48248 Federal Register / Vol. 73, No. 160 / Monday, August 18, 2008 / Notices 

1 15 U.S.C. 78q(d). 

2 17 CFR 240.17d–2. 

3 15 U.S.C. 78s(g)(1). 

4 15 U.S.C. 78q(d). 

5 15 U.S.C. 78s(g)(2). 

6 15 U.S.C. 78q(d)(1). 

7See Securities Act Amendments of 1975, Report 

of the Senate Committee on Banking, Housing, and 

Urban Affairs to Accompany S. 249, S. Rep. No. 94–

75, 94th Cong., 1st Session 32 (1975). 

8 17 CFR 240.17d–1 and 17 CFR 240.17d–2, 

respectively. 

9See Securities Exchange Act Release No. 12352 

(April 20, 1976), 41 FR 18808 (May 7, 1976). 

10See Securities Exchange Act Release No. 12935 

(October 28, 1976), 41 FR 49091 (November 8, 

1976). 

Form #(s) Annual 

responses 

Time 

(min) 

Burden 

(hrs) 

G–238a 150 ................................................................................................................................. 10 25 

Total ...................................................................................................................................... 1,100 ........................ 196 

Additional Information or Comments: 

To request more information or to 

obtain a copy of the information 

collection justification, forms, and/or 

supporting material, please call the RRB 

Clearance Officer at (312) 751–3363 or 

send an e-mail request to 

Charles.Mierzwa@RRB.GOV. Comments 

regarding the information collection 

should be addressed to Ronald J. 

Hodapp, Railroad Retirement Board, 844 

North Rush Street, Chicago, Illinois 

60611–2092 or send an e-mail to 

Ronald.Hodapp@RRB.GOV. Written 

comments should be received within 60 

days of this notice. 

Charles Mierzwa 

Clearance Officer. 

[FR Doc. E8–18987 Filed 8–15–08; 8:45 am] 

BILLING CODE 7905–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58350; File No. 4–566] 

Program for Allocation of Regulatory 

Responsibilities Pursuant to Rule 17d–

2; Notice of Filing of Proposed Plan for 

the Allocation of Regulatory 

Responsibilities Among the American 

Stock Exchange LLC, Boston Stock 

Exchange, Inc., CBOE Stock 

Exchange, LLC, Chicago Stock 

Exchange, Inc., Financial Industry 

Regulatory Authority, Inc., 

International Securities Exchange, 

LLC, The NASDAQ Stock Market LLC, 

National Stock Exchange, Inc., New 

York Stock Exchange, LLC, NYSE Arca 

Inc., NYSE Regulation, Inc., and 

Philadelphia Stock Exchange, Inc. 

August 13, 2008. 

Pursuant to Section 17(d) of the 

Securities Exchange Act of 1934 

(‘‘Act’’),1 and Rule 17d–2 thereunder,2

notice is hereby given that on August 

12, 2008, the American Stock Exchange 

LLC (‘‘Amex’’), Boston Stock Exchange, 

Inc. (‘‘BSE’’), CBOE Stock Exchange, 

LLC (‘‘CBOE’’), Chicago Stock Exchange, 

Inc. (‘‘CHX’’), Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’), 

International Securities Exchange, LLC 

(‘‘ISE’’), The NASDAQ Stock Market, 

LLC (‘‘NASDAQ’’), National Stock 

Exchange, Inc. (‘‘NSX’’), New York 

Stock Exchange, LLC (‘‘NYSE’’), NYSE 

Arca Inc. (‘‘NYSE Arca’’), NYSE 

Regulation, Inc. (acting under authority 

delegated to it by NYSE) (‘‘NYSE 

Regulation’’), and Philadelphia Stock 

Exchange, Inc. (‘‘Phlx’’), (collectively, 

‘‘Participating Organizations’’ or 

‘‘Parties’’) filed with the Securities and 

Exchange Commission (‘‘Commission’’) 

a plan for the allocation of regulatory 

responsibilities (‘‘17d–2 plan’’ or 

‘‘Plan’’). The Commission is publishing 

this notice to solicit comments on the 

17d–2 plan from interested persons. 

I. Introduction 

Section 19(g)(1) of the Act,3 among 

other things, requires every selfregulatory organization (‘‘SRO’’) 

registered as either a national securities 

exchange or national securities 

association to examine for, and enforce 

compliance by, its members and persons 

associated with its members with the 

Act, the rules and regulations 

thereunder, and the SRO’s own rules, 

unless the SRO is relieved of this 

responsibility pursuant to Section 

17(d) 4 or Section 19(g)(2) 5 of the Act. 

Without this relief, the statutory 

obligation of each individual SRO could 

result in a pattern of multiple 

examinations of broker-dealers that 

maintain memberships in more than one 

SRO (‘‘common members’’). Such 

regulatory duplication would add 

unnecessary expenses for common 

members and their SROs. 

Section 17(d)(1) of the Act 6 was 

intended, in part, to eliminate 

unnecessary multiple examinations and 

regulatory duplication.7 With respect to 

a common member, Section 17(d)(1) 

authorizes the Commission, by rule or 

order, to relieve an SRO of the 

responsibility to receive regulatory 

reports, to examine for and enforce 

compliance with applicable statutes, 

rules, and regulations, or to perform 

other specified regulatory functions. 

To implement Section 17(d)(1), the 

Commission adopted two rules: Rule 

17d–1 and Rule 17d–2 under the Act.8

Rule 17d–1 authorizes the Commission 

to name a single SRO as the designated 

examining authority (‘‘DEA’’) to 

examine common members for 

compliance with the financial 

responsibility requirements imposed by 

the Act, or by Commission or SRO 

rules.9 When an SRO has been named as 

a common member’s DEA, all other 

SROs to which the common member 

belongs are relieved of the responsibility 

to examine the firm for compliance with 

the applicable financial responsibility 

rules. On its face, Rule 17d–1 deals only 

with an SRO’s obligations to enforce 

member compliance with financial 

responsibility requirements. Rule 17d–1 

does not relieve an SRO from its 

obligation to examine a common 

member for compliance with its own 

rules and provisions of the federal 

securities laws governing matters other 

than financial responsibility, including 

sales practices and trading activities and 

practices. 

To address regulatory duplication in 

these and other areas, the Commission 

adopted Rule 17d–2 under the Act.10

Rule 17d–2 permits SROs to propose 

joint plans for the allocation of 

regulatory responsibilities with respect 

to their common members. Under 

paragraph (c) of Rule 17d–2, the 

Commission may declare such a plan 

effective if, after providing for notice 

and comment, it determines that the 

plan is necessary or appropriate in the 

public interest and for the protection of 

investors, to foster cooperation and 

coordination among the SROs, to 

remove impediments to, and foster the 

development of, a national market 

system and a national clearance and 

settlement system, and is in conformity 

with the factors set forth in Section 

17(d) of the Act. Commission approval 

of a plan filed pursuant to Rule 17d–2 

relieves an SRO of those regulatory 

responsibilities allocated by the plan to 

another SRO. 


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11Common NYSE Members include members of 

the NYSE and at least one of the Participating 

Organizations. 

12Common FINRA Members are members of 

FINRA and at least one of the Participating 

Organizations. 

13Common Rules is defined as: (i) Federal 

securities laws and rules promulgated by the 

Commission pertaining to insider trading, and (ii) 

the rules of the Participating Organizations that are 

related to insider trading. See Exhibit A to the plan. 

II. The Plan 

The proposed Plan is designed to 

eliminate regulatory duplication by 

allocating regulatory responsibility over 

Common NYSE Members 11 or Common 

FINRA Members,12 as applicable, 

(collectively, ‘‘Common Members’’) for 

the surveillance, investigation, and 

enforcement of common insider trading 

rules (‘‘Common Rules’’).13

The Plan assigns regulatory 

responsibility over Common NYSE 

Members to NYSE Regulation for 

surveillance, investigation, and 

enforcement of insider trading by 

broker-dealers, and their associated 

persons, with respect to NYSE-listed 

stocks and NYSE Arca-listed stocks, 

irrespective of the marketplace(s) 

maintained by the Participating 

Organizations on which the relevant 

trading may occur. The Plan assigns 

regulatory responsibility over Common 

FINRA Members to FINRA for 

surveillance, investigation, and 

enforcement of insider trading by 

broker-dealers, and their associated 

persons, with respect to NASDAQ-listed 

stocks and Amex-listed stocks, as well 

as any CHX solely-listed equity security, 

irrespective of the marketplace(s) 

maintained by the Participating 

Organizations on which the relevant 

trading may occur. 

An exchange committee composed of 

a representative from each of the 

Participating Organizations to the Plan 

would meet up to four times a year, but 

no more often than once per calendar 

quarter, to discuss the conduct of 

regulatory responsibilities, identify 

issues or concerns, and receive and 

review reports. Costs for insider trading 

surveillance are shared among 

Participating Organizations based on 

their relative trade volume, subject to 

certain minimum payment amounts for 

smaller markets. 

The Plan permits any Participating 

Organization to cancel its participation 

in the Plan at any time, provided it gives 

180 days written notice to the other 

Participating Organizations, and 

provided that such termination is 

approved by the Commission. In 

addition, while the Plan permits the 

Participating Organizations to terminate 

the Plan, the Parties cannot by 

themselves reallocate the regulatory 

responsibilities set forth in the Plan, 

since Rule 17d–2 under the Act requires 

that any allocation or re-allocation of 

regulatory responsibilities be filed with, 

and approved by, the Commission. 

In addition to the Plan, Participating 

Organizations have entered into two 

regulatory services agreements that 

address investigation and enforcement 

in situations that involve trading in 

equity securities by non-Common 

Members, as Rule 17d–2 covers only 

situations involving Common Members. 

The first agreement is between NYSE 

Regulation (acting as the regulatory 

services provider), FINRA, and each of 

the Exchanges (‘‘NYSE Regulation 

Agreement’’). The second agreement is 

between FINRA (acting as the regulatory 

services provider), NYSE Regulation, 

and each of the Exchanges (‘‘FINRA 

Agreement’’). The agreements provide 

for the investigation and enforcement of 

suspected insider trading against brokerdealers and their associated persons that 

(i) are not Common Members of NYSE 

in the case of insider trading in NYSElisted stocks and NYSE-Arca listed 

stocks; or (ii) are not Common Members 

of FINRA in the case of insider trading 

in NASDAQ-listed stocks, Amex-listed 

stocks, and any CHX solely-listed equity 

security. 

Under the agreements, NYSE 

Regulation and FINRA, respectively, 

will provide to the Exchanges ‘‘Core 

Services’’ related and limited to the 

investigation and enforcement activities 

for non-Common Members where these 

activities relate to insider trading of 

equity securities listed on the NYSE or 

NYSE Arca in the case of the NYSE 

Regulation Agreement, and to the 

insider trading of equity securities listed 

on the Nasdaq or Amex, and any CHX 

solely listed security in the case of the 

FINRA Agreement. The Core Services 

provided under the agreements are 

rendered (a) only upon completion of a 

surveillance review under the 17d–2 

Plan, and (b) at the request of the 

relevant exchange. Pursuant to the Plan, 

NYSE Regulation and FINRA will 

conduct surveillance, investigation, and 

enforcement for insider trading for 

Common NYSE Members and Common 

FINRA Members, respectively. 

Surveillance for non-Common Members 

is excluded from the Plan and remains 

the responsibility of the SROs in which 

such non-Common Members maintain 

membership. However, due to the 

nature of insider trading surveillance 

technology and processes, the 

surveillance conducted by NYSE 

Regulation and FINRA will encompass 

non-Common Members as the 

surveillance function does not 

differentiate between Common and nonCommon Members. Accordingly, the 

investigation and enforcement services 

performed under the agreements will 

arise from surveillance undertaken by 

NYSE Regulation and FINRA. 

The full text of the proposed 17d–2 

plan is as follows: 

* * * * * 

Agreement for the Allocation of 

Regulatory Responsibility of 

Surveillance, Investigation and 

Enforcement for Insider Trading 

Pursuant to § 17(d) of the Securities 

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

§ 78q(d), and Rule 17d–2 Thereunder 

This agreement (the ‘‘Agreement’’) by 

and among the American Stock 

Exchange LLC (‘‘Amex’’), Boston Stock 

Exchange, Inc., CBOE Stock Exchange, 

LLC, Chicago Stock Exchange, Inc. 

(‘‘CHX’’), Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’), International 

Securities Exchange, LLC, The 

NASDAQ Stock Market LLC 

(‘‘NASDAQ’’), National Stock Exchange, 

Inc., New York Stock Exchange, LLC 

(‘‘NYSE’’), NYSE Arca Inc. (‘‘NYSE 

Arca’’), NYSE Regulation, Inc. (pursuant 

to delegated authority) (‘‘NYSE 

Regulation’’), and Philadelphia Stock 

Exchange, Inc. (together, the 

‘‘Participating Organizations’’), is made 

pursuant to § 17(d) of the Securities 

Exchange Act of 1934 (the ‘‘Act’’), 15 

U.S.C. § 78q(d), and Securities and 

Exchange Commission (‘‘SEC’’) Rule 

17d–2, which allow for plans to allocate 

regulatory responsibility among selfregulatory organizations (‘‘SROs’’). 

Whereas, NYSE delegates to NYSE 

Regulation the regulation of trading by 

members in its market, and NYSE 

Regulation is a subsidiary of NYSE, all 

references to NYSE Regulation in this 

Agreement shall be read as references to 

both entities; 

Whereas, the Participating 

Organizations desire to: (a) Foster 

cooperation and coordination among the 

SROs; (b) remove impediments to, and 

foster the development of, a national 

market system; (c) strive to protect the 

interest of investors; and (d) eliminate 

duplication in their regulatory 

surveillance, investigation and 

enforcement of insider trading; 

Whereas, the Participating 

Organizations are interested in 

allocating to NYSE Regulation, Inc. 

(‘‘NYSE Regulation’’) regulatory 

responsibility for Common NYSE 

Members for surveillance, investigation 

and enforcement of Insider Trading (as 

defined below) in NYSE Listed Stocks 

(as defined below) irrespective of the 

marketplace(s) maintained by the 

Participating Organizations on which 


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the relevant trading may occur in 

violation of Common Insider Trading 

Rules; 

Whereas, the Participating 

Organizations are interested in 

allocating to FINRA regulatory 

responsibility for Common FINRA 

Members for surveillance, investigation 

and enforcement of Insider Trading in 

NASDAQ Listed Stocks, Amex Listed 

Stocks, and CHX Solely Listed Stocks 

irrespective of the marketplace(s) 

maintained by the Participating 

Organizations on which the relevant 

trading may occur in violation of 

Common Insider Trading Rules; 

Whereas, the Participating 

Organizations will request regulatory 

allocation of these regulatory 

responsibilities by executing and filing 

with the SEC a plan for the above stated 

purposes (this Agreement, also known 

herein as the ‘‘Plan’’) pursuant to the 

provisions of section 17(d) of the Act, 

and SEC Rule 17d–2 thereunder, as 

described below; and 

Whereas, the Participating 

Organizations will also enter into 

certain Regulatory Services Agreements 

(the ‘‘Insider Trading RSAs’’), of even 

date herewith, to provide for the 

investigation and enforcement of 

suspected Insider Trading against 

broker-dealers, and their associated 

persons, that (i) are not Common NYSE 

Members (as defined below) in the case 

of Insider Trading in NYSE Listed 

Stocks, and (ii) are not Common FINRA 

Members (as defined below) in the case 

of Insider Trading in NASDAQ Listed 

Stocks, Amex Listed Stocks, and CHX 

Solely Listed Stocks. 

Now, therefore, in consideration of 

the mutual covenants contained 

hereafter, and other valuable 

consideration to be mutually exchanged, 

the Participating Organizations hereby 

agree as follows: 

1. Definitions. Unless otherwise 

defined in this Agreement, or the 

context otherwise requires, the terms 

used in this Agreement will have the 

same meaning they have under the Act, 

and the rules and regulations 

thereunder. As used in this Agreement, 

the following terms will have the 

following meanings: 

a. ‘‘Rule’’ of an ‘‘exchange’’ or an 

‘‘association’’ shall have the meaning 

defined in Section 3(a)(27) of the Act. 

b. ‘‘Common NYSE Members’’ shall 

mean members of the NYSE and at least 

one of the Participating Organizations. 

c. ‘‘Common FINRA Members’’ shall 

mean members of FINRA and at least 

one of the Participating Organizations. 

d. ‘‘Common Insider Trading Rules’’

shall mean (i) the federal securities laws 

and rules thereunder promulgated by 

the SEC pertaining to insider trading, 

and (ii) the rules of the Participating 

Organizations that are related to insider 

trading, as provided on Exhibit A to this 

Agreement. 

e. ‘‘Effective Date’’ shall have the 

meaning set forth in paragraph 28. 

f. ‘‘Insider Trading’’ shall mean any 

conduct or action taken by a natural 

person or entity related in any way to 

the trading of securities by an insider or 

a related party based on or on the basis 

of material non-public information 

obtained during the performance of the 

insider’s duties at the corporation, or 

otherwise misappropriated, that could 

be deemed a violation of the Common 

Insider Trading Rules. 

g. ‘‘Intellectual Property’’ will mean 

any: (1) Processes, methodologies, 

procedures, or technology, whether or 

not patentable; (2) trademarks, 

copyrights, literary works or other 

works of authorship, service marks and 

trade secrets; or (3) software, systems, 

machine-readable texts and files and 

related documentation. 

h. ‘‘Plan’’ shall mean this Agreement, 

which is submitted as a Plan for the 

allocation of regulatory responsibilities 

of surveillance for insider trading 

pursuant to section 17(d) of the 

Securities and Exchange Act of 1934, 15 

U.S.C. 78q(d), and SEC Rule 17d–2. 

i. ‘‘NYSE Listed Stock’’ shall mean an 

equity security that is listed on the 

NYSE, or NYSE Arca. 

j. ‘‘NASDAQ Listed Stock’’ shall mean 

an equity security that is listed on the 

NASDAQ. 

k. ‘‘Amex Listed Stock’’ shall mean an 

equity security that is listed on the 

Amex. 

l. ‘‘CHX Solely Listed Stock’’ shall 

mean an equity security that is listed 

only in the Chicago Stock Exchange. 

m. ‘‘Listing Market’’ shall mean 

Amex, Nasdaq, NYSE, or NYSE Arca, 

but not CHX. 

