Document ID: SEC-2008-0960-0001
Agency: sec
Document Type: Rule
Title: Commission Guidance and Amendment to the Rules Relating to Organization and Program Management Concerning Proposed Rule Changes Filed by Self-Regulatory Organizations
Posted Date: 2008-07-11T04:00Z

[Federal Register: July 11, 2008 (Volume 73, Number 134)]
[Rules and Regulations]               
[Page 40143-40152]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11jy08-9]                         

[[Page 40143]]

-----------------------------------------------------------------------

Part V

Securities and Exchange Commission

-----------------------------------------------------------------------

17 CFR Parts 200 and 241

Commission Guidance and Amendment to the Rules Relating to Organization 
and Program Management Concerning Proposed Rule Changes Filed by Self-
Regulatory Organizations; Final Rule

[[Page 40144]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200 and 241

[Release No. 34-58092]

 
Commission Guidance and Amendment to the Rules Relating to 
Organization and Program Management Concerning Proposed Rule Changes 
Filed by Self-Regulatory Organizations

AGENCY: Securities and Exchange Commission.

ACTION: Final rule and interpretation.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (``Commission'') is 
providing guidance regarding a rule under the Securities Exchange Act 
of 1934 (``Exchange Act'') concerning filings with respect to proposed 
rule changes of self-regulatory organizations (``SROs'') that the 
Commission expects will streamline the process by which SROs file 
proposed rule changes with the Commission and result in a broader range 
of rule changes qualifying for immediate effectiveness. Further, the 
Commission is amending its rules to delegate authority to the Director 
of the Division of Trading and Markets. These actions are intended to 
facilitate more expeditious handling of proposed rule changes submitted 
by SROs pursuant to Exchange Act section 19(b).

DATES: Effective Date: July 11, 2008.

FOR FURTHER INFORMATION CONTACT: Marlon Quintanilla Paz, Senior Counsel 
to the Director, at (202) 551-5703, or Richard Holley III, Senior 
Special Counsel, at (202) 551-5614, Division of Trading and Markets, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-6628.

I. Introduction

    Self-regulation, with oversight by the Commission, is a basic 
premise of the Exchange Act. For example, Congress recognized the 
regulatory role of national securities exchanges in section 6 of the 
Exchange Act,\1\ requiring all existing securities exchanges to 
register with the Commission and to function as self-regulatory 
organizations. SROs (such as exchanges, registered national securities 
associations, and clearing agencies) are subject to various 
requirements under the Exchange Act, including the requirement in 
section 19(b) and Rule 19b-4 thereunder \2\ to file their proposed rule 
changes with the Commission. Commission review and the public comment 
process are intended, among other things, to help ensure that SROs 
carry out the purposes of the Exchange Act.\3\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78f.
    \2\ 15 U.S.C. 78s(b) and 17 CFR 240.19b-4, respectively. See 
also Form 19b-4. The rule filing requirements of Section 19(b) also 
apply to other SROs, such as national securities associations, 
clearing agencies, and the Municipal Securities Rulemaking Board 
(``MSRB'').
    \3\ See Section 19 of the Exchange Act, 15 U.S.C. 78s. See also 
Market 2000: An Examination Of Current Equity Market Developments, 
Study VI, Division of Market Regulation, U.S. Securities and 
Exchange Commission (January 1994).
---------------------------------------------------------------------------

    National securities exchanges registered under section 6(a) of the 
Exchange Act \4\ face increased competitive pressures from entities 
that trade the same or similar financial instruments, such as foreign 
exchanges, futures exchanges,\5\ electronic communications networks 
(``ECNs''), and alternative trading systems (``ATSs''). These 
competitors, however, can change their trading rules or trade new 
products with greater ease and without the required Commission 
review.\6\
---------------------------------------------------------------------------

    \4\ 15 U.S.C. 78f(a).
    \5\ Certain futures exchanges are also registered as national 
securities exchanges under Section 6(g) of the Exchange Act, 15 
U.S.C. 78f(g), solely for the purpose of trading security futures 
products.
    \6\ While a security futures exchange registered under Section 
6(g) of the Exchange Act is required to file certain proposed rule 
changes with the Commission, few such filings must receive 
Commission approval under Section 19(b)(2). If they must be filed at 
all, most may be filed under Section 19(b)(3)(A) of the Exchange 
Act. See 15 U.S.C. 78f(g)(4)(B).
---------------------------------------------------------------------------

    The Commission previously has stated its belief that, ``investors 
are best served by a regulatory structure that facilitates fair and 
vigorous competition among market participants and fosters investor 
protection'' and that, ``[e]nhancing the SROs'' ability to implement 
and to respond quickly to changes in the marketplace should encourage 
innovation and better services to investors. * * *'' \7\ Consequently, 
the Commission periodically has revised the SRO rule filing 
requirements to balance the needs of the exchanges in a competitive 
financial marketplace against maintaining the statutorily required 
Commission oversight of the SROs and the SRO rule change process.
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 43860 (January 19, 
2001), 66 FR 8912 (February 5, 2001) (S7-03-01) (``Rule 19b-6 
Proposing Release'').
---------------------------------------------------------------------------

    In 1994, the Commission adopted amendments to Rule 19b-4 to allow 
certain non-controversial proposed rule changes and proposed rule 
changes for minor systems changes to ``become immediately effective'' 
upon filing and without Commission approval.\8\ In 1998, the Commission 
again amended Rule 19b-4 to allow for the listing and trading of 
certain derivative securities products without prior submission of a 
proposed rule change under section 19(b).\9\ The 1998 rulemaking was 
intended to speed the introduction of new derivative securities 
products and enable exchanges to remain competitive with foreign and 
over-the-counter derivatives markets that are not subject to section 
19(b).
---------------------------------------------------------------------------

    \8\ See Securities Exchange Act Release No. 35123 (December 20, 
1994), 59 FR 66692 (December 28, 1994) (S7-17-94) (``Non-
Controversial Rule Adopting Release'').
    \9\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952 (December 22, 1998) (S7-13-98) (``New Products 
Adopting Release'').
---------------------------------------------------------------------------

    In 2001, the Commission proposed comprehensive changes to the SRO 
rule filing process.\10\ The Commission proposed to completely replace 
Rule 19b-4, the rule governing the requirements for SRO rule filings, 
with proposed new Rule 19b-6. Proposed Rule 19b-6, among other things, 
would have defined terms used in proposed Rule 19b-6 to allow most 
exchange trading rules, other than proposals involving fundamental 
market structure changes, to be immediately effective upon filing with 
the Commission pursuant to section 19(b)(3)(A) of the Exchange Act. The 
Commission also proposed related changes that would have imposed a 
number of new obligations on SROs filing proposed rule changes with the 
Commission. For example, in proposed Rule 19b-6, the Commission would 
have required, among other things, that a senior SRO official certify 
the accuracy and completeness of the proposal. The Commission also 
proposed to eliminate the 30-day operational date and the five-day pre-
filing requirement for non-controversial rule filings.
---------------------------------------------------------------------------

    \10\ See Rule 19b-6 Proposing Release, supra note 7.
---------------------------------------------------------------------------

    The Commission received 21 comment letters on proposed Rule 19b-6, 
many of which opposed various aspects of the proposal, though for 
widely divergent reasons. Four commenters explicitly supported the 
proposal to make certain trading rules effective upon filing.\11\ 
Several SROs believed that the proposal provided only minor benefits 
that were potentially outweighed by new burdensome requirements.\12\ A 
few

[[Page 40145]]

commenters believed that the category of trading rules eligible for 
immediate effectiveness was too narrow, or that more objective 
standards were needed to determine what qualifies as a trading 
rule.\13\ In contrast, other commenters were concerned that the 
proposal might reduce the opportunity to comment on proposed rule 
changes,\14\ and that the Commission might be hesitant to abrogate 
immediately effective filings.\15\ Several commenters explicitly 
opposed making certain types of trading rules immediately effective, 
noting that such rule changes may have particular importance to the 
public or have a major impact on market participants.\16\ Several 
commenters also opposed the proposal to remove the operative delay \17\ 
from Rule 19b-4(f)(6).\18\ In addition, several commenters expressed 
support for Commission issuance of notice of a proposed rule change 
within 10 business days or such longer period as the SRO consents.\19\
---------------------------------------------------------------------------

