26978 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

1 17 CFR 240.6a–2, 240.6a–3, and 240.19b–4.

2 17 CFR 249.819.

3 17 CFR 202.3.

4 15 U.S.C. 78f(g) adn 78o–3(k).

5Proposed 17 CFR 240.6a–4 and 17 CFR 240.19b–

7.

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Parts 202, 240 and 249

[Release No. 34–44279; File No. S7–10–01]

RIN 3235–AI20

Registration of National Securities

Exchanges Pursuant to Section 6(g) of

the Securities Exchange Act of 1934

and Proposed Rule Changes of

National Securities Exchanges and

Limited Purpose National Securities

Associations

AGENCY: Securities and Exchange

Commission.

ACTION: Proposed rule.

SUMMARY: The Securities and Exchange

Commission (‘‘Commission’’) is

proposing new Rule 6a–4 under the

Securities Exchange Act of 1934

(‘‘Exchange Act’’) and new registration

Form 1–N prescribing the requirements

for designated contract markets and

derivative transaction execution

facilities to register as national

securities exchanges pursuant to Section

6(g)(1) of the Exchange Act to trade

security futures. The Commission also is

proposing conforming amendments to

Rules 6a–2 and 6a–3 under the

Exchange Act and Rule 202.3 of the

Commission’s procedural rules. In

addition, the Commission is proposing

new Rule 19b–7, new Form 19b–7, and

amendments to Rule 19b–4 and Form

19b–4 to accommodate proposed rule

changes submitted by security futures

product exchanges registered pursuant

to Section 6(g) of the Exchange Act and

limited purpose national securities

associations registered pursuant to

Section 15A(k) of the Exchange Act.

These proposed rules and forms and

amendments to existing rules and forms

are necessary to implement the

Commodity Futures Modernization Act

of 2000 (‘‘CFMA’’) and will establish the

registration and rule filing procedures

for those entities that are interested in

registering with the Commission for the

purpose of trading security futures.

DATES: Comments must be received by

June 14, 2001.

ADDRESSES: All comments concerning

the rule proposals should be submitted

in triplicate to Jonathan G. Katz,

Secretary, U.S. 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

comment letters should refer to File No.

S7–10–01; this file number should be

included on the subject line if e-mail is

used. Comment letters will be available

for inspection and copying in the public

reference room at the same address.

Electronically submitted comment

letters will be posted on the

Commission’s Internet web site (http://

www.sec.gov.). Personal identifying

information, such as names or e-mail

addresses, will not be edited from

electronic submissions. Submit only

information you wish to make publicly

available.

FOR FURTHER INFORMATION CONTACT:

Deborah Flynn, Senior Special Counsel,

at (202) 942–0075; Heather Traeger,

Special Counsel, at (202) 942–0763;

Kelly Riley, Special Counsel, at (202)

942–0752; Michael Gaw, Attorney, at

(202) 942–0158; and Cyndi Nguyen,

Attorney, at (202) 942–4163, Division of

Market Regulation, Securities and

Exchange Commission, 450 Fifth Street,

NW., Washington, DC 20549–1001.

SUPPLEMENTARY INFORMATION: The

Commission today is requesting public

comment on proposed amendments to

Rules 6a–2, 6a–3, and 19b–4,1 and Form

19b–4 of the Exchange Act 2 as well as

Rule 202.3 of the Commission’s

procedural rules,3 regarding the

requirements for designated contract

markets and derivative transaction

execution facilities to register as

national securities exchanges and to

accommodate proposed rule changes

submitted by security futures product

exchanges and limited purpose national

securities associations under Sections

6(g) and 15A(k) of the Exchange Act,

respectively.4 The Commission also is

requesting public comment on proposed

new Rules 6a–4 and 19b–7 5 and new

Forms 1–N and 19b–7 under the

Exchange Act.

Table of Contents

I. Introduction

II. Discussion of Proposed Rulemaking

A. Notice Registration as an Exchange to

Trade Security Futures Products,

Amendments to Such Notice, and Other

Supplemental Material

1. Filing of Notice of Registration

2. Filing of Periodic Amendments

3. Filing of Supplemental Material

4. Proposed Amendments to Exchange Act

Rules 6a–2 and 6a–3

5. Processing of Proposed Form 1–N for

Notice Registration

B. Proposed Procedures for Filing Proposed

Rule Changes by Security Futures

Product Exchanges and Limited Purpose

National Securities Associations

1. Proposed Rule 19b–7 and Form 19b–7

2. Proposed Rule Changes Related to

Security Futures Products Required to be

Filed by Security Futures Product

Exchanges and Limited Purpose National

Securities Associations Pursuant to

Section 19(b)(1) of the Exchange Act

III. Paperwork Reduction Act

A. Proposed Rule 6a–4 and Form 1–N

1. Summary of Collection of Information

2. Proposed Use of Information

3. Respondents

4. Total Annual Reporting and

Recordkeeping Burden

5. Record Retention Period

6. Collection of Information is Mandatory

7. Responses to Collection of Information

Would Not Be Kept Confidential

B. Proposed Rule 19b–7 and Proposed

Form 19b–7

1. Summary of Collection of Information

2. Proposed Use of Information

3. Respondents

4. Total Annual Reporting and

Recordkeeping Burden

5. Record Retention Period

6. Collection of Information is Mandatory

7. Responses to Collection of Information

Would Not Be Kept Confidential

C. Proposed Amendments to Rule 19b–4

and Form 19b–4

1. Summary of Collection of Information

2. Proposed Use of Information

3. Respondents

4. Total Annual Reporting and

Recordkeeping Burden

5. Record Retention Period

6. Collection of Information is Mandatory

7. Responses to Collection of Information

Would Not Be Kept Confidential

D. Proposed Amendments to Rules 6a–2

and 6a–3

E. Request for Comment

IV. Costs and Benefits of Proposed

Rulemaking

A. Costs and Benefits of Proposed Rule 6a–

4, New Registration Form 1–N, and

Conforming Amendments to Rules 6a–2

and 6a–3 under the Exchange Act and

Rule 202.3 of the Commission’s

Procedural Rules

1. Benefits

2. Costs

B. Costs and Benefits of Proposed Rule

19b–7 and Form 19b–7 and Conforming

Amendments to Rule 19b–4 and Form

19b–4

1. Benefits

2. Costs

C. Request for Comment

V. Consideration of the Burden on

Competition, and Promotion of

Efficiency, Competition and Capital

Formation

VI. Regulatory Flexibility Act Certification

VII. Statutory Authority

I. Introduction

The Commodity Futures

Modernization Act of 2000 (‘‘CFMA’’)

authorizes the trading of futures on

individual stocks and narrow-based

stock indexes, including puts, calls,

straddles, options, or privileges thereon

(collectively, ‘‘security futures

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules 26979

6Pub. L. No. 106–554, Appendix E, 114 Stat.

2763.

7Section 3(a)(10) of the Exchange Act, 15 U.S.C.

78c(a)(10).

8Section 2(a)(1) of the Securities Act of 1933, 15

U.S.C. 77b(a)(1).

9Section 2(a)(36) of the Investment Company Act

of 1940, 15 U.S.C. 80a–2(a)(36).

10Section 202(a)(18) of the Investment Advisors

Act of 1940, 15 U.S.C. 80b–2(a)(18).

11Section 1a(31) of the CEA, 7 U.S.C. 1a(31).

12See Section 5 of the Exchange Act, 15 U.S.C.

78e. See also Section 3(a)(1) of the Exchange Act

for the definition of ‘‘exchange.’’ 15 U.S.C.

78c(a)(1).

13 15 U.S.C. 78f(g).

14Section 6(g)(1) of the Exchange Act, 15 U.S.C.

78f(g)(1).

15 15 U.S.C. 780–o3(k). Pursuant to this section,

a futures association registered under Section 17 of

the CEA shall be registered as a national securities

association for the limited purpose of regulating the

activities of its members with respect to security

futures products.

16Sections 6(g)(4)(B) and 15A(k)(3) of the

Exchange Act, 15 U.S.C. 78f(g)(4)(B) and 15 U.S.C.

78o–3(k)(3). 17 15 U.S.C. 78f(g)(2)(A). 18 15 U.S.C. 78f(a). 19 15 U.S.C. 78f(g). 20 15 U.S.C. 78f(g)(2)(B). Pursuant to its authority

under the CEA, the CFTC may suspend or revoke

registration of boards of trade. 7 U.S.C. 7b.

21Proposed Exchanged Act Rule 6a–4.

22 17 CFR 240.6a–2 amd 240.6a–3.

23 15 U.S.C. 78f(g).

24The term ‘‘broad of trade’’ has the same

meaning as that term is defined in the CEA. 7 U.S.C.

1a(2).

25 7 U.S.C. 7(a).

26Section 6(g)(1)(A) of the Exchange Act, 15

U.S.C. 78f(g)(1)(A).

27 15 U.S.C. 78f(a).

28 15 U.S.C. 78f(g).

29See Proposed Form 1–N.

products’’).6 The CFMA makes security

futures ‘‘securities’’ under the Exchange

Act,7 the Securities Act of 1933,8 the

Investment Company Act of 1940,9 and

the Investment Advisers Act of 1940,10

and contracts of sale for future delivery

of a single security or a narrow based

security index or options thereon under

the Commodity Exchange Act

(‘‘CEA’’).11 Accordingly, the regulatory

framework established by the CFMA for

the markets and intermediaries trading

security futures products provides the

Commission and the Commodity

Futures Trading Commission (‘‘CFTC’’)

with joint jurisdiction.

Because security futures products are

securities under the Exchange Act, any

organization, association, or group of

persons that constitutes, maintains, or

provides a market place or facilities for

bringing together purchasers and sellers

of security futures products must

register with the Commission as a

national securities exchange.12 New

subsection 6(g) of the Exchange Act 13

provides an expedited process for an

exchange that lists or trades security

futures products to become registered

with the Commission as a national

securities exchange (‘‘Security Futures

Product Exchange’’) if that exchange (i)

is a board of trade that has been

designated as a contract market or is

registered as a derivative transaction

execution facility; and (ii) does not act

as a market place for transactions in

securities other than security futures

products.14

In addition, the CFMA amended the

Exchange Act to require Security

Futures Product Exchanges and limited

purpose national securities associations

registered pursuant to Section 15A(k) of

the Exchange Act (‘‘Limited Purpose

National Securities Associations’’) 15 to

file with the Commission proposed rule

changes relating only to specific types of

rules, and to provide an expedited filing

process for most of these rules.16

II. Discussion of Proposed Rulemaking

A. Notice Registration as an Exchange

to Trade Security Futures Products,

Amendments to Such Notice, and Other

Supplemental Material

Section 6(g)(2)(A) of the Exchange Act

provides that an exchange required to

register with the Commission only

because it lists or trades security futures

products may register by filing a written

notice with the Commission in such

form as the Commission, by rule, may

prescribe as necessary or appropriate in

the public interest or for the protection

of investors.17 Such rule may require

that the filing contain the rules of the

exchange and other information and

documents concerning the exchange,

comparable to the information and

documents the Commission requires for

national securities exchanges registered

under Section 6(a) of the Exchange

Act.18 Consistent with this provision,

the Commission is proposing new Form

1–N to be filed by exchanges to register

with the Commission under Section 6(g)

of the Exchange Act.19 Proposed Form

1–N requests limited information from

the exchange, including how it will

operate, its rules and procedures,

criteria for membership, information on

subsidiaries or affiliates, and the

security futures products it intends to

trade. Proposed Form 1–N is not an

application and the Commission would

not ‘‘approve’’ an exchange before it

begins to trade security futures

products. Instead, proposed Form 1–N

would be a notice to the Commission

that the exchange would be trading

security futures products and would

provide information necessary for the

Commission to exercise its regulatory

responsibilities.

Pursuant to Section 6(g)(2)(B) of the

Exchange Act, such ‘‘notice

registration’’ will be effective

contemporaneously with the submission

of proposed Form 1–N, unless the

registration would be subject to

suspension or revocation by the CFTC.20

A Security Futures Product Exchange

would be required to file an amendment

to proposed Form 1–N to correct any

previously filed information that has

been discovered to be incorrect, and to

provide any new information or correct

any information rendered inaccurate.

The Commission also is proposing

new Rule 6a–4 21 to set forth the

information that must be submitted by

an entity to register as a Security

Futures Product Exchange and the

ongoing filing requirements for Security

Futures Product Exchanges, and to

revise Exchange Act Rules 6a–2 and 6a–

3 22 to exclude Security Futures Product

Exchanges from the requirements of

those rules.

1. Filing of Notice of Registration

Proposed Rule 6a–4 would require an

exchange registering pursuant to Section

6(g) of the Exchange Act 23 to file

proposed Form 1–N with the

Commission. Proposed Rule 6a–4 would

provide that an exchange may register as

a national securities exchange solely for

purposes of trading security futures

products by filing Form 1–N if the

exchange is a board of trade 24 that: (i)

Has been designated a contract market

by the CFTC or is registered as a

derivative transaction execution facility

under Section 5a of the CEA,25 and (ii)

such designation or registration is not

suspended by the CFTC; 26 and (iii) such

exchange does not serve as a market

place for transactions in securities other

than security futures products or futures

on exempted securities or groups or

indexes of securities, or options thereon.

Proposed Form 1–N is similar to Form

1, the application used to register as a

national securities exchange or to apply

for an exemption from exchange

registration based on limited volume

pursuant to Section 6(a) of the Exchange

Act.27 Because, however, exchanges

registering with the Commission

pursuant to Section 6(g) of the Exchange

Act 28 are also subject to the CFTC

application and reporting requirements,

the Commission is proposing to limit

the information required to be filed on

Form 1–N,29 compared to the

information currently required to be

filed on the Form 1. Specifically,

proposed Form 1–N consists of an

execution page and nine exhibits, which

relate generally to the organization of

the exchange, its membership

requirements, the manner in which

26980 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

30See Proposed Form 1–N, instruction 9, and, for

amendments, proposed Exchange Act Rule 6a–

4(b)(6).

31For purposes of proposed Exhibit B to proposed

Form 1–N, the Commission considers settled

practices to be the policies of an exchange that are

not otherwise covered in its written rulings.

32Specifically, proposed Exhibit C would require

for all such entitles: name and address of

organization; form of organization; name of state

and statute citation under which organized; date of

incorporation in present form; brief description of

nature and extent of affiliation; brief description of

business or functions; a copy of the constitution,

articles of incorporation or association including all

amendments, and existing by-laws or corresponding

rules or instruments; the name and title of the

present offices, governors, or persons performing

similar functions; and an indication of whether

such business or organization ceased to be

associated with the Security Futures Product

Exchange during the previous year and the reasons

for such termination.

33Proposed Exchange Act Rule 61–4(b)(5)(i); see

also note 44 and accompanying text.

34The Commission would expect a narrative

description of how trading is done on the exchange.

The Commission does not expect exchanges to

submit technical specifications for their automated

systems.

35For persons listed in proposed Exhibit E, the

exchange would be required to provide the name,

title, dates of commencement and termination of

term of office or position, and type of business in

which each is primarily engaged.

36Proposed Exhibit F would require a Security

Futures Product Exchange that is a corporation to

list each shareholder that directly owns 5% or more

of a class of a voting security. If the exchange is a

partnership, it would be required to list all general

partners and those limited and special partners that

have the right to receive upon dissolution, or have

contributed 5% or more of, the partnership’s

capital. For these persons, the exchange would be

required to list the full legal name, title or status,

date title or status was acquired, approximate

ownership interest, and whether the person has

control (as defined in the instruction to proposed

Form 1–N. The Commission is proposing that

Exhibit F be current as of the latest practicable date

within 1 month of the date the proposed Form 1–

N is filed.

37For persons listed in proposed Exhibit H, the

exchange would be required to provide the name,

and if such user is an individual, the name of the

entity with which such individual is associated and

the relationship of such individual to the entity, a

brief description of the type of activities primarily

engaged in by the individual, and the individual’s

class of membership, participation, or other access.

The Commission is proposing that Exhibit H be

current as of the latest practicable date within 1

month of the date the proposed Form 1–N is filed.

business is conducted on the exchange,

and the security futures products traded

or proposed to be traded. In those

instances where the exchange has filed

information with the CFTC, copies of

documents filed with the CFTC could be

filed with the Commission, instead of

preparing a new document solely for

purposes of filing with the

Commission.30

Proposed Exhibit A to the proposed

Form 1–N would require submission of

the constitution, articles of

incorporation or association with all

subsequent amendments, and by-laws or

corresponding rules of the Security

Futures Product Exchange. Proposed

Exhibit B to the proposed Form 1–N

would require filings of written rulings,

settled practices 31 and interpretations

of the governing board or other

committee of the exchange with respect

to the rules, by-laws, constitution, or

trading practices that are not included

in Exhibit A. To ease preparation

burdens, the Commission is proposing

that Exhibits A and B be current as of

the latest practicable date within 1

month of the date the proposed Form 1–

N is filed. Because, pursuant to the

regulatory framework set forth in the

CFMA, the Commission does not

approve the registration of exchanges

filing proposed Form 1–N, or grant

exemptions from registration, the

Commission will not be required to

make specific determinations as to

whether such exchanges’ systems, rules,

and policies are consistent with the

Exchange Act. Moreover, proposed

Form 1–N would be filed with the

Commission as a supplement to the

continued oversight of the exchange by

the CFTC. Accordingly, the Commission

preliminarily believes that it would be

reasonable for documents provided by

exchanges filing proposed Form 1–N to

be up-to-date within 1 month of the date

of filing.

Proposed Exhibit C to the proposed

Form 1–N would require information

similar to that proposed to be included

in Exhibits A and B but for affiliates,

subsidiaries, and any entity with whom

the exchange has a contractual or other

agreement relating to the operation of an

electronic trading system to be used to

effect transactions in security futures

products.32 The exhibit would require

basic information regarding any

subsidiary, affiliate, or other related

entity involved in the trading of security

futures products. The Commission

preliminarily does not believe it is

necessary for exchanges to file the

contract or agreement itself as part of

Exhibit C. Instead, the Commission is

seeking to identify the general

characteristics of the entities and their

operational relationship with the

Security Futures Product Exchange,

such as networking, software, or other

agreements associated with the

execution, reporting, clearance, or

settlement of transactions in security

futures products.33 For the same reasons

discussed above, the Commission is

proposing that Exhibit C be current as

of the latest practicable date within 1

month of the date the proposed Form 1–

N is filed.

Proposed Exhibit D would require a

description of the manner of operation

of the Security Futures Product

Exchange’s systems involving the

trading of security futures products,

including: The procedures governing

entry and display of quotations; the

procedures governing execution,

reporting, clearance and settlement of

transactions in connection with the

system; proposed fees; the procedures

for ensuring compliance; the hours of

operation; the date of intended

commencement of operations; and a

copy of the users’ manuals.34

Proposed Exhibit E would require that

the Security Futures Product Exchange

provide general information regarding

officers, governors, or persons

performing similar functions.35

Proposed Exhibit F would require

similar background information for

persons with direct ownership and

control for non-member owned Security

Futures Product Exchanges.36 Proposed

Exhibit H would require similar

background information for members,

participants, subscribers or other users

of the system.37 To the extent not

covered by an exchange’s rules

submitted in Exhibit A, proposed

Exhibit G would require a description of

the criteria for membership in the

exchange, as well as a description of the

conditions under which members may

be subject to, and the procedures

involved in, suspension or termination

of a member. The information required

in these exhibits would provide the

Commission with the names and roles

of the participants using the exchange’s

system, which the Commission

preliminary believes is necessary for

reviewing the operation and function of

the system.

Finally, a Security Futures Product

Exchange would be required in

proposed Exhibit I to provide a schedule

of the security futures products it lists

or proposes to list.

The Commission solicits comment on

the proposed notice requirements in

proposed Form 1–N, including the

proposed exhibits. Specifically, the

Commission seeks comment on whether

the proposed requirements would be

unreasonably burdensome for Security

Futures Product Exchanges. Are all of

the exhibits necessary? Is there other

information that should be required to

be provided or that could replace the

information proposed to be submitted in

the rule? For example, with respect to

the timeframe as to when information

must be current, is one month

appropriate? Commenters are invited to

address the possibility that intervening

events may make information that is one

month old outdated.

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules 26981

38Proposed Exchange Act Rule 6a–4(b)(1).

39 Id.

40Proposed Exchange Act Rule 6a–4(b)(2).

41Proposed Exchange Act Rule 6a–4(b)(3). In

addition, proposed Rule 6a-4 would require a

Security Futures Product Exchange promptly to file

an amendment correcting any inaccuracy

discovered on the filed proposed Form 1–N.

42Proposed Exchange Act Rule 6a–4(b)(4)(iii).

43Proposed Exchange Act Rule 6a–4(b)(4)(i) and

(ii).

44Proposed Exchange Act Rule 6a–4(b)(5). The

exemption would be granted only if at least one

national securities exchange is required to file the

amendment required by proposed Exchange Act

Rule 6a–4(b) for an affiliate or subsidiary. While

‘‘inactive subsidiary’’ is not defined for purposes of

this provision, the Commission expects to consider

a subsidiary to be inactive only if it has little or no

income and liabilities and, thus, does not have the

potential to have an impact on the financial

condition of the Security Futures Product

Exchange. The Commission has established

procedures for an entity to apply for an exemption

from its rules. 17 CFR 240.0–12.

45 15 U.S.C. 78f(g)(2)(A).

46Proposed Exchange Act Rule 6a–4(b)(6).

47Proposed Exchange Act Rule 6a–4(c)(1)(i).

48 Id.

49Proposed Exchange Act Rule 6a–4(c)(1)(ii).

50Proposed Exchange Act Rule 6a–4(c)(2).

2. Filing of Periodic Amendments

Once registered, proposed Rule 6a–4

would require a Security Futures

Product Exchange to file with the

Commission an amendment that

contains written notice of actions that

create new or render inaccurate

information filed on the execution page

or as part of proposed Exhibits C, E, F

or H of its proposed Form 1–N.38 Any

amendment would be required to be

filed within 10 days after such action is

taken.39 In addition, each exchange

would be required to file as an

amendment, on or before June 30, 2002

and by June 30 every year thereafter,

proposed Exhibits F, H, and I, which

would be required to be up-to-date as of

the latest date practicable within three

months of the date the amendment was

filed.40 Proposed Rule 6a–4 also would

require an exchange to file, as an

amendment to its Form 1–N, on or

before June 30, 2004 and by June 30

every three years thereafter, complete

Exhibits A, B, C, and E, which would be

required to be up-to-date as of the latest

date practicable within three months of

the date the amendment was filed.41

The proposed requirements for periodic

amendments to the proposed Form 1–N

parallel the existing requirements for

periodic amendments to the Form 1.

The Commission preliminarily believes

that it would be inappropriate to require

Security Futures Product Exchanges to

provide additional information on a

more frequent basis than is required

currently of registered national

securities exchanges.

As a mechanism to reduce the filing

burdens on Security Futures Product

Exchanges, the Commission is

proposing to allow such exchanges to

comply with certain filing requirements

by maintaining the information on an

Internet web page and providing the

location of such web site to the

Commission.42 A Security Futures

Product Exchange also would be

permitted to refer to materials published

by, or in cooperation with, the exchange

that contain the required information or

to make the information available upon

request at its office, instead of filing that

information in paper.43

The Commission is proposing to

reduce the reporting burden further by

providing that an exchange may be

exempted from filing the required

amendments for any affiliate or

subsidiary listed in proposed Exhibit C

of the exchange’s notice registration that

either is listed in Exhibit C of the form

for registration or notice registration of

one or more other national securities

exchanges, or was an inactive subsidiary

throughout the subsidiary’s latest fiscal

year.44

Finally, pursuant to Section 6(g)(2)(A)

of the Exchange Act,45 the Commission

is proposing that if a Security Futures

Product Exchange has filed documents

with the CFTC, to the extent that such

documents contain information

satisfying the Commission’s

informational requirements, copies of

such documents may be filed with the

Commission in lieu of the required

written notice.46

The Commission seeks comment on

the proposed requirements relating to

the filing of periodic amendments to the

proposed Form 1–N. Specifically,

commenters are invited to comment on

the requirement that an amendment be

filed within 10 days after any action is

taken by the Security Futures Product

Exchange that creates new information

or renders inaccurate certain

information filed as part of the Form 1–

N. Should a different timeframe be

established for the filing of periodic

amendments? If so, should it be shorter

or longer than the proposed 10 days?

Should inaccuracies relating to

information previously filed be material

before additional disclosure is required?

Is it appropriate to require annual

updates of the information required in

Exhibits F, H, and I? Should additional

exhibits be required to be updated on an

annual basis, as well? Commenters

should also address the propriety of the

requirement that Exhibits A, B, C, and

E be updated every three years. Is

information up to three months old

sufficiently current for purposes of the

periodic reporting requirements?

Should information be provided more

often or less frequently?

Commenters are also invited to

comment on the propriety of permitting

a Security Futures Product Exchange to

comply with certain filing requirements

by providing to the Commission the

location where such information is

located on a web site, or making the

information available upon request at its

office.

3. Filing of Supplemental Material

Paragraph (c) of proposed Rule 6a–4

would require Security Futures Product

Exchanges to furnish to the Commission

copies of any materials related to the

trading of security futures products

(including notices, circulars, bulletins,

lists, and publications) issued or made

available to members of, or participants

in, or subscribers to, the exchange.47

The exchange would be required to file

such information within 10 days after

issuing or making such material

available to members of, or participants

in, or subscribers to, the exchange.48

The Commission also is proposing that

exchanges be permitted to make the

information available on an Internet

web site and provide the Commission

with the location of the web site.49

Proposed paragraph (c) of proposed

Rule 6a–4 also would require that an

exchange file transaction reports within

15 days after the end of each calendar

month containing, for each security

futures product traded on such

exchange, the number of contracts

traded, and the type of security

underlying such contracts. In addition,

if the futures contract were for a single

security, the exchange would be

required to report the total number of

shares underlying the contracts

traded.50 The proposed requirements for

the filing of supplemental material

parallel the existing requirements

applicable to registered national

securities exchanges that filed a Form 1

with the Commission. The Commission

preliminarily believes that it would be

inappropriate to require Security

Futures Product Exchanges to provide

this information on a more frequent

basis that is required currently of

registered national securities exchanges.

The Commission solicits comment on

whether the type of information

proposed to be required or the proposed

frequency of filing should be modified

in any way. For example, would it be

more appropriate to change the monthly

filing requirement for transaction

reports to a quarterly filing requirement?

The Commission also seeks comment on

the proposed requirement that

information relating to the trading of

26982 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

51 17 CFR 240.6a–2 and 240.6a–3.

52 17 CFR 240.6a–1.

53 17 CFR 202.3.

54 15 U.S.C. 78f(g)(1).

55Section 3(a)(26) of the Exchange Act defines a

‘‘self-regulatory organization’’ as any national

securities exchange, registered securities

association, registered clearing agency, and for the

purposes of Section 19(b) and other limited

purposes, the Municipal Securities Rulemaking

Board (‘‘MSRB’’). 15 U.S.C. 78c(a)(26). Security

Futures Product Exchanges and Limited Purpose

National Securities Associations would fall within

this definition.

56 15 U.S.C. 78s(b).

57The process of Commission review and public

comment helps ensure, for example, that SROs

refrain from using their regulatory powers in an

unfair or anticompetitive manner to the detriment

of investors.

58Section 6(g)(4)(B) of the Exchange Act, 15

U.S.C. 78f(g)(4)(B).

59Section 15A(k)(3) of the Exchange Act, 15

U.S.C. 78o–3(k)(3).

60 15 U.S.C. 78f(g)(4)(B).

61 15 U.S.C. 78o-3(k)(3).

62 15 U.S.C. 78s(b)(7). The Commission is also

proposing a technical amendment to paragraph (a)

of Rule 19b–4 and Part A of Form 19b–4 to exclude

from the requirement that SROs file proposed rule

changes on Form 19b–4 those proposed rule

changes submitted pursuant to Section 19(b)(7)(a) of

the Exchange Act. See proposed Exchange Act Rule

19b–4 and proposed Form 19b–4.

63 15 U.S.C. 78s(b)(1).

64 15 U.S.C. 78s(b)(7)(C).

65 15 U.S.C. 78s(b).

66 15 U.S.C. 78s(b)(7).

67 Id.

68Section 5c(c) of the CEA, 7 U.S.C. 7a–2(c).

Pursuant to Section 5c(c) of the CEA, a registered

entity may elect to approve and implement any new

rule or rule amendment by providing the CFTC a

written certification that the new rule or rule

amendment complies with the CEA.

69 15 U.S.C. 78s(b)(7)(B).

70 15 U.S.C. 78s(b)(7).

security futures products be filed within

10 days after it is made available to

members of, participants in, or

subscribers to, the exchange. Comment

is sought on the propriety of the

proposed requirement that exchanges

file certain transaction information

within 15 days after the end of each

calendar month. Specifically, is it

appropriate for the Commission to

request this type of information? Is 15

days after the end of each calendar

month sufficient time to compile the

requested information? Commenters are

also invited to comment on the

propriety of allowing exchanges to make

the information available on an Internet

web site.

4. Proposed Amendments to Exchange

Act Rules 6a–2 and 6a–3

Rules 6a–2 and 6a–3 under the

Exchange Act 51 set forth the ongoing

filing requirements for registered or

exempted exchanges that file

applications with the Commission to

become national securities exchanges

pursuant to Rule 6a–1.52 Because the

Commission is proposing a new rule,

Rule 6a–4, that incorporates the relevant

provisions of Rules 6a–2 and 6a–3 that

relate to ongoing filing obligations, the

Commission is proposing to amend

Rules 6a–2 and 6a–3 to exempt Security

Futures Product Exchanges from the

requirements of these rules.

