Federal Register / Vol. 74, No. 57 / Thursday, March 26, 2009 / Notices 13283 

8 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 59075 

(December 10, 2008), 73 FR 76429 (December 16, 

2008) (SR–FINRA–2008–055) (‘‘Rulemaking 

Notice’’). 

4See Ronald C. Long, Director of Regulatory 

Affairs, Wachovia Securities LLC, dated December 

9, 2008 (‘‘Wachovia Letter’’); Dale E. Brown, CAE, 

President and CEO, Financial Services Institute, 

dated January 6, 2009 (‘‘FSI Letter’’); and Amal Aly, 

Esq., Managing Director and Associate General 

Counsel, Securities Industry and Financial Markets 

Association, dated January 6, 2009 (‘‘SIFMA 

Letter’’). 

5Amendment No. 1 permits a General Securities 

Sales Supervisor (i.e., a Series 8 or Series 9/10 

qualified supervisor) to perform certain reviews the 

proposed rule would otherwise have required a 

Series 24 principal to perform or supervise. 

6Among the other exemptions, the Rule’s 

requirements also do not apply to transactions that 

meet the requirements of Rule 504 of Regulation D 

of the Securities Act; those involving a security of 

an issuer with at least $50 million in total assets 

and $10 million in shareholder’s equity; and those 

involving a security with worldwide average daily 

trading volume value of at least $100,000 during 

each of the six months preceding the 

recommendation. 

Number SR–CBOE–018 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–CBOE–2009–018. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room, on business days between the 

hours of 10 a.m. and 3 p.m., located at 

100 F Street, NE., Washington, DC 

20549. Copies of such filing also will be 

available for inspection and copying at 

the principal office of the Exchange. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–CBOE–2009–018 and 

should be submitted on or before April 

16, 2009. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.8

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–6703 Filed 3–25–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59605; File No. SR–FINRA– 

2008–055] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Amendment No. 1 and Order Granting 

Accelerated Approval to a Proposed 

Rule Change, as Modified by 

Amendment No. 1, To Adopt FINRA 

Rule 2114 (Recommendations to 

Customers in OTC Equity Securities) in 

the Consolidated FINRA Rulebook 

March 19, 2009. 

I. Introduction 

On November 4, 2008, the Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a National Association 

of Securities Dealers, Inc. (‘‘NASD’’)) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘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 to adopt FINRA 

Rule 2114 (Recommendations to 

Customers in OTC Equity Securities) in 

the consolidated FINRA Rulebook. The 

proposed rule change was published for 

comment in the Federal Register on 

December 10, 2008.3 The Commission 

received three comments in response to 

the proposed rule change.4 On February 

13, 2009, FINRA filed Amendment No. 

1 to amend the proposed rule change 

and respond to the comment letters.5

This order provides notice of the 

proposed rule change, as modified by 

Amendment No. 1, and approves the 

proposed rule change as amended on an 

accelerated basis. 

II. Description of the Proposed Rule 

Change 

FINRA proposed to adopt NASD Rule 

2315 (Recommendations to Customers 

in OTC Equity Securities) as FINRA 

Rule 2114 in the Consolidated FINRA 

Rulebook, subject to certain 

amendments including those contained 

in Amendment No. 1 discussed further 

below. 

1. The Current Rule 

NASD Rule 2315 is intended to 

address potential fraud and abuse in 

transactions involving securities not 

listed on an exchange and certain other 

higher risk securities. The rule 

mandates that a member conduct a due 

diligence review of an issuer’s current 

financial and business information 

before recommending a covered 

security. The rule supplements existing 

FINRA rules and the Federal securities 

law, including suitability obligations 

and the requirement that any 

recommendation to a customer have a 

reasonable basis. The rule requirements 

go beyond the basic suitability 

obligations to ensure that a registered 

representative has, at a minimum, 

confirmed the existence of and reviewed 

essential information that reveals the 

financial condition and business 

prospects of these riskier issuers. 