    \11\ See Comment letters from Nasdaq (dated April 6, 2001); the 
Pacific Exchange (dated April 24, 2001); Bloomberg Tradebook LLC 
(dated April 5, 2001); and the Chicago Stock Exchange (dated April 
5, 2001).
    \12\ See, e.g., Comment letters from The Options Clearing 
Corporation (dated April 6, 2001); the Philadelphia Stock Exchange 
(dated April 6, 2001); the Chicago Stock Exchange (dated April 5, 
2001); the International Securities Exchange (dated March 23, 2001); 
and the Chicago Board Options Exchange (dated April 11, 2001).
    \13\ See, e.g., Comment letters from Credit Suisse First Boston 
(dated March 26, 2001); the International Securities Exchange (dated 
March 23, 2001); the Philadelphia Stock Exchange (dated April 6, 
2001); the Pacific Exchange (dated April 24, 2001); Nasdaq (dated 
April 6, 2001); the Chicago Board Options Exchange (dated April 11, 
2001); the Chicago Stock Exchange (dated April 5, 2001); and the 
Mercatus Center of George Mason University (dated April 9, 2001).
    \14\ See, e.g., Comment letters from the Investment Company 
Institute (dated April 6, 2001); Bloomberg Tradebook LLC (dated 
April 5, 2001); Brunelle & Hadjikow (dated April 4, 2001); the 
Consumer Federation of America (dated April 6, 2001); the Securities 
Industry Association (dated April 6, 2001); and the American Council 
of Life Insurers (dated April 10, 2001). See discussion below in 
Section III.A.2(b) regarding the importance of public comment to the 
SRO proposed rule change process.
    \15\ See, e.g., Comment letters from Credit Suisse First Boston 
(dated March 26, 2001); the Council of Institutional Investors 
(dated March 26, 2001); the Investment Company Institute (dated 
April 6, 2001); and the Consumer Federation of America (dated April 
6, 2001). See discussion below in Section IV regarding abrogation of 
immediately effective proposals.
    \16\ See, e.g., Comment letters from the Securities Industry 
Association (dated April 6, 2001) and Brunelle & Hadjikow (dated 
April 4, 2001). These commenters believed that entities that are 
familiar with the technology and operation of SRO trading systems 
should be given an opportunity to comment on proposed changes to 
such systems. See Section III.A.2(b), below (``Opportunity for 
Public Comment With Regard to Immediately Effective Rule Filings'').
    \17\ A proposed rule change designated immediately effective 
normally becomes operative upon filing with the Commission, except 
for a proposal submitted pursuant to Rule 19b-4(f)(6), which becomes 
operative 30 days after the date of filing with the Commission or 
such shorter time as the Commission may designate if consistent with 
the protection of investors and the public interest. 17 CFR 240.19b-
4(f)(6)(iii).
    \18\ See, e.g., Comment letters from the Investment Company 
Institute (dated April 6, 2001); the State of Wisconsin Investment 
Board (dated March 28, 2001); Brunelle & Hadjikow (dated April 4, 
2001); the Consumer Federation of America (dated April 6, 2001); the 
Securities Industry Association (dated April 6, 2001); and the 
American Council of Life Insurers (dated April 10, 2001). One 
commenter suggested that a delay between the effective and operative 
date would allow the Commission to abrogate a rule with a minimum of 
disruption to an SRO's operations. See Comment letter from the State 
of Wisconsin Investment Board (dated March 28, 2001).
    \19\ See Comment letters from Credit Suisse First Boston (dated 
March 26, 2001); the Chicago Stock Exchange (dated April 5, 2001); 
the Philadelphia Stock Exchange (dated April 6, 2001); Nasdaq (dated 
April 6, 2001); the Securities Industry Association (dated April 6, 
2001); the Pacific Exchange (dated April 24, 2001); the Government 
Securities Clearing Corporation (dated March 20, 2001); NASD Dispute 
Resolution and NASD Regulation (dated May 3, 2001). One commenter 
suggested that the Commission publish notice of a proposed rule 
change within ten calendar days, not business days, and recommended 
that there be a mechanism to ensure compliance with the requirement. 
See Comment letter from the Chicago Board Options Exchange (dated 
April 11, 2001).
---------------------------------------------------------------------------

    The Commission has considered thoroughly all of these comments. The 
Commission is not taking action today on proposed Rule 19b-6 nor with 
regard to any of the other related changes,\20\ but the Commission's 
action in this release is consistent with the objectives underlying the 
Rule 19b-6 proposal and takes into account the varying views expressed 
in the comments.
---------------------------------------------------------------------------

    \20\ For example, the Commission is taking no further action at 
this time on the Rule 19b-6 proposal to require certifications or to 
remove the pre-filing or operative delay from Rule 19b-4(f)(6) under 
the Exchange Act.
---------------------------------------------------------------------------

    The Commission notes that the guidance and rule adopted herein do 
not alter the existing legal obligations for SROs filing proposed rule 
changes. The Commission today is not modifying or replacing Rule 19b-4, 
nor is it imposing related obligations on SROs with regard to the rule 
filing process and, therefore, the Commission believes that the 
additional requirements proposed in the Rule 19b-6 Proposing Release 
are not necessary at this time. As discussed below, the guidance in 
this release addresses a much narrower part of the SRO rule filing 
process and imposes no new obligations on SROs.
    The Commission believes that it is now appropriate to issue 
guidance related to the filing of certain immediately effective 
proposed rule changes by SROs and to adopt a rule amendment designed to 
streamline further the SRO proposed rule change process. Specifically, 
the Commission today is (1) providing an interpretation of the 
Commission's views as to which SRO rule filings could be filed as 
immediately effective and (2) modifying only its own internal 
processes.

II. Background on the Current Rule Filing Process

    Section 19(b)(1) of the Exchange Act requires an SRO to file with 
the Commission any proposed rule change,\21\ which must be 
``accompanied by a concise general statement of the basis and purpose 
of such proposed rule change'' and be submitted electronically on Form 
19b-4, in accordance with the General Instructions thereto.\22\ Exhibit 
1 of Form 19b-4 requires an SRO to prepare the notice of its proposed 
rule change for publication in the Federal Register.\23\ A proposed 
rule change may not take effect unless it is approved by the Commission 
\24\ or becomes immediately effective upon filing pursuant to section 
19(b)(3)(A) of the Exchange Act.\25\
---------------------------------------------------------------------------

