Federal Register / Vol. 60, No. 235 / Thursday, December 7, 1995 / Notices 62915

3See Securities Exchange Act Release Nos. 32345

(May 20, 1993), 58 FR 30833 (May 27, 1993), and

33328 (December 13, 1993), 58 FR 66041 (December

20, 1993).

4See Securities Exchange Act Release No. 34549

(August 18, 1994), 59 FR 43873 (August 25, 1994). 5 17 CFR 200.30–3(a)(12).

Term Notes (‘‘ELNs’’).3 ELNs are

intermediate term (two to seven years),

non-convertible, hybrid debt

instruments, the value of which is

linked to the performance of a highly

capitalized, actively traded U.S. and

non-U.S. companies.

In August 1994, the Exchange

amended Section 107B of the Amex

Company Guide to permit the listing

and trading of ELNs linked to actively

traded non-U.S. companies which are

traded in the U.S. market as sponsored

American Depositary Shares, ordinary

shares or otherwise (‘‘non-U.S.

securities’’), provided that (1) the

Exchange has in place a comprehensive

surveillance sharing agreement with the

primary exchange on which the nonU.S. security trades; or (2) the trading

volume of the non-U.S. security in the

U.S. market represents at least 50% of

the world-wide trading volume in the

non-U.S. security (‘‘50% Test’’).4

The Exchange now proposes to amend

its ELNs on non-U.S. security listing

criteria by (1) revising the manner in

which the applicable percentage of

world-wide trading volume is calculated

under the 50% Test; and (2) adding new

criteria for the listing of ELNs on nonU.S. securities, based on the daily

trading volume in the U.S. Specifically,

the Exchange proposes to revise the

50% Test so that trading in non-U.S.

securities and other related non-U.S.

securities in any market with which the

Exchange has in place a comprehensive/

effective surveillance sharing agreement

will be added to U.S. market volume for

the purpose of determining whether the

50% Test has been met. Currently, only

trading in the U.S. market counts

toward satisfying the 50% Test.

In addition, the Exchange proposes to

add an alternate set of criteria under

which the Exchange may list ELNs on

non-U.S. securities (‘‘Daily Trading

Volume Standard’’). The new standard

will permit the Exchange to list ELNs on

non-U.S. securities if all of the following

conditions are satisfied: (1) the

combined world-wide trading volume

for the non-U.S. security in the U.S.

market or in any market with which the

Exchange has in place a comprehensive

surveillance sharing agreement

represents (on a share equivalent basis)

at least 20% of the combined worldwide trading volume in the non-U.S.

security and other related non-U.S.

securities over the six month period

preceding the date of selection of the

non-U.S. security for an ELN listing; (2)

the average daily trading volume for the

non-U.S. security in the U.S. market

over the six months preceding the date

of selection of the non-U.S. security for

an ELN listing is at least 100,000 shares;

and (3) the trading volume for the nonU.S. security in the U.S. market is at

least 60,000 shares per day for a

majority of the trading days for the six

months preceding the date of selection

of the non-U.S. security for an ELN

listing.

The Exchange believes that the

alternate criteria is appropriate in that it

limits the listing of ELNs linked to nonU.S. securities to those that have both a

significant amount of U.S. market

trading volume and a substantial

volume of trading covered by a

comprehensive/effective surveillance

sharing agreement, which gives the

Exchange the ability to inquire into

potential trading problems or

irregularities in a market place that

serves as a significant price discovery

market for the non-U.S. security. Thus,

the proposed requirement of observable,

high trading volumes, should ameliorate

any regulatory concern regarding

investor protection and, at the same

time, allow investors to trade ELNs

linked to more non-U.S. securities.

The Exchange also believes that the

proposed amendment will benefit

investors by expanding the number of

non-U.S. securities that may be linked

to ELNs, thereby providing investors

with enhanced investment flexibility.