2. Assumption of Regulatory 

Responsibilities. 

a. NYSE Regulation: Assumption of 

Regulatory Responsibilities. On the 

Effective Date of the Plan, NYSE 

Regulation will assume regulatory 

responsibilities for surveillance, 

investigation and enforcement of Insider 

Trading by broker-dealers, and their 

associated persons, for Common NYSE 

Members with respect to NYSE Listed 

Stocks irrespective of the marketplace(s) 

maintained by the Participant 

Organizations on which the relevant 

trading may occur in violation of the 

Common Insider Trading Rules 

(‘‘NYSE’s Regulatory Responsibility’’). 

b. FINRA: Assumption of Regulatory 

Responsibilities. On the Effective Date of 

the Plan, FINRA will assume regulatory 

responsibilities for surveillance, 

investigation and enforcement of Insider 

Trading by broker-dealers, and their 

associated persons, for Common FINRA 

Members with respect to NASDAQ and 

Amex Listed Stocks, as well as any CHX 

Solely Listed equity security, 

irrespective of the marketplace(s) 

maintained by the Participant 

Organizations on which the relevant 

trading may occur in violation of the 

Common Insider Trading Rules 

(‘‘FINRA’s Regulatory Responsibility’’). 

c. Change in Control. In the event of 

a change of control of a Listing Market, 

the Listing Market will have the 

discretion to transfer the regulatory 

responsibility for its listed stocks from 

NYSE Regulation to FINRA or from 

FINRA to NYSE Regulation, provided 

the SRO assuming regulatory 

responsibility consents to such transfer. 

3. Certification of Insider Trading 

Rules. 

a. Initial Certification. By signing this 

Agreement, the Participating 

Organizations, other than NYSE 

Regulation and FINRA, hereby certify to 

NYSE Regulation and FINRA that their 

respective lists of Common Insider 

Trading Rules contained in Attachment 

A hereto are correct, and NYSE 

Regulation and FINRA hereby confirm 

that such rules are Common Insider 

Trading Rules as defined in this 

Agreement. 

b. Yearly Certification. Each year 

following the commencement of 

operation of this Agreement, or more 

frequently if required by changes in the 

rules of the Participating Organizations, 

each Participating Organization shall 

submit a certified and updated list of 

Common Insider Trading Rules to NYSE 

Regulation and FINRA for review, 

which shall (i) add Participating 

Organization rules not included in the 

then-current list of Common Insider 

Trading Rules that qualify as Common 

Rules as defined in this Agreement; (ii) 

delete Participating Organization rules 

included in the current list of Common 

Insider Trading Rules that no longer 

qualify as Common Insider Trading 

Rules as defined in this Agreement; and 

(iii) confirm that the remaining rules on 

the current list of Common Insider 

Trading Rules continue to be 

Participating Organization rules that 

qualify as Common Insider Trading 

Rules as defined in this Agreement. 

NYSE Regulation and FINRA shall 

review each Participating Organization’s 

annual certification and confirm 

whether NYSE Regulation and FINRA 

agree with the submitted certified and 

updated list of Common Insider Rules 

by each of the Participating 

Organizations. 


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4. No Retention of Regulatory 

Responsibility. The Participating 

Organizations do not contemplate the 

retention of any responsibilities with 

respect to the regulatory activities being 

assumed by NYSE Regulation and 

FINRA, respectively, under the terms of 

this Agreement. Nothing in this 

Agreement will be interpreted to 

prevent NYSE Regulation or FINRA 

from entering into Regulatory Services 

Agreement(s) to perform their 

Regulatory Responsibilities. 

5. Dually Listed Stocks. Stocks that 

are listed on more than one 

Participating Organization shall be 

designated as a NYSE Listed Stock, a 

NASDAQ Listed Stock, or an Amex 

Listed Stock based on the applicable 

transaction reporting plan for the equity 

security as set forth in paragraph 1.b. of 

Exhibit B. 

6. Fees. NYSE Regulation and FINRA 

shall charge Participating Organizations 

for performing their respective 

Regulatory Responsibilities, as set forth 

in the Schedule of Fees, attached as 

Exhibit B. 

7. Applicability of Certain Laws, 

Rules, Regulations or Orders. 

Notwithstanding any provision hereof, 

this Agreement shall be subject to any 

statute, or any rule or order of the SEC. 

To the extent such statute, rule, or order 

is inconsistent with one or more 

provisions of this Agreement, the 

statute, rule, or order shall supersede 

the provision(s) hereof to the extent 

necessary to be properly effectuated and 

the provision(s) hereof in that respect 

shall be null and void. 

8. Exchange Committee; Reports. 

a. Exchange Committee. The 

Participating Organizations shall form a 

committee (the ‘‘Exchange Committee’’), 

which shall act on behalf of all of 

Participating Organizations in receiving 

copies of the reports described below 

and in reviewing issues that arise under 

this Agreement. Each Participating 

Organization shall appoint a 

representative to the Exchange 

Committee. The Exchange Committee 

representatives shall report to their 

respective executive management 

bodies regarding status or issues under 

the Agreement. The Participating 

Organizations agree that the Exchange 

Committee will meet regularly up to 

four (4) times a year, with no more than 

one meeting per calendar quarter. At 

these meetings, the Exchange 

Committee will discuss the conduct of 

the Regulatory Responsibilities and 

identify issues or concerns with respect 

to this Agreement, including matters 

related to the calculation of the cost 

formula and accuracy of fees charged 

and provision of information related to 

the same. The SEC shall be permitted to 

attend the meetings as an observer. 

b. Reports. NYSE Regulation and 

FINRA shall provide the reports set 

forth in Exhibit C hereto and any 

additional reports related to the 

Agreement reasonably requested by a 

majority vote of all representatives to 

the Exchange Committee at each 

Exchange Committee meeting, or more 

often as the Participating Organizations 

deem appropriate, but no more often 

than once every quarterly billing period. 

9. Customer Complaints. 

a. If a Participating Organization 

receives a copy of a customer complaint 

relating to Insider Trading or other 

activity or conduct that is within the 

NYSE’s Regulatory Responsibilities as 

set forth in this Agreement, the 

Participating Organization shall 

promptly forward to NYSE Regulation, 

as applicable, a copy of such customer 

complaint. 

b. If a Participating Organization 

receives a copy of a customer complaint 

relating to Insider Trading or other 

activity or conduct that is within 

FINRA’s Regulatory Responsibilities as 

set forth in this Agreement, the 

Participating Organization shall 

promptly forward to FINRA, as 

applicable, a copy of such customer 

complaint. 

10. Parties to Make Personnel 

Available as Witnesses. Each 

Participating Organization shall make 

its personnel available to NYSE 

Regulation or FINRA to serve as 

testimonial or non-testimonial witnesses 

as necessary to assist NYSE Regulation 

and FINRA in fulfilling the Regulatory 

Responsibilities allocated under this 

Agreement. FINRA and NYSE 

Regulation shall provide reasonable 

advance notice when practicable and 

shall work with a Participating 

Organization to accommodate 

reasonable scheduling conflicts within 

the context and demands as the entities 

with ultimate regulatory responsibility. 

The Participating Organization shall pay 

all reasonable travel and other expenses 

incurred by its employees to the extent 

that NYSE Regulation or FINRA require 

such employees to serve as witnesses, 

and provide information or other 

assistance pursuant to this Agreement. 

11. Market Data; Sharing of WorkPapers, Data and Related Information. 

a. Market Data. FINRA and NYSE 

Regulation shall obtain raw market data 

necessary to the performance of 

regulation under this Agreement from 

(a) the Consolidated Tape Association 

(‘‘CTA’’) as the exclusive securities 

information processor (‘‘SIP’’) for all 

NYSE-listed, AMEX-listed securities, 

and CHX solely listed securities and (b) 

the NASDAQ Unlisted Trading 

Privileges Plan as the exclusive SIP for 

NASDAQ-listed securities. 

b. Sharing. A Participating 

Organization shall make available to 

each of NYSE Regulation and FINRA 

information necessary to assist NYSE 

Regulation or FINRA in fulfilling the 

regulatory responsibilities assumed 

under the terms of this Agreement. Such 

information shall include any 

information collected by an exchange or 

association in the course of performing 

its regulatory obligations under the Act, 

including information relating to an ongoing disciplinary investigation or 

action against a member, the amount of 

a fine imposed on a member, financial 

information, or information regarding 

proprietary trading systems gained in 

the course of examining a member 

(‘‘Regulatory Information’’). This 

Regulatory Information shall be used by 

NYSE Regulation and FINRA solely for 

the purposes of fulfilling their 

respective regulatory responsibilities. 

c. No Waiver of Privilege. The sharing 

of documents or information between 

the parties pursuant to this Agreement 

shall not be deemed a waiver as against 

third parties of regulatory or other 

privileges relating to the discovery of 

documents or information. 

d. Intellectual Property. 

(i) Existing Intellectual Property. Each 

of NYSE Regulation and FINRA, 

respectively, is and will remain the 

owner of all right, title and interest in 

and to the proprietary Intellectual 

Property it employs in the provision of 

regulation hereunder (including the 

SONAR and Stock Watch systems), and 

any derivative works thereof. To the 

extent certain elements of either of these 

parties’ systems, or portions thereof, 

may be licensed or leased from third 

parties, all such third party elements 

shall remain the property of such third 

parties, as applicable. Likewise, any 

other Participating Organization is and 

will remain the owner of all right, title 

and interest in and to its own existing 

proprietary Intellectual Property. 

