29196 Federal Register / Vol. 66, No. 103 / Tuesday, May 29, 2001 / Notices

14 15 U.S.C. 78f(b)(5). 15See supra note 5. 16 In approving this rule, the Commission notes

that it has also considered the proposed rule’s

impact on efficiency, competition, and capital

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

17See supra note 5.

18 ISG was formed on July 14, 1983, to, among

other things, coordinate more effectively

surveillance and investigative information sharing

arrangements in the stock and options markets.

19See supra note 5.

20The Commission also notes that the ISE will

file a proposed rule change to amend its margin

rules, if necessary. See Amendment No. 1, supra

note 3.

21 15 U.S.C. 78s(b)(2).

22See supra note 5.

23 15 U.S.C. 78f(b)(5).

24 15 U.S.C. 78s(b)(2).

25 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 43928

(February 5, 2001), 66 FR 9737.

4See letter to the Secretary, SEC, from the Ad Hoc

Committee for Small Firm Financial and

Operational Responsibility (‘‘Ad Hoc Committee’’),

dated March 2, 2001 (‘‘Ad Hoc Committee Letter’’).

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to the File No.

SR–ISE–2001–11 and should be

submitted by June 19, 2001.

IV. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Change

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and in particular, with the

requirements of Section 6(b)(5).14 The

Commission notes that it has previously

approved similar listing standards

proposed by the Amex, CBOE, and PCX

for options on trust issued receipts, and

it believes that the ISE’s proposal

contains adequate safeguards, matching

those previously approved.15 As the

Commission found in its previous

approvals of the listing standards

proposed by the other exchanges, the

listing and trading of options should

give investors a better means to hedge

their positions in the underlying trust

issued receipts. The Commission also

believes that pricing of the underlying

trust issued receipts may become more

efficient, and market makers in these

shares, by virtue of enhanced hedging

opportunities, may be able to provide

deeper and more liquid markets. In sum,

the Commission believes that options on

trust issued receipts likely will

engender the same benefits to investors

and the marketplace that exist with

respect to options on common stock,

thereby serving to promote the public

interest, to remove impediments to a

free and open securities market, and to

promote efficiency, competition, and

capital formation.16

The Commission finds that the

Exchange’s listing and delisting criteria

for options on trust issued receipts are

adequate. The proposed listing and

maintenance requirements should

ensure that there exist adequate

supplies of the underlying trust issued

receipts in case of the exercise of an

option, and a minimum level of

liquidity to control against

manipulation and to allow for the

maintenance of fair and orderly markets.

The ISE’s additional requirements for

opening additional series of options on

HOLDRs will also ensure that the

underlying securities are options

eligible, and for the most part will

satisfy minimum thresholds previously

approved by the Commission.

The Commission also believes that the

surveillance standards developed by the

ISE for options on trust issued receipts

are adequate to address the concerns

associated with the listing and trading

of such securities. The ISE’s proposal to

limit the weight of the portfolio that

may be composed of ADRs whose

primary markets are in countries that

are not subject to comprehensive

surveillance agreements is similar to

that previously approved by the

Commission.17 As to domestically

traded trust issued receipts themselves

and the domestic stocks in the

underlying portfolio, the Intermarket

Surveillance Group (‘‘ISG’’) Agreement

will be applicable to the trading of

options on trust issued receipts.18

Finally, the Commission believes that

the ISE’s proposed margin requirements,

which mirror those of the CBOE, are

appropriate.19 The Commission notes

that they are comparable to margin

requirements that currently apply to

broad-based and narrow-based index

options, and to those previously

approved for use at the Amex, CBOE,

and PCX.20

The Commission finds good cause for

approving the proposed rule change

(SR–ISE–2001–11) prior to the thirtieth

day after the date of publication of

notice thereof in the Federal Register

under Section 19(b)(2) of the Act.21 As

noted above, the trading requirement for

options on trust issued receipts at the

ISE will be substantially similar to those

at the Amex, CBOE, and PCX, which the

Commission has approved.22 The

Commission does not believe that the

proposed rule change raises novel

regulatory issues that were not already

addressed and should benefit holders of

trust issued receipts by permitting them

to use options to manage the risks of

their positions in the receipts.

Accordingly, the Commission finds that

there is good cause, consistent with

Section 6(b)(5) of the Act,23 to approve

the proposal on an accelerated basis.

V. Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,24 that the

proposed rule change (SR–ISE–2001–11)

is hereby approved on an accelerated

basis.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.25

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–13325 Filed 5–25–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44332; File No. SR–NASD–

00–77]

Self-Regulatory Organizations; Order

Approving Proposed Rule Change by

the National Association of Securities

Dealers, Inc. Relating to Registration

Requirements for Limited PrincipalsFinancial and Operations and Limited

Principals-Introducing Broker/Dealer

Financial and Operations

May 21, 2001.

I. Introduction

On December 20, 2000, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’), through its subsidiary,

NASD Regulation, Inc. (‘‘NASD

Regulation’’) filed with the Securities

and Exchange Commission

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

rule change pursuant to section 19(b)(1)

of the Securities Exchange Act of 1934

(‘‘Exchange Act’’) 1 and Rule 19b–4

thereunder.2 The proposal amends

NASD Rule 1022(b), ‘‘Limited

Principal—Financial and Operations’’

(‘‘FINOP’’), NASD Rule 1022(c),

‘‘Limited Principal—Introduction

Broker/Dealer Financial and

Operations’’ (‘‘Introducing FINOP’’),

and NASD Rule 9610, ‘‘Procedures for

Exemptions.’’ Notice of the proposed

rule change was published for comment

in the Federal Register on February 9,

2001.3 The Commission received one

comment letter regarding the proposal.4

This order approves the proposed rule

change.

Federal Register / Vol. 66, No. 103 / Tuesday, May 29, 2001 / Notices 29197

5 17 CFR 240.15c3–1. 6 17 CFR 240.15c3–1(a)(1)(ii) and (a)(2)(i).

7 17 CFR 240.15c3–1(a)(8).

8Only individuals who qualified as ‘‘Financial

Principals’’ before the establishment of the Series

27 examination were grandfathered as FINOPs and

were not required to take either of the

examinations.

9Telephone conversation between Shirley Weiss,

Attorney, NASD Regulation, and Andrew Shipe,

Attorney, Division of Market Regulation, SEC, on

January 11, 2001.

10See Ad Hoc Committee Letter, supra, note 4.

According to the Ad Hoc Committee Letter, the Ad

Hoc Committee, whose members perform financial

and operational services for NASD members, was

formed solely to respond to the NASD’s proposal.

The organization comprising the Ad Hoc Committee

are: Buchanan Associates, Cogent Management,

Inc., Integrated Management Solutions, JRS

Financial Services, LLC, Hagan and Burns, CPAs,

and MGL Consulting Corporation.

11See Letter to England, Assistant Director,

Division of Market Regulation, SEC, from Shirley

Weiss, Associated General Counsel, NASD

Regulation (‘‘NASD Regulation Letter’’).

12See Ad Hoc Committee Letter, supra, note. 4.

13See NASD Regulation Letter, supra, note 11.

14 In approving the proposal, the Commission has

considered the rule’s impact on efficiency,

competition, and capital formation. 15 U.S.C. 78c(f).

15 15 U.S.C. 78o(b)(6).

16 17 CFR 240.15c3–1(a)(1)(ii), (a)(2)(i), and (a)(8).

II. Description of the Proposed Rule

Change

NASD Rules 1022(b) and 1022(c) set

forth registration requirements for

FINOPs and Introducing FINOPs. NASD

Regulation proposes to amend NASD

Rules 1022(b) and 1022(c) to clarify

their applicability to NASD members by

making citations in them consistent

with Rule 15c3–1 under the Exchange

Act.5 Specifically, the proposed

amendments to NASD Rule 1022(b)

clarify that every broker or dealer

operating pursuant to Exchange Act

Rule 15c3–1(a)(1)(ii) or (a)(2)(i) 6 (both

of which subject brokers or dealers to a

minimum net capital requirement of

$250,000), or Exchange Act Rule 15c3–

1(a)(8) 7 (which subjects municipal

securities brokers’ brokers to a

minimum $150,000 net capital

requirement) must have a FINOP. The

proposed amendments to NASD Rule

1022(c) clarify that all other brokers or

dealers subject to Exchange Act Rule

15c3–1 must have at least one

associated person registered as an

Introducing FINOP.

FINOPs must pass the Series 27

Principal Examination and Introducing

FINOPs must pass the Series 28

Principal Examination. NASD Rule

1022(c) currently provides that a person

qualified as a Series 27 FINOP is not

required to take the Series 28

Examination if he or she is employed as

an Introducing FINOP. NASD

Regulation proposes to make a technical

correction to NASD Rule 1022(c)(3) by

adding a reference to paragraph (b)(2) of

NASD Rule 1022, which defines the

term ‘‘Limited Principal—Financial and

Operations.’’

NASD Regulation also proposed to

eliminate the ability of members subject

to Exchange Act Rule 15c3–1 to request

exemptions from the requirement to

have a FINOP by amending NASD Rule

1022(b) and by striking NASD Rule 1022

from the list of rules in NASD Rule

9610(a) from which members may seek

exemptive relief. Although firms subject

to Exchange Act Rule 15c3–1 will be

required to have a FINOP, they may

continue to seek exam waivers for

qualified individuals pursuant to

paragraph (e) of NASD Rule 1070,

‘‘Qualification Examination and Waiver

of Requirements.’’

