21048 Federal Register / Vol. 65, No. 76 / Wednesday, April 19, 2000 / Notices

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

2 17 CFR 240.17d–2.

3 15 U.S.C. 78s(g)(1).

4 15 U.S.C. 78s(g)(2).

5Securities 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).

6 17 CFR 240.17d–1 and 17 CFR 240.17d–2.

7Securities Exchange Act Release No. 12352

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

September 4, 2000 deadline? What type

of changes would need to be made to

the systems of securities firms,

investment companies, and vendors?

What would be the impact on systems

capacity? In light of your answers to the

foregoing questions, what changes

would need to be made to the current

decimals testing schedule?

3. Is the risk of customer confusion

because of Dual Pricing Significant, and

if so, how should it be addressed?

4. If commenters believe that

implementing Dual Pricing by

September 4, 2000 is not feasible, what

date(s) is(are) feasible to implement

Dual Pricing? Commenters should

include a discussion of the systems

changes and testing schedules that

would be needed for their alternative

implementation date(s).

5. In addition, if commenters believe

that implementing Dual Pricing by

September 4, 2000 is not feasible, is the

alternative Decimals Pilot proposal

feasible or preferable? If commenters

believe that the Decimals Pilot is

feasible, what, if any, systems changes

or other steps would be necessary to

facilitate this schedule? In particular,

what changes would need to be made to

the current decimals testing schedule?

What type of changes would need to be

made to the systems of securities firms,

investment companies, and vendors?

What would be the impact on systems

capacity? Is there a risk of customer

confusion, and if so, how should it be

addressed?

6. If commenters believe that the

Decimals Pilot is not feasible, what

alternative would expedite the

implementation of decimal pricing in

exchange-listed and Nasdaq securities?

Commenters should include a

discussion of the systems changes and

testing schedules that would be needed

for their alternative, including

implementation date(s).

7. Commenters are requested to offer

specific views on the optional schedule

for implementing decimal pricing in

options based on exchange-listed and

Nasdaq stocks subject to decimal

pricing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609.

Comments also may be submitted

electronically at the following E-mail

address: rule-comments@sec.gov. All

submissions should refer to File No. 4–

430 and should be submitted by May 10,

2000. Comment letters received will be

available for public inspection and

copying in the Commission’s Public

Reference Room. Electronically

submitted comment letters will be

posted on the Commission’s Internet

web site (http://ww.sec.gov).

III. Conclusion

Because Nasdaq is unable to meet the

implementation schedules set forth in

the Decimals Order and the Commission

is seeking comments on alternative

proposals for implementing decimal

pricing, the Commission believes that it

is in the public interest in maintaining

fair and orderly markets and to protect

investors to suspend the deadlines in

the Decimal Order and the Extension

Order.

Accordingly, it is hereby ordered that

all deadlines in the Decimals Order and

the Extension Order be suspended. After

reviewing any comments received, the

Commission intends to issue an order

for the implementation of decimal

pricing.

It is hereby further ordered that the

Participants continue to discuss the

implementation of decimal pricing

collectively and with interested market

participants, and work together and

with others in developing an

implementation plan in anticipation of

decimal pricing. The Decimals Order

directed the Participants to act jointly in

discussing a plan to implement decimal

pricing in the equities and options

markets, and to discuss that plan with

other interested market participants.

While this order suspends all deadlines

in the Decimals Order, the Order

otherwise remains in effect.

By the Commission.

Jonathan G. Katz,

Secretary.

[FR Doc. 00–9789 Filed 4–18–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42668, File No. 4–431]

Program for Allocation of Regulatory

Responsibilities Pursuant to Rule 17d–

2; Notice of Filing of the Plan for

Allocation of Regulatory

Responsibilities Between the

International Securities Exchange LLC

and the National Association of

Securities Dealers, Inc.

April 11, 2000.

Pursuant to section 17(d) of the

Securities Exchange Act of 1934

(‘‘Act’’), 1 Rule 17d–2 thereunder, 2

notice is hereby given that on April 3,

2000, the International Securities

Exchange LLC (‘‘ISE’’) and the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’) filed with

the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’ a

plan for the allocation of regulatory

responsibilities.

