23958 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Notices

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

2 17 CFR 240.19b–4.

3An OTC equity security generally is any equity

that is not listed or traded on Nasdaq or a national

securities exchange. OTCBB securities include

national, regional, and foreign equity issues,

warrants, units, American Depository Receipts

(‘‘ADRs’’), and Direct Participation Programs

(‘‘DPPs’’).

4Quotes in DPPs may be updated twice daily:

once between 8:30 and 9:30 a.m. ET and again

between 12:00 and 12:30 p.m. ET.

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44257; File No. SR–NASD–

2001–28]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc. To Institute an Automated

Order Delivery Service on the OTCBB

May 4, 2001.

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

Securities Exchange Act of 1934

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

notice is hereby given that on April 12,

2001, the National Association of

Securities Dealers, Inc. (‘‘NASD’’),

through its subsidiary, The Nasdaq

Stock Market, Inc. (‘‘Nasdaq’’) filed with

the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change as described in

Items I, II, and III below, which Items

have been prepared by Nasdaq. 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

Nasdaq is proposing to implement an

enhancement to the OTC Bulletin Board

Service (‘‘OTCBB’’). Nasdaq proposes to

create an automated order delivery

service (‘‘ODS’’) that will enable OTCBB

users to communicate electronically

with one another to negotiate and

confirm the execution of orders. This

communication interface would offer an

alternative to telephonic

communication, which would increase

the speed, efficiency, and quality of

execution in the OTCBB. The proposed

ODS would offer much of the

functionality of the SelectNet service

that is used for trading of Nasdaq

National Market and SmallCap

securities. Nasdaq states that SelectNet

has proven to be a versatile and effective

trading tool in those segments of the

market.

The principal purpose of this

enhancement is to supplement the

existing capacity of market makers to

consummate transactions pursuant to

applicable trading rules. The ODS

would enable member firms to

communicate and confirm the execution

terms of individual transactions

electronically, just as they do by

telephone today. The ODS would

impose no new trading rules or

obligations, but would permit market

participants to comply more efficiently

with existing rules and obligations,

including best execution and firm quote

obligations. Additionally, order

executions negotiated through the ODS

would automatically generate

transaction reports for OTCBB issues

and locked-in trades for clearance

purposes.

The following paragraphs describe the

history of the OTCBB, and also outline

the major elements of the ODS

enhancement.

Development and Operation of the

OTCBB

The OTCBB is a regulated quotation

service that displays real-time quotes,

last-sale prices, and volume information

in over-the-counter equity securities.3

The OTCBB began operating on a pilot

basis in June 1990 as part of market

structure reforms designed to improve

transparency in the over-the-counter

equities market. The system was

designed to facilitate the widespread

publication of quotation and last-sale

information. Since December 1993,

firms have been required to report

trades in all domestic OTC equity

securities through the Automated

Confirmation Transaction Service

(‘‘Act’’) within 90 seconds of the

transaction.

Today, the OTCBB provides an

electronic quotation medium for

subscribing members to reflect market

making interest in OTCBB-eligible

securities. The OTCBB currently allows

market makers to use an authorized

Nasdaq Workstation II (‘‘NWII’’) to

update quotes, query positions, register

in active stocks, and add or update

telephone numbers. Market makers may

access the service between 7:30 a.m. and

6:30 p.m. ET and may update quotes in

domestic securities, foreign securities,

and ADRs any time the system is in

operation.4

Subscribing market makers can utilize

the OTCBB to enter, update, and display

their proprietary quotations in

individual securities on a real-time

basis. Such quotation entries may

consist of a priced bid and/or offer, an

unpriced indication of interest

(including ‘‘bid wanted’’ or ‘‘offer

wanted’’ indications), or a bid/offer

accompanied by a modifier to reflect

unsolicited customer interest. A

subscribing market maker can also

access the proprietary quotations that

other firms have entered into the

OTCBB Service along with highest bid

and lowest offer (i.e., an inside bid-ask

calculation) in any OTCBB-eligible

security with at least two market makers

displaying two-aided markets. All

priced quotes in domestic securities,

foreign securities, and ADRs are firm; all

quotes in DPPs are indicative.

Additionally, all NASD Level I

members with Level 2⁄3 service may

view OTCBB data without paying an

additional charge beyond their NWII

fees. However, only registered market

makers are permitted to enter quotes

and indications of interest.

