[Federal Register Volume 65, Number 76 (Wednesday, April 19, 2000)]
[Notices]
[Pages 21048-21052]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-9791]


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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.
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    \1\ 15 U.S.C. 78q(d).
    \2\ 17 CFR 240.17d-2.
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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.
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    \3\ 15 U.S.C. 78s(g)(1).
    \4\ 15 U.S.C. 78s(g)(2).
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    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.
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    \5\ Securities 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).
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    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.
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    \6\ 17 CFR 240.17d-1 and 17 CFR 240.17d-2.
    \7\ Securities Exchange Act Release No. 12352 (April 20, 1976), 
41 FR 18809 (May 3, 1976).
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    On its face, Rule 17d-1 deals only with an SRO's obligations to 
enforce

[[Page 21049]]

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.
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    \8\ Securities Exchange Act Release No. 12935 (October 28, 
1976), 41 FR 49093 (November 8, 1976).
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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,

[[Page 21050]]

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 associated-person 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

[[Page 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 self-
regulatory 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 Non-Disclosure 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

[[Page 21052]]

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\
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    \9\ 17 CFR 200.30-3(a)(34).
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Jonathan G. Katz,
Secretary.
[FR Doc. 00-9791 Filed 4-18-00; 8:45 am]
BILLING CODE 8010-01-M