I. Introduction

Section 19(g)(1) of the Act 3 among

other things, require 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) 4 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. 5 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 and Rule 17d–2 under the Act. 6

Rule 17d–1, adopted on April 20,

1976, 7 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

Federal Register / Vol. 65, No. 76 / Wednesday, April 19, 2000 / Notices 21049

8Securities Exchange Act Release No. 12935

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

1976).

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.8 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.

II. The Plan

The ISE and the NASD filed with the

Commission a plan for allocating

regulatory responsibilities pursuant to

Rule 17d-2. The 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.

The text of the proposed 17d-2 plan

is as follows:

Agreement Among the National Association

of Securities Dealers, Inc., NASD Regulation,

Inc. and The International Securities

Exchange LLC; Pursuant to Section 17(d) and

Rule 17d-2

This agreement (Agreement) pursuant to

Section 17(d) and Rule 17d-2 of the

Securities Exchange Act of 1934 (Act) is by

and among the National Association of

Securities Dealers, Inc. (NASD), a Delaware

Corporation registered as a registered

securities association subject to regulation by

the Securities and Exchange Commission

(SEC) under the Securities Exchange Act of

1934 (the Act), whose principal offices are

located at 1735 K Street, NW., Washington,

DC 20006, NASD Regulation, Inc. (NASDR),

a wholly-owned subsidiary of NASD, whose

principal offices are located at 1735 K Street,

NW., Washington, DC 20006, and the

International Securities Exchange LLC, a

New York limited liability company

registered as a national securities exchange

subject to regulation by the SEC under the

Act, whose principal offices are located at 60

Broad Street, New York, New York 10004

(hereafter referred to as Exchange) (NASD,

NASDR, and Exchange hereafter may be

referred to collectively as the parties or

individually as a party).

In consideration of the mutual covenants

contained hereafter, and in consideration of

other valuable consideration, NASD, NASDR,

and the Exchange hereby agrees as follows:

1. Term. This Agreement shall be effective

on the date the SEC approves this Agreement

under Section 17(d) (Effective Date).

2. Entities. The Exchange is a registered

securities exchange, as defined in Section 6

of the Act, and a self-regulatory organization,

as defined in Section 3(a)(26) of the Act

(SRO). The NASD is a registered securities

association, as defined in Section 15A of the

Act and an SRO. Both parties are responsible

for fulfilling certain regulatory obligations

and performing certain regulatory functions

under the Act. Under the Plan of Allocation

and Delegation of Functions By NASD to

Subsidiaries (Delegation Plan), Section II., A.,

NASD has delegated certain of those

regulatory obligations and functions to

NASDR, including the regulatory obligations

and functions that are the subject of this

agreement. For the purposes of this

agreement, NASDR shall be considered the

entity responsible for fulfilling the NASD’s

regulatory obligations and performing the

NASD’s regulatory functions.

3. Members. The parties that are SROs have

brokers or dealers as their members, and

some of the brokers or dealers are members

of both such parties (hereinafter, members of

both such parties and persons associated

with such members are referred to

collectively as Common Members). Each

party that is an SRO has regulatory

obligations under the Act and the rules of the

party for Common Members.

4. Structure.

(a) Rule 17d–1. Under Rule 17d–1, the SEC

shall designate by written notice to one of the

parties the regulatory obligation for assuring

that a Common Member, who is also a

member of Securities Investor Protection

Corporation, complies with applicable

financial responsibility rules, as defined in

Section 3(a)(40) of the Act. The parties are

not requesting that the SEC change the

existing designated examining authority

(DEA) under Rule 17d–1 of any Common

Members. Going forward, the parties shall

request the SEC to designate the NASD as the

DEA under Rule 17d–1 for such members or

persons who are solely members of the NASD

and that become Common Members. Unless

the NASD is designated the DEA for a

Common Member, NASDR specifically

excludes from this Agreement any

undertaking to exercise regulatory

responsibility for, or supervision of, Common

Members to assess such Common Members’

conduct under applicable financial

responsibility rules, including examining for,

receiving reports relating to, and enforcing

compliance with, such rules.