Access to the ODS

Upon introduction, the ODS would be

available to all NASD member firms that

have authorized access to Nasdaq Level

2⁄3 through NWII terminals or through

an Applications Programming Interface,

and that have appropriate clearing

arrangements through a registered

national clearing agency. The ODS

would be accessible for negotiation and

confirmation of transactions in OTCBB

issues during normal business hours for

the OTCBB market (from 7:30 a.m. to

6:30 p.m. ET), although quotations

would be required to be firm only

between 9:30 a.m. and 4 p.m. During

this period, the ODS would be

continuously available for use by any

eligible NASD market maker or orderentry firm. Registered OTCBB market

makers would be unable to inhibit the

receipt of ODS messages from other

eligible NASD members between 9:30

a.m. and 4 p.m. ET, and orders received

within a market maker’s quoted price

and size would be considered liability

orders. Hence, an NASD member would

be assured that communication can be

established with a market marker during

all market conditions and that

transactions can be consummated

without reliance on the telephone.

Use of the ODS

The ODS would provide an

alternative medium for retail firms to

contact market makers and for market

makers to contact one another, to

negotiate trades, and to confirm

executions regardless of market

conditions just as they do by telephone

today. The establishment of the ODS

would not impose any additional

obligations beyond those already

applicable to the market maker and

NASD member in connection with

telephonic transactions, such as the firm

quote and best execution obligations.

Nasdaq has established some basic

operational requirements for the ODS:

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Notices 23959

(i) An order entered through the ODS

must be preferenced to a market maker

in the security.

(ii) Principal as well as agency orders

may be entered through the ODS.

(iii) All orders entered through the

ODS must be priced. Therefore, it would

be impermissible to enter an order only

with instructions to execute ‘‘at the

market’’ or ‘‘on the close.’’

(iv) An order entered through the ODS

must include the security’s identifier,

price and size (from 100 to 999,900

shares); be designated as buy, sell, or

sell short; and have a capacity indicator.

All orders must be in round lots; the

system will not accept odd lots.

(v) Orders entered into the ODS

would be in force for a minimum of

three minutes, unless the entering firm

specifies another time in force or

designates as a day order. The entering

firm would be permitted to attempt to

cancel an order after ten seconds.

(vi) A market maker receiving an

order through the ODS would have

three minutes to respond with an

‘‘accept’’ or ‘‘reject’’ message. Order

recipients can respond with partial

acceptance, as long as the order is not

designated as All-Or-None. If the

receiving market maker does not act

within three minutes (or other time

period specified by the order entry

firm), the order would be automatically

timed out and a notification of that

result sent to the initiating firm.

(vii) The ODS would send a ‘‘pop-up’’

message to a market maker’s NWII

terminal alerting the market maker to

the presence of a liability order. The

market maker would then be obligated

to execute the liability order up to the

size of its quoted price, unless the

market maker is in the process of

executing another limit order at the

same price.

(viii) The ODS would prohibit orders

from being entered if there is no inside

market in the security (i.e., there are at

least two market makers with two-sided

quotes).

(ix) If an incoming buy (sell) order is

priced below (above) the recipient’s

quoted bid/offer, or for an amount

exceeding the recipient’s displayed size,

the market maker may properly reject it.

The rejecting market maker can

promptly communicate a counter

proposal for possible acceptance by the

initiating firm. This scenario illustrates

the ability of a market maker to

negotiate an execution by exchanging

messages via the ODS.

(x) Transmission of an ‘‘accept’’

message would automatically create and

send a ‘‘locked-in’’ trade to ACT for

comparison and clearing. Trades

confirmed through the ODS would

automatically generate a printed

confirmation of the execution to both

parties.

(xi) ODS users would have access to

the full functionality of ACT to enter

corrective transactions, including

cancel, error, break, no/was, inhibit, and

kill (where appropriate under applicable

trade reporting rules).

(xii) Participating market makers

would have the capacity to scan

transactions which they have executed

through the ODS during the course of a

trading day.

(xiii) The ODS would automatically

reject messages involving ineligible

market makers or initiating member

firms.

As outlined above, the ODS would

allow market participants to follow a

few easy steps to enter, negotiate, and

accept orders. To enter an order the

market participant must choose buy,

sell, or sell short; enter the share size;

enter the security ID; designate a price;

indicate whether price and/or size are

negotiable; and specify the duration of

the order, including (1) leave the order

open for a minimum of three minutes,

(2) make it a day order, or (3) leave it

open until after-hours trading has

ended. Market participants can respond

to an order in several ways: accept the

order, price improve it, decline it,

counter the order, accept a portion of

the order, or allow the order to expire

or time out. When an order is countered,

negotiations would begin and the

parties would exchange messages until

they produce a full or partial execution,

they decline the transaction, or the

order times out.