    \21\ Section 19(b)(1) of the Exchange Act defines a ``proposed 
rule change'' as ``any proposed rule, or any proposed change in, 
addition to, or deletion from the rules of'' an SRO. 15 U.S.C. 
78s(b)(1). Section 3(a)(27) of the Exchange Act defines ``rules'' to 
include ``the constitution, articles of incorporation, bylaws, and 
rules, or instruments corresponding to the foregoing * * * and such 
of the stated policies, practices, and interpretations of such 
exchange, association, or clearing agency as the Commission, by 
rule, may determine to be necessary or appropriate in the public 
interest or for the protection of investors to be deemed to be rules 
of such exchange, association, or clearing agency.'' 15 U.S.C. 
78c(a)(27).
    \22\ 17 CFR 249.819. Among other things, the General 
Instructions to Form 19b-4 specify that an SRO's proposal must be 
clear and complete before it will be accepted as filed by the 
Commission. See General Instruction B to Form 19b-4 (``This form, 
including the exhibits, is intended to elicit information necessary 
for the public to provide meaningful comment on the proposed rule 
change and for the Commission to determine whether the proposed rule 
change is consistent with the requirements of the [Exchange] Act and 
the rules and regulations thereunder * * * The [SRO] must provide 
all the information called for by the form, including the exhibits, 
and must present the information in a clear and comprehensible 
manner * * * Any filing that does not comply with the requirements 
of this form may be returned to the [SRO] at any time before the 
issuance of the notice of filing. Any filing so returned shall for 
all purposes be deemed not to have been filed with the 
Commission''). See also Rule 0-3 under the Exchange Act, 17 CFR 
240.0-3 (``The date on which papers are actually received by the 
Commission shall be the date of filing thereof if all of the 
requirements with respect to the filing have been complied with. * * 
*'').
    \23\ If the conditions of Rule 19b-4 and Form 19b-4 are 
satisfied, a proposed rule change submitted electronically via the 
Commission's Electronic Form Filing System on or before 5:30 p.m. 
Eastern Time on a business day is deemed ``filed'' on that business 
day, and all filings submitted after 5:30 p.m. Eastern Time are 
deemed filed on the next business day. See Rule 19b-4(k), 17 CFR 
240.19b-4(k).
    \24\ See 15 U.S.C. 78s(b)(2).
    \25\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------

A. Proposals Subject to Commission Approval

    For those proposals that are subject to Commission approval, 
section 19(b)(2) of the Exchange Act specifies the standards and time 
periods for Commission action either to approve a proposed rule change 
or to institute proceedings to determine whether a

[[Page 40146]]

proposed rule change should be disapproved.\26\ After expiration of the 
applicable comment period and due consideration of any comment letters 
received, the Commission shall approve a proposed rule change if it 
finds such proposed rule change is consistent with the requirements of 
the Exchange Act and the rules and regulations thereunder applicable to 
the SRO.\27\ The Commission shall disapprove a proposed rule change if 
it cannot make such a finding.\28\
---------------------------------------------------------------------------

    \26\ See 15 U.S.C. 78s(b)(2). The Commission must either approve 
or institute disapproval proceedings within thirty-five days of the 
date of publication of notice of the filing in the Federal Register, 
or within such longer period as the Commission may designate (up to 
ninety days of such date if it finds such longer period to be 
appropriate and publishes its reasons for so finding) or as to which 
the SRO consents. See id.
    \27\ The Commission may approve a proposed rule change on an 
accelerated basis prior to the 30th day after publication of the 
notice in the Federal Register if it finds good cause and publishes 
its reasons for so doing. See id.
    \28\ See id.
---------------------------------------------------------------------------

B. Immediately Effective Proposals

    Section 19(b)(3)(A) of the Exchange Act provides that, 
notwithstanding the provisions of section 19(b)(2), a proposed rule 
change may take effect upon filing with the Commission if designated by 
the SRO as:
    (i) Constituting a stated policy, practice, or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule of the self-regulatory organization;
    (ii) Establishing or changing a due, fee, or other charge imposed 
by the self-regulatory organization; or
    (iii) Concerned solely with the administration of the self-
regulatory organization or other matters which the Commission, by rule 
* * * may specify * * *.\29\
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78s(b)(3)(A).
---------------------------------------------------------------------------

    Section 19(b)(3)(A)(iii) of the Exchange Act grants the Commission 
authority to expand the scope of proposed rule changes entitled to 
qualify for immediate effectiveness to other matters which the 
Commission, by rule, consistent with the public interest and the 
purposes of section 19(b) of the Exchange Act, may specify. Rule 19b-
4(f) under the Exchange Act \30\ specifies the following types of 
proposed rule changes that may take effect upon filing with the 
Commission pursuant to section 19(b)(3)(A) if properly designated by an 
SRO as:
---------------------------------------------------------------------------

    \30\ 17 CFR 240.19b-4(f).
---------------------------------------------------------------------------

    (1) Constituting a stated policy, practice, or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule;
    (2) Establishing or changing a due, fee, or other charge applicable 
to a member;
    (3) Concerned solely with the administration of the self-regulatory 
organization;
    (4) Effecting a change in an existing service of a registered 
clearing agency that: (i) Does not adversely affect the safeguarding of 
securities or funds in the custody or control of the clearing agency or 
for which it is responsible; and (ii) does not significantly affect the 
respective rights or obligations of the clearing agency or persons 
using the service;
    (5) Effecting a change in an existing order-entry or trading system 
of a self-regulatory organization that: (i) Does not significantly 
affect the protection of investors or the public interest; (ii) does 
not impose any significant burden on competition; and (iii) does not 
have the effect of limiting the access to or availability of the 
system; or
    (6) Effecting a change that: (i) Does not significantly affect the 
protection of investors or the public interest; (ii) does not impose 
any significant burden on competition; and (iii) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest; provided that the 
self-regulatory organization has given the Commission written notice of 
its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change 
(the ``pre-filing''), or such shorter time as designated by the 
Commission.\31\
---------------------------------------------------------------------------

    \31\ The five-day period commences from the date the Commission 
receives the SRO's pre-filing. The pre-filing requirement was 
designed to serve as an opportunity for Commission staff to 
``discuss with the SRO whether there exists an adequate basis upon 
which the proposed rule change may properly qualify'' for immediate 
effectiveness under Rule 19b-4(f)(6), and allows the SRO to ``elicit 
guidance from Commission staff to help the SRO identify those 
aspects of a proposed rule change that the Commission deems 
important'' in order to ``help the SRO articulate in its subsequent 
filing the purpose and effects of the proposed rule change, which in 
turn should further facilitate and expedite the filing process.'' 
Securities Exchange Act Release No. 34140 (June 1, 1994), 59 FR 
29393, 29395 (June 7, 1994) (S7-17-94) (``Non-Controversial Rule 
Proposing Release''). The Commission also notes that it has enhanced 
its electronic system through which SROs file proposed rule changes 
to allow the electronic submission of pre-filings.
---------------------------------------------------------------------------

    As with a proposed rule change filed pursuant to section 19(b)(2) 
of the Exchange Act, the Commission publishes notice in the Federal 
Register of a proposed rule change designated for immediate 
effectiveness under section 19(b)(3)(A).\32\ An immediately effective 
filing becomes operative upon filing with the Commission, except for a 
proposal submitted pursuant to Rule 19b-4(f)(6), which becomes 
operative 30 days after the date of filing with the Commission or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest.\33\
---------------------------------------------------------------------------

    \32\ An SRO must designate the basis for immediate effectiveness 
of the proposed rule change in Item 7 of Form 19b-4. See Item 7 of 
Form 19b-4 (``Basis for Summary Effectiveness Pursuant to Section 
19(b)(3)(A) or for Accelerated Effectiveness Pursuant to Section 
19(b)(2) or Section 19(b)(7)(D)'').
    \33\ With respect to amendments to filings designated for 
immediate effectiveness pursuant to Rule 19b-4(f)(6), the Commission 
has stated that ``any substantive amendment would trigger a new 30-
day period, assuming the changes do not render the filing ineligible 
for this category.'' Non-Controversial Rule Adopting Release, supra 
note 8, 59 FR at 66695. The Commission staff, however, has 
``discretion to accept editorial changes without triggering a new 
30-day period.'' Id. Such proposals should not require extensive 
amendments, since ``[a] filing requiring further substantive 
amendments may indicate that it is not appropriate for the expedited 
treatment afforded by the noncontroversial category.'' Id.
---------------------------------------------------------------------------

    Further, the Exchange Act provides that at any time within 60 days 
of the date of filing of a proposed rule change designated for 
immediate effectiveness under section 19(b)(3)(A) of the Exchange Act 
and Rule 19b-4(f) thereunder, the Commission summarily may abrogate the 
proposed rule change and require that the SRO re-file the proposal 
under section 19(b)(2) of the Exchange Act ``if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of [the Exchange Act].'' \34\
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

III. Interpretive Guidance on the Rule Filing Process

    The Commission today takes several actions, discussed in greater 
detail below, intended to facilitate more expeditious handling of 
proposed rule changes submitted by SROs. The Commission is providing 
interpretive guidance regarding the range of proposed changes to 
exchange trading rules that qualify for immediate effectiveness 
pursuant to Exchange Act Rule 19b-4(f)(6) as not significantly 
affecting the protection of investors or the public interest and not 
imposing any significant burden on competition.\35\ The Commission 
anticipates that the guidance will result in exchanges filing a broader 
range of proposed changes to trading rules for immediate effectiveness 
under Rule 19b-4(f)(6).

