69582 Federal Register / Vol. 65, No. 223 / Friday, November 17, 2000 / Notices

9The full text of the Plan, as well as ‘‘Concept

Paper’’ describing the requirements of the Plan, are

contained in the original filing which is available

for inspection and copying in the Commission’s

public reference room.

10 15 U.S.C. 781(f).

11See supra note 4.

12 17 CFR 200.30–3(a)(29).

1Copies of GJVMS’s Form CA–1 are available for

inspection and copying at the Commission’s Public

Reference Room in File No. 600–32.

2 15 U.S.C. 78q–1.

3 17 CFR 240.17Ab2–1.

4 DTCC was created in 1999 as a holding

company for The Depository Trust Company

(‘‘DTC’’) and the National Securities Clearing

Corporation (‘‘NSCC’’). DTC and NSCC are

registered with the Commission as clearing

agencies.

5TISI is a wholly owned subsidiary of Thomson

Financial, a Thomson Corporation subsidiary.

Thomson Corporation is a global electronic

information company.

6Thomson Financial ESG is a wholly owned

subsidiary of Thomson Financial, a Thomson

Corporation subsidiary.

7STP is the completion of presettlement and

settlement processes based on trade data that each

party to a transaction enters only once into an

automated system.

8T+1 refers to an industry initiative to reduce the

settlement cycle for securities transactions from

three days (T+3) to one day (T+1). It is anticipated

that the settlement cycle will be shortened from

T+3 to T+1 during 2004.

the Plan commenced. The Commission

originally approved the Plan on June 26,

1990.6 Accordingly, the pilot period

commenced on July 12, 1993 and was

scheduled to expire on July 12, 1994.7

The Plan has since been in operation on

an extended pilot basis.8

III. Description of the Plan

The Plan provides for the collection

from Plan Participants and the

consolidation and dissemination to

vendors, subscribers and others of

quotation and transaction information

in ‘‘eligible securities.’’ The Plan

contains various provisions concerning

its operation, including Implementation

of the Plan; Manner of Collecting,

Processing, Sequencing, Making

Available and Disseminating Last Sale

Information; Reporting Requirements

(including hours of operation);

Standards and Methods of Ensuring

Promptness, Accuracy and

Completeness of Transaction Reports;

Terms and Conditions of Access,

Description of Operation of Facility

Contemplated by the Plan; Method and

Frequency of Processor Evaluation;

Written Understandings of Agreements

Relating to Interpretation of, or

Participation in, the Plan; Calculation of

the Best Bid and Offer; Dispute

Resolution; and Method of

Determination and Imposition, and

Amount of Fees and Charges.9

IV. Description of the Proposal

The Commission is proposing

pursuant to Section 12(f) of the Act 10 to

expand the number of eligible Nasdaq/

NM securities that may be traded by a

national securities exchange pursuant to

the Plan to include all Nasdaq/NM

securities. The current maximum

number of eligible Nasdaq/NM

securities that may be traded pursuant

to the Plan is 1000 securities.11

V. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether it it is consistent

with the Act. 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 proposed

change that are filed with the

Commission, and all written

communications relating to the proposal

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.

All submissions should refer to File

No. S7–24–89 and should be submitted

by December 8, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–29446 Filed 11–16–8:45am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43540; File No. 600–32]

Self-Regulatory Organizations; Global

Joint Venture Matching Services—US,

LLC; Notice of Filing of Application for

Exemption From Registration as a

Clearing Agency

November 9, 2000.

I. Introduction

On September 21, 2000, the Global

Joint Venture Matching Services—US,

LLC (‘‘GJVMS’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’) an application on Form

CA–1 1 for exemption from registration

as a clearing agency pursuant to Section

17A of the Securities Exchange Act of

1934 (‘‘Exchange Act’’) 2 and Rule

17Ab2–1 thereunder.3 GJVMS is

requesting an exemption from clearing

agency registration in connection with

its proposal to offer an electronic trade

confirmation service and a matching

service. The Commission is publishing

this notice to solicit comments on the

exemption request.