After an order is executed, the ODS

would automatically confirm it to both

parties to the transaction; send the trade

report through Nasdaq for public

dissemination; and compare, match, and

send the locked-in trade to a clearing

corporation. All Nasdaq order-entry or

market maker subscribers would be

eligible to participate in the ODS,

provided that they have a clearing

arrangement with an approved clearing

agent.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

Nasdaq 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. Nasdaq has prepared

summaries, set forth in Sections A, B,

and C below, of the most significant

aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

Nasdaq states that trading activity in

the OTCBB grew from 41 million shares

and less than 7,000 trades per day in

1995 to 323 million shares and 53,000

trades per day in 1999. In the first

quarter of 2000, on average, over 1

billion shares were traded and 205,000

trades were reported each day. Nasdaq

believes that there are many reasons for

this increase in volume, but chief among

them is the wealth of OTC information

available on the Internet and the growth

of online trading systems directly

accessible to individual investors. The

manual nature of the OTCBB, where all

order delivery, communication, and

negotiation between two firms regarding

an OTCBB trade is done via telephone,

was a drawback during these periods of

explosive volume. Nasdaq believes that

executions were slower and market

participants had difficulty keeping

abreast of telephone traffic.

Nasdaq states that the singular

purpose of the ODS enhancement is to

expand the communications facilities

available to support the continuous,

orderly operation of the OTCBB during

periods of heavy trading, such as those

experienced periodically during 2000.

The ODS would facilitate processing of

orders during fast markets, in that it

would supplement the telephone

capacity of market makers to interact

with one another. It would, however,

permit NASD members, from a

functional standpoint, to continue to

conduct business with one another by

communicating the same basic elements

of information that are needed to

negotiate and confirm executions via

telephone. The major difference is that

electronic messages would substitute for

verbal messages.

Nasdaq states that the ODS would

also enable NASD members to realize

certain efficiencies that are most

desirable in periods of heavy trading,

but unavailable respecting transactions

effected via telephone. For example,

consummation of a transaction through

the ODS would yield a printed

confirmation to both parties to the

transaction and would obivate the

separate entry of a trade report for an

execution in an OTCBB security.

Further, because orders executed

through the ODS would yield locked-in

trades, this feature would help reduce

the volume of uncompared trades (and

23960 Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Notices

5See NASD Rules 6530 and 6540.

6See NASD Rule 6545.

7See NASD Rule 6541 (implementation pending).

8 15 U.S.C. 78k–1 and 78o–3

9 15 U.S.C. 78k–1(a)(1)(A) to (D).

10See 15 U.S.C. 78k–1(a)(1)(C).

11See 15 U.S.C. 78o–3(b)(6).

12 Id.

the attendant allocation of resources

needed to resolve them) during periods

in which overall market volume surges

dramatically. Nasdaq believes that

institution of the ODS would

supplement both the communications

and order processing capabilities of

member firms.

The NASD Regulation Market

Regulation Department anticipates that

the ODS would enable it to surveil more

effectively the OTCBB marketplace.

Nasdaq is committed to maintaining a

high level of regulation in the OTCBB

trading environment. In fact, Nasdaq’s

market surveillance systems and staff

would increase the capacity for realtime monitoring of trading on the

OCTBB.

Nasdaq states that the OTCBB has

made significant strides in making

measurable market improvements in the

past three years, including: (1) the

implementation of the Eligibility Rule,

which requires each OTCBB issuer to be

fully registered with the SEC (or

appropriate banking or insurance

regulator) and be current in its filings,5

(2) the establishment of limited trading

halt authority for OTCBB securities,6

and, (3) the upcoming launch of a Limit

Order Protection pilot program, which

will prohibit member firms from trading

ahead of customer limit orders certain

OTCBB securities.7 Nasdaq believes that

providing automated access to the

OTCBB market would further Nasdaq’s

efforts to make the OTCBB a more

efficient and orderly marketplace for

investors and market participants alike.

2. Statutory Basis

Nasdaq believes that the proposal is

consistent with Sections 11A and 15A

of the Act.8 Subsections (A) to (D) of

Section 11A(a)(1) 9 articulate the broad

findings and policy goals which

Congress intended to guide the

operational enhancement of the nation’s

securities markets. In this context,

Congress underscored the importance of

applying new data processing and

communications techniques to assure:

(1) more efficient and effective market

operations; (2) economically efficient

execution of securities transactions; (3)

broad availability of information with

respect to quotations for and

transactions in securities; and (4) the

optimal execution of investors’ orders.10

The NASD believes that the design and

operation features of the ODS

enhancement comport fully with these

Congressional directives.