(ii) Enhancements to Existing 

Intellectual Property or New 

Developments of NYSE Regulation or 

FINRA. In the event NYSE Regulation or 

FINRA (a) makes any changes, 

modifications or enhancements to its 

respective Intellectual Property for any 

reason, or (b) creates any newly 

developed Intellectual Property for any 

reason, including as a result of 

requested enhancements or new 

development by the Exchange 

Committee (collectively, the ‘‘New IP’’), 

the Participating Organizations 

acknowledge and agree that each of 

NYSE Regulation and FINRA shall be 


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deemed the owner of the New IP created 

by each of them, respectively (and any 

derivative works thereof), and shall 

retain all right, title and interest therein 

and thereto, and each other 

Participating Organization hereby 

irrevocably assigns, transfers and 

conveys to each of NYSE Regulation and 

FINRA, as applicable, without further 

consideration all of its right, title and 

interest in or to all such New IP (and 

any derivative works thereof). 

(iii) NYSE Regulation and FINRA will 

not charge the Participating 

Organizations any fees for any New IP 

created and used by NYSE Regulation or 

FINRA, respectively; provided, 

however, that NYSE Regulation and 

FINRA will each be permitted to charge 

fees for software maintenance work 

performed on systems used in the 

discharge of their respective duties 

hereunder. 

12. Special or Cause Examinations. 

Nothing in this Agreement shall restrict 

or in any way encumber the right of a 

party to conduct special or cause 

examinations of Common NYSE 

Members or Common FINRA Members 

as any party, in its sole discretion, shall 

deem appropriate or necessary. 

13. Dispute Resolution Under this 

Agreement. 

a. Negotiation. The Parties will 

attempt to resolve any disputes through 

good faith negotiation and discussion, 

escalating such discussion up through 

the appropriate management levels until 

reaching the executive management 

level. In the event a dispute cannot be 

settled through these means, the Parties 

shall refer the dispute to binding 

arbitration. 

b. Binding Arbitration. All claims, 

disputes, controversies, and other 

matters in question between the Parties 

to this Agreement arising out of or 

relating to this Agreement or the breach 

thereof that cannot be resolved by the 

Parties will be resolved through binding 

arbitration. Unless otherwise agreed by 

the Parties, a dispute submitted to 

binding arbitration pursuant to this 

paragraph shall be resolved using the 

following procedures: 

(i) The arbitration shall be conducted 

in the city of New York in accordance 

with the Commercial Arbitration Rules 

of the American Arbitration Association 

and judgment upon the award rendered 

by the arbitrator may be entered in any 

court having jurisdiction thereof; and 

(ii) There shall be three arbitrators, 

and the chairperson of the arbitration 

panel shall be an attorney. 

14. Limitation of Liability. As between 

the Participating Organizations, no 

Participating Organization, including its 

respective directors, governors, officers, 

employees and agents, will be liable to 

any other Participating Organization, or 

its directors, governors, officers, 

employees and agents, for any liability, 

loss or damage resulting from any 

delays, inaccuracies, errors or omissions 

with respect to its performing or failing 

to perform regulatory responsibilities, 

obligations, or functions, except (a) as 

otherwise provided for under the Act, 

(b) in instances of a Participating 

Organization’s gross negligence, willful 

misconduct or reckless disregard with 

respect to another Participating 

Organization, (c) in instances of a 

breach of confidentiality obligations 

owed to another Participating 

Organization, or (d) in the case of any 

Participating Organization paying fees 

hereunder, for any payments due. The 

Participating Organizations understand 

and agree that the regulatory 

responsibilities are being performed on 

a good faith and best effort basis and no 

warranties, express or implied, are made 

by any Participating Organization to any 

other Participating Organization with 

respect to any of the responsibilities to 

be performed hereunder. This paragraph 

is not intended to create liability of any 

Participating Organization to any third 

party. 

15. SEC Approval. 

a. The parties agree to file promptly 

this Agreement with the SEC for its 

review and approval. NYSE Regulation 

and FINRA shall jointly file this 

Agreement on behalf, and with the 

explicit consent, of all Participating 

Organizations. 

b. If approved by the SEC, the 

Participating Organizations will notify 

their members of the general terms of 

the Agreement and of its impact on their 

members. 

16. Subsequent Parties; Limited 

Relationship. This Agreement shall 

inure to the benefit of and shall be 

binding upon the Participating 

Organizations hereto and their 

respective legal representatives, 

successors, and assigns. Nothing in this 

Agreement, expressed or implied, is 

intended or shall: (a) Confer on any 

person other than the Participating 

Organizations hereto, or their respective 

legal representatives, successors, and 

assigns, any rights, remedies, 

obligations or liabilities under or by 

reason of this Agreement, (b) constitute 

the Participating Organizations hereto 

partners or participants in a joint 

venture, or (c) appoint one Participating 

Organization the agent of the other. 

17. Assignment. No Participating 

Organization may assign this Agreement 

without the prior written consent of all 

the other Participating Organizations, 

which consent shall not be 

unreasonably withheld, conditioned or 

delayed; provided, however, that any 

Participating Organization may assign 

the Agreement to a corporation 

controlling, controlled by or under 

common control with the Participating 

Organization without the prior written 

consent of any other party. 

18. Severability. Any term or 

provision of this Agreement that is 

invalid or unenforceable in any 

jurisdiction shall, as to such 

jurisdiction, be ineffective to the extent 

of such invalidity or unenforceability 

without rendering invalid or 

unenforceable the remaining terms and 

provisions of this Agreement or 

affecting the validity or enforceability of 

any of the terms or provisions of this 

Agreement in any other jurisdiction. 

19. Termination. 

a. Any Participating Organization may 

cancel its participation in the 

Agreement at any time, provided that it 

has given 180 days written notice to the 

other Participating Organizations (or in 

the case of a change of control in 

ownership of a Participating 

Organization, such other notice time 

period as that Participating Organization 

may choose), and provided that such 

termination has been approved by the 

SEC. The cancellation of its 

participation in this Agreement by any 

Participating Organization shall not 

terminate this Agreement as to the 

remaining Participating Organizations. 

b. The Regulatory Responsibilities 

assumed under this Agreement by NYSE 

Regulation or FINRA (either, an 

‘‘Invoicing Party’’) may be terminated by 

the Invoicing Party against any 

Participating Organization as follows. 

The Participating Organization will 

have thirty (30) days from receipt to 

satisfy the invoice. If the Participating 

Organization fails to satisfy the invoice 

within thirty (30) days of receipt 

(‘‘Default’’), the Invoicing Party will 

notify the Participating Organization of 

the Default. The Participating 

Organization will have thirty (30) days 

from receipt of the Default notice to 

satisfy the invoice. 

c. The Invoicing Party will have the 

right to terminate the Regulatory 

Responsibilities assumed under this 

Agreement if a Participating 

Organization has Defaulted in its 

obligation to pay the invoice on more 

than three (3) occasions. in any rolling 

twenty-four (24) month period. 

20. Intermarket Surveillance Group 

(‘‘ISG’’). In order to participate in this 

Agreement, all Participating 

Organizations to this Agreement must 

be members of the ISG. 

21. General. The Participating 

Organizations agree to perform all acts 


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and execute all supplementary 

instruments or documents that may be 

reasonably necessary or desirable to 

carry out the provisions of this 

Agreement. 

22. Liaison and Notices. All questions 

regarding the implementation of this 

Agreement shall be directed to the 

persons identified below, as applicable. 

All notices and other communications 

required or permitted to be given under 

this Agreement shall be in writing and 

shall be deemed to have been duly given 

upon (i) actual receipt by the notified 

party or (ii) constructive receipt (as of 

the date marked on the return receipt) 

if sent by certified or registered mail, 

return receipt requested, to the 

following addresses: 

For American Stock Exchange LLC: 

Claudia Crowley, SVP and Chief 

Regulatory Officer, American Stock 

Exchange LLC, 86 Trinity Place, New 

York, NY 10006, Telephone: (212) 306–

2432, Facsimile: (212) 306–1219, E-mail: 

Claudia.Crowley@amex.com. 

For Boston Stock Exchange, Inc.: 

Bruce Goodhue, Chief Regulatory 

Officer, Boston Stock Exchange, 100 

Franklin Street, Boston, MA 02110, 

Phone: (617) 235–2022, Fax: (617) 235–

2355, E-mail: 

Bruce.Goodhue@bostonstock.com. 

For CBOE Stock Exchange, LLC: 

Timothy Thompson, Chief Regulatory 

Officer, CBOE Stock Exchange, LLC, 400 

S. LaSalle St., Chicago, IL 60605, 

Telephone: (312) 786–5600, Facsimile: 

(312) 786–7982, E-mail: 

Thompson@cboe.com. 

For Chicago Stock Exchange, Inc.: 

David C. Whitcomb, Jr., EVP and Chief 

Regulatory Officer, Chicago Stock 

Exchange, Inc., 440 S. LaSalle Street, 

Chicago, IL 60605, Telephone: (312) 

663–2628, Facsimile: (213) 663–2231, Email: dwhitcomb@chx.com. 

For Financial Industry Regulatory 

Authority, Inc.: Thomas Gira, Executive 

Vice President, Market Regulation, 

FINRA, 1735 K Street, NW., 

Washington, DC 20006, Telephone: 

(212) 858–4404, Facsimile: (212) 858–

4450, E-mail: Tom.Gira@finra.org. 

For International Securities Exchange, 

LLC: Katherine A. Simmons, Deputy 

General Counsel, Legal Officer and 

Assistant Secretary, International 

Securities Exchange, 60 Broad Street, 

New York, NY 10004, Telephone: (212) 

897–0233, Facsimile: (212) 635–0210, Email: ksimmons@ise.com. 

For The NASDAQ Stock Market LLC: 

John A. Zecca, VP and Associate 

General Counsel, The NASDAQ Stock 

Market LLC, 9600 Blackwell Road, 

Rockville, MD 20850, Telephone: (301) 

978–8498, Facsimile: (301) 978–8472, Email: John.Zecca@nasdaq.com. 

For National Stock Exchange, Inc.: 

James C. Yong, Esq., Chief Regulatory 

Officer, National Stock Exchange, Inc., 

440 S. LaSalle Street, Suite 2600, 

Chicago, IL 60605, Telephone: 

312.786.8893, Facsimile: 312.939.7239, 

E-mail: James.Yong@nsx.com. 

For NYSE Arca, Inc.: Jim Draddy, 

Chief Regulatory Officer, NYSE Arca, 

Inc., 100 South Wacker Drive, Suite 

1500, Chicago, Illinois 60606, Phone—

312 442 7930, Fax—312 442 7778, 

jdraddy@nyx.com. 

For New York Stock Exchange, LLC: 

William Freeman, Secretary, New York 

Stock Exchange, LLC, 11 Wall Street, 

New York, NY 10005, Telephone: (212) 

656–6096, Facsimile: (212) 656–8101, Email: wfreeman@nyx.com. 

For NYSE Regulation, Inc.: John 

Malitzis, Executive Vice President, 

Division of Market Surveillance, NYSE 

Regulation, Inc., 11 Wall Street, 10th 

Floor, New York, NY 10005, Telephone: 

(212) 656–2250, Facsimile: (212) 656–

4219, E-mail: John.Malitzis@nyx.com. 

For Philadelphia Stock Exchange, 

Inc.: Charles Rogers, Chief Regulatory 

Officer, Philadelphia Stock Exchange, 

Inc., 1900 Market Street, Philadelphia, 

PA 19103, Telephone: (215) 496–1615, 

Facsimile: (215) 496–1519, E-mail: 

Charles.Rogers@phlx.com. 

23. Confidentiality. The parties agree 

that documents or information shared 

shall be held in confidence, and used 

only for the purposes of carrying out 

their respective regulatory obligations 

under this Agreement. No party shall 

assert regulatory or other privileges as 

against the other with respect to 

Regulatory Information that is required 

to be shared pursuant to this Agreement, 

as defined by paragraph 11, above. 

24. Regulatory Responsibility. 

Pursuant to Section 17(d)(1)(A) of the 

Act, and Rule 17d–2 thereunder, the 

Participating Organizations jointly and 

severally request the SEC, upon its 

approval of this Agreement, to relieve 

the Participating Organizations, jointly 

and severally, of any and all 

responsibilities with respect to the 

matters allocated to NYSE Regulation 

and FINRA pursuant to this Agreement 

for purposes of sections 17(d) and 19(g) 

of the Act. 

25. Governing Law. This Agreement 

shall be deemed to have been made in 

the State of New York, and shall be 

construed and enforced in accordance 

with the law of the State of New York, 

without reference to principles of 

conflicts of laws thereof. Each of the 

parties hereby consents to submit to the 

jurisdiction of the courts of the State of 

New York in connection with any action 

or proceeding relating to this 

Agreement. 

26. Survival of Provisions. Provisions 

intended by their terms or context to 

survive and continue notwithstanding 

delivery of the regulatory services by 

NYSE Regulation or FINRA, as 

applicable, the payment of the Fees by 

the Participating Organizations, and any 

expiration of this Agreement shall 

survive and continue. 

27. Amendment. This Agreement may 

be amended by any writing duly 

approved by each Participating 

Organization. The addition of a new 

Participating Organization to the 

Agreement will require an amendment. 

All such amendments must be filed 

with and approved by the Commission 

before they become effective. 

28. Effective Date. The Effective Date 

of this Agreement will be the date the 

SEC declares this Agreement to be 

effective pursuant to authority conferred 

by section 17(d) of the Act, and SEC 

Rule 17d–2 thereunder. 

29. Counterparts. This Agreement 

may be executed in any number of 

counterparts, including facsimile, each 

of which will be deemed an original, but 

all of which taken together shall 

constitute one single agreement between 

the Parties. 

In witness whereof, the Parties hereto 

have each caused this Agreement for the 

Allocation of Regulatory Responsibility 

of Surveillance, Investigation and 

Enforcement for Insider Trading 

Agreement to be signed and delivered 

by its duly authorized representative. 

Exhibit A: Common Insider Trading 

Rules 

1. Securities Exchange Act of 1934 

Section 10(b), and rules and regulations 

promulgated there under in connection 

with insider trading, including SEC 

Rule 10b–5 (as it pertains to insider 

trading), which states that: 

Rule 10b–5—Employment of 

Manipulative and Deceptive Devices 

It shall be unlawful for any person, 

directly or indirectly, by the use of any 

means or instrumentality of interstate 

commerce, or of the mails or of any 

facility of any national securities 

exchange, 

a. To employ any device, scheme, or 

artifice to defraud, 

b. To make any untrue statement of a 

material fact or to omit to state a 

material fact necessary in order to make 

the statements made, in the light of the 

circumstances under which they were 

made, not misleading, or 

c. To engage in any act, practice, or 

course of business which operates or 

would operate as a fraud or deceit upon 

any person, in connection with the 

purchase or sale of any security. 


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2. Securities Exchange Act of 1934 

Section 17(a), and rules and regulations 

promulgated there under in connection 

with insider trading, including SEC 

Rule 17a–3 (as it pertains to insider 

trading). 

3. The following SRO Rules as they 

pertain to violations of insider trading: 

FINRA NASD Rule 2110 (Standards of 

Commercial Honor and Principles of 

Trade) 

FINRA NASD Rule 2120 (Use of 

Manipulative, Deceptive or Other 

Fraudulent Devices) 

FINRA NASD Rule 3010 (Supervision) 

FINRA NASD Rule 3110 (a) and (c) 

(Books and Records; Financial 

Condition) 

NYSE Rule 401(a) (Business Conduct) 

NYSE Rule 476(a) (Disciplinary 

Proceedings Involving Charges 

Against Members, Member 

Organizations, Allied Members, 

Approved Persons, Employees, or 

Others) 

NYSE Rule 440 (Books and Records) 

NYSE Rule 342 (Offices—Approval, 

Supervision and Control) 

AMEX Cons. Art. II Sec. 3, Confidential 

Information 

AMEX Cons. Art. V Sec. 4 Suspension 

or Expulsion (b), (h), (i), (j) and (r) 

AMEX Cons. Art. XI Sec. 4 Controlled 

Corporations and Associations—

Responsibility for Corporate 

Subsidiary; Duty to Produce Books 

AMEX Rule 3 General Prohibitions and 

Duty to Report (d), (h) (j) and (l) 

AMEX Rule 3–AEMI General 

Prohibitions and Duty to Report (d) 

and (h) 

AMEX Rule 16 Business Conduct 

AMEX Rule 320 Offices-Approval, 

Supervision and Control 

AMEX Rule 324 Books and Records 

NASDAQ Rule 2110 (Standards of 

Commercial Honor and Principles of 

Trade) 

NASDAQ Rule 2120 (Use of 

Manipulative, Deceptive or Other 

Fraudulent Devices) 

NASDAQ Rule 3010 (Supervision) 

NASDAQ Rule 3110 (a) and (c) (Books 

and Records; Financial Condition) 

CHX Article 8, Rule 3 (Fraudulent Acts) 

CHX Article 9, Rule 2 (Just & Equitable 

Trade Principles) 

CHX Article 11, Rule 2 (Maintenance of 

Books and Records) 

CHX Article 6, Rule 5 (Supervision of 

Registered Persons and Branch and 

Resident Offices) 

ISE RULE 400 (Just and Equitable 

Principles of Trade) 

ISE RULE 405 (Manipulation) 

ISE RULE 408 (Prevention of Misuse of 

Material Nonpublic Information) 

CBOE RULE 4.1 (Practices inconsistent 

with just and equitable principles) 

CBOE RULE 4.2 (adherence to law) 

CBOE RULE 4.7 (Manipulation) 

CBOE RULE 4.18 (Prevention of the 

misuse of material nonpublic 

information) 

PHLX RULE 707 (Conduct Inconsistent 

with Just and Equitable Principles of 

Trade) 

PHLX RULE 748 (Supervision) 

PHLX RULE 760 (Maintenance, 

Retention and Furnishing of Books, 

Records and Other Information) 

PHLX RULE 761 (Supervisory 

Procedures Relating to ITSFEA and to 

Prevention of Misuse or Material 

Nonpublic Information) 

PHLX RULE 782 (Manipulative 

Operations) 

NYSE Arca Rule 6.3 (Prevention of the 

Misuse of Material, Nonpublic 

Information) 

NYSE Arca Rule 6.2(b) Prohibited Acts 

(J&E) 

NYSE Arca Rule 6.1 Adherence to Law 

NYSE Arca Rule 6.18 Supervision 

NYSE Arca Rule 9.1(c) Office 

Supervision 

NYSE Arca Rule 9.2(b) Account 

Supervision 

NYSE Arca Rule 9.2(c) Customer 

Records 

NYSE Arca Rule 9.17 Books and 

Records 

NSX Rule 3.1 Business Conduct of ETP 

Holders 

NSX Rule 3.2. Violations Prohibited 

NSX Rule 3.3. Use of Fraudulent 

Devices 

NSX Rule 4.1 Requirements 

NSX Rule 5.1. Written Procedures 

NSX Rule 5.3 Records 

NSX Rule 5.5 Chinese Wall Procedures 

BSE Chapter II, Sections 26–28 (AntiManipulative Provisions) 

BSE Chapter II, Section 37 (ITSFEA 

Procedures) 

BSE Chapter XXIV–C, Section 2 

(Securities Accounts and Orders of 

Specialists) 

BSE Chapter XXXVII, Section 11 

(Limitations on Dealings) 

Exhibit B: Fee Schedule 

1. Fees. NYSE Regulation and, 

separately, FINRA shall charge each 

Participating Organization a Quarterly 

Fee in arrears for the performance of 

NYSE Regulation’s and FINRA’s 

respective regulatory responsibilities 

under the Plan (each, a ‘‘Quarterly Fee,’’

and together, the ‘‘Fees’’). 

a. Quarterly Fees. 

(1) Quarterly Fees for each 

Participating Organization will be 

charged by NYSE Regulation and 

FINRA, respectively, according to the 

Participating Organization’s ‘‘Percentage 

of Publicly Reported Trades’’ occurring 

over three-month billing periods. The 

‘‘Percentage of Publicly Reported 

Trades’’ shall equal a Participating 

Organization’s number of reported 

NYSE-listed trades (when billing 

originates from NYSE Regulation) and 

combined AMEX-listed, NASDAQlisted, and CHX solely-listed trades 

(when billing originates from FINRA) 

during the relevant period (the 

‘‘Numerator’’), divided by the total 

number of either all NYSE-listed trades 

or all combined AMEX-listed, 

NASDAQ-listed, and CHX solely-listed 

trades, respectively, for the same period 

(the ‘‘Denominator’’). For purposes of 

clarification, ADF and Trade Reporting 

Facility (TRF) activity will be included 

in the Denominator. Additionally, with 

regard to TRFs, TRF trade volume will 

be charged to FINRA. Consequently, for 

purposes of calculating the Quarterly 

Fees, the volume for each Participant 

Organization’s TRF will be calculated 

separately (that is, TRF volume will be 

broken out from the Participating 

Organization’s overall Percentage of 

Publicly Reported Trades) and the fees 

for such will be billed to FINRA in 

accordance with paragraph 1(a)(2), 

rather than to the applicable 

Participating Organization. 

(2) The Quarterly Fees shall be 

determined by each of NYSE Regulation 

and FINRA, as applicable, in the 

following manner for each Participating 

Organization: 

(a) Less than 1.0%: If the Participating 

Organization’s Percentage of Publicly 

Reported Trades for NYSE-listed trades 

(in the case of NYSE Regulation) or for 

combined AMEX-listed, NASDAQlisted, and CHX solely-listed trades (in 

the case of FINRA) for the relevant 

three-month billing period is less than 

1.0%, the Quarterly Fee shall be $3,125, 

per quarter (‘‘Static Fee’’); 

(b) Less than 2.0% but No Less than 

1.0%: If the Participating Organization’s 

Percentage of Publicly Reported Trades 

for NYSE-listed trades (in the case of 

NYSE Regulation) or for combined 

AMEX-listed, NASDAQ-listed, and CHX 

solely-listed trades (in the case of 

FINRA) for the relevant three-month 

billing period is less than 2.0% but no 

less than 1.0%, the Quarterly Fee shall 

be $9,375, per quarter (‘‘Static Fee’’); 

(c) 2.0% or Greater: If the 

Participating Organization’s Percentage 

of Publicly Reported Trades for NYSElisted trades (in the case of NYSE 

Regulation) or for combined AMEXlisted, NASDAQ-listed, and CHX solelylisted trades (in the case of FINRA) for 

the relevant three-month billing period 

is 2.0% or greater, the Quarterly Fee 

shall be the amount equal to the 

Participating Organization’s Percentage 


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of Publicly Reported Trades multiplied 

by NYSE Regulation’s or FINRA’s total 

charge (‘‘Total Charge’’), respectively, 

for its performance of Insider Trading 

regulatory responsibilities for the 

relevant three-month billing period. 

(3) Increases in Static Fees. NYSE 

Regulation and FINRA will re-evaluate 

the Quarterly Fees on an annual basis 

during the annual budget process 

outlined in paragraph 1.c. below. During 

each annual re-evaluation, NYSE 

Regulation and FINRA will have the 

discretion to increase the Static Fees by 

a percentage no greater than the 

percentage increase in the Final Budget 

over the preceding year’s Final Budget. 

Any changes to the Static Fees shall not 

require an amendment to this 

Agreement, but rather shall be 

memorialized through the Budget 

Process. 

(4) Increases in Total Charges. Any 

change in the Total Charges (whether a 

Final Budget increase or any mid year 

change) shall not require an amendment 

to this Agreement, but rather shall be 

memorialized through the budget 

process. 

b. Source of Data. For purposes of 

calculation of the Percentage of Publicly 

Reported Trades for each Participating 

Organization, NYSE Regulation and 

FINRA shall use (a) the Consolidated 

Tape Association (‘‘CTA’’) as the 

exclusive securities information 

processor (‘‘SIP’’) for all NYSE Listed 

Stocks, AMEX Listed Stocks, and CHX 

Solely Listed Stocks, and (b) the 

Unlisted Trading Privileges Plan as the 

exclusive SIP for NASDAQ-listed 

Stocks. 

c. Annual Budget Forecast. NYSE 

Regulation and FINRA will notify the 

Participating Organizations of the 

forecasted costs of their respective 

insider trading programs for the 

following calendar year by close of 

business on October 15 of the thencurrent year (the ‘‘Forecasted Budget’’). 

NYSE Regulation and FINRA shall use 

best efforts to provide as accurate a 

forecast as possible. NYSE Regulation 

and FINRA shall then provide a final 

submission of the costs following 

approval of such costs by their 

respective governing Boards (the ‘‘Final 

Budget’’). Subject to paragraph 1(d) 

below, in the event of a difference 

between the Forecasted Budget and the 

Final Budget, the Final Budget will 

govern. 

d. Increases in Fees over Twenty 

Percent. 

(1) In the event that any proposed 

increase to Fees by NYSE Regulation or 

by FINRA for a given calendar year 

(which increase may arise either during 

the annual budgetary forecasting 

process or through any mid-year 

increase) will result in a cumulative 

increase in such calendar year’s Fees of 

more than twenty percent (20%) above 

the preceding calendar year’s Final 

Budget (a ‘‘Major Increase’’), then senior 

management of any Participating 

Organization (a) that is a Listing Market 

or (b) for which the Percentage of 

Publicly Reported Trades is then 

currently twenty percent (20%) or 

greater, shall have the right to call a 

meeting with the senior management of 

NYSE Regulation or FINRA, 

respectively, in order to discuss any 

disagreement over such proposed Major 

Increase. By way of example, if NYSE 

Regulation provides a Final Budget for 

2009 that represents an 8% increase 

above the Final Budget for 2008, the 

terms of this paragraph 1.d.(1) shall not 

apply; if, however, in April of 2009, 

NYSE Regulation notifies the Exchange 

Committee of an increase in Fees that 

represents an additional 14% increase 

above the Final Budget for 2008, then 

the increase shall be deemed a Major 

Increase, and the terms of this paragraph 

1.d.(1) shall become applicable (i.e., 8% 

+ 14% = a cumulative increase of 22% 

above 2008 Final Budget). 

(2) In the event that senior 

management members of the involved 

parties are unable to reach an agreement 

regarding the proposed Major Increase, 

then the matter shall be referred back to 

the Exchange Committee for final 

resolution. Prior to the matter being 

referred back to the Exchange 

Committee, nothing shall prohibit the 

parties from conferring with the SEC. 

Resolution shall be reached through a 

vote of no fewer than all Participating 

Organizations seated on the Exchange 

Committee, and a simple majority shall 

be required in order to reject the 

proposed Major Increase. 

e. Time Tracking. NYSER and FINRA 

shall track the time spent by staff on 

insider trading responsibilities under 

this Agreement; however, time tracking 

will not be used to allocate costs. 

2. Invoicing and Payment. 

a. NYSE Regulation shall invoice each 

Participating Organization for the 

Quarterly Fee associated with the 

regulatory activities performed pursuant 

to this Agreement during the previous 

three-month billing period within forty 

five (45) days of the end of such 

previous 3-month billing period. A 

Participating Organization shall have 

thirty (30) days from date of invoice to 

make payment to NYSE Regulation on 

such invoice. The invoice will reflect 

the Participating Organization’s 

Percentage of Publicly Reported Trades 

for that billing period. 

b. FINRA shall invoice each 

Participating Organization for the 

Quarterly Fee associated with the 

regulatory activities performed pursuant 

to this Agreement during the previous 

three-month billing period within forty 

five (45) days of the end of such 

previous 3-month billing period. A 

Participating Organization shall have 

thirty (30) days from date of invoice to 

make payment to FINRA on such 

invoice. The invoice will reflect the 

Participating Organization’s Percentage 

of Publicly Reported Trades for that 

billing period. 

3. Disputed Invoices; Interest. In the 

event that a Participating Organization 

disputes an invoice or a portion of an 

invoice, the Participating Organization 

shall notify in writing either FINRA or 

NYSE Regulation (each, an ‘‘Invoicing 

Party’’), as applicable, of the disputed 

item(s) within fifteen (15) days of 

receipt of the invoice. In its notification 

to the Invoicing Party of the disputed 

invoice, the Participating Organization 

shall identify the disputed item(s) and 

provide a brief explanation of why the 

Participating Organization disputes the 

charges. An Invoicing Party may charge 

a Participating Organization interest on 

any undisputed invoice or the 

undisputed portions of a disputed 

invoice that a Participating Organization 

fails to pay within thirty (30) days of its 

receipt of such invoice. Such interest 

shall be assessed monthly. Interest will 

mean one and one half percent per 

month, or the maximum allowable 

under applicable Law, whichever is 

less. 

