830 Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices

5The AGU transaction is currently charged the

ACT ‘‘Comparison’’ fee because it uses the ACT

Comparison functionality. See footnote 4, supra.

6 15 U.S.C. 78o–3(b)(6).

7 15 U.S.C. 78s(b)(3)(A)(ii).

8 17 CFR 240.19b–4(f)(2).

9 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

between six and twelve input and

output messages. The use of the AGU

reduces that number by as much as 50

percent. Based upon this reduction in

system usage and the increased benefits

to market participants, Nasdaq proposes

to reduce the ‘‘Comparison’’ fee

associated with AGU transactions from

$.0144 per 100 share block to $.01 per

100 share block for trades of between

400 and 7,500 shares.5 This represents

a substantial savings to market

participants and to investors.

ACT Corrective Transactions Fee.

Market participants are required to

correct trade reports that are inaccurate

using one of five ACT functions; Cancel,

Error, Inhibit, Kill, No/Was, Decline, or

Break (collectively, ‘‘Corrective

Transactions’’). Corrective Transactions

utilize the comparison functionality of

ACT, in that the system is required to

identify a particular trade and perform

an operation that matches the conduct

of the contra parties to the transaction.

In fact, these transactions consume

system capacity and staff resources

disproportionate to those required for

standard reporting transactions, and

disproportionate to the fee imposed for

standard comparison functions.

Currently, Nasdaq assesses the standard

comparison fee to such transactions.

Along with the rapid growth of

Nasdaq daily trading volume, the

number of Corrective Transactions is

increasing rapidly, unbalancing the

proper allocation of system costs to

users of system functionality.

Accordingly, Nasdaq proposes

implementing a $0.25 fee charged to the

reporting party for Cancel, Error, Inhibit,

Kill, and the ‘‘No’’ portion of ‘‘No/Was’’

trades, as well as a $0.25 fee per side for

Break and Decline transactions. The fee

is designed to cover a portion of the

costs of processing Corrective

Transactions that have not previously

been charged to market participants.

The proposed fee would discourage the

unnecessary entry of Corrective

Transactions, such as the practice of

canceling a number of individual trades

and re-entering a single bunched trade

to avoid ACt fees. Nasdaq notes that

numerous self-regulatory organizations

already impose comparable fees for

corrective transactions, such as Nasdaq

is proposing here.

2. Statutory Basis

Nasdaq believes that the proposed

rule change is consistent with the

provisions of section 15A(b)(6) of the

Act,6 which requires, among other

things, that the Association’s rules be

designed 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. Nasdaq believes that the

proposed rule change is wholly

consistent with the purposes of the Act

in that it will provide a cost effective

and efficient mechanism to report

trades, and therefore facilitates

clearance and settlement. Additionally,

Nasdaq believes the proposed rule

change will enhance the process by

which members engage in the

comparison and clearing of securities

transactions.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

Nasdaq does not believe that the

proposed rule change will result in any

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants, or Others

Written comments were neither

solicited nor received.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The proposed rule change was

effective upon filing with the

Commission pursuant to section

19(b)(3)(A)(ii) of the Act 7 and

subparagraph (f)(2) of Rule 19b–4

thereunder,8 because it establishes or

changes a due, fee, or other charge

imposed by the Association. At any time

within 60 days of the filing of the

proposed rule change, the Commission

may summarily abrogate such rule

change if it appears to the Commission

that such action is necessary or

appropriate in the public interest, for

the protection of investors, or otherwise

in furtherance of the purposes of the

Act.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposal is

consistent with the Act. Persons making

written submissions should file six

copies thereof with the Secretary,

Securities and Exchange Commission,

450 Fifth Street, NW., Washington, DC

20549–0609. Copies of the submission,

all subsequent amendments, all written

statements with respect to the proposed

rule change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room. Copies of such filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to file number

SR–NASD–00–71 and should be

submitted by January 25, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.9

Jonathan G. Katz,

Secretary.

[FR Doc. 01–153 Filed 1–3–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43765; File No. SR–NASD–

99–46]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the National Association of Securities

Dealers, Inc., Requiring Registration of

Chief Compliance Officers

December 21, 2000.

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

Securities Exchange Act of 1934

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

notice is hereby given that on

September 20, 1999, the National

Association of Securities Dealers, Inc.

(‘‘NASD’’ or ‘‘Association’’), through its

wholly-owned subsidiary, NASD

Regulation, Inc. (‘‘NASD Regulation’’),

filed with the Securities and Exchange

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

the proposed rule change as described

in Items I, II, and III below, which Items

have been prepared by NASD

Regulation. NASD Regulation filed

Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices 831

3See Letter dated October 28, 1999, from Alden

S. Adkins, Senior Vice President and General

Counsel, NASD Regulation, to Katherine A.

England, Assistant Director, Division of Market

Regulation (‘‘Division’’), Commission

(‘‘Amendment No. 1’’). Amendment No. 1 clarifies

that if a person becomes a chief compliance officer

for the first time after the effective date of the

proposed rule change for a dual New York Stock

Exchange and NASD member, that person may elect

to take the New York Stock Exchange Series 14

exam, and would not be required to take NASD

Series 24 exam.

4See Letter dated December 1, 2000, from Alden

S. Adkins, Senior Vice President and General

Counsel, NASD Regulation, to Jack Drogin,

Assistant Director, Division, Commission

(‘‘Amendment No. 2’’). Amendment No. 2 limits the

grandfathering provision of the proposed rule

change to individuals who have been designated as

chief compliance officers on Schedule A of Form

BD for at least two years immediately prior to the

effective date of the proposed rule change and who

have not been subject within the previous ten years

to: (1) Any statutory disqualification as defined in

Section 3(a)(39) of the Act; (2) a suspension; or (3)

the imposition of a fine of $5,000 or more for a

violation of any provision of any securities law or

regulation, or any agreement with or rule or

standard of conduct of any securities governmental

agency, securities self-regulatory organization, or as

imposed by any such regulatory or self-regulatory

organization in connection with a disciplinary

proceeding.

Amendment Nos. 1 3 and 2 4 to the

proposed rule change on December 11,

2000 and December 6, 2000,

respectively. The Commission is

publishing this notice to solicit

comments on the proposed rule change,

as amended, from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

NASD Regulation is proposing to

amend NASD Rule 1022(a) to require

chief compliance officers to register

with the NASD as general securities

principals. Below is the text of the

proposed rule change. Proposed new

language is in italics; proposed

deletions are in brackets.

1022. Categories of Principal

Registration

(a) General Securities Principal

Each person associated with a

member who is included within the

definition of principal in Rule 1021, and

each person designated as a Chief

Compliance Officer on Schedule A of

Form BD, shall be required to register

with the Association as a General

Securities Principal and shall pass an

appropriate qualification examination

before such registration may become

effective unless [his] such person’s

activities are so limited as to qualify

[him] such person for one or more of the

limited categories of principal

registration specified hereafter. A

person whose activities in the

investment banking or securities

business are so limited is not, however,

precluded from attempting to become

qualified for registration as a General

Securities Principal, and if qualified,

may become so registered. Each person

seeking to register and qualify as a

General Securities Principal must, prior

to or concurrent with such registration,

become registered, pursuant to the Rule

1030 Series, either as a General

Securities Representative or as a

Limited Representative-Corporate

Securities. A person who has been

designated as a Chief Compliance

Officer on Schedule A of Form BD for

at least two years immediately prior to

[insert effective date of proposed rule

change] and who has not been subject

within the last ten years to any statutory

disqualification as defined in Section

3(a)(39) of the Act; a suspension; or the

imposition of a fine of $5,000 or more

for violation of any provision of any

securities law or regulation, or any

agreement with or rule or standard of

conduct of any securities governmental

agency, securities self-regulation

organization, or as imposed by any such

regulatory or self-regulatory

organization in connection with a

disciplinary proceeding shall be

required to register as a General

Securities Principal, but shall be exempt

from the requirement to pass the

appropriate Qualification Examination.

