March 30, 2004), 
69 FR 17864 (April 5, 2004).
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    The Commission received 21 comment letters in response to its 
request for comments.\2\ Commenters expressed general support for the 
proposal, commending the Commission's efforts to make the rule filing 
process more efficient and transparent and to reduce costs,\3\ and 
suggested other ways to improve the process. The Commission has 
determined to adopt the amendments substantially as proposed, with some 
modifications to address some of the comments the Commission received. 
Twenty-seven SROs \4\-- the 13 national securities exchanges, the 11 
clearing agencies, and the two national securities associations and the 
Municipal Securities Rulemaking Board--are subject to these amendments. 
The Commission also is providing further clarification and guidance on 
the application of amended Rule 19b-4.
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    \2\ See letters and emails to Jonathan G. Katz, Secretary, 
Commission, from: James J. Angel, Ph.D., CFA, Associate Professor of 
Finance, McDonough School of Business, Georgetown University, dated 
May 14, 2004 (``Angel''); Barry S. Augenbraun, Senior Vice 
President, Raymond James Financial, Inc, dated April 22, 2004 
(``Raymond James''); Charlotte M. Bahin, Senior Vice President, 
Regulatory Affairs, America's Community Bankers, dated June 3, 2004 
(``ACB''); R. Gerald Baker, Compliance and Regulatory Consultant, 
dated June 4, 2004 (``Baker''); Kim Bang, President, Bloomberg 
Tradebook LLC, dated June 8, 2004 (``BT''); Donald F. Donahue, 
President, National Securities Clearing Corporation, dated July 16, 
2004 (``NSCC''); Dorothy M. Donohue, Associate Counsel, Investment 
Company Institute, dated June 4, 2004 (``ICI''); Edward S. Knight, 
Executive Vice President, The Nasdaq Stock Market, Inc., dated June 
14, 2004 (``Nasdaq''); Michael L. Kosoff, dated June 16, 2004 
(``Kosoff''); Joanne Moffic-Silver, General Counsel and Corporate 
Secretary, Chicago Board Options Exchange, Inc., dated June 16, 2004 
(``CBOE''); William H. Navin, Executive Vice President, General 
Counsel and Secretary, The Options Clearing Corporation, dated May 
27, 2004 (``OCC''); Ellen J. Neely, Senior Vice President and 
General Counsel, Chicago Stock Exchange, Inc., dated June 4, 2004 
(``CHX''); Junius W. Peake, Monfort Distinguished Professor of 
Finance, Kenneth W. Monfort College of Business, University of 
Northern Colorado, dated May 4, 2004 (``Peake''); Edward L. Pittman, 
Esq., Thelen Reid & Priest LLP, dated May 28, 2004 (``Thelen''); 
John Polanin, Jr., Chairman, SIA Self-Regulation and Supervisory 
Practices Committee, Securities Industry Association, dated June 4, 
2004 (``SIA''); Michael J. Ryan, Jr., Executive Vice President and 
General Counsel, American Stock Exchange LLC, dated June 15, 2004 
(``Amex''); Thomas W. Sexton, Vice President and General Counsel, 
National Futures Association, dated June 4, 2004 (``NFA''); Michael 
J. Simon, Senior Vice President and Secretary, International 
Securities Exchange, Inc., dated June 4, 2004 (``ISE''); Joseph 
Smith, Feldman Weinstein LLP, dated April 13, 2004 (``Smith''); 
Darla C. Stuckey, Corporate Secretary, New York Stock Exchange, 
Inc., dated July 14, 2004 (``NYSE''); and Elisse B. Walter, 
Executive Vice President, Regulatory Policy and Programs, National 
Association of Securities Dealers, Inc., dated June 7, 2004 
(``NASD'').
    \3\ CBOE at 1; BT at 1; Amex at 1; Nasdaq at 1; NASD at 1; CHX 
at 1; NFA at 1; ACB at 1; Thelen at 1; OCC at 1; NYSE at 1; SIA at 
1-2; ISE at 1; Baker at 1; Angel at 1; Peake at 1; Raymond James at 
1; Smith at 1; ICI at 1; Baker at 1.
    \4\ American Stock Exchange LLC, Boston Stock Clearing 
Corporation, Boston Stock Exchange, Inc., Chicago Board Options 
Exchange, Inc., Chicago Mercantile Exchange, Inc., Chicago Stock 
Exchange, Inc., The Depository Trust Co., Emerging Markets Clearing 
Corporation, Fixed Income Clearing Corporation, INET Futures 
Exchange, LLC, International Securities Exchange, Inc., Midwest 
Clearing Corporation, Midwest Securities Trust Co., Municipal 
Securities Rulemaking Board, National Association of Securities 
Dealers, Inc., National Futures Association, National Securities 
Clearing Corporation, The National Stock Exchange, Inc. (f/k/a 
Cincinnati Stock Exchange, Inc.), New York Stock Exchange, Inc., 
NQLX, LLC, One Chicago, LLC, The Options Clearing Corporation, 
Pacific Exchange, Inc., Pacific Clearing Corporation, Pacific 
Securities Depository Trust, Co., Philadelphia Stock Exchange, Inc., 
and Stock Clearing Corporation of Philadelphia.
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II. Amendments to Rule 19b-4

A. Electronic Filing

    The Commission proposed to modernize the rule filing process by 
requiring SROs to file proposed rule changes electronically with the 
Commission through a Web-based system. To implement electronic filing 
of SRO proposed rule changes, the Commission proposed to amend Rule 
19b-4 and Form 19b-4 to require SROs to file all proposed rule changes 
on Form 19b-4, and any amendments to Form 19b-4, electronically with 
the Commission in accordance with the procedures and in the format 
specified in Rule 19b-4 and Form 19b-4. Each SRO would be given access 
to a secure Web site, the Electronic Form 19b-4 Filing System 
(``EFFS''), which would enable authorized individuals at the SRO to 
file with the Commission an electronic Form 19b-4 on behalf of the SRO. 
Each SRO would determine which individual or individuals to supply with 
User IDs and passwords to allow access to the secure Web site. The 
current requirement in Form 19b-4 that SROs submit multiple paper 
copies of proposed rule changes to the Commission would be eliminated. 
Under the proposal, a proposed rule change would be deemed filed with 
the Commission on the business day that the SRO electronically submits 
the

[[Page 60289]]

proposed rule change to the Commission, as long as (1) the Commission 
receives the proposed rule change on or before 5:30 p.m., eastern 
standard time or eastern daylight saving time, whichever is currently 
in effect; and (2) the SRO files the proposed rule change in accordance 
with the requirements of Rule 19b-4 and Form 19b-4, as amended.
    On the rare occasion where an SRO may be unable to file documents 
electronically, such as comment letters that the SRO received in 
advance of filing the proposed rule change with the Commission, 
exhibits, and proprietary information subject to a request for 
confidential treatment, the Commission's proposal retained the 
flexibility to allow SROs to file portions of a proposed rule change in 
paper format under limited circumstances.
    Regarding signature requirements, the Commission proposed to amend 
Form 19b-4 so that a ``duly authorized officer'' of an SRO would be 
required to file proposed rule changes with an electronic signature. 
Additionally, the proposal would require each duly authorized signatory 
to obtain a digital ID to provide both the Commission and the SRO with 
further assurances about the authenticity and integrity of the 
electronically-submitted Form 19b-4. Each signatory also would be 
required to manually sign the Form 19b-4, authenticating, 
acknowledging, or otherwise adopting his or her electronic signature 
that is attached to or logically associated with the filing. In 
accordance with Rule 17a-1 under the Securities Exchange Act of 1934 
(``Act''), the SRO would be required to retain that manual signature 
page of the rule filing, authenticating the signatory's electronic 
signature, for not less than five years after the Form 19b-4 is filed 
with the Commission, and, upon request, furnish a copy of it to the 
Commission or its staff.
    Generally, commenters embraced the concept of electronic filing of 
proposed rule changes with the Commission.\5\ Some commenters offered 
suggestions of ways they believe the Commission's proposal could be 
improved. For example, six commenters believe that SROs should retain 
the ability to file paper copies of proposed rule changes with the 
Commission in limited circumstances, such as instances where there are 
computer malfunctions or systems outages.\6\ Three commenters suggested 
the Commission extend the requirement for electronic filing to include 
other types of proposed rule changes and filings with the 
Commission.\7\ Four commenters offered suggested revisions to 
electronic Form 19b-4 as proposed.\8\
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    \5\ CBOE at 1-2; ICI at 1-2; Amex at 1; CHX at 1; NASD at 2; ISE 
at 1; NFA at 2.
    \6\ CBOE at 2; NASD at 3; CHX at 1-2; NFA at 2; OCC at 1-2; NYSE 
at 1. Similarly, one commenter suggested that if technical 
difficulties prevent an SRO from filing a proposed rule change 
electronically, an SRO should be excluded from posting the proposed 
rule change on its Web site if the same technical issues involve its 
Web site. CHX at 2. Another commenter suggested the Commission 
include an explicit exemption for the posting of proprietary 
information on the SRO's Web site. NSCC at 2.
    \7\ NFA requests that the requirement for electronic filing be 
extended to include proposed rule changes filed pursuant to Form 
19b-7. NFA at 1-2. ACB encourages the Commission to require the 
PCAOB to file proposed rule changes electronically. ACB at 2. One 
commenter suggested that all filings by SROs and alternative trading 
systems, including Forms 1 and periodic supplemental filings, should 
be electronic and available to the public on EDGAR. Angel at 1-3.
    \8\ CBOE at 4; Nasdaq 2; NFA at 2; NYSE at 3.
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    A number of commenters focused on the proposal's requirement that a 
paper signature page of the Form 19b-4 be manually signed by a duly 
authorized signatory and retained by an SRO.\9\ While one commenter did 
not object to the record keeping requirements for the hard copy of a 
signature page,\10\ other commenters objected to the requirement that a 
duly authorized signatory sign and an SRO retain a paper signature 
page, saying the requirements were unnecessary.\11\
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    \9\ See generally, CBOE at 2; NASD at 3; CHX at 2; OCC at 3; 
NYSE at 3.
    \10\ NFA at 4.
    \11\ See, e.g., NASD at 3; CHX at 2; NYSE at 3.
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    The Commission is adopting the amendments regarding electronic 
filing of SRO proposed rule changes substantially as proposed. \12\ The 
Commission believes that requiring SROs to file proposed rule changes 
electronically will have many benefits, including (1) a reduction in 
the amount of time and labor required to process SRO rule filings by 
eliminating paper delivery, photocopying, and distribution; (2) a 
reduction in costs for SROs; (3) more efficient use of Commission 
resources; and (4) more efficient and accurate monitoring by Commission 
staff of proposed rule changes due to the integration of SRO electronic 
filing with the SRTS, the internal Commission database that tracks 
these filings.
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    \12\ Section 3(a)(26) of the Act, 15 U.S.C. 78c(a)(26), defines 
the term ``self-regulatory organization'' to mean any national 
securities exchange, registered securities association, registered 
clearing agency, and, for purposes of section 19(b) and other 
limited purposes, the Municipal Securities Rulemaking Board 
(``MSRB''). Currently, there are 27 SROs that file proposed rule 
changes with the Commission. Section 107 of the Sarbanes-Oxley Act 
of 2002 provides that the Public Company Accounting Oversight Board 
(``PCAOB'') shall file proposed rule changes with the Commission 
``as if the Board were a registered securities association for 
purposes of that section 19(b). * * *'' 15 U.S.C. 7217(b)(4). 
Because PCAOB rule filings are not tracked by the SRO Rule Tracking 
System (``SRTS''), the Division of Market Regulation's 
(``Division'') internal tracking database for rule filings, the 
Commission is not requiring, at this time, the PCAOB to file 
electronically its proposed rules. Further, as the proposal for web 
posting of proposed and final SRO rules is designed to make the SRO 
rule filings in the SRTS accessible to the public in a uniform 
manner, the Commission does not intend for these proposed amendments 
to apply to the PCAOB.
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    Therefore, as of 5:30 p.m. eastern standard time on November 5, 
2004, the Commission will no longer accept SRO proposed rule changes in 
paper format. Beginning at 9 a.m. eastern standard time on November 8, 
2004, SROs will be required to file all Forms 19b-4 and any amendments 
to Forms 19b-4 electronically, according to the procedures and in the 
format described in Rule 19b-4 and Form 19b-4, as amended. SROs will 
gain access to a secure Web site to enable authorized individuals to 
file proposed rule changes with the Commission electronically. Proposed 
rule changes will be deemed filed on the business day the Commission 
receives the proposed rule change electronically, provided the 
Commission receives the filing before 5:30 p.m. eastern standard time 
or eastern daylight saving time, whichever is in effect at the time of 
filing, and it is filed in accordance with Rule 19b-4 and Form 19b-4 as 
amended.\13\ The Commission has eliminated the requirement that SROs 
submit multiple paper copies of proposed rule changes.
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    \13\ The Commission believes that to be filed, a proposed rule 
change must be accurate, consistent, and complete in order to 
provide the public with an opportunity to meaningfully comment on 
the proposal. SROs must provide all of the information requested in 
Form 19b-4, including the exhibits, and must present the information 
in a clear and comprehensible manner. The Commission encourages SRO 
staff to review carefully proposed rule changes to ensure, among 
other things, that the filings: (1) Contain a properly completed 
Form 19b-4; (2) contain a clear and accurate statement of the 
authority for, and basis and purpose of, such proposed rule change, 
including the impact on competition; (3) contain a summary of any 
written comments received by the SRO; and (4) state that the 
proposal is not inconsistent with the existing rules of the SRO, 
including any other rules proposed to be amended. Currently, filings 
that do not comply with these conditions are deemed not filed and 
returned to the SRO. Consistent with the requirements of Rule 19b-4 
and Form 19b-4, electronically filed proposed rule changes that do 
not comply with the foregoing will continue to be returned to the 
SRO, electronically, and consistent with current practice, will be 
deemed not filed with the Commission until all required information 
has been provided.
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    The Commission recognizes that in rare circumstances SROs may be 
unable to file certain documents electronically with the Commission. 
Therefore, under limited circumstances, the Commission