The Exchange believes that it is

appropriate to now include additional

non-U.S. securities within the existing

regulatory framework because of the

significant level of U.S. investor interest

in both U.S. and non-U.S. highly

capitalized and actively traded reporting

companies.

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) of the Act in general and

furthers the objectives of Section 6(b)(5)

in particular in that it is designed to

prevent fraudulent and manipulative

acts and practices, to promote just and

equitable principles of change, to foster

cooperation and coordination with

persons engaged in facilitating

transactions in securities, and to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Within 35 days of the date of

publication of this notice in the Federal

Register or within such longer period (i)

as the Commission may designate up to

90 days of such date if it finds such

longer period to be appropriate and

publishes its reasons for so finding or

(ii) as to which the self-regulatory

organization consents, the Commission

will:

(A) By order approve such proposed

rule change, or

(B) Institute proceedings to determine

whether the proposed rule change

should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing

proposal. Persons making written

submissions should file six copies

thereof with the Secretary, Securities

and Exchange Commission, 450 Fifth

Street NW., Washington, D.C. 20549.

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

Section, 450 Fifth Street NW.,

Washington, D.C. Copies of such filing

will also be available for inspection and

copying at the principal office of the

CBOE. All submissions should refer to

SR–Amex–95–44 and should be

submitted by December 28, 1995.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.5

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–29780 Filed 12–6–95; 8:45 am]

BILLING CODE 8010–01–M
62916 Federal Register / Vol. 60, No. 235 / Thursday, December 7, 1995 / Notices

1 15 U.S.C. 78s(b)(1) (1988).

2On November 27, 1995, the PSE amended its

proposal to submit its filing pursuant to Section

19(b)(2) under the Act and to request accelerated

effectiveness of the proposal. See Letter from

Michael Pierson, Senior Attorney, Market

Regulation, PSE, to Yvonne Fraticelli, Office of

Market Supervision, Division of Market Regulation,

Commission, dated November 27, 1995

(‘‘Amendment No. 1’’).

3Position limits impose a ceiling on the number

of option contracts which an investor or group of

investors acting in concert may hold or write in

each class of options on the same side of the market

(i.e., aggregating long calls and short puts or long

puts and short calls). Exercise limits prohibit an

investor or group of investors acting in concert from

exercising more than a specified number of puts or

calls in a particular class within five consecutive

business days.

4The Amex’s position and exercise limits for

industry index options are provided in Amex Rules

904C, ‘‘Position Limits,’’ and 905C, ‘‘Exercise

Limits.’’ The PSE’s position and exercise limits for

industry index options are provided in PSE Rules

7.6, ‘‘Position Limits for Index Options,’’ and 7.7,

‘‘Exercise Limits.’’ Under the Exchanges’ rules, the

current position limits for industry index options

are as follows: (1) 5,500 contracts if the Exchange

determines in its semi-annual review that any

single underlying stock accounted, on average, for

30% or more of the index value during the 30-day

period immediately preceding the review; (2) 7,500

contracts if the Exchange determines in its semiannual review that any single underlying stock

accounted, on average, for more than 20% of the

index value or that any five underlying stocks

accounted, on average, for more than 50% of the

index value, but that no single stock in the group

accounted, on average, for 30% or more of the index

value during the 30-day period immediately

preceding the review; or (3) 10,500 contracts if the

Exchange determines that the conditions requiring

the establishment of a lower limit have not

occurred.

5See Securities Exchange Act Release Nos. 36194

(September 6, 1995), 60 FR 47637 (September 13,

1995) (order approving File No. SR–PHLX–95–16)

(‘‘PHLX Approval Order’’); and 36439 (October 31,

1995), 60 FR 56075 (November 6, 1995) (order

approving File No. SR–CBOE–95–56) (‘‘CBOE

Approval Order’’).

6 Id.

7See Securities Exchange Act Release Nos. 33282

(December 3, 1993), 58 FR 65218 (December 13,

1993) (order approving File No. SR–PSE–93–38);

and 33285 (December 3, 1993), 58 FR 65201

(December 13, 1993) (order approving File No. SR–

Amex–93–27).