Specifically, the rule requires a 

member to review ‘‘current financial 

statements’’ and ‘‘current material 

business information’’ before it 

recommends the purchase or short sale 

of those securities that are published or 

quoted in a ‘‘quotation medium’’ and 

are either (1) not listed on Nasdaq or a 

national securities exchange or (2) are 

listed on a regional securities exchange 

and do not qualify for dissemination of 

transaction reports via the Consolidated 

Tape. Such securities may be more 

susceptible to fraud and abuse because 

they often are thinly capitalized or lack 

the profitability, liquidity or available 

business and financial information that 

listing standards require. The rule does 

not apply to recommendations to sell 

long positions and also exempts certain 

other transactions, including those with 

an ‘‘institutional account’’ under NASD 

Rule 3110(c)(4), a ‘‘qualified 

institutional buyer’’ under Rule 144A of 

the Securities Act of 1933 (‘‘Securities 

Act’’), or a ‘‘qualified purchaser’’ under 

Section 2(a)(51) of the Investment 

Company Act of 1940.6

The rule defines ‘‘current financial 

statements’’ to include balance sheets, 

statements of profit and loss and 

13284 Federal Register / Vol. 74, No. 57 / Thursday, March 26, 2009 / Notices 

7Telephone conference among Philip Shaikun, 

Associate Vice President and Associate General 

Counsel, FINRA, and Haimera Workie, Branch 

Chief, Securities and Exchange Commission, and 

Darren Vieira, Attorney Advisor, Commission, on 

December 3, 2008. 

8See Securities Exchange Act Release No. 58643 

(September 25, 2008), 73 FR 57174 (October 1, 

2008) (Order Approving SR–FINRA–2008–021; SR– 

FINRA–2008–022; SR–FINRA–2008–026; SR– 

FINRA–2008–028 and SR–FINRA–2008–029). 

9Series references relate to the relevant FINRA 

qualifying examination series. The Series 8 

examination was replaced by the Series 9 and 10 

examinations effective August 16, 1999. A list of 

qualifying series examinations is available at 

FINRA’s Web site, http://www.finra.org. 

10Telephone conference among Philip Shaikun, 

Associate Vice President and Associate General 

Counsel, FINRA, and Haimera Workie, Branch 

Chief and Darren Vieira, Attorney Advisor, on 

December 3, 2008. 

11Ronald C. Long, Director of Regulatory Affairs, 

Wachovia Securities LLC, dated December 9, 2008 

(‘‘Wachovia Letter’’); Dale E. Brown, CAE, President 

and CEO, Financial Services Institute, dated 

January 6, 2009 (‘‘FSI Letter’’); and Amal Aly, Esq., 

Managing Director and Associate General Counsel, 

Securities Industry and Financial Markets 

Association, dated January 6, 2009 (‘‘SIFMA 

Letter’’). 

12Letter from Philip Shaikun, Associate Vice 

President and Associate General Counsel, FINRA, 

dated February 13, 2009 (‘‘FINRA Letter’’). 

13See SIFMA and Wachovia Letters. 

14See FSI Letter. 

15Wachovia and SIFMA Letters. 

16SIFMA Letter. 

17Amendment No. 1 to SR–FINRA–2008–055. 

18NASD Rule 2315 had not been amended to 

reflect Nasdaq’s registration as a national securities 

exchange. 

publicly available financial statements 

and reports. The definition makes 

certain distinctions between foreign 

private issuers and all other issuers. 

FINRA has interpreted the term ‘‘current 

material business information’’ to mean 

information that is available or relates to 

events that have occurred in the 12 

months prior to the recommendation. 

The proposed definition of ‘‘current 

material business information,’’ 

discussed below, would supersede this 

prior interpretation.7

The required review must be 

conducted by a Series 24 principal or 

someone supervised by a Series 24 

principal. Members are required to keep 

a written record of the information 

reviewed, the date of the review and the 

name of the person who conducted the 

review. 

2. Proposed Changes to the Current Rule 

The proposed rule change would 

expand the scope of the rule to cover a 

recommendation to buy any ‘‘OTC 

Equity Security,’’ irrespective of 

whether the security is published on a 

quotation medium. The term ‘‘OTC 

Equity Security’’ would have the same 

meaning as in NASD Rule 6610 (which 

has been renumbered as FINRA Rule 

6420 in the Consolidated FINRA 

Rulebook 8) and encompasses any nonexchange-listed security and certain 

exchange-listed securities that do not 

otherwise qualify for real-time trade 

dissemination. FINRA believes that 

those OTC Equity Securities not 

published on a quotation medium pose 

the same, if not greater, risk of fraud and 

manipulation that the rule seeks to 

redress. 

The proposed rule change also would 

add a definition of ‘‘current material 

business information’’ to include 

‘‘information that is ascertainable 

through the reasonable exercise of 

professional diligence and that a 

reasonable person would take into 

account in reaching an investment 

decision.’’ 

The proposed rule change would 

eliminate the exemption from the rule 

for a security with a worldwide average 

daily trading volume value of at least 

$100,000 during each of the six calendar 

months preceding the recommendation, 

as well as a related exemption for a 

convertible security where the 

underlying security satisfies the trading 

volume exemption requirements. FINRA 

believes that the advent of the Internet 

and the increased number of trading 

venues has rendered that threshold 

unreliable to screen out less risky 

securities. 