(b) Rule 17d–2. Under Rule 17d–2, the

parties may agree, in a plan or agreement, to

provide for coordinated, non-duplicative

regulation and enforcement, and to service

other purposes of the Act: (a) to allocate

certain regulatory responsibilities that both

parties have to one of the parties; (b) to

relieve a party of its regulatory responsibility

and obligations for a certain function under

the Act if the other party agrees to exercise

such responsibility and undertake such

obligation for the specified function on

behalf of the other party; and, (c) to provide

for the allocation of expenses reasonably

incurred by the party agreeing to exercise the

responsibility and undertake the obligation

for the specified function in the plan or

agreement.

(1) Pursuant thereto, the Exchange has

exclusive regulatory responsibility for

identifying, in a certification, as amended by

the Exchange from time to time, and attached

hereto and made a part of this Agreement

(ISE Certification), the rules of the Exchange

that are identical or substantially similar to

NASD rules and, therefore, are the subject of

this Agreement.

5. Services. NASDR agrees to provide the

following services (Services) as it relates to

Common Members:

(a) Membership Activities.

(1) NASDR will receive and process in the

Central Registration Depository (CRD)

applications, reports, information, filings,

fingerprint cards, and notices generally

relating to: (a) a broker’s or dealer’s

application for membership or participation

in the Exchange, (b) associated person status,

(c) registration as a principal of any type, a

representative of any type, or any other type

of employee required to register or required

to pass a qualification examination.

(2) NASDR will receive and process in the

CRD documentation of notice of the passage

of the appropriate qualification examination

for such principal, registered representative,

or other employee required to qualify by

examination and, subsequently, forward such

information to the Exchange.

(3) NASDR will advise the Exchange daily

of any changes in the rights or status of

members (including officer and partner

changes), associated persons, registered

personnel, and other persons.

(4) Forwarding Fees. NASDR shall collect

and forward monthly to the Exchange, any

applicable fees for the account of the

Exchange. NASDR agrees to provide the

Exchange with an accounting of such fees in

January of each year. The Exchange will

reimburse NASDR for reasonable expenses

incurred for performing both accounting

functions.

(5) Common Members will be required to

send to NASDR all letters, termination

notices or other material relating to their

associated persons.

(6) Exclusions.

(a) NASDR will not review the membership

application, reports, filings, fingerprint cards,

21050 Federal Register / Vol. 65, No. 76 / Wednesday, April 19, 2000 / Notices

notices, or other writings filed to determine

if such documentation submitted by a broker

or dealer, or a person associated with a

broker or a dealer, or other persons required

to register or qualify by examination: (a)

meets the Exchange requirements for general

membership or for specified categories of

membership or participation in the

Exchange, such as (i) Primary Market Maker

Membership (PMM); (ii) Competitive Market

Maker Membership (CMM); or (iii) Electronic

Access Membership (EAM) (or any similar

type of exchange membership or

participation that is created after this

agreement is executed); or (b) meets the

Exchange requirements to be associated with,

or employed by, an Exchange member or

participant in any capacity, such as a

Designated Trading Representative (DTR) (or

any similar type of participation,

employment category or title, or associatedperson category or class that is created after

this agreement is executed).

(b) NASDR will not review applications or

other documentation filed to requires a

change in the rights or status described in

paragraph 6(a) above, including termination

or limitation on activities, of a member or a

participant of the Exchange, or a person

associated with, or requesting association

with, a member or a participant of the

Exchange.

(c) When, as a result of processing letters,

termination notices, or other material relating

to their associated persons, NASDR becomes

aware of a statutory disqualification with

respect to a Common Member, NASDR shall

determine, pursuant to Section 15A(g) or

Section 6(c) of the Act, the acceptability or

continued acceptability of the person to

whom such statutory disqualification

applies, but will not make a determination

regarding Exchange membership or

participation, or association of a person with

an Exchange member. NASDR shall advise

the Exchange in writing of its actions in this

regard. The Exchange shall, within 30 days

of receiving such information from NASDR,

determine whether to permit a statutorily

disqualified Common Member to become or

to remain an Exchange member or a

participant, or a person associated with a

member. The Exchange will advise NASDR

of its decision. The Exchange will reimburse

NASDR for reasonable expenses incurred for

notifying the Exchange of the NASD’s

decision regarding a statutory

disqualification under Section 15A(g) or

Section 6(c) of the Act.