[[Page 40147]]

Additionally, the Commission is providing guidance on proposed rule 
changes relating to an SRO's minor rule violation plan (``MRVP'') and 
``copycat'' filings relating to SRO rules other than trading rules. The 
guidance provided herein as it relates to proposed changes to trading 
rules is directed at SROs that operate trading systems (i.e., the 
national securities exchanges). The additional guidance is applicable 
to all SROs, including exchanges, national securities associations, 
clearing agencies, and the MSRB.
---------------------------------------------------------------------------

    \35\ See Rule 19b-4(f)(6), 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    Further, as discussed in section V below, the Commission is 
adopting an amendment to Rule 200.30-3(a)(12) relating to the 
delegation of authority to the Director of the Division of Trading and 
Markets regarding the publication of proposed rule changes.\36\ Amended 
Rule 200.30-3(a)(12) applies with regard to all SRO rule filings.
---------------------------------------------------------------------------

    \36\ To assist the Commission in processing proposed rule 
changes expeditiously, the Commission emphasizes the obligation of 
each SRO to prepare proposed rule changes that are clear and 
complete. See supra note 22 and accompanying text. The Commission 
encourages SROs to devote sufficient resources to the rule filing 
process to assure quality work product to enable the Commission to 
evaluate efficiently whether the proposed rule change is consistent 
with the Exchange Act and applicable rules and regulations 
thereunder as well as the SRO's own rules.
---------------------------------------------------------------------------

A. Interpretive Guidance on Immediately Effective Proposed Rule Changes

    The national securities exchanges' need to implement quickly new 
trading rules has become increasingly critical, particularly given the 
evolving role of securities exchanges, innovations in U.S. and cross-
border trading, and the increasingly competitive financial marketplace. 
Specifically, the Commission recognizes that the national securities 
exchanges registered under section 6(a) of the Exchange Act \37\ face 
increased competitive pressures from entities that trade the same or 
similar financial instruments--such as foreign exchanges, futures 
exchanges, ECNs, and ATSs. These competitors can change their trading 
rules or trade new products with greater ease, and without filing them 
with the Commission.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78f(a).
---------------------------------------------------------------------------

    Accordingly, to inform exchanges' understanding of the range of 
exchange trading rules eligible for immediate effectiveness and to 
encourage exchanges to consider filing a broader range of proposed 
changes to trading rules that do not ``significantly affect the 
protection of investors or the public interest'' \38\ or do not 
``impose any significant burden on competition,'' \39\ and thus qualify 
for immediate effectiveness under Rule 19b-4(f)(6), the Commission is 
providing the interpretive guidance set forth in this release.
---------------------------------------------------------------------------

    \38\ 17 CFR 240.19b-4(f)(6)(i).
    \39\ 17 CFR 240.19b-4(f)(6)(ii).
---------------------------------------------------------------------------

1. Previous Commission Guidance on Immediately Effective Proposals
    As discussed above, Rule 19b-4(f)(6) permits a proposed rule change 
to become immediately effective if, among other things, it is properly 
designated by an SRO as effecting a change that does not significantly 
affect the protection of investors or the public interest, and does not 
impose any significant burden on competition. Further, an immediately 
effective rule pursuant to Rule 19b-4(f)(6), by its terms, may not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate, if consistent with the 
protection of investors and the public interest, provided that the SRO 
has given the Commission written notice of its intent to file the 
proposed rule change, along with a brief description and text of the 
proposed rule change, at least five business days prior to the date of 
filing of the proposed rule change, or such shorter time as designated 
by the Commission.
    When adding paragraph (f)(6) to Rule 19b-4 in 1994, the Commission 
referred to it as the ``noncontroversial category'' and noted that it 
was intended to accommodate proposed rule changes that were generally 
``less likely to engender adverse comments or require the degree of 
review attendant with more controversial filings.'' \40\ Accordingly, 
the Commission contemplated that proposals eligible for filing under 
paragraph (f)(6) of Rule 19b-4 would generally be ``inherently simple 
and concise'' and ``otherwise require little in the way of extended 
review or analysis by the Commission.'' \41\
---------------------------------------------------------------------------

    \40\ Non-Controversial Rule Adopting Release, supra note 8, 59 
FR at 66696.
    \41\ Id. at 66695.
---------------------------------------------------------------------------

2. Interpretation of Rule 19b-4(f)(6) for Rule Proposals Involving 
Exchange Trading Rules
    The rule filing process, by which national securities exchanges are 
required to file their proposed rule changes with the Commission, 
currently allows the exchanges to implement many of their proposed rule 
changes relating to trading rules on an expedited basis. The Commission 
believes that more rule filings pertaining to the operation of an SRO's 
trading systems qualify for immediate effectiveness than are currently 
filed as such. A number of proposed rule changes that could qualify for 
immediate effectiveness under section 19(b)(3)(A) of the Exchange Act 
are filed, instead, ``regular way'' under section 19(b)(2), thus 
requiring the Commission to issue a notice and an approval order.\42\
---------------------------------------------------------------------------

    \42\ The Commission understands, however, that there may be a 
variety of reasons why an SRO may file a proposed rule change under 
Section 19(b)(2), even though the rule change would have been 
appropriately filed as an immediately effective rule filing.
---------------------------------------------------------------------------

    The Commission believes that a proposed trading rule change 
appropriately may be filed as an immediately effective rule so long as 
each policy issue raised by the proposed trading rule (i) has been 
considered previously by the Commission when the Commission approved 
another exchange's trading rule (that was subject to notice and 
comment) pursuant to Section 19(b)(2) of the Exchange Act, and (ii) the 
rule change resolves such policy issue in a manner consistent with such 
prior approval. The Commission believes that filing such proposed rule 
changes for immediate effectiveness not only will reduce the time 
before which an exchange could implement its new rule or modify an 
existing one, but also will eliminate the need for the Commission to 
issue both a notice and an approval order for each such filing.
    The Commission notes that certain types of proposals remain 
ineligible for immediate effectiveness under Rule 19b-4(f)(6). For 
example, proposals that introduce potentially anti-competitive or 
unfairly discriminatory aspects to an SRO's operation, or otherwise 
conflict with stated Commission policy, would not be eligible for 
immediate effectiveness since they would not meet the standard of Rule 
19b-4(f)(6) and the interpretation. Similarly, proposals that would 
substantially alter an exchange's market structure would continue to be 
ineligible for immediate effectiveness.
(a) Examples of Trading Rules Eligible for Immediate Effectiveness
    Below is a partial list of the types of trading rules that the 
Commission believes are appropriate for filing as immediately effective 
rule changes under this interpretation. The Commission emphasizes that 
this is a partial--not exhaustive--list, designed to assist exchanges 
in determining the types of proposed trading rule changes that are 
appropriately filed as immediately effective.
     Protection of Limit Orders. In approving exchange trading 
rules, the

[[Page 40148]]

Commission carefully reviews whether they protect limit orders that are 
displayed on an exchange's book, since limit orders contribute to price 
discovery, provide liquidity to the market, and may narrow the quoted 
spread.\43\ A proposed trading rule change is eligible for immediate 
effectiveness if the proposal facilitates trading of public customer 
orders, or otherwise enables them to interact with order flow on the 
exchange on an equitable basis (such as price/time priority).
---------------------------------------------------------------------------