Finally, as modified by Amendment 

No. 1, the proposed rule requires that 

the due diligence review must be 

conducted by a person registered as a 

General Securities Principal (Series 24) 

or General Securities Sales Supervisor 

(Series 8 or 9/10), or someone 

supervised by a General Securities 

Principal or General Securities Sales 

Supervisor.9 Members are required to 

keep a written record of the information 

reviewed, the date of the review and the 

name of the person who conducted the 

review. The proposed rule change 

would add a requirement that, in the 

event the person designated to perform 

the review is not registered as a General 

Securities Principal or General 

Securities Sales Supervisor, the member 

must document the name of the General 

Securities Principal or General 

Securities Sales Supervisor who 

supervised the designated person. 

FINRA believes this change will help 

document the person with supervising 

responsibility in association with 

review.10

III. Comment Letters 

The Commission received three 

comments on the proposal,11 as well as 

FINRA’s response to comments,12 all of 

which are discussed below. Two 

commenters, a full service brokerage 

firm and a trade association of securities 

firms, banks and asset managers, offered 

qualified support for the proposed rule 

change.13 One commenter, a trade 

association for the independent brokerdealer community, opposed the 

proposed rule change.14

1. Review by a Series 24 Principal 

Proposed Rule 2114 would require a 

member to conduct a due diligence 

review of an issuer’s current financial 

and business information before 

recommending a covered security. The 

proposed rule provides that the due 

diligence review must be performed by 

a Series 24 registered principal, or by a 

designee of the Series 24 registered 

principal, in which case the member 

must keep a record of the Series 24 

principal who supervised the review. 

Two commenters suggested that a 

person with a Series 9/10 registration 

should be permitted to perform the 

reviews instead of Series 24 principals 

under the rule.15 One of those 

commenters also suggested that a person 

with a Series 8 registration also should 

be permitted to perform these reviews.16

In response to these comments, FINRA 

amended the proposed rule to provide 

that either a General Securities Principal 

(i.e., a Series 24 principal) or a General 

Securities Sales Supervisor (i.e., a Series 

8 or 9/10 supervisor) may perform the 

due diligence review.17

2. Expanded Scope of the Rule to Any 

Non-Exempt OTC Equity Security 

FINRA’s proposed rule is based on 

existing NASD Rule 2315. This rule 

requires a member to review ‘‘current 

financial statements’’ and ‘‘current 

material business information’’ before it 

recommends the purchase or short sale 

of securities that are published or 

quoted in a ‘‘quotation medium’’ and 

are either (1) not listed on Nasdaq or a 

national securities exchange or (2) are 

listed on a regional securities exchange 

and do not qualify for dissemination of 

transaction reports via the Consolidated 

Tape.18 The proposed rule change 

would expand the scope of the rule to 

cover a recommendation to buy any 

‘‘OTC Equity Security,’’ irrespective of 

whether the security is published on a 

quotation medium. 

The proposed rule would also 

eliminate the exemption in NASD Rule 

2315(e)(1)(E) for a security with a 

worldwide average daily trading volume 

value of at least $100,000 during each 

month of the six full calendar months 

immediately before the date of the 

recommendation, and a related 

exemption for a convertible security 

Federal Register / Vol. 74, No. 57 / Thursday, March 26, 2009 / Notices 13285 

19SIFMA and FSI Letters. 

20SIFMA Letter. 

21 Id. 

22FINRA Letter. 

23 Id. 

24FSI Letter. 

25FINRA Letter. 

26 Id. 

27 Id. 

28FSI Letter. 

29 Id. 

30FINRA Letter. 

31 In approving this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition and capital formation. See 

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

32 15 U.S.C. 78o–3(b)(6). 

33See Order Approving Proposed Rule Change 

and Notice of Filing and Order Granting 

Accelerated Approval to Amendment No. 2 to the 

Proposed Rule Change by the National Association 

of Securities Dealers, Inc. Relating to Microcap 

Initiative—Recommendation Rule, Securities 

Exchange Act Release No. 46376 (August 19, 2002), 

67 FR 54832 (August 26, 2002) (SR–NASD–99–04). 

34 15 U.S.C. 78f(b)(5). 

35 15 U.S.C. 78s(b). 

where the underlying security meets the 

requirements of NASD Rule 

2315(e)(1)(E). Two commenters opposed 

eliminating this exemption.19 One 

commenter indicated that the 

elimination of the exemption would 

require a due diligence review to be 

conducted for large, well-capitalized 

companies whose securities, in the 

commenter’s opinion, likely do not pose 

the type of risk that is intended to be 

addressed by the proposed rule.20 The 

commenter also suggested, as an 

alternative or in addition to the 

exemption for securities with a 

worldwide average daily trading volume 

value of over $100,000, that FINRA 

adopt an exemption based on the 

underlying company’s market 

capitalization.21 FINRA responded that 

it proposed to eliminate average daily 

trading volume and convertible security 

exemptions out of concern that the 

advent of the Internet and the increased 

number of trading venues has rendered 

the trading volume threshold unreliable 

to screen out less risky securities.22

FINRA noted that bringing certain larger 

companies within the purview of the 

rule does not dissipate this investor 

protection concern, and FINRA 

additionally noted that certain larger 

companies may qualify for another 

exemption to the rule applying to the 

securities of issuers that have at least 

$50 million of total assets and $10 

million in shareholders’ equity.23

One commenter opposed any 

expansion of the scope of the proposed 

rule beyond the scope of the NASD 

rule.24 In this commenter’s view, the 

expansion of the scope of the proposed 

rule would: (1) ‘‘result in reduced 

investor access to these securities by 

increasing the barriers to entry in the 

marketplace’’; (2) delay the processing 

of purchases of non-exempt OTC Equity 

Securities; (3) reduce competition as 

firms leave the market of providing OTC 

Equity Security execution; (4) subject 

firms that remain in the market to 

higher compliance burdens; and (5) 

cause ‘‘overwhelming’’ recordkeeping 

and compliance burdens. FINRA 

disagreed that the proposed amendment 

would cause such deleterious effects.25

FINRA stated that it believes investors 

will be better protected by the proposed 

rule amendment because 

recommendations of OTC Equity 

Securities that trade in the unlisted 

market, absent the due diligence 

required by the rule, pose substantial 

risk to investors.26 FINRA also noted 

that the proposal would apply only to 

recommendations (as does the current 

rule), and not to unsolicited 

transactions, and therefore would not 

deny investors access to the OTC Equity 

Securities market. FINRA also disagreed 

that the proposal will result in 

processing delays for purchases of OTC 

Equity Securities, noting that the 

required due diligence should be 

completed before the recommendation 

is made.27

3. Miscellaneous Comments 

One commenter suggested that FINRA 

provide an exemption from the 

proposed rule for firms that (1) generate 

less than 5% of their commission 

revenue from OTC Equity Securities 

transactions, and (2) do not make a 

market in such securities.28 The 

commenter asserted that such an 

exemption would allow FINRA to meet 

its investor protection goals without 

causing ‘‘unintended consequences’’ 

such as increasing compliance burdens 

or reducing competition.29 FINRA 

stated that it believes that such an 

exemption would undermine the 

purpose of the rule by allowing a 

significant volume of OTC Equity 

Securities to escape the rule’s review 

requirements.30

IV. Discussion and Commission 

Findings 

After careful review of the proposed 

rule change, the comments, and 

FINRA’s response to the comments, the 

Commission finds that the proposed 

rule change is consistent with the 

requirements of the Act, and the rules 

and regulations thereunder that are 

applicable to a national securities 

association.31 In particular, the 

Commission believes the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,32 which 

requires, among other things, that 

FINRA rules must 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. The Commission 

believes that the proposed rule change 

will help protect investors against fraud 

in the trading of unlisted and certain 

other securities and will clarify and 

streamline NASD Rule 2315 for 

adoption as a FINRA Rule in the new 

Consolidated FINRA Rulebook. The 

Commission has found NASD Rule 

2315, upon which the proposed rule is 

based, to be consistent with the 

requirements of the Act and the rules 

and regulations thereunder applicable to 

a national securities association.33

The Commission also finds good 

cause for approving Amendment No. 1 

to the proposed rule change prior to the 

thirtieth day after the date of 

publication of notice in the Federal 

Register. Amendment No. 1 clarifies the 

operation of the proposed rule in 

response to a comment. The changes in 

Amendment No. 1 do not significantly 

alter the proposed rule which was 

subject to a full notice and comment 

period. The Commission finds that it is 

in the public interest to approve the 

proposed rule change, as modified by 

Amendment No. 1, as soon as possible 

to expedite its implementation. 

Accordingly, the Commission finds that 

there is good cause, consistent with and 

in furtherance of the objectives of 

Sections 6(b)(5) 34 and 19(b) 35 of the 

Act, to approve Amendment No. 1 on an 

accelerated basis. 

V. Solicitation of Comments 

Interested persons are invited to 

submit written data, views and 

arguments concerning the foregoing, 

including whether the proposed rule 

change, as modified by Amendment No. 