If such person has acted as a Chief

Compliance Officer for a member whose

business is limited to the activities

described in Rule 1022(d)(1)(A) or Rule

1022(e)(2), he or she shall be exempt

from the requirement to pass the

appropriate Qualification Examination

only if he or she registers as a Limited

Principal pursuant to Rules 1022(d) or

Rule 1022(e), as the case may be, and

restricts his or her activities as required

by such registration category. A Chief

Compliance Officer who is subject to the

Qualification Examination requirement

shall be allowed a period of 90 calendar

days following [insert effective date of

proposed rule change] within which to

pass the appropriate Qualification

Examination for Principals.

* * * * *

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

NASD Regulation included statements

concerning the purpose of, and basis for,

the proposed rule change and discussed

any comments it received on the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below.

NASD Regulation has prepared

summaries, set forth in Sections A, B,

and C below, of the most significant

aspects of such statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the proposed rule

change is to require the chief

compliance officer designated on

Schedule A of a member’s Form BD to

be registered as a principal. Some chief

compliance officers may already be

registered as a principal due to other

NASD rule requirements. For example,

NASD Rule 3010(a)(8) requires each

member to designate and specifically

identify to the NASD one or more

principals who are required to review

the member’s supervisory system,

procedures, and inspections

implemented by the member and take

appropriate action reasonably designed

to achieve the member’s compliance

with applicable securities laws and

regulations. For some members, the

chief compliance officer is one of these

designated principals. For other

members, the chief compliance officer

may already be registered as a principal

because he or she is an officer of the

member or otherwise engaged in the

member’s investment banking or

securities business in a manner that

requires principal registration under

NASD Rule 1021.

For other members, however, chief

compliance officers may not be

registered. Rule 1021(a), which sets

forth the requirements for principal

registration, states that a member ‘‘may’’

make or maintain an application for

principal registration for certain

personnel, including compliance

personnel. The negative implication of

this provision is that compliance

personnel are not required to be

registered, but that a member may

choose whether to register an individual

with compliance responsibilities. Some

members have chosen not to register any

compliance personnel.

NASD Regulation believes that the

chief compliance officer of a member, as

designated on Schedule A of the Form

BD, should be registered as a principal.

Chief compliance officers generally

advise registered representatives and

other principals on compliance issues

and devise compliance systems and

procedures for the firm as a whole. As

such, a chief compliance officer should

be able to demonstrate his or her

knowledge through a qualifications

832 Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices

5See Amendment No. 1, supra note 3.

6See Amendment No. 2, supra note 4.

7The Notice to Members further explained that

an employee of a member who sits on its board of

directors is generally presumed to be involved in

the day-to-day management of the member’s

business and therefore is required to be registered

as a principal. If the general counsel or corporate

secretary is not a director but has management-level

responsibilities for supervising any aspect of the

member’s investment banking or securities

business, he would have to be registered as a

principal. Management responsibilities in this

context would include serving as a voting member

of the firm’s executive, management, or operations

committees. A general counsel may participate in

such committees’ activities without triggering a

registration requirement if he only provides counsel

to the committee and does not vote.

8 15 U.S.C. 78o–3(b)(6).

9Letters from A.G. Edwards & Sons, Inc. (‘‘A.G.

Edwards’’); American Equity Capital, Inc.