5. Processing of Proposed Form 1–N for

Notice Registration

The Commission proposes to amend

paragraph (b) of Rule 202.3 of the

Commission’s procedural rules,

‘‘Processing of Filings,’’ to accommodate

the proposed Form 1–N.53 Specifically,

the Commission proposes to add

paragraph (b)(3), which would provide

that notice forms for registration as a

national securities exchange filed with

the Commission pursuant to Section

6(g)(1) of the Exchange Act 54 are routed

to the Division of Market Regulation,

which would examine these

applications to determine whether all

necessary information has been

supplied and whether all required

documents have been furnished in

proper form. Defective applications may

be returned with a request for correction

or held until corrected before being

accepted as a filing.

B. Proposed Procedures for Filing

Proposed Rule Changes by Security

Futures Product Exchanges and Limited

Purpose National Securities

Associations

If a self-regulatory organization

(‘‘SRO’’) 55 decides to amend, add, or

delete any provision of its rules

(‘‘proposed rule change’’), it must

submit to the Commission, pursuant to

Section 19(b) of the Exchange Act,56 the

proposed rule change for notice,

comment, and Commission approval,

prior to implementation, unless it is

otherwise permitted to become effective

pursuant to that Section. The purpose of

this requirement is to help ensure that,

through Commission review and the

public comment process, SROs carry out

the purposes of the Exchange Act.57

The CFMA amended the Exchange

Act to exempt Security Futures Product

Exchanges 58 and Limited Purpose

National Securities Associations 59 from

the requirement to submit proposed rule

changes to the Commission pursuant to

Section 19(b) of the Exchange Act,

except in enumerated circumstances.

Specifically, Sections 6(g)(4)(B) 60 and

15A(k)(3) 61 of the Exchange Act require

Security Futures Product Exchanges and

Limited Purpose National Securities

Associations to submit, pursuant to

Section 19(b)(7) of the Exchange Act,

proposed rule changes that relate to

higher margin levels, fraud or

manipulation, recordkeeping, reporting,

listing standards, or decimal pricing for

security futures products, sales practices

for security futures products for persons

who effect transactions in security

futures products, or rules effectuating

such SRO’s obligation to enforce the

securities laws.62 In addition, Security

Futures Product Exchanges and Limited

Purpose National Securities

Associations are required to submit,

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

Exchange Act,63 proposed rule changes

that relate to margin levels, except for

those that result in higher margin levels,

and proposed rule changes that have

been abrogated by the Commission

pursuant to Section 19(b)(7)(C) of the

Exchange Act.64

1. Proposed Rule 19b–7 and Form 19b–

7

Pursuant to Section 19(b) of the

Exchange Act,65 the Commission has the

authority to adopt rules regarding the

filing of proposed rule changes by the

SROs. Section 19(b)(7) of the Exchange

Act,66 which addresses Security Future

Product Exchanges’ and Limited

Purpose National Security Associations’

rule filings, requires that a proposed

rule change filed pursuant to this

section contain a concise general

statement of the basis and purpose of

the proposed change. Upon such filing,

the Commission is required to promptly

publish notice of such proposed rule

change and provide interested persons

with the opportunity to submit

comments. Pursuant to Section 19(b)(7)

of the Exchange Act,67 any proposed

rule change filed with the Commission

must be concurrently submitted to the

CFTC and may take effect: (i) when a

written certification has been filed with

the CFTC under Section 5c(c) of the

CEA;68 (ii) when the CFTC determines

that review of the proposed rule change

is not necessary; or (iii) when the CFTC

approves the proposed rule change.69

Because the Commission is required

to publish each proposed rule change

filed pursuant to Section 19(b)(7) of the

Exchange Act,70 the Commission must

develop rules to ensure that each notice

of filing complies not only with the

requirements of that section, but also,

with the requirements of the Federal

Register. Thus, in its efforts to ensure

that such proposed rule changes

conform to these requirements, the

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules 26983

71 15 U.S.C. 78s(b)(7)(A).

72 Id.

73Section 19(b)(7) of the Exchange Act, 15 U.S.C.

78s(b)(7).

74 15 U.S.C. 78s(b)(7)(C).

75 15 U.S.C. 78s(b)(7)(D).

76See Section 19(b)(7)(C) of the Exchange Act, 15

U.S.C. 78s(b)(7)(C).

77The Commission recently published a proposal

to replace Rule 19b–4 and Form 19b–4 with

proposed Rule 19b–6 and proposed Form 19b–6.

See Securities Exchange Act Release No. 43860

(January 19, 2001), 66 FR 8912 (February 5, 2001).

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

79 15 U.S.C. 78s(b)(7)(A).

80 15 U.S.C. 78f(g)(4)(B)(ii) and 15 U.S.C. 78o–

3(k)(3)(B).

81 15 U.S.C. 78s(b)(1). Section 19(b)(1) of the

Exchange Act requires each SRO to file with the

Commission its proposed rule changes

accompanied by a concise general statement of the

basis for, and purpose of the proposed rule change.

Once an SRO files a proposed rule change, the

Commission must publish notice of it and provide

opportunity for public comment. The proposed rule

change may not take effect unless the Commission

approves it or it is otherwise permitted to become

effective under Section 19(b)(3) of the Exchange

Act.

82 15 U.S.C. 78s(b)(2). Section 19(b)(2) of the

Exchange Act sets forth the standards and time

periods for the Commission either to approve a

proposed rule change or to institute and conclude

a proceeding to determine whether a proposed rule

change should be disapproved.

83As discussed above, pursuant to Sections

6(g)(4)(B)(i) and 15A(k)(3)(B) of the Exchange Act,

proposed rule changes that relate to higher margin

levels must be filed by Security Futures Product

Exchanges and Limited Purpose National

Associations with the Commission pursuant to

Section 19(b)(7) of the Exchange Act.

84 15 U.S.C. 78f(g)(4)(B)(ii) and 15 U.S.C. 78o–

3(k)(3)(B).

85 17 CFR 240.19b–4.

86 15 U.S.C. 78s(b)(2).

87 15 U.S.C. 78s(b)(1).

88See note 77, supra. Security Futures Product

Exchanges and Limited Purpose National

Associations would be required to submit their

proposed rule changes that relate to margin, except

those that result in higher margin levels, to the

Commission on Form 19b–4 or such other form that

the Commission may designate as effective as of the

time of the filing.

89 15 U.S.C. 78s(b)(7)(C).

90 15 U.S.C. 78s(b)(7). Pursuant to this section,

Commission action to abrogate a rule change will

not affect the validity or force of the rule change

during the period it was in effect.

Commission is proposing Rule 19b–7

and Form 19b–7.

Proposed Rule 19b–7 would require

proposed rule changes filed pursuant to

Section 19(b)(7)(A) of the Exchange

Act 71 to be made on Form 19b–7.

Further, proposed Rule 19b–7 would

state that a proposed rule change would

not be deemed filed with the

Commission unless a completed Form

19b–7 is submitted, and it is

accompanied by a clear and accurate

statement of the basis and purpose of

the proposed rule change, including any

impact on competition or efficiency,

and a summary of any written

comments received by the SRO

pertaining to the proposed rule change.

As required by the statute, the proposed

rule would require the Commission to

promptly publish such proposed rule

changes.72

Finally, because the statute provides

that the Commission will not approve

proposed rule changes submitted

pursuant to proposed Rule 19b–7,73 the

proposed rule states that the

effectiveness of a proposed rule change

does not create an inference of whether

the proposed rule change is in the

public interest, including whether it has

an impact on competition. The

Commission would not be taking final

action on the proposal unless, as

discussed below, it abrogates the

proposed rule change pursuant to

Section 19(b)(7)(C) of the Exchange

Act,74 and subsequently issues an order

approving or disapproving the proposal

pursuant to Section 19(b)(7)(D) of the

Exchange Act.75 Therefore, the

Commission will not necessarily make a

final determination on whether a

proposed rule change filed pursuant to

proposed Rule 19b–7 is in the public

interest, including whether it has an

impact on competition.

On proposed Form 19b–7, Security

Futures Product Exchanges and Limited

Purpose National Securities

Associations would have to provide

information sufficient to permit

interested persons to submit meaningful

comment on the proposal and to permit

the Commission to consider whether the

proposal should be abrogated because it

unduly burdens competition or

efficiency, conflicts with securities

laws, or is inconsistent with the public

interest or the protection of investors.76

Proposed Form 19b–7 would require a

Security Futures Product Exchange or

Limited Purpose National Securities

Association to submit: (1) A complete

description of the terms of its proposal;

(2) a description of the impact of the

proposed rule change on various market

participants; and (3) a description of

how the filing relates to existing rules of

the exchange or association. Proposed

Form 19b–7 also would require a senior

member of the management of the

Security Futures Product Exchange or

Limited Purpose National Securities

Association to certify that the filing

contains an accurate statement of

authority and the statutory basis for the

proposal and, among other things, that

the proposal does not conflict with the

federal securities laws.

Proposed Form 19b–7 is modeled

after proposed Form 19b–6.77 The

Commission preliminarily believes that

it is appropriate to use proposed Form

19b–6 as a model for proposed Form

19b–7 because it reflects the review and

evaluation recently conducted by

Commission staff regarding the Section

19(b) rule filing process, currently

applicable to SROs. Accordingly, the

Commission is proposing that proposed

Form 19b–7 closely resemble the

proposed Form 19b–6.

2. Proposed Rule Changes Related to

Security Futures Products Required To

Be Filed by Security Futures Product

Exchanges and Limited Purpose

National Securities Associations

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

Exchange Act

As discussed above, the Exchange Act

exempts Security Futures Product

Exchanges and Limited Purpose

National Securities Associations from

the filing requirements of Section 19(b)

of the Exchange Act.78 Instead, Security

Futures Product Exchanges and Limited

Purpose National Securities

Associations are required to file only

proposed rule changes relating to

specifically enumerated matters, which

are listed in Section 19(b)(7)(A) of the

Exchange Act.79 In addition, pursuant to

Sections 6(g)(4)(B)(ii) and 15A(k)(3)(B)

of the Exchange Act,80 Security Futures

Product Exchanges and Limited Purpose

National Securities Associations,

respectively, are required to file with

the Commission, pursuant to Section

19(b)(1) of the Exchange Act 81 for

notice, comment, and Commission

approval or disapproval, pursuant to

Section 19(b)(2) of the Exchange Act,82

proposed rule changes that relate to

margin, except for changes that result in

higher margin levels.83

To implement the requirements of

Sections 6(g)(4)(B)(ii) and 15A(k)(3)(B)

of the Exchange Act,84 the Commission

is proposing to require Security Futures

Product Exchanges and Limited Purpose

National Securities Associations to file

proposed rule changes related to margin

(except for changes that result in higher

margin levels) under Rule 19b–4 85 for

approval under Section 19(b)(2) of the

Exchange Act.86 Rule 19b–4 is the rule

under which all other SROs currently

file proposed rule changes pursuant to

Section 19(b)(1) of the Exchange Act.87

This rule requires that filings with

respect to proposed rule changes by an

SRO be made on Form 19b–4.88

Section 19(b)(7)(C) of the Exchange

Act 89 provides the Commission, after

consultation with the CFTC, with the

authority to summarily abrogate a

proposed rule change filed pursuant to

Section 19(b)(7) of the Exchange Act 90

if it appears to the Commission that

such rule change unduly burdens

26984 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

91The Commission notes that it currently

exercises similar authority pursuant to Section

19(b)(3)(C) of the Exchange Act, 15 U.S.C.

78s(b)(3)(C), with respect to proposed rule changes

filed by the existing SROs that are immediately

effective upon filing pursuant to Section 19(b)(3)(A)

of the Exchange Act, 15 U.S.C. 78s(b)(3)(A).

92 15 U.S.C. 78f(g)(4)(B)(iii).

93 15 U.S.C. 78o–3(k)(3)(C).

94 15 U.S.C. 78s(b)(1).

95See supra note 77. If the Commission were to

determine to adopt the proposed Rule 19b–6 and

Form 19b–6, amendments similar to those proposed

here for Rule 19b–4 and Form 19b–4 would be

required to accommodate proposed rule changes

related to margin (other than higher margin) and

proposed rule changes that have been abrogated

pursuant to Section 19(b)(7)(C) of the Exchange Act.

96 15 U.S.C. 78s(b)(7)(D).

97 15 U.S.C. 78s(b)(7)(C).

98 15 U.S.C. 78s(b)(1).

99The Commission notes that this is similar to the

system currently in place for SRO filings, except for

the CFTC’s role and the approval standard to be

applied by the Commission.

100See Part E of proposed Form 19b–4. See also

supra note 77.

101 15 U.S.C. 78s(b)(7)(D)(ii).

102 15 U.S.C. 78s(b)(1).

103See Information to be Included in the

Completed Form, Item 3 of proposed Form 19b–4. 104 5 U.S.C. 603(a).

competition or efficiency, conflicts with

the securities laws, or is inconsistent

with the public interest and the

protection of investors.91 In the event

that this occurs, Security Futures

Product Exchanges and Limited Purpose

National Securities Associations would

be required, pursuant to Sections

6(g)(4)(B)(iii) 92 and 15A(k)(3)(C) 93 of

the Exchange Act, respectively, to refile

the proposed rule change pursuant to

the requirements of Section 19(b)(1) of

the Exchange Act.94 The Commission is

proposing that Security Futures Product

Exchanges and Limited Purpose

National Securities Associations use

Form 19b–4 to file the abrogated

proposed rule change. The Commission

is proposing amendments to Form 19b–

4 to accommodate proposed rule

changes that have been abrogated

pursuant to Section 19(b)(7)(C) of the

Exchange Act.95

Section 19(b)(7)(D) of the Exchange

Act 96 sets forth standards for review

and approval of proposed rule changes

that have been abrogated pursuant to

Section 19(b)(7)(C) of the Exchange

Act 97 and refiled pursuant to Section

19(b)(1) of the Exchange Act.98

Specifically, the Commission must,

within 35 days of the date of publication

of notice of the filing of the proposed

rule change, or within such longer

period as the Commission may

designate up to 90 days after such date

if the Commission finds such longer

period to be appropriate and publishes

its reasons for so finding, or as to which

the SRO consents, either by order

approve the proposed rule change or,

after consultation with the CFTC,

institute disapproval proceedings.99 The

Commission is proposing to amend

Form 19b–4 to add language to this

effect.100

Section 19(b)(7)(D)(ii) of the Exchange

Act 101 states that the Commission must

approve a proposed rule change that has

been abrogated and refiled under

Section 19(b)(1) of the Exchange Act 102

if the Commission finds that it does not

unduly burden competition or

efficiency, does not conflict with the

securities laws, and is not inconsistent

with the public interest or the

protection of investors. The Commission

is proposing that Security Futures

Product Exchanges and Limited Purpose

National Securities Associations

affirmatively set forth in Form 19b–4

that an abrogated proposed rule change

that is being refiled satisfies these

requirements.103

The Commission seeks comment on

the proposed procedures for filing

proposed rule changes pursuant to

proposed Rule 19b–7 and Form 19b–7,

and proposed amendments to Rule 19b–

4 and Form 19b–4.