    \43\ See Securities Exchange Act Release No. 37619A (September 
6, 1996), 61 FR 48290 (S7-30-95) (adopting Rule 11Ac1-4) (``The 
Commission believes that limit orders are a valuable component of 
price discovery. The uniform display of such orders will encourage 
tighter, deeper, and more efficient markets.'').
---------------------------------------------------------------------------

     Market Maker Obligations. The Commission carefully reviews 
special advantages provided to market makers when it considers exchange 
trading rule proposals. Market makers can play an important role in 
providing liquidity to the market, and an exchange can appropriately 
reward them for that as well as the services they provide to the 
exchange's market, so long as the rewards are not disproportionate to 
the services provided.\44\ For example, a proposed trading rule change 
that strengthens the market while providing benefits to market makers 
is eligible for immediate effectiveness if the benefits conferred are 
offset by corresponding responsibilities to the market that provide 
customer trading interest a net benefit.
---------------------------------------------------------------------------

    \44\ See, e.g., Securities Exchange Act Release Nos. 54580 
(October 6, 2006), 71 FR 60781, 60782 (October 16, 2006) (SR-ISE-
2006-40) (order approving the establishment of ISE's Second Market); 
54238 (July 28, 2006), 71 FR 44758, 44761 (August 7, 2006) (SR-NYSE 
Arca-2006-13) (``Market Makers receive certain benefits for carrying 
out their duties. * * * The Commission believes that a Market Maker 
must have an affirmative obligation to hold itself out as willing to 
buy and sell options for its own account on a regular or continuous 
basis to justify this favorable treatment.''); 53652 (April 13, 
2006), 71 FR 20422 (April 20, 2006) (SR-Amex-2005-100) (order 
approving the establishment of a new class of registered options 
trader called a Remote Registered Options Trader); 52094 (July 21, 
2005), 70 FR 43913, 43915 (July 29, 2005) (SR-CHX-2004-11) (order 
approving a fully-automated electronic book for the display and 
execution of orders in securities that are not assigned to a 
specialist) (``Because market makers receive certain benefits for 
carrying out their duties, the Commission believes that they should 
have an affirmative obligation to hold themselves out as willing to 
buy and sell securities for their own account on a regular or 
continuous basis to justify this favorable treatment.''); and 51366 
(March 14, 2005), 70 FR 13217, 13221 (March 18, 2005) (order 
approving the introduction of Remote Market Makers) (``In 
particular, the Commission believes that RMMs' affirmative 
obligations are sufficient to justify the benefits they receive as 
market makers.'').
---------------------------------------------------------------------------

     Preferenced Order Flow. The Commission recognizes that 
exchanges compete for preferenced order flow. A proposal to allow 
broker-dealers to execute preferenced orders on an exchange is eligible 
for immediate effectiveness if the rule change provides other market 
participants a reasonable opportunity to interact with preferenced 
orders and the proposal does not impinge upon the incentive for market 
participants to post competitive quotes.\45\
---------------------------------------------------------------------------

    \45\ See, e.g., Securities Exchange Act Release No. 37406 (March 
29, 1996), 61 FR 15322 (April 5, 1996) (SR-CSE-95-03) (``The 
Commission has concluded that preferencing, as supplemented by the 
order handling policies, is not necessarily inconsistent with the 
attainment of best execution of customer orders, the maintenance of 
fair and orderly markets, or the protection of investors and the 
public interest under Section 6(b)(5) of the Act.''). See also, 
e.g., Securities Exchange Act Release Nos. 50819 (December 8, 2004), 
69 FR 75093, 75097 (December 15, 2004) (SR-ISE-2003-06) (order 
approving the establishment of rules to implement a price 
improvement mechanism) (``The Commission * * * has expressed its 
concern that proposals by options exchanges that guarantee a 
significant portion of orders to any market participant could erode 
the incentive to display aggressively priced quotes. Thus, the 
Commission must weigh whether the proposed participation right would 
so substantially reduce the ability of other market participants to 
trade with an order that it would reduce price competition.'').
---------------------------------------------------------------------------

     Trading Hours. With respect to trading hours, the 
Commission believes that proposals to modify the trading hours of an 
exchange, provided there is a sufficient degree of quotation and last-
sale transparency during any extended hours, also are eligible for 
immediate effectiveness under Rule 19b-4(f)(6).\46\
---------------------------------------------------------------------------

    \46\ The Commission notes, however, that an exchange proposal to 
modify the ``regular trading hours,'' as defined in Rule 600(b)(64) 
of Regulation NMS (17 CFR 242.600(a)(64) (defining ``regular trading 
hours'' as the time between 9:30 a.m. and 4 p.m., Eastern Time)) for 
any NMS stocks that it lists--which thereby has the effect of 
extending the time during which all trading centers must protect 
quotations pursuant to Rule 611 of Regulation NMS (17 CFR 242.611)--
must be filed under Section 19(b)(2) of the Exchange Act. The 
Commission believes that, because such a proposal could potentially 
raise significant competitive issues and could affect existing SRO 
surveillance and oversight programs, it must be considered by the 
Commission after prior notice and comment before it becomes 
operative. See Non-Controversial Rule Proposing Release, supra note 
31, 59 FR at 29394 (noting that a proposal that would affect the 
surveillance or oversight capabilities of an SRO could directly 
impair the protection of investors and should be filed under Section 
19(b)(2) of the Exchange Act).
---------------------------------------------------------------------------

     Conforming Rules to Approved Changes to NMS Plan or 
Commission Rule. The Commission believes that proposed rule changes to 
implement provisions of an approved national market system plan (such 
as the Options Linkage Plan \47\) or a Commission rule are eligible for 
immediate effectiveness under Rule 19b-4(f)(6).
---------------------------------------------------------------------------

    \47\ The Options Linkage Plan is a national market system plan 
for the purpose of creating and operating an intermarket linkage 
among the various participant exchanges.
---------------------------------------------------------------------------

(b) Opportunity for Public Comment With Regard to Immediately Effective 
Rule Filings
    Although the Commission is encouraging the exchanges to designate 
additional proposed changes in the category of trading rules as 
immediately effective, the Commission is not minimizing the importance 
of receiving public comments on proposed rule changes relating to 
trading rules. The Commission emphasizes that it continues to believe 
that the public interest is served by offering the public, investors, 
SRO members, and other market participants the opportunity to comment 
on SRO rule proposals. The Commission considers all comments it 
receives on each proposed rule change, and makes available all comments 
to the applicable SRO for its consideration as well.
    Comments on an immediately effective filing help the Commission 
analyze the impact of the filing and evaluate whether to abrogate 
it.\48\ Comments also help the exchange address legitimate concerns, in 
a manner that does not delay implementation of the proposed rule 
change, while still preserving the Commission's ability to act to 
abrogate when appropriate. For example, in response to a comment letter 
that raises significant concerns with an immediately effective rule 
change, an exchange could consider revising its rule (by submitting 
either another immediately effective proposal or a proposed rule change 
that requires notice and comment) in a manner that reasonably addresses 
the issues raised by the commenter.\49\ As described below,\50\ an 
exchange will decrease the likelihood of abrogation of an immediately 
effective filing by clearly describing the significance of the rule 
change and how the proposal is consistent with the standards applicable 
to exchange rules, such as the provisions set forth in section 6 and 
section 11A of the Exchange Act.\51\
---------------------------------------------------------------------------

    \48\ The Commission notes that no inference should be made 
regarding whether an SRO's proposed rule change ``impose[s] a 
significant burden on competition'' merely because an SRO's 
competitor objects to the rule filing.
    \49\ If the second proposal were filed under Rule 19b-4(f)(6), 
the Commission could consider waiving the five-day pre-filing period 
and the 30-day pre-operative period to permit the revision to the 
new rule to be operative as quickly as possible. See Rule 19b-
4(f)(6)(iii).
    \50\ See infra Section IV.
    \51\ 15 U.S.C. 78f and 15 U.S.C. 78k-1, respectively.