(‘‘American Equity’’); Atlantic Capital Management,

LLC (Atlantic); BMS International (‘‘BMS’’); Burke,

Christensen & Lewis Securities, Inc. (‘‘Burke,

Christensen’’); California Association of

Independent Broker-Dealers (‘‘CAIBD’’); Centennial

Securities Co. (‘‘Centennial’’); Consolidated

Financial Investments, Inc. (‘‘Consolidated

Financial’’); Corporate Network Brokerage Services,

Inc. (‘‘Corporate Network’’); Melissa Crockett

(‘‘Crockett’’); Davenport & Company, LLC

(‘‘Davenport’’); Dreyfus Brokerage Services

(‘‘Dreyfus’’); Robert A. Eder, Sr. (‘‘Eder’’); FAS

Wealth Management Services, Inc. (‘‘FAS Wealth

Management’’); Fulcrum Financial Advisors, Inc.

examination and be subject to

continuing education requirements.

Under the proposed rule change, the

chief compliance officer must be

registered as a Series 24 General

Securities Principal, unless the

member’s activities are limited to

particular areas of the investment

banking or securities business. In that

case, the individual may apply for a

limited principal registration. For

example, if a member sells only mutual

funds, the chief compliance officer of

that member may apply for registration

as either a Series 26 Limited Principal—

Investment Company and Variable

Contracts Products or a Series 24

General Securities Principal. Acceptable

limited principal categories for a chief

compliance officer are the Series 4

(Registered Options Principal), 26

(Limited Principal Investment Company

and Variable Contracts Products), 39

(Limited Principal Direct Participation

Programs), and 73 (Government

Securities Principal), if the activities of

the chief compliance officer’s firm are

limited to these areas.

By requiring chief compliance officers

to be registered, NASD Regulation is not

creating a presumption that they are

supervising the member’s securities or

investment banking business or

otherwise are control persons. Some

chief compliance officers are completely

segregated from a member’s supervisory

structure. As in the past, NASD

Regulation will determine whether a

person is acting as a supervisor or

control person by looking at the

responsibilities and functions he

performs for the member, not simply his

title.

To avoid imposing duplicative

examination requirements on dual

NASD/New York Stock Exchange

(‘‘NYSE’’) members, NASD Regulation

has determined that for purposes of

chief compliance officer registration, it

will accept the NYSE’s Series 14

Compliance Official examination in lieu

of any of the NASD principal

examinations noted above. For example,

if a person had passed the NYSE Series

14, and after the effective date of the

rule, accepted a chief compliance officer

position with an NASD member, then

the person would not be required to take

the Series 24 examination. In addition,

if a person becomes a chief compliance

officer for the first time after the

effective date of the proposed rule

change for a dual NASD/NYSE member,

that person may elect to take just the

NYSE Series 14 exam, and would not be

required to take NASD Series 24 exam.5

NASD Regulation currently proposes

to make the rule change effective on July

1, 2001. A person who has been

designated as a chief compliance officer

on Schedule A of Form BD for at least

two years immediately prior to the

effective date of proposed rule change

and who has not been subject within the

last ten years to the disciplinary

procedures described in proposed Rule

1022(a) will not have to pass the

appropriate qualification examination.

All chief compliance officers

‘‘grandfathered’’ will be subject to

continuing education requirements. If

the chief compliance officer is registered

as a Limited Principal, he or she will be

exempt from the requirement to pass the

appropriate qualification examination if

he or she restricts his or her activities

as required by such registration

category. A chief compliance officer

who is subject to the qualification

examination requirement must pass the

appropriate exam within 90 calendar

days of the effective date of proposed

rule change.6

If a person grandfathered under this

provision wishes to serve as a principal

for any other function, he must be

appropriately qualified and registered.

The grandfather provision applies only

to the chief compliance officer function.

Any person who is listed as the chief

compliance officer on the Form BD for

the first time on or after July 1, 2001,

will be required to apply for

registration, pass the required

examinations, and participate in

continuing education.

Finally, NASD Regulation wishes to

clarify an interpretive position related to

the new chief compliance officer

registration requirement. In Notice to

Members 99–49, NASD Regulation

stated that a general counsel of a

member is not required to be registered

unless he sits on the member’s board of

directors or otherwise participates in the

management of the member’s securities

or investment banking business.7 NASD

Regulation has determined that this

interpretation will continue to apply

after the effective date of the rule even

if a registered chief compliance officer

reports directly to the general counsel

(i.e., the general counsel has the power

to hire and fire and direct the activities

of the chief compliance officer). NASD

Regulation does not believe that it is

necessary at this time to impose a

general registration requirement on

general counsels, or to require them to

be registered simply because registered

persons may report to them.

