Document ID: SEC-2005-0109-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: National Stock Exchange
Posted Date: 2005-10-14T04:00Z

[Federal Register: October 14, 2005 (Volume 70, Number 198)]
[Notices]               
[Page 60115-60118]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14oc05-77]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52573; File No. SR-NSX-2005-07]

 
Self-Regulatory Organizations; National Stock Exchange; Notice of 
Filing of Proposed Rule Change, and Amendment Nos. 1, 2, and 3, 
Thereto, Relating to the Creation of a Regulatory Oversight Committee

October 7, 2005.
    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 August 1, 2005, the National Stock ExchangeSM 
(``NSX''SM or ``Exchange'') filed with the Securities and 
Exchange Commission (``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the NSX. On August 17, 2005, the Exchange filed Amendment No. 1 to 
the proposed rule change. On August 18, 2005, the Exchange filed 
Amendment No. 2 to the proposed rule change. On October 6, 2005, the 
Exchange filed Amendment No. 3 to the proposed rule change.\3\ The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 3 replaced and superseded the original filing, 
as amended by Amendments Nos. 1 and 2, in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to amend the text of Article VI, Section 
1.1 of the Exchange's By-Laws to allow it to create, and specifically 
identify, a Regulatory Oversight Committee (``ROC'') in accordance with 
the agreed upon undertakings contained in Section F.1. of the Order 
Instituting Administrative and Cease-And-Desist Proceedings Pursuant to 
Sections 19(b) and 21C of the Securities Exchange Act of 1934, Making 
Findings, and Imposing Sanctions (``Order'') entered May 19, 2005.\4\ 
The text of the proposed rule change, including the proposed charter 
for the ROC, is below.\5\ Proposed new language is in italics.
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    \4\ See In the Matter of National Stock Exchange and David 
Colker, Securities Exchange Act Release No. 51715 (May 19, 2005).
    \5\ After consultation with staff, the Exchange is filing the 
Charter for the Regulatory Oversight Committee (the ``ROC Charter'') 
as part of this Rule Change. Accordingly, the Exchange represents 
that any changes (amendments or deletions) to the ROC Charter will 
be filed for approval as part of a filing pursuant to Rule 19b-4 (17 
CFR 240.19b-4).
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* * * * *

[[Page 60116]]

Code of Regulations (By-Laws) of National Stock Exchange Article VI

Committees
Section 1. Establishment of Committees
1.1. Committees
    There shall be a Regulatory Oversight Committee, a Membership 
Committee, a Business Conduct Committee, a Securities Committee, an 
Appeals Committee, a Nominating Committee, and such other committees as 
may be established from time to time by the Board. Committees shall 
have such authority as is vested in them by the By-Laws or Rules or as 
is delegated to them by the Board. All Committees are subject to the 
control and supervision of the Board.
* * * * *

NSX REGULATORY OVERSIGHT COMMITTEE CHARTER

    The Regulatory Oversight Committee (the ``ROC'') shall be 
responsible to oversee all of the National Stock Exchange's (``NSX'' or 
the ``Exchange'') regulatory functions and responsibilities and to 
advise regularly the NSX's Board of Directors about NSX's regulatory 
matters.
    A. The responsibilities of the ROC shall be to: (i) oversee the 
NSX's regulatory functions to enforce compliance with the federal 
securities laws and NSX rules, including monitoring the design, 
implementation, and effectiveness of NSX's regulatory programs; (ii) 
recommend the NSX Board an adequate operating budget for NSX's 
regulatory functions; (iii) approve the promulgation, filing, or 
issuance of new rules, rule amendments, rule interpretations, and 
regulatory circulars; (iv) take any other action necessary to fulfill 
its oversight and advisory responsibilities; and (v) adopt policies and 
procedures to ensure the independence of the Chief Regulatory Officer 
(the ``CRO''). For the purpose of strengthening the ROC oversight 
procedures, the CRO shall certify compliance with the required items of 
the SEC Order to the ROC on a form and frequency basis set by the ROC.
    The CRO shall have the authority to require such additional 
compliance certification from the staