Federal Register / Vol. 65, No. 92 / Thursday, May 11, 2000 / Notices 30459

4See Securities Exchange Act Release No. 39453

(December 16, 1997), 62 FR 67101 (December 23,

1997) (order approving SR–CBOE–97–63).

5On November 1, 1999, Dow Jones removed four

stocks from the DJIA and replaced these stocks with

new ones. These four stocks also happened to be

components of the Index, i.e., four of the highest

yielding stocks in the DJIA. Before this component

change in the DJIA, CBOE realized that, contrary to

industry practice, its maintenance rules for the

index required it to remove the four stocks from the

Index. To prevent these Four stocks from being

removed from the Index until the annual

rebalancing of the Index, CBOE submitted a rule

change under Section 19(b)(3)(A) of the Act. See

Securities Exchange Act Release No. 42187

(November 30, 1999), 64 FR 68708 (December 8,

1999).

6 In addition, pursuant to Section 3(f) of the Act,

the Commission has considered the proposed rule’s

impact on efficiency, competition, and capital

formation. 15 U.S.C. 78c(f).

7 15 U.S.C. 78f(b)(5).

8 15 U.S.C. 78s(b)(2).

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3 In Amendment Nos. 1 and 2, the Exchange

reworded the proposed language in the

interpretation for clarity. No substantive changes

were made in the amendments. See Letters from

Gary L. Goldsholle, Assistant General Counsel,

NASD Regulation, to Katherine A. England,

Assistant Director, Division of Market Regulation

(‘‘Division’’), SEC. dated April 28, 2000

(‘‘Amendment No. 1’’) and May 2, 2000

(‘‘Amendment No. 2’’).

becomes necessary to remove a stock

from the Index, it will be replaced by

the stock in the DJIA which has the

highest yield of the stocks not already

in the Index.4 CBOE intended for this

passage to describe the actions it would

take if the shares of an Index component

became unavailable for trading, either

due to a corporate action such as a

takeover or merger, or due to

bankruptcy. However, CBOE made no

distinction between this type of

component change and a discretionary

component change in the Dow Jones

Industrial Average, in which the shares

of a company removed from the DJIA

continue to trade.5

CBOE, therefore, proposes to clarify

its maintenance procedures under

which component changes can be made

to the Index. Specifically, if it becomes

necessary to remove a stock from the

Index in the event that its shares cease

to trade and a proxy for those shares is

not available, it will be replaced by the

stock in the DJIA that has the highest

yield of the stocks not already in the

Index. If a stock is removed from the

DJIA at the discretion of Dow Jones, but

its shares continue to trade, that stock

will remain in the Index until the time

of the annual re-balancing.

III. Discussion

After careful review, the Commission

finds that the proposed rule change is

consistent with the requirements of the

Act.6 In particular, the Commission

finds the proposal is consistent with

Section 6(b)(5) 7 of the Act. Section

6(b)(5) requires, among other things,

that the rules of an exchange be

designed to promote just and equitable

principles of trade and to protect

investors and the public interest.

The Commission believes that the

proposal is consistent with the Act

because it helps protect investors. In the

proposal, CBOE sets forth its procedures

for maintaining the Index when the Dow

Jones corporation decides to replace a

stock in the Dow Jones Industrial

Average. CBOE’s procedures will now

be consistent with industry practice for

maintaining the Index, which should

help protect investors by eliminating

potential confusion about the

composition of the Index. Further, this

clarification helps protect investors

because it gives investors advance

notice about the treatment of the Index

and, therefore, allows them to make an

informed investment decision.

IV. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,8 that the

proposed rule change (SR–CBOE–99–

60) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11804 Filed 5–10–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42761; File No. SR–NASD–

00–24]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

National Association of Securities

Dealers, Inc. Relating to Disclosure

Requirements for Transactions

Involving Callable Common Stock and

Amendment Nos. 1 and 2 Thereto

May 5, 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 April 25,

2000, the National Association of

Securities Dealers, Inc. (‘‘NASD’’),

through its wholly owned subsidiary,

NASD Regulation, Inc. (‘‘NASD

Regulation’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by NASD Regulation. On May

1, 2000 and May 3, 2000, the Exchange

submitted Amendment Nos. 1 and 2,

respectively, to the proposed rule

change. 3

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

NASD Regulation is proposing to

interpret NASD Rule 2110, Standards of

Commercial Honor and Principles of

Trade, to require a member that

provides a written confirmation for a

transaction involving callable common

stock to disclose on the written

confirmation that the security is callable

and that the customer may wish to

contact the member for more

information. Below is the text of the

proposed rule change. Proposed new

language is italicized.

IM–2110–6. Confirmation of Callable

Common Stock

Any member providing a customer

confirmation pursuant to SEC Rule 10b–

10 in connection with any transaction in

callable common stock shall disclose on

such confirmation that:

•The security is callable common

stock; and

• A customer may contact the member

for more information concerning the

security.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

NASD Regulation included statements

concerning the purpose of and basic 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.

NASD Regulation 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

An issuer’s common stock generally

continues to trade on a market until the

issuer fails to meet the market’s listing

requirements, combines with another

30460 Federal Register / Vol. 65, No. 92 / Thursday, May 11, 2000 / Notices

4Because callable common stock combines the

features of more than one category of securities (i.e.,

common stock and a call option), the staff of The

Nasdaq Stock Market will evaluate whether callable

common stock is eligible for inclusion in the

Nasdaq National Market pursuant to the ‘‘other

securities’’ provisions of NASD Rule 4420(f).

5 15 U.S.C. 78o–3(b)(6).

6 15 U.S.C. 78s(b)(3)(A)(i).

7 17 C.F.R. 240.19b–4(f)(1).

8 17 CFR 200.30–3(a)(12)

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

2 17 CFR 240.19b–4.

3 In Amendment No. 1, the NASD clarified: (1)

Operational distinctions between the NASD

Regulation and the NASD; (2) what initiates a

proceeding; and (3) other technical matters. See

Restated 19b–4 filing marked Amendment No. 1

(‘‘Amendment No. 1’’).

4Technical and clarifying changes to the notice

were made pursuant to a telephone conversation

between Eric Moss, Assistant General Counsel,

Office of the General Counsel, NASD Regulation,

and Katherine England, Assistant Director, Division

of Market Regulation, Commission, on April 28,

2000.

company, or voluntarily delists for

another market. Occasionally, common

stock will be callable, that is, subject to

being called away from a shareholder,

either by the issuer or a third party.

Typically, the price at which callable

common stock is called away from a

shareholder is at a premium to the then

prevailing market price or pursuant to a

schedule of prices announced at the

time the common stock is issued. 4

An investor purchasing callable

common stock is subject to unique risks

not typically associated with ownership

of common stock, even where such

stock is called away at a premium.

Moreover, the ability of an issuer’s

common stock to be called away from a

shareholder generally will be a material

fact to an investor. Accordingly, NASD

Regulation believes that high standards

of commercial honor and just and

equitable principles of trade require that

any member that provides a written

confirmation for a transaction involving

callable common stock must disclose on

the confirmation that the security is

callable and that the customer may

contact the member for more

information. NASD Regulation

emphasizes that the disclosure of the

call feature on the confirmation in no

way relieves a member of its obligation

to consider the callable nature of the

security when complying with any

applicable suitability obligations.

2. Statutory Basis

NASD Regulation believes that the

proposed rule change is consistent with

the provisions of Section 15A(b)(6) of

the Act, 5 which requires, among other

things, that the Association’s rules be

designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, and, in general, to protect

investors and the public interest. NASD

Regulation believes that callable

common stock is subject to unique and

material risks not typically associated

with ownership of common stock;

therefore, any member that provides a

written confirmation for a transaction

involving callable common stock must

disclose that the security is callable and

that the customer may contact the

member for more information.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

NASD Regulation does not believe

that the proposed rule change will result

in any burden on competition that is not

necessary or appropriate.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

NASD Regulation has neither

solicited nor received written

comments.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The proposed rule change constitutes

a stated policy, practice, or

interpretation with respect to the

meaning, administration, or

enforcement of an existing rule and,

therefore, has become effective upon

filing pursuant to section 19(b)(3)(A)(i)

of the Act 6 and paragraph (f)(1) of Rule

19b-4 thereunder.7

At any time within 60 days of this

filing, the Commission may summarily

abrogate this proposal 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.

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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549–0609. 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 insepection and copying in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer SR–NASD–

00–24 and should be submitted by June

1, 2000.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–11806 Filed 5–10–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42760; File No. SR–NASD–

99–26]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to Denial of

Access Procedures

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

Securities Exchange Act of 1934

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

notice is hereby given that on May 27,

1999, the National Association of

Securities Dealers, Inc. (‘‘NASD’’),

through its wholly owned subsidiary,

NASD Regulation, Inc. (‘‘NASD

Regulation’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) the proposed rule

change. The Association submitted

Amendment No. 1 to its proposal on

August 24, 1999.3 The proposed rule

change, as amended, is described in

Items I, II, and III below, which Items

have been prepared by NASD

Regulation. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.4

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation is proposing to

amend the NASD Rule 9510 Series of

the National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

to: (i) Expand the circumstances under

which an aggrieved Party may request a

hearing to challenge an Association

action that the Party believes constitutes

a ‘‘denial of access;’’ (ii) expand the

pool of potential hearing panelists in