II. Background

A. Structure of the GJVMS

The GJVMS is a limited liability

company which prior to the

commencement of its operations will

become a wholly-owned subsidiary of

the Global Joint Venture. The Global

Joint Venture is a proposed joint venture

between The Depository Trust &

Clearing Corporation (‘‘DTCC’’),4

Thomson Institutional Services Inc.

(‘‘TISI’’),5 and Interavia, A.G., a Swiss

corporate affiliate of TISI. Within the

Global Joint Venture, the institutional

trade processing services currently

offered by DTC will be combined with

the institutional trade processing

services currently offered by Thomson

Financial ESG.6 While the Global Joint

Venture will have several lines of

business, it will conduct its domestic

electronic trade confirmation (‘‘ETC’’)

service and matching service wholly

through the GJVMS.

Initially, the automated facilities and

systems environment necessary to

operate the ETC and matching services

will be provided to the GJVMS by DTC

pursuant to a services agreement

between DTCC and the Global Joint

Venture. Also pursuant to the services

agreement, DTCC will provide to the

Global Joint Venture legal and

regulatory, audit, accounting, and

human resources services, and the

Global Joint Venture will make these

services available to the GJVMS. It is

anticipated that there will also be a

services agreement between the Global

Joint Venture and the GJVMS.

As explained in detail below, DTC

and Thomson Financial ESG’s

institutional trade processing services

are the two principal systems used by

broker-dealers and institutional

investors for post-trade, presettlement

processing of trades. The merger of

these two services would link the two

largest providers of institutional posttrade, presettlement processing services,

and as a result, would establish a core

building block for straight-through

processing (‘‘STP’’) 7 and T+1.8

DTCC will transfer to the Global Joint

Venture DTC’s TradeSuite which

consists of the following services:

TradeMessage, TradeMatch,

TradeSettle, and TradeHub.

Federal Register / Vol. 65, No. 223 / Friday, November 17, 2000 / Notices 69583

9Securities Exchange Act Release No. 39829

(April 6, 1998), 63 FR 17943 [File No. S7–10–98].

10 15 U.S.C. 78c(a)(23)(A).

11 15 U.S.C. 78q–1; 17 CFR 240.17Ab2–1. The

Commission has approved a proposed rule change

filed by DTC that allows DTC to provide matching

services. Securities Exchange Act Release No. 39832

(April 6, 1998), 63 FR 18062 [File No. SR–DTC–95–

23]. The Commission has also granted Thomson

Financial Technology Services, Inc., a wholly

owned subsidiary of TISI, an exemption from

registration as a clearing agency. Securities

Exchange Act Release No. 41377 (May 7, 1999), 64

FR 25948 [File No. 600–31].

1. TradeMessage provides for the

automated exchange of post-trade

messages between broker-dealers,

custodians, and institutions, including

messages such as block-trade notices of

execution, allocation instructions, trade

confirmations, and affirmations.

2. TradeMatch electronically

compares investment managers’

allocations with broker-dealers’ trade

confirmations.

3. TradeSettle supplies allocations,

trade confirmations, and settlement

messages with account and settlement

data from DTC’s Standing Instructions

Database (‘‘SID’’) and routes settlement

instructions to custodian banks and

broker-dealers’ clearing agents. SID is a

database of customer relationship

information and settlement data that is

shared by investment managers, brokerdealers, and custodians.

4. TradeHub is a real-time global

message switch which routes messages

between parties using different

communications protocols, message

formats, and firm and securities

identifiers.

TISI will transfer to the Global Joint

Venture the following services of

Thomson Financial ESG: ALERT,

OASYS, OASYS Global, MarketMatch,

and ITM Benchmarks.

1. ALERT is a database of customer

relationship information and settlement

data that is shared by investment

managers, broker-dealers, and

custodians.

2. OASYS provides for the electronic

communication and acceptance or

rejection of allocation instructions

between investment managers and

broker-dealers.

3. OASYS Global provides for the

electronic communication of allocation

instructions and confirmations between

investment managers and brokerdealers.