[[Page 60290]]

will allow SROs to file documents in paper format.\14\ For example, the 
Commission will allow SROs to file materials for which confidential 
treatment is requested in paper format. In addition, the Commission 
will allow SROs to file, in paper format, comment letters that the SRO 
received from its members before the SRO filed the proposed rule change 
with the Commission, so long as the SRO has demonstrated it is unable 
to convert the comment letters to electronic format. However, the 
Commission notes that, given advances in technology, it is increasingly 
simple and economical for SROs to scan paper documents for conversion 
to electronic format, so the ongoing need for this exception should be 
limited and of relatively short duration.
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    \14\ This exception from electronic filing does not apply to the 
Form 19b-4 and Exhibit 1 but will only be applicable to Exhibits 2 
and 3 of the Form and any documents filed pursuant to a request for 
confidential treatment pursuant to the Freedom of Information Act, 5 
U.S.C. 552.
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    The Commission has determined that an explicit exception from the 
electronic rule filing requirements for ``emergency'' situations is 
unnecessary. Proposed rule changes are usually not so time-sensitive 
that failure to file them with the Commission on a particular date will 
result in negative consequences to SROs, their members, or 
investors.\15\ In the rare situation where an SRO can demonstrate to 
the Commission that its inability to file a proposed rule change 
electronically on that particular date will cause harm to the SRO, its 
members, or investors, the Commission would consider appropriate relief 
to enable the SRO to file the proposed rule change in paper format. In 
such emergency situations, the Commission could consider an SRO's 
exemption request from the electronic rule filing requirements of 
section 19(b) of the Act pursuant to Rule 0-12 of the Act \16\ and 
section 36(a)(1) of the Act \17\ ``to the extent that such exemption is 
necessary or appropriate in the public interest, and is consistent with 
the protection of investors.'' In making such findings, the Commission 
would consider important the existence of factors such as (1) an 
extended electronic outage at the SRO facility or at the Commission; 
(2) a pressing need for implementation of the proposed rule change; and 
(3) a failure of back-up facilities.\18\ The Commission notes that 
SROs, in their business continuity planning, should ensure that they 
have appropriate back-up facilities to accommodate electronic filing of 
proposed rule changes.
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    \15\ Most proposed rule changes filed pursuant to section 
19(b)(2) of the Act are published for notice and comment and 
approved not sooner than the 30th day after notice of filing of the 
proposed rule change appeared in the Federal Register. With regard 
to proposed rule changes filed pursuant to section 19(b)(3)(A) of 
the Act, the Commission believes that the failure to file these 
proposed rule changes on a particular date will not result in harm 
to SROs, their members, or investors. If an SRO wishes to extend an 
existing pilot program by filing a proposed rule change pursuant to 
section 19(b)(3)(A) of the Act, and Rule 19b-4(f)(6) thereunder, the 
SRO should file the proposed rule change in advance of the last 
business day before the pilot's expiration, to ensure that the 
Commission receives the proposed extension in a timely fashion to 
prevent a lapse in the pilot's operation.
    \16\ 17 CFR 240.0-12.
    \17\ 15 U.S.C. 78mm(a)(1).
    \18\ Additionally, in emergency situations, where an SRO can 
demonstrate that implementation of a proposed rule change is 
necessary for the protection of investors, the maintenance of fair 
and orderly markets, or the safeguarding of securities or funds, 
section 19(b)(3)(B) of the Act permits the Commission to put the 
proposed rule change into effect summarily. In such situations, the 
SRO will be required to file the proposed rule change promptly 
thereafter pursuant to section 19b(3)(B) of the Act. 15 U.S.C. 
78s(b)(3)(B).
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    Some commenters objected to the proposed provision that would 
require each duly authorized signatory to a proposed rule change to 
manually sign the Form 19b-4, authenticating, acknowledging, or 
otherwise adopting his or her electronic signature, and the requirement 
that the SRO retain that manual signature page of the rule filing for 
not less than five years after the Form 19b-4 is filed with the 
Commission pursuant to Rule 17a-1 under the Act. With the advent of 
electronic filing, the administrative burden on SROs should be 
significantly reduced. The Commission believes the authentication and 
related recordkeeping requirements are necessary to assure the 
integrity of the electronic rule filing process and does not believe 
they are unduly burdensome. Accordingly, the Commission has determined 
to adopt the provisions as proposed.

B. Posting of Proposed Rule Changes on SRO Web Sites

    The Commission also proposed to amend Rule 19b-4 to require each 
SRO to post all proposed rule changes, and any amendments thereto, on 
its public Web site no later than the next business day after filing 
with the Commission. Under the proposal, a copy of the complete 
proposed rule change would continue to be made available in the 
Commission's Public Reference Room. The Commission stated that 
requiring SROs to post proposed rule changes and amendments on their 
public Web sites promptly after filing with the Commission would (1) 
provide interested persons with quick access to proposed rule changes; 
(2) facilitate the ability of interested persons to comment on proposed 
rule changes; (3) eliminate SRO expenses currently used to monitor the 
Commission's Public Reference Room for proposed rule changes filed by 
other SROs; and (4) enhance the transparency of the rule filing process 
by providing ready access to proposed rule changes and facilitating 
public comment on them. The Commission also solicited comment on 
whether the SRO should update its Web site to reflect proposed rule 
filings that are deemed not properly filed and returned to the SRO or 
withdrawn by the SRO.
    In general, commenters supported the proposed requirement that SROs 
post their proposed rule changes and amendments to proposed rule 
changes on their Web sites, citing greater public access to information 
on a uniform basis,\19\ improved ability to monitor and comment on 
proposed SRO rule changes,\20\ and improved ability to inform SRO 
members, investors, regulators, and other interested parties about SRO 
rulemaking efforts.\21\
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    \19\ ISE at 1.
    \20\ SIA at 2.
    \21\ NASD at 7.
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    With regard to the proposed provision that SROs post on their 
public Web sites all proposed rule changes and amendments no later than 
the next business day after filing them with the Commission, the 
commenters' response was varied. Two commenters expressed general 
support for this requirement,\22\ and one commenter stated a one-day 
grace period for proposals that are filed pursuant to section 
19(b)(3)(A) of the Act is too long.\23\ One commenter asked for 
clarification to determine whether a proposed rule change filed after 
5:30 p.m. must be posted on its Web site the following business day or 
after two business days.\24\
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    \22\ SIA at 2; ICI at 1-2.
    \23\ Thelen at 2. The commenter said that there are instances 
where ``SROs will begin assessing fees based on the new rules before 
any members of the industry affected by the filing have had a chance 
to review them.'' Id. According to the commenter, proposed rule 
changes should be given the same transparency as Commission rule 
proposals and the electronic filings of public companies. Id.
    \24\ CBOE at 2. The Commission notes that a proposed rule change 
filed after 5:30 p.m. would not be considered filed on that business 
day. Thus, determination of the time period for Web site posting of 
the proposed rule change would be calculated from the next business 
day.
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    Four commenters stated that the next business day posting 
requirement is too short a timeframe for SROs to reasonably comply.\25\ 
Instead, these

[[Page 60291]]

commenters suggested alternatives ranging from two to five days.\26\
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    \25\ NASD at 7-8; CHX at 2; NFA at 2-3; OCC at 3.
    \26\ NASD at 7-8 (five days); CHX at 2 (three days); NFA at 2-3 
(two or three days); OCC at 3 (suggests Commission rules provide 
SROs with additional time to post proposed rule changes when an 
SRO's Web site is unavailable for modifying content, such as during 
unexpected maintenance which could affect its ability to post a rule 
filing within the required timeframe).
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    The Commission has decided to adopt an amendment requiring SROs to 
post proposed rule changes on their public Web sites within two 
business days, instead of within one business day as proposed. The 
Commission believes all market participants, investors, and other 
interested parties should have access to SRO proposed rule changes 
filed with the Commission, and any amendments, as soon as practicable 
and, given the concerns expressed by commenters, that a two-business-
day timeframe strikes the appropriate balance. The Commission notes 
that an SRO controls the timing of filing proposed rule changes and 
amendments and can assure that its technology staff is prepared to post 
the proposed rule change on the SRO's public Web site within two 
business days of filing with the Commission.\27\ The Commission is also 
adopting amendments requiring SROs to remove proposed rule filings that 
are deemed not properly filed and returned to SROs or withdrawn by SROs 
from their Web sites within two business days from Commission 
notification of improper filing or SRO withdrawal of the proposed 
rule.\28\
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    \27\ Once the Commission has approved a proposed rule change 
filed pursuant to section 19(b)(2) of the Act or the 60-day 
abrogation period has expired of a proposed rule change filed 
pursuant to section 19(b)(3)(A) of the Act, and the SRO has updated 
its rules posted on its Web site pursuant to Rule 19b-4(m), the 
Commission would not require SROs to continue posting the Form 19b-4 
on their Web sites. An SRO, of course, may elect to archive such 
documents on the SRO's Web site.
    \28\ A screen within EFFS will indicate that a rule filing has 
not been properly filed and has been returned to the SRO.
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C. Posting of Current and Complete Rule Text on SRO Web Sites

    The Commission proposed to amend Rule 19b-4 to require SROs to post 
and maintain a current and complete version of their rules on their 
public Web sites. Under the proposal, each SRO would be required to 
update its public Web site to reflect changes to its rules no later 
than the next business day after it has been notified by the Commission 
that the Commission has approved a proposed rule change, or in the case 
of proposed rule changes filed pursuant to section 19(b)(3)(A) of the 
Act, that the Commission has issued a release providing notice of 
filing and immediate effectiveness of a proposed rule change. The 
Commission proposal that one business day be the timeframe for posting 
changes to SRO rules was designed to ensure that interested persons 
would have prompt access to accurate and complete SRO rules, while 
allowing SROs sufficient time to comply with the posting 
requirement.\29\
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    \29\ Under the proposal, if the Commission approved a proposed 
rule change, but an SRO does not intend to implement the change upon 
approval, an SRO would be required to indicate clearly the 
implementation date in the pertinent rule text.
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    The Commission believes that prompt posting of current and complete 
rule text on SRO Web sites will enhance compliance with SRO rules and 
provide interested parties with easy access to current, reliable, and 
complete versions of SRO rules.
    Eleven commenters expressed general support for requiring SROs to 
post and maintain a current and complete version of their rules on 
their public Web sites.\30\ Some commenters provided additional 
suggestions relating to the posting of SRO rules on SRO Web sites.\31\
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    \30\ CBOE at 2; Amex at 1; NASD at 9; CHX at 3; ICI at 2; Thelen 
at 2; Raymond James at 1; NYSE at 2; SIA at 4; ISE at 1; NFA at 3.
    \31\ See, e.g. Kosoff at 1-2 (extend requirement to include 
access to an archive of past rules and regulations and provide a 
link to their rules from the SEC's Web site; also, require SRO Web 
sites to provide links to all relevant Securities Acts). See also 
NYSE at 3 (SEC may wish to post all of the SROs' rules on the 
Commission's Web site).
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    While there was support for requiring SROs to update their Web 
sites to reflect changes to their rules within one business day after 
Commission notification of the Commission's approval of proposed rule 
changes,\32\ several commenters believe that the requirement does not 
provide the SROs with enough time to comply.\33\ The commenters offered 
many alternatives to the one-business-day posting requirement, ranging 
from three business days \34\ to 15 business days.\35\ Others suggested 
that the Commission allow SROs the flexibility to decide when to update 
their Web sites with approved rules or effective-upon-filing rule 
changes.\36\
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    \32\ ICI at 2.
    \33\ See Amex at 2; Nasdaq at 2; NASD at 9-10; CHX at 3-4; NFA 
at 3; OCC at 2-3; NYSE at 2.
    \34\ CHX at 3-4.
    \35\ NASD at 10.
    \36\ See, e.g., Nasdaq at 2; NASD at 9-10, NYSE at 2.
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    The Commission has determined to adopt an amendment requiring SROs 
to post and maintain a current and complete version of their rules on 
their public Web sites within two business days after electronic 
notification by the Commission that the Commission has approved a 
proposed rule change, or in the case of proposed rule changes filed 
pursuant to section 19(b)(3)(A) of the Act, that the Commission has 
issued a release providing notice of filing and immediate effectiveness 
of a proposed rule change. The Commission believes it is critical to 
assure interested persons have prompt access to accurate and complete 
SRO rules and does not believe that a two-business-day timeframe is 
impractical or unduly burdensome on SROs. An SRO is well aware of rule 
language it has proposed in advance of Commission approval. During the 
notice and comment period, the SRO should take steps to ensure that its 
Web site will be updated to reflect the new rule language within two 
business days of electronic notification by the Commission that it has 
approved the proposed rule change.
    Four commenters expressed concern about the manner in which the 
Commission will provide notice to an SRO that the Commission has 
approved a proposed rule change or issued notice of a proposed rule 
change filed pursuant to section 19(b)(3)(A) of the Act.\37\ In this 
regard, the Commission has determined to and will develop an 
affirmative electronic notification to SROs via EFFS, the Web-based 
electronic rule filing system, that a proposed rule change has been 
approved or an effective-upon-filing rule change has been noticed by 
the Commission. The Commission expects to have an electronic 
notification to be made through a specific EFFS screen that provides 
multiple users at the SRO access to an electronic version of the 
Commission's approval order or notice of effective-upon-filing rule. To 
allow time for development of such electronic notification process, the 
Commission is delaying effectiveness of the requirement for SRO rules 
to be updated on the relevant Web site within two business days 
following notification of approval or notice by the Commission.\38\ 
With such electronic notification in place, the Commission believes 
that the proposed amendments will provide an efficient and prompt 
procedure for it to notify SROs of approval of a proposed rule change 
or notice of an effective-upon-filing rule.
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    \37\ Amex at 1-2; NASD at 10-11; OCC at 2; NYSE at 2.
    \38\ Despite the delayed effective date for implementation of 
Web site posting of complete and current rule text, the Commission 
encourages SROs to seriously consider posting updated rule text on 
their Web sites as soon as possible to further transparency and the 
other goals described herein.
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    Accordingly, an SRO should have immediate notice of the event that 
triggers its duty to update its rules within two business days. The

[[Page 60292]]

requirement to update Web site rule text will run from the business day 
that the SRO receives an electronic notification via EFFS from the 
Commission, not the date of the Commission order or notice of proposed 
rule change filed pursuant to section 19(b)(3)(A) of the Act. To 
accommodate the systems changes necessary to commence electronic 
notification to the SROs through EFFS, however, the Commission is 
delaying implementation of this requirement until May 9, 2005.