2. Statutory Basis

NASD Regulation believes that the

proposed rule change, as amended, is

consistent with the provisions of section

15A(b)(6) of the Act,8 which requires,

among other things, that the

Association’s rules be designed to

prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of trade and, in

general, to protect investors and the

public interest. NASD Regulation

believes that adding this registration

requirement will help protect investors

and the public interest by ensuring that

chief compliance officers can

demonstrate their knowledge about

compliance matters and stay up-to-date

with industry requirements through

continuing education.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

NASD Regulation does not believe

that the proposed rule change, as

amended, will result in any burden on

competition that is not necessary or

appropriate in furtherance of the

purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The proposed rule change was

published for comment in NASD Notice

to Members 99–51. NASD Regulation

received sixty-one comments in

response to the Notice. Thirty-seven

commenters favored registration of chief

compliance officers 9 and 15 were

Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices 833

(‘‘Fulcrum’’); H.C. Wainwright & Co., Inc.

(‘‘Wainwright’’); Jackson Securities, Inc.

(‘‘Jackson’’); John Hancock Mutual Life Insurance

Company (‘‘John Hancock’’); Lynn Junkin

(‘‘Junkin’’); Betty Kabanek; Don Katz (‘‘Katz’’);

Keystone Brokerage, Inc. (‘‘Keystone’’); Andrew J.

Lenza (‘‘Lenza’’); Liberty Funds Distributor, Inc.

(‘‘Liberty Funds’’); Lincoln Investment Planning,

Inc. (‘‘Lincoln Investment’’); Larry Lowman

(‘‘Lowman’’); Mid-Florida Equities, Inc. (‘‘MidFlorida Equities’’); MidSouth Capital Incorporated

(‘‘MidSouth Capital’’);

mlmcarthurlafon@dstsystems.com; MML Investors

Services, Inc. (‘‘MML’’); Nalico Equity; Linda K.

Parker (‘‘Parker’’); Regions Investment Company,

Inc. (‘‘Regions’’); Althea Roberts (‘‘Roberts’’); SIA

Self-Regulation and Supervisory Practices

Committee (‘‘SIA Committee’’); Tradition, Inc.

(‘‘Tradition’’); and Unified Management

Corporation (‘‘Unified Management’’).

10Letters from Branch Cabell & Co., Inc. (‘‘Branch

Cabell’’); Charles Schwab & Co., Inc. (‘‘Schwab’’);

Mark Geregach (‘‘Geregach); George T. Goldman;

Mark Horin (‘‘Horin’’); Knight Securities, L.P.

(‘‘Knight Securities’’); Eric D. Koval (‘‘Koval’’);

lizakahn@aol.com; Joel Martin McTague

(‘‘McTague’’); Orrick, Herrington & Sutcliffe, LLP;

Princeton Equity Securities, Inc.; St. Bernard

Financial Services, Inc.; Syndicated Capital; John

Tubman; and Robert Woeber (‘‘Woeber’’).

11Letters from DMA Management and Regulatory

Consulting; Donald W. Gendron (‘‘Gendron’’);

Investment Company Institute (‘‘ICI’’); Eileen

Miotke; Bill Mullally; NBC Capital Markets Group,

Inc.; Nationwide Life Insurance Company; Lisa

Roth; and The Securities Center, Inc. (‘‘TSC’’). For

example, some commenters stated that small firms

should be exempted from the requirement of chief

compliance officer registration. See Letters from

Gendron and TSC.

12See Letters from Branch Cabell; Horin; Koval;

Schwab; and Woeber.

13See Letter from Geregach.

14See Letter from Knight Securities.