Commenters should specifically

address the requirements of the

proposed rules and associated forms,

describing in detail any

recommendations for modifying the

proposed approach in such a way as to

be consistent with the statutory

requirements. For example, is the

proposed certification requirement of

the proposed Form 19b–7 appropriate?

Is there a more appropriate procedure

for the filing of proposed rule changes

relating to margin (other than higher

margin) and the refiling of proposed

rule changes that have been abrogated

pursuant to Section 19(b)(7)(C) of the

Exchange Act that would not require the

use of Form 19b–4?

Finally, if the Commission were to

adopt the proposed Rule 19b–6 and

Form 19b–6, amendments similar to

those proposed for Rule 19b–4 and

Form 19b–4 would need to be made to

accommodate proposed rule changes

relating to margin, other than higher

margin, and proposed rule changes that

have been abrogated pursuant to Section

19(b)(7)(C) of the Exchange Act. The

Commission seeks comment on how

proposed Rule 19b–6 or Form 19b–6

would need to be modified to clarify the

limited circumstances in which the

proposed Rule 19b–6 and Form 19b–6

would be used by Security Futures

Product Exchanges and Limited Purpose

National Securities Associations.

III. Paperwork Reduction Act

Certain provisions of the proposed

rules and forms contain ‘‘collection of

information requirements’’ within the

meaning of the Paperwork Reduction

Act of 1995.104 Accordingly, the

Commission submitted the collection of

information requirements contained in

the rules and forms to the Office of

Management and Budget (‘‘OMB’’) in

accordance with 44 U.S.C. 3507 and 5

CFR 1320.11. The Commission is

proposing to adopt two new collections

of information titled ‘‘Rule 6a–4 and

Form 1–N’’ and ‘‘Rule 19b–7 and Form

19b–7.’’ The Commission is also

proposing to revise a collection of

information titled ‘‘Rule 19b–4 and

Form 19b–4,’’ OMB Control No. 3235–

0045. An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless it displays a currently valid

control number.

A. Proposed Rule 6a–4 and Form 1–N

1. Summary of Collection of Information

Proposed Rule 6a–4 would set out

procedures for certain futures markets

that wish to trade security futures

products to file notices with the

Commission on new Form 1–N to

become Security Futures Product

Exchanges. Proposed Form 1–N calls for

information regarding: how the

exchange operates, its criteria for

membership, its subsidiaries and

affiliates, its rules and procedures, and

the security futures products it intends

to trade.

2. Proposed Use of Information

The information obtained under

proposed Rule 6a–4 and proposed Form

1–N would provide the Commission and

the public with basic information about

exchanges that would trade security

futures products but would not

otherwise be required to register with

the Commission. This information

would assist the Commission to

ascertain that such exchanges’ activities

do not unduly burden competition or

efficiency, conflict with the securities

laws, or are not inconsistent with the

public interest and the protection of

investors and, thus, assist the

Commission’s efforts to protect

investors and the public interest.

3. Respondents

The Commission expects that 7

respondents could seek to become

Security Futures Product Exchanges by

filing notice on proposed Form 1–N.

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules 26985

105SIA Management and Professional Earnings,

Table 107 (Attorney, New York), plus a 35 percent

differential for bonus, overhead, and other

expenses. The Commission believes that New York

salaries are an appropriate basis for its estimates, as

nearly all of the attorneys who would contribute to

the filing of Form 1–Ns would be based in New

York or cities with comparable legal markets. The

same estimate for the cost of legal work has been

used throughout this section.

106SIA Management and Professional Earnings,

Table 012 (Secretary) plus a 35 percent differential

for bonus, overhead, and other expenses. The same

estimate for the cost of clerical work has been used

throughout this section.

107 17 CFR 240.17a–1.

108See 15 U.S.C. 78q(b)(4)(B).

109See 15 U.S.C. 78f(g)(4)(B)(i) and 78o–

3(k)(3)(A).

4. Total Annual Reporting and

Recordkeeping Burden

a. One-Time Costs

Proposed Rule 6a–4 would require

each entity wishing to become a

Security Futures Product Exchange to

file proposed Form 1–N. The

Commission estimates that each Form

1–N submission would take

approximately 31 hours to file at a cost

of approximately $3,000 (representing

approximately 20 hours of legal work at

$128/hour,105 11 hours of clerical work

at $31/hour,106 and $100 for

miscellaneous clerical expenses). As the

Commission believes that 7 entities

would file to become Security Futures

Product Exchanges, the Commission

estimates that the total burden for filing

initial Form 1–Ns for all respondents

would be 217 hours (7 respondents × 31

hours/respondent), for a total cost of

$21,000 (7 responses × $3,000/

response).

b. Annual Costs

After an entity becomes a Security

Futures Product Exchange by properly

filing the initial Form 1–N, the exchange

would be subject to ongoing

responsibilities to file: (1) amendments

to the Form 1–N in the event of material

changes to the information provided in

the initial Form 1–N; (2) periodic

updates of certain information provided

in the original Form 1–N; (3) certain

supplemental information, such as

information that is provided to the

exchange’s members; and (4) a monthly

report summarizing the exchange’s

trading of security futures products.

The Commission estimates each

Security Futures Product Exchange

would have to file one amendment or

periodic update per year, resulting in a

burden of approximately 15 hours and

$1,438 (representing approximately 9

hours of legal work at $128/hour, 6

hours of clerical work at $31/hour, and

$100 of miscellaneous clerical

expenses). The Commission estimates

that the total annual burden for all

respondents to provide the required

amendments and updates would be 105

hours (15 hours/respondent per year ×

7 respondents), for a total cost of

$10,066 ($1,438/response × 7 responses/

year).

The Commission estimates that each

Security Futures Product Exchange

would file supplemental information 13

times per year and would make 12

monthly reports. The Commission

believes that, to meet these

requirements, each respondent would

be required only to copy and send

documents likely to be prepared for

their own internal uses. Accordingly,

the Commission estimates that each of

these 25 filings would impose a burden

of approximately $21 (0.5 hours of

clerical work at $31/hour and $5 for

miscellaneous clerical expenses). The

total annual burden for the collection of

the supplemental information and

monthly reports would be 87.5 hours

(25 filings/respondent × 7 respondents ×

0.5 hours/response), for a total cost of

$3,675 (25 filings/respondent per year ×

7 respondents × $21/response).

Therefore, the Commission concludes

that the total annual burden for all

Security Futures Product Exchanges

(not including the one-time cost of filing

the initial Form 1–N) would be 192.5

hours (105 + 87.5), for a total cost of

$13,741 ($10,066 + $3,675).

5. Record Retention Period

As set forth in Rule 17a–1 under the

Exchange Act,107 a national securities

exchange is required to retain records of

the collection of information for at least

five years, the first two years in an

easily accessible place. However,

Security Futures Product Exchanges

must retain only those records relating

to persons, accounts, agreements,

contracts, and transactions involving

security futures products.108

6. Collection of Information Is

Mandatory

This collection of information is

mandatory.

7. Responses to Collection of

Information Would Not Be Kept

Confidential

The collection of information

pursuant to proposed Rule 6a–4 and

proposed Form 1–N would not be kept

confidential.

B. Proposed Rule 19b–7 and Proposed

Form 19b–7

1. Summary of Collection of Information

Proposed Rule 19b–7 would require a

Security Futures Product Exchange or

Limited Purpose National Securities

Association that proposes to add to,

change, or delete any of its existing

rules relating to certain subjects 109 to

submit such proposed rule change to the

Commission on Form 19b–7. Proposed

Form 19b–7 calls for a description of:

the terms of the proposed rule change,

the proposed rule change’s impact on

various market segments, and the

relationship between the proposed rule

change and the existing rules of the

Security Futures Product Exchange or

Limited Purpose National Securities

Association. Proposed Form 19b–7 also

calls for an accurate statement of the

authority and statutory basis for, and

purpose of, the proposed rule change,

the proposal’s impact on competition,

and a summary of any written

comments on the proposed rule change

received by the Security Futures

Product Exchange or Limited Purpose

National Securities Association.

2. Proposed Use of Information

The Commission would use the

information obtained under proposed

Rule 19b–7 to review proposed rule

changes of Security Futures Product

Exchanges and Limited Purpose

National Securities Associations and to

provide notice of these proposals to the

public. The Commission would rely on

the information provided in proposed

Form 19b–7, as well as public comment

regarding such proposals, in taking any

action with respect to proposed rule

changes. This information would assist

the Commission to ascertain that the

activities of Security Futures Product

Exchanges and Limited Purpose

National Securities Associations do not

unduly burden competition or

efficiency, conflict with the securities

laws, or are not inconsistent with the

public interest and the protection of

investors and, thus, assist the

Commission’s efforts to protect

investors and the public interest.

3. Respondents

As noted above, the Commission

expects that 7 respondents could

become Security Futures Product

Exchanges by filing notice of

registration on proposed Form 1–N.

Upon doing so, these exchanges would

become subject to the requirement to

file proposed Form 19b–7 whenever

they propose to add, delete, or amend

certain rules relating to security futures

products. In addition, the Commission

anticipates that there would be one

Limited Purpose National Securities

Association (the National Futures

Association) that also would be required

to file certain rule changes relating to

26986 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

110See supra note 77.

111 17 CFR 240.17a–1.

112See 15 U.S.C. 78q(b)(4)(B).

113 15 U.S.C. 78s.

security futures products on proposed

Form 19b–7. Therefore, the Commission

estimates that there would be 8

respondents.

4. Total Annual Reporting and

Recordkeeping Burden

The Commission estimates that

respondents would average 15 proposed

rule changes per year that would have

to be filed on proposed Form 19b–7.

The Commission notes that, although it

receives approximately 20 to 100

proposed rule changes on Form 19b–4

per year from each of the existing SROs,

these Form 19b–4 filings cover a wide

range of subject areas, including trading,

membership, dispute resolution,

exchange governance, and fees. By

contrast, Security Futures Product

Exchanges and Limited Purpose

National Securities Associations would

be required to file on proposed Form

19b–7 only certain types of proposed

rule changes regarding security futures

products. Given the limited types of rule

changes that the proposed Form 19b–7

filings would cover, the Commission

believes that 15 filings per respondent

per year is a reasonable estimate.

The Commission estimates that an

average Form 19b–7 would require

approximately 16.5 hours to complete at

a cost of approximately $1,824

(representing 12.5 hours of legal work at

$128/hour, four hours of clerical work at

$31/hour, and $100 for miscellaneous

clerical expenses). These figures

represent approximately one-half of the

burdens that the Commission recently

estimated would be required for

submissions on proposed Form 19b–

6.110 Although proposed Forms 19b–6

and 19b–7 are quite similar, the

Commission believes that one-half is an

appropriate reduction in the estimated

burden for proposed Form 19b–7, as

proposed rule changes submitted on

Form 19b–7 generally would become

effective on filing and would not require

any action by the Commission or any

additional supporting information from

the SRO. By contrast, many of the rule

changes filed on proposed Form 19b–6

would require specific Commission

approval and, thus, would require

supporting information and perhaps

even formal amendments from the SRO

before they could be approved. Thus,

the Commission expects that the burden

of filing a proposed rule change on

proposed Form 19b–7 generally would

be substantially less than the burden of

filing a proposed rule change on

proposed Form 19b–6.

The Commission estimates that the

total annual burden for all respondents

to file proposed Form 19b–7 would be

1,980 hours (representing 15 filings/year

per respondent × 8 respondents × 16.5

hours/filing), for a total cost of $218,880

($1,824/filing × 15 filings/year per

respondent × 8 respondents).

5. Record Retention Period

As set forth in Rule 17a–1 under the

Exchange Act,111 a national securities

exchange or a national securities

association is required to retain records

of the collection of information for at

least five years, the first two years in an

easily accessible place. However,

Security Futures Product Exchanges and

Limited Purpose National Securities

Associations must retain only those

records relating to persons, accounts,

agreements, contracts, and transactions

involving security futures products.112

6. Collection of Information Is

Mandatory

The collection of information

requirements imposed by proposed Rule

19b–7 under the Exchange Act and

proposed Form 19b–7 would be

mandatory.

7. Responses to Collection of

Information Would Not Be Kept

Confidential

The collection of information

pursuant to proposed Rule 19b–7 and

proposed Form 19b–7 would be made

publicly available.

C. Proposed Amendments to Rule 19b–

4 and Form 19b–4

1. Summary of Collection of Information

Section 19 of the Exchange Act 113

establishes a procedure by which SROs

must file proposals to add, delete, or

amend their rules. Rule 19b–4

implements this procedure and requires

SROs to file proposed rule changes on

Form 19b–4. Certain proposals

submitted on Form 19b-4 must be

approved by the Commission before

they may take effect.

Although the primary means by

which Security Futures Product

Exchanges and Limited Purpose

National Securities Associations would

notify the Commission of proposed rule

changes would be by filing a Form 19b–

7, there are two circumstances in which

such entities would be required to file

a Form 19b–4: (1) a proposed rule

change that relates to margin, except for

a change that results in higher margin

levels; or (2) a proposed rule change that

has been abrogated by the Commission

because it appears that the proposal

unduly burdens competition or

efficiency, conflicts with the securities

laws, or is inconsistent with the public

interest and the protection of investors.

A proposed rule change that was filed

on proposed Form 19b–7 but is

abrogated by the Commission must be

refiled on Form 19b–4.

2. Proposed Use of Information

The Commission uses the information

obtained under Rule 19b-4 to review

proposed rule changes by SROs and to

provide notice of these proposals to the

public. The Commission relies on the

information provided in the Form 19b–

4, as well as public comment regarding

such proposals, in taking any action

with respect to proposed rule changes.

This information would assist the

Commission to ascertain that the

activities of Security Futures Product

Exchanges and Limited Purpose

National Securities Associations do not

unduly burden competition or

efficiency, conflict with the securities

laws, or are not inconsistent with the

public interest and the protection of

investors and, thus, assist the

Commission’s efforts to protect

investors and the public interest.

3. Respondents

Security Futures Product Exchanges

and Limited Purpose National Securities

Associations would be required to

comply with Rule 19b–4 and use Form

19b–4 in the two circumstances

described above. The Commission

believes that 7 entities would likely seek

to become Security Futures Product

Exchanges, and that there would be one

Limited Purpose National Securities

Association, the National Futures

Association. In addition, all other SROs

are currently required to comply with

Rule 19b–4 and use Form 19b–4.