1, is consistent with the Act. Comments 

may be submitted by any of the 

following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

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

Number SR–FINRA–2008–055 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

13286 Federal Register / Vol. 74, No. 57 / Thursday, March 26, 2009 / Notices 

36 15 U.S.C. 78s(b)(2). 

37 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3 17 CFR 240 19b–4(f)(6). 

4 15 U.S.C. 77a et seq. 

5 17 CFR 240.9b–1. 

6See Exemption for Standardized Options From 

Provisions of the Securities Act of 1933 and From 

the Registration Requirements of the Securities 

Exchange Act of 1934; Final Rule, Securities Act 

Release No. 8171 and Exchange Act Release No. 

47082 (December 23, 2002), 68 FR 188 (January 2, 

2003). 

7The options disclosure document (‘‘ODD’’) 

prepared in accordance with Rule 9b–1 under the 

Exchange Act is not deemed to be a prospectus. 17 

CFR 230.135b. See, e.g., Securities Act Release No. 

8049 (Dec. 21, 2001), 67 FR 228 (Jan. 2, 2002). 

All submissions should refer to File 

Number SR–FINRA–2008–055. This file 

number should be included on the 

subject line if e-mail is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for inspection and copying in 

the Commission’s Public Reference 

Room, 100 F Street, NE., Washington, 

DC 20549, on official business days 

between the hours of 10 a.m. and 3 p.m. 

Copies of such filing also will be 

available for inspection and copying at 

the principal office of FINRA. All 

comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2008–055 and 

should be submitted on or before April 

16, 2009. 

VI. Conclusions 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,36 that the 

proposed rule change (SR–FINRA– 

2008–055), as modified by Amendment 

No. 1, be, and hereby is, approved on an 

accelerated basis. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.37

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E9–6659 Filed 3–25–09; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–59600; File No. SR–ISE– 

2009–09] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of a Proposed Rule 

Change to Amend Rule 623 

(Communications to Customers) 

March 19, 2009. 

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

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’),1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on March 11, 2009, the International 

Securities Exchange, LLC (the 

‘‘Exchange’’ or the ‘‘ISE’’) filed with the 

Securities and Exchange Commission 

the proposed rule change, as described 

in Items I and II below, which items 

have been prepared by the Exchange. 

ISE has designated the proposed rule 

change as constituting a noncontroversial rule change under Rule 

19b–4(f)(6) under the Act,3 which 

renders the proposal effective upon 

filing with the Commission. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to remove or 

otherwise amend elements of ISE Rule 

623 (‘‘Communications to Customers’’) 

that incorporate provisions of the 

Securities Act of 1933 (‘‘Securities 

Act’’) 4 because options traded on the 

Exchange consist solely of standardized 

options issued by the Options Clearing 

Corporation (‘‘OCC’’), a registered 

clearing agency, that are exempt under 

Rule 238 of the Securities Act from all 

provisions of the Securities Act except 

the antifraud provisions of Section 17. 

Additionally, the proposed amendments 

expand the types of communications 

governed by Rule 623 to include 

independently prepared reprints and 

other communications between a 

member or member organization and a 

customer. The proposed amendments 

also exempt certain options 

communications from the pre-approval 

requirement by a Registered Options 

Principal (‘‘ROP’’). The text of the 

proposed rule change is available at the 

Exchange, the Commission’s Public 

Reference Room, and http:// 

www.ise.com. 

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 

self-regulatory organization 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 self-regulatory organization has 

prepared summaries, set forth in 

sections A, B and C below. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

On December 23, 2002, the 

Commission published final rules that 

exempt standardized options, as defined 

in Rule 9b–1 5 of the Exchange Act, that 

are issued by a registered clearing 

agency and traded on a registered 

national securities exchange or on a 

registered national securities 

association, from all provisions of the 

Securities Act (other than the anti-fraud 

provisions) and the registration 

requirements of the Exchange Act.6

Because the Securities Act and the rules 

thereunder (other than the anti-fraud 

provisions) are no longer applicable to 

such standardized options, the 

Exchange proposes to remove elements 

of the Securities Act that are embedded 

in ISE Rule 623. In particular, ISE 

proposes to remove all references to a 

‘‘prospectus’’ from Rule 623. 

Prospectuses are no longer required for 

such standardized options, and the OCC 

has, in fact, ceased publication of a 

prospectus.7 In addition, the proposed 

amendments will update and reorganize 

Rule 623. The proposed amendments 

are similar to amendments filed with 

and approved by the Commission by the 

Financial Industry Regulatory 

Authority, Inc. and the Chicago Board 

Options Exchange, and, if adopted, 

would provide a more uniform