15See Letters from A.G. Edwards; Atlantic; BMS;

Consolidated Financial; Corporate Network;

Crockett; Eder; FAS Wealth Management; Fulcrum;

Jackson; John Hancock; Junkin; Keystone; Lenza;

Liberty Funds; Lincoln Investment; Lowman; MidFlorida Equities; MidSouth Capital;

mlmcarthurlafon@dstsystems.com; MML; Parker;

Regions; SIA Committee; Tradition; and Unified

Management.

16See Letters from American Equity; Burke,

Christensen; and CAIBD.

17See Letters from A.G. Edwards; Burke,

Christensen; CAIBD; Centennial; Fulcrum; Lenza;

Mid-Florida Equities; and Lisa Roth.

18See Letters from American Equity; Corporate

Network; Eder; Wainwright; John Hancock; Katz;

Liberty Funds; Lowman; MidSouth Capital;

mlmcarthurlafon@dstsystems.com; MML; Parker;

Regions; and SIA Committee.

19See Letters from A.G. Edwards; Corporate

Network; Davenport; Dreyfus; H.C. Wainwright;

John Hancock; Roberts; Schwab; and SIA

Committee.

20See Letters from A.G. Edwards; Crockett;

Davenport; Eder; Keystone; MidSouth Capital;

MML; NBC Capital Markets Group, Inc.; and

Tradition.

21See Letters from ICI; John Hancock; Knight

Securities; Lenza; Liberty Funds; McTague;

Nationwide Life Insurance Company; Syndicated

Capital.

22See Letter from Davenport. 23See Letters from ICI and Knight Securities. 24See Letters from A.G. Edwards; Crockett;

Fulcrum; MidSouth Capital; Parker; and SIA

Committee.

opposed.10 Nine commenters did not

take a specific position on requiring

chief compliance officer registration.11

Some of the commenters who opposed

the proposed rule change stated that it

is not necessary for chief compliance

officers to demonstrate their knowledge

through examinations because they

could not obtain the position unless

they were competent and/or that the

expenses associated with registration

would be burdensome.12 One

commenter stated that continuing

education programs are already

available to compliance personnel.13

Another commenter stated that the rule

would create a presumption that the

chief compliance officer is a control

person.14

NASD Regulation does not believe

that the incremental effort required for

a chief compliance officer to pass

examinations to demonstrate his

knowledge would be burdensome. As

noted above, some chief compliance

officers already are registered as

principals, so no additional requirement

is being imposed on them. Also, NASD

Regulation does not believe that the cost

associated with registering at most one

more person for each member is unduly

burdensome. Furthermore, required

annual continuing education programs

will assist the chief compliance officer

in staying current with regulatory

requirements and developments.

Finally, as stated above, NASD

Regulation will not presume that a chief

compliance officer is a supervisor or

control person just by virtue of his title.

Twenty-six commenters favored using

the Series 24 General Securities

Principal registration category (or a

limited principal category as

appropriate); 15 four commenters were

opposed.16 Only nine commenters

favored the creation of a new

examination,17 while 14 commenters

opposed it.18 NASD Regulation

determined not to create a new

examination because it believes that the

Series 24 is suitable for testing

knowledge of compliance matters, some

chief compliance officers have already

taken and passed it, and the

development costs associated with a

new examination would have to be

passed along to members.

Nine commenters favored accepting

the NYSE Series in lieu of the Series

24.19 NASD Regulation agrees with

these commenters and will accept the

NYSE examination for purposes of chief

compliance officer registration.