(b) Branch Office Activities. NASDR will

receive and process notices, filings, or

registrations received regarding a Common

Member’s branch offices, including notices,

filings, or registrations to designate offices of

supervisory jurisdiction, and agrees to

provide notice to the Exchange of such

filings. The Exchange will reimburse NASDR

for reasonable expenses incurred for

providing the Exchange notification.

(c) Examinations. NASDR will perform

routine, cycle, cause, and special

examinations of Exchange members, and will

provide copies of the examination reports to

the Exchange. The Exchange will reimburse

NASDR for reasonable expenses incurred for

providing examination reports to the

Exchange.

(1) This undertaking is limited to

examining Common Members for compliance

with: (a) the federal securities laws and the

rules and regulations thereunder, except that

it does not include examining any Common

Member for compliance with financial

responsibility rules on behalf of the Exchange

(unless the SEC has designated NASD as the

DEA for the Common Member under Rules

17d–1); (b) other applicable federal laws,

rules and regulations, including the rules of

the Municipal Securities Rulemaking Board

(MSRB); and (c) the rules of the Exchange

that are identical or substantially similar to

NASD rules because they have been certified

by the Exchange as such, or, when applied

to the Common Member’s conduct or

activities conducted on the Exchange or in

connection or in relation to the Exchange, the

rules are identical or substantially similar in

that the rule’s application to the Common

Member’s conduct or activities on the

Exchange, in connection with, or in relation

to, the Exchange would not require an

examiner to develop one or more new

examination standards, modules, procedures,

or criteria in order to analyze the application

of the rule, or a Common Member’s activity,

conduct, or output in relation to the rule.

(2) This undertaking specifically excludes

any obligation or responsibility for NASDR to

examine Common Members for compliance

with Exchange rules for which regulatory

responsibility is allocated to an SRO under

the multilateral Rule 17d-2 agreement

relating to options sales practices, as

amended from time to time (the Options Rule

17d-2 Agreement).

(3) This undertaking specifically excludes

any obligation or responsibility for NASDR to

examine Common Members for compliance

with Exchange rules that are: (i) related to

administrative or housekeeping Exchange

functions; or (ii) related to the trading in and

operation of the Exchange market (Exchange

market rules).

(d) Violations.

(1) If NASDR discovers an apparent

violation of a federal statute or regulation or

an Exchange rule listed above in paragraph

5.(c)(1) for which NASDR agrees to examine

a Common Member for compliance, NASDR

shall investigate the apparent violation,

notify the Exchange of the results of the

investigation and provide a copy of any

written report, determine if additional

regulatory action is required, take any

disciplinary or other regulatory action

required, and provide notice to the Exchange

at the termination of the matter by

enforcement or other action. If a disciplinary

proceeding is conducted by NASDR, NASDR

will apply the NASD Code of Procedure (the

Rule 9000 Series) and other applicable NASD

procedural rules. The Exchange will

reimburse NASDR for reasonable expenses

incurred for providing any information,

notices, or reports contemplated under this

provision.

(2) If NASDR discovers an apparent

violation of an Exchange Rule not within the

examination responsibility of NASDR as

described above in paragraph 5.(c)(1),

NASDR shall notify the Exchange and refer

the matter to the Exchange for further

examination, investigation, or enforcement or

regulatory action, as determined by the

Exchange.

(e) Advertising Materials. NASDR will

review advertising materials and other

communications with customers for

compliance with then applicable NASD rules

and interpretations. This undertaking

specifically excludes any obligation or

responsibility for NASDR to review

advertising materials and other

communications with customers for

compliance with Exchange rules that are

unique to the Exchange, or, when applied to

the member’s conduct or activities regarding

advertising or other communications with

customers, are unique in that the rule’s

application to the member’s conduct or

activities would require a reviewer or

examiner to develop one or more new

reviewing or examination standards,

modules, procedures, or criteria in order to

analyze the application of the rule to the

member’s advertising materials or other

communications with customers.