8According to the PSE, the most recent position

limit changes in 1993 represented changes of 38%

(from 4,000 to 5,500 contracts); 25% (from 6,000 to

7,500 contracts); and 31% (from 8,000 to 10,500

contracts).

[Release No. 34–36537; File Nos. SR–Amex–

95–45; and SR–PSE–95–30]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of Proposed

Rule Change by the American Stock

Exchange, Inc., and Notice of Filing

and Order Granting Accelerated

Approval of Proposed Rule Change

and Amendment No. 1 to the Proposed

Rule Change by the Pacific Stock

Exchange, Inc. Relating to

Modifications of the Position and

Exercise Limits for Narrow-Based

Index Options

November 30, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’),1 notice is hereby given that on

November 15, 1995, the American Stock

Exchange, Inc. (‘‘Amex’’); and on

November 16, 1995, the Pacific Stock

Exchange, Inc. (‘‘PSE’’) (each

individually referred to as an

‘‘Exchange’’ and both collectively

referred to as ‘‘Exchanges’’) filed with

the Securities and Exchange

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

the proposed rule changes as described

in Items I and II below, which Items

have been prepared by the selfregulatory organizations.2 The

Commission is approving the proposals

on an accelerated basis.

I. Self-Regulatory Organizations’

Statements of the Terms of Substance of

the Proposed Rule Changes

The Exchanges propose to amend

their rules to increase the position and

exercise limits 3 for narrow-based (or

industry) index options from the current

levels of 5,500, 7,500, or 10,500

contracts to 6,000, 9,000, or 12,000

contracts.4 The Commission has

approved identical proposal by the

Philadelphia Stock Exchange, Inc.

(‘‘PHLX’’) and by the Chicago Board

Options Exchange, Inc. (‘‘CBOE’’).5

The texts of the proposed rule

changes are available at the offices of

the Exchanges, and at the Commission.

II. Self-Regulatory Organizations’

Statements of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

In their filings with the Commission,

the self-regulatory organizations

included statements concerning the

purpose of and basis for the proposed

rule changes and discussed any

comments they received on the

proposed rule changes. The text of these

statements may be examined at the

places specified in Item IV below. The

self-regulatory organizations have

prepared summaries, set forth in

sections (A), (B), and (C) below, of the

most significant aspects of such

statements.

(A) Self-Regulatory Organizations’

Statements of the Purpose of, and

Statutory Basis for, the Proposed Rule

Changes

The Exchanges propose to amend

their rules to increase the position and

exercise limits for narrow-based (or

industry) index options from the current

levels of 5,500, 7,500, or 10,500

contracts to 6,000, 9,000, or 12,000

contracts. The Exchanges note that the

Commission has approved identical

proposals by the PHLX and the CBOE.6

Currently, the Exchanges’ rules

establish 5,500, 7,500, and 10,500

contract levels as position limits for

industry index options. The Exchanges

propose to increase these limits to

6,000, 9,000, and 12,000 contracts,

respectively. Under the Exchanges’

rules, exercise limits correspond to

position limits.

The Exchanges note that the current

position and exercise limits have been

in place since 1993 7 and that there have

been no further increases in position

limits for narrow-based index options

since that time, despite appreciable

growth in index options trading.

According to the Amex, there has been

a notable increase in narrow-based

index option trading since 1993.

Specifically, the Amex states that

through October 31, 1995, narrow-based

index option volume has increased 79%

over all of 1994.

In addition, the Exchanges believe

that the proposed increases are

reasonable and consistent with the

gradual, evolutionary approach adopted

previously by the Commission and the

options exchanges when increasing

position and exercise limits.8

Accordingly, the Exchanges propose a

9% increase for the lowest tier (5,000 to

6,000 contracts); a 20% increase for the

middle level position limit (from 7,500

to 9,000 contracts); and a 15% increase

in the highest level (from 10,500

contracts to 12,000 contracts).

