65232 Federal Register / Vol. 69, No. 217 / Wednesday, November 10, 2004 / Notices 

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 15 U.S.C. 78s(b)(3)(A).

4 17 CFR 240.19b–4(f)(6).

General Information 

The attention of interested persons is 

directed to the following: 

(1) The fact that a transaction is the 

subject of an exemption under section 

408(a) of the Act and/or section 

4975(c)(2) of the Code does not relieve 

a fiduciary or other party in interest or 

disqualified person from certain other 

provisions to which the exemption does 

not apply and the general fiduciary 

responsibility provisions of section 404 

of the Act, which among other things 

require a fiduciary to discharge his 

duties respecting the plan solely in the 

interest of the participants and 

beneficiaries of the plan and in a 

prudent fashion in accordance with 

section 404(a)(1)(B) of the Act; nor does 

it affect the requirement of section 

401(a) of the Code that the plan must 

operate for the exclusive benefit of the 

employees of the employer maintaining 

the plan and their beneficiaries; 

(2) This exemption is supplemental to 

and not in derogation of, any other 

provisions of the Act and/or the Code, 

including statutory or administrative 

exemptions and transactional rules. 

Furthermore, the fact that a transaction 

is subject to an administrative or 

statutory exemption is not dispositive of 

whether the transaction is in fact a 

prohibited transaction; and 

(3) The availability of this exemption 

is subject to the express condition that 

the material facts and representations 

contained in the application accurately 

describes all material terms of the 

transaction which is the subject of the 

exemption.

Signed at Washington, DC, this 5th day of 

November, 2004. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor.

[FR Doc. 04–25106 Filed 11–9–04; 8:45 am] 

BILLING CODE 4510–29–P

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–50630; File No. SR–CBOE–

2004–62] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change To Amend Exchange 

Rule 9.3A Relating to Continuing 

Education for Registerd Persons 

November 3, 2004. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on October 

6, 2004, the Chicago Board Options 

Exchange, Incorporated (‘‘CBOE’’ or 

‘‘Exchange’’) filed with the Securities 

and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The CBOE has filed 

the proposal as a ‘‘non-controversial’’

rule change pursuant to Section 

19(b)(3)(A) of the Act 3 and Rule 19b–

4(f)(6) thereunder,4 which renders the 

proposal effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The CBOE proposes to amend CBOE 

Rule 9.3A relating to Continuing 

Education for Registered Persons. The 

proposed rule change would eliminate 

all exemptions from the requirement to 

complete the Regulatory Element of the 

Continuing Education Program. Below 

is the text of the proposed rule change. 

Proposed new language is in italics. 

Deletions are in [brackets]. 

Chapter IX 

Rule 9.3A. Continuing Education for 

Registered Persons 

(a) Regulatory Element—No member 

or member organization shall permit 

any registered person to continue to, 

and no registered person shall continue 

to, perform duties as a registered person, 

unless such person has complied with 

the continuing education requirements 

of Section (a) of this Rule. 

Each registered person shall complete 

the Regulatory Element of the 

continuing education program 

beginning with the occurrence of their 

second registration anniversary date and 

every three years thereafter, or as 

otherwise prescribed by the Exchange. 

On each occasion, the Regulatory 

Element must be completed within one 

hundred twenty days after the person’s 

registration anniversary date. A person’s 

initial registration date, also known as 

the ‘‘base date’’, shall establish the cycle 

of anniversary dates for purposes of this 

Rule. The content of the Regulatory 

Element of the program shall be 

determined by the Exchange for each 

registration category of persons subject 

to the Rule. 

[(1) Persons who have been 

continuously registered for more than 

ten years as of the effective date of this 

Rule are exempt from the requirements 

of this rule relative to participation in 

the Regulatory Element of the 

continuing education program, provided 

such persons have not been subject to 

any disciplinary action within the last 

ten years as enumerated in subsection 

(a)(3)(i)–(ii) of this Rule. However, 

persons delegated supervisory 

responsibility or authority pursuant to 

Rule 9.8 and registered in such 

supervisory capacity are exempt from 

participation in the Regulatory Element 

under this provision only if they have 

been continuously registered in a 

supervisory capacity for more than 10 

years as of the effective date of this rule 

and provided that such supervisory 

person has not been subject to any 

disciplinary action under subsection 

(a)(3)(i)–(ii) of this rule. In the event that 

a registered person who is exempt from 

participation in the Regulatory Element 

subsequently becomes the subject of a 

disciplinary action as enumerated in 

subsection (a)(3)(i)–(ii), such person 

shall be required to satisfy the 

requirements of the Regulatory Element 

as if the date the disciplinary action 

becomes final is the person’s initial 

registration anniversary date.] 