D. Electronic Posting of National Market System Plans

    In the Proposing Release, the Commission requested comment on 
whether plan administrators for each of the seven NMS Plans \39\ should 
post on their Web sites or on a separate Plan Web site a current 
version of the NMS Plans, as well as proposed amendments to these Plans 
within the one-business-day timeframe proposed for SROs.
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    \39\ 69 FR 17864, 17868.
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    The Commission received five comments on this issue.\40\ All of the 
commenters supported the general idea of making the NMS Plans available 
on public Web sites,\41\ whether it is through the Plan 
administrator,\42\ the Commission's Web site,\43\ or through hyperlinks 
from SRO Web sites to a central Web site where NMS Plan information 
will be maintained.\44\ While supporting the concept of Web posting of 
NMS Plans, two commenters expressed concerns about the applicable 
timeframe for updating on-line NMS Plan information and the need for 
flexibility to accommodate unusual circumstances.\45\
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    \40\ NASD at 7; Thelen at 3; OCC at 2; BT at 2; NYSE at 2.
    \41\ NASD at 7; Thelen at 3; OCC at 2; BT at 2; NYSE at 2.
    \42\ See, e.g., NASD at 7.
    \43\ See, e.g., Thelen at 3.
    \44\ NYSE at 2.
    \45\ NYSE at 2; OCC at 2.
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    The Commission has decided to adopt a rule that will require each 
participant in an effective NMS Plan to ensure that a current and 
complete version of the Plan is posted on a Plan Web site or on a Web 
site designated by Plan participants within two business days after 
notification by the Commission of effectiveness of such Plan. Each 
participant in any effective NMS Plan also will be required to ensure 
that the Web site is updated to reflect amendments to such Plan no 
later than two business days after the Plan participants have been 
notified by the Commission of its approval of a proposed amendment 
pursuant to Rule 11Aa3-2(c) of the Act.\46\ If the amendment is not 
effective for a certain period, the Plan participants will be required 
to clearly indicate the effective date in the relevant text of the 
Plan. The Plan participants will also be required to post any proposed 
amendments filed pursuant to Rule 11Aa3-2(b) of the Act \47\ on a Plan 
Web site or a designated Web site within two business days after the 
filing of the proposed amendments with the Commission.\48\ The Plan 
participants will be required to remove from the Web site within two 
business days any proposed amendment that they determine to withdraw. 
Each Plan participant will be required to provide a link to the Web 
site with the current version of the Plan. The Commission, however, is 
delaying implementation of these requirements until May 9, 2005, to 
allow Plan participants to make arrangements for proper compliance with 
these provisions.\49\
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    \46\ 17 CFR 240.11Aa3-2(c). A Plan participant encountering 
difficulties in ensuring that a current and complete Plan is posted 
pursuant to the rule may apply to the Commission for appropriate 
relief.
    \47\ 17 CFR 240.11Aa3-2(b).
    \48\ Once the Commission has approved pursuant to Rule 11Aa3-
2(c) an amendment to an NMS Plan filed pursuant to Rule 11Aa3-2(b), 
and the NMS Plan participants have updated the Plan posted on the 
Web site pursuant to Rule 11Aa3-2(b)(8), the Commission would not 
require NMS Plan participants to continue posting the amendment on 
the Web site. NMS Plan participants, of course, may elect to archive 
such documents on the Web site.
    \49\ The Options Linkage Authority currently posts an updated 
version of the Options Linkage Plan on the Options Clearing 
Corporation's Web site at http://www.optionsclearing.com. Despite 
the delayed effective date for implementation of the Web site 
posting requirements, the Commission would encourage NMS plan 
participants to seriously consider Web site posting of NMS Plans, 
and any amendments, as soon as possible to further transparency and 
the other goals described herein.
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E. Amendments to Rule 19b-4

    The Commission received no comments on the proposed amendment to 
Rule 19b-4(e) and is adopting it as proposed. Rule 19b-4(e) establishes 
the rule filing requirements for ``new derivative securities 
products.'' The amendment clarifies that the term ``new derivative 
securities product'' does not include a single equity option or a 
security futures product. Regarding the proposed amendment clarifying 
that fee changes applicable to non-members and non-participants must be 
filed under section 19(b)(2) of the Act and not section 
19(b)(3)(A)(ii), the Commission received three comments.\50\ One 
commenter expressed support for the amendment, stating the 
clarification is important because the rationale for automatically 
effective fees (that SRO members would already have had an opportunity 
to review and pass on fee changes before they were filed with the 
Commission) does not apply to fees assessed on non-members.\51\ One 
commenter stated the proposed amendment is inconsistent with the plain 
meaning of the Act, which makes no distinction between members and non-
members.\52\ Another commenter said the Commission failed to provide 
any rationale for the proposed amendment and that there are certain 
fees for which there is no reason to require Commission approval.\53\ 
The commenter cites (1) fees charged to non-participants for services 
available to participants at the same price; (2) fees charged to non-
participants for compilations of information available from other 
sources; and (3) fees charged to non-participants for services not 
incidental to its business (e.g., rent for unused space) as 
examples.\54\
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    \50\ BT; Nasdaq; NSCC.
    \51\ BT at 1.
    \52\ Nasdaq at 2.
    \53\ NSCC at 3.
    \54\ Id.
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    The Commission is adopting as proposed these amendments to clarify 
Rule 19b-4 and reflect current practice. First, the Commission is 
amending Rule 19b-4(e), which addresses rule filing requirements 
applicable to ``new derivative securities products,'' to clarify that 
that term does not include a single equity option or a security futures 
product.\55\ Second, in 1979, the Commission stated that it would 
require notice and comment before a proposed rule change becomes 
operative that establishes or charges a due, fee, or other charge 
applicable to non-members of, or non-participants in an SRO because 
``[n]on-members or non-participants do not have a direct voice in the 
selection of the governing body of the self-regulatory organization 
proposing the rule change or the administration of the organization's 
affairs.'' \56\ As the Commission explained, ``the first opportunity 
[of non-members and non-participants] to comment generally occurs only 
after the proposed rule change has become effective under section 
19(b)(3)(A)(ii).'' \57\ The Commission wants to assure that these 
persons have

[[Page 60293]]

a meaningful opportunity to comment before the effective date of the 
proposed rule change, even when member or participant fees are 
equivalent or are for items the SRO views as incidental or available 
from other sources. The changes to Rule 19b-4(f)(2) codify the 
Commission's previously stated position that a proposed fee change 
applicable to non-members and non-participants must be filed under 
section 19(b)(2) of the Act for full notice and comment.\58\
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    \55\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952 (December 22, 1998). As the options markets 
already had listing standards for single equity options that 
addressed relevant regulatory concerns, the Commission did not 
intend for SROs to comply with Rule 19b-4(e) for single equity 
options. Similarly, the Commission did not intend to include 
traditional issuer warrants and traditional convertible securities 
in the definition of ``new derivative securities product.'' Id. at 
70956.
    \56\ See Securities Exchange Act Release No. 15838 (May 18, 
1979), 44 FR 30924 (May 29, 1979).
    \57\ Id.
    \58\ See Securities Exchange Act Release No. 35123 (December 20, 
1994), 59 FR 66692 (December 28, 1994). (``[A]s a matter of general 
policy, an SRO proposed rule change that establishes or changes a 
due, fee or other charge applicable to a non-member or non-
participant must be filed under Section 19(b)(2) for full notice and 
comment.'' Id. at 66697; see also Securities Exchange Act Release 
No. 17258 (October 30, 1980), 45 FR 73906 (November 7, 1980) 
(footnote 40). The terms ``member'' and ``participant'' are defined 
in section 3(a)(3)(A) and section 3(a)(24), respectively, of the 
Act.
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F. Technical Amendments to Regulation S-T

    Regulation S-T \59\ currently states that all Exchange Act filings, 
except for Form 25,\60\ must be submitted in paper format. The 
Commission is adopting as proposed a technical amendment to Regulation 
S-T to reflect that the Form 19b-4 will be filed electronically.
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    \59\ 17 CFR 232.101.
    \60\ 17 CFR 249.25.
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III. Paperwork Reduction Act

    Rule 19b-4 and Form 19b-4 contain ``collection of information 
requirements'' within the meaning of the Paperwork Reduction Act of 
1995.\61\ Accordingly, the Commission submitted the information to the 
Office of Management and Budget (``OMB'') for review in accordance with 
44 U.S.C. 3507 and 5 CFR 1320.11. OMB approved the new collection of 
information titled ``Rule 19b-4 Filings with Respect to Proposed Rule 
Changes by Self-Regulatory Organizations'' (OMB Control Nos. 3235-
0045). OMB also approved the collection of information titled ``Rule 
19b-4(e) under the Securities Exchange Act of 1934'' (OMB Control No. 
3235-0504). Compliance with Rule 19b-4 and Form 19b-4 is mandatory.\62\ 
An agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid control number. Any information filed with the Commission will be 
made publicly available.
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    \61\ 44 U.S.C. 3501 et seq.
    \62\ See 44 U.S.C. 3512(a).
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    In the Proposing Release, the Commission solicited comments on the 
collection of information requirements.\63\ NASD and CHX specifically 
addressed the Commission's burden estimates made in the PRA portion of 
the Proposing Release.\64\ For example, NASD stated that the Commission 
underestimated the time it would take to complete an average rule 
filing.\65\ Several commenters expressed concern that the 
implementation of the requirement to post proposed rule changes the 
next business day following filing the Form 19b-4 with the Commission 
and an updated version of their own rules on their Web site, updated 
the business day following Commission approval (or Commission notice of 
immediately effective filings) would be unduly burdensome.\66\ 
Commenters stated similar concerns about the Web site posting of 
proposed amendments to NMS Plans and updated versions of NMS Plans. The 
Commission is making certain adjustments to its initial burden 
estimate, discussed below, taking into account these comments and 
concerns discussed by commenters.
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    \63\ See Proposing Release, 69 FR 17864, 17870 (April 5, 2004).
    \64\ See NASD and CHX Letters.
    \65\ See NASD Letter, p. 9.
    \66\ See Amex, CBOE, CHX, ISE, NASD, Nasdaq, NFA, and OCC 
Letters.
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A. Summary of Collection of Information

    Rule 19b-4 currently requires an SRO seeking Commission approval 
for a proposed rule change to provide the information stipulated in 
Form 19b-4. Form 19b-4 currently calls for a description of: the terms 
of a proposed rule change; the proposed rule change's impact on various 
market segments; and the relationship between the proposed rule change 
and the SRO's existing rules. Form 19b-4 also currently calls for an 
accurate statement of the authority and statutory basis for, and 
purpose of, the proposed rule change; the proposal's impact on 
competition; and a summary of any written comments received by the SRO 
from SRO members or others. The amendments do not change the 
information currently required by Rule 19b-4 or Form 19b-4; the 
amendments only require that such information be submitted 
electronically.
    The amendments to Rule 19b-4, however, require Web site posting of 
all proposed rule changes, and any amendments thereto. In addition, the 
amendments require SROs to post a current and complete set of their 
rules on their Web sites. Several SROs currently post a set of their 
own rules and selected proposed rule changes that they have submitted 
to the Commission. The amendments to Rule 11Aa3-2(b) similarly require 
Web site posting of proposed amendments and current and complete NMS 
Plans.

B. Use of Information

    The information provided via External Account User Administration 
Form (``EAUF''), as required by the amendments to Form 19b-4, will be 
used by the Commission to verify the identity of the SRO individual and 
provide such individual access to the EFFS, the secure Commission Web 
site for filing of the Form 19b-4. The proposed rule change posted by 
SROs on their Web sites will be able to be viewed by the general 
public, SRO members, competing SROs, other market participants, and 
Commission staff. The information provided on the SRO Web sites will 
enable interested parties to more easily access SRO rules and rule 
filings, which will facilitate public comment on proposed SRO rules. 
Similarly, plan participants and other interested parties will be able 
to more easily access the text of NMS Plans and proposed amendments to 
such plans. In addition, the Commission believes that SRO staff, 
members, industry participants, and Commission staff will utilize the 
accurate and current version of SRO rules that are posted on the SRO 
Web site and current and accurate versions of NMS Plans that are posted 
on a public Web site to facilitate compliance with such rules and 
plans.

C. Respondents

    There are currently 27 SROs and 7 NMS Plans subject to the 
collection of information. In fiscal year 2003, these SRO respondents 
filed 769 rule change proposals and 510 amendments to those proposed 
rule change proposals, for a total of 1,279 filings that are subject to 
the current collection of information. In 2003, 705 proposed rule 
changes ultimately became effective. In 2003, 12 amendments to NMS 
Plans were filed and became effective.

D. Total Annual Reporting and Recordkeeping Burden

(1) Background
    The proposed amendments to Rule 19b-4 and Form 19b-4 are designed 
to modernize the SRO rule filing process and to make the process more 
efficient by conserving both SRO and Commission resources. As amended, 
Rule 19b-4 and Form 19b-4 require SROs to electronically file their 
proposed rule changes. Form 19b-4 is revised to accommodate electronic 
submission. The proposed amendments to Rule 19b-4 will also require the 
SROs