The proposed changes to NASD Rules

1022(b) and 1022(c) also makes clear

that the requirements to have a FINOP

or Introducing FINOP applies only to

firms that are subject to Exchange Act

Rule 15c3–1. Members that are exempt

from or otherwise not subject to

Exchange Act Rule 15c3–1 will no

longer be subject to NASD Rules 1022(b)

and 1022(c), and will not need to seek

exemptive relief from them.

The proposed changes will not affect

individuals who currently are

grandfather for the Series 27 or Series 28

Examinations because they are

considered to possess the license for

which they were grandfathered.8 In

addition, firms that currently are the

subject of a FINOP waiver will not be

subject to the proposed rule changes.9

Finally, NASD Regulation proposes to

amend NASD Rule 9610(a) to clarify

that the NASD Rule 9600 ‘‘Procedures

for Exemptions’’ series merely sets forth

procedures for seeking exemptive relief

and that the type of relief that may be

requested, and the authority to grant it,

is found in the rules listed in NASD

Rule 9610(a).

III. Summary of Comments

The Commission received one

comment letter regarding the proposed

rule change.10 NASD Regulation

responded to this commenter in a letter

dated April 9, 2001.11

The Ad Hoc Committee opposed the

proposal. Specifically, the Ad Hoc

Committee asserted that certain limited

function broker-dealers, including

broker-dealers that the Ad Hoc

Committee identified as ‘‘private

placement and mutual fund firms’’ do

not required a registered FINOP. In

addition, the Ad Hoc Committee

maintained that the proposal would

place new limited function brokerdealers at a competitive disadvantage to

established NASD members operating

under a FINOP waiver. The Ad Hoc

Committee also suggested that some

managerial employees of limited

function broker-dealers might lack

expertise in financial and operational

matters, even after passing the requisite

examinations, and that the outsourcing

of such functions was appropriate for

these broker-dealers.12

In its response, NASD Regulation

asserted that compliance with net

capital and other financial operational

rules is not dependent on the size of a

firm’s business. NASD Regulation also

stated that it did not believe that new

firms which will be required to employ

a registered FINOP will be at a

competitive disadvantage because they

will continue to be able to employ

FINOPs on a part-time or outsourced

basis, although the proposed changes

will require such personnel to register

as FINOPs. Finally, in response to the

Ad Hoc Committee’s concerns about the

qualifications of some employees of

broker-dealers to function as FINOPs,

NASD Regulation asserted that any

person who passes the Series 27 or 28

is qualified to act as a FINOP or

Introducing FINOP, respectively.13

IV. Discussion

After careful review, the Commission

finds that the proposed rule change is

consistent with the Act and the rules

and regulation thereunder applicable to

a national securities association.14 The

Commission finds that the proposal is

consistent with the requirements of

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

requires that the rules of a registered

national securities association be

designed to prevent fraudulent and

manipulative acts and practices, to

promote just and equitable principles of

trade, to foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, processing

information with respect to, and

facilitating transactions in securities, to

remove impediments to and perfect the

mechanism of a free and open market

and a national market system, and, in

general, to protect investors and the

public interest.

As discussed more fully above, NASD

Regulation proposes to amend NASD

Rules 1022(b) and (c) to provide that

every broker or dealer operating

pursuant to the provisions of Exchange

Act Rule 15c3–1(a)(1)(ii), (a)(2)(i), or

(a)(8) 16 must have at least one FINOP,

and that all other brokers or dealers

subject to the requirements of Exchange

Act Rule 15c3–1 must have at least one

Introducing FINOP. FINOPs and

Introducing FINOPS must be registered

with the NASD. NASD Regulation also

29198 Federal Register / Vol. 66, No. 103 / Tuesday, May 29, 2001 / Notices

17See NASD Regulation Letter, supra, note 11.

18 15 U.S.C. 78s(b)(2).

19 17 CFR 200.30–3(a)(12).

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

2Securities Exchange Act Release No. 44032

(March 3, 2001), 66 FR 14237. 3 15 U.S.C. 78q–1(b)(3)(F).

proposes to eliminate the ability of

members subject to Exchange Act Rule

15c3–1 to request an exemption from

the requirements, and to strike NASD

Rule 1022 from the list of rules in NASD

Rule 9610(a) from which a member may

seek exemptive relief. NASD members

that are exempt from or otherwise not

subject to Exchange Act Rule 15c3–1

would not be subject to the

requirements of either NASD Rule

1022(b) or 1022(c) and thus no longer

required to seek exemptive relief from

them.