The Exchanges also believe that the

proposed increases are required by

traders and investors to meet their

investment needs. In this regard, the

Exchanges believe that the current

position limit levels create difficulties

for investors in narrow-based index

options, especially those institutional

investors who own large portfolios of

the component securities and who wish

to use the options markets to hedge

those portfolios. The Exchanges propose

to raise the position and exercise limits

for narrow-based index options to

accommodate the liquidity and hedging

needs of large investors and the

institutions that compete to facilitate the

trading interests of the large investors.

Finally, the Exchanges believe that

the proposed limits of 6,000, 9,000, and

12,000 contracts will increase the depth

and liquidity of the market for industry

index options without causing any

market disruption. The Exchanges

represent that they will continue to

monitor and surveill for manipulation

and violations of the position and

exercise limits. Specifically, the Amex
Federal Register / Vol. 60, No. 235 / Thursday, December 7, 1995 / Notices 62917

9See PHLX and CBOE Approval Orders, supra

note 5.

10 15 U.S.C. 78f(b) (1988 & Supp. V 1993).

11The Commission continues to believe that

proposals to increase position limits and exercise

limits must be justified and evaluated separately.

After reviewing the proposed exercise limits, along

with the eligibility criteria for each tier, the

Commission has concluded that the proposed

exercise limit increases for the three-tiered

framework do not raise manipulation problems or

increase concerns over market disruption in the

underlying securities.

states that it will use monitoring

systems currently in place to detect and

deter attempted manipulative activity

and other trading abuses through the

use of illegal positions by market

participants. The PSE states that it will

monitor the markets for evidence of

manipulation or disruption caused by

investors with positions at or near

current position or exercise limits and

that the proposed limits will not

diminish the surveillance function in

this regard.

The Exchanges believe that the

proposals to increase narrow-based

index option position limits are

consistent with Section 6 of the Act, in

general, and, in particular, with Section

6(b)(5), in that they are designed to

promote just and equitable principles of

trade and to prevent fraudulent and

manipulative acts and practices. The

Amex also believes that the proposal is

not designed to permit unfair

discrimination between customers,

issuers, brokers or dealers. The PSE also

believes that the proposal is designed to

protect investors and the public interest.

(B) Self-Regulatory Organizations’

Statements on Burden on Competition

The Exchanges do not believe that the

proposed rule changes will impose any

burden on competition.

(C) Self-Regulatory Organizations’

Statements on Comments on the

Proposed Rule Changes Received From

Members, Participants or Others

No written comments were solicited

or received with respect to the proposed

rule changes.

III. Commission’s Findings and Order

Granting Accelerated Approval of

Proposed Rule Changes

The Exchanges have requested that

the proposed rule changes be given

accelerated effectiveness pursuant to

Section 19(b)(2) of the Act. As noted

above, the Commission has previously

approved identical proposals submitted

by the PHLX and the CBOE.9

The Commission finds that the

proposed rule changes are consistent

with the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange, and, in particular, the

requirements of Section 6(b)(5).10

Specifically, the Commission finds that

the proposed position and exercise

limits for narrow-based index options

should accommodate the needs of

investors and market participants and

should increase the potential depth and

liquidity of the options market as well

as the underlying cash market without

significantly increasing concerns

regarding intermarket manipulations or

disruptions of the market for the options

or the underlying securities.

As noted above, the Commission

believes that although the position and

exercise limits for options must be

sufficient to protect the options and

related markets from disruptions by

manipulation, the limits must not be

established at levels that are so low as

to discourage participation in the

options market by institutions and other

investors with substantial hedging

needs or to prevent market makers from

adequately meeting their obligations to

maintain a fair and orderly market. In

this regard, the Exchanges have stated

that they believe that the proposals will

increase the depth and liquidity or the

market for industry index options

without causing any market disruption.