[[Page 60294]]

to post on their Web sites any proposed rule changes, and amendments, 
submitted to the Commission within two business days of filing with the 
Commission. In addition, the amendments to Rule 19b-4 require SROs to 
post a current and complete set of their rules on their Web sites. The 
Commission is proposing similar Web site posting requirements for NMS 
Plans and proposed amendments thereto.
(2) Rule 19b-4 and Form 19b-4
    The Commission does not expect that the amendments to Rule 19b-4 
and Form 19b-4 relating to electronic filing of proposed rule changes 
and amendments will impose any material upfront costs on SROs. The 
technology for electronic filing will be web-based; therefore, the SROs 
should not have any material upfront technology expenditures for 
electronic filing because all SROs currently have access to the 
Internet.
    However, each SRO will be required to obtain a digital ID from a 
certificating authority. The Commission staff estimates the upfront and 
annual cost of the ID to be $15 for each SRO.\67\ One commenter 
observed that the Commission's estimate of two digital IDs per SRO 
underrepresented the actual number of such IDs that the commenter, an 
SRO, anticipates that it would have to purchase.\68\ Instead, the 
commenter stated that it expects to obtain between five and ten digital 
IDs. The Commission notes that the commenter, the NASD, has 
historically filed more proposed rule changes pursuant to Rule 19b-4 
than any other SRO. For example, the NASD filed 202 proposed rule 
changes in 2003, more than double the number of any other SRO. Although 
the Commission believes the NASD's expectations with respect to the 
number of authorized digital ID holders may be uniquely high, the 
Commission believes that it is appropriate to adjust the average number 
of IDs per SRO to five digital IDs per SRO. Accordingly, the annual 
cost of the ID for all SROs will be $2,025 (27 SROs x $15 x 5).
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    \67\ See http://www.verisign.com/support/tlc/per/clientHelp/help/index.htm for information on the digital ID that the Commission 
will employ.
    \68\ See NASD Letter at 6.
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    In addition, the Commission believes that SROs could incur some 
costs associated with training their personnel about the procedures for 
submitting proposed rule changes in electronic format and submission of 
the information via EFFS. However, the Commission believes that such 
costs will be one-time costs and relatively insubstantial since the 
SROs are already familiar with the information required in filing a 
proposed rule change with the Commission and will only be required to 
submit the same information electronically under this proposal. The 
Commission estimates that each SRO will spend approximately two hours 
training each staff member who will use the EFFS to submit the proposed 
rule changes electronically. Accordingly, the Commission estimates that 
the upfront cost of training SRO staff members to use EFFS will be 270 
hours (27 SROs x 2 hours x 5 staff members).
    An SRO proposed rule change is generally filed with the Commission 
after an SRO staff member has obtained approval by its Board. The time 
required to complete a filing varies significantly and is difficult to 
separate from the time an SRO spends in developing internally the 
proposed rule change. In the Proposing Release, the Commission stated 
that several SROs estimated 35 hours to be the amount of time required 
to complete an average rule filing using present Form 19b-4. This 
figure includes an estimated 25 hours of in-house legal work and ten 
hours of clerical work. The Commission also stated that the amount of 
time required to prepare amendments varies because some amendments are 
comprehensive, while other amendments are submitted in the form of a 
one-page letter. The Commission staff estimated that, under current 
rules, four hours is the amount of time required to prepare an 
amendment to a proposed rule change. This figure included an estimated 
two hours of in-house legal work and two hours of clerical work.
    One commenter, NASD, noted that the Commission significantly 
underestimated the time it took NASD to complete an average filing or 
amendment.\69\ The NASD subsequently stated that 20 of its 2003 
proposed rule filings were complex and required 130 hours on the 
average to prepare.\70\ Given this estimate, Commission staff also 
estimated that 13 of other SRO proposed rule filings in 2003 were 
similarly complex and required 130 hours on average to prepare. 
Commission staff also spoke with several other SROs subsequent to the 
Proposing Release. Although there was no consensus as to the typical 
amount of time expended in a proposed rule change, most of the other 
SROs, with which the Commission staff spoke, agreed that the 
Commission's 35 hour estimate provided in the Proposing Release was 
reasonable and accurately reflected their experiences. Accordingly, the 
Commission will use the same 35 hour estimate for preparation of all 
SRO proposed rule changes, except the Commission will use an estimate 
of 130 hours for the 33 complex proposed rules.
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    \69\ See NASD Letter p. 6.
    \70\ Telephone conference between Stephanie Dumont, Vice 
President and Associate General Counsel, NASD, with Florence Harmon, 
Senior Special Counsel, Commission, on September 16, 2004.
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    The Commission expects that an electronic form will reduce by one 
hour the amount of SRO clerical time required to prepare the average 
filing and amendment. Following the effectiveness of the proposed 
electronic filing, the Commission staff estimates that 34 hours is the 
amount of time that will be required to complete an average rule 
filing, 129 hours is the amount of time required to complete a complex 
rule filing, and three hours is the amount of time required to complete 
an average amendment. These figures reflect the one-hour in savings in 
clerical hours that will result from the use of an electronic form for 
both the rule filings and the amendments.\71\ The Commission staff 
estimates that the reporting burden for filing rule change proposals 
and amendments with the Commission under the proposed amendments will 
be 30,811 hours (736 rule change proposals x 34 hours + 33 complex rule 
proposal x 129 hours + 510 amendments x 3 hours). Thus, on average, the 
reporting burden for filing proposed rule changes is 38 hours, while 
the reporting burden for filing amendments is 3 hours.
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    \71\ The SROs' one-hour time savings would result from the 
elimination of tasks such as making multiple copies of the Form 19b-
4 and amendments, arranging for couriers, and making follow-up 
telephone calls to ensure Commission receipt.
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(3) Posting of SRO Rules and Proposed Rule Changes on SRO Web Sites.
    (a) SRO Rule Text
    The Commission noted in the Proposing Release that most of the SROs 
currently post some or all of the text of their rules on their Web 
sites. Some SROs currently rely on CCH, Incorporated (``CCH'') to 
maintain a current version of their rules; others maintain the rules 
themselves on their Web site; while the remaining SROs do not provide 
their rules on their Web site. One commenter that currently does not 
post its rules on its Web site observed that, after discussing the 
issue with CCH, CCH might offer web-hosting arrangements for an annual 
cost of approximately $45,000.\72\ The commenter anticipated that doing 
the

[[Page 60295]]

work internally would be more cost-effective.
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    \72\ See CHX Letter, page 4.
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    In the Proposing Release, the Commission staff estimated that an 
SRO, on average, would take two hours to update the rules published on 
the SRO's Web site when the SRO's proposed rule becomes effective. One 
commenter stated that it believed that the Commission's two-hour 
estimate did not accurately reflect the amount of time necessary for an 
SRO to incorporate recently approved or effective-upon-filing rule 
changes into its online manual, explaining that the process of 
reviewing the final rule text and communication with the publishing 
vendor can take ten or more business days.\73\ Several other commenters 
implied that their Web site update of their SRO rules typically takes 
more than two hours by explaining that the process occurs over a series 
of days following Commission approval of a recent proposed rule 
change.\74\
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    \73\ NASD Letter, page 9.
    \74\ Amex Letter 1-2, CBOE 3-4, CHX 3-4, ISE 2, NFA 3, OCC 2-3, 
and Nasdaq 2.
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    The Commission notes that SROs need not use CCH to maintain a 
correct version of their rules on their Web sites. For example, ISE 
posts its rules on its Web site in the form of a PDF file, which the 
ISE can easily change when amending its rules. In response to the 
commenters' concerns regarding the Commission's two-hour estimate of 
the time required to update an SRO's Web site after the proposed rule 
change becomes effective, the Commission is raising its estimate from 
two hours to four hours as the amount of time necessary to update an 
SRO-maintained document containing the SRO's rules and post it on the 
SRO's Web site. Therefore, each time the Commission approves an SRO 
rule change or notices an effective-upon-filing rule change (total of 
705 rules in fiscal year 2003), the Commission staff estimates that the 
reporting burden for updating the posted SRO rules on the SRO Web site 
will be 2,820 hours (705 SRO Commission approved or non-abrogated rules 
x 4 hours).
    The Commission notes that only 6 of the 27 SROs do not currently 
post their rules on their Web site.\75\ In addition, the Commission 
notes that SROs are required by sections 6(b)(1),\76\ 15A(b)(2),\77\ 
15B,\78\ and 17A \79\ of the Act to enforce compliance with their 
rules. The Commission believes that an SRO must have a complete, 
updated version of its rules in order to enforce them. The Commission 
does not believe the SROs that currently do not post their rules on 
their Web sites will incur material costs in simply posting this 
information on their Web sites. The Commission staff estimates that 
four hours will be the amount of time required to post an SRO's current 
rules on its Web site. Accordingly, the Commission staff estimates that 
the total reporting burden for initially posting current rules on the 
SROs' Web sites will be 24 hours (6 SROs that do not already post their 
rules x 4 hours) because each SRO should have a current version of its 
rules available internally for posting on its Web site.
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    \75\ The National Stock Exchange, Inc. (f/k/a Cincinnati Stock 
Exchange, Inc.), Chicago Stock Exchange, Inc., Boston Stock Exchange 
Clearing Corporation, INET Futures Exchange, LLC, and Pacific 
Clearing Corporation do not appear to post their rules on their Web 
sites. The New York Stock Exchange does not have its rules on its 
Web site; however, the New York Stock Exchange does post its Listed 
Company Manual on its Web site.
    \76\ 15 U.S.C. 78f(b)(1).
    \77\ 15 U.S.C. 78o-3(b)(2).
    \78\ 15 U.S.C. 78o-4.
    \79\ 15 U.S.C. 78q-1.
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    (b) Proposed Rule Changes
    In the Proposing Release, the Commission stated that it believed 
that the SROs could incur nominal costs in being required to post on 
their Web site their proposed rules, and amendments thereto, no later 
than the next business day after filing with the Commission. In the 
Proposing Release, the Commission staff estimated that 30 minutes is 
the amount of time that will be required to post a proposed rule on an 
SRO's Web site and that 30 minutes is the amount of time that will be 
required to post an amendment on an SRO's Web site. The Commission 
received one comment on the subject of the Commission's 30-minute 
estimate.\80\ The commenter, the NASD, suggested that the estimate was 
too low,\81\ given the fact that the NASD's Communication Department 
must, each time they post a proposed rule change to their Web site, 
convert the file to PDF format, copy it to a development server to be 
processed, link it to the NASD's Rule Filing web page, return the PDF 
file to the department within the NASD that is responsible for the 
filing to ensure that no errors occurred in the conversion to the PDF 
format, and then wait for it to be returned so that the Department can 
activate the web link. Although the Commission believes that most of 
the procedures that the NASD describes are mechanical functions that 
should not take as long as the NASD estimates, the Commission has no 
other comments or data from which to draw to substantiate its belief. 
Accordingly, the Commission is raising its estimate to four hours for 
the amount of time it takes for an SRO to post rule change proposals 
and amendments on its Web site. The Commission estimates that the 
reporting burden for posting rule change proposals and amendments on 
the SRO Web sites will be 5,116 hours (769 rule change proposals \82\ x 
4 hours + 510 amendments x 4 hours).
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    \80\ See NASD Letter, p. 8.
    \81\ The NASD suggested that the estimate should have been four 
hours instead of 0.5 hours.
    \82\ This number includes SRO proposed rule changes that the 
Commission notices pursuant to section 19(b)(3)(A) of the Act, which 
are effective-upon-filing, and SRO proposed rule changes that the 
Commission notices and accelerates approval in the same document 
pursuant to section 19(b)(2) of the Act, along with notices issued 
by the Commission pursuant to section 19(b)(2) of the Act.
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(4) Web Site Posting of NMS Plans and Proposed Amendments
    The Commission has decided to adopt a provision that will require 
the participants in any effective NMS Plan to post on a public Web site 
to be designated by the plan participants a current version of the 
plans, as well as proposed amendments to these plans, within two 
business days after effectiveness of such plan or filing of any 
proposed amendments. Each plan participant will be required to provide 
a link to the designated Web site with the current version of the plan. 
The Commission is delaying implementation of these requirements, to 
allow plan participants to make arrangements for compliance with these 
provisions.
    Commission staff estimates that an SRO, on average, will take four 
hours to update its Web site postings of the SROs' rules. One of the 
participants of each of the seven NMS Plans would update a public Web 
site posting of their plans when the Commission approves plan 
amendments. In fiscal year 2003, the participants in the seven NMS 
Plans filed 12 amendments to the plans. Therefore, the Commission 
estimates that the reporting burden for updating NMS Plans on the 
designated NMS Plan Web site will be 48 hours (12 NMS Plan amendments 
per year x 4 hours).
    The NMS Plan participants will also have to post proposed 
amendments to NMS Plans on a public Web site. Consistent with its 
estimate for SRO Web site posting of proposed rules, the Commission 
estimates four hours as the amount of time for NMS Plan participants to 
post proposed amendments on a designated Web site. Therefore, the 
Commission estimates that the reporting burden for posting proposed 
rules will be 48 hours (12 amendments x 4 hours).
    The Commission notes that only one of the seven NMS Plans is 
currently

[[Page 60296]]

posted on a public Web site.\83\ As with the posting of SRO rules, the 
Commission's staff estimates that one hour will be the amount of time 
required to post the NMS Plan on the designated Web site. NMS Plan 
participants should know the current version of their effective NMS 
Plan because Rule 11Aa3-2(b)(1) requires filing of the plan and any 
amendments with the Commission. In addition, the Commission notes that 
SRO plan participants are required to enforce compliance with the terms 
of the plans by their members. Rule 11Aa3-2(d) states that each SRO 
shall comply with the terms of any effective NMS Plan of which it is a 
sponsor or a participant. Each SRO also shall, absent reasonable 
justification or excuse, enforce compliance with any such plan by its 
members and persons associated with its members. The Commission 
believes that NMS Plan participants must have a complete, updated 
version of their plans in order to enforce them. The Commission does 
not believe the SRO participants in NMS Plans will incur material costs 
in simply posting this information on a designated Web site. The 
Commission staff estimates that one hour will be the amount of time 
required to post the NMS Plan on a public Web site. Accordingly, the 
Commission staff estimates that the total reporting burden for 
initially posting current NMS Plans on public Web sites will be 24 
hours (6 NMS Plans x 4 hours) because each participant in an NMS Plan 
should have a current version of the plan available for posting on a 
public Web site.
---------------------------------------------------------------------------

    \83\ The Options Linkage Authority currently posts an updated 
version of the Options Linkage Plan on the Options Clearing 
Corporation's Web site at http://www.optionsclearing.com.
---------------------------------------------------------------------------

    Thus, the Commission staff estimates that the total annual 
reporting burden under the proposed rule will be 38,891 hours (30,811 
hours for filing proposed rule changes and amendments + 5,116 hours for 
posting proposed rule changes and amendments on the SROs' Web sites + 
24 hours for initial posting of accurate SRO rule text on SRO Web sites 
+ 2,820 hours for updating SRO final rules on SRO Web sites + 48 hours 
for updating NMS Plans on NMS Plan Web sites + 48 hours for posting 
proposed amendments on NMS Plan Web sites + 24 hours for initial Web 
site posting of current NMS Plans).

E. Retention Period of Recordkeeping Requirements

    The SROs will be required to retain records of the collection of 
information (the manually signed signature page of the Form 19b-4) for 
a period of not less than five years, the first two years in an easily 
accessible place, according to the current recordkeeping requirements 
set forth in Rule 17a-1 of the Act.\84\ The SRO is required to retain 
proposed rule changes, and any amendments, on its Web site until the 
proposal is either approved or disapproved. The SRO is also required at 
all times to maintain an accurate and up-to-date copy of all of its 
rules on its Web site. NMS Plan participants are subject to similar 
requirements for Web site posting of NMS Plans and proposed amendments 
to such plans.
---------------------------------------------------------------------------

    \84\ SROs may also destroy or otherwise dispose of such records 
at the end of five years according to Rule 17a-6 of the Act. 17 CFR 
240.17a-6.
---------------------------------------------------------------------------

    Several commenters suggested that the proposed requirement for the 
SROs to maintain the manually signed signature page of the Form 19b-4 
for at least five years, the first two of which in an easily accessible 
place, is unnecessary and inconsistent with administrative 
efficiency.\85\ The Commission believes that maintaining the physical 
signature page will enable interested parties, including the 
Commission, to access a record of the authority under which a 
particular proposed rule change was filed. The Commission notes that 
the retention of the physical signature page is an existing maintenance 
requirement for SROs. The Commission further notes that a similar 
manual signature retention requirement exists for EDGAR filers.\86\
---------------------------------------------------------------------------

    \85\ See NASD Letter, p. 3, CHX Letter, p. 2, and OCC Letter, p. 
3.
    \86\ 17 CFR 232.302(b).
---------------------------------------------------------------------------

F. Collection of Information is Mandatory

    Any collection of information pursuant to the proposed amendments 
to Rule 19b-4 and Form 19b-4 to require electronic filing with the 
Commission of SRO proposed rule changes is a mandatory collection of 
information. Any collection of information pursuant to the proposed 
amendments to require Web site posting by the SROs of their proposed 
and final rules, and by NMS Plan participants of the plans and proposed 
amendments, is also a mandatory collection of information.