The Commission believes that the

proposed changes are consistent with

the Act and the rules and regulations

thereunder. Specifically, the

Commission believes that the proposal

to identify the classes of brokers or

dealers that are required to designate a

FINOP or an Introducing FINOP will

protect investors and the public interest

by helping to ensure that the financial

and operations personnel of brokerdealers subject to Exchange Act Rule

15c3–1 have the training and

competence needed to ensure the

member’s compliance with applicable

net capital, recordkeeping and other

financial and operational rules.

With regard to the Ad Hoc

Committee’s contention that the

proposal should not apply to certain

limited function broker-dealers, the

Commission agrees with NASD

Regulation’s assertion that compliance

with the Commission’s net capital and

other financial and operational rules

does not depend on the size of a brokerdealer’s business.17 As noted above, the

Commission believes the proposal will

help to ensure NASD members’

compliance with applicable net capital,

recordkeeping, and other financial and

operational rules. In addition, the

Commission does not believe that the

proposal will create a significant

competitive disadvantage for new

limited function broker-dealers who

will be required to register a FINOP or

an Introducing FINOP. In this regard,

the Commission notes that a limited

function broker-dealer will be able to

employ a FINOP or an introducing

FINOP on a part-time basis.

The Commission finds that the

proposed changes to NASD Rule 9610(a)

are consistent with the Act because they

clarify NASD Rule 9610(a). Specifically,

the amendments to NASD Rule 9610(a)

clarify that the Rule 9600 Series merely

sets forth procedures for seeking

exemptive relief, and that the type of

relief that may be requested, and the

authority to grant it, is found in the

rules listed in NASD Rule 9610(a). In

addition, the amendments to NASD

Rule 9610(a) make NASD Rule 9610(a)

consistent with NASD Rule 1022, as

amended, by deleting NASD Rule 1022

from the list of rules from which a

member may seek exemptive relief.

Finally, the Commission finds that the

proposal to amend NASD Rule

1022(c)(3) by adding a reference to

paragraph (b)(2) of NASD Rule 1022 is

consistent with the Act because it will

help to clarify the application of NASD

Rule 1022(c)(3).

V. Conclusion

For the foregoing reasons, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and the rules

and regulations thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,18 that the

proposed rule change (SR–NASD–00–

77) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.19

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–13329 Filed 5–25–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44322; File No. SR–NSCC–

00–09]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Order Approving a

Proposed Rule Change Relating to

Processing Certain Securities

Undergoing Reorganization

May 18, 2001.

On July 12, 2000, the National

Securities Clearing Corporation

(‘‘NSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

a proposed rule change (File No. SR–

NSCC–00–09) pursuant to section

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

of 1934 (‘‘Act’’).1 Notice of the proposal

was published in the Federal Register

on March 9, 2001.2 No comment letters

were received. For the reasons

discussed below, the Commission is

approving the proposed rule change.

I. Description

NSCC’s rules permit NSCC to

continue to process certain securities

undergoing reorganization or issuing

dividends and specify how NSCC shall

handle those issues. However, not all

types of reorganizations or dividends fit

the procedures specifically set forth in

the rules. Ordinarily, this would require

that the affected security be exited from

the applicable system. Exiting the

affected security from the applicable

system poses a burden on the financial

investment community when the issue

is widely traded.

The proposed rule change modifies

NSCC’s Rules and Procedures to give

NSCC the flexibility to process in the

continuous net settlement (‘‘CNS’’),

balance order, or other related system,

on an exception basis, securities that

would not otherwise have been eligible

for processing to the extent NSCC has

the capability to do so. The proposed

rule change provides that in such

circumstance, NSCC would issue a

notice to its members setting forth how

NSCC would process the security.

II. Discussion

The Commission finds that the

proposed rule change is consistent with

the requirements of the Act and the

rules and regulations thereunder and

particularly with the requirements of

Section 17A(b)(3)(F).3 Section

17A(b)(3)(F) requires that the rules of a

clearing agency be designed to promote

the prompt and accurate clearance and

settlement of securities transactions.

The Commission believes that NSCC’s

rule change meets this standard because

the proposed rule change allows NSCC

to process otherwise ineligible securities

in NSCC’s CNS system, balance order,

or other related system, on an exception

basis. By providing a means whereby

these securities, which previously

would not have been eligible for

processing through NSCC, can be

processed through and receive the

benefits of NSCC’s highly automated

systems, the proposed rule change

facilitates the prompt and accurate

clearance and settlement of such

securities transactions.

III. Conclusion

On the basis of the foregoing, the

Commission finds that the proposal is

consistent with the requirements of the

Act and in particular with the

requirements of Section 17A(b)(3)(F) of

the Act and the rules and regulations

thereunder.

It is therefore ordered, pursuant to

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

proposed rule change (File No. SR–

NSCC–00–09) be an hereby is approved.