Federal Register / Vol. 66, No. 38 / Monday, February 26, 2001 / Notices 11621

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 43204

(August 24, 2000), 65 FR 53065 (August 31, 2000)

(SR–CHX–00–22).

4The Exchange notes that following approval of

the pilot rule changes, which included changes to

the Exchange’s then-current price improvement

programs, the Commission approved the Exchange’s

proposed new price improvement program, called

SuperMAX 2000, which is a voluntary price

improvement program that will govern price

improvement of all orders for issues trading in

decimal price increments. See Securities Exchange

Act Release No. 43742 (December 19, 2000) 65 FR

83119 (December 29, 2000) (SR–CHX–00–37).

Because SuperMAX 2000 is intended to replace the

Exchange’s previous price improvement programs,

the Exchange is not requesting an extension of the

pilot rule changes that dealt with price

improvement.

5This proposal does not concern ‘‘typographical’’

amendments to CHX rules, where the sole change

that was proposed by the Exchange was the

substitution of a decimal price increment for the

fractional price increment set forth in certain CHX

rules. Those amendments were the subject of a

separate submission previously approved by the

Commission on a permanent basis. See Securities

Exchange Act Release No. 43256 (September 6,

2000), 65 FR 55659 (September 14, 2000) (SR–CHX–

00–25).

Agreement’’), among CL&P and WMECO on

the one hand and several banks with

Citibank, N.A. as Administrative Agent on

the other. The Regulated Credit Agreement

provides a credit facility of up to $500

million comprised of borrowing

commitments. The Regulated Credit

Agreement has a termination date of

November 16, 2001.

On November 9, 2000, NAEC entered into

an unsecured $200 million 364-day Term

Credit Agreement with four banks, which

was approved by the NHPUC.

Yankee Gas currently has a revolving line

of credit of $60 million, which terminates

November 16, 2001.

For the Commission, by the Division of

Investment Management, pursuant to

delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–4651 Filed 2–23–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

Sunshine Act Meeting

Notice is hereby given, pursuant to

the provisions of the Government in the

Sunshine Act, Pub. L. 94–409, that the

Securities and Exchange Commission

will hold the following meeting during

the week of February 26, 2001.

A closed meeting will be held on

Thursday, March 1, 2001, at 2:30 p.m.

Commissioners, Counsel to the

Commissioners, the Secretary to the

Commission, and recording secretaries

will attend the closed meeting. Certain

staff members who have an interest in

the matters may also be present.

The General Counsel of the

Commission, or his designee, has

certified that, in his opinion, one or

more of the exemptions set forth in 5

U.S.C. 552b(c)(4), (8), (9)(A), and (10)

and 17 CFR 200.402(a)(4), (8), (9)(A) and

(10), permit consideration of the

scheduled matters at the closed meeting.

The subject matters of the closed

meeting will be:

institution and settlement of injunctive

actions; and

institution and settlement of

administrative proceedings of an

enforcement nature.

At times, changes in Commission

priorities require alterations in the

scheduling of meeting items. For further

information and to ascertain what, if

any, matters have been added, deleted

or postponed, please contact:

The Office of the Secretary at (202)

942–7070.

Dated: February 22, 2001.

Jonathan G. Katz,

Secretary.

[FR Doc. 01–4747 Filed 2–22–01; 12:17 pm]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43974; File No. SR–CHX–

01–03]

Self-Regulatory Organizations; Notice

of Filing and Order Granting

Accelerated Approval of a Proposed

Rule Change by the Chicago Stock

Exchange, Incorporated Extending

Pilot Rules Relating to the Securities

Industry Transition to Decimal Pricing

February 16, 3001.

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

Securities Exchange Act of 1934

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

notice is hereby given that on January

19, 2001, the Chicago Stock Exchange,

Incorporated (‘‘CHX’’ or ‘‘Exchange’’)

filed with the Securities and Exchange

Commission (‘‘Commission’’) the

proposed rule change, as described in

Items I and II below, which Items have

been prepared by the CHX. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons and to

approve the proposed rule change on an

accelerated basis.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The Exchange proposes to extend,

through July 9, 2001, pilot rule changes

amending certain CHX rules that have

been impacted by the securities industry

transition to decimal pricing.

Specifically, the pilot rule changes

amend portions of Article XX, Rule 37.