G. Responses to Collection of Information Will Not Be Kept Confidential

    Other than information for which an SRO requests confidential 
treatment and which may be withheld from the public in accordance with 
the provisions of 5 U.S.C. 552, the collection of information pursuant 
to the proposed amendments to Rule 19b-4 and Form 19b-4 and Rule 11Aa3-
2(b) under the Act is not confidential and is publicly available.\87\ 
The Commission notes that the posting of proposed and final rules on 
the SRO Web site (or the posting of NMS Plans and proposed amendments 
on a public Web site) is not information filed with the Commission but 
is information that is being made public by the SROs.
---------------------------------------------------------------------------

    \87\ However, consistent with applicable law, proposed SRO rule 
changes containing proprietary or otherwise sensitive information 
may be kept confidential and nonpublic, including requests submitted 
pursuant to the protection afforded for such information in the 
Freedom of Information Act. 5 U.S.C. 552.
---------------------------------------------------------------------------

IV. Consideration of Costs and Benefits

    In the Proposing Release, the Commission identified certain costs 
and benefits associated with the proposed amendments to Rule 19b-4 and 
Form 19b-4 and requested comments on the Commission's preliminary 
analysis, as well as any costs and benefits not previously identified. 
Specifically, the Commission requested commenters to address whether 
the proposed amendments requiring electronic filing of SRO proposed 
rule changes, posting proposed rule changes on SRO Web sites, and 
posting and maintaining current and complete sets of rules on SRO Web 
sites would generate the anticipated benefits or impose any 
unanticipated costs on SROs and the public. The Commission received 
nine comments relating to the costs and benefits of the proposed 
amendments.\88\ The Commission also engaged in informal discussions 
with a number of SROs following the publication of the amendments in 
the Federal Register. After a careful consideration of the comments 
received and the discussions held with SROs, the Commission believes 
that the benefits of the amendments justify the costs that they will 
impose.
---------------------------------------------------------------------------

    \88\ See NASD, CHX, OCC, Amex, CBOE, CHX, ISE, NFA, and Nasdaq 
Letters.
---------------------------------------------------------------------------

A. Benefits

    The proposed amendments to Rule 19b-4 and Form 19b-4 are designed 
to modernize the filing, receipt, and processing of SRO proposed rule 
changes by making the SRO rule filing process more transparent, 
efficient, and cost effective. For instance, the Commission believes 
that electronic filings will expedite the submission of proposed rule 
changes by eliminating paper delivery and also reduce SROs' clerical 
costs. Specifically, the Commission staff estimates that it currently 
takes an SRO 10 hours of

[[Page 60297]]

clerical time to prepare an average rule filing and 2 hours of clerical 
time to prepare an amendment to an average rule filing. The Commission 
staff expects that electronic filings will reduce by 1 hour the 
clerical time necessary for such rule filings and amendments, saving 
SROs 1,279 hours of clerical time, annually (1 hour x 769 proposed rule 
filings + 1 hour x 510 amendments). Furthermore, SROs currently pay the 
delivery cost of submitting multiple paper copies of proposed rule 
changes to the Commission. The Commission staff estimates that 
electronic filing will save SROs $19,185, annually, in delivery cost 
($15 x 769 proposed rule filings + $15 x 510 amendments). The 
Commission believes that certain SROs will also save the expense of 
monitoring the Commission's Public Reference Room for competitors' 
proposed rule change, which one SRO estimated at $12,000 per year.\89\ 
Accordingly, the Commission staff estimates that the equity and options 
exchanges incur such costs and will save approximately $108,000 
annually (8 SROs x $96,000) as a result of obviating the need for such 
monitoring.
---------------------------------------------------------------------------

    \89\ Telephone conference between Katherine Simmons, Vice 
President and Associate General Counsel, International Stock 
Exchange, with Florence Harmon, Senior Special Counsel, on September 
22, 2004.
---------------------------------------------------------------------------

    The Commission also expects that the amendments to Rule 19b-4 and 
Form 19b-4 will help conserve Commission resources. With electronic 
filings, the Commission staff will no longer manually process the 
internal receipt and distribution of SRO rule filings. The Commission 
staff estimates that electronic filings would save the Commission 1 
hour of clerical time for each proposed rule change and amendment. 
Annually, this will be a saving of 1,279 hours of the Commission's 
clerical time (1 hour x 769 proposed rule filings + 1 hour x 510 
amendments). Moreover, the Commission believes that the electronic 
filing system provides certainty to SROs that proposed rule changes 
have been received because SROs will be able to confirm on EFFS that 
rule filings have been received. Lastly, the Commission anticipates 
that integrating the electronic filing technology with SRTS will 
enhance the Commission's ability to monitor and process rule filings by 
automatically capturing pertinent information about the rule changes in 
SRTS.
    The Commission believes that there are certain benefits to 
requiring SROs to post proposed rule changes on SRO Web sites no later 
than two business days after filing with the Commission. For example, 
online accessibility of proposed SRO rule changes will enhance the 
transparency of the rule filing process. Also, the posting requirement 
will facilitate interested parties' ability to comment on proposed rule 
changes. Further, the Commission anticipates that the posting 
requirement will reduce the burden placed on SROs and the Commission of 
having to provide information about rule filings to interested parties. 
The Commission also believes that posting proposed rule changes will 
save SRO resources currently being used to monitor the Commission's 
Public Reference Room for competitors' filings.\90\
---------------------------------------------------------------------------

    \90\ One SRO estimated its savings from not having to monitor 
the Commission's Public Reference Room to be over $12,000 per year. 
Id.
---------------------------------------------------------------------------

    The Commission believes that there are a number of benefits to 
requiring SROs to post and maintain a current and complete set of rules 
on their Web sites. The Commission believes that this requirement will 
facilitate prompt availability of SRO rule texts following the approval 
of proposed rule changes pursuant to Rule 19b-4. The Commission also 
believes that the requirement will enhance compliance with SRO rules by 
eliminating confusion among interested parties regarding the accuracy 
of SRO rule texts. Finally, the Commission anticipates that online 
availability of a current and complete set of SRO rule texts should 
promote competition among SROs by providing quick and cost-efficient 
access to competitors' rules.
    The Commission also believes that there are a number of benefits to 
requiring the posting on a public Web site designated by the 
participants of the current and complete text of NMS Plans and any 
proposed amendments to such plans. The Commission believes that this 
requirement will facilitate prompt availability of NMS Plans, or any 
proposed amendment to the plans. The Commission also believes that the 
requirement will enhance compliance with NMS Plans by eliminating 
confusion among plan participants regarding the requirements of the 
plans.

B. Costs

    The Commission staff estimates that there will be a total annual 
paperwork reporting burden of 38,891 hours under the amended Rule 19b-4 
and Form 19b-4. As discussed in Section IV (A), supra, the Commission 
believes that the amendments will, on aggregate, reduce costs related 
to the submission of SRO proposed rule changes. Because all SROs 
currently have access to the Internet, the Commission anticipates that 
SROs will not have significant technology expenditures for electronic 
filings. Furthermore, costs associated with paper filings will not be 
incurred with electronic filings. Currently, most information submitted 
by SROs is currently submitted to the Commission in multiple paper 
copies. The Commission believes that the amendments to Rule 19b-4 and 
Form 19b-4, by requiring SROs to submit proposed rule changes 
electronically, will actually reduce SRO costs.
    The Commission, however, anticipates that SROs will incur some cost 
in training their personnel to submit EAUF and proposed rule changes 
electronically. Specifically, the Commission staff estimates that the 
reporting burden for filing rule change proposals and amendments with 
the Commission under the proposed amendments will be 30,811 hours (736 
rule change proposals x 34 hours + 33 complex rule proposals x 129 
hours + 510 amendments x 3 hours). In addition, the Commission staff 
estimates that the upfront burden of training SRO staff members for 
these purposes will be 270 hours (27 SROs x 2 hours x 5 staff members).
    The Commission also expects that SROs will incur some costs 
pursuant to the signature requirements of the amendments. For example, 
SROs will incur some minimal costs ($15 per ID per year) associated 
with purchasing a digital ID for each duly authorized electronic 
signatory. In the Proposing Release, the Commission staff estimated 
that each SRO will purchase 2 digital IDs. However, one commenter 
asserted that it would likely seek 5 to 10 digital IDs for its 
staff.\91\ No other commenters sought to dispute the Commission's 
estimate on the digital IDs required by each SRO. Due in part to the 
large size of the commenter's staff and the number of its annual 
proposed rule changes and amendments, the Commission acknowledges this 
commenter's need for more than 2 digital IDs but believes that the 
commenter's estimate is nonetheless unusually high. Nevertheless, the 
Commission believes that it is appropriate to adjust the average number 
of IDs per SRO to 5 digital IDs. Accordingly, the annual cost of the ID 
for all SROs will be $2,025 (27 SROs x $15 x 5).
---------------------------------------------------------------------------

    \91\ See NASD Letter, p. 6.
---------------------------------------------------------------------------

    Under the amendments, SROs are required to print the Form 19b-4 
signature block, sign proposed rule changes, and retain the manual 
signature for not less than five years.

[[Page 60298]]

The Commission anticipates that there will be no additional cost 
associated with such recordkeeping, as SROs are already required to 
retain the Form 19b-4 for not less than five years. Accordingly, the 
Commission believes that this requirement would not impose any new 
burden on SROs.
    The Commission believes that the requirement that SROs post 
proposed rule changes on public Web sites will impose some but not 
substantial costs on most SROs. In the Proposing Release, the 
Commission staff estimated that SROs will need 30 minutes to post a 
proposed rule or an amendment on their Web sites. The Commission, 
however, has received one comment asserting that accurately processing 
and posting a proposed rule on its Web site requires more time than 
estimated.\92\ The Commission now believes that it takes an additional 
3.5 hours to ensure that the proposed rule is accurately posted. 
Accordingly, the Commission estimates that the burden for posting rule 
change proposals and amendments on SRO Web sites would be 5,116 hours 
(4 hours x 769 proposed rule changes + 4 hours x 510 amendments).
---------------------------------------------------------------------------

    \92\ See NASD Letter, p. 8. The commenter suggested that the 
estimate should be 4 instead of 0.5 hours.
---------------------------------------------------------------------------

    The same commenter observed that staff resources are necessary to 
properly post proposed rule changes but did not quantify the cost. The 
commenter also noted, however, that the benefits of requiring SROs to 
post their rule filings on their public Web sites far outweigh the 
related costs.
    The Commission observed in the Proposing Release that most SROs 
currently post some, if not all, of their rule text on their respective 
Web sites or rely on CCH to maintain such information. SROs may incur a 
cost in expediting prompt publication of rule changes on CCH or 
maintaining current versions on SRO Web sites. For those who do not 
currently maintain their rules online, as one commenter observed, the 
annual cost could be as high as $45,000.\93\ The Commission, however, 
notes that SROs are required by sections 6(b)(1),\94\ 15A(b)(2),\95\ 
15B,\96\ and 17A,\97\ of the Act to enforce compliance with their 
respective rules. Therefore, at all times, each SRO should maintain a 
current and complete set of its rules to facilitate compliance with 
this requirement. Accordingly, the Commission does not believe that 
SROs would incur substantial costs in simply posting this information 
on their Web sites.
---------------------------------------------------------------------------

    \93\ See CHX Letter, p. 4.
    \94\ 15 U.S.C. 78f(b)(1).
    \95\ 15 U.S.C. 78o-3(b)(2).
    \96\ 15 U.S.C. 78o-4.
    \97\ 15 U.S.C. 78q-1.
---------------------------------------------------------------------------

    In the Proposing Release, the Commission staff also estimated that 
an SRO will take an average of 2 hours to update its Web site to 
accurately reflect an approved or effective-upon-filing rule change. 
One commenter, however, has asserted that this estimate does not 
accurately reflect the amount of time necessary for an SRO to 
incorporate such change.\98\ The commenter observed that ensuring the 
accuracy of the final rule text and communicating the changes to the 
publishing vendor could take more than ten business days.\99\ Other 
commenters have also suggested that it takes more than 2 hours to 
process the proposed rule changes without specifying a more accurate 
estimate.\100\ Accordingly, the Commission is raising its estimate from 
2 hours to 4 hours, consistent with the estimate for Web site posting 
of proposed rule changes and their amendments. Therefore, the 
Commission staff estimates that the burden for updating the posted SRO 
rules on the SRO Web sites will be 2,820 hours (705 SRO Commission 
approved or non-abrogated rules x 4 hours).
---------------------------------------------------------------------------

    \98\ See NASD Letter, pp. 8-9.
    \99\ Id.
    \100\ See Amex Letter, pp. 1-2, CBOE Letter, pp. 3-4, CHX 
Letter, pp. 3-4, ISE Letter, p. 2, NFA Letter, p. 3, OCC Letter, pp. 
2-3, and Nasdaq Letter, p. 2.
---------------------------------------------------------------------------

    The Commission is also adopting the amendments that require NMS 
Plan participants to post on a public Web site a current version of the 
plans, as well as proposed amendments to these plans, within the same 
time periods for SROs. Commenters generally supported making NMS Plans, 
as well as proposed amendments, available on a public Web site. Some 
commenters, however, were concerned with the next business day 
timeframe for updating on-line rules and posting amendments; which the 
Commission has revised to a two business day posting requirement for 
both SROs and NMS plan participants.
    NMS Plan participants may incur a cost in prompt publication of NMS 
Plans. As with the posting of SRO rules, the Commissions staff 
estimates that four hours will be the amount of time required to post 
the NMS Plan on the designated Web site. NMS Plan participants should 
know the current version of their effective NMS Plan because Rule 
11Aa3-2(b)(1) requires filing of the plan and any proposed amendments 
with the Commission. In addition, the Commission notes that SRO plan 
participants are required to enforce compliance with the terms of the 
plans by their members pursuant to Rule 11Aa3-2(d). The Commission 
believes that NMS Plan participants must have a complete, updated 
version of their plans in order to enforce them.\101\ Accordingly, the 
Commission does not believe that NMS Plan participants would incur 
substantial costs in simply posting this information on a public Web 
site and estimates the burden hours for this requirement to be 24 hours 
(6 NMS Plans x 4 hour).
---------------------------------------------------------------------------

    \101\ The Options Linkage Authority currently posts an updated 
version of the Options Linkage Plan on the Options Clearing 
Corporation's Web site at http://www.optionsclearing.com.
---------------------------------------------------------------------------

    The participants in the seven NMS Plans will also be required to 
update NMS Plans within two business days after notification of 
Commission approval of proposed amendments. Consistent with the 
timeframe for SROs, the Commission estimates that it will take four 
hours for participants to update NMS Plans on the designated NMS Plan 
Web site and that the burden hours would be 48 hours (12 NMS Plans x 4 
hours). NMS Plan participants will also have to post proposed 
amendments to NMS Plans on a public Web site. As with its estimate for 
SRO Web site posting of proposed rules, the Commission estimates four 
hours as the amount of time for NMS Plan participants to post proposed 
amendments on a designated Web site and estimates the burden hours to 
be 48 hours (12 amendments x 4 hours). The Commission does not believe 
that NMS Plan participants will incur material costs for posting this 
information on a public Web site.