(1) [(2)] Failure to complete—Unless 

otherwise determined by the Exchange, 

any registered persons who have not 

completed the Regulatory Element of 

the program within the prescribed time 

frames will have their registration 

deemed inactive until such time as the 

requirements of the program have been 

satisfied. Any person whose registration 

has been deemed inactive under this 

Rule shall cease all activities as a 

registered person and is prohibited from 

performing any duties and functioning 

in any capacity requiring registration. 

The Exchange may, upon application 

and a showing of good cause, allow for 

additional time for a registered person 

to satisfy the program requirements. 

(2) [(3) Re-entry into program] 

Disciplinary Actions—Unless otherwise 

determined by the Exchange, a 

registered person will be required to [reenter] re-take the Regulatory Element 

and satisfy all of its requirements in the 

event such person: 

(i) Becomes subject to any statutory 

disqualification as defined in Section 

3(a)(39) of the Securities Exchange Act 

of 1934;

(ii) Becomes subject to suspension or 

to the imposition of a fine of $5,000 or 

more for violation of any provision of 

any securities law or regulation, or any 

agreement with or rule or standard of 

conduct of any securities governmental 

Federal Register / Vol. 69, No. 217 / Wednesday, November 10, 2004 / Notices 65233

5The CBOE requested that the Division of Market 

Regulation (‘‘Division’’) staff make minor 

modifications to language in the purpose section. 

Telephone discussions between Jamie Galvan, 

Attorney, CBOE and Mia C. Zur, Attorney, Division, 

Commission (October 19 and 26, and November 2, 

2004).

6The Firm Element of the CE Program applies to 

any person registered with a CBOE member firm 

who has direct contact with customers in the 

conduct of the member’s securities sales, trading 

and investment banking activities, and to the 

immediate supervisors of such persons (collectively 

called ‘‘covered registered persons’’). The 

requirement stipulates that each member firm must 

maintain a continuing education program for its 

covered registered persons to enhance their 

securities knowledge, skill and professionalism. 

Each firm has the requirement to annually conduct 

a training needs analysis, develop a written training 

plan, and implement the plan.

7CBOE Rule 9.3A permits a member firm to 

deliver the Regulatory Element to registered persons 

on firm premises (‘‘In-Firm Delivery’’) as an option 

to having persons take the training at a designated 

center provided that firms comply with specific 

requirements relating to supervision, delivery 

site(s), technology, administration, and proctoring. 

In addition, CBOE Rule 9.3A requires that persons 

serving as proctors for the purposes of In-Firm 

Delivery must be registered.

8This is the current Regulatory Element schedule, 

as amended in 1998.

9For purposes of CBOE Rule 9.3A, a significant 

disciplinary action generally means a statutory 

disqualification, a suspension or imposition of a 

fine of $5,000 or more, or being subject to an order 

from a securities regulator to re-enter the Regulatory 

Element. See CBOE Rule 9.3A(a)(3).

10When CBOE Rule 9.3A was first adopted in 

1995, the Regulatory Element schedule required 

registered persons to satisfy the Regulatory Element 

on the second, fifth, and tenth anniversary of their 

initial securities registration. After satisfying the 

tenth anniversary requirement, a person was 

‘‘graduated’’ from the Regulatory Element. A 

graduated principal re-entered the Regulatory 

Element if he or she incurred a significant 

disciplinary action. A graduated person who was 

not a principal re-entered if he or she acquired a 

principal registration or incurred a significant 

disciplinary action.

11As of the date of this rule filing, the Council 

consists of 17 individuals, six representing selfregulatory organizations (‘‘SROs’’) (the American 

Stock Exchange LLC, CBOE, the Municipal 

Securities Rulemaking Board, the NASD, the New 

York Stock Exchange, Inc., and the Philadelphia 

Stock Exchange) and 11 representing the industry. 

The Council was organized in 1995 to facilitate 

cooperative industry/regulatory coordination of the 

CE Program in keeping with applicable industry 

regulations and changing industry needs. Its roles 

include recommending and helping to develop 

specific content and questions for the Regulatory 

Element, defining minimum core curricula for the 

Firm Element, developing and updating 

information about the program for industry-wide 

dissemination, and maintaining the program on a 

revenue neutral basis while assuring adequate 

financial reserves.

agency, securities self-regulatory 

organization, or as imposed by any such 

regulatory or self-regulatory 

organization in connection with a 

disciplinary proceeding; or 

(ii) Is ordered as a sanction in a 

disciplinary action to [re-enter] re-take

the [continuing education program] 

Regulatory Element by any securities 

governmental agency or securities selfregulatory organization. 