The pilot currently is due to expire on

February 28, 2001. The text of the

proposed rule change is available at the

Commission and the CHX.

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

CHX included statements concerning

the purpose of, and basis for, the

proposed rule change and discussed any

comments it received regarding the

proposed rule change. The text of these

statements may be examined at the

places specified in Item IV below. The

CHX 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

On August 24, 2000, the Commission

approved, on a pilot basis through

February 28, 2001, rule changes

amending certain CHX rules that were

impacted by the securities industry

transition to decimal pricing.3 The

Exchange proposes to extend the current

pilot through July 9, 2001.4

The Exchange proposes continued

pilot approval of three groups of

changes to Article XX, Rule 37, which

would: (1) Allow specialists to elect, on

an issue by issue basis, to either

manually or automatically execute limit

orders when a trade-through occurs in

the primary market; (2) remove the

‘‘pending auto-stop’’ functionality in the

Exchange’s systems; and (3) allow a

specialist, on an issue by issue basis, to

establish an auto execution guarantee

that is not dependent on the ITS Best

Bid or Offer (‘‘ITS BBO’’) or National

Best Bid or Offer (‘‘NBBO’’) size. The

Exchange believes that decimal pricing

is likely to continue to affect the CHX

trading environment, and the

interaction between the CHX and the

national market system, in a manner

that necessitates extension of these pilot

rule amendments, which are designed to

minimize any adverse impacts of

decimalization on trading operations.5

Manual or automatic execution of

limit orders when a trade-through

11622 Federal Register / Vol. 66, No. 38 / Monday, February 26, 2001 / Notices

6Art. XX, Rule 37(b)(11).

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

8 15 U.S.C. 78f(b).

9 15 U.S.C. 78f(b)(5).

10 In approving this rule change, the Commission

has considered its impact on efficiency,

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

occurs. The existing pilot amended

Article XX, Rule 37(b)(6) to allow a

specialist to elect, on an issue by issue

basis, to either manually or

automatically execute limit orders when

a trade-through occurs in the primary

market. The rule previously provided

that agency limit orders (that are not

marketable when entered into the

Exchange’s MAX automatic execution

system) would automatically be filled at

the limit price when there was a price

penetration of the limit price in the

primary market for the subject security.

Under the pilot, automatic execution of

these limit orders would no longer be

mandated. A CHX specialist may elect

to provide automatic execution of

agency limit orders at the limit price

when there is a price penetration of the

limit price in the primary market for the

subject security. The obligation to fill

the order at the limit price remains the

same under either election. The

Exchange believes that this pilot

amendment reasonably anticipates the

impact that the decimal pricing

environment will have on the national

market system, where the number of

small orders executed at multiple price

levels may increase the number of

inadvertent trade-throughs that could

lead to unwarranted automated

executions of large orders in a CHX

specialist’s limit order book, exposing

the specialist to substantially increased

liability.

Removal of the pending auto-stop

functionality. For similar reasons, the

pilot amends Article XX, Rule 37(b)(10)

to eliminate the Exchange’s ‘‘pending

auto-stop’’ function. Under the rule

prior to the pilot, all agency market

orders from 100 to 599 shares that were

not automatically executed, because,

among other things, the order size

exceeded the quantity at the ITS BBO,

were designated as ‘‘pending auto-stop

orders.’’ These orders were stopped, and

due an execution at the ITS BBO thirty

seconds after entry into the Exchange’s

MAX system, unless the order has been

canceled, executed, manually stopped,

or put on hold during the thirty second

period. Once an order was stopped, a

text message to that effect was

automatically sent to the order-sending

firm.

The Exchange believes that this

feature is not practicable in the decimal

pricing environment, giving the

anticipated dramatic increases in quote

traffic and the systems issued associated

with generating administrative

notifications regarding pending autostop. Additionally, trading in decimals

will significantly increase stock price

points and, as a result, will likely

decrease the quantities associated with

the ITS BBO price point and increase

the rate of change in the ITS BBO price

point. Both of these factors will reduce

a specialist’s ability to offset the

pending auto-stop guarantee to a degree

that the Exchange is not now able to

quantify. Under these circumstances,

the Exchange believes that it would be

imprudent to continue to provide such

a guarantee.