V. Consideration of the Burden on Competition, Promotion of Efficiency, 
and Capital Formation

    Section 3(f) of the Act \102\ requires the Commission, whenever it 
engages in rulemaking and is required to consider or determine whether 
an action is necessary or appropriate in the public interest, to 
consider whether the action will promote efficiency, competition, and 
capital formation. In addition, section 23(a)(2) of the Act \103\ 
requires the Commission, when promulgating rules under the Act, to 
consider the impact any such rules would have on competition. Section 
23(a)(2) further provides that the Commission may not adopt a rule that 
would impose a burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \102\ 15 U.S.C. 78c(f).
    \103\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    In the Proposing Release, the Commission considered how the 
proposed amendments would impact competition among SROs, and whether

[[Page 60299]]

it would promote efficiency and capital formation. The Commission 
solicited comment on whether, if adopted, the proposed amendments would 
impose a burden on competition. The Commission also requested comment 
on whether, if adopted, the proposed amendments would promote 
efficiency, competition and capital formation. The Commission requested 
commenters to provide empirical data to support for their views.
    The proposed amendments to Rule 19b-4 and Form 19b-4 are intended 
to modernize the receipt and review of SRO proposed rule changes and to 
make the SRO rule filing process more efficient by conserving both SRO 
and Commission resources. They also are intended to improve the 
transparency of the SRO rule filing process and facilitate access to 
current and complete sets of SRO rules. The amendments to Rule 11Aa3-
2(b), regarding Web site posting of NMS Plans and proposed amendments 
thereto, seek to achieve similar goals for plan participants and 
Commission staff. The Commission believes that the electronic rule 
filing process will enhance the efficiency of the filing of proposed 
rule changes under Rule 19b-4. The Commission further believes that the 
Web site posting of SRO rule filings will promote competition among 
SROs because they will be able to determine the proposed rules of their 
competitors more easily. Because the proposal does not impact a 
significant number of businesses or investors, the Commission believes 
the proposal will have minimal impact on capital formation.
    The Commission believes that the proposed amendments to Rule 19b-4 
and Form 19b-4 will significantly increase the efficiency of the 
process of filing proposed rule changes pursuant to Rule 19b-4. As a 
result of the new requirement to filing proposed rule changes 
electronically, the Commission anticipates that SROs will save time and 
resources currently devoted to corresponding under a paper-based 
system. As discussed in further detailed in Section IV (``Consideration 
of Costs and Benefits''), the Commission anticipates that SROs will 
save staff time in the preparation and transmission of Form 19b-4 as 
well as associated preparation and delivery costs. Additionally, the 
proposed amendments to Rule 11Aa3-2 will increase efficiency by 
permitting NMS Plan participants to easily locate current plan text for 
compliance purposes.
    The Commission received a number of comments on the issue of the 
effect of the proposal on the efficiency of the SROs' rule filing 
process. One commenter stated ``allowing pdf attachments would maximize 
the efficiency of the filing process for both the SRO and the 
Commission.'' \104\ The Commission notes that the electronic Form 19b-4 
permits that the majority of Exhibits be submitted as PDF attachments. 
Further, the Commission believes requiring the documents contained in 
Exhibits 1, 4, and 5 to be in Word format will facilitate the ability 
of the Commission to format 19b-4 public notices and approval orders 
for the Federal Register.
---------------------------------------------------------------------------

    \104\ See NFA Letter, p. 2.
---------------------------------------------------------------------------

    Another commenter stated that they believed that the requirement 
for the SROs to post their pending proposed rule changes could generate 
confusion because ``many times amendments to the submission are filed, 
before a rule change proposal is noticed in the Federal Register for 
public comment.'' \105\ The commenter reasoned that a ``party would 
risk wasting resources commenting on a proposal that might be 
significantly changed before it is formally made available for public 
comment.'' \106\ The Commission believes that the requirement to post 
proposed rule changes on SRO Web sites increases transparency and only 
minimally affects the efficiency of the commenting process. The 
Commission notes that the notice and comment process will continue to 
be triggered by publication in the Federal Register. If commenters do 
not want to waste resources commenting on a proposal that might be 
significantly changed before it is formally noticed for comment, then 
the Commission would urge commenters to wait until the Commission 
solicits public comment when the proposed rule change is noticed in the 
Federal Register. The proposed amendments will merely allow commenters 
to learn of the filing of a proposed rule change at an earlier point.
---------------------------------------------------------------------------

    \105\ See CHX Letter, p. 2.
    \106\ See CHX Letter, p. 2.
---------------------------------------------------------------------------

    Finally, one commenter believes that informing ``SROs of its 
approval of rule changes or its notice of effective-upon-filing rules' 
on the Web site would be ``inefficient to administer'' because ``(t)his 
would require SROs to constantly monitor the electronic filing system 
to ascertain whether a filing had been approved.'' \107\ The commenter 
requests the Commission to develop ``a more direct method (e.g., e-mail 
or facsimile transmission) of advising SROs that a rule change has been 
approved in order to better achieve its goal of increasing the 
efficiency and transparency of the rule change process.'' \108\
---------------------------------------------------------------------------

    \107\ See CHX Letter, p. 2.
    \108\ See CHX Letter, p. 2.
---------------------------------------------------------------------------

    The Commission agrees with this commenter and will develop an 
affirmative electronic notification to SROs that a proposed rule change 
has been approved or an effective-upon-filing rule change has been 
noticed by the Commission. As described in further detail in Section 
II(C), supra, the Commission is developing an electronic notification 
via an EFFS screen that multiple users at the SRO can view to determine 
such information. With such electronic notification in place, the 
Commission believes that the proposed amendments will provide an 
efficient and prompt procedure for it to notify SROs of approval of a 
proposed rule change or notice of an effective-upon-filing rule.

VI. Regulatory Flexibility Act

    Pursuant to Section 605(b) of the Regulatory Flexibility Act,\109\ 
the Commission certified that amending Rule 19b-4 and Form 19b-4 will 
not have a significant economic impact on a substantial number of small 
businesses. This certification, including the reasons supporting the 
certification, was set forth in the Proposing Release.\110\ The 
Commission received no comments on this certification.
---------------------------------------------------------------------------

    \109\ 5 U.S.C. 605(b).
    \110\ 69 FR 17864, 17871-72.
---------------------------------------------------------------------------

VII. Statutory Basis and Text of Proposed Amendments

    The amendments to Regulation S-T under the Securities Act of 1933, 
Rule 19b-4 and Form 19b-4 under the Act are being proposed pursuant to 
15 U.S.C. 78a et seq., particularly sections 3, 6, 11A, 15A, 15B, 17A, 
19(b), 23(a) and 36(a) of the Act.

List of Subjects in 17 CFR Parts 232, 240, and 249

    Reporting and recordkeeping requirements, Securities.

0
In accordance with the foregoing, Title 17, Chapter II of the Code of 
Federal Regulations is amended as follows:

PART 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

0
1. The authority citation for part 232 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a), 
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80a-30 and 80a-37.
* * * * *

0
2. Section 232.101 is amended by:

[[Page 60300]]

0
a. Removing the word ``and'' at the end of paragraph (a)(1)(vii);
0
b. Removing the period at the end of paragraph (a)(1)(viii) and in its 
place adding a semicolon;
0
c. Removing the period at the end of paragraph (a)(1)(ix) and in its 
place adding ``; and'';
0
d. Adding paragraph (a)(1)((x); and
0
e. Revising paragraph (c)(9).
    The addition and revision read as follows:


Sec.  232.101  Mandated electronic submissions and exceptions.

    (a) * * *
    (1) * * *
    (x) Form 19b-4 (Sec.  249.819 of this chapter).
* * * * *
    (c) * * *
    (9) Exchange Act filings submitted to the Division of Market 
Regulation, except for Form 19b-4 (Sec.  249.819 of this chapter);
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
3. The authority citation for part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.
* * * * *

0
4. Section 240.11Aa3-2 is amended by removing the authority citation 
following Sec.  240.11Aa3-2 and adding paragraph (b)(8) to read as 
follows:


Sec.  240.11Aa3-2  Filing and amendment of national market system 
plans.

* * * * *
    (b) * * *
    (8)(i) A participant in an effective national market system plan 
shall ensure that a current and complete version of the plan is posted 
on a plan Web site or on a Web site designated by plan participants 
within two business days after notification by the Commission of 
effectiveness of the plan. Each participant in an effective national 
market system plan shall ensure that such Web site is updated to 
reflect amendments to such plan within two business days after the plan 
participants have been notified by the Commission of its approval of a 
proposed amendment pursuant to paragraph (c) of this section. If the 
amendment is not effective for a certain period, the plan participants 
shall clearly indicate the effective date in the relevant text of the 
plan. Each plan participant also shall provide a link on its own Web 
site to the Web site with the current version of the plan.
    (ii) The plan participants shall ensure that any proposed 
amendments filed pursuant to paragraph (b) of this section are posted 
on a plan Web site or a designated Web site no later than two business 
days after the filing of the proposed amendments with the Commission. 
The plan participants shall maintain any proposed amendment to the plan 
on a plan Web site or a designated Web site until the Commission 
approves the plan amendment and the plan participants update the Web 
site to reflect such amendment or the plan participants withdraw the 
proposed amendment. If the plan participants withdraw proposed 
amendments, the plan participants shall remove such amendments from the 
plan Web site or designated Web site within two business days of 
withdrawal. Each plan participant shall provide a link to the Web site 
with the current version of the plan.
* * * * *

0
5. Section 240.19b-4 is amended by:
0
a. Adding a preliminary note;
0
b. Revising paragraph (a), the introductory text of paragraph (e), and 
paragraph (f)(2); and
0
c. Adding paragraphs (j), (k), (l), and (m).
    The additions and revisions read as follows.


Sec.  240.19b-4  Filings with respect to proposed rule changes by self-
regulatory organizations.

    Preliminary Note: A self-regulatory organization also must refer to 
Form 19b-4 (17 CFR 249.819) for further requirements with respect to 
the filing of proposed rule changes.
    (a) Filings with respect to proposed rule changes by a self-
regulatory organization, except filings with respect to proposed rules 
changes by self-regulatory organizations submitted pursuant to section 
19(b)(7) of the Act (15 U.S.C. 78s(b)(7)), shall be made electronically 
on Form 19b-4 (17 CFR 249.819).
* * * * *
    (e) For the purposes of this paragraph, new derivative securities 
product means any type of option, warrant, hybrid securities product or 
any other security, other than a single equity option or a security 
futures product, whose value is based, in whole or in part, upon the 
performance of, or interest in, an underlying instrument.
* * * * *
    (f) * * *
    (2) Establishing or changing a due, fee, or other charge applicable 
only to a member;
* * * * *
    (j) Filings with respect to proposed rule changes by a self-
regulatory organization submitted on Form 19b-4 (17 CFR 249.819) 
electronically shall contain an electronic signature. For the purposes 
of this section, the term electronic signature means an electronic 
entry in the form of a magnetic impulse or other form of computer data 
compilation of any letter or series of letters or characters comprising 
a name, executed, adopted or authorized as a signature. The signatory 
to an electronically submitted rule filing shall manually sign a 
signature page or other document, in the manner prescribed by Form 19b-
4, authenticating, acknowledging or otherwise adopting his or her 
signature that appears in typed form within the electronic filing. Such 
document shall be executed before or at the time the rule filing is 
electronically submitted and shall be retained by the filer in 
accordance with Sec.  240.17a-1.
    (k) If the conditions of this section and Form 19b-4 (17 CFR 
249.819) are otherwise satisfied, all filings submitted electronically 
on or before 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving 
Time, whichever is currently in effect, on a business day, shall be 
deemed filed on that business day, and all filings submitted after 5:30 
p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever 
is currently in effect, shall be deemed filed on the next business day.
    (l) The self-regulatory organization shall post the proposed rule 
change, and any amendments thereto, on its Web site within two business 
days after the filing of the proposed rule change, and any amendments 
thereto, with the Commission. Such proposed rule change and amendments 
shall be maintained on the self-regulatory organization's Web site 
until:
    (1) In the case of a proposed rule change filed under section 
19(b)(2) of the Act (15 U.S.C. 78s(b)(2)), the Commission approves the 
proposed rule change or the self-regulatory organization withdraws the 
proposed rule change, or any amendments, or is notified that the 
proposed rule change is not properly filed; or
    (2) In the case of a proposed rule change filed under section 
19(b)(3)(A) of the Act (15 U.S.C. 78s(b)(3)(A)), or any

[[Page 60301]]

amendment thereto, 60 days after the date of filing, unless the self-
regulatory organization withdraws the proposed rule change or is 
notified that the proposed rule change is not properly filed; and
    (3) In the case of proposed rule changes approved by the Commission 
pursuant to section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) or 
noticed by the Commission pursuant to section 19(b)(3)(A) of the Act 
(15 U.S.C. 78s(b)(3)(A)), the self-regulatory organization updates its 
rule text as required by paragraph (m) of this section; and
    (4) In the case of a proposed rule change, or any amendment 
thereto, that has been withdrawn or not properly filed, the self-
regulatory organization shall remove the proposed rule change, or any 
amendment, from its Web site within two business days of notification 
of improper filing or withdrawal by the SRO of the proposed rule 
change.
    (m) Each self-regulatory organization shall post and maintain a 
current and complete version of its rules on its Web site. The self-
regulatory organization shall update its Web site to reflect rule 
changes within two business days after it has been notified of the 
Commission's approval of a proposed rule change filed pursuant to 
section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) or of the 
Commission's notice of a proposed rule change filed pursuant to section 
19(b)(3)(A) or section 19(b)(7) of the Act (15 U.S.C. 78s(b)(3)(A) or 
15 U.S.C. 78s(b)(7)). If a rule change is not effective for a certain 
period, the self-regulatory organization shall clearly indicate the 
effective date in the relevant rule text.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
6. The authority citation for part 249 continues to read in part as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 
1350, unless otherwise noted.
* * * * *

0
7. Section 249.819 and Form 19b-4 are revised to read as follows:
    [Note: Form 19b-4 is attached as Appendix A to this document.]