6. Information Sharing. The parties agree to

provide each other with the following

information:

(a) General. A party shall promptly furnish

to the other party any information which the

party determines indicates possible financial,

operational, or other problems of any

Common Member, including but not limited

to early warning indications of potential

problems resulting from unusual

accumulations or concentrations of securities

positions or market fluctuations.

(b) Special Surveillance Categories. The

parties shall inform each other of any special

surveillance categories utilized by the other

party in its surveillance of a Common

Member. As the DEA under Rule 17d-1 for

a Common Member, NASDR shall furnish the

Exchange with a description of the financial

or operational factors that would cause a

Common Member to be placed in one or

another of such categories, and, if the NASDR

takes subsequent action against the Common

Member, NASDR shall inform the Exchange.

The Exchange will reimburse NASDR for

reasonable expenses incurred for providing

such information and notices contemplated

under this provision.

(c) Common Member Special Surveillance.

As the DEA under rule 17d-1 for a Common

Member, NASDR shall give the Exchange

immediate oral notice of (i) the placing of a

Common Member in a Securities Investor

Protection Act of 1970 Section 5(a)

surveillance category, along with the

particular factors that caused such member to

be so placed in such category; (ii) any change

in such Section 5(a) surveillance category in

which any Common Member has been placed

and the reasons for such change; and (iii) the

removal of any Common Member from the

surveillance category and the reasons

therefor. NASDR shall confirm such notice in

writing at the earliest practicable time. The

term ‘‘Immediate Notice’’ shall mean (i)

notice by NASDR to the Exchange under this

Agreement that is provided at the same time

that NASDR provides notice to the SEC; or

(ii) where notification to the SEC is not

required, at the earliest practicable time. The

Exchange will reimburse NASDR for

reasonable expenses incurred for providing

Federal Register / Vol. 65, No. 76 / Wednesday, April 19, 2000 / Notices 21051

any information or notices contemplated

under this provision.

(d) Operational or Other Restrictions. As

the DEA under Rule 17d-1 for a Common

Member, NASDR shall give the Exchange

prompt oral notice of (i) any decision to

suspend, or to place other operational or

financial restrictions upon, any Common

Member (other than new members) and (ii)

of any event that requires notice to either the

SEC or the Securities Investor Protection

Corporation (‘‘SIPC’’) in connection with

Rule 17a-11 under the Act. NASDR shall

confirm such notice in writing at the earliest

practicable time. The Exchange will

reimburse NASDR for reasonable expenses

incurred for providing any information and

notices contemplated under this provision.

(e) Reports. Upon reasonable request, a

party will make available promptly to a

requesting party any financial, operational, or

related report filed with the party by a

Common Member, files, information on

customer complaints, termination notices,

copies of an examination report, investigative

material, or other documents involving

compliance with the federal securities laws

and regulations and the rules of the parties

by the Common Member, or other documents

in the possession of the party receiving the

request relating to the Common Member as

necessary to assist the other party in fulfilling

the self-regulatory responsibilities,

obligations, and functions allocated under

this Agreement. The parties agree that a party

will make available promptly to the

requesting party witnesses as necessary to

assist the other party in fulfilling the selfregulatory responsibilities allocated under

this Agreement. The non-requesting party

will pay all reasonable travel and other

expenses incurred by its employees to the

extent that the requesting party requires such

employees to serve as a witness, and provide

information or other assistance pursuant to

the Agreement.

(f) Customer Complaints. If a party receives

a copy of a customer complaint relating to a

Common Member’s activity or conduct, and

the activity or conduct is not the regulatory

responsibility of the party receiving such

customer complaint, the party will forward to

the other party, on recognition, copies of

such customer complaints.

(g) Disciplinary Actions. Upon reasonable

request of a party, the other party shall use

reasonable efforts to furnish the requesting

party information on informal or formal

disciplinary actions involving a Common

Member. The requesting party will reimburse

the other party for reasonable expenses

incurred for providing such information.