4. Taxes. In the event any 

governmental authority deems the 

regulatory activities allocated to NYSE 

Regulation or FINRA to be taxable 

activities similar to the provision of 

services in a commercial context, the 

other Participating Organizations agree 

that they shall bear full responsibility, 

on a joint and several basis, for the 

payment of any such taxes levied on 

NYSE Regulation or FINRA, or, if such 

taxes are paid by NYSE Regulation or 

FINRA directly to the governmental 

authority, the other Participating 

Organizations agree that they shall 

reimburse NYSE Regulation and/or 

FINRA, as applicable, for the amount of 

any such taxes paid. 

5. Audit Right; Record Keeping. 

a. Audit Right. 

(i) Audit of NYSE Regulation. 

(a) Once every rolling twelve (12) 

month period, NYSE Regulation shall 

permit no more than one audit (to be 

performed by one or more Participating 

Organizations) of the Fees charged by 

NYSE Regulation to the Participating 

Organizations hereunder and a detailed 


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cost analysis supporting such Fees (the 

‘‘Audit’’). The Participating 

Organization or Organizations that 

conduct this Audit will select a 

nationally-recognized independent 

auditing firm (or may use its regular 

independent auditor, providing it is a 

nationally-recognized auditing firm) 

(‘‘Auditing Firm’’) to act on its, or their 

behalf, and will provide reasonable 

notice to other Participating 

Organizations of the Audit and invite 

the other Participating Organizations to 

participate in the Audit. NYSE 

Regulation will permit the Auditing 

Firm reasonable access during NYSE 

Regulation’s normal business hours, 

with reasonable advance notice, to such 

financial records and supporting 

documentation as are necessary to 

permit review of the accuracy of the 

calculation of the Fees charged to the 

Participating Organizations. The 

Participating Organization, or 

Organizations, as applicable, other than 

NYSE Regulation, shall be responsible 

for the costs of performing any such 

audit. 

(b) If, through an Audit, the Exchange 

Committee determines that NYSE 

Regulation has inaccurately calculated 

the Fees for any Participating 

Organization, the Exchange Committee 

will promptly notify NYSE Regulation 

in writing of the amount of such 

difference in the Fees, and, if 

applicable, NYSE Regulation shall issue 

a reimbursement of the overage amount 

to the relevant Participating 

Organization(s), less any amount owed 

by the Participating Organization under 

any outstanding, undisputed invoice(s). 

If such an Audit reveals that any 

Participating Organization paid less 

than what was required pursuant to the 

Agreement, then that Participating 

Organization shall promptly pay NYSE 

Regulation the difference between what 

the Participating Organization owed 

pursuant to the Agreement and what 

that Participating Organization 

originally paid NYSE Regulation. If 

NYSE Regulation disputes the results of 

an audit regarding the accuracy of the 

Fees, it will submit the dispute for 

resolution pursuant to the dispute 

resolution procedures in paragraph 13 

hereof. 

(c) In the event that through the 

review of any supporting 

documentation provided during the 

Audit, any one or more Participating 

Organizations desire to discuss with 

NYSE Regulation the supporting 

documentation and any questions 

arising therefrom with regard to the 

manner in which regulation was 

conducted, the Participating 

Organization(s) shall call a meeting with 

NYSE Regulation. NYSE Regulation 

shall in turn notify the Exchange 

Committee of this meeting in advance, 

and all Participating Organizations shall 

be welcome to attend (the ‘‘Fee Analysis 

Meeting’’). The parties to this 

Agreement acknowledge and agree that 

while NYSE Regulation commits to 

discuss the supporting documentation 

at the Fee Analysis Meeting, NYSE 

Regulation shall not be subject, by 

virtue of the above Audit rights or any 

discussions during the Fee Analysis 

Meeting or otherwise, to any limitation 

whatsoever, other than the Increase in 

Fee provisions set forth in paragraph 

1.d. of this Exhibit, on its discretion as 

to the manner and means by which it 

conducts its regulatory efforts in its role 

as the SRO primarily liable for 

regulatory decisions under this 

Agreement. To that end, no 

disagreement among the Participating 

Organizations as to the manner or 

means by which NYSE Regulation 

conducts its regulatory efforts hereunder 

shall be subject to the dispute resolution 

procedures hereunder, and no 

Participating Organization shall have 

the right to compel NYSE Regulation to 

alter the manner or means by which it 

conducts its regulatory efforts. Further, 

a Participating Organization shall not 

have the right to compel a rebate or 

reassessment of fees for services 

rendered, on the basis that the 

Participating Organization would have 

conducted regulatory efforts in a 

different manner than NYSE Regulation 

in its professional judgment chose to 

conduct its regulatory efforts. 

ii. Audit of FINRA. 

(a) Once every rolling twelve (12) 

month period, FINRA shall permit no 

more than one audit (to be performed by 

one or more Participating Organizations) 

of the Fees charged by FINRA to the 

Participating Organizations hereunder 

and a detailed cost analysis supporting 

such Fees (the ‘‘Audit’’). The 

Participating Organization or 

Organizations that conduct this Audit 

will select a nationally-recognized 

independent auditing firm (or may use 

its regular independent auditor, 

providing it is a nationally-recognized 

auditing firm) (‘‘Auditing Firm’’) to act 

on its, or their behalf, and will provide 

reasonable notice to other Participating 

Organizations of the Audit. FINRA will 

permit the Auditing Firm reasonable 

access during FINRA’s normal business 

hours, with reasonable advance notice, 

to such financial records and supporting 

documentation as are necessary to 

permit review of the accuracy of the 

calculation of the Fees charged to the 

Participating Organizations. The 

Participating Organization, or 

Organizations, as applicable, other than 

FINRA, shall be responsible for the costs 

of performing any such audit. 

(b) If, through an Audit, the Exchange 

Committee determines that FINRA has 

inaccurately calculated the Fees for any 

Participating Organization, the 

Exchange Committee will promptly 

notify FINRA in writing of the amount 

of such difference in the Fees, and, if 

applicable, FINRA shall issue a 

reimbursement of the overage amount to 

the relevant Participating 

Organization(s), less any amount owed 

by the Participating Organization under 

any outstanding, undisputed invoice(s). 

If such an Audit reveals that any 

Participating Organization paid less 

than what was required pursuant to the 

Agreement, then that Participating 

Organization shall promptly pay FINRA 

the difference between what the 

Participating Organization owed 

pursuant to the Agreement and what 

that Participating Organization 

originally paid FINRA. If FINRA 

disputes the results of an audit 

regarding the accuracy of the Fees, it 

will submit the dispute for resolution 

pursuant to the dispute resolution 

procedures in paragraph 13 hereof. 

(c) In the event that through the 

review of any supporting 

documentation provided during the 

Audit, any one or more Participating 

Organizations desire to discuss with 

FINRA the supporting documentation 

and any questions arising therefrom 

with regard to the manner in which 

regulation was conducted, the 

Participating Organization(s) shall call a 

meeting with FINRA. FINRA shall in 

turn notify the Exchange Committee of 

this meeting in advance, and all 

Participating Organizations shall be 

welcome to attend (the ‘‘Fee Analysis 

Meeting’’). The parties to this 

Agreement acknowledge and agree that 

while FINRA commits to discuss the 

supporting documentation at the Fee 

Analysis Meeting, FINRA shall not be 

subject, by virtue of the above Audit 

rights or any discussions during the Fee 

Analysis Meeting or otherwise, to any 

limitation whatsoever, other than the 

Increase in Fee provisions set forth in 

paragraph 1.d. of this Exhibit, on its 

discretion as to the manner and means 

by which it conducts its regulatory 

efforts in its role as the SRO primarily 

liable for regulatory decisions under this 

Agreement. To that end, no 

disagreement among the Participating 

Organizations as to the manner or 

means by which FINRA conducts its 

regulatory efforts hereunder shall be 

subject to the dispute resolution 

procedures hereunder, and no 

Participating Organization shall have 


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14 15 U.S.C. 78q(d)(1). 

15 17 CFR 240.17d–2. 

the right to compel FINRA to alter the 

manner or means by which it conducts 

its regulatory efforts. Further, a 

Participating Organization shall not 

have the right to compel a rebate or 

reassessment of fees for services 

rendered, on the basis that the 

Participating Organization would have 

conducted regulatory efforts in a 

different manner than FINRA in its 

professional judgment chose to conduct 

its regulatory efforts. 

b. Record Keeping. In anticipation of 

any audit that may be performed by the 

Exchange Committee under paragraph 

5.a. above, NYSE and FINRA shall each 

keep accurate financial records and 

documentation relating to the Fees 

charged by each, respectively, under 

this Agreement. 

Exhibit C: Reports 

NYSE Regulation and FINRA shall 

provide the following information in 

reports to the Exchange Committee, 

which information covers activity 

occurring under this Agreement: 

1. Alert Summary Statistics: Total 

number of surveillance system alerts 

generated by quarter along with 

associated number of reviews and 

investigations. In addition, this 

paragraph shall also reflect the number 

of reviews and investigations originated 

from a source other than an alert. A 

separate table would be presented for 

Amex Listed, Nasdaq Listed, and CHX 

Solely Listed equity trading activity. 