[Re-entry into the program] A retaking of the Regulatory Element shall 

commence with [initial] participation 

within one hundred twenty days of the 

registered person becoming subject to 

the statutory disqualification, in the 

case of (i) above, or the disciplinary 

action becoming final, in the case of (ii) 

or (iii) above. The date that the 

disciplinary action becomes final will be 

deemed the person’s new base date for 

purposes of this Rule.

(b)–(c) Unchanged. 

* * * Interpretations and Policies: 

.01–.04 Unchanged. 

[.05 the effective date of this rule, for 

purposes of determining whether a 

registered person is exempt from 

participation in the Regulatory Element 

is July 1, 1998.] 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange include 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 

CBOE has prepared summaries, set forth 

in sections A, B, and C below, of the 

most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 5

CBOE Rule 9.3A specifies the 

Continuing Education (‘‘CE’’) 

requirement for registered persons 

subsequent to their initial qualification 

and registration with the CBOE. The 

requirements consist of a Regulatory 

Element and a Firm Element.6 The 

Regulatory Element is a computer-based 

education program administered by 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’) to help ensure 

that registered persons are kept up to 

date on regulatory, compliance and 

sales practice matters in the industry.7

Unless exempt, each registered person is 

required to complete the Regulatory 

Element initially within 120 days after 

the person’s second anniversary date 

and, thereafter, within 120 days after 

every third registration anniversary 

date.8 There are three Regulatory 

Element programs: The S201 Supervisor 

Program for registered principals and 

supervisors; The S106 Series 6 Program 

for Series 6 registered persons; and the 

S101 General Program for Series 7 and 

all other registrations.

Approximately 135,000 registered 

persons currently are exempt from the 

Regulatory Element. These include 

registered persons who, when the CE 

Program was adopted in 1995, had been 

registered for at least ten years and who 

did not have a significant disciplinary 

action 9 in their CRD record fro the 

previous ten years (‘‘grandfathered 

persons’’). These also include those 

persons who had ‘‘graduated’’ from the 

Regulatory Element by satisfying their 

tenth anniversary requirement before 

July 1998, when CBOE Rule 9.3A was 

amended and the graduation provision 

eliminated and did not have a 

significant disciplinary action in their 

CRD record for the previous ten years.10

At its December 2003 meeting, the 

Securities Industry/Regulatory Council 

on Continuing Education (‘‘Council’’) 11

discussed the current exemptions from 

the Regulatory Element and agreed 

unanimously to recommend that the 

SROs repeal the exemptions and require 

all registered persons to participate in 

the Regulatory Element. In reaching this 

conclusion, the Council was of the view 

that there is great value in exposing all 

industry participants to the benefits of 

the Regulatory Element, in part because 

of the significant regulatory issues that 

have emerged over the past few years. 

The Regulatory Element programs 

include teaching and training content 

that is continuously updated to address 

current regulatory concerns as well as 

new products and trading strategies. 

Exempt persons presently do not have 

the benefit of this material.

In addition, the Council will 

introduce a new content module to the 

Regulatory Element programs that will 

specifically address ethics and will 

require participants to recognize 

ethnical issues in given situations. 

Participants will be required to make 

decisions in the context of, for example, 

peer pressure, the temptation to 

rationalize, or a lack of clear-cut 

guidelines from existing rules or 

regulations. The Council strongly 

believes that all registered persons, 

regardless of their years of experience in 

the industry, should have the benefit of 

this training. 

Consistent with the Council’s 

recommendation, the proposed rule 

change would eliminate the current 

Regulatory Element exemptions. The 

other SRO members of the Council also 

support eliminating the exemptions and 

65234 Federal Register / Vol. 69, No. 217 / Wednesday, November 10, 2004 / Notices 

12A registered person with an initial registration 

date of April 4, 1985 will have a Regulatory 

Element anniversary date on April 4 of 1987, 1990, 

1993, 1996, 1999, 2002 and 2005.

13CBOE Rule 9.3A(3) is proposed to be 

renumbered as CBOE Rule 9.3A(2).

14The SEC notes that this requirement would 

apply to all registered persons that are subject of a 

significant disciplinary action, and not only to 

currently exempt persons.