Changes relating to relationship

between automatic execution guarantee

and BBO size. The Exchange believes

that the rationale set forth above relating

to the likely decrease in the quantities

associated with the BBO price point also

supports the Exchange’s pilot rule

change permitting CHX specialists to

designate automatic execution guarantee

levels that are not dependent on the

BBO. Under the previous versions of the

CHX rule,6 an order was not eligible for

automatic execution on the Exchange if

the order was larger than the thencurrent BBO size. If decimalization

results in decreased quantities at each

price point, this decrease would effect a

corresponding decrease in the number

of orders eligible for automatic

execution on the Exchange. To

accommodate customer demand for

automatic execution, the Exchange

believes that an extension of the pilot

rule is necessary. The pilot rule permits

a CHX specialist to designate, on an

issue-by-issue basis, automatic

execution guarantees that could exceed

the BBO size. This election would be

strictly voluntary and thus would not

operate to increase the exposure of any

specialist who desired to maintain the

protections of the existing rule.

2. Statutory Basis

The CHX believes that the proposed

rule is consistent with the requirements

of the Act and the rules and regulations

thereunder that are applicable to a

national securities exchange. In

particular, the CHX believes that the

proposed rule is consistent with Section

6(b)(5) 7 of the Act in that it is designed

to promote just and equitable principles

of trade, to remove impediments to and

to perfect the mechanism of a free and

open market and a national market

system and, in general, to protect

investors and the public interest.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any inappropriate burden on

competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

The Exchange did not solicit or

receive written comments on the

proposed rule change.

III. Commission’s Findings and Order

Granting Accelerated Approval of the

Proposed Rule Change

The Commission finds that the

proposed rule change is consistent with

the Act and the rules and regulations

under the Act applicable to a national

securities exchange and, in particular,

the requirements of Section 6(b) of the

Act.8 Specifically, the Commission finds

that the proposed rule change is

consistent with the Section 6(b)(5) 9

requirements that the rules of an

exchange be designed to promote just

and equitable principles of trade, to

prevent fraudulent and manipulative

acts and, in general, to protect investors

and the public interest.10

The Commission believes that the

proposed rule change should continue

to facilitate a smooth transition to

decimal pricing. For example, proposed

Rules 37(b)(10) and (11) should help to

ensure that customer demand for

automatic execution will continue to be

satisfied in a decimals environment.

Specifically, proposed Rule 37(b)(11)

permits specialists to guarantee, on an

issue-by-issue basis, automatic

executions of orders that exceed the ITS

BBO and NBBO size at the specified

price. The Commission believes that

decimal pricing could result in

decreased quantities at each price,

which would result in a corresponding

decrease in the number of orders

eligible for automatic execution on the

Exchange. Thus, the proposed rule

change benefits investors by providing

specialists the flexibility to

automatically execute orders larger than

the current ITS BBO or NBBO size.

In addition, prior to the pilot, Rule

37(b)(10) required all agency market

orders from 100 to 599 shares that were

not automatically executed because,

among other things, the order exceeded

the ITS BBO quantity, to be designated

as ‘‘pending auto-stop orders.’’ These

orders were stopped and due an

execution at the ITS BBO thirty seconds

after entry into the Exchange’s MAX

system. As stated above, the

Commission believes that decimal

pricing may result in decreased

Federal Register / Vol. 66, No. 38 / Monday, February 26, 2001 / Notices 11623

11 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3Securities Exchange Act Release No. 43030 (July

12, 2000), 65 FR 45414.

4Letter from Alden S. Adkins, Senior Vice

President and General Counsel, NASD Regulation,

to Katherine A. England, Assistant Director,

Division of Market Regulation, Commission, dated

January 30, 2001 (‘‘Amendment No. 1’’).

Amendment No. 1 amends NASD Rule 2330(f)(2) to

clarify that the rule applies to members or persons

associated with members that act as investment

advisers, whether or not registered as such, and to

add a cross-reference to Rule 205–3 of the

Investment Advisers Act of 1940 (‘‘Advisers Act’’).

Amendment No. 1 also states that NASD Regulation

will notify its members of amendments to Rule

205–3 within 90 days through a Notice to Members.

5See Investment Advisers Act Release No. 1731

(July 15, 1998), 63 FR 39022 (July 21, 1998).

quantities at each price, which in turn

would result in fewer automatic

executions. The Commission believes

that the proposed rule change may help

to alleviate this concern by eliminating

the pending auto-stop function. The

Commission believes that the removal of

this provision will help to ensure that

demand for automatic execution

continues to be satisfied.