Most commenters did not address the

issue of whether a general counsel who

supervises a registered chief compliance

officer should be registered. However,

nine commenters specifically favored

requiring such a general counsel to be

registered,20 while eight were

opposed.21 Only one of the commenters

in favor of general counsel registration

offered a rationale for its position,

stating that a law degree does not ensure

knowledge of securities laws and that a

general counsel who supervises a chief

compliance officer is in effect the chief

compliance officer himself.22 While

NASD Regulation agrees with the first

reason, it disagrees with the second. The

fact that a chief compliance officer

reports to another officer such as the

general counsel does not make that

officer the ‘‘effective’’ chief compliance

officer. Commenters opposed to

requiring a general counsel to register

stated that a registration requirement

could lead firms to restructure reporting

lines, undermine the independence of

the general counsel, and improperly

interfere with the practice of law.23

NASD Regulation does not believe that

a compelling reason has been offered at

this time to impose a general

registration requirement on general

counsels who supervise chief

compliance officers.

Six commenters opposed

grandfathering current chief compliance

officers (i.e., applying the proposed rule

change prospectively only).24 NASD

Regulation disagrees with these

commenters. As noted previously, the

NASD rules to date have not explicitly

required chief compliance officer

registration, and it would be

unnecessarily burdensome to apply the

new requirement immediately to all

persons currently serving in this

position. Therefore, NASD Regulation

determined to impose the requirement

only on persons who have not acted as

chief compliance officers for at least two

years immediately prior to the effective

date of the proposed rule change and

who have not been subject within the

last ten years to the disciplinary

procedures described in proposed Rule

1022(a).

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which NASD Regulation

consents, the Commission will:

(A) By order approve such proposed

rule change, or

(B) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

834 Federal Register / Vol. 66, No. 3 / Thursday, January 4, 2001 / Notices

25 17 CFR 2000.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 42913

(June 8, 2000), 64 FR 55514.

4Letter from Craig S. Tyle, General Counsel,

Investment Company Institute (‘‘ICI’’) to Jonathan

G. Katz, Secretary, Commission, dated July 6, 2000

(‘‘ICI Letter’’).

5Letter from Daniel Parker Odell, Assistant

Secretary, Exchange, to Nancy Sanow, Assistant

Director, Division of Market Regulation

(‘‘Division’’), Commission, dated August 17, 2000

(‘‘Amendment No. 1’’). Amendment No. 1 clarifies

several items relating to Rule 1000, 1004, and 1005.

With respect to Rule 1000, Amendment No. 1

clarifies that orders that are not automatically

executed will be entered in the auction market, and

an order entered into the auction market is treated

the same as any other limit order entered on the

Exchange through the SuperDOT system.

Amendment No. 1 also clarifies that proposed Rules

1000(ii) and (v) are, in effect, examples of proposed

Rule 1000(iv) because both relate to situations

where the Exchange’s published bid or offer is 100

shares. The Exchange further explained that to

‘‘gap’’ a quotation involves setting the bid and

asked prices at a spread wider than normal in a

stock in order to alert market participants that a

special situation exists. With respect to Rule 1004,

Amendment No. 1 clarifies that executions of orders

entered in NYSe Direct+ (or ‘‘auto ex orders’’) shall

elect stop limit orders as well as stop orders and

percentage orders electable at the price of such

executions. With respect to Rule 1005, Amendment

No. 1 clarifies the prohibition on the entry of auto

ex orders within 30 seconds for the same customer

applies on a per stock basis. Finally, Amendment

No. 1 states that the Exchange intends to choose the

stocks eligible for participation in the pilot program

for NYSe Direct+ based on a number of criteria,

including volume, trading characteristics and floor

location.

6Letter from James E. Buck, Secretary and Senior

Vice President, Exchange, to Jack Drogin, Assistant

Director, Division, Commission, dated December

20, 2000 (‘‘Amendment No. 2’’). Amendment No. 2

replaces the phrase ‘‘is being completed’’ with ‘‘has

been agreed upon’’ in proposed Rule 1003.

Amendment No. 2 also deletes the prohibition in

proposed Rule 1005 against orders larger than 1,099

shares being broken up in smaller amounts for the

purpose of receiving an automatic execution.

7To be exposed or entered in the Exchange’s

auction market means that the order would be

treated like orders received from the SuperDOT

system. See Amendment No. 1, supra note 5.