(h) Information-Miscellaneous. Where not

otherwise provided, in consideration for

NASDR assuming any of the above

referenced regulatory responsibilities and

obligations of the Exchange with respect to

Common Members and thereafter providing

information to the Exchange in any form that

is necessary or desirable to the Exchange in

order for the Exchange to fulfill its regulatory

obligations under the Act or in order for the

Exchange to remain informed of the actions

of its members and associated persons, the

Exchange will reimburse NASDR for all

reasonable expenses incurred in order to

provide such information.

7. Special or Cause Examinations. Nothing

in this Agreement shall restrict or in any way

encumber the right of a party to conduct

special or cause examinations of Common

Members as either party, in its sole

discretion, shall deem appropriate or

necessary.

8. Confidential Information. The parties are

subject to the Confidentiality and NonDisclosure Agreement entered into by the

parties on September 21, 1999

(Confidentiality Agreement), the provisions

of which are attached hereto in their entirety

and made a part of this Agreement.

9. Fees. NASDR will provide the Exchange

with ninety (90) days advance written notice

in the event that NASDR decides to charge

the Exchange for any expenses incurred or

services performed under this Agreement not

otherwise set forth above. The Exchange will

have thirty (30) days from the date of such

notification to inform the NASDR that the

Exchange will perform for itself the

applicable regulatory responsibilities

allocated NASDR under the Agreement or

enter into an agreement pursuant to

applicable rules of the SEC with another SRO

with respect to the performance of such

responsibilities.

10. Indemnification. Neither party,

including respective directors, governors,

officers, employees and agents, will be liable

to the other party and its directors, governors,

officers, employees and agents for any

liability, loss or damage resulting from any

delays, inaccuracies, errors or omissions with

respect to its performing or failing to perform

regulatory responsibilities, obligations, or

functions, except as otherwise provided for

under the Act or in instances of gross

negligence, willful misconduct or reckless

disregard, or breach of confidentiality. Both

parties understand and agree with each other

that the regulatory responsibilities are being

performed on a good faith and best effort

basis and no warranties, express or implied,

are made by either party to the other party

with respect to any of the responsibilities to

be performed by either of these parties

hereunder.

11. Arbitration. Any claim, dispute,

controversy or other matter in question with

regard to the Agreement that cannot be

resolved by negotiation between the parties

shall be submitted to arbitration in

accordance with the rules and regulations of

the American Arbitration Association;

provided, however, that (1) submission of

any such claim, dispute, controversy or other

matter in question to the American

Arbitration Association shall not be required

if the parties agree upon another arbitration

forum, (2) the foregoing shall not preclude

either party from pursuing all available

administrative, judicial or other remedies for

infringement of a registered patent,

trademark, service mark or copyright, (3) the

parties shall not submit claims for punitive

damages, and do hereby waive any right to

the same, and (4) the arbitrators shall not be

authorized to award punitive damages.

12. SEC Approval.

(a) The parties agree to promptly file this

Agreement with the SEC for its review and

approval.

(b) If approved by the SEC, the Exchange

will notify Common Members of the general

terms of the Agreement and its impact on

members. The notice will be sent on behalf

of both parties and prior to being sent,

NASDR will review and approve the notice.

13. Definitions. Unless otherwise defined

in this Agreement, or unless the context

otherwise requires, the terms used in this

Agreement shall have the same meaning as

they have under the Act and the rules and

regulations thereunder.

14. Subsequent Parties; Limited

Relationship. This Agreement shall insure to

the benefit of and shall be binding upon the

parties hereto and their respective legal

representatives, successors, and assigns.

Nothing is this Agreement, expressed or

implied, is intended or shall (i) confer on any

person other than the parties hereto, or their

respective legal representatives, successors,

and assigns, any rights, remedies, obligations

or liabilities under or by reason of this

Agreement, (ii) constitute the parties hereto

partners or participants in a joint venture, or

(iii) appoint one party the agent of the other.

15. Assignment. Neither party may assign

the Agreement without the prior written

consent of the other party, which consent

shall not be unreasonably withheld,

conditioned or delayed, provided, however,

that either party may assign the Agreement

to a corporation controlling, controlled by or

under common control with the assigning

party without the prior written consent of the

other party.