4. Total Annual Reporting and

Recordkeeping Burden

The Commission estimates that the

proposed amendments to Rule 19b–4

would result in an additional 8 filings

per year on Form 19b–4. The

Commission estimates these new

respondents would devote, on average,

approximately 35 hours to the filing of

each Form 19b–4, at a cost of $3,660 per

filing (representing 25 hours of legal

work at $128/hour, 10 hours of clerical

work at $31/hour and $150 for

miscellaneous clerical expenses). The

Commission estimates that the total

annual burden for all respondents

resulting from the proposed

amendments to the Form 19b–4 would

be 280 hours (8 filings × 35 hours/

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules 26987

114However, these estimates do not include

burdens associated with filings that propose

wholesale additions or amendments to an SRO’s

rules. Such filings could result, for example, from

the development of a new trading system. Past

experience has demonstrated that about 1 percent

of Form 19b–4 filings are of this sort. Because these

filings typically represents so few of the total

number of Form 19b–4 filings, and he scope of

these filings may vary greatly from one filing to the

next, the Commission has omitted them from the

computation of the average cost associated with the

respondent’s reporting burden.

115 17 CFR 240.17a–1.

116See U.S.C. 78q(b)(4)(B).

117Proposed Exchange Act Rule 6a–4.

118 15 U.S.C. 78f(g)(1).

119 17 CFR 240.6a–2 and 240.6a—3.

120 17 CFR 202.3.

121Proposed Rule 19b–7.

122 17 CFR 240.19b–4.

123 15 U.S.C. 78o–3(k).

124Pub. L. No. 106–554, Appendix E, 114 Stat.

2763

125 15 U.S.C. 78f(a).

126 15 U.S.C. 78s(b)(7)(C).

127 15 U.S.C. 78s(b)(1).

filing), for a total cost of $29,280 (8

filings × $3,660/filing).114

5. Record Retention Period

As set forth in Rule 17a–1 under the

Exchange Act,115 SROs are required to

retain records of the collection of

information for at least five years, the

first two years in an easily accessible

place. However, Security Futures

Product Exchanges and Limited Purpose

National Securities Associations would

be required to retain only those records

relating to persons, accounts,

agreements, contracts, and transactions

involving security futures products.116

6. Collection of Information is

Mandatory

The collection of information

requirements imposed by existing Rule

19b–4 and Form 19b–4 under the

Exchange Act are mandatory.

7. Responses to Collection of

Information Would Not Be Kept

Confidential

The collection of information required

pursuant to proposed Rule 19b–7 and

proposed Form 19b–7 would be made

publicly available.

D. Proposed Amendments to Rules 6a–

2 and 6a–3

These amendments are technical in

nature and are intended only to clarify

that Security Futures Product Exchanges

are not subject to the collection of

information requirements imposed by

these rules. The amendments would

neither add new respondents nor

increase the burden on existing

respondents.

E. Request for Comment

Pursuant to 44 U.S.C. 3506(c)(2)(B),

the Commission solicits comments to:

(1) Evaluate whether the proposed

collections of information are necessary

for the proper performance of the

Commission’s functions, including

whether the information would have

practical utility;

(2) Evaluate the accuracy of the

Commission’s estimate of the burden of

the proposed collections of information;

(3) Enhance the quality, utility, and

clarity of the information to be

collected; and

(4) Minimize the burden of the

collections of information on those who

are to respond, including through the

use of automated collection techniques

or other forms of information

technology.

Persons wishing to submit comments

on the collection of information

requirements proposed above should

direct them to the following persons: (1)

Desk Officer for the Securities and

Exchange Commission, Office of

Information and Regulatory Affairs,

Office of Management and Budget,

Room 10102, New Executive Office

Building, Washington, DC 20503; and

(2) Jonathan G. Katz, Secretary,

Securities and Exchange Commission,

450 Fifth Street, NW, Washington, DC

20549–0609, with reference to File No.

S7–10–01. OMB is required to make a

decision concerning the collection of

information between 30 and 60 days

after publication, so a comment to OMB

is best assured of having its full effect

if OMB receives it within 30 days of

publication. The Commission has

submitted the proposed collections of

information to OMB for approval.

Requests for the materials submitted to

OMB by the Commission with regard to

these collections of information should

be in writing, refer to File No. S7–10–

01, and be submitted to the Securities

and Exchange Commission, Records

Management, Office of Filings and

Information Services, 450 Fifth Street,

NW, Washington, DC 20549.

IV. Costs and Benefits of the Proposed

Rulemaking

The Commission is proposing new

Rule 6a–4 under the Exchange Act 117

and new registration Form 1–N

prescribing the requirements for

designated contract markets and

derivative transaction execution

facilities to register as national

securities exchanges pursuant to Section

6(g)(1) of the Exchange Act 118 to list

and trade futures on individual stocks

and narrow-based stock indexes,

including puts, calls, straddles, options,

or privileges thereon. The Commission

also is proposing conforming

amendments to Rules 6a–2 and 6a–3

under the Exchange Act 119 and Rule

202.3 of the Commission’s procedural

rules.120 In addition, the Commission is

proposing new Rule 19b–7,121 new

Form 19b–7, and amendments to Rule

19b–4 122 and Form 19b–4 to

accommodate certain proposed rule

changes submitted by Security Futures

Product Exchanges and limited purpose

national securities associations

registered pursuant to Section 15A(k) of

the Exchange Act.123

The proposed rules, forms, and

conforming amendments are in response

to the mandate of the CFMA,124 which,

among other things, requires the

Commission to prescribe, by rule, the

process for notice registration to be used

by Security Futures Product Exchanges.

Pursuant to the CFMA, the Commission

has proposed Rule 6a–4 to prescribe

information and documents to be

submitted by Security Futures Product

Exchanges that is comparable to the

requirements applicable to national

securities exchanges registered pursuant

to Section 6(a) of the Exchange Act.125

In addition, the CFMA directs the

Commission to establish, by rule, the

procedures for filing proposed rule

changes by Security Futures Product

Exchanges and Limited Purpose

National Securities Associations that

relate to certain matters, including

higher margin levels, fraud or

manipulation, recordkeeping, reporting,

listing standards, or decimal pricing for

security futures products, sales practices

for security futures products for persons

who effect transactions in security

futures products, or rules effectuating

such Security Futures Product

Exchanges’ and Limited Purpose

National Securities’ obligations to

enforce the securities laws. The CFMA

also amended the Exchange Act to

require that proposed rule changes

relating to margin, except for changes

that result in higher margin levels, and

proposed rule changes that have been

abrogated pursuant to Section

19(b)(7)(C) of the Exchange Act 126 be

filed under Section 19(b)(1) of the

Exchange Act.127

The Commission is considering the

costs and benefits of the proposed rules,

forms, and conforming amendments and

encourages commenters to identify,

discuss, analyze, and supply relevant

data regarding any additional costs or

benefits.

26988 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

128Proposed Exchange Act Rule 6a–4.

129 17 CFR 240.6a–2 and 240.6a–3.

130 15 U.S.C. 78f(g).

131Proposed Form 1–N, 17 CFR 249.10.

132Proposed Exchange Act Rule 6a–4(b)(1).

133Proposed Exchange Act Rule 6a–4(b)(2).

134Proposed Exchange Act Rule 6a–4(b)(3).

135 15 U.S.C. 78f(g).

136 15 U.S.C. 78f(g)(2)(A).

137Proposed Exchange Act Rule 6a–4(b)(6).

138 15 U.S.C. 78f(g)(2)(B).

139Proposed Exchange Act Rule 6a–4(b)(4)(iii)

and (c)(l)(ii).

140Proposed Exchange Act Rule 6a–4(b)(4)(i) and

(ii).

141Proposed Exchange Act Rule 6a–4(b)(5).

142 17 CFR 240.6a–2 and 240.6a–3.

143 17 CFR 240.6a–1.

144Proposed Exchange Act Rule 6a–4(b)(6).

A. Costs and Benefits of Proposed Rule

6a–4, New Registration Form 1–N, and

Conforming Amendments to Rules 6a–2

and 6a–3 under the Exchange Act and

Rule 202.3 of the Commission’s

Procedural Rules

The Commission is proposing new

Rule 6a–4 128 to set forth the information

that must be submitted by an entity to

register as a national securities exchange

and the ongoing filing requirements for

Security Futures Product Exchanges,

and to revise Exchange Act Rules 6a–2

and 6a–3 129 to exclude Security Futures

Product Exchanges from the

requirements of those rules.

Proposed Rule 6a–4 would require an

exchange registering pursuant to Section

6(g) of the Exchange Act 130 to file

proposed Form 1–N 131 with the

Commission. Once registered, proposed

Rule 6a–4 would require a Security

Futures Product Exchange to file with

the Commission written notice of

actions that create new information or

render inaccurate information filed on

the execution page or as part of

proposed Exhibits C, E, F or H of its

proposed Form 1–N within 10 days after

such action is taken,132 to file as an

amendment, on or before June 30, 2002

and by June 30 every year thereafter,

proposed Exhibits F, H, and I, which

would be required to be up-to-date as of

the latest date practicable within three

months of the date the amendment was

filed,133 and to file, as an amendment to

its Form 1–N, on or before June 30, 2004

and by June 30 every three years

thereafter, complete Exhibits A, B, C,

and E, which would be required to be

up-to-date as of the latest date

practicable within three months of the

date the amendment was filed.134 The

conforming amendments to Rules 6a–2

and 6a–3 exclude respondents from the

requirements of these rules, and,

therefore, the Commission preliminarily

believes that there would be no costs

imposed on, nor benefits accruing to,

the respondents arising from the

proposed conforming amendments.

Finally, Rule 202.3 of the Commission’s

procedural rules provides that notice

forms for registration as a national

securities exchange filed with the

Commission are routed to the Division

of Market Regulation, and, therefore, the

Commission preliminarily believes that

there would be no costs imposed on, nor

benefits accruing to, the respondents

arising from the proposed conforming

amendment.

1. Benefits

The proposed rules provide for an

expedited filing process for a market to

become registered with the Commission

as a Security Futures Product Exchange

since Form 1–N is not an application

that requires an approval from the

Commission. Because an exchange

registering with the Commission

pursuant to Section 6(g) of the Exchange

Act 135 is also subject to the CFTC

application and reporting requirements,

the Form 1–N only requests limited

basic information. Therefore, the

Commission expects that the amount of

time required to complete the Form 1–

N to be one-third less than the amount

of time currently required to complete

the Form 1. Furthermore, pursuant to

Section 6(g)(2)(A) of the Exchange

Act,136 in those instances where the

exchange has filed information with the

CFTC, to the extent that such

documents contain information

satisfying the Commission’s

informational requirements, copies of

such documents could be filed with the

Commission in lieu of completing those

portions of the Form, therefore reducing

an exchange’s burden of compiling

information.137 Pursuant to Section

6(g)(2)(B) of the Exchange Act,138 such

notice registration will be effective

contemporaneously with the submission

of proposed Form 1–N, unless the

registration would be subject to

suspension or revocation by the CFTC.

The information provided by exchanges

filing proposed Form 1–Ns would be

required to be up-to-date as of 1 month

of the date of filing, which should

provide the exchanges with additional

flexibility in the preparation of the

required documents.

As a mechanism to further reduce the

filing burdens on Security Futures

Product Exchanges, the Commission is

proposing to allow such exchanges to

comply with the requirements for filing

amendments and supplemental

materials by maintaining the

information on an Internet web page

and providing the location of such web

site to the Commission.139 Instead of

filing amendments in paper form, a

Security Futures Product Exchange also

would be permitted to refer to materials

published by, or in cooperation with,

the exchange that contains the required

information or to make the information

available upon request at its office.140

Permitting respondents to use the

Internet as a means of compliance

should ease burdens by reducing

expenses associated with clerical time,

postage, and copying and increase the

speed, accuracy, and availability of

information beneficial to investors and

financial markets.

Furthermore, the Commission is

proposing to exempt a Security Futures

Product Exchange from filing the

required amendments for any affiliate or

subsidiary listed in proposed Exhibit C

of the exchange’s notice registration that

either is listed in Exhibit C to the form

for registration or notice registration of

one or more other national securities

exchanges, or was an inactive subsidiary

throughout the subsidiary’s latest fiscal

year.141 Proposed amendments to Rules

6a–2 and 6a–3 142 also would exempt

Security Futures Product Exchanges

from the ongoing filing requirements for

registered or exempted exchanges,

which file applications with the

Commission pursuant to Rule 6a–1.143

This would further reduce the filing

burdens placed on the Security Futures

Product Exchanges.

The Commission’s proposal also

should enhance the Commission’s

ability to oversee the exchanges trading

security futures products, which is

critical to the continued integrity of our

markets. The Commission believes that

its oversight, in conjunction with that of

the CFTC, over trading activities in

security futures products should benefit

the public and the markets generally by

helping to prevent fraud and

manipulation.

2. Costs

The proposed rules, forms, and

conforming amendments would require

the respondents to comply with the

initial notice and amendment

requirements, which would require

some effort to gather this information to

file with the Commission. Most of this

information, however, already exists

and is currently provided to the CFTC,

and the exchanges may provide copies

of existing documents provided to the

CFTC to the Commission in lieu of

completing the Form to the extent that

such documents contain information

satisfying the Commission’s

informational requirements.144

Therefore, the Commission

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules 26989

145See Paperwork Reduction Act discussion at

notes 105–108 and accompanying text.

146 17 CFR 240.6a–2 and 240.6a–3.

147Proposed Exchange Act Rule 6a–4(b)(1).

148Proposed Exchange Act Rule 6a–4(b)(2).

149Proposed Exchange Act Rule 6a–4(b)(3).

150See Paperwork Reduction Act discussion at

notes 105–108 and accompanying text.

151Proposed Exchange Act Rule 6a–4(c)(1)(i).

152Proposed Exchange Act Rule 6a–4(c)(2).

153See Paperwork Reduction Act discussion.

154Specifically, Sections 6(g)(4)(B) and 15A(k)(3)

of the Exchange Act, 15 U.S.C. 78f(g)(4)(B) and 15

U.S.C. 78o–3(k)(3)(B), require Security Futures

Product Exchanges and Limited Purpose National

Securities Associations to submit, pursuant to

Section 19(b)(7) of the Exchange Act, 15 U.S.C.

78s(b)(7), proposed rule changes that relate to

higher margin levels, fraud or manipulation,

recordkeeping, reporting, listing standards, or

decimal pricing for security futures products, sales

practices for security futures products for persons

who effect transactions in security futures products,

or rules effectuating such SRO’s obligation to

enforce the securities laws.

155 15 U.S.C. 78f(g)(4)(B)(ii) and 15 U.S.C. 78o–

3(k)(3)(B).

156 15 U.S.C. 78s(b)(7)(C).

157 15 U.S.C. 78s(b)(1).

158 7 U.S.C. 7a–2(c)

159See Paperwork Reduction Act, Section III.B.

160 15 U.S.C. 78s(b)(7)(C).

161 15 U.S.C. 78s(b)(1).

162See supra note.

preliminarily believes that the costs

incurred by the proposed rules and

forms have been minimized.

