24242 Federal Register / Vol. 65, No. 80 / Tuesday, April 25, 2000 / Notices

26See Securities Exchange Act Release No. 40334

(August 18, 1998), 63 FR 45275 (August 25, 1998)

(SR–CBOE–98–34).

26 15 U.S.C. 78s(b)(2).

27 17 CFR 200.30–3(a)(12)

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

2Securities Exchange Act Release No 42504

(March 8, 2000), 65 FR 14003.

3Letters from Stephen J. Dolmatch, Executive

Vice President, General Counsel, and Secretary,

Chase Mellon Financial Group (April 3, 2000); John

Cirrito, Chief Operating Officer and Managing

Director, ING Barings (April 5, 2000); William

Talbot, Vice President, Pershing (April 5, 2000);

Jerome Clair, Chairman, Securities Industry

Association (‘‘SIA’’) Operations Committee, SIA

(April 6, 2000); Larry E. Thompson, Managing

Director and Deputy General Counsel, DTC (Apri 7,

2000); Charles V. Rossi, Division President,

EquiServe Limited Partnership (April 19, 2000).

4For a description of DRS limited participants,

refer to Securities Exchange Act Release No. 37931

(November 7, 1996), 61 FR 58600 (November 15,

1996).

5For a description of DRS and Profile, see

Securities Exchange Act Release No. 35038

(December 1, 1994), 59 FR 63652 (concept release

relating to DRS); Securities Exchange Act Release

No. 41862 (September 10, 1999), 64 FR 51162

(September 21, 1999) (order approving

implementation of the Profile Modification feature

of DRS); Securities Exchange Act Release No. 42366

(January 28, 2000), 65 FR 5714 (February 4, 2000)

(order approving an interpretation of an existing

rule pertaining to DRS).

6 DTC’s procedures governing the use of Profile in

PTS are attached as Exhibits 3 and 4 to DTC’s filing.

Copies of DTC’s proposed rule change and the

attached exhibits are available at the Commission’s

Public Reference Section or through DTC. In

addition, DTC understands that the DRS Committee

is developing guidelines to the use of DRS. When

such guidelines have been approved by the DRS

Committee, DTC will work with the DRS Committee

to implement the guidelines. Members of the DRS

Committee include representatives from the

American Society of Corporate Secretaries,

Corporate Transfer Association, Securities Industry

Association, Securities Transfer Association, and

DTC.

C. Extension of Exercise Notification

Deadline and Exercise Cutoff

The Commission notes that the

purpose of the Exchange’s exercise

notification deadline 26 for Americanstyle, cash-settled index options, and

noncash-settled equity options, as well

as the exercise cutoff time for noncashsettled equity options is to limit the

differences in the ability of long options

holders as compared to short options

holders to offset their positions through

exercise following the close of trading.

The Commission recognizes that

permitting the President or his designee

to extend the applicable exercise

deadline or cut-off time in unusual

circumstances will marginally increase

this existing disparity. The Commission,

however, believes that any potential

detriment that may result from

increasing the disparity between long

and short options holders will be

exceeded by the benefit of allowing the

President or his designees to give

market participants additional time in

which to make and process exercise

decisions under unusual circumstances.

Furthermore, the Commission

believes that the proposed rule change

will promote efficient exercise

procedures for both equity and index

options by permitting market

participants the opportunity to make

informed decisions before exercising

their options under unusual

circumstances. For example, it would be

an unusual circumstance if the reporting

authority was late in reporting the

closing value of an American-style,

cash-settled index option, or if there

were not enough time to process an

exercise decision for a noncash-settled

equity option due to a late closing

rotation that ended just before the

normal deadline for submitting the

exercise notice to the Exchange. These

provisions will also promote just and

equitable principles of trade because

public customers or Exchange members

should not have to make exercise

decisions based on incomplete

information about the index value (in

the case of index options) and should

have time to process their exercise

decisions (in the case of equity options).

The Commission also notes that the

Exchange represents that its President or

his designee will only exercise this

authority in unusual circumstances, and

that extensions in the applicable

exercise deadline or cutoff time will not

occur often. The Exchange further

represents that the Exchange’s President

or his designee will in no event extend

the applicable exercise deadline or cutoff time beyond the time required by the

OCC for submission of exercise

instructions by its clearing members.