---------------------------------------------------------------------------

[[Page 40149]]

B. Other Types of Immediately Effective Proposed Rule Changes

1. Filings Based on the Rules of Another SRO, Other Than Trading Rules
    The Commission also is issuing interpretive guidance for all SROs 
with respect to ``copycat'' filings relating to SRO rules other than 
trading rules that are eligible for immediate effectiveness. The 
Commission previously had stated that filings that are ``virtually 
identical'' to an SRO filing already approved by the Commission are 
eligible for immediate effectiveness under Rule 19b-4(f)(6).\52\ The 
Commission now clarifies that an SRO may designate a proposed rule 
change for immediate effectiveness even if not ``virtually identical'' 
to another SRO's rules.\53\
---------------------------------------------------------------------------

    \52\ See Non-Controversial Rule Adopting Release, supra note 8, 
59 FR at 66697.
    \53\ The Commission guidance contained herein applicable to 
``copycat'' and MRVP filings that are based on SRO rule changes 
previously approved by the Commission is not intended to limit the 
ability of SROs to continue to file proposals under Section 
19(b)(3)(A) of the Exchange Act where such proposals are based on 
another SRO's rules that also were effective pursuant to Section 
19(b)(3)(A) of the Act.
---------------------------------------------------------------------------

    In particular, the Commission recognizes that, while each SRO is 
unique and has modified its rulebook over time to reflect its 
particular structure and terminology, all share basic similarities such 
that a proposed rule change need not be ``virtually identical'' to the 
precise text of another SRO's rules in order for the prescribed conduct 
and scope of the rule change to be consistent with the other SRO's rule 
on which it is based. The Commission believes that a proposed rule 
change appropriately may be filed as an immediately effective rule so 
long as it is based on and similar to another SRO's rule and each 
policy issue raised by the proposed rule (i) has been considered 
previously by the Commission when the Commission approved another 
exchange's rule (that was subject to notice and comment), and (ii) the 
rule change resolves such policy issue in a manner consistent with such 
prior approval. For this class of proposed rule changes, in support of 
its designation for immediate effectiveness, the SRO is required under 
Item 8 of Form 19b-4 to identify the original SRO rule(s) on which its 
proposed rule change is based and explain any differences between its 
proposed rule change and the rule(s) upon which it is based.\54\
---------------------------------------------------------------------------

    \54\ In identifying a rule on which its proposal is based, the 
SRO should cite to the Commission's approval order for that rule. 
See Item 8 of Form 19b-4.
---------------------------------------------------------------------------

2. Changes to an SRO's Minor Rule Violation Plan
    The Commission also believes that more filings relating to an SRO's 
MRVP could be appropriately filed as immediately effective upon filing 
under paragraph (f)(6) of Rule 19b-4. Based on its experience with MRVP 
proposals and various changes to those MRVPs over the years, the 
Commission believes that MRVPs have been useful elements of SROs' 
disciplinary function. The MRVP allows an SRO to impose a limited 
sanction on a member using an abbreviated process when a full 
disciplinary proceeding may not be warranted. Proposed rule changes 
that enable SROs to bring new rules into the MRVP sanctioning process 
rarely raise significant issues and promote compliance by the SRO's 
members with the SRO's rules and the rules of the Commission.
    The Commission previously has stated that certain changes to an 
SRO's MRVP can be filed for immediate effectiveness pursuant to Rule 
19b-4(f)(6) and reiterates that guidance here.\55\ Moreover, consistent 
with ``copycat'' filings, the Commission believes that a change to an 
SRO's MRVP appropriately may be filed as an immediately effective rule 
so long as each policy issue raised (i) has been considered previously 
by the Commission when the Commission approved another exchange's MRVP 
rule change, and (ii) the rule change resolves such policy issue in a 
manner consistent with such prior approval.\56\ Immediate effectiveness 
of such proposals reduces the administrative burdens on SROs that seek 
to expand the use of their MRVPs.
---------------------------------------------------------------------------

    \55\ See Non-Controversial Rule Proposing Release, supra note 
31, 59 FR at 29395 (noting that a proposed change that adds an 
existing rule to an SRO's MRVP, that is objective in nature, such as 
a reporting obligation, and does not involve a violation of the 
federal securities laws or the rules thereunder, could be eligible 
for filing as a ``non-controversial'' proposed rule change). See 
also Non-Controversial Rule Adopting Release, supra note 8, 59 FR at 
66696 (noting that an NYSE proposal to add violations of an NYSE 
rule would have been eligible for immediate effectiveness under Rule 
19b-4(f)(6)).
    \56\ As with any immediately effective filing, the Commission 
could abrogate an MRVP-related immediately effective proposed rule 
change that raises significant issues. For example, an MRVP filing 
that has the effect of excusing certain rule violations (by, for 
example, aggregating several instances of violative behavior as a 
single offense under the SRO's MRVP) would not be eligible for 
filing under Rule 19b-4(f)(6). In addition, when proposing a change 
to its MRVP, it would be helpful for the SRO to specify which 
violations trigger sanctions, and to cite the rules of conduct that 
may be enforced using the MRVP. If one of the rules of conduct is 
lengthy, to facilitate ease of reference, the SRO could consider 
including citations to the necessary sub-paragraphs in the MRVP 
rule. Providing a sufficient level of detail as to the rules and 
violations covered by the MRVP would help affected entities better 
understand the operation of the plan and would provide specificity 
useful to assist the SRO in administering its MRVP.
---------------------------------------------------------------------------

IV. Abrogation of Immediately Effective Proposals

    We have designed the guidance to be principles-based because we 
cannot anticipate the content and nature of every proposed rule change 
that might be filed. By its nature, therefore, applying the guidance 
will involve an element of judgment. We encourage SROs to file 
immediately effective proposed rule changes when in the judgment of the 
SRO that approach is appropriate and consistent with the statute, 
rules, and this guidance.\57\
---------------------------------------------------------------------------

    \57\ An SRO that files an immediately effective proposed rule 
change with the Commission should try to anticipate and address 
concerns relating to the protection of investors, the public 
interest, and the burdens on competition. See generally Items 3 and 
4 of Form 19b-4. The Commission further notes that conclusory 
statements made in Item 7 of Form 19b-4 could make it more difficult 
for the Commission to confirm that the proposed rule change has been 
properly designated. See Item 7 of Form 19b-4 (``Basis for Summary 
Effectiveness Pursuant to Section 19(b)(3)(A) or for Accelerated 
Effectiveness Pursuant to Section 19(b)(2) or Section 
19(b)(7)(D)'').
---------------------------------------------------------------------------

    We acknowledge that the Commission ultimately may determine to 
abrogate the immediately effective proposed rule change. As described 
in greater detail above, pursuant to section 19(b)(3)(C), at any time 
within 60 days of the date of filing of an immediately effective 
proposed rule change, the Exchange Act permits the Commission summarily 
to abrogate the rule change ``if it appears to the Commission that such 
action is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes of 
[the Exchange Act].'' \58\
---------------------------------------------------------------------------

    \58\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

    In connection with the interpretation, the Commission also is 
removing its delegation of authority to the Director of the Division of 
Trading and Markets to abrogate SRO rule filings. We emphasize that 
abrogation does not necessarily imply that a proposed rule change is 
inconsistent with the Exchange Act.\59\ If the Commission abrogates an 
SRO's proposed rule change filed for immediate effectiveness after it 
became effective but before it becomes operative (i.e., 30 days after 
filing or such shorter period as the Commission may designate), the SRO 
would not have to revert to its previous rules, because they

[[Page 40150]]

never ceased being operative.\60\ A Commission determination to 
abrogate a proposed rule change does not affect the validity or force 
of the rule change during the period it was in effect.\61\
---------------------------------------------------------------------------