As discussed above, the Commission

estimates that the average paperwork

cost per initial registration would be

$3,000 for each respondent.145

The proposed amendments to Rules

6a–2 and 6a–3 146 would exclude

Security Futures Product Exchanges

from the ongoing collection of

information required by these rules.

However, Rule 6a–4 would impose

ongoing requirements on respondents.

Proposed Rule 6a–4 would require

respondents to provide periodic

amendments to their initial registration.

First, respondents would be required to

file amendments due to material

changes or new information filed on the

execution page or as part of Exhibits C,

E, F, or H of its proposed Form 1–N.147

Second, respondents would be required

to file amendments to, on or before June

30, 2002 and by June 30 every year

thereafter, proposed Exhibits F, H, and

I.148 Third, proposed Rule 6a–4 also

would require an exchange to file, as an

amendment to its proposed Form 1–N,

on or before June 30, 2004 and by June

30 every year thereafter, complete

Exhibits A, B, C, and E.149 As discussed

above, the Commission estimates that

the average paperwork cost for each

amendment and periodic update would

be $1,438.150

Much of the required information

would not change frequently, and the

option of posting information on an

Internet web site should encourage more

frequent updating of current

information and reduce the cost of filing

the amendments on paper.

Finally, paragraph (c) of proposed

Rule 6a–4 would require Security

Futures Product Exchanges to furnish to

the Commission copies of all materials

related to the trading of security futures

products (including notices, circulars,

bulletins, lists, and publications) issued

or made available to members of,

participants in or subscribers to, the

exchange.151 Exchanges would be

permitted to make the information

available on an Internet web site and

provide the Commission with the

location of the web site. Paragraph (c) of

proposed Rule 6a–4 also would require

Security Futures Product Exchanges to

file transaction reports within fifteen

days after the end of each calendar

month containing, for each security

futures product traded on such

exchange, the number of contracts

traded, and the type of security

underlying such contract. In addition, if

the futures contract were for a single

security, the exchange would be

required to report the total number of

shares underlying the contracts

traded.152 As discussed above, the

Commission estimates that each

respondent would incur an average

paperwork cost of $21 for each filing.153

B. Costs and Benefits of Proposed Rule

19b–7 and Form 19b–7 and Conforming

Amendments to Rule 19b–4 and Form

19b–4

Proposed Rule 19b–7 would require

the Commission to promptly publish

Security Futures Product Exchanges’

and Limited Purpose National Securities

Associations’ proposed rule changes

that were filed pursuant to Section

19(b)(7) of the Exchange Act 154 on

proposed Form 19b–7.

Pursuant to Sections 6(g)(4)(B)(ii) and

15A(k)(3)(B) of the Exchange Act,155 the

Commission is proposing to amend Rule

19b–4 to require Security Futures

Product Exchanges and Limited Purpose

National Securities Associations to file

proposed rule changes related to margin

(except for changes that result in higher

margin levels) under Rule 19b–4 and to

submit such margin changes on Form

19b–4. In addition, these amendments

to Rule 19b–4 and Form 19b–4 should

accommodate proposed rule changes

that have been abrogated pursuant to

Section 19(b)(7)(C) of the Exchange

Act 156 and refiled under Section

19(b)(1) of the Exchange Act.157

1. Benefits

Pursuant to the statutory mandate, the

Commission would not be approving

proposed rule changes submitted

pursuant to proposed Rule 19b–7.

Instead, a proposed rule change filed on

proposed Form 19b–7 would become

effective upon: (i) an exchange’s filing of

a written certification with the CFTC

under Section 5c(c) of the CEA; 158 (ii)

a determination by the CFTC that

review of the proposed rule change is

not necessary; or (iii) approval of the

proposed rule change by the CFTC.

The new rule and form and

amendments to existing rule and form

are designed to provide information

sufficient to permit interested persons to

submit meaningful comment on the

proposal and permit the Commission to

consider whether the proposal should

be abrogated because it unduly burdens

competition or efficiency, conflicts with

securities laws, or is inconsistent with

the public interest or the protection of

investors. These proposals should

enable the Commission to carry out its

statutorily-mandated oversight

functions, including ensuring that SROs

carry out their regulatory functions.

This process protects the integrity of the

markets, investors, and the public

interest.

Proposed rule changes filed with the

Commission would be required to be

filed concurrently with the CFTC.

However, although respondents must

file with two agencies, there would, in

effect, be only one effort in the

collection and compilation of

information.

2. Costs

The Commission believes that the

costs associated with filing rule changes

are predominately the paperwork costs.

As discussed above, the Commission

estimates that the average paperwork

cost per proposed rule change submitted

on Form 19b–7 would be $1,824.00.159

The Commission estimates each

respondent would file 15 proposed rule

changes per year and incur an annual

average burden of 247.5 hours for a total

annual average cost of $27,360.00. In

addition, the Commission estimates that

the average paperwork cost per

respondent to file proposed rule

changes that relate to margin, except for

changes that result in higher margin

levels, or that have been abrogated

pursuant to Section 19(b)(7)(C) of the

Exchange Act 160 and refiled under

Section 19(b)(1) of the Exchange Act,161

would be $3,660.00.162 In addition, the

Commission estimates that the time

associated with refiling an abrogated

26990 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

163 15 U.S.C. 78s(b)(7)(C).

164 15 U.S.C. 78s(b)(1).

165 15 U.S.C. 78c(f).

166 15 U.S.C. 78w(a)(2).

167 15 U.S.C. 78c(f).

168 15 U.S.C. 78w(a)(2).

169 5 U.S.C. 603(a).

170 5 U.S.C. 605(b).

171These matters are higher margin levels, fraud

or manipulation, recordkeeping, reporting, listing

standards, or decimal pricing for security futures

products, sales practices for security futures

products for persons who affect transactions in

security futures products, or rules effectuating the

obligation of Security Futures Product Exchanges

and Limited Purpose National Securities

Associations to enforce the securities laws. See 15

U.S.C. 78s(b)(7)(A).

19b–7 filing would delay the filing

process by 30 days.

C. Request for Comment

The Commission requests data to

quantify the costs and the value of the

benefits above. The Commission seeks

estimates of these costs and benefits, as

well as any costs and benefits not

already defined, which may result from

the adoption of these proposed rules,

forms, and conforming amendments.

The Commission requests comment

on the estimated number of respondents

that would be filing proposed Forms

1–N and 19b–7 and the costs and

benefits associated with complying with

proposed Rules 6a–4 and 19b–7. The

Commission specifically requests

comments on the recordkeeping costs

and data maintenance associated with

the proposals and whether these costs

would be significant.

The Commission requests comment

on the costs and benefits associated

with the Commission’s proposed

amendments to Rules 6a–2, 6a–3, and

19b–4.

The Commission also requests

comment on the costs and benefits of

filing Form 19b–4 for respondents’

proposed rule changes related to

margin, except for changes that result in

higher margin levels, and proposed rule

changes that have been abrogated

pursuant to Section 19(b)(7)(C) of the

Exchange Act 163 and refiled under

Section 19(b)(1) of the Exchange Act,164

including the accuracy of the

Commission’s estimates for the

additional time necessary to refile an

abrogated filing on Form 19b–4.

The Commission generally requests

comment on the competitive or

anticompetitive effects of the rules on

any market participants if the proposals

are adopted as proposed. The

Commission also requests comment on

what impact the proposals, if adopted,

would have on efficiency and capital

formation. Commenters should provide

analysis and empirical data to support

their views on the costs and benefits

associated with the proposal.

V. Consideration of the Burden on

Competition, and Promotion of

Efficiency, Competition and Capital

Formation

Section 3(f) of the Exchange Act 165

requires the Commission, whenever it is

engaged in rulemaking, and is required

to consider or determine whether an

action is necessary or appropriate in the

public interest, to consider whether the

action will promote efficiency,

competition, and capital formation. In

addition, Section 23(a)(2) of the

Exchange Act 166 requires the

Commission, when promulgating rules

under the Exchange Act, to consider the

impact any such rules would have on

competition. Section 23(a)(2) of the

Exchange Act further provides that the

Commission may not adopt a rule that

would impose a burden on competition

not necessary or appropriate in

furtherance of the purposes of the

Exchange Act.

The Commission has considered the

proposed rules in light of the standards

set forth in Sections 3(f) 167 and

23(a)(2) 168 of the Exchange Act. As

noted above, the CFMA amended the

Exchange Act and the CEA to allow

trading of security futures products and

to provide for joint regulation of the

markets for such products by the

Commission and the CFTC.

Accordingly, the Commission

preliminarily does not believe that the

information required by the proposed

rules and associated forms will create a

competitive imbalance between the

securities markets and the futures

markets. These filings of proposed rule

changes are specifically contemplated

by the Exchange Act, as amended by the

CFMA, and are designed to enable the

Commission to discharge its regulatory

responsibilities under the Exchange Act.

The Commission does not anticipate

that the requirement that these filings of

proposed rule changes be made on the

proposed forms pursuant to the

proposed rules would place any

unreasonable burden on competition.

The Commission solicits comments on

the impact of the proposed rules on

competition, including competition

between Security Futures Product

Exchanges and Limited Purpose

National Securities Associations, on the

one hand, and all other SROs, on the

other.

Although there are certain legal and

clerical costs involved in responding to

the collections of information set forth

in the proposed rules, the Commission

preliminarily believes that these

burdens are relatively small.

Commenters are invited to submit

comments on the effect of the proposed

rules on efficiency and capital

formation.

VI. Regulatory Flexibility Act

Certification

Section 3(a) of the Regulatory

Flexibility Act 169 requires the

Commission to undertake an initial

regulatory flexibility analysis of the

proposed rules on small entities unless

the Chairman certifies that the rule, if

adopted, would not have a significant

economic impact on a substantial

number of small entities.170 Proposed

Rule 6a–4 and proposed Form 1–N

would apply to Security Futures

Product Exchanges that list and trade

security futures products. Proposed

Rule 19b–7 and proposed Form 19b–7

would be used by these national

securities exchanges and Limited

Purpose National Securities

Associations that propose rule changes

that relate to certain matters.171 The

Commission believes there could be

seven Security Futures Product

Exchanges and one Limited Purpose

National Securities Association that

would be subject to the proposed rules,

none of which are small entities. The

Acting Chairman has certified that the

proposed rules, forms, and conforming

amendments, if adopted, would not

have a significant economic impact on

a substantial number of small entities. A

copy of the certification is attached as

Appendix A.

For purposes of the Small Business

Regulatory Enforcement Fairness Act of

1996, the Commission also is requesting

information regarding the potential

impact of the proposed rule on the

economy on an annual basis.

Commentators should provide empirical

data to support their views.

VII. Statutory Authority

The Commission is proposing the

rules pursuant to its authority under

Exchange Act Sections 3(b), 5, 6, 11,

11A, 17(a) and (b), 19, and 23(a).

List of Subjects

17 CFR Part 202

Administrative practice and

procedure, Securities.

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules 26991

17 CFR Part 240

Brokers-dealers, Fraud, Issuers,

Reporting and recordkeeping

requirements, Securities.

17 CFR Part 249

Reporting and recordkeeping

requirements, Securities.

Text of the Proposed Rules

For the reasons set out in the

preamble, Title 17, Chapter II of the

Code of Federal Regulations is proposed

to be amended as follows:

PART 202—INFORMAL AND OTHER

PROCEDURES

1. The authority citation for part 202

continues to read in part as follows:

Authority: 15 U.S.C. 77s, 77t, 78d–1, 78u,

78w, 78ll(d), 79r, 79t, 77sss, 77uuu, 80a–37,

80a–41, 80b–9, and 80b–11, unless otherwise

noted.

* * * * *

2. The authority citation following

§ 202.3 is removed.

3. Section 202.3 is amended by

adding paragraph (b)(3) to read as

follows:

§ 202.3 Processing of filings.

* * * * *

(b)(1) * * *

(3) Notice forms for registration as

national securities exchanges pursuant

to section 6(g)(1) of the Securities

Exchange Act of 1934 (15 U.S.C.

78f(g)(1)) filed with the Commission are

routed to the Division of Market

Regulation, which examines these

applications to determine whether all

necessary information has been

supplied and whether all other required

documents have been furnished in

proper form. Defective applications may

be returned with a request for correction

or held until corrected before being

accepted as a filing.

PART 240—GENERAL RULES AND

REGULATIONS, SECURITIES

EXCHANGE ACT OF 1934

4. The general authority citation for

part 240 is revised to read as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j,

77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,

77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,

78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,

78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 79q,

79t, 80a–20, 80a–23, 80a–29, 80a–37, 80b–3,

80b–4 and 80b–11, unless otherwise noted.

* * * * *

5. The authority citations following

§§ 240.6a–2 and 240.6a–3 are removed.

6. Section 240.6a–2 is amended by

revising paragraph (e) and adding

paragraph (f) to read as follows:

§ 240.6a–2 Amendments to application.

* * * * *

(e) The Commission may exempt a

national securities exchange, or an

exchange exempted from such

registration based on limited volume,

from filing the amendment required by

this section for any affiliate or

subsidiary listed in Exhibit C of the

exchange’s application for registration,

as amended, that either:

(1) Is listed in Exhibit C of the

application for registration or notice of

registration, as amended, of one or more

other national securities exchanges; or

(2) Was an inactive subsidiary

throughout the subsidiary’s latest fiscal

year. Any such exemption may be

granted upon terms and conditions the

Commission deems necessary or

appropriate in the public interest or for

the protection of investors, provided

however, that at least one national

securities exchange shall be required to

file the amendments required by this

section for an affiliate or subsidiary

described in paragraph (e)(1) of this

section.

(f) A national securities exchange

registered pursuant to Section 6(g)(1) of

the Act (15 U.S.C. 78f(g)(1)) shall be

exempt from the requirements of this

section.

7. Section 240.6a–3 is amended by

adding paragraph (c) to read as follows:

§ 240.6a–3 Supplemental material to be

filed by exchanges.

* * * * *

(c) A national securities exchange

registered pursuant to section 6(g)(1) of

the Act (15 U.S.C. 78f(g)(1)) shall be

exempt from the requirements of this

section.

8. Section 240.6a–4 is added to read

as follow:

§ 240.6a–4 Notice of registration under

section 6(g) of the Act, amendment to such

notice, and supplemental materials to be

filed by exchanges registered under Section

6(g) of the Act.

(a) Notice of registration. (1) An

exchange may register as a national

securities exchange solely for the

purposes of trading security futures

products by filing Form 1–N (§ 249.10 of

this chapter) (‘‘notice of registration’’),

in accordance with the instructions

contained therein, if:

(i) The exchange is a board of trade,

as that term in defined in the

Commodity Exchange Act (7 U.S.C.