16. Severability. Any term or provision of

this Agreement which is invalid or

unenforceable in any jurisdiction shall, as to

such jurisdiction, be ineffective to the extent

of such invalidity or unenforceability

without rendering invalid or unenforceable

the remaining terms and provisions of this

Agreement or affecting the validity or

enforceability of any of the terms or

provisions of this Agreement in any other

jurisdiction.

17. Termination.

(a) Termination for Cause. Either party may

terminate the Agreement due to breach by the

other party. The party aggrieved by the

breach shall give written notice to the other

party that the Agreement shall be terminated

not earlier than sixty (60) calendar days form

receipt of the notice, and such notice shall

state with specificity the grounds for

termination. If the breach is curable, the

party in breach will have the right to cure

such breach prior to the date stated for

termination, and, should the breach be cured

and written notice of such cure served on the

aggrieved party prior to the date stated for

termination, such notice shall vacate the

notice to terminate.

(b) Termination for Convenience. Either

party may terminate the Agreement for any

other reason by giving written notice to the

other party that the Agreement will terminate

not less than ninety (90) days from receipt of

the notice. The notice will specify the basis

for termination. The Exchange will pay

NASDR the amount due for authorized work

and expenses incurred in completion of such

authorized work as of the effective date of

termination.

18. General. The parties agree to perform

all acts and execute all supplementary

instruments or documents that may be

21052 Federal Register / Vol. 65, No. 76 / Wednesday, April 19, 2000 / Notices

9 17 CFR 200.30–3(a)(34).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 42450

(Feb. 23, 2000), 65 FR 10577 (Feb. 28, 2000) File

No. SR–NYSE–99–48). The Commission notes that

similar proposals have been filed by the American

Stock Exchange, Securities Exchange Act Release

No. 42460 (February 25, 2000), 65 FR 11618 (March

3, 2000) (File No. SR–Amex–00–05); the Chicago

Stock Exchange, Securities Exchange Act Release

No. 42459 (Feb. 25, 2000), 65 FR 11619 (March 3,

2000) (File No. SR–CHX–99–28); the Philadelphia

Stock Exchange, Securities Exchange Act Release

No. 42458 (Feb. 25, 2000), 65 FR 11628 (March 3,

2000) (File No. SR–Phlx–00–12); and the Boston

Stock Exchange, SR–BSE–00–02.

reasonably necessary or desirable to carry out

the provisions of this Agreement.

19. Liaison and Notices. All questions

regarding the implementation of this

Agreement shall be directed to the persons

identified in subsections (a) and (b), as

applicable, below. All notices and other

communications required or permitted to be

given under this Agreement shall be in

writing and shall be deemed to have been

duly given upon (i) actual receipt by the

notified party or (ii) constructive receipt (as

of the date marked on the return receipt) if

sent by certified or registered mail, return

receipt requested, to the following addresses:

(a) If to NASDR: NASD Regulation, Inc.,

Office of General Counsel, 1735 K Street,

N.W., Washington, D.C. 20006, Attn: Alden

S. Adkins.

With, if a notice of breach or default, a

required copy to: National Association of

Securities Dealers, Inc., 1735 K Street, NW.,

Washington, D.C. 20006, Attn: Office of

General Counsel—Contracts Group.

(b) If to the Exchange:

International Securities Exchange LLC,

Senior Vice President, Chief Regulatory

Officer & General Counsel, 60 Broad Street,

New York, New York 10004, Attn: Michael

J. Simon.

With, if a notice of breach or default, a

required copy to: Same address as above.

20. Regulatory Responsibility. Pursuant to

Section 17(d)(1)(A) of the Act, and Rules

17d–2 thereunder, NASDR and the Exchange

jointly request the SEC, upon its approval of

this Agreement, to relieve the Exchange of

any and all responsibilities with respect to

the matters allocated to NASDR pursuant to

this Agreement for purposes of Section 17(d)

and 19(g) of the Act, provided however that

the Exchange will continue to have exclusive

regulatory responsibility for ensuring the

continued validity of the certifications made

under Section 5.(c)(1) herein.