4. MarketMatch streamlines the

matching of trade details with broker

counterparties around the world,

leading to lower processing costs,

improved trade management, and

shorter settlement times.

5. ITM Benchmarks is a suite of

services that provide operational

statistics relating to trade processing.

These include statistics on average

response times, the number of attempts

it takes to make settlement, and the

percentage of trades ready for settlement

at particular points in time.

B. Current Institutional Trade

Settlement Processes

The institutional trade process

typically starts when an institution or

its agent places an order to buy or sell

securities with its broker-dealer. After

the broker-dealer executes the trade, the

broker-dealer will advise the institution

of the details of the executed trade. This

is generally called a notice of execution.

Once received, the institution advises

the broker-dealer how the trade should

be allocated among its various accounts.

When the broker-dealer completes

allocating the shares among the

institution’s accounts, the broker-dealer

submits trade data reflecting its

distribution to each of the institution’s

accounts. DTC’s TradeSuite service

forwards the trade data in the form of a

confirmation for each account to the

institution, the broker-dealer, and other

interested parties (e.g., correspondent

banks or trustees). The institution

reviews the confirmation for accuracy

(i.e., compares the confirmation to its

allocation instructions). For each

confirmation that is accurate, the

institution will send an information

message to DTC. DTC will generate and

send an affirmed confirmation to the

broker-dealer and to the institution’s

settlement agent. At this point, the trade

is sent into DTC’s settlement system.

(DTC’s TradeSuite service is not a

settlement system in that no money or

securities move through it.) The trade

also must be authorized by the party

obligated to deliver the securities (i.e.,

the selling party) before settlement can

occur.

C. The Commission’s Interpretive

Release on Matching

On April 6, 1998, the Commission

issued an interpretive release regarding

matching services (‘‘Matching

Release’’).9 Matching is the term used to

describe the process whereby an

intermediary independently determines

whether trade data submitted by a

broker-dealer (i.e., confirmation

information) matches the trade data

submitted from the broker-dealer’s

institutional customer (i.e., allocation

information). If the information

matches, the intermediary generates an

affirmed confirmation to the brokerdealer and the institution. In the

Matching Release, the Commission

concluded that matching constitutes a

clearing agency function, specifically

the ‘‘comparison of data respecting the

terms of settlement of securities

transactions,’’ within the meaning of

Section 3(a)(23)(A) of the Exchange

Act.10 Therefore, any person providing

independent matching services must

either register with the Commission as

a clearing agency or obtain an

exemption from registration pursuant to

Section 17A of the Exchange Act and

Rule 17Ab2–1 thereunder.11

III. GJVMS’s Request for Exemption

A. Introduction

The purpose of the GJVMS will be to

introduce significant efficiencies into

institutional trade processing by

combining the complementary posttrade, presettlement services of DTC and

Thomson Financial ESG to offer the

securities industry an integrated system

for post-trade, presettlement processing

of institutional trades. This should

assist firms in dealing with the ever

growing and unprecedented levels of

securities trading. The GJVMS will also

be a positive response to the expected

move to T+1.

According to ‘‘Paving The Way To

Straight Through Processing’’ (July

2000), a white paper published by

DTCC, as trading volumes have

continued their dramatic upward climb

over the past decade, securities industry

executives are focusing their attention

on the transformation the industry must

undergo to cope with these volumes and

the potential for even greater increases

in the years ahead. According to DTCC

and the Securities Industry Association

(‘‘SIA’’), 250 million institutional trade

confirmations were processed in 1999.

The industry has concluded that the

current post-trade presettlement

processing system for institutional

trades will need major changes if a

shorter settlement period is to be

achieved. Even in a T+3 environment,

the current system is showing signs of

strain under the increasing volumes of

trades. Today, institutional trades are

primed for settlement through a series of

sequential and repetitive steps, using a

process developed when the volume of

trades was far lower than it is today and

when settlement occurred on T+5.

To deal with this increasing volume,

the industry has embraced the concept

of straight-through processing or STP

which, in its most basic form, is the

process of seamlessly passing

information to all parties without

manual handling or redundant

processing. Concurrent with this

objective, the industry is seeking to

reduce risk, by shortening the time

between trade date and settlement date.