In addition, the Exchanges represent

that they will continue to conduct

surveillance for manipulation and other

trading abuses.

The Commission notes that the

proposals, while increasing the

applicable position and exercise limits

for narrow-based index options,

continue to reflect the unique

characteristics of each index option and

maintain the structure of the current

three-tiered system. Specifically, the

lowest proposed limit, 6,000 contracts,

will apply to narrow-based index

options in which a single underlying

stock accounts for 30% or more of the

index value during the 30-day period

immediately preceding the Exchange’s

semi-annual review of industry index

option positions limits. Limits of 9,000

contracts will apply if any single

underlying stock accounts, on average,

for 20% or more of the index value or

any five underlying stocks account, on

average for more than 50% of the index

value, but no single stock in the group

accounts, on average, for 30% or more

of the index value during the 30-day

period immediately preceding the

Exchange’s semi-annual review of

industry index option position limits.

The 12,000-contract limit will apply

only if the Exchange determines that the

conditions requiring either the 6,000-

contract limit or the 9,000-contract limit

have not occurred. Accordingly, the

proposal allows the Exchanges to avoid

placing unnecessary restraints on those

narrow-based index options where the

manipulative potential is the least and

the need for increased positions, both by

traders and institutional investors, may

be the greatest.

The Commission believes that the

proposed increases for the three tiers of

9%, 20%, and 15%, for lowest to

highest, respectively, appear to be

appropriate and consistent with the

Commission’s evolutionary approach to

position and exercise limits. In this

regard, the absence of discernible

manipulative problems under the

current three-tiered position and

exercise limit system for narrow-based

index options leads the Commission to

conclude that the modest increases

proposed by the Exchanges are

warranted. The Commission recognizes

that there are no ideal limits in the

sense the options positions of any given

size can be stated conclusively to be free

of any manipulative concerns. However,

based upon the absence of discernible

manipulation or disruption problems

under current limits, the Commission

believes that the proposed limits can be

safely considered. Accordingly, the

Commission believes that the

liberalization of existing position and

exercise limits for narrow-based index

options is now appropriate.11

The Commission notes that the

Exchanges have had considerable

experience monitoring the current threetiered framework in narrow-based stock

index options. The Commission has not

found that differing position and

exercise limit requirements based on the

particular options product to have

created programming or monitoring

problems for securities firms, or to have

led to significant customer confusion.

Based on the current experience in

handling position and exercise limits,

the Commission believes that the

proposed increases in position and

exercise limits for narrow-based index

options will not cause significant

problems.

Finally, the Exchanges have indicated

that they will continue to conduct

surveillance for manipulation. The

Commission believes that the

Exchanges’ surveillance programs are

adequate to detect and deter violations

of position and exercise limits as well

as to detect and deter attempted

manipulative activity and other trading

abuses through the use of such illegal

positions by market participants.

For the foregoing reasons, the

Commission finds that the proposals to

increase the position and exercise limits
62918 Federal Register / Vol. 60, No. 235 / Thursday, December 7, 1995 / Notices

12See PHLX and CBOE Approval Orders, supra

note 5.

13 15 U.S.C. 78f(b)(2) (1988). 14 17 CFR 200.30–3(a)(12) (1994).

1NASAA is an association of securities

administrators from each of the 50 states, the

District of Columbia, Puerto Rico and ten Canadian

provinces.

2See, e.g., Securities Exchange Act Release No.

34235 (June 17, 1994), 59 FR 32736 (June 24, 1994)

(approving a Philadelphia Stock Exchange rule

change adopting NASAA endorsed standards);

Securities Exchange Act Release No. 34429 (July 22,

1994), 59 FR 38998 (Aug. 1, 1994) (approving a

Pacific Stock Exchange rule change adopting

NASAA endorsed standards).

3The Memorandum of Understanding was

approved by NASAA and Phlx on October 12, 1994.