21. Governing Law. This Agreement shall

be deemed to have been made in the State

of New York, and shall be construed and

enforced in accordance with the law of the

State of New York, without reference to

principles of conflicts of laws thereof. Each

of the parties hereby consents to submit to

the jurisdiction of the courts by or for the

State of New York in connection with any

action or proceeding relating to this

Agreement.

22. Survival of Provisions. Provisions

intended by their terms or context to survive

and continue notwithstanding delivery of the

Services by NASDR, the payment of the price

by the Exchange, and any expiration of this

Agreement shall survive and continue,

including but not limited to, the items

referred to in Sections 8, 9, and 10.

ISE Certification—ISE Rules Certification for

17d–2 Agreement With NASD

The ISE hereby certifies that the

requirements contained in the ISE rules

listed below are identical to, or substantially

similar to, NASD rules.

ISE Rule 403 (Nominal Employment)

ISE Rule 408 (Prevention of the Misuse of

Material Nonpublic Information)

ISE Rule 409 (Disciplinary Action of Other

Organizations)

ISE Rule 601 (Registration of Options

Principals)

ISE Rule 602 (Registration of Representatives)

ISE Rule 603 (Termination of Registered

Persons)

ISE Rule 604 (Continuing Education for

Registered Persons)

ISE Rule 605 (Other Affiliations of Registered

Persons)

ISE Rule 607 (Branch Offices)

ISE Rule 613 (Statements of Accounts to

Customers)

ISE Rule 614 (Statements of Financial

Condition to Customers)

ISE Rule 615 (Addressing of Communications

to Customers)

ISE Rule 617 (Restrictions on Pledge and

Lending of Customers’ Securities)

ISE Rule 619 (Guarantees)

ISE Rule 620 (Profit Sharing)

ISE Rule 621 (Assuming Losses)

ISE Rule 622 (Transfer of Accounts)

ISE Rule 623 (Communications to Customers)

ISE Rule 624 (Brokers’ Blanket Bond)

ISE Rule 626 (Telephone Solicitation)

ISE Rule 1202 (Margin Requirements)

ISE Rule 1203 (Meeting Margin Calls by

Liquidation Prohibited)

ISE Rule 1400 (Maintenance, Retention and

Furnishing of Books, Records and Other

Information)

ISE Rule 1407 (Market Maker Hedge

Exemption from Nasdaq Short Sale Rule)

III. Solicitation of Comments

In order to assist the Commission in

determining whether to approve this

plan and to relieve the ISE of those

responsibilities designated to the NASD,

interested persons are invited to submit

written data, views, and arguments

concerning the foregoing. 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

plan that are filed with the Commission,

and all written communications relating

to the proposed 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 the NASD. All

submissions should refer to File No. 4–

431 and should be submitted by May 10,

2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Jonathan G. Katz,

Secretary.

[FR Doc. 00–9791 Filed 4–18–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42660; File No. SR–PCX–

00–11]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Pacific Exchange, Inc., Rescinding

the Exchange’s Off-Board Trading

Rules

April 10, 2000.

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

Securities Exchange Act of 1934

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

notice is hereby given that on March 26,

2000, the Pacific Exchange, Inc. (‘‘PCX’’

or ‘‘Exchange’’) filed with the Securities

and Exchange Commission

(‘‘Commission’’ or ‘‘SEC’’) the proposed

rule change as described in Items I, II,

and III below, which Items have been

prepared by the Exchange. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

The Exchange’s proposed rule change

raises issues similar to those raised by

the New York Stock Exchange’s

(‘‘NYSE’’ proposal to repeal NYSE Rule

390, which rule generally prohibits

NYSE members and their affiliates from

effecting transactions in certain NYSElisted securities away from a national

securities exchange. The Commission

recently issued the notice of filing for

the NYSE’s proposal (‘‘NYSE Notice’’)

and solicited comment on a number of

important issues that have broad

implications for the structure of the U.S.

securities markets.3 Specifically, the

Commission requested comment on

market fragmentation—the trading of

orders in multiple locations without

interaction among those orders—and on