2008 Surveillance 

alerts 

Investigations 

1st Quarter 

2nd Quarter 

3rd Quarter 

4th Quarter 

2008 Total 

2. Aging of Open Matters: Would 

reflect the aging for all currently open 

matters for the quarterly period being 

reported. A separate table would be 

presented for Amex Listed, Nasdaq 

Listed, and CHX Solely Listed equity 

trading activity. 

Example: 

Surveillance 

alerts Investigations 

0–6 months 

6–9 months 

9–12 months 

12+ months 

Total 

3. Timeliness of Completed Matters: 

Would reflect the total age of those 

matters that were completed or closed 

during the quarterly period being 

reported. NYSE and FINRA will provide 

total referrals to the SEC. 

Example: 

Surveillance 

alerts Investigations 

0–6 months 

6–9 months 

9–12 months 

12+ months 

Total 

4. Disposition of Closed Matters: 

Would reflect the disposition of those 

matters that were completed or closed 

during the quarterly period being 

reported. A separate table would be 

presented for Amex Listed, Nasdaq 

Listed, and CHX Solely Listed equity 

trading activity. 

Example: 

Surveillance 

YTD 

Investigations 

YTD 

No Further 

Review 

Letter of 

Caution/ 

Admonition/Fine 

Referred to 

Legal/Enforcement 

Referred to 

SEC/SRO 

Merged 

Other 

Total 

5. Pending Reviews. In addition to the 

above reports, the Chief Regulatory 

Officer (CRO) (or his or her designee) of 

any Participating Organization that is 

also a listing market (including CHX) 

may inquire about pending reviews 

involving stocks listed on that 

Participating Organization’s market. 

NYSE Regulation and FINRA, 

respectively, will respond to such 

inquiries from a CRO; provided, 

however, that (a) the CRO must hold 

any information provided by NYSE 

Regulation and FINRA in confidence 

and (b) NYSE Regulation and FINRA 

will not be compelled to provide 

information in contradiction of any 

mandate, directive or order from the 

SEC, U.S. Attorney’s Office, the Office 

of any State Attorney General or court 

of competent jurisdiction. 

* * * * * 

III. Date of Effectiveness of the 

Proposed Plan and Timing for 

Commission Action 

Pursuant to Section 17(d)(1) of the 

Act 14 and Rule 17d–2 thereunder,15

after September 8, 2008, the 

Commission may, by written notice, 

declare the plan submitted by the Amex, 

BSE, CBOE, CHX, FINRA, ISE, 

NASDAQ, NSX, NYSE, NYSE Arca, 

NYSE Regulation, and Phlx, File No. 4–

566, to be effective if the Commission 

finds that the plan, or any part thereof, 

is necessary or appropriate in the public 

interest and for the protection of 

investors, to foster cooperation and 

coordination among self-regulatory 

organizations, or to remove 

impediments to and foster the 

development of the national market 

system and a national system for the 

clearance and settlement of securities 

transactions and in conformity with the 

factors set forth in Section 17(d) of the 

Act. 

IV. Solicitation of Comments 

In order to assist the Commission in 

determining whether to approve the 

17d–2 plan, interested persons are 

invited to submit written data, views, 

and arguments concerning the 

foregoing. Comments may be submitted 

by any of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/other.shtml); or 

• Send an e-mail to rulecomments@sec.gov. Please include File 

Number 4–566 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, Station Place, 100 F Street, 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number 4–566. This file number should 

be included on the subject line if e-mail 

is used. To help the Commission 

process and review your comments 

more efficiently, please use only one 

method. The Commission will post all 

comments on the Commission’s Internet 

Web site (http://www.sec.gov/rules/ 

other.shtml). Copies of the submission, 

all subsequent amendments, all written 

statements with respect to the proposed 

plan that are filed with the Commission, 

and all written communications relating 

to the proposed plan 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, on official business days between 

the hours of 10 a.m. and 3 p.m. Copies 

of the plan also will be available for 

inspection and copying at the principal 

offices of Amex, BSE, CBOE, CHX, 


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16 17 CFR 200.30–3(a)(34). 

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

2 17 CFR 240. 19b–4. 

3The Exchange commenced the trading of FROs 

on May 8, 2008. In August 2007, the Commission 

approved the Exchange proposal to list and trade 

FROs based on individual stocks and exchangetraded funds (‘‘ETFs’’). See Exchange Act Release 

No. 56251 (August 14, 2007), 72 FR 46523 (August 

20, 2007). In connection with the ability to trade 

FROs, the Options Clearing Corporation (‘‘OCC’’) 

also filed proposed rule changes as well as a 

revision to the Options Disclosure Document 

(‘‘ODD’’). The Commission recently approved the 

ODD revisions so that FROs may commence trading 

on the Exchange. See Exchange Act Release No. 

57744 (April 30, 2008), 73 FR 25072 (May 6, 2008) 

(SR–ODD–2008–01). The Commission previously 

approved proposed OCC rule changes in December 

2007. See Exchange Act Release No. 56875 

(November 30, 2007), 72 FR 69274 (December 7, 

2007). 

4A ‘‘Finish High’’ FRO is defined in Rule 900 

FRO(b)(2) as an option contract which returns $100 

if the underlying security closes above the strike 

price at expiration. 

5A ‘‘Finish Low’’ FRO is defined in Rule 900 

FRO(b)(3) as an option contract which returns $100 

if the underlying security closes below the strike 

price at expiration. 

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

7 15 U.S.C. 78f(b)(5). 

FINRA, ISE, NASDAQ, NSX, NYSE, 

NYSE Arca, NYSE Regulation, and Phlx. 

All comments received will be posted 

without change; the Commission does 

not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number 4–566 and should be submitted 

on or before September 8, 2008. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Florence E. Harmon, 

Acting Secretary. 

[FR Doc. E8–19068 Filed 8–15–08; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–58341; File No. SR–Amex–

2008–60] 

Self-Regulatory Organizations; 

American Stock Exchange LLC; Notice 

of Filing of a Proposed Rule Change 

Relating to Margin Requirements for 

Fixed Return Options 

August 11, 2008. 

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

Securities Exchange Act of 1934, as 

amended (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on July 21, 2008, the American Stock 

Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) 

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 the Exchange. 

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 

Rule 462(d)10 to clarify the margin 

requirements applicable to Fixed Return 

Options (‘‘FROs’’ or ‘‘Fixed Return 

Options’’).3

The text of the proposed rule change 

is available on the Amex’s Web site at 

http://www.amex.com, the Office of the 

Secretary, the Amex and at the 

Commission’s Public Reference Room. 

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 

Amex 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 Amex 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 the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The purpose of this proposal is to add 

clarity regarding the application of FRO 

margin requirements in connection with 

‘‘spreads’’ and ‘‘straddle/combination’’

strategies. In addition, the proposal also 

seeks to clarify the use of ‘‘cover’’ and 

a ‘‘cash account’’ in connection with 

FROs. 

Currently, Rule 462(d)10 is silent 

regarding the use of ‘‘spread’’ and 

‘‘straddle/combination’’ positions. With 

respect to a ‘‘spread’’ position in FROs, 

the Amex proposes that no margin be 

required on a Finish High 4 FRO (Finish 

Low 5 FRO) carried short in a customer’s 

account that is offset by a long Finish 

High FRO (Finish Low FRO) for the 

same underlying security or instrument 

that expires at the same time and has an 

exercise or strike price that is less than 

(greater than) the exercise or strike price 

of the short Finish High (Finish Low). 

As set forth in Rule 462(d)10(B), the 

long Finish High (Finish Low) must be 

paid for in full. 

In connection with a straddle/ 

combination, when a Finish High FRO 

is carried short in a customer’s account 

and there is also carried a short Finish 

Low FRO that expires at the same time 

and has an exercise price or strike price 

that is less than or equal to the exercise 

or strike price of the short Finish High, 

the initial and maintenance margin 

required would be the exercise 

settlement amount applicable to one 

contract. 

With respect to the concept of ‘‘cover’’

the Exchange proposes a clarification 

that ‘‘cover’’ is applicable only to ‘‘cash 

accounts.’’ In such a case, a FRO carried 

short in a customer’s account will be 

deemed a covered position, and eligible 

for the cash account, if either one of the 

following is held in the account at the 

time the FRO is written or is received 

into the account promptly thereafter: 

• Cash or cash equivalents equal to 

100% of the exercise settlement amount; 

• A long FRO of the same type 

(Finish High or Finish Low) for the 

same underlying security or instrument 

that is paid for in full and expires at the 

same time, and has an exercise or strike 

price that is less than the exercise or 

strike price of the short in the case of 

a Finish High or greater than the 

exercise or strike price of the short in 

the case of a Finish Low; or 

• An escrow agreement. 

The escrow agreement must certify 

that the bank holds for the account of 

the customer as security for the 

agreement (A) cash, (B) cash 

equivalents, (C) one or more qualified 

equity securities, or (D) a combination 

thereof having an aggregate market 

value of not less than 100% of the 

exercise settlement amount and that the 

bank will promptly pay the member 

organization the cash settlement amount 

in the event the account is assigned an 

exercise notice. 

The Exchange believes that the 

proposed revision reducing the 

customer margin applicable to ‘‘spread’’

and ‘‘straddle/combination’’ positions 

in FROs is appropriate because risk 

exposure is significantly reduced under 

these strategies. 

2. Statutory Basis 

The Exchange believes that the 

proposed rule change is consistent with 

Section 6 of the Exchange Act 6 in 

general and furthers the objectives of 

Section 6(b)(5) 7 in particular in that it 

is 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 

facilitating transactions in securities, 


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