Sec.  249.819  Form 19b-4, for electronic filing with respect to 
proposed rule changes by all self-regulatory organizations.

    This form shall be used by all self-regulatory organizations, as 
defined in section 3(a)(26) of the Securities Exchange Act of 1934 (15 
U.S.C. 78c(a)(26)), to file electronically proposed rule changes with 
the Commission pursuant to section 19(b) of the Act and Sec.  240.19b-4 
of this chapter.

    Dated: October 4, 2004.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.

    (Note: Appendix A to the preamble will not appear in the Code of 
Federal Regulations.)

Appendix A--General Instructions for Form 19b-4

A. Use of the Form

    All self-regulatory organization proposed rule changes, except 
filings with respect to proposed rule changes by self-regulatory 
organizations submitted pursuant to Section 19(b)(7) \1\ of the 
Securities Exchange Act of 1934 (``Act''), shall be filed in an 
electronic format through the Electronic Form 19b-4 Filing System 
(``EFFS''), a secure Web site operated by the Commission. This form 
shall be used for filings of proposed rule changes by all self-
regulatory organizations pursuant to Section 19(b) of the Act, 
except filings with respect to proposed rule changes by self-
regulatory organizations submitted pursuant to Section 19(b)(7) of 
the Act. National securities exchanges, registered securities 
associations, registered clearing agencies, and the Municipal 
Securities Rulemaking Board are self-regulatory organizations for 
purposes of this form.
---------------------------------------------------------------------------

    \1\ Because Section 19(b)(7)(C) of the Act states that filings 
abrogated pursuant to this Section should be re-filed pursuant to 
paragraph (b)(1) of Section 19 of the Act, SROs are required to file 
electronically such proposed rule changes in accordance with this 
form.
---------------------------------------------------------------------------

B. Need for Careful Preparation of the Completed Form, Including 
Exhibits

    This form, including the exhibits, is intended to elicit 
information necessary for the public to provide meaningful comment 
on the proposed rule change and for the Commission to determine 
whether the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to 
the self-regulatory organization. The self-regulatory organization 
must provide all the information called for by the form, including 
the exhibits, and must present the information in a clear and 
comprehensible manner.
    The proposed rule change shall be considered filed on the date 
on which the Commission receives the proposed rule change if the 
filing complies with all requirements of this form. Any filing that 
does not comply with the requirements of this form may be returned 
to the self-regulatory organization at any time before the issuance 
of the notice of filing. Any filing so returned shall for all 
purposes be deemed not to have been filed with the Commission. See 
also Rule 0-3 under the Act (17 CFR 240.0-3).

C. Documents Comprising the Completed Form

    The completed form filed with the Commission shall consist of 
the Form 19b-4 Page 1, numbers and captions for all items, responses 
to all items, and exhibits required in Item 9. In responding to an 
item, the completed form may omit the text of the item as contained 
herein if the response is prepared to indicate to the reader the 
coverage of the item without the reader having to refer to the text 
of the item or its instructions. Each filing shall be marked on the 
Form 19b-4 with the initials of the self-regulatory organization, 
the four-digit year, and the number of the filing for the year 
(i.e., SRO-YYYY-XX). If the SRO is filing Exhibit 2 and 3 via paper, 
the exhibits must be filed within 5 business days of the electronic 
submission of all other required documents.

D. Amendments

    If information on this form is or becomes inaccurate before the 
Commission takes action on the proposed rule change, the self-
regulatory organization shall file amendments correcting any such 
inaccuracy. Amendments shall be filed as specified in Instruction F.
    Amendments to a filing shall include the Form 19b-4 Page 1 
marked to number consecutively the amendments, numbers and captions 
for each amended item, amended response to the item, and required 
exhibits. The amended response to Item 3 shall explain the purpose 
of the amendment and, if the amendment changes the purpose of or 
basis for the proposed rule change, the amended response shall also 
provide a revised purpose and basis statement for the proposed rule 
change. Exhibit 1 shall be re-filed if there is a material change 
from the immediately preceding filing in the language of the 
proposed rule change or in the information provided.
    If the amendment alters the text of an existing rule, the 
amendment shall include the text of the existing rule, marked in the 
manner described in Item 1(a) using brackets to indicate words to be 
deleted from the existing rule and underscoring to indicate words to 
be added. The purpose of this marking requirement is to maintain a 
current copy of how the text of the existing rule is being changed.
    If the amendment alters the text of the proposed rule change as 
it appeared in the immediately preceding filing (even if the 
proposed rule change does not alter the text of an existing rule), 
the amendment shall include, as Exhibit 4, the entire text of the 
rule as altered. This full text shall be marked, in any convenient 
manner, to indicate additions to and deletions from the immediately 
preceding filing. The purpose of Exhibit 4 is to permit the staff to 
identify immediately the changes made from the text of the rule with 
which it has been working.
    If the self-regulatory organization is amending only part of the 
text of a lengthy proposed rule change, it may, with the 
Commission's permission, file only those portions of the text of the 
proposed rule change in which changes are being made if the filing 
(i.e., partial amendment) is clearly understandable on its face. 
Such partial amendment shall be clearly identified and marked to 
show deletions and additions.
    If, after the rule change is filed but before the Commission 
takes final action on it, the

[[Page 60302]]

self-regulatory organization receives or prepares any correspondence 
or other communications reduced to writing (including comment 
letters) to and from such self-regulatory organization concerning 
the proposed rule change, the communications shall be filed as 
Exhibit 2. If information in the communication makes the rule change 
filing inaccurate, the filing shall be amended to correct the 
inaccuracy. If such communications cannot be filed electronically in 
accordance with Instruction F, the communications shall be filed in 
accordance with Instruction G.

E. Completion of Action by the Self-Regulatory Organization on the 
Proposed Rule Change

    The Commission will not approve a proposed rule change before 
the self-regulatory organization has completed all action required 
to be taken under its constitution, articles of incorporation, 
bylaws, rules, or instruments corresponding thereto (excluding 
action specified in any such instrument with respect to (i) 
compliance with the procedures of the Act or (ii) the formal filing 
of amendments pursuant to state law). Nevertheless, proposed rule 
changes (other than proposed rule changes that are to take, or to be 
put into, effect pursuant to Section 19(b)(3) of the Act) may be 
initially filed before the completion of all such action if the 
self-regulatory organization consents, under Item 6 of this form, to 
an extension of the period of time specified in Section 19(b)(2) or 
Section 19(b)(7)(D) of the Act until at least thirty-five days after 
the self-regulatory organization has filed an appropriate amendment 
setting forth the taking of all such action. If a proposed rule 
change to be filed for review under Section 19(b)(2) or Section 
19(b)(7)(D) of the Act is in preliminary form, the self-regulatory 
organization may elect to file initially Exhibit 1 setting forth a 
description of the subjects and issues expected to be involved.

F. Signature and Filing of the Completed Form

    All proposed rule changes, amendments, extensions, and 
withdrawals of proposed rule changes shall be filed through the 
EFFS. In order to file Form 19b-4 through EFFS, self-regulatory 
organizations must request access to the SEC's External Application 
Server by completing a request for an external account user ID and 
password. Initial requests will be received by contacting the Market 
Regulation Administrator located on our Web site (http://www.sec.gov). An e-mail will be sent to the requestor that will 
provide a link to a secure Web site where basic profile information 
will be requested.
    A duly authorized officer of the self-regulatory organization 
shall electronically sign the completed Form 19b-4 as indicated on 
Page 1 of the Form. In addition, a duly authorized officer of the 
self-regulatory organization shall manually sign one copy of the 
completed Form 19b-4, and the manually signed signature page shall 
be maintained pursuant to Section 17 of the Act. A registered 
clearing agency for which the Commission is not the appropriate 
regulatory agency also shall file with its appropriate regulatory 
agency three copies of the form, one of which shall be manually 
signed, including exhibits. The Municipal Securities Rulemaking 
Board also shall file copies of the form, including exhibits, with 
the Board of Governors of the Federal Reserve System, the 
Comptroller of the Currency, and the Federal Deposit Insurance 
Corporation.

G. Procedures for Submission of Paper Documents for Exhibits 2 and 3

    To the extent that Exhibits 2 and 3 cannot be filed 
electronically in accordance with Instruction F, four copies of 
Exhibits 2 and 3 shall be filed with the Division of Market 
Regulation, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549-1001. Page 1 of the electronic Form 19b-4 
shall accompany paper submissions of Exhibits 2 and 3. If the SRO is 
filing Exhibit 2 and 3 via paper, they must be filed within five 
days of the electronic filing of all other required documents.

H. Withdrawals of Proposed Rule Changes

    If a self-regulatory organization determines to withdraw a 
proposed rule change, it must complete Page 1 of the Form 19b-4 and 
indicate by selecting the appropriate check box to withdraw the 
filing.

I. Procedures for Granting an Extension of Time for Commission Final 
Action

    After the Commission publishes notice of a proposed rule change, 
if a self-regulatory organization wishes to grant the Commission an 
extension of the time to take final action as specified in Section 
19(b)(2), the self-regulatory organization shall indicate on the 
Form 19b-4 Page 1 the granting of said extension as well as the date 
the extension expires.
BILLING CODE 8010-01-P

[[Page 60303]]

[GRAPHIC] [TIFF OMITTED] TR08OC04.000


[[Page 60304]]


[GRAPHIC] [TIFF OMITTED] TR08OC04.001

BILLING CODE 8010-01-C

Information To Be Included in the Completed Form (``Form 19b-4 
Information'')

1. Text of the Proposed Rule Change

    (a) Include the text of the proposed rule change. Changes in, 
additions to, or deletions from, any existing rule shall be set 
forth with brackets used to indicate words to be deleted and 
underscoring used to indicate words to be added.
    If any form, report, or questionnaire is
    (i) proposed to be used in connection with the implementation or 
operation of the proposed rule change, or
    (ii) prescribed or referred to in the proposed rule change, then 
the form, report, or questionnaire must be attached to and shall be 
considered as part of the proposed rule change. If completion of the 
form, report, or questionnaire is voluntary or is required pursuant 
to an existing rule of the self-regulatory organization, then the 
form, report, or questionnaire, together with a statement 
identifying any existing rule that requires completion of the form, 
report, or questionnaire, shall be attached as Exhibit 3. If the 
form, report, or questionnaire cannot be filed electronically in 
accordance with Instruction F, the documents shall be filed in 
accordance with Instruction G.
    (b) If the self-regulatory organization reasonably expects that 
the proposed rule change will have any direct effect, or significant 
indirect effect, on the application of any other rule of the self-
regulatory organization, set forth the designation or title of any 
such rule and describe the anticipated effect of the proposed rule 
change on the application of such other rule.
    (c) Include the file numbers for prior filings with respect to 
any existing rule specified in response to Item 1(b).

2. Procedures of the Self-Regulatory Organization

    Describe action on the proposed rule change taken by the members 
or board of directors or other governing body of the self-regulatory 
organization (by amendment if initial filing is prior to completion 
of final action). See Instruction E.

[[Page 60305]]

3. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    Provide a statement of the purpose of the proposed rule change 
and its basis under the Act and the rules and regulations thereunder 
applicable to the self-regulatory organization. With respect to 
proposed rule changes filed pursuant to Section 19(b)(1) of the Act, 
except for proposed rule changes that have been abrogated pursuant 
to Section 19(b)(7)(C) of the Act, the statement should be 
sufficiently detailed and specific to support a finding under 
Section 19(b)(2) of the Act that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to the self-regulatory 
organization. With respect to proposed rule changes filed pursuant 
to Section 19(b)(1) of the Act that have been abrogated pursuant to 
Section 19(b)(7)(C) of the Act, the statement should be sufficiently 
detailed and specific to support a finding under Section 19(b)(7)(D) 
of the Act that the proposed rule change does not unduly burden 
competition or efficiency, does not conflict with the securities 
laws, and is not inconsistent with the public interest or the 
protection of investors. At a minimum, the statement should:
    (a) Describe the reasons for adopting the proposed rule change, 
any problems the proposed rule change is intended to address, the 
manner in which the proposed rule change will resolve those 
problems, the manner in which the proposed rule change will affect 
various persons (e.g., brokers, dealers, issuers, and investors), 
and any significant problems known to the self-regulatory 
organization that persons affected are likely to have in complying 
with the proposed rule change; and
    (b) With respect to the proposed rule changes filed pursuant to 
both Sections 19(b)(1) and 19(b)(2) of the Act, explain why the 
proposed rule change is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to the self-
regulatory organization. A mere assertion that the proposed rule 
change is consistent with those requirements is not sufficient. With 
respect to a proposed rule change filed pursuant to Section 19(b)(1) 
of the Act that has been abrogated pursuant to Section 19(b)(7)(C) 
of the Act, explain why the proposed rule change does not unduly 
burden competition or efficiency, does not conflict with the 
securities laws, and is not inconsistent with the public interest 
and the protection of investors, in accordance with Section 
19(b)(7)(D) of the Act. A mere assertion that the proposed rule 
change satisfies these requirements is not sufficient. In the case 
of a registered clearing agency, also explain how the proposed rule 
change will be implemented consistently with the safeguarding of 
securities and funds in its custody or control or for which it is 
responsible. Certain limitations that the Act imposes on self-
regulatory organizations are summarized in the notes that follow.

    Note 1. National Securities Exchanges and Registered Securities 
Associations. Under Sections 6 and 15A of the Act, rules of a 
national securities exchange or registered securities association 
may not permit unfair discrimination between customers, issuers, 
brokers, or dealers, and may not regulate, by virtue of any 
authority conferred by the Act, matters not related to the purposes 
of the Act or the administration of the self-regulatory 
organization. Rules of a registered securities association may not 
fix minimum profits or impose any schedule of or fix rates of 
commissions, allowances, discounts, or other fees to be charged by 
its members.

    Under Section 11A(c)(5) of the Act, a national securities 
exchange or registered securities association may not limit or 
condition the participation of any member in any registered clearing 
agency.