16 15 U.S.C. 78s(b)(3)(A).

17 17 CFR 240.19b–4(f)(6). The Commission notes 

that the Exchange had satisfied the pre-filing fiveday notice requirement.

18 15 U.S.C. 78s(b)(3)(A).

19 17 CFR 240.19b–4(f)(6).

20See Section 19b(3)(C) of the Act, 15 U.S.C. 

78s(b)(3)(C).

are pursuing amendments to their 

respective rules. 

CBOE will announce the effective 

date of the proposed rule change in a 

Regulatory Circular to be published no 

later than 30 days following the 

proposed rule becoming operative. The 

effective date will be (1) not more than 

30 days following the implementation of 

necessary changes to Web Central 

Registration Depository (Web CRD) 

administered by the NASD, or (2) April 

4, 2005, whichever date is the latest to 

occur. 

Following the effective date of the 

proposed rule change, implementation 

will be based on the application of the 

existing requirements of the Regulatory 

Element to all registered persons. The 

way in which CRD applies these 

requirements is as follows. CRD 

establishes a ‘‘base date’’ for each 

registered person and calculates 

anniversaries from that date. Usually, 

the base date is the person’s initial 

securities registration. However, the 

base date may be revised to be the 

effective date of a significant 

disciplinary action in accordance with 

CBOE Rule 9.3A or the date on which 

a formerly registered person re-qualifies 

for association with a CBOE member by 

qualification exam. Using the base date, 

CRD creates a Regulatory Element 

requirement on the second anniversary 

of the base date and then every three 

years thereafter. Registered persons 

formerly exempt from the Regulatory 

Element requirement must satisfy this 

requirement that occurs on an 

anniversary on or after the effective date 

of the proposed rule change (see

examples in the Table below).

Registered person 

Initial registration 

date 

First regulatory element requirement of a 

registered person formerly exempt from 

the regulatory element

(assuming an effective date of April 4, 

2005) 

A ....................................................................................................................................................................... 12 4/4/85 4/4/05 

B ....................................................................................................................................................................... 7/1/83 7/1/06 

C ...................................................................................................................................................................... 8/1/84 8/1/07 

D ...................................................................................................................................................................... 4/3/85 4/3/08 

It is noted that a person’s base date 

may be revised to be the effective date 

of a significant disciplinary action in 

accordance with proposed CBOE Rule 

9.3A(2).13 Proposed CBOE Rule 9.3A(2) 

has been amended to clarify that a 

person subject to a significant 

disciplinary action would be required to 

‘‘re-take’’ rather than ‘‘re-enter’’ the 

Regulatory Element.14 A person’s base 

date may also be revised to be the date 

on which a formerly registered person 

re-qualifies for association with a 

member or member organization.

2. Statutory Basis 

CBOE believes that the proposed rule 

is consistent with the provisions of 

Section 6(b) of the Act, in general and 

furthers, the objectives of Section 6(b)(5) 

of the Act,15 in particular, which 

requires, among other things, that 

CBOE’s rules be designed to prevent 

fraudulent and manipulative acts and 

practices, promote just and equitable 

principles of trade and, in general, to 

protect investors and the public interest. 

CBOE believes that the proposed rule 

change is designed to accomplish these 

ends by ensuring that all registered 

persons are kept up to date on industry 

rules, regulations, and practices.

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

CBOE does not believe that the 

proposed rule change will impose any 

burden on competition not necessary or 

appropriate in furtherance of the 

purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The CBOE has filed the proposed rule 

change pursuant to Section 19(b)(3)(A) 

of the Act 16 and subparagraph (f)(6) of 

Rule 19b–4 thereunder.17 Because the 

foregoing rule change: (1) Does not 

significantly affect the protection of 

investors or the public interest; (2) does 

not impose any significant burden on 

competition; and (3) does not become 

operative for 30 days after the date of 

filing, or such shorter time as the 

Commission may designate if consistent 

with the protection of investors and the 

public interest, the proposed rule 

change has become effective pursuant to 

Section 19(b)(3)(A) of the Act18 and 

Rule 19b–4(f)(6) thereunder.19 This 

proposed rule change will not become 

operative until 30 days after the date of 

filing with the Commission. 