69584 Federal Register / Vol. 65, No. 223 / Friday, November 17, 2000 / Notices

12 In July 2000, the SIA released its T+1 Business

Case Model which the Commission is in the process

of reviewing.

13The average daily U.S. institutional trade

volume increased to 432,000 trades in 1999 from

182,000 trades in 1995. However, in 1999, an

average of 70,000 institutional trade confirmations

with an average value of $15 billion a day, were not

submitted by broker-dealer into DTC’s TradeSuite

system on trade date. This doubled the 1995

average of 36,000 valued at $7 billion. DTCC has

experienced trade date confirmation input rates as

low as 76% on certain peak days during the first

quarter of 2000 as compared with the fairly steady

average rate of 85% over the past several years. In

addition, only 12% of trades are currently affirmed

on trade date and only 88% of trades are affirmed

by noon of T+2, the deadline for automatic

submission of the affirmed trade into DTC’s

settlement system. The remaining 12% are not

automatically entered into DTC’s settlement system

and require further action on the part of the parties

to settle. As trade volumes continue to rise or in a

T+1 environment, these levels will be unacceptable.

14These rules are National Association of

Securities Dealers Rule 11860(a)(5), New York

Stock Exchange Rule 387(a)(5), Municipal

Securities Rulemaking Board Rule G–15(d)(ii),

American Stock Exchange Rule 423(5), Chicago

Stock Exchange Article XV, Rule 5, Pacific

Exchange Rule 9.12(a)(5), and Philadelphia Rule

274(b).

15The matching service will be used to match

trade information where either the broker-dealer or

the institutional customer or both is a U.S. entity

and where the security is registered in the United

States.

16Exhibit S of GJVMS’s Form CA–1. GJVMS also

represents that it will not impose prohibitions or

limit access to its service by potential customers but

that it might terminate a subscription for failure to

pay fees.

17Securities Exchange Act Release Nos. 27445

(November 16, 1989), 54 FR 48703 and 29185 (May

9, 1991), 56 FR 22490.

18 DTC submits monthly affirmation/confirmation

reports to the appropriate self-regulatory

organizations. The Commission anticipates a

similar schedule.

19 15 U.S.C. 78q–1(b)(1).

20Securities Exchange Act Release Nos. 36573

(December 12, 1995), 60 FR 65076 (order approving

application for exemption from clearing agency

registration for the Clearing Corporation for Options

and Securities); 38328 (February 24, 1997), 62 FR

9225 (order approving application for exemption

from clearing agency registration for Cedel Bank,

now Clearstream); 39643 (February 11, 1998), 63 FR

8232 (order approving application for exemption

from clearing agency registration by Morgan

Guaranty Trust Company of New York, Brussels

Office, as operator of the Euroclear System); and

41377 (May 7, 1999), 64 FR 25948 (order approving

application for exemption from clearing agency

registration for Thomson Financial Technology

Services, Inc.).

Many in the industry believe that

changing the institutional post-trade

presettlement process is called for, even

without factoring in a move to T+1.12

The existing process is showing signs of

strain as trade volume grows. As firms

have increased their investments to add

capacity and improve internal

processing, confirm and affirm rates

have not improved, leading to greater

risk for the industry.13

B. GJVMS’s Proposed Service

GJVMS plans on offering an ETC

service and a matching service. The ETC

service would transmit messages (i.e.,

confirmation and affirmation messages)

among broker-dealers, institutional

customers, and custodian banks and

would ultimately result in the

production of an affirmed electronic

trade confirmation in accordance with

the requirements of various selfregulatory organizations rules.14 The

matching service would compare, or

match trade information submitted by a

broker-dealer (i.e., confirmation

information) with the trade information

submitted by an institutional customer

(i.e., allocation instructions) to produce

an affirmed confirmation.15

GJVMS represents in its Form CA–1

that as a condition of obtaining an

exemption from clearing agency

registration, it shall.16

(1) Provide the Commission with an

audit report that addresses all the areas

discussed in the Commission’s

Automation Review Policies (ARPs); 17

(2) Provide the Commission

(beginning in its first year of operation)

with annual reports and any associated

field work prepared by competent,

independent audit personnel that are

generated in accordance with the annual

risk assessment of the areas set forth in

the ARPs;

(3) Provide the Commission with

twenty business days advance notice of

any material changes that it makes to its

matching service and ETC service.