    Note 2. Registered Clearing Agencies. Under Section 17A of the 
Act, rules of a registered clearing agency may not permit unfair 
discrimination in the admission of participants or among 
participants in the use of the clearing agency, may not regulate, by 
virtue of any authority conferred by the Act, matters not related to 
the purposes of Section 17A of the Act or the administration of the 
clearing agency, and may not impose any schedule of prices, or fix 
rates or other fees, for services rendered by its participants.

    Note 3. Municipal Securities Rulemaking Board. Under Section 15B 
of the Act, rules of the Municipal Securities Rulemaking Board may 
not permit unfair discrimination between customers, issuers, 
municipal securities brokers, or municipal securities dealers, may 
not fix minimum profits, or impose any schedule or fix rates of 
commissions, allowances, discounts, or other fees to be charged by 
municipal securities brokers or municipal securities dealers, and 
may not regulate, by virtue of any authority conferred by the Act, 
matters not related to the purposes of the Act with respect to 
municipal securities or the administration of the Board.

4. Self-Regulatory Organization's Statement on Burden on 
Competition

    State whether the proposed rule change will have an impact on 
competition and, if so, (i) state whether the proposed rule change 
will impose any burden on competition or whether it will relieve any 
burden on, or otherwise promote, competition and (ii) specify the 
particular categories of persons and kinds of businesses on which 
any burden will be imposed and the ways in which the proposed rule 
change will affect them. If the proposed rule change amends an 
existing rule, state whether that existing rule, as amended by the 
proposed rule change, will impose any burden on competition. If any 
impact on competition is not believed to be a significant burden on 
competition, explain why. Explain why any burden on competition is 
necessary or appropriate in furtherance of the purposes of the Act. 
In providing those explanations, set forth and respond in detail to 
written comments as to any significant impact or burden on 
competition perceived by any person who has made comments on the 
proposed rule change to the self-regulatory organization. The 
statement concerning burdens on competition should be sufficiently 
detailed and specific to support a Commission finding that the 
proposed rule change does not impose any unnecessary or 
inappropriate burden on competition.

5. Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    If written comments were received (whether or not comments were 
solicited) from members of or participants in the self-regulatory 
organization or others, summarize the substance of all such comments 
received and respond in detail to any significant issues that those 
comments raised about the proposed rule change. If an issue is 
summarized and responded to in detail under Item 3 or Item 4, that 
response need not be duplicated if appropriate cross-reference is 
made to the place where the response can be found. If comments were 
not or are not to be solicited, so state.

6. Extension of Time Period for Commission Action

    State whether the self-regulatory organization consents to an 
extension of the time period specified in Section 19(b)(2) or 
Section 19(b)(7)(D) of the Act and the duration of the extension, if 
any, to which the self-regulatory organization consents.

    Note. The self-regulatory organization may elect to consent to 
an extension of the time period specified in Section 19(b)(2) or 
Section 19(b)(7)(D) of the Act until it shall file an amendment 
which specifically states that the time period specified in Section 
19(b)(2) or Section 19(b)(7)(D) of the Act shall begin to run on the 
date of filing such amendment.

7. Basis for Summary Effectiveness Pursuant to Section 19(b)(3) or 
for Accelerated Effectiveness Pursuant to Section 19(b)(2) or 
Section 19(b)(7)(D)

    (a) If the proposed rule change is to take, or to be put into, 
effect, pursuant to Section 19(b)(3), state whether the filing is 
made pursuant to paragraph (A) or (B) thereof.
    (b) In the case of paragraph (A) of Section 19(b)(3), designate 
that the proposed rule change:
    (i) is a stated policy, practice, or interpretation with respect 
to the meaning, administration, or enforcement of an existing rule,
    (ii) establishes or changes a due, fee, or other charge 
applicable only to a member,
    (iii) is concerned solely with the administration of the self-
regulatory organization,
    (iv) effects a change in an existing service of a registered 
clearing agency that (A) does not adversely affect the safeguarding 
of securities or funds in the custody or control of the clearing 
agency or for which it is responsible and (B) does not significantly 
affect the respective rights or obligations of the clearing agency 
or persons using the service, and set forth the basis on which such 
designation is made,
    (v) effects a change in an existing order-entry or trading 
system of a self-regulatory organization that (A) does not 
significantly affect the protection of investors or the public 
interest; (B) does not impose any significant burden on competition; 
and (C) does not

[[Page 60306]]

have the effect of limiting the access to or availability of the 
system, or
    (vi) effects a change that (A) does not significantly affect the 
protection of investors or the public interest; (B) does not impose 
any significant burden on competition; and (C) by its terms, does 
not become operative for 30 days after the date of the filing, or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest; provided that 
the self-regulatory organization has given the Commission written 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. If it 
is requested that the proposed rule change become operative in less 
than 30 days, provide a statement explaining why the Commission 
should shorten this time period.
    (c) In the case of paragraph (B) of Section 19(b)(3), set forth 
the basis upon which the Commission should, in the view of the self-
regulatory organization, determine that the protection of investors, 
the maintenance of fair and orderly markets, or the safeguarding of 
securities and funds requires that the proposed rule change should 
be put into effect summarily by the Commission.

    Note. The Commission has the power under Section 19(b)(3)(C) of 
the Act to abrogate summarily within sixty days of its filing any 
proposed rule change which has taken effect upon filing pursuant to 
Section 19(b)(3)(A) of the Act or was put into effect summarily by 
the Commission pursuant to Section 19(b)(3)(B) of the Act. In 
exercising its summary power under Section 19(b)(3)(B), the 
Commission is required to make one of the findings described above 
but may not have a full opportunity to make a determination that the 
proposed rule change otherwise is consistent with the requirements 
of the Act and the rules and regulations thereunder. The Commission 
will generally exercise its summary power under Section 19(b)(3)(B) 
on condition that the proposed rule change to be declared effective 
summarily shall also be subject to the procedures of Section 
19(b)(2) of the Act. Accordingly, in most cases, a summary order 
under Section 19(b)(3)(B) shall be effective only until such time as 
the Commission shall enter an order, pursuant to Section 19(b)(2)(A) 
of the Act, to approve such proposed rule change or, depending on 
the circumstances, until such time as the Commission shall institute 
proceedings to determine whether to disapprove such proposed rule 
change or, alternatively, such time as the Commission shall, at the 
conclusion of such proceedings, enter an order, pursuant to Section 
19(b)(2)(B), approving or disapproving such proposed rule change.

    (d) If accelerated effectiveness pursuant to Section 19(b)(2) or 
Section 19(b)(7)(D) of the Act is requested, provide a statement 
explaining why there is good cause for the Commission to accelerate 
effectiveness.

8. Proposed Rule Change Based on Rules of Another Self-Regulatory 
Organization or of the Commission

    State whether the proposed rule change is based on a rule either 
of another self-regulatory organization or of the Commission, and, 
if so, identify the rule and explain any differences between the 
proposed rule change and that rule, as the filing self-regulatory 
organization understands it. In explaining any such differences, 
give particular attention to differences between the conduct 
required to comply with the proposed rule change and that required 
to comply with the other rule.

9. Exhibits

    List of exhibits to be filed, as specified in Instructions C and 
D:
    Exhibit 1. Completed Notice of Proposed Rule Change for 
publication in the Federal Register. Amendments to Exhibit 1 should 
be filed in accordance with Instructions D and F.
    Exhibit 2. (a) Copies of notices issued by the self-regulatory 
organization soliciting comment on the proposed rule change and 
copies of all written comments on the proposed rule change received 
by the self-regulatory organization (whether or not comments were 
solicited), presented in alphabetical order, together with an 
alphabetical listing of such comments. If such notices and comments 
cannot be filed electronically in accordance with Instruction F, the 
notices and comments shall be filed in accordance with Instruction 
G.
    (b) Copies of any transcript of comments on the proposed rule 
change made at any public meeting or, if a transcript is not 
available, a copy of the summary of comments on the proposed rule 
change made at such meeting. If such transcript of comments or 
summary of comments cannot be filed electronically in accordance 
with Instruction F, the transcript of comments or summary of 
comments shall be filed in accordance with Instruction G.
    (c) If after the proposed rule change is filed but before the 
Commission takes final action on it, the self-regulatory 
organization prepares or receives any correspondence or other 
communications reduced to writing (including comment letters) to and 
from such self-regulatory organization concerning the proposed rule 
change, the communications shall be filed in accordance with 
Instruction F. If such communications cannot be filed electronically 
in accordance with Instruction F, the communications shall be filed 
in accordance with Instruction G.
    Exhibit 3. Copies of any form, report, or questionnaire covered 
by Item 1(a). If such form, report, or questionnaire cannot be filed 
electronically in accordance with Instruction F, the form, report, 
or questionnaire shall be filed in accordance with Instruction G.
    Exhibit 4. For amendments to a filing, marked copies, if 
required by Instruction D, of the text of the proposed rule change 
as amended.
    Exhibit 5. The SRO may choose to attach as Exhibit 5 proposed 
changes to rule text in place of providing it in Item I and which 
may otherwise be more easily readable if provided separately from 
Form 19b-4. Exhibit 5 shall be considered part of the proposed rule 
change.

SPECIFIC INSTRUCTIONS FOR EXHIBIT 1--NOTICE OF PROPOSED RULE CHANGE

EXHIBIT 1

SECURITIES AND EXCHANGE COMMISSION
    [Release No. 347- ; File No. SR ]

SELF-REGULATORY ORGANIZATIONS
    Proposed Rule Change by (Name of Self-Regulatory Organization)
    Relating to (brief description of subject matter of proposed 
rule change)

General Instructions

A. Format Requirements

    Leave a 1-inch margin at the top, bottom, and right hand side, 
and a 1\1/2\ inch margin at the left hand side. Number all pages 
consecutively. Double space all primary text and single space lists 
of items, quoted material when set apart from primary text, 
footnotes, and notes to tables.

B. Need for Careful Preparation of the Notice

    The self-regulatory organization must provide all information 
required in the notice and present it in a clear and comprehensible 
manner. It is the responsibility of the self-regulatory organization 
to prepare Items I, II and III of the notice. The Commission 
cautions self-regulatory organizations to pay particular attention 
to assure that the notice accurately reflects the information 
provided in the Form 19b-4 it accompanies. Any filing that does not 
comply with the requirements of Form 19b-4, including the 
requirements applicable to the notice, may, at any time before the 
Commission issues a notice of filing, be returned to the self-
regulatory organization. Any document so returned shall for all 
purposes be deemed not to have been filed with the Commission. See 
Instruction B to Form 19b-4.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on (date),* 
the (name of self-regulatory organization) filed with the Securities 
and Exchange Commission the proposed rule change as described in 
Items I, II and III below, which Items have been prepared by the 
self-regulatory organization. The Commission is publishing this 
notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \*\ To be completed by the Commission. This date will be the 
date on which the Commission receives the proposed rule change 
filing if the filing complies with all requirements of this form. 
See Instruction B to Form 19b-4.
---------------------------------------------------------------------------

Information To Be Included in the Completed Notice

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    (Supply a brief statement of the terms of substance of the 
proposed rule change. If the proposed rule change is relatively 
brief, a separate statement need not be prepared, and the text of 
the proposed rule change may be

[[Page 60307]]

inserted in lieu of the statement of the terms of substance. If the 
proposed rule change amends an existing rule, indicate changes in 
the rule by brackets for words to be deleted and underlined for 
words to be added.)

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory 
organization included statements concerning the purpose of and basis 
for the proposed rule change and discussed any comments it received 
on the proposed rule change. The text of these statements may be 
examined at the places specified in Item IV below. The self-
regulatory organization has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements. (Reproduce the headings, and summarize briefly the most 
significant aspects of the responses, to Items 3, 4, and 5 of Form 
19b-4, redesignating them as A, B, and C, respectively.)

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    (If the proposed rule change is to be considered by the 
Commission pursuant to Section 19(b)(2) of the Act, the following 
paragraph should be used.)Within 35 days of the date of publication 
of this notice in the Federal Register or within such longer period 
(i) as the Commission may designate up to 90 days of such date if it 
finds such longer period to be appropriate and publishes its reasons 
for so finding or (ii) as to which the self-regulatory organization 
consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    (If the proposed rule change is to take, or to be put into, 
effect pursuant to Section 19(b)(3)(A) of the Act and paragraph 
(f)(6) of Rule 19b-4 thereunder, the following paragraph should be 
used.)
    Because the foregoing proposed rule change does not:
    (i) Significantly affect the protection of investors or the 
public interest;
    (ii) Impose any significant burden on competition; and
    (iii) Become operative for 30 days from the date on which it was 
filed, or such shorter time as the Commission may designate, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act and Rule 
19b-4(f)(6) thereunder.
    At any time within 60 days of the filing of the proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, 
or otherwise in furtherance of the purposes of the Act.
    (If the proposed rule change is to take, or to be put into, 
effect pursuant to Section 19(b)(3)(A) of the Act and subparagraphs 
(1)-(5) of paragraph (f) of Rule 19b-4 thereunder, the following 
paragraph should be used.)
    The foregoing rule change has become effective pursuant to 
Section 19(b)(3)(A) of the Act and paragraph (f) of Rule 19b-4 
thereunder. At any time within 60 days of the filing of the proposed 
rule change, the Commission may summarily abrogate such rule change 
if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, 
or otherwise in furtherance of the purposes of the Act.
    (If the proposed rule change is to be considered by the 
Commission pursuant to Section 19(b)(7)(D) of the Act, the following 
paragraph should be used.)
    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission 
may designate up to 90 days of such date if it finds such longer 
period to be appropriate and publishes its reasons for so finding or 
(ii) as to which the self-regulatory organization consents, the 
Commission will:
    (A) By order approve such proposed rule change, or
    (B) After consultation with the Commodity Futures Trading 
Commission, institute proceedings to determine whether the proposed 
rule change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#abd9dec7ce86c8c4c6c6cec5dfd8ebd8cec885ccc4dd"><span class="__cf_email__" data-cfemail="2250574e470f414d4f4f474c5651625147410c454d54">[email protected]</span></a>. Please include 
File Number XX on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549-0609.
    All submissions should refer to File Number XX. This file number 
should be included on the subject line if e-mail is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (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, 
450 Fifth Street, NW., Washington, DC 20549. Copies of such filing 
also will be available for inspection and copying at the principal 
office of the [exchange]. 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 XX and should be submitted on or before [insert 
date 21 days from publication in the Federal Register].

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\1\
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    \1\ 17 CFR 200.30-3(a)(12).

Secretary
[FR Doc. 04-22628 Filed 10-5-04; 9:06 am]
BILLING CODE 8010-01-P


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