Furthermore, the Commission notes that 

CBOE designates the effective date of 

the proposed rule change to be the latest 

to occur of: (1) Not more than 30 days 

following the implementation of 

necessary changes to Web Central 

Registration Depository (Web CRD) 

administered by the NASD, or (2) April 

4, 2005. At any time within 60 days of 

the filing of such 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.20

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: 

Federal Register / Vol. 69, No. 217 / Wednesday, November 10, 2004 / Notices 65235

21 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4. 3See letter from Kathleen M. Boege, Associate 

General Counsel, CHX, to Nancy J. Sanow, Assistant 

Director, Commission, dated October 27, 2004 

(‘‘Amendment No. 1’’). In Amendment No. 1, CHX 

revised the text of the proposed rule to indicate that 

the rule is effective as of October 26, 2004. 4 15 U.S.C. 78s(b)(3)(A)(i).

5 17 CFR 240.19b–4(f)(1).

6As with other similar demutualization 

transactions previously approved by the 

Commission, the Exchange’s proposed 

demutualization transaction contemplates a change 

in the Exchange’s organizational structure. In this 

proposed demutualization transaction, the CHX 

will change from a not-for-profit, non-stock 

corporation owned by its members to a whollyowned subsidiary of a holding company, CHX 

Holdings, Inc., which is to be organized as a forprofit, stock corporation owned by its stockholders. 

The members of CHX at the time of the proposed 

demutualization transaction will receive shares of 

common stock of the new holding company in 

exchange for their CHX memberships, and thus will 

become the stockholders of the new holding 

company. Members who are qualified to trade on 

the Exchange will receive trading permits that give 

them continued access to the Exchange’s trading 

facilities.

7 17 CFR 230.506.

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number SR–CBOE–2004–62 on the 

subject line. 

Paper Comments 

• 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 SR–CBOE–2004–62. 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. Copies of the filing also will be 

available for inspection and copying at 

the principal offices of the CBOE. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2004–62 and should 

be submitted on or before December 1, 

2004.

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.21

J. Lynn Taylor, 

Assistant Secretary.

[FR Doc. 04–25066 Filed 11–9–04; 8:45 am] 

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–50628; File No. SR–CHX–

2004–35] 

Self-Regulatory Organizations; Notice 

of Filing and Immediate Effectiveness 

of Proposed Rule Change and 

Amendment No. 1 Thereto by the 

Chicago Stock Exchange, Inc. Relating 

To Transfer of CHX Memberships 

November 3, 2004. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on October 

26, 2004, the Chicago Stock Exchange, 

Inc. (‘‘CHX’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II and III below, which Items 

have been prepared by the Exchange. 

On October 28, 2004, the Exchange filed 

Amendment No. 1 to the proposed rule 

change.3 The CHX filed the proposed 

rule change, as amended, pursuant to 

Section 19(b)(3)(A)(i) of the Act,4 and 

Rule 19b–4(f)(1) thereunder,5 as 

constituting a stated policy, practice or 

interpretation with respect to the 

meaning, administration, or 

enforcement of an existing rule, which 

renders the proposed rule change, as 

amended, effective upon filing with the 

Commission. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as amended, from interested persons.

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The proposed rule change, which 

would add Interpretation and Policy .04 

to CHX Article I, Rule 10, ‘‘Transfers of 

Memberships,’’ would effectively 

prohibit the transfer of CHX 

memberships to certain newly approved 

lessors. The text of the proposed rule 

change appears below. Proposed new 

language is italicized.

* * * * *

ARTICLE I 

Membership 

Transfers of Memberships 

Rule 10. No change. 

Interpretations and Policies: 

.01–.03 No change. 

.04 No approval of new approved 

lessors. Effective October 26, 2004, the 

Exchange will not approve the transfer 

of a membership to a person or firm 

who seeks to become an approved 

lessor, but who is not already the owner 

of a CHX membership, unless that 

person or firm qualifies as an accredited 

investor. This policy will end if and 

when the Exchange determines that it 

will not seek approval of the 

demutualization transaction.

* * * * *

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 

CHX included statements concerning 

the purpose of, and basis for, the 

proposed rule change and discussed any 

comments it received regarding the 

proposal. The text of these statements 

may be examined at the places specified 

in Item IV below. The CHX has prepared 

summaries, set forth in Sections A, B 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On August 5, 2004, the Exchange’s 

Board of Governors voted unanimously 

to present a demutualization plan to the 

Exchange’s members for approval.6 The 

proposed transaction involves the 

private offering of securities using the 

safe harbor provided by Rule 506 of 

Regulation D under the Securities Act of 

1933.7 Under Rule 506, an offering of 

securities is not a public offering if there 

are no more than, or if the issuer 

reasonably believes that there are no 

more than, 35 ‘‘purchasers’’ of