    \59\ By its terms, Section 19(b)(3)(C) states that the 
Commission may abrogate a proposal and ``require that the proposed 
rule change be refiled * * *'' pursuant to Exchange Act Section 
19(b)(1) to be reviewed by the Commission pursuant to Section 
19(b)(2).
    \60\ See 15 U.S.C. 78s(b)(3)(C). A proposed rule change filed 
pursuant to Rule 19b-4(f)(6) becomes effective upon filing, but may 
not become operative until 30 days after the date of filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest. See 17 CFR 240.19b-
4(f)(6)(iii).
    \61\ See 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

V. Amendment to Rule 200.30-3(a)(12)

    The Commission believes that explicitly outlining the mechanism for 
issuance of notices of proposed SRO rule changes will further enhance 
the efficiency of the rule filing process. As such, the Commission is 
modifying its delegation of authority to the Director of the Division 
of Trading and Markets. The amended rule specifies that the Division 
shall issue notices of all proposed rule changes within 15 business 
days of filing thereof by the self-regulatory organization unless the 
Director of the Division personally directs otherwise, and, if the 
Director has so directed, he shall promptly notify the Commission and 
either the Commission or the Director may order publication of the 
notice thereafter.\62\
---------------------------------------------------------------------------

    \62\ Nevertheless, the Division may continue to submit proposed 
rule changes and related matters to the Commission for its 
consideration as it considers appropriate.
    The Commission notes that Commission rules require an SRO to 
post its proposed rule change on its Web site when the proposed rule 
change is submitted to the Commission. Further, the proposed rule 
change will be posted on the Commission's Web site shortly after the 
Commission issues notice thereof.
---------------------------------------------------------------------------

    The Commission believes that this requirement will enhance 
transparency with respect to the rule filing process, which also will 
provide additional certainty to SROs with respect to the issuance of 
notices of proposed rule changes. The Commission also expects this 
requirement to significantly improve the efficiency of the processing 
of SRO proposed rule changes and the issuance of notices of proposed 
rule changes, particularly with respect to filings subject to notice 
and comment pursuant to section 19(b)(2) of the Exchange Act. The 
Commission believes that requiring the Division to issue notice of all 
proposed rule changes that are properly filed and comply with all 
applicable requirements within 15 business days of filing thereof will 
help SROs plan accordingly as well as assist the Commission staff in 
managing their work flow.
    The Commission notes that SRO rule change proposals will continue 
to be required to be drafted with precision if they are to provide 
information necessary to elicit meaningful public comment on the 
proposed rule change. As is currently the case, a proposal that does 
not comply with the requirements of Form 19b-4 and Rule 19b-4 under the 
Exchange Act will not be accepted as filed.\63\
---------------------------------------------------------------------------

    \63\ See supra note 22.
---------------------------------------------------------------------------

    In order to provide for the possibility that there may be unusual 
and infrequent circumstances in which the 15 business day requirement 
is impractical, the rule permits the Director of the Division of 
Trading and Markets in such circumstances to direct otherwise. The rule 
provides that this function cannot be subdelegated.

VI. Administrative Procedure Act, Regulatory Flexibility Act, and 
Paperwork Reduction Act

    The Commission finds, in accordance with section 553(b)(3)(A) of 
the Administrative Procedure Act,\64\ that the interpretive guidance 
issued today and amended Commission Rule 200.30-3(a)(12) relate solely 
to interpretations and agency organization, procedure, or practice. 
Accordingly, the guidance and Rule 200.30-3(a)(12) are not subject to 
the provisions of the Administrative Procedure Act requiring notice, 
opportunity for public comment, and publication prior to their 
adoption.\65\
---------------------------------------------------------------------------

    \64\ 5 U.S.C. 553(b)(3)(A).
    \65\ For similar reasons, the amendments do not require analysis 
under the Regulatory Flexibility Act or analysis of major rule 
status under the Small Business Regulatory Enforcement Fairness Act. 
See 5 U.S.C. 601(2) (for purposes of Regulatory Flexibility Act 
analyses, the term ``rule'' means any rule for which the agency 
publishes a general notice of proposed rulemaking); 5 U.S.C. 
804(3)(C) (for purposes of Congressional review of agency 
rulemaking, the term ``rule'' does not include any rule of agency 
organization, procedure, or practice that does not substantially 
affect the rights or obligations of non-agency parties).
---------------------------------------------------------------------------

    Further, publication of a substantive rule not less than 30 days 
before its effective date is required by the Administrative Procedure 
Act except as otherwise provided for in Section 553(d). However, 
interpretive rules may take effect less than 30 days after 
publication.\66\ In addition, because the amended rule relates solely 
to the internal processes of the Commission with regard to the 
publication of proposed rule changes filed by SROs, the Commission 
finds that there is good cause for making amended Rule 200.30-3(a)(12) 
effective upon publication in the Federal Register.\67\
---------------------------------------------------------------------------

    \66\ See 5 U.S.C. 553(d)(2).
    \67\ See 5 U.S.C. 553(d)(3).
---------------------------------------------------------------------------

    Finally, the rule and the Commission's interpretation do not 
contain any new or additional collections of information as defined by 
the Paperwork Reduction Act of 1995, as amended.\68\
---------------------------------------------------------------------------

    \68\ 44 U.S.C. 3501.
---------------------------------------------------------------------------

VII. Costs and Benefits of the Proposed Amendments

    The Commission is sensitive to the costs and benefits of its rules, 
and has considered carefully the costs and the benefits of the 
interpretive guidance and the rule amendment. To the extent that SROs 
decide to avail themselves of the guidance contained in this release, 
the Commission believes that more rule changes will be filed as 
immediately effective rule filings and more proposed rule changes 
relating to trading rules, MRVPs, and ``copycat'' proposals that 
currently are filed under section 19(b)(2) will take effect upon filing 
with the Commission. As SROs increase their use of section 19(b)(3)(A) 
to file more proposed rule changes for immediate effectiveness, SROs 
will be able to modify their trading systems and rules more quickly in 
response to competitive pressures, while still being subject to the 
protections provided by Exchange Act section 19(b). Further, as more 
proposed rule changes become effective upon filing, the burdens on the 
SROs, as well as on the Commission and its staff, are expected to be 
reduced since such proposals will be processed and take effect more 
quickly, as those rule changes would not be subject to the issuance of 
a Commission order before they may take effect. Also, to the extent 
that the guidance increases the percentage of SRO proposed rule changes 
that may take effect upon filing with the Commission, there will be 
efficiencies as the processing of such proposed rule changes requires 
fewer staff resources since the Commission is not required to issue an 
order approving such proposed rule changes.
    In addition, the revised rule regarding the issuance of a notice of 
a proposed rule change within 15 business days of filing with the 
Commission will benefit SROs by providing additional certainty to them 
regarding the process, thereby enabling them to plan according, and 
improving the efficiency and the speed with which the Commission 
processes SRO rule filings. The Commission believes that this rule will 
increase the speed with which the Commission handles SRO proposed rule 
changes. The Commission does not expect its guidance and the rule 
amendment to increase the costs on SROs of filing proposed rule changes 
with the Commission.
    Certain costs associated with the Commission's action today may 
potentially result from the change in the

[[Page 40151]]

amount of time that interested persons will have to comment on proposed 
changes to trading rules before they become operative. In particular, 
to the extent that SROs designate a greater number of proposed rule 
changes for immediate effectiveness pursuant to section 19(b)(3)(A) 
where they previously would have submitted them pursuant to section 
19(b)(2), then the opportunity for interested persons to comment on 
such proposals will now occur after the proposal has taken effect upon 
filing with the Commission, since such proposals are not be subject to 
Commission approval before they become effective.
    The Commission believes that this potential cost is limited by a 
number of factors. First, interested persons will continue to have an 
opportunity to submit written data, views, and arguments concerning 
such proposed rule changes before market participants must comply with 
the new rules because proposals that take effect upon filing with the 
Commission pursuant to Rule 19b-4(f)(6) ordinarily will not become 
operative until 30 days after filing with the Commission unless the SRO 
demonstrates to the Commission that waiver of the operative delay would 
be consistent with the protection of investors and the public interest. 
In addition, the Commission summarily may abrogate a proposed rule 
change. If an SRO were to re-file the proposed rule change pursuant to 
section 19(b)(2), the proposed rule change will be published for notice 
and comment.\69\ The Commission's action or inaction with regard to 
abrogation will be informed by its own views, as well as the views 
expressed by commenters.
---------------------------------------------------------------------------