These changes will not require the

Commission’s approval before they are

implemented;

(4) Provide the Commission with

prompt notification of significant

systems outages lasting more than thirty

minutes;

(5) Respond and its service providers

(including DTCC and Global Joint

Venture) shall respond to requests from

the Commission for additional

information relating to its matching

service and ETC service and provide

access to the Commission to conduct

on-site inspections of all facilities

(including automated systems and

systems environment), records, and

personnel related to the matching

service and ETC service. The requests

for information shall be made and the

inspections shall be conducted solely

for the purpose of reviewing the

matching service’s and the ETC service’s

operations and compliance with the

federal securities laws and the terms

and conditions of GJVMS’s exemptive

order;

(6) Supply the Commission or its

designee with periodic 18 reports

regarding the affirmation rates for

institutional transactions effected by

institutional investors that utilize its

matching service and ETC Service;

(7) Preserve a copy or record of all

trade details, allocation instructions,

central trade matching results, reports

and notices sent to customers, reports

regarding affirmation rates that are sent

to the Commission or its designee, and

any complaint received from a

customer, all of which pertain to the

operation of its matching service and

ETC service. It shall retain these records

for a period of not less than five years,

the first two years in an easily accessible

place;

(8) Develop fair and reasonable

linkages between its matching service

and other central matching services that

are regulated by the Commission or that

receive an exemption from clearing

agency registration from the

Commission; and

(9) Not perform any clearing agency

function (such as net settlement,

maintaining a balance of open positions

between buyers and sellers, or marking

securities to the market) other than as

permitted under the contemplated

exemption.

C. Statutory Standards

Section 17A(b)(1) of the Exchange Act

requires all clearing agencies to register

with the Commission before performing

any of the functions of a clearing

agency.19 However, Section 17A(b)(1)

also states that, upon our own motion or

upon a clearing agency’s application, we

may conditionally or unconditionally

exempt the clearing agency from any

provisions of Section 17A or the rules

or regulations thereunder if we find that

such exemption is consistent with the

public interest, the protection of

investors, and the purposes of Section

17A. The GJVMS believes that the

undertakings it has proposed as a

condition of obtaining an exemption

from clearing agency registration will

allow it to protect the public interest

and will strike the appropriate balance

between the necessity of safety and

soundness on the one hand and the

need to foster efficiency, competition,

and capital formation on the other hand.

The Commission has exercised its

authority to conditionally exempt an

applicant from clearing agency

registration on four prior occasions.20 In

those cases, the applicants requesting

exemption from clearing agency

registration were required to meet

standards substantially similar to those

required of registrants under Section

17A in order to assure that the

fundamental goals of that section were

furthered (i.e., safety and soundness of

Federal Register / Vol. 65, No. 223 / Friday, November 17, 2000 / Notices 69585

21See Section 17A(b)(3)(A) of the Exchange Act,

15 U.S.C. 78q–1(b)(3)(A). 22 17 CFR 200.30–3(a)(16).

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

2 17 CFR 240.19b–4.

3See Letter from Nancy L. Nielsen, Assistant

Corporate Secretary, CBOE, to Nancy Sanow,

Assistant Director, Division of Market Regulation

(‘‘Division’’), Commission (October 10, 2000).

Amendment No. 1 supersedes the original filing in

its entirety.

the national clearance and settlement

system).

In the Matching Release, the

Commission stated that an entity that

limited its clearing agency functions to

providing matching services might not

have to be subject to the full range of

clearing agency regulation. In addition,

the Commission stated that an entity

seeking an exemption from clearing

agency registration for matching would

be required to: (1) Provide the

Commission with information on its

matching services and notice of material

changes to its matching services; (2)

establish an electronic link to a

registered clearing agency that provides

for the settlement of its matched trades;

(3) allow the Commission to inspect its

facilities and records; and (4) make

periodic disclosures to the Commission

regarding its operations.

GJVMS’s matching service would be

the only clearing agency function that it

would perform under an exemptive

order. While the Commission believes

that GJVMS’s matching services could

have a significant impact on the

national clearance and settlement

system, the Commission does not

believe that GJVMS’s matching services

raise all of the concerns raised by an

entity that performs a wider range of

clearing agency functions. GJVMS

represents in its Form CA–1 that as a

condition of its exemption, it will

comply with the conditions suggested

by the Commission in the Matching

Release. Therefore, the Commission

believes that it may not be necessary to

require GJVMS to satisfy all of the

standards required of registrants under

Section 17A.

The Commission anticipates that in

addition to considering the public

interest and the protection of investors,

the primary factor in evaluating

GJVMS’s application will be whether

GJVMS is so organized and has the

capacity to be able to facilitate prompt

and accurate matching services subject

to the specific conditions that it has

proposed.21 In particular, GJVMS has

represented that, among other things, it

will provide the Commission with (1) an

independent audit report that addresses

all the areas discussed in the

Commission’s ARPs prior to beginning

commercial operations and annually

thereafter, (2) on-site inspection rights,

and (3) a current balance sheet and

income statement prior to beginning

operations.

The Commission expects that any

exemption from clearing agency

registration for GJVMS would contain

all of the conditions that GJVMS has

proposed in its Form CA–1. The

Commission requests comment on

whether these conditions are sufficient

to promote the purposes of Section 17A

and to allow the Commission to

adequately monitor the effects of

GJVMS’s proposed activities on the

national system for the clearance and

settlement of securities transactions. In

addition, the Commission invites

commenters to address whether granting

GJVMS an exemption from clearing

agency registration would impose any

burden on competition that is not

necessary or appropriate in furtherance

of Section 17A of the Exchange Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing

application by December 18, 2000. Such

written data, views, and arguments will

be considered by the Commission in

deciding whether to grant GJVMS’s

request for exemption from registration.

Persons desiring to make written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street, NW., Washington, DC 20549–

0609.

Reference should be made to File No.

[600–32]. Copies of the application and

all written comments will be available

for inspection and copying at the

Commission’s Public Reference Room,

450 Fifth Street, NW., Washington, DC

20549. Comments also may be

submitted electronically at the following

E-mail address: rule-comments@sec.gov.

Electronically submitted comment

letters will be posted on the

Commission’s Internet web site (http://

www.sec.gov).

For the Commission by the Division of

Market Regulations, pursuant to delegated

authority.22

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–29447 Filed 11–16–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43521; File No. SR–CBOE–

00–44]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Board Options Exchange,

Incorporated Relating to an

Interpretation of Paragraph (b) of

Article Fifth of Its Certificate of

Incorporation

November 3, 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 August

31, 2000, 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, II, and

III below, which Items have been

prepared by the CBOE. On October 10,

2000, the CBOE submitted Amendment

No. 1 to the proposed rule change.3 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 CBOE proposes to adopt a rule

change consisting of an interpretation of

Article Fifth of the CBOE Certificate of

Incorporation, as interpreted in the

agreement between the CBOE and the

Chicago Board of Trade (‘‘CBOT’’) dated

September 1, 1992 (the ‘‘1992

Agreement’’), which is incorporated in

CBOE Rule 3.16(b), concerning the

effect of the proposed restructuring of

the CBOE or other action that may be

taken by the CBOT to change its trading

rules or procedures on the right of the

1,402 full members of the CBOT to

become members of CBOE without

having to purchase a CBOE membership

(the ‘‘exercise right’’). The CBOE’s

proposed rule change also embodies a

plan to enable CBOE to continue to

provide fair and orderly markets in the

securities traded on the Exchange in the

event the exercise right is extinguished

as a result of action taken by the CBOT.

Below is the text of the proposed rule

change. New language is italicized.