The Commission believes that the

proposal is consistent with the

protection of investors and the public

interest and therefore finds good cause

for approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice thereof in the

Federal Register. The proposed rule

change is designed to permit the

Exchange to continue, with a minimum

of disruption to trading operations, its

transition to quoting in decimals, which

began in all Exchange listed securities

on January 29, 2001, and is scheduled

to begin in certain Nasdaq securities on

March 12, 2001. In addition, the

Commission notes that the proposed

rule change is being approved on a pilot

basis only, through July 9, 2001. In light

of these factors, the Commission finds

good cause to approve the proposed rule

change on an accelerated basis.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing,

including whether the proposed rule

change is consistent with the Act.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549–0609. Copies of

the submissions, 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 at

the Commission’s Public Reference

Room. Copies of such filings will also be

available for inspection and copying at

the principal office of the Exchange. All

submissions should refer to the File No.

SR–CHX–01–03 and should be

submitted by March 19, 2001.

V. Conclusion

It is Therefore Ordered, pursuant to

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

proposed rule change (SR–CHX–01–03)

is approved through July 9, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–4596 Filed 2–23–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

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[Release No. 34–43973; File No. SR–NASD–

99–42]

Self-Regulatory Organizations; Order

Approving a Proposed Rule Change

and Notice of Filing and Order

Granting Accelerated Approval of

Amendment No. 1 Thereto by the

National Association of Securities

Dealers, Inc. Relating to Performance

Fee Arrangements

February 15, 2001.

I. Introduction

On September 2, 1999, the National

Association of Securities Dealers, Inc.

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

wholly owned subsidiary, NASD

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

submitted to the Securities and

Exchange Commission (‘‘Commission’’),

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

Securities Exchange Act of 1934

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

proposed rule change relating to

performance fee arrangements.

The Federal Register published the

proposed rule change for comment on

July 21, 2000.3 The Commission

received no comments on the proposed

rule change. On January 31, 2001, the

Association submitted an amendment to

the proposed rule change.4 This order

approves the proposed rule change and

grants accelerated approval to

Amendment No. 1. The Commission is

also soliciting comment on Amendment

No. 1 to the proposed rule change.

II. Description of the Proposed Rule

Change

NASD Rule 2330(f) prohibits members

and persons associated with members

from sharing in customer account

profits and gains except under certain

conditions. Subparagraph (f)(1)(A)

permits sharing in customer account

profits and gains where the firm has

authorized it and the sharing is

proportionate to the member’s or

associated person’s contributions to the

account. Subparagraph (f)(2) permits,

under certain conditions, members or

registered representatives to charge a

performance fee (an advisory fee based

on a percentage of the capital gains or

capital appreciation of an account).

Currently, NASD Rule 2330(f)(2)

permits the receipts of a performance

fee only if: (i) The member or associated

person reasonably believes that the

customer account meets certain

minimum net worth ($1,000,000) or

amount invested ($500,000)

requirements; (ii) the member or

associated person obtains the prior

written authorization of the arrangement

from the member carrying the account;

(iii) the member or associated person

reasonably believes that the customer is

able to understand the compensation

arrangement and its risks; (iv) the

compensation agreement is in writing;

(v) the member or associated person

reasonably believes that the agreement

is an arm’s length agreement; (vi) the

compensation formula takes into

account realized and accrued gains and

losses over a period of at least one year;

and (vii) the member discloses all

material information relating to the

agreement, including method of

compensation and potential conflicts of

interest.

According to NASD Regulation, the

requirements of NASD Rule 2330(f)(2)

have always closely tracked the

requirements of Rule 205–3 under the

Advisers Act. However, effective August

20, 1998, the Commission amended

Rule 205–3 to provide greater flexibility

in structuring performance fee

arrangements with clients who are

financially sophisticated or have the

resources to obtain sophisticated

financial advice regarding these

arrangements.5 Because the NASD had

incorporated the requirements of Rule

205–3 into NASD Rule 2330(f)(2), when

the Commission amended Rule 205–3,

NASD Rule 2330(f)(2) was no longer

consistent with Rule 205–3.

In order to restore consistency, the

proposed rule change would permit

members and their associated persons