4The Memorandum of Understanding was

approved by NASAA and the PSE on October 12,

1994.

for narrow-based index options to 6,000,

9,000, or 12,000 contracts, depending on

the percentage stock concentrations

within the index, are consistent with the

requirements of the Act and the rules

and regulations thereunder.

The Commission finds good cause for

approving the proposed rule changes

prior to the thirtieth day after the date

of publication of notice of filing thereof

in the Federal Register. As noted above,

the Commission has previously

approved identical proposals submitted

by the PHLX and the CBOE.12 The

PHLX’s proposals was published for the

full notice and comment period and the

Commission received no comments on

the PHLX’s proposal. The Exchanges’

proposals raise no new regulatory

issues. Accordingly, the Commission

believes it is consistent with Sections

6(b)(5) and 19(b)(2) of the Act to

approve the proposed rule changes on

an accelerated basis. In addition, the

Commission believes it is consistent

with Sections 6(b)(5) and 19(b)(2) of the

Act to approve Amendment No. 1 to the

PSE’s proposal on an accelerated basis

so that both proposals may become

effective simultaneously.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

changes that are filed with the

Commission, and all written

communications relating to the

proposed rule changes between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

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

available for inspection and copying at

the Commission’s Public Reference

Section, 450 Fifth Street, N.W.,

Washington, D.C. Copies of such filings

will also be available for inspection and

copying at the principal office of the

above-mentioned self-regulatory

organizations. All submissions should

refer to the file numbers in the caption

above and should be submitted by

December 28, 1995.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule changes (SR–Amex–95–

45 and SR–PSE–95–30) are approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–29781 Filed 12–6–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–36531; File No. SR–CHX–

95–26]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Chicago Stock Exchange, Inc.

Relating to Listing Standards

November 30, 1995.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on November 8, 1995,

the Chicago Stock Exchange, Inc.

(‘‘CHX’’ or ‘‘Exchange’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the self-regulatory

organization. The Commission is

publishing this notice to solicit

comments on the proposed rule change

from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to amend

Article XXVIII of the Exchange’s Rules

to modify the Exchange’s listing

standards and create two tiers of

listings.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

self-regulatory organization included

statements concerning the purpose of

and basis for the proposed rule change

and discussed any comments it received

on the proposed rule change. The text

of these statements may be examined at

the places specified in Item IV below.

The self-regulatory organization 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 North American Securities

Administration Association

(‘‘NASAA’’) 1 has endorsed certain

listing standards as sufficient to warrant

a state’s granting exchange-listed

securities a listing exemption from

registration. The CHX proposes to

modify its own listing standards to

comply with those endorsed by NASAA

and adopted by other stock exchanges.2

The CHX proposes changes to its

Rules regarding the quantitative

requirements for issuers and issues,

qualitative requirements for issuers (e.g.,

corporate governance standards), and

maintenance criteria for issues. In no

case do the proposed changes decrease

current CHX standards.

NASAA has entered into a

Memorandum of Understanding

(‘‘MOU’’) with the Philadelphia Stock

Exchange (‘‘Phlx’’) 3 and the Pacific

Stock Exchange (‘‘PSE’’).4 Those

memoranda set out standards that

NASAA recognizes as sufficient to

warrant listing exemptions from state

blue sky requirements. The proposed

rules establish listing standards that are

essentially identical to the standards set

out in those two NASAA MOUs.

Although the CHX is in the process of

reaching a similar MOU with NASAA,

the CHX’s new listing standards are

specifically designed to satisfy the

listing standards endorsed by NASAA.

Other exchanges have established two

tiers of listing requirements. In general,

Tier I listing standards are

quantitatively and qualitatively higher

(i.e., more restrictive and demanding)

than Tier II listing standards.

The CHX does not currently have a

two-tier structure for listings but

proposes to create a two-tiered

structure. Both Tier I and Tier II listed

issues will be traded pursuant to

identical auction rules, but otherwise

the two tiers will differ in several ways.