1a(2)), that:

(A) Has been designated a contract

market by the Commodity Futures

Trading Commission and such

designation is not suspended by order of

the Commodity Futures Trading

Commission; or

(B) Is registered as a derivative

transaction execution facility under

section 5a of the Commodity Exchange

Act (7 U.S.C. 7a) and such registration

is not suspended by the Commodity

Futures Trading Commission; and

(ii) Such exchange does not serve as

a market place for transactions in

securities other than:

(A) Security futures products; or

(B) Futures on exempted securities or

on groups or indexes of securities or

options thereon that have been

authorized under section 2(a)(1)(C) of

the Commodity Exchange Act (7 U.S.C.

2a).

(2) Promptly after the discovery that

any information filed on Form 1–N

(§ 249.10 of this chapter) was inaccurate

when filed, the exchange shall file with

the Commission an amendment

correcting such inaccuracy.

(b) Amendment to notice of

registration. (1) A national securities

exchange registered pursuant to section

6(g)(1) of the Act (15 U.S.C. 78f(g)(1))

(‘‘Security Futures Product Exchange’’)

shall file an amendment to Form 1–N

(§ 249.10 of this chapter), which shall

set forth the nature and effective date of

the action taken and shall provide any

new information and correct any

information rendered inaccurate, on

Form 1–N (§ 249.10 of this chapter),

within 10 days after any action is taken

that renders inaccurate, or that causes to

be incomplete, any of the following:

(i) Information filed on the Execution

Page of Form 1–N (§ 249.10 of this

chapter), or amendment thereto; or

(ii) Information filed as part of

Exhibits C, E, F, or H to Form 1–N

(§ 249.10 of this chapter), or any

amendments thereto.

(2) On or before June 30, 2002 and by

June 30 every year thereafter, a Security

Futures Product Exchange shall file, as

an amendment to Form 1–N (§ 249.10 of

this chapter), Exhibits F, H, and I, which

shall be up to date as of the latest date

practicable within three months of the

date the amendment is filed.

(3) On or before June 30, 2004, and by

June 30 every three years thereafter, a

Security Futures Product Exchange shall

file, as an amendment to Form 1–N

(§ 249.10 of this chapter), complete

Exhibits A, B, C, and E. The information

filed under this paragraph (b)(3) shall be

current as of the latest practicable date,

but shall, at a minimum, be up to date

within three months as of the date the

amendment is filed.

(4)(i) If a Security Futures Product

Exchange, on an annual or more

frequent basis, publishes, or cooperates

in the publication of, any of the

information required to be filed by

paragraphs (b)(2) and (b)(3) of this

26992 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

section, in lieu of filing such

information, a Security Futures Product

Exchange may:

(A) Identify the publication in which

such information is available, the name,

address, and telephone number of the

person from whom such publication

may be obtained, and the price of such

publication; and

(B) Certify to the accuracy of such

information as of its publication date.

(ii) If a Security Futures Product

Exchange keeps the information

required under paragraphs (b)(2) and

(b)(3) of this section up to date and

makes it available to the Commission

and the public upon request, in lieu of

filing such information, a Security

Futures Product Exchange may certify

that the information is kept up to date

and is available to the Commission and

the public upon request.

(iii) If the information required to be

filed under paragraphs (b)(2) and (b)(3)

of this section is available continuously

on an Internet web site controlled by a

Security Futures Product Exchange, in

lieu of filing such information with the

Commission, such Security Futures

Product Exchange may:

(A) Indicate the location of the

Internet web site where such

information may be found; and

(B) Certify that the information

available at such location is accurate as

of its date.

(5) The Commission may exempt a

Security Futures Product Exchange from

filing the amendment required by this

section for any affiliate or subsidiary

listed in Exhibit C to Form 1–N

(§ 249.10 of this chapter), as amended,

that either:

(i) Is listed in Exhibit C to Form 1

(§ 249.1 of this chapter) or to Form 1–

N (§ 249.10 of this chapter), as amended,

of one or more other national securities

exchanges; or

(ii) Was an inactive subsidiary

throughout the subsidiary’s latest fiscal

year. Any such exemption may be

granted upon terms and conditions the

Commission deems necessary or

appropriate in the public interest or for

the protection of investors, provided

however, that at least one national

securities exchange shall be required to

file the amendments required by this

section for an affiliate or subsidiary

described in paragraph (b)(5)(i) of this

section.

(6) If such Security Futures Product

Exchange has filed documents with the

Commodity Futures Trading

Commission, to the extent that such

documents contain information

satisfying the Commission’s

informational requirements, copies of

such documents may be filed with the

Commission in lieu of the required

written notice.

(c) Supplemental material to be filed

by Security Futures Product Exchanges.

(1)(i) A national securities exchange

registered pursuant to section 6(g)(1) of

the Act (15 U.S.C. 78f(g)(1)) shall file

with the Commission any material

related to the trading of security futures

products (including notices, circulars,

bulletins, lists, and periodicals) issued

or made generally available to members

of, or participants or subscribers to, the

exchange. Such material shall be filed

with the Commission within ten days

after issuing or making such material

available to members, participants or

subscribers.

(ii) If the information required to be

filed under paragraph (c)(1)(i) of this

section is available continuously on an

Internet web site controlled by an

exchange, in lieu of filing such

information with the Commission, such

exchange may:

(A) Indicate the location of the

Internet web site where such

information may be found; and

(B) Certify that the information

available at such location is accurate as

of its date.

(2) Within fifteen days after the end

of each calendar month, a national

securities exchange registered pursuant

to section 6(g)(1) of the Act (15 U.S.C.

78f(g)(1)) shall file a report concerning

the security futures products traded on

such exchange during the calendar

month. Such report shall set forth:

(i) The number of contracts of sale for

future delivery of a single security and

the number of shares and type of

security underlying such contracts; and

(ii) The number of contracts of sale for

future delivery of a narrow-based

security index and the type of index

underlying such contracts.

9. Section 240.19b–4 is amended by

revising paragraph (a) to read as follows:

§ 240.19b–4 Filing with respect to

proposed rule changes by self-regulatory

organizations.

(a) Filings with respect to proposed

rule changes by a self-regulatory

organization, except filings with respect

to proposed rule changes by selfregulatory organizations submitted

pursuant to section 19(b)(7)(A) of the

Act (15 U.S.C. 78s(b)(7)(A)), shall be

made on Form 19b–4 (17 CFR 249.819).

* * * * *

10. Section 240.19b–7 is added to

read as follows:

§ 240.19b–7 Filings with respect to

proposed rule changes submitted pursuant

to section 19(b)(7) of the Act.

(a) Filings with respect to proposed

rule changes required to be submitted

pursuant to section 19(b)(7)(A) of the

Act (15 U.S.C. 78s(b)(7)(A)), shall be

made on Form 19b–7 (17 CFR 249.822).

The Commission will promptly publish

a notice of filing of such proposed rule

change.

(b) A proposed rule change will not be

deemed filed on the date it is received

by the Commission unless:

(1) A completed Form 19b–7 (17 CFR

249.822) is submitted; and

(2) In order to elicit meaningful

comment, it is accompanied by:

(i) A clear and accurate statement of

the basis and purpose of such rule

change, including the impact on

competition or efficiency, if any; and

(ii) A summary of any written

comments (including e-mail) received

by the self-regulatory organization on

the proposed rule change.

(c) The effectiveness of a proposed

rule change pursuant to section 19(b)(7)

of the Act (15 U.S.C. 78s(b)(7)) does not

create an inference of whether such

proposed rule change is in the public

interest, including whether it has an

impact on competition.

PART 249—FORMS, SECURITIES

EXCHANGE ACT OF 1934

11. The authority citation for Part 249

continues to read in part as follows:

Authority: 15 U.S.C. 78a, et seq., unless

otherwise noted;

* * * * *

12. Section 249.10 and Form 1–N are

added to read as follows:

Note: Form 1–N is attached as Appendix B

to this document. Form 1–N will not appear

in the Code of Federal Regulations.

§ 249.10 Form 1–N for notice registration

as a national securities exchange.

This form shall be used for notice,

and amendments to the notice, to permit

an exchange to register as a national

securities exchange solely for the

purposes of trading security futures

products pursuant to section 6(g) of the

Act (15 U.S.C. 78f(g)).

13. Section 249.819 is revised to read

as follows:

§ 249.819 Form 19b–4, for filings with

respect to proposed rule changes by all

self-regulatory organizations, pursuant to

section 19(b)(1) of the Securities Exchange

Act of 1934.

This form shall be used by all selfregulatory organizations, as defined in

section 3(a)(26) of the Securities

Exchange Act of 1934 (15 U.S.C.

78c(a)(26)), to file proposed rule

changes with the Commission pursuant

to section 19(b)(1) of that Act (15 U.S.C.

78s(b)(1)) and Rule 19b–4 (17 CFR

240.19b–4) thereunder.

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules 26993

14. Form 19b–4 (referenced in

§ 249.819) is amended by:

a. In General Instruction A, ‘‘Use of

the Form,’’ revise the first sentence;

b. In General Instruction C,

‘‘Documents Comprising the Completed

Form,’’ revise the last sentence;

c. In General Instruction E,

‘‘Completion of Action by the SelfRegulatory Organization on the

Proposed Rule Change,’’ revise the last

two sentences;

d. In General Instruction F, ‘‘Signature

and Filing of Completed Form,’’ revise

the first sentence;

e. In Information to Be Included in the

Completed Form, item 3 ‘‘SelfRegulatory Organization’s Statement of

the Purpose of, and Statutory Basis for,

the Proposed Rule Change,’’ revise the

second and third sentences of the

introductory text and paragraph (b);

f. In Information to Be Included in the

Completed Form revise item 6,

‘‘Extension of Time Period for

Commission Action;’

g. In Information to Be Included in the

Completed Form, item 7, ‘‘Basis for

Summary Effectiveness Pursuant to

Section 19(b)(3) or for Accelerated

Effectiveness Pursuant to Section

19(b)(2),’’ revise the title and paragraph

(d); and

h. In Exhibit 1, Information to Be

Included in the Completed Notice, add

two undesignated paragraphs to the end

of Item III, ‘‘Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action.’’

The revisions and additions read as

follows:

Note: Form 19b–4 and these amendments

do not appear in the Code of Federal

Regulations.

Form 19b–4

* * * * *

General Instructions

A. Use of the Form

This form shall be used for filings of

proposed rule changes by all selfregulatory organizations pursuant to

Section 19(b) of the Securities Exchange

Act of 1934 (the ‘‘Act’’) except filings

with respect to proposed rule changes

by self-regulatory organizations

submitted pursuant to Section

19(b)(7)(A) of the Act.* * *

* * * * *

C. Documents Comprising the

Completed Form

* * * Each filing shall be marked on

the facing sheet with the initials of the

self-regulatory organization, the fourdigit year, and the number of the filing

for the year.

* * * * *

E. Completion of Action by the SelfRegulatory Organization on the

Proposed Rule Change

* * * Nevertheless, proposed rule

changes (other than proposed rule

changes that are to take, or to be put

into, effect pursuant to Section 19(b)(3)

of the Act) may be initially filed before

the completion of all such action if the

self-regulatory organization consents,

under Item 6 of this form, to an

extension of the period of time specified

in Section 19(b)(2) or Section 19(b)(7)(D)

of the Act until at least thirty-five days

after the self-regulatory organization has

filed an appropriate amendment setting

forth the taking of all such action. If a

proposed rule change to be filed for

review under Section 19(b)(2) or Section

19(b)(7)(D) of the Act is in preliminary

form, the self-regulatory organization

may elect to file initially Exhibit 1

setting forth a description of the subjects

and issues expected to be involved.

F. Signature and Filing of the

Completed Form

Nine copies of Form 19b–4, nine

copies of Exhibit 1, four copies of

Exhibits 2 and 3, and two copies of

Exhibit 4 shall be filed with, in the case

of filings by securities exchanges, the

Assistant Director for Derivatives and

Exchange Oversight; in the case of

filings by securities associations or the

Municipal Securities Rulemaking Board,

the Assistant Director for NMS and

OTC; and in the case of filings by

clearing agencies, the Assistant Director

for Securities Processing, Division of

Market Regulation, Securities and

Exchange Commission, 450 Fifth Street,

NW., Washington, DC 20549–1001; in

the case of filings by securities

exchanges registered pursuant to

Section 6(g)(1) of the Act and national

securities associations registered

pursuant to Section 15A(k) of the Act,

the Assistant Director for Security

Futures Products, Division of Market

Regulation, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–1003.* * *

* * * * *

Information To Be Included in the

Completed Form

3. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

* * * With respect to proposed rule

changes filed pursuant to Section

19(b)(1) of the Act, except for proposed

rule changes that have been abrogated

pursuant to Section 19(b)(7)(C) of the

Act, the statement should be sufficiently

detailed and specific to support a

finding under Section 19(b)(2) of the Act

that the proposed rule change is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to the selfregulatory organization. With respect to

proposed rule changes filed pursuant to

Section 19(b)(1) of the Act that have

been abrogated pursuant to Section

19(b)(7)(C) of the Act, the statement

should be sufficiently detailed and

specific to support a finding under

Section 19(b)(7)(D) of the Act that the

proposed rule change does not unduly

burden competition or efficiency, does

not conflict with the securities laws,

and is not inconsistent with the public

interest or the protection of

investors.* * *

* * * * *

(b) With respect to proposed rule

changes filed pursuant to both Sections

19(b)(1) and 19(b)(2) of the Act, explain

why the proposed rule change is

consistent with the requirements of the

Act and the rules and regulations

thereunder applicable to the selfregulatory organization. A mere

assertion that the proposed rule change

is consistent with those requirements is

not sufficient. With respect to proposed

rule changes filed pursuant Section

19(b)(1) of the Act that have been

abrogated pursuant to Section

19(b)(7)(C) of the Act, explain why the

proposed rule change does not unduly

burden competition or efficiency, does

not conflict with the securities laws,

and is not inconsistent with the public

interest and the protection of investors,

in accordance with Section 19(b)(7)(D)

of the Act. A mere assertion that the

proposed rule change satisfies these

requirements is not sufficient. In the

case of a registered clearing agency, also

explain how the proposed rule change

will be implemented consistently with

the safeguarding of securities and funds

in its custody or control or for which it

is responsible. Certain limitations that

the Act imposes on self-regulatory

organizations are summarized in the

notes that follow.

* * * * *

6. Extension of Time for Commission

Action

State whether the self-regulatory

organization consents to an extension of

the time period specified in Section

19(b)(2) or Section 19(b)(7)(D) of the Act

and the duration of the extension, if

any, to which the self-regulatory

organization consents.

26994 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

Note: The self-regulatory organization may

elect to consent to an extension of the time

period specified in Section 19(b)(2) or

Section 19(b)(7)(D) of the Act until it shall

file an amendment which specifically states

that the time period specified in Section

19(b)(2) or Section 19(b)(7)(D) of the Act shall

begin to run on the date of filing such

amendment.

* * * * *

7. Basis for Summary Effectiveness

Pursuant to Section 19(b)(3) or for

Accelerated Effectiveness Pursuant to

Section 19(b)(2) or Section 19(b)(7)(D)

* * * * *

(d) If accelerated effectiveness

pursuant to Section 19(b)(2) or Section

19(b)(7)(D) of the Act is requested,

provide a statement explaining why

there is good cause for the Commission

to accelerate effectiveness.