D. Documentation Evidencing Timely

Exercise Determinations Made Prior to a

Trading Delay, Halt, or Suspension

Finally, the Commission believes that

it is reasonable for the Exchange to no

longer ordinarily accept internal

exercise memoranda prepared by CBOE

members as evidence of timely exercise

determinations of American-style, cashsettled (standardized, or FLEX) index

options made prior to a trading delay,

halt, or suspension. The Commission

believes that by allowing only objective

evidence to indicate timely exercise

determinations, the proposal promotes

the ability of the Exchange to verify the

authenticity of the exercise documents.

III. Conclusion

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,27 that the

proposed rule change (SR–CBOE–99–

03) is approved, as amended.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.28

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–10262 Filed 4–24–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42704; File No. SR–DTC–

00–04]

Self-Regulatory Organizations; the

Depository Trust Company; Order

Granting Approval of a Proposed Rule

Change Relating to the Profile

Modification Feature of the Direct

Registration System

April 19, 2000.

On February 28, 2000, The Depository

Trust Company (‘‘DTC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’), pursuant to section

19(b)(1) of the Securities Exchange Act

or 1934 (‘‘Act’’),1 a proposed rule

change. Notice of the proposal was

published in the Federal Register on

March 15, 2000.2 The Commission

received five comment letters in

response to the proposed rule change.3

The Commission is publishing this

order to grant approval of the proposed

rule change.

I. Description

The Profile Modification System

(‘‘Profile’’), a feature of the Direct

Registration System (‘‘DRS’’), is an

electronic messaging system that allows

a DTC participant (i.e., generally a

broker-dealer) or a DRS limited

participant (i.e., a transfer agent) 4 to

submit instructions to transfer investors’

book-entry position from one to the

other.5 The primary purpose of DTC’s

filing is to modify Profile by

incorporating the use of an electronic

screen-based indemnification. As

described more fully below, the

inclusion of the electronic

indemnification in Profile enables DTC

to make DRS fully operational and

available for use by qualified issuers,

DTC participants, and DRS limited

participants. DTC’s filing also

establishes the procedures governing the

use of Profile in the Participant

Terminal System (‘‘PTS’’) 6 and specifies

the fees connected with the use of

Profile.

A. Background

Since 1996 when the New York Stock

Exchange, Inc. (‘‘NYSE’’) and the

National Association of Securities

Federal Register / Vol. 65, No. 80 / Tuesday, April 25, 2000 / Notices 24243

7Movements of share positions within DTC from

DRS limited participants’ accounts to DTC

participants’ accounts is done through the use of

‘‘free deliver orders.’’ In 1999, the volume of DRSrelated free deliver orders exceeded 183,000

transactions. In comparison, the volume of DRSrelated free deliver orders in 1998 was 87,148

transactions.

8Transaction advices are statements indicating

account positions or activity. DRS limited

participants generally require the transaction

advices before they will move a DRS position from

the books of the issuer to the account of a DTC

participant at DTC.

9Supra note 6.

10 DRS Committee meeting minutes of January 12,

1999. Minutes of the DRS Committee meetings are

available from DTC.

11 DTC filed and the Commission approved a rule

change that attempted to resolve an impasse that

had developed between DTC participants and DRS

limited participants regarding the use of Profile,

including the use of an electronic indemnification.

The rule change barred DRS limited participants

from making additional securities issues eligible for

DRS until after January 15, 2000, if DRS limited

participant had not agreed to implement Profile by

September 15, 1999. Securities Exchange Act

Release No. 41862 (September 10, 1999), 64 FR

51162. DTC subsequently filed an interpretation of

its rule change to clarify that a DRS limited

participant implemented Profile when it entered

into a written agreement with DTC stating that it

would continue to use DRS, including Profile, when

Profile became operational. Securities Exchange Act

Release No. 42366 (January 28, 2000), 65 Fr 5714

(February 4, 2000).

12These members of the DRS Committee also

raised several other concerns, including such things

as the need for a formal claims process and an

education program.