8See proposed Rule 1000.

9The Exchange file a separate proposed rule

change to implement Rule 1006, which provides for

the automatic execution of coupled orders of 1099

shares or less at a price that is at or within the

Exchange’s published quotation. Securities

Exchange Act Release No. 43110 (August 2, 2000),

65 FR 48776 (August 9, 2000).

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposal, as

amended, is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. Copies of

the submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room. Copies of the filing will also be

available for inspection and copying at

the principal office of the NASD. All

submissions should refer to the File No.

SR–NASD–99–46 and should be

submitted by January 25, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.25

Johnathan G. Katz,

Secretary.

[FR Doc. 01–154 Filed 1–3–01; 8:45 am]

BILLING CODE 8010–10–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43767; File No. SR–NYSE–

00–18]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Approving Proposed Rule Change and

Notice of Filing and Order Accelerating

Approval of Amendment Nos. 1 and 2,

on a Pilot Basis Ending on December

21, 2001, Relating to NYSe Direct+, the

Exchange’s Automatic Execution

Facility for Certain Limit Orders of

1099 Shares or Less

December 22, 2000.

I. Introduction

On May 1, 2000, the New York Stock

Exchange, Inc. (‘‘NYSE’’ or ‘‘Exchange’’)

submitted to the Securities and

Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to section

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

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change

implementing NYSe Direct+, an

automatic execution facility for certain

limit orders of 1099 shares or less. The

proposed rule change was published for

public comment in the Federal Register

on June 15, 2000.3 The Commission

received one comment letter regarding

the proposed rule change.4 The

Exchange submitted Amendment Nos. 1

and 2 to the proposed rule change on

August 21, 2000 5 and December 21,

2000,6 respectively. This order approves

the proposed rule change on a pilot

basis ending on December 21, 2001 and

grants accelerated approval to

Amendment Nos. 1 and 2. The

Commission is also soliciting comment

on Amendment Nos. 1 and 2 to the

proposed rule change.

II. Description of the Proposed Rule

Change

The proposed rule change establishes

a new trading platform, NYSe Direct+,

for the automatic execution of certain

limit orders of 1099 shares or less (‘‘auto

ex’’ orders) against trading interest

reflected in the Exchange’s published

quotation. Limit orders priced at or

above the Exchange’s published offer

price (in the case of an auto ex order to

buy), and limit orders priced at or below

the Exchange’s published bid price (in

the case of an auto ex order to sell) are

eligible for automatic execution via

NYSe Direct+. The contra side of the

auto ex order would be the trading

interest reflected in the Exchange’s bid

or offer, in accordance with the

Exchange’s auction market principles of

priority and parity codified in Exchange

Rule 72. Auto ex orders would receive

automatic executions without being

exposed to the auction market.7

However, if the automatic execution

feature is not available,8 the auto ex

order would be entered for execution in

the Exchange’s auction market. Auto ex

transactions would be identified on the

Consolidated Tape with a unique

identifier, and the Exchange’s published

bid or offer would be automatically

decremented to the extent of the size of

the auto ex order to reflect the automatic

execution.

It would not be mandatory that all

eligible limit orders of 1099 shares be

entered as auto ex orders NYSe Direct+.

Member organizations (or their

customers if enabled by the member

organization) can choose to use NYSe

Direct+ when the speed and certainty of

an execution at the Exchange’s

published bid or offer price is in the

customer’s best interest. If a customer’s

interest would best be served by

affording the customer’s order the

opportunity for price improvement, the

member (or customer) may enter a limit

or market order by means of the

SuperDOT system for representation in

the auction market, rather than an auto

ex order.

The Exchange’s proposal would be

implemented in proposed Rules 1000

through 1005.9 Rule 1000 species the

types of orders eligible for entry as auto

ex orders. In addition, the Rule lists six

instances where the automatic

execution feature would not be available

due to, for example, particular market

situations, lack of depth in the

published quotation, or inappropriate