Nasdaq believes that the proposal is

also supported by subsection (b)(6) of

Section 15A of the Act.11 Among other

things, that provision requires that the

NASD’s rule-making initiatives be

designed: (1) to promote just and

equitable principles of trade; (2) to

foster cooperation and coordination

with persons engaged in regulating,

clearing settling, processing information

with respect to, and facilitating

transactions in securities; (3) to perfect

the mechanism of a free and open

market and a national market system;

and (4) to protect investors and the

public interest. As described earlier, the

ODS would augment the

communications and order-handling

capacities of market makers in OTCBB

securities. The NASD views the ODS as

an essential, auxiliary communications

system that would enable market

makers to conduct business with one

another when telephonic

communications are undesirable due to

unusual conditions. Providing such a

back-up capability promotes continuity

in market operations in order to service

all classes of investors. Nasdaq believes

that this result is fully consistent with

the above-cited portions of Section

15A(b)(6) of the Act.12

B. Self-Regulatory Organization’s

Statement on Burden of Competition

Nasdaq states that implementation of

the ODS would not involve the

imposition of any competitive burden.

Nasdaq believes that this conclusion is

supported by several factors. First, the

ODS involves an enhancement of the

facilities that support market making in

OTCBB securities by member firms.

This type of enhancement would not

alter the established terms of access

respecting vendors’ receipt of market

information for redistribution to diverse

groups of end users. Second, the ODS

would not pose a competitive burden

upon market makers and other eligible

members. By design, the ODS would be

an auxiliary medium of communication

that eligible firms may employ to

conduct business when telephonic

communication is not desirable.

Accordingly, the ODS has been

structured to accommodate conveyance

of the same basic elements of

information which firms communicate

in negotiating and executing

transactions via the telephone. Third,

the ODS enhancement would not

impose more stringent market-making

obligations on participating firms.

Rather, it would provide an alternative

mechanism for market participants to

conduct their routine business. Fourth,

firms electing to utilize the ODS would

need only to have clearing arrangements

through a registered clearing agency that

uses a continuous net settlement

system, a requirement that exists today

for trading of OTCBB securities.

Nasdaq believes, therefore, that no

competitive burden would result from

the Commission’s approval of this filing.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding, or

(ii) as to which the Nasdaq consents, the

Commission will:

(A) by order approve such proposed

rule change; or

(B) institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW,

Washington, DC 20549–0609. Copies of

the submission, all subsequent

amendments, all written statements

with respect to the proposed 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. 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.

SR–NASD –2001–28 and should be

submitted by May 31, 2001.

Federal Register / Vol. 66, No. 91 / Thursday, May 10, 2001 / Notices 23961

13 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3 15 U.S.C. 78s(b)(3)(A).

4 17 CFR 240.19b–4(f)(6). The Exchange filed the

pre-filing notice required by Rule 19b–4(f)(6) by

filing a written description of the proposed rule

change and the text of the proposed rule change on

April 3, 2001.

5Securities Exchange Act Release No. 42272

(December 23, 1999), 65 FR 153 (January 3,

2000)(SR–Phlx–99–42). In the approval order, the

Commission requested that the Exchange examine

the operation of the Committee to ensure that the

Committee is not dominated by any one Exchange

interest (e.g., On-Floor or Off-Floor interests). The

Commission requested that the Exchange report

back to the Commission on its views as to whether

the Committee structure ensures that all Exchange

interests are fairly represented by the Committee.

6Securities Exchange Act Release No. 42898

(June 5, 2000), 65 FR 36879 (June 12, 2000)(SR–

Phlx–00–41), extending the pilot program until

August 21, 2000; Securities Exchange Act Release

No. 43169 (August 17, 2000), 65 FR 51888 (August

25, 2000)(SR–Phlx–00–76), extending the pilot

program until November 17, 2000. On July 14, 2000,

the Exchange filed a proposed rule change to effect

the amendments on a permanent basis. SR–Phlx–

00–63 (filed July 14, 2000). In SR–Phlx–00–63 the

Exchange also enclosed the Exchange’s views as to

whether the Committee structure ensures that all

Exchange interests are fairly represented by the

Committee. Because the Exchange is considering

changes to the Committee, the Commission expects

SR–Phlx–00–63 to be withdrawn. In November,

2000, the pilot program was extended again until

April 30, 2001. Securities Exchange Act Release No.

43614 (November 22, 2000), 65 FR 75332

(December 1, 2000).

7See Securities Exchange Act Release No. 38960

(August 22, 1997), 62 FR 45904 (August 29,

1997)(SR–Phlx–97–31).

8See Securities Exchange Act Release No. 26858

(May 22, 1989), 54 FR 23007 (May 30, 1989) (SR–

Phlx–88–36).

9See also Exchange By-Law, Article IV, Section

4–2.

10Previously, the Exchange has described

‘‘extraordinary market or emergency conditions’’ as,

among other things, a declaration of war, a

presidential assassination, an electrical blackout, or

events such as the 1987 market break or other

highly volatile trading conditions that require

intervention for the market’s continued efficient

operation. Letter dated March 15, 1989, from

William W. Uchimoto, General Counsel, Exchange,

to Sharon L. Itkin, Esquire, Commission, Division

of Market Regulation

11 15 U.S.C. 78f.

12 15 U.S.C. 78f(b)(5).

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.13

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–11803 Filed 5–9–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44245; File No. SR–Phlx–

2001–44]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Extending the Pilot Program for

Exchange Rule 98, Emergency

Committee Until July 31, 2001

May 1, 2001.

Pursuant to Sectiuon19(b)(1) of the

Securities Exchange Act of 1934

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

notice is hereby given that on April 12,

2001, the Philadelphia Stock Exchange,

Inc. (‘‘Phlx’’ or ‘‘Exchange’’) filed a

proposed rule change with the

Securities and Exchange Commission

(‘‘SEC’’ or ‘‘Commission’’). The

proposed rule change is described in

Items I, II, and III below, which Items

have been prepared by the Exchange.

The Exchange filed the proposed rule

change pursuant to Section 19(b)(3)(A)

of the Act,3 and Rule 19b–4(f)(6)

thereunder,4 which renders the

proposed rule change 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 is proposing to extend

the pilot program period for Rule 98,

Emergency Committee until July 31,

2001. No changes to the existing rule

language are being proposed.

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

Exchange 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

Exchange has prepared summaries, set

forth in Sections A, B, and C below, of

the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

On December 23, 1999, the

Commission approved amendments to

Rule 98, Emergency Committee (the

‘‘Committee’’), which updated the

composition of the Committee to reflect

the current governance structure of the

Exchange, on a 120-day pilot basis.5 The

pilot has been extended three times,

most recently to April 30, 2001.6 The

pilot program is being extended again to

July 31, 2001 as the Exchange considers

other changes to the composition of the

Committee.

The Exchange originally proposed to

amend Rule 98, Emergency Committee,

by updating the composition of the

Committee to correspond with previous

revisions to the Exchange’s governance

structure,7 and by deleting a provision

authorizing the Committee to take

action regarding CENTRAMART, an

equity order reporting system which is

no longer used on the Exchange Equity

Floor.

The Committee was formed in 1989 8

prior to the aforementioned changes to

the Exchange’s governance structure.

The original proposed rule change,

approved by the Commission, deleted

the word ‘‘President’’ from the rule, as

the Exchange no longer has a

‘‘President,’’ and included the

Exchange’s On-Floor Vice Chairman 9 as

a member of the Committee.

Thus, Rule 98 specifies the

composition of the Emergency

Committee to include the following

individuals: the Chairman of the Board

of Governors; the On-Floor vice

Chairman of the Board of Governors;

and the Chairmen of the Options

Committee, the Floor Procedure

Committee, and the Foreign Currency

Options Committee.

The staff of the Commission has

requested that the Exchange file the

instant proposed rule change to extend

the pilot program through July 31, 2001

so that the Committee will reflect the

current governance structure of the

Exchange and will be in place to take

necessary and appropriate action to

respond to extraordinary market

conditions or other emergencies.10 The

extension of the pilot program will also

allow the Exchange the necessary time

to propose changes to the Committee’s

structure to meet the Commission’s

concerns about whether the Committee

ensures that all interests of the

Exchange (e.g., On-Floor or Off-Floor)

are adequately represented by the

Committee.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6 11 of the Act in general, and

with Section 6(b)(5) 12 of the Act in

specific, in that it is designed to perfect

the mechanisms of a free and open

market and a national market system,

and to protect investors and the public

interest, by updating the composition of

the Emergency Committee to reflect the