    \69\ See 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

    Finally, as currently is the case, a proposed rule change may take 
effect upon filing with the Commission only if it satisfies the 
standards set forth in section 19(b) of the Exchange Act and Rule 19b-4 
thereunder. Additionally, the Commission guidance outlined above 
specifies that an immediately-effective proposed rule change involving 
a trading rule, MRVP, or copycat proposal may not raise policy issues 
that the Commission previously has not considered in a proposed rule 
change filed by another exchange that was approved by the Commission 
after notice and comment. Accordingly, since the rule on which the new 
proposal is modeled will have been previously subject to notice and 
comment, the interested persons will have had the opportunity to 
comment before the prior proposal (or proposals) became effective and 
on the immediately-effective rule filing, as well.
    In addition, amended Rule 200.30-3(a)(12) relates to internal 
agency management. The Commission's rule amendment is intended to 
increase the efficiency of the Commission's review of SRO proposed rule 
changes by outlining the Commission's expectations with respect to 
Commission review of and the timing of issuance of a notice of an SRO's 
proposed rule change. Any increase in the costs of this amended rule 
fall on the Commission and its staff. In particular, the Commission 
will have to concentrate staff resources on reviewing and noticing 
within 15 days the proposed rule changes submitted by SROs. However, 
the ability of SROs to devote sufficient resources to preparing clear 
and complete proposals should enable the staff to review expeditiously 
a proposed rule change and issue the notice substantially in the form 
provided by the SRO when both are clear, complete, and consistent with 
all applicable requirements.

VIII. Effect on Efficiency, Competition, and Capital Formation

    Section 23(a)(2) of the Exchange Act \70\ prohibits the Commission 
from adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act. Rule 200.30-3(a)(12) applies to the Commission's delegation of 
authority with regard to the publication of notice of proposed rule 
changes filed by SROs pursuant to section 19(b)(1) of the Exchange 
Act.\71\ Specifically, the modifications to the rule, which require the 
Division of Trading and Markets to issue notice of a proposed rule 
change within 15 business days of filing with the Commission, do not 
impose any burdens or costs on SROs. Further, the interpretation likely 
will facilitate the ability of SROs to modify their trading systems and 
rules more quickly in response to competitive pressures, while still 
preserving the protections provided by Exchange Act section 19(b).
---------------------------------------------------------------------------

    \70\ 15 U.S.C. 78w(a)(2).
    \71\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

    The Commission expects the interpretive guidance and amended Rule 
200.30-3(a)(12) to have a positive effect on efficiency, competition, 
and capital formation in that the exchanges that utilize the guidance 
are expected to find themselves in a better position to compete with 
entities that operate trading systems that are not subject to the rule 
filing processes of section 19(b) of the Exchange Act.
    Furthermore, any increase in the number of proposed rule changes 
that may become effective upon filing with the Commission should 
improve the ability of SROs to amend their rules efficiently, 
particularly with respect to rules relating to trading systems and 
``copycat'' proposals, which will enhance their ability to respond to 
competitive pressures by allowing them to file changes to their systems 
on an immediately effective basis. In addition, to the extent that SROs 
file an increasing number of their proposed rule changes for immediate 
effectiveness pursuant to section 19(b)(3)(A) of the Exchange Act 
rather than for Commission approval pursuant to section 19(b)(2) of the 
Exchange Act, this guidance should allow the Commission to focus on 
those filings that raise significant issues and that are required to be 
submitted under section 19(b)(2) of the Exchange Act for Commission 
approval.\72\
---------------------------------------------------------------------------

    \72\ 15 U.S.C. 78s(b)(2). The Commission notes that the majority 
of rule proposals filed by SROs are currently designated for 
immediate effectiveness. For example, in 2006, SROs filed 1,018 
proposed rule changes with the Commission. Of those filings, 478 
(47%) were filed pursuant to Section 19(b)(2) and 540 (53%) were 
filed pursuant to Section 19(b)(3)(A).
---------------------------------------------------------------------------

IX. Statutory Basis and Text of Amendments

    This amendment to 17 CFR Part 200.30-3(a)(12) is being adopted 
pursuant to statutory authority granted to the Commission, including 
sections 4A, 6, 11A, 15A, 15B, 17A, 19, and 23 of the Exchange Act.\73\
---------------------------------------------------------------------------

    \73\ 15 U.S.C. 78d-1, 78f, 78k-1, 78o-3, 78o-4, 78q-1, 78s, and 
78w, respectively.
---------------------------------------------------------------------------

List of Subjects

17 CFR Part 200

    Administrative practice and procedures, Authority delegations 
(Government agencies).

17 CFR 241

    Securities.

Text of the Adopted Rules

0
For the reasons set out in the preamble, Title 17, Chapter II of the 
Code of Federal Regulations is amended as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND 
REQUESTS

Subpart A--Organization and Program Management

0
1. The authority citation for part 200, subpart A continues to read in 
part as follows:

[[Page 40152]]

    Authority: 15 U.S.C. 77o, 77s, 77sss, 78d, 78d-1, 78d-2, 78w, 
78ll(d), 78mm, 80a-37, 80b-11, and 7202, unless otherwise noted.
* * * * *

0
2. Section 200.19a is amended by:
0
a. Revising the section heading as set forth below;
0
b. In the first sentence of the introductory text of the section, 
revise the phrase ``Division of Market Regulation'' to read ``Division 
of Trading and Markets''; and
0
c. Remove the authority citation following the section.

Sec.  200.19a  Director of the Division of Trading and Markets.

* * * * *

0
3. Section 200.30-1, paragraph (i), first sentence is amended by 
revising the phrase ``Division of Market Regulation'' to read 
``Division of Trading and Markets''.

0
4. Section 200.30-3 is amended by:
0
a. Revising the section heading as set forth below;
0
b. In the introductory text to the section, revising the phrase 
``Division of Market Regulation'' to read ``Division of Trading and 
Markets'';
0
c. Adding two sentences to the end of paragraph (a)(12); and
0
d. removing and reserving paragraph (a)(58).
    The revision and addition reads as follows:

Sec.  200.30-3  Delegation of authority to Director of Division of 
Trading and Markets.

* * * * *
    (a) * * *
    (12) * * * The Division shall issue such notices of proposed rule 
changes within 15 business days of filing by the self-regulatory 
organization unless the Director of the Division personally otherwise 
directs. If the Director has so directed, the Division Director shall 
promptly notify the Commission and either the Commission or the 
Director may order publication of the notice thereafter.
* * * * *

0
5. In Sec.  200.30-4, paragraph (a)(12), the first sentence is amended 
by revising the phrase ``Division of Market Regulation'' to read 
``Division of Trading and Markets''.

0
6. In Sec.  200.30-11, paragraph (c)(2), is amended by revising the 
phrase ``Division of Market Regulation'' to read ``Division of Trading 
and Markets''.

0
7. In Sec.  200.30-18, introductory text of paragraph (h), is amended 
by revising the phrase ``Division of Market Regulation'' to read 
``Division of Trading and Markets''.

PART 241--INTERPRETATIVE RELEASES RELATING TO THE SECURITIES 
EXCHANGE ACT OF 1934 AND GENERAL RULES AND REGULATIONS THEREUNDER

0
8. Part 241 is amended by adding Release No. 58024 and the release date 
of June 25, 2008 to the list of interpretive releases.

    By the Commission.

    Dated: July 3, 2008.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15574 Filed 7-10-08; 8:45 am]

BILLING CODE 8010-01-P