* * * * *

Exhibit 1

* * * * *

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

* * * * *

(If the proposed rule change is to be

considered by the Commission pursuant

to Section 19(b)(7)(D) of the Act, the

following paragraph should be used.)

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 self-regulatory

organization consents, the Commission

will:

(A) By order approve such proposed

rule change, or

(B) After consultation with the

Commodity Futures Trading

Commission, institute proceedings to

determine whether the proposed rule

change should be disapproved.

* * * * *

15. Section 249.822 and Form 19b–7

are added to read as follows:

Note: Form 19b–7 is attached as Appendix

C to this document. Form 19b–7 will not

appear in the Code of Federal Regulations.

§ 249.822 Form 19b–7, for filings with

respect to proposed rule changes by all

self-regulatory organizations, pursuant to

section 19(b)(7)(A) of the Securities

Exchange Act of 1934.

This form shall be used by all selfregulatory organizations, as defined in

section 3(a)(26) of the Securities

Exchange Act of 1934 (15 U.S.C.

78c(a)(26)), to file proposed rule

changes with the Commission pursuant

to section 19(b)(7)(A) of that Act (15

U.S.C. 78s(b)(7)(A)) and Rule 19b–4 (17

CFR 240.19b–4) thereunder.

By the Commission.

Dated: May 8, 2001.

Margaret H. McFarland,

Deputy Secretary.

Appendix A

Note: Appendix A to the preamble will not

appear in the Code of Federal Regulations.

Regulatory Flexibility Act Certification

I, Laura S. Unger, Acting Chairman of the

Securities and Exchange Commission, hereby

certify pursuant to 5 U.S.C. § 605(b) that

proposed Rule 6a–4 and Form 1–N,

conforming amendments to Rules 6a–2 and

6a–3 under the Securities Exchange Act of

1934 (‘‘Exchange Act’’), and Rule 202.3 of the

Securities and Exchange Commission’s

procedural rules, which would provide for

the notice registration of designated contract

markets and derivative transaction execution

facilities as national securities exchanges

(‘‘Security Futures Product Exchanges’’) to

list and trade futures on individual stocks

and narrow-based stock indexes, would not

have a significant economic impact on a

substantial number of small entities.

Proposed Rule 19b–7, Form 19b–7, and

conforming amendments to Rule 19b–4 and

Form 19b–4 under the Exchange Act, which

propose procedures for the filing of proposed

rule changes, likely would apply to seven

Security Futures Product Exchanges and one

limited purpose national securities

association registered pursuant to Section

15A(k) of the Exchange Act, none of which

is a small entity for the purpose of the

Regulatory Flexibility Act. Accordingly, the

proposed rules, forms, and conforming

amendments, if adopted, would not have a

significant impact on a substantial number of

small entities.

Dated: May 8, 2001.

Laura S. Unger,

Acting Chairman.

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BILLING CODE 8010–01–C

General Instructions

When Should This Form Be Used?

This form must be used for filings of

proposed rule changes by all self-regulatory

organizations (‘‘SROs’’) that are required to

submit proposed rule changes pursuant to

Section 19(b)(7) of the Securities Exchange

Act of 1934 (‘‘Act’’). National securities

exchanges registered pursuant to Section

6(g), and national securities associations

registered pursuant to Section 15A(k) of the

Act, are SROs for purposes of this form.

Terms

Unless the context clearly indicates

otherwise, terms used in this form have the

meaning ascribed to them in the Act, as

amended, and Rule 19b–7 thereunder.

Format Requirements

The Notice section of this Form 19b–7

must comply with the guidelines for

publication in the Federal Register as well as

any requirements for electronic filing as

published by the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’) (if

applicable). The Office of the Federal

Register (‘‘OFR’’) [http://www.nara.gov/

fedreg] offers guidance on Federal Register

publication requirements in the Federal

Register Document Drafting Handbook,

October 1998 Revision. For example, all

references to the federal securities laws and

the Commodity Exchange Act must include

the corresponding cite to the United States

Code in a footnote. All references to SEC and

Commodity Futures Trading Commission

(‘‘CFTC’’) rules must include the

corresponding cite to the Code of Federal

Regulations in a footnote. All references to

Securities Exchange Act Releases and CFTC

decisions, orders or letters must include the

release number, release date, Federal

Register cite, Federal Register date, and

corresponding file number (e.g., SR–[SRO]–

Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules 27001

xxxx–xx). Failure to provide this information

will result in the proposed rule change being

deemed not properly filed. In addition, the

OFR’s Drafting Legal Documents is a general

style guide to clear and concise legal writing.

When Is a Proposed Rule Change Considered

Filed?

To be considered filed, an SRO must

include with its proposed rule change: a

completed Form 19b–7 that includes the

cover sheet, Notice, any written Certification

submitted to the CFTC pursuant to Section

5c(c) of the Commodity Exchange Act

(‘‘CFTC Certification’’), and applicable

Exhibits. The proposed rule change will be

considered filed on the date that the

Commission receives it if the filing complies

with all requirements of this form and the

requirements of Rule 19b–7. Any filing that

does not comply with all of the requirements

of this form will not be considered filed with

the Commission and will be returned to the

SRO.

The SRO must provide all required

information, presented in a clear and

comprehensible manner, to enable the public

to provide meaningful comment on the

proposal. This information also is necessary

for the Commission to determine whether

abrogation of the proposal is appropriate

because it unduly burdens competition or

efficiency, conflicts with the securities laws

or is inconsistent with the public interest and

the protection of investors. It is the

responsibility of the SRO to prepare Items I

and II of the Notice.

What Other Information Must an SRO

Include When Filing a Proposed Rule

Change?

Exhibit 1

(a) Copies of all notices issued by the SRO

soliciting comment on the proposed rule

change.

(b) Copies of all written comments on the

proposed rule change received by the SRO,

even if the SRO did not solicit comments. All

comments should be presented in

alphabetical order, together with an

alphabetical listing of the commenters.

(c) Any transcript of comments on the

proposed rule change made at any public

meeting or, if a transcript is not available, a

summary of comments on the proposed rule

change made at any meeting.

(d) Any correspondence or other

communications reduced to writing

(including comment letters and e-mails)

concerning the proposed rule change

prepared or received by the SRO. All

correspondence or other communications

should be presented in alphabetical order

together with an alphabetical listing of the

authors.

(e) If after the proposed rule change is filed

but before the Commission takes final action

on it, the SRO prepares or receives any

correspondence or other communications

reduced to writing (including comment

letters and e-mails) concerning the proposed

rule change, copies of the communications

must be filed as previously instructed in

paragraph (b) above.

Exhibit 2

Copies of any form, report, or

questionnaire that the SRO proposes to use

to help implement or operate the proposed

rule change, or that is referred to by the

proposed rule change.

What To Do if There Is an Amendment to the

Proposed Rule Change?

If information on the Form 19b–7, the

CFTC Certification, the Notice, or any

applicable Exhibit is or becomes inaccurate

or incomplete before the proposed rule

change becomes effective, the SRO must file

correcting amendments. Nine copies of

amendments, including one manually signed

copy, must be provided. SROs may file

amendments electronically in accordance

with Commission instructions.

If an amendment alters the text of the

proposed rule change as it appeared prior to

the amendment, the amendment must mark

the text, in any convenient manner, to

indicate additions to and deletions from the

immediately preceding filing. The purpose of

this requirement is to permit the staff to

immediately identify any changes made to

the previous version of the rule text.

Where and How To File

Nine copies of Form 19b–7 and all

applicable exhibits must be filed with the

Office of Market Supervision, Division of

Market Regulation, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington D.C. 20549–1003. The chief

executive officer, general counsel, or other

officer or director of the SRO that exercises

similar authority must manually sign at least

one copy of the completed Form 19b–7. The

form also may be filed electronically with the

Commission in compliance with such

guidelines as may be published by the

Commission from time to time. Please note

that any information filed by the SRO

requesting confidential treatment must be

filed on paper with the Commission.

BILLING CODE 8010–01–P

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BILLING CODE 8010–01–C

27004 Federal Register / Vol. 66, No. 94 / Tuesday, May 15, 2001 / Proposed Rules

2 15 U.S.C. 78s(b)(7).

3 17 CFR 240.19b–7.

4To be completed by the Commission. This date

will be the date on which the Commission receives

the proposed rule change filing if the filing

complies with all requirements of this form. See

General Instructions.

5 15 U.S.C. 78s(b)(7)(B).

Form 19b–7 Notice

Securities and Exchange Commission

(Release No. 34–lll; File No. SR–lll)

Self-Regulatory Organization; [Notice of

Filing and Immediate Effectiveness of a]

Proposed Rule Change by [Name of SelfRegulatory Organization] Relating to [Brief

Description of Proposed Rule Change]

Pursuant to section 19(b)(7) of the

Securities Exchange Act of 1934 (‘‘Act’’),2

and Rule 19b–7 under the Act,3 notice is

hereby given that on [date4], the [name of

self-regulatory organization] filed with the

Securities and Exchange Commission (‘‘SEC’’

or ‘‘Commission’’) the proposed rule change

described in Items I and II below, which

Items have been prepared by the selfregulatory organization. The Commission is

publishing this notice to solicit comments on

the proposed rule change from interested

persons. [Self-regulatory organization] has

filed the proposed rule change with the

Commodity Futures Trading Commission

(‘‘CFTC’’).

Section 19(b)(7)(B) provides that a

proposed rule change may take effect upon

the occurrence of one of three events. The

self-regulatory organization should include

the following sentence, if applicable.

Pursuant to section 19(b)(7)(B) of the Act,5

the [self-regulatory organization] filed a

written certification with the CFTC under

Section 5c(c) of the Commodity Exchange

Act on [date].

I. Self-Regulatory Organization’s Description

of the Proposed Rule Change

(Supply a brief statement of the terms of

substance of the proposed rule change. If the

proposed rule change is relatively brief, a

separate statement need not be prepared, and

the text of the proposed rule change may be

inserted in lieu of the statement of the terms

of substance. If the proposed rule change

amends an existing rule, indicate the changes

in the rule by brackets for words to be

deleted and underscoring for words to be

added.)

II. Self-Regulatory Organization’s Statement

of the Purpose of, and Statutory Basis for,

the Proposed Rule Change

[Self-regulatory organization] has prepared

statements concerning the purpose of, and

basis for, the proposed rule change, burdens

on competition, and comments received from

members, participants, and others. These

statements are set forth in Sections A, B, and

C below. Section D below sets forth the text

of the proposed rule change.

A. Self-Regulatory Organization’s Statement

of the Purpose of, and Statutory Basis for, the

Proposed Rule Change

1. Purpose

Provide a statement of the purpose of the

proposed rule. The statement must:

• Describe the text of the proposed rule

change in a sufficiently detailed and specific

manner as to permit interested persons to

submit comments; 

• Describe the reasons for adopting the

proposed rule change, any problems the

proposed rule change is intended to address,

the manner in which the proposed rule

change will resolve those problems, the

manner in which the proposed rule change

will affect various market participants, and

any significant problems known to the selfregulatory organization that persons affected

are likely to have in complying with the

proposed rule change; 

• Describe how the proposed rule change

relates to existing rules of the self-regulatory

organization; 

• Describe how the proposed rule change

relates to any applicable provisions of the

federal securities laws and the rules and

regulations thereunder; 

• Identify rules of the self-regulatory

organization and provisions of the federal

securities laws that the self-regulatory

organization reasonably expects the

proposed rule change to affect and describe

the anticipated effect of the proposed rule

change on each applicable provision of the

federal securities laws and applicable rules

of the self-regulatory organization; and

• Set forth the file numbers and the

Commission Release number, the Federal

Register citation, and other identifying

information for prior filings relating to the

affected rule and disclose any prior CFTC

order or release impacting the proposed rule

change. 

2. Statutory Basis

• Provide a statement of the proposed rule

change’s basis under the Act and the rules

and regulations under the Act applicable to

the self-regulatory organization.

B. Self-Regulatory Organization’s Statement

on Burden on Competition

The information required by this section

must be sufficiently detailed and specific to

support the premise that the proposed rule

change does not unduly burden competition.

In responding to this section, the selfregulatory organization must:

• State whether the proposed rule change

will impose or relieve any burden on, or

promote, competition; 

• Specify the particular categories of

persons and kinds of businesses that will be

burdened and the ways in which the

proposed rule change will affect them; 

• Set forth and respond in detail to written

comments addressing significant impacts or

burdens on competition; and 

• Explain why any burden on competition

is not undue; or, if the self-regulatory

organization does not believe that the burden

on competition is significant, explain why. 

C. Self-Regulatory Organization’s Statement

on Comments on the Proposed Rule Change

Received from Members, Participants, or

Others

State whether or not comments were

solicited or received. Summarize all

comments received (solicited or unsolicited)

and respond in detail to any significant

issues raised about the proposed rule change.

If an issue is summarized and responded

to in detail elsewhere in this notice, that

response need not be duplicated if an

appropriate cross-reference is made to the

place where the response can be found.

D. Text of the Proposed Rule Change

Insert text of the proposed rule change,

with deletions in brackets and additions

underlined. If the self-regulatory organization

is amending only part of the text of a lengthy

rule, it may file only those portions of the

text being amended if the filing is clearly

understandable on its face.

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6To be completed by the Federal Register.

7 17 CFR 200.30–3(a)(12).

III. Date of Effectiveness of the Proposed

Rule Change and Timing for Commission

Action

The self-regulatory organization shall

include the following, if applicable:

The proposed rule change has become

effective on [insert date of filing of written

certification with the CFTC under Section

5c(c) of the Commodity Exchange Act].

Within 60 days of the date of effectiveness

of the proposed rule change, the

Commission, after consultation with the

CFTC, may summarily abrogate the proposed

rule change and require that the proposed

rule change be refiled in accordance with the

provisions of Section 19(b)(1) of the Act.

IV. Solicitation of Comments

Interested persons are invited to submit

written data, views and arguments

concerning the foregoing, including whether

the proposed rule change conflicts with the

Act. Persons making written submissions

should file nine copies of the submission

with the Secretary, Securities and Exhange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. Comments also

may be submitted electronically to the

following e-mail address: rulecomments@sec.gov. 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 these filings will

also be available for inspection and copying

at the principal office of the [name of selfregulatory organization]. Electronically

submitted comments will be posted on the

Commission’s Internet website (http://

www.sec.gov). All submissions should refer

to File No. [insert file number] and should be

submitted by [insert date 21 days from date

of publication in the Federal Register 6.

This Notice was prepared by the [insert

name of self-regulatory organization.] The

Commission has not reviewed the substance

of the proposed rule change prior to

publication.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

[Insert name of Secretary],

Secretary.

[FR Doc. 01–12131 Filed 5–14–01; 8:45 am]

BILLING CODE 8010–01–P ′