Dealers, Inc. modified their listing

criteria to permit listed companies to

issue securities in book entry using DRS

in lieu of issuing certificates, there has

been a steady growth in securities

issued through DRS. There has also

been a corresponding increase in the

movement of share positions from

investors’ accounts at DRS limited

participants to DTC participants’

accounts at DTC.7 In connection with

the movement of DRS share positions,

DRS limited participants have been

processing thousands of hard copy

transaction advices 8 or other written

instructions to transfer DRS positions.

There is substantial evidence to

indicate that this paper-based

processing of transaction advices, which

is currently required by DRS limited

participants to transfer DRS position, is

labor intensive and slow. Without

Profile, an investor or a DTC participant

acting as an investor’s agent, must have

the transaction advice medallion

signature guaranteed and physically

delivered to the DRS limited

participant. When the transaction

advice is received, the DRS limited

participant determines that the

signature guarantee is valid and enters

the information into its system to

process the instructions. Only after the

DRS limited participant completes its

processing is the investor’s DRS

position moved to the DTC participant’s

account at DTC. In addition, since the

information contained on the

transaction advice is not standardized

throughout the industry, investors (or

DTC participants sending the

transaction advices on behalf of their

customers) do not always provide the

correct or complete information

necessary to process the instruction

thereby further slowing the transfer of

DRS account positions.

The DRS Committee, the industry

committee responsible for designing

DRS, has been working through the

various legal and processing issues in an

effort to reduce the handling of hard

copy documents associated with

processing transactions advices and to

develop an electronic indemnification

mechanism to replace the physical

signature guarantees.9 In January 1999,

the DRS Committee approved Profile’s

system specifications, which included a

screen-based indemnification, and

authorized DTC to proceed with the

development of Profile.10 DTC

completed production on Profile on

June 15, 1999.11

After DTC began development of

Profile according to the agreed upon

specifications, issues arose as to

whether the screen-based

indemnification provided sufficient

protection to address perceived risks

and liabilities to investors, DRS limited

participants, and issuers. Some

members of the DRS Committee

contended that a more comprehensive

indemnification agreement between

DTC participants and DRS limited

participants was needed. In addition,

these members asserted that guarantors

(i.e., the initiators of the instruction to

move an investor’s position) should

subscribe to surety bond coverage that

would specifically cover DRS

transactions in the event that a

guarantor refused or failed to satisfy a

claim that the transfer was

unauthorized.12 Since physical

signature guarantees are administered

through industry programs such as the

Securities Transfer Association

Medallion Program (‘‘STAMP’’) and the

NYSE’s Medallion Stamp Program

(‘‘MSP’’), several DRS Committee

members suggested that these industry

groups should extend their current

programs to include the use of an

indemnification agreement and surety

bond to cover the use of an electronic

indemnification in DRS transactions.

Over the past year the DRS

Committee, in coordination with

STAMP and MSP, has attempted to

reach consensus on an indemnification

program. To date, the parties have not

reached consensus. In the meantime,

issuers have continued to put additional

investors into DRS even though Profile

remained inoperable due to the lack of

an electronic indemnification.

B. DTD’s Profile and Electronic

Indemnification

In making Profile operational, DTC

will require the use of a screen-based

indemnification until such time as an

electronic guarantee program is

established. Under the rule change, a

DTC participant and DRS limited

participant will submit investors’

instructions electronically via DTC’s

PTS or via the Computer-to-Computer

Facility (‘‘CCF’’). Profile will provide

the same information set out in the

transaction advice by requiring a DTC

participant or DRS limited participant to

enter specific information, including the

investor’s account registration, tax I.D.

number, DRS account number with the

DRS limited participant, CUSIP number,

and number of shares to be transferred.

DTC participants and DRS limited

participants will use the information

provided through Profile to ensure that

beneficial ownership does not change

when there is a share movement.

A DTC participant submitting a

Profile instruction to a DRS limited

participant will agree to a PTS screen

indemnity substantially in the following

form:

(1) Participant represents that it has

authority and consent for the request

appearing on the following screen from

either (a) the registered owner on the

participant’s record or (b) a third party

who has actual authority to act on

behalf of the registered owner on

participant’s records, and that all

information shown is accurate and

complete, except that, with respect to

the taxpayer identification number

included in such information, to the

best knowledge of participant, such

information is accurate and complete;

(2) Participant indemnifies the issuer,

its transfer agent and their respective

officers, directors, shareholders,

employees, agents, representatives,

subsidiaries, parents, affiliates,

successors and assigns against any

breach of such representations in

connection with the transaction that is

the subject of such request.

Upon receipt of an instruction, a DRS

limited participant will indicate

whether the transaction is approved or

rejected. For rejected instructions, the

DRS limited participant will supply

reject codes that will indicate the reason

for rejecting. When the DRS limited

participant approves a DTC participant’s

instruction for the movement of an

24244 Federal Register / Vol. 65, No. 80 / Tuesday, April 25, 2000 / Notices

13 In such a situation, the DTC participant will

use an ‘‘S’’ indicator with the WT instruction that

will instruct the DRS limited participant to

establish a DRS account for the investor.

14See DRS Committee meeting minutes of

January 29, 1998, and October 16, 1998.

15The 9-cent fee is to cover DTC’s cost of

developing a CCF linkage between DTC and DRS

limited participants. Securities Transfer Association

representatives on the DRS Committee requested

the development of a CCF linkage.

16There is no CCF development fee when a DRS

limited participant submits an instruction to move

an investor’s position from the books of a brokerdealer to its own books, because the SIA

representatives on the DRS Committee have not

requested and DTC has not built a CCF linkage

between DTC and DTC participants. In addition,

DTC participants will be charged the fee for WTs

when a share position is moved to a DRS limited

participant’s records.

17Supra note 3.

18 In its letter responding to ChaseMellon’s

comments, DTC indicated that the DRS Committee

agreed upon the fees DTC will charge for

instructions through Profile. DTC also indicated the

screen-based indemnification language that DTC

will use in Profile modeled on the language agreed

upon by the DRS Committee. Finally DTC noted

that its procedures will accommodate an electronic

guarantee program if such a program is established.

19 15 U.S.C. 78q–1(b)(3)(F).

20The prompt and accurate clearance and

settlement of securities transactions includes the

transfer of record ownership of securities. 15 U.S.C.

78q–1(a)(1)(A).

21The Commission also notes that when enacting

Section 17A, Congress set forth its findings that the

prompt and accurate clearance and settlement of

securities transactions, including the transfer of

record ownership, is necessary for the protection of

investors; inefficient procedures for clearance and

settlement impose unnecessary costs on investors;

and that new data processing and communication

techniques create the opportunity for more efficient,

effective, and safe procedures for clearance and

settlement. 15 U.S.C. 78q–1(a)(1)(A), (B), and (C).

investor’s share position, the DRS

limited participant will move the

investor’s position from a position on

the DRS limited participant’s books to a

position in the DTC participant’s

account at DTC. Using Profile, DTC

participants can view the status of all

transaction instructions submitted to

DRS limited participants for processing.

Profile will provide an aging status of

up to thirty business days for all

instructions that are neither accepted

nor rejected (i.e., open items) in an effort

to avoid duplicate submissions. After

thirty business days, these instructions

will be deleted.

A DRS limited participant may also

submit an instruction for the movement

of an investor’s position from the

investor’s broker-dealer’s DTC

participant account to a position on its

books. For rejected instructions, the

DRS limited participant will supply

reject codes that will indicate the reason

for rejecting. If the DTC participant

approves the instruction, then the DTC

participant must submit a withdrawal

by transfer (‘‘WT’’) instruction which

will move the investor’s position from

the DTC participant’s account at DTC to

an account at the DRS limited

participant.13

A DRS limited participant submitting

an instruction to a DTC participant will

agree to a PTS screen-based indemnity

substantially in the following form:

(1) Transfer agent represents that it

has authority and consent for the

request appearing on the following

screen from either (a) the registered

owner on the transfer agent’s records or

(b) a third party who has actual

authority to act on behalf of the

registered owner on the transfer agent’s

records, and that all information shown

is accurate and complete, except that,

with respect to the taxpayer

identification number included in such

information, to the best knowledge of

transfer agent, such information is

accurate and complete;

(2) Transfer agent indemnifies the

participant and its officers, directors,

shareholders, employees, agents,

representatives, subsidiaries, parents,

affiliates, successors and assigns against

any breach of such representations in

connection with the transaction that is

the subject of such request.

In the event that an electronic

guarantee program is established, Profile

will be able to accommodate it. Until an

electronic guarantee program is

established, DTC’s procedures will

reflect the existence of the screen-based

indemnity. DTC will not operate a

screen-based indemnification and an

electronic medallion program

simultaneously.

The fees DTC will charge for DRS

transactions are the fees agreed upon by

the DRS Committee.14 DTC will charge

DTC participants a fee of 31 cents per

submitted instruction and charge the

receiving DRS limited participant a fee

of 9 cents for that instruction.15 DRS

limited participants will be charged 40

cents for each instruction submitted.16

II. Comment Letters

The Commission received six

comment letters.17 The SIA, Pershing,

and ING Barings support the

implementation of Profile and the use of

a screen-based electronic medallion

until such time as the industry reaches

consensus on an alternative electronic

guarantee program. These commenters

believe Profile will offer investors a

secure and efficient electronic facility

that will enable them to move their

securities in a secure, timely, and

efficient manner. The SIA also added

that Profile would offer an electronic

facility similar to that used for many

years by institutional investors and by

the mutual fund industry to move

securities. Furthermore, the SIA and

ING Barings believes that the use of

Profile will be critical to further

compress the settlement cycle.

ChaseMellon Financial Group and

EquiServe Limited Partnership, both

commercial transfer agents, support

DRS but raised concerns regarding

Profile and the use of an electronic

indemnification. The commenters

contend that Profile will not offer the

protection against unauthorized

transfers and potential losses arising

from such transfers. Both transfer agents

note that in existing signature guarantee

programs the transfer agent receives

physical evidence of the investor’s

authorization of the transfer, but in DRS

transfers using Profile, the transfer agent

will transfer the investor’s position

based solely on an electronic instruction

from the broker-dealer. In an effort to

resolve these perceived deficiencies, the

commenters offer several suggestions

including (1) a requirement that

guarantors (i.e., either the DTC

participant or the DRS limited

participant that sends the instruction to

move an investor’s position to its books)

obtain a surety bond similar to those

used in current signature guarantee

programs and (2) changes in the

language used in the screen-based

language to provide additional

protection for transfer agents. In

addition, ChaseMellon believes that the

fee structure should be changed to

establish parity between the fees paid by

DRS limited participants and those paid

by DTC participants and should require

the initiator of the instruction to pay for

all DTC fees.18 EquiServe also suggested

that the claims procedures be in place

before Profile is made available.

III. Discussion

Section 17A(b)(3)(F) of the Act 19

requires that the rules of a clearing

agency be designed to promote the

prompt and accurate clearance and

settlement of securities transactions and

to remove impediments to and perfect

the mechanism of a national system for

the prompt and accurate clearance and

settlement of securities transactions.20

As set forth below, the Commission

believes that DTC’s proposed rule

change is consistent with its obligations

under section 17A(b)(3)(F).21

The primary purpose of Profile is to

provide a prompt and accurate

mechanism for the transfer of an

investor’s book-entry position between

the investor’s broker-dealer and the

transfer agent for the issue. Investors

desiring to transfer their positions will

not longer be subject to a multi-step,

Federal Register / Vol. 65, No. 80 / Tuesday, April 25, 2000 / Notices 24245

22Supra note 5.

23 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3The third proposed change to Rule 123B related

to reports of executions within two minutes for

orders stopped by specialists. The Exchange is not

requesting extension of this provision at this time.

See letter from James E. Buck, Senior Vice President

and Secretary, NYSE, to Richard Strasser, Assistant

Director, Division of Market Regulation, SEC, dated

February 25, 2000. The Commission published

notice of these two amendments to Rule 123B. See

Exchange Act Release No. 42572 (March 23, 2000),

65 FR 17325 (March 31, 2000) (SR–NYSE–00–09).

4 15 U.S.C. 78f(b)(5).

paper-based process that is labor

intensive and slow and that often results

in transfer delays. Using Profile, DTC

participants and DRS limited

participants will send automated and

standardized instructions which should

reduce the possibility that an

instruction to move an investor’s

position will contain erroneous or

incomplete information. Because Profile

will eliminate the need for paper in

transferring an investor’s positions,

Profile should also greatly reduce the

possibility that an investor’s

instructions to move her position will

be misplaced or lost.

In order to implement a more efficient

manner in which to move an investor’s

position than is currently available

using the paper-based DRS processing,

DTC has decided to make Profile fully

operational by using a screen-based

indemnification until on an electronic

guarantee program is established.

Although some transfer agents and

issuers do not believe that the screenbased indemnification provides

sufficient protection against fraudulent

transfers or potential losses resulting

from such transfers, that view does not

appear to be held by all transfer agents,

issuers, or broker-dealers. Many

industry participants believe that Profile

using the screen-based indemnification

provides sufficient protection and have

expressed their intention to use it.

As the Commission has stated in prior

orders dealing with DRS and Profile,

participation in DRS by issuers and DRS

limited participants is not mandatory.22

Issues regarding risks and liabilities to

issuers or DRS limited participants are

internal business issues and should be

addressed prior to an issuer’s, transfer

agent’s, or DRS limited participant’s

decision to participate or participate

further in DRS.

V. Conclusion

On the basis of the foregoing, the

Commission finds that DTC’s proposal

to modify Profile to include an

electronic screen-based indemnification

is consistent with the requirements of

the Act and in particular with the

requirements of Section 17A of the Act

and the rules and regulations

thereunder.

It is Therefore Ordered, pursuant to

section 19(b)(2) of the Act, that the

proposed rule change (File N. SR–DTC–

00–04) be and hereby is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.23

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–10264 Filed 4–24–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42694; File No. SR–NYSE–

00–13]

Self-Regulatory Organizations: Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the New York Stock

Exchange, Inc. Extending the Pilot

Program for Amendments to Exchange

Rule 123B Until April 26, 2000

April 17, 2000.

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

Securities Exchange Act of 1934

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

notice is hereby given that on March 22,

2000, the New York Stock Exchange,

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

the Securities and Exchange

Commission (‘‘Commission’’ or ‘‘SEC’’)

the proposed rule change as described

in Items I, II and III below, which Items

have been prepared by the Exchange.

The Commission is publishing this

notice to solicit comments on the

proposed rule change from interested

persons and to grant accelerated

approval to the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange requests that the pilot

program for commission-free execution

of orders received by specialists through

the SuperDOT System, and language

clarifying the status of an order that is

cancelled and replaced, be extended for

60 days.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the 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

Exchange has prepared summaries, set

forth in sections A, B, and C, 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 October 4, 1999, the Exchange

filed a proposed rule change with the

Commission consisting of three

amendments to Exchange Rule 123b.

One amendment provided for the

commission-free execution of all orders

received by the Exchange specialists

through the SuperDOT system if such

orders were executed within five

minutes. A second amendment added

language to Rule 123B to clarify that if

an order placed with the specialist is

cancelled and replaced, the replacement

order is considered a new order for

purposes of the Rule.3 The Commission

approved these changes as a pilot

program through February 26, 2000.

The Exchange requests that the pilot

be extended for 60 days as it relates to

the commission-free policy and the

provision in Rule 123B relating to

cancelled and replaced orders. The

Exchange instituted the pricing

initiative of commission-free

executions, in conjunction with the

Exchange’s specialist community,

effective with trades executed on

December 29, 1999. To date, the

procedure has worked well. The

Exchange has not received any

complaints concerning this policy. As to

that portion of Rule 123B on cancelled

and replaced orders, the Exchange is not

aware of any problems associated with

the clarifying language.

2. Statutory Basis

The Exchange believes that the basis

under the Act for the proposed rule

change is the requirement under Section

6(b)(5) 4 that the Exchange have rules

that are designed to promote just and

equitable principles of trade, that

facilitate transactions in securities, that

remove impediments to and perfect the

mechanism of a free and open market

and a national market system and, in

general, to protect investors and the

public interest. The Exchange also

believes that the basis under the Act for