34762 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

11 17 CFR 240.17d–2(c).

12See supra, note 10.

13 17 CFR 200.30–3(a)(34)

1 15 U.S.C. 78q(d).

2 15 U.S.C. 78k–1(a)(3)(B).

XIV. The SROs shall notify the

common members of this Agreement by

means of a uniform joint notice

approved by the Council.

XV. This Agreement may be amended

in writing duly approved by each SRO.

XVI. Any of the SROs may manifest

its intention to cancel its participation

in this Agreement at any time upon the

giving to the Council of written notice

thereof at least 90 calendar days prior to

such cancellation. Upon receipt of such

notice the Council shall allocate, in

accordance with the provisions of this

Agreement, those common members for

which the petitioning party was the

DOEA. Until such time as the Council

has completed the reallocation

described above, the petitioning SRO

shall retain all its rights, privileges,

duties and obligations hereunder.

XVII. The cancellation of its

participation in this Agreement by any

SRO shall not terminate this Agreement

as to the SROs which remain

participants. This Agreement will only

terminate when the then participants

therein shall notify the Commission, in

writing, that they will terminate the

Agreement. Such notice shall be given

at least six months prior to the intended

date of termination.

Limitation of Liability

No SRO nor the Council nor any of

their respective directors, governors,

officers, employees or representatives

shall be liable to any other participant

in this Agreement for any liability, loss

or damage resulting from or claimed to

have resulted from any delays,

inaccuracies, efforts or omissions with

respect to the provision of Regulatory

Responsibility as provided hereby or for

the failure to provide any such

Responsibility, except with respect to

such liability, loss or damages as shall

have been suffered by one or more of the

SROs and caused by the willful

misconduct of the other participants or

their respective directors, governors,

officers, employees or representatives.

No warranties, express or implied, are

made by any or all of the SROs or the

Council with respect to any Regulatory

Responsibility to be performed by each

of them hereunder.

Relief from Responsibility

Pursuant to Section 17(d)(1)(A) of the

Securities Exchange Act of 1934 and

Rule 17d–2 promulgated pursuant

thereto, the SROs join in requesting the

Securities and Exchange Commission,

upon its approval of this Agreement or

any part thereof, to relieve those SROs

which are from time to time participants

in this Agreement which are not the

DOEA as to a common member of any

and all Regulatory Responsibility with

respect to the matters allocated to the

DOEA.

In Witness Whereof, the SROs hereto

have executed this Agreement as of the

date and year first above written.

Exhibit A—Designated Option

Examining Authorities

American Stock Exchange, LLC

Chicago Board Options Exchange, Inc.

National Association of Securities

Dealers, Inc.

New York Stock Exchange, Inc.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the amended

plan. Persons making written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549–

0609. Copies of the submission, all

subsequent amendments, all written

statements with respect to the amended

plan that are filed with the Commission,

and all written communications relating

to the amended plan 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 at

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of each of the SRO

participants. All submissions should

refer to File No. S7–966 and should be

submitted by June 21, 2000.

V. Discussion

The Commission continues to believe

that the proposed plan is an

achievement in cooperation among the

SRO participants, and will reduce

unnecessary regulatory duplication by

allocating to the designated SRO the

responsibility for certain options-related

sales practice matters that would

otherwise be performed by multiple

SROs. The plan promotes efficiency by

reducing costs to firms that are members

of more than one of the SRO

participants. In addition, because the

SRO participants coordinate their

regulatory functions in accordance with

the plan, the plan promotes, and will

continue to promote, investor

protection.

Under paragraph (c) of Rule 17d–2,

the Commission may, after appropriate

notice and comment, declare a plan, or

any part of a plan, effective.11 In this

instance, the Commission believes that

appropriate notice and comment can

take place after the proposed

amendment is effective. The primary

purpose of the amendment is to add the

ISE as an SRO participant. By approving

it today, the amendment can be

implemented prior to the ISE beginning

its operations. In addition, the original

plan was published for comment, and

no comments were received.12 The

Commission does not believe that the

amendment raises any new regulatory

issues.

This order gives effect to the amended

plan submitted to the Commission that

is contained in File No. S7–966. The

SRO participants shall notify all

members affected by the amended plan

of their rights and obligations under the

amended plan.

It is therefore ordered, pursuant to

Sections 17(d) and 11A(a)(3)(B) of the

Act, that the amended plan of the Amex,

the CBOE, the CHX, the ISE, the NASD,

the NYSE, the PCX, and the Phlx filed

pursuant to Rule 17d–2 is approved.

It is further ordered that those SRO

participants that are not the DOEA as to

a particular member are relieved of

those responsibilities allocated to the

member’s DOEA under the amended

plan.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13530 Filed 5–30–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42815, File No. 4–431]

Program for Allocation of Regulatory

Responsibilities Pursuant to Rule 17d–

2; Order Granting Approval of Plan

Allocating Regulatory Responsibility;

International Securities Exchange LLC

and National Association of Securities

Dealers, Inc.

May 23, 2000.

Notice is hereby given that the

Securities and Exchange Commission

(‘‘SEC or Commission’’) has issued an

Order, pursuant to Sections 17(d) 1 and

11A(a)(3)(B) 2 of the Securities Exchange

Act of 1934 (‘‘Act’’), granting approval

of the plan, as amended, for allocating

regulatory responsibility filed pursuant

Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices 34763

3 17 CFR 240.17d–2.

4 15 U.S.C. 78s(g)(1).

5 15 U.S.C. 78s(g)(2).

6Securities Acts Amendments of 1975, Report of

the Senate Committee on Banking, Housing, and

Urban Affairs to Accompany S. 249, S. Rep. No. 94–

75, 94th Cong., 1st Session. 32 (1975).

7 17 CFR 240.17d–1.

8Securities Exchange Act Release No. 12352

(April 20, 1976), 41 FR 18809 (May 3, 1976).

9Securities Exchange Act Release No. 12935

(October 28, 1976), 41 FR 49093 (November 8,

1976).

10Securities Exchange Act Release No. 42668

(April 11, 2000), 65 FR 21048 (April 19, 2000).

11See Letter from Sharon Zackula, Assistant

General Counsel, NASD Regulation, to Belinda

Blaine, Associate Director, Division of Market

Regulation, Commission, dated May 1, 2000

(‘‘Amendment No. 1’’). Amendment No. 1 makes

non-substantive changes to the provisions of the

plan regarding Advertising Materials and

Regulatory Responsibility.

12The ISE has further reduced regulatory

duplication by becoming a participant in the plan

allocating regulatory responsibility concerning

options-related sales practice matters, filed by the

American Stock Exchange LLC, the Chicago Board

Options Exchange, Inc., the Chicago Stock

Exchange, Inc., the National Association of

Securities Dealers, Inc., the New York Stock

Exchange, the Pacific Exchange, Inc., and the

Philadelphia Stock Exchange, Inc. in 1983 (the

‘‘Options 17d–2 Plan’’) See Securities Exchange Act

Release No. 20158 (September 8, 1983), 48 FR

41256 (September 14, 1983). On May 23, 2000, the

Commission approved an amendment to the

Options 17d–2 plan, which allows ISE to become

a participant in the plan. See Securities Exchange

Act Release No. 42816. The plan that is the subject

of this approval order specifically excludes any

obligation or responsibility by the NASD to

examine common members for compliance with ISE

rules for which the regulatory responsibility is

allocated to an SRO under the Options Rule 17d–

2 plan.

to Rule 17d–2 of the Act,3 by the

International Securities Exchange LLC

(‘‘ISE’’) and the National Association of

Securities Dealer, Inc. (‘‘NASD’’).

Accordingly, the NASD shall assume,

in addition to the regulatory

responsibilities it already has under the

Act, the regulatory responsibilities

allocated to it under the plan, as

amended. At the same time, the ISE is

relieved of those regulatory

responsibilities allocated to the NASD.

I. Introduction

Section 19(g)(1) of the Act,4 among

other things, requires every national

securities exchange and registered

securities association (‘‘SRO’’) to

examine for, and enforce, compliance by

its members and persons associated

with its members with the Act, the rules

and regulations thereunder, and the

SRO’s own rules, unless the SRO is

relieved of this responsibility pursuant

to Section 17(d) or 19(g)(2) 5 of the Act.

Without this relief, the statutory

obligation of each individual SRO could

result in a pattern of multiple

examinations of broker-dealers that

maintain memberships in more than one

SRO (‘‘common members’’). This

regulatory duplication would add

unnecessary expenses for common

members and their SROs.

Section 17(d)(1) of the Act was

intended, in part, to eliminate

unnecessary multiple examinations and

regulatory duplication.6 With respect to

a common member, Section 17(d)(1)

authorizes the Commission, by rule or

order, to relieve an SRO of the

responsibility to receive regulatory

reports, to examine for, and enforce,

compliance with applicable statutes,

rules and regulations, or to perform

other specified regulatory functions.

To implement Section 17(d)(1), the

Commission adopted two rules: Rule

17d–1 7 and Rule 17d–2 under the Act.

Rule 17d–1, adopted on April 20, 1976,8

authorizes the Commission to name a

single SRO as the designated examining

authority (‘‘DEA’’) to examine common

members for compliance with the

financial responsibility requirements

imposed by the Act, or by Commission

or SRO rules. When an SRO has been

named as a common member’s DEA, all

other SROs to which the common

member belongs are relieved of the

responsibility to examine the firm for

compliance with applicable financial

responsibility rules.

On its face, Rule 17d–1 deals only

with an SRO’s obligations to enforce

broker-dealers’ compliance with the

financial responsibility requirements.

Rule 17d–1 does not relieve an SRO

from its obligation to examine a

common member for compliance with

its own rules and provisions of the

federal securities laws governing

matters other than financial

responsibility, including sales practices,

and trading activities and practices.

To address regulatory duplication in

these other areas, on October 28, 1976,

the Commission adopted rule 17d–2

under the Act.9 This rule permits SROs

to propose joint plans allocating

regulatory responsibilities with respect

to common members. Under paragraph

(c) of rule 17d–2, the Commission may

declare such a plan effective if, after

providing for notice and comment, it

determines that the plan is necessary or

appropriate in the public interest and

for the protection of investors, to foster

cooperation and coordination among the

SROs, to remove impediments to and

foster the development of a national

market system and a national clearance

and settlement system, and in

conformity with the factors set forth in

Section 17(d) of the Act. Commission

approval of a plan filed pursuant to Rule

17d–2 relieves an SRO of those

regulatory responsibilities allocated by

the plan to another SRO.

On April 19, 2000, the Commission

published notice of the filing by the ISE

and the NASD of a joint plan allocating

regulatory responsibility for common

members.10 No comments were

received. On May 1, the parties filed a

technical amendment to the plan.11 The

amended plan is intended to reduce

regulatory duplication for firms that are

common members of the ISE and the

NASD. Included in the plan is an

attachment (‘‘ISE Certification’’) that

clearly delineates regulatory

responsibilities with respect to ISE

rules. The ISE Certification lists every

ISE rule that, under the plan, the NASD

would bear responsibility for overseeing

and enforcing with respect to common

members.

II. Discussion

The Commission finds that the

proposed plan is consistent with the

factors set forth in Section 17(d) of the

Act and Rule 17d–2(c), in that the

proposed plan is necessary or

appropriate in the public interest and

for the protection of investors, fosters

cooperation and coordination among

self-regulatory organizations, and

removes impediments to and fosters the

development of the national market

system. In particular, the Commission

believes that the proposed plan is an

achievement in cooperation between the

ISE and the NASD, which will reduce

unnecessary regulatory duplication by

allocating to the NASD certain

responsibilities for common members

that would otherwise be performed by

both SROs.12 The proposed plan

promotes efficiency by reducing costs to

common members. Furthermore,

because the ISE and the NASD will

coordinate their regulatory functions in

accordance with the plan, the plan will

promote investor protection.

III. Conclusion

This order gives effect to the amended

plan filed with the Commission that is

contained in File No. 4–431. The parties

to the plan shall notify all members

affected by the amended plan of their

rights and obligations under the

amended plan.

It is therefore ordered, pursuant to

Sections 17(d) and 11A(a)(3)(B) of the

Act, that the plan of the ISE and the

NASD, as amended, filed pursuant to

Rule 17d–2 is approved.

It is therefore ordered that the ISE is

relieved of those responsibilities

allocated to the NASD under the plan,

as amended.

34764 Federal Register / Vol. 65, No. 105 / Wednesday, May 31, 2000 / Notices

13 17 CFR 200.30–3(a)(34).

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

2 17 CFR 240.19b–4.

3See letter from Michael Pierson, Director,

Regulatory Policy, PCX, to John Roeser, Attorney,

Division of Market Regulation, Commission, dated

November 10, 1999 (‘‘Amendment No. 1’’).

4See Securities Exchange Act Release No. 42188

(December 1, 1999), 64 FR 68714.

5See Securities Exchange Act Release No. 42557

(Mar. 21, 2000), 65 FR 16680 (Mar. 29, 2000) (SR–

PCX–98–30) (order approving PCX Rule

6.2(h)(4)(B), ‘‘Floor Brokers who receive telephonic

orders while in the trading crowd must step outside

of the crowd, write up an order ticket and time

stamp it before representing the order in the

crowd’’); See also PCX Rule 6.85, Com. .03 (‘‘when

a Floor Broker receives a verbal order from a Market

Maker, or when a Floor Broker is requested by a

Market Maker to alter an order in his possession in

any way, the Floor Broker shall immediately

prepare an order ticket from outside the trading

crowd and time stamp it’’).

6See Amendment No. 1, supra note 3.

7See supra note 5.

8Under PCX Rule 6.2(h)(4), Floor Brokers are not

permitted to communicate directly with persons

located off the Trading Floor. See supra note 5.

9 15 U.S.C. 78f(b)(5).

10 In approving this proposed rule change, the

Commission has considered the proposal’s impact

on efficiency, competition, and capital formation.

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

11 15 U.S.C. 78k–1(a)(1)(C)(i).

12 15 U.S.C. 78k–1(a)(1)(C)(ii).

13 15 U.S.C. 78f(b)(5).

14 15 U.S.C. 78k–1(a)(1)(C)(i).

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13531 Filed 5–30–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42810; File No. SR–PCX–

99–17]

Self-Regulatory Organizations; Pacific

Exchange, Inc.; Order Approving

Proposed Rule Change Permitting

Floor Brokers To Represent Orders

With a Ticket-to-Follow

May 23, 2000.

I. Introduction

On June 1, 1999, the Pacific Exchange,

Inc. (‘‘Exchange’’ or ‘‘PCX’’) submitted

to the Securities and Exchange

Commission (‘‘Commission’’), pursuant

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

Exchange Act of 1934 (‘‘Act’’),1 and

Rule 19b–4 thereunder,2 a proposed rule

change seeking to amend its rules on

options trading to permit Floor Brokers

to immediately represent intra-floor

telephonic orders in the trading crowd,

with a written order ticket immediately

to follow. Amendment No. 1 to the

proposal was submitted on November

12, 1999. 3 Notice of the proposed rule

change, including Amendment No. 1,

appeared in the Federal Register on

December 8, 1999.4 The Commission

received no comments on the proposal.

This order approves the proposed rule

change, as amended.

II. Description of the Proposal

Options Floor Brokers currently are

not permitted to represent orders they

receive over the telephone unless and

until they have prepared, from outside

the trading crowd, a written, timestamped order ticket. 5 The Exchange

now proposes to adopt new PCX Rule

6.2(h)(4)(C), which will permit a floor

Broker in a trading crowd who receives

an order from a Member or Member

Firm representative located on the

Trading Floor to represent that order

immediately in the trading crowd,

provided that: (i) an order ticket is

prepared and time stamped in the

member firm booth before the order is

transmitted telephonically to the Floor

Broker in the trading crowd; and (ii) a

written, time-stamped order ticket for

the order must be taken immediately to

the Floor Broker in the trading crowd.6

The Exchange also proposes to amend

PCX Rule 6.2(h)(4)(B) to eliminate the

requirement that Floor Brokers who

receive telephonic orders while in the

trading crowd must step outside of the

trading crowd, write up an order ticket

and time-stamp it before representing

the order in the crowd. 7 In addition, the

Exchange proposes to add new section

(d) to PCX Rule 6.67, which provides

that a Floor Broker may represent a

telephonic order, with the ticket to

follow, as provided in PCX Rule

6.2(h)(4)(C). Further, the Exchange

proposes to modify PCX Rule 6.85 by

providing that PCX Rule 6.2(h)(4)(C) is

an exception to the general rule that

when a Floor Broker receives a verbal

order form a Market Maker, or when a

Floor Broker is requested by a Market

Maker to alter an order in his possession

in any way, the Floor Broker shall

immediately prepare an order ticket

from outside the trading crowd and

time-stamp it. Accordingly, Floor

Brokers who receive intra-floor

telephonic orders from Market Makers

will be permitted to represent those

orders immediately, with the ticket

immediately to follow.8

Under Options Floor Procedure

Advice F–5 (‘‘OFPA F–5’’), hand signals

may be used to increase or decrease the

size of an order, to change the order’s

limit, to cancel an order or to activate

a market order, as long as the

cancellation or change to the order is

‘‘relayed to the Floor Broker in a timestamped, written form immediately

thereafter.’’ The Exchange is proposing,

as a matter of consistency, to eliminate

the requirement from OFPA F–5 that

changes to an order must be

documented in writing outside of the

crowd and the ticket time-stamped,

before the revised order may be

represented.

III. Discussion

Section 6(b)(5) 9 of the Act requires

that the rules of an exchange be

designed to promote just and equitable

principles of trade, prevent fraudulent

and manipulative acts and practices,

remove impediments to and perfect the

mechanism of a free and open market

and a national market system, and

protect investors and the public

interest.10 Section 11A(a)(1)(C)(i) 11 of

the Act states that it is in the public

interest and appropriate for the

protection of investors and the

maintenance of fair and orderly markets

to assure the economically efficient

execution of securities transactions.

Section 11A(a)(1)(C)(ii) 12 states that it is

in the public interest and appropriate

for the protection of investors and the

maintenance of fair and orderly markets

to assure fair competition among

brokers and dealers. For the reasons set

forth below, the Commission finds that

the proposed rule change is consistent

with the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, the

requirements of Section 6(b)(5).13

Further, the Commission believes that

the proposed rule change is consistent

with the goals of Section 11A(a)(1)(C).14

The Commission believes that the

proposal should serve to remove

impediments to and perfect the

mechanism of a free and open market by

reducing the amount of time before

telephonic orders may be represented in

the trading crowd without

compromising the Exchange’s audit

trail. In this regard, the Commission

notes that an order ticket must be

prepared and time stamped in the

member firm booth before the order is

transmitted telephonically to the Floor

Broker in the trading crowd. The

Commission believes that requiring

floor members to prepare a written,

time-stamped order ticket before the

order is transmitted to the crowd is

consistent with the Exchange’s audit

trail requirements. Further, the

Commission believes that this

requirement should enable the

Exchange to conduct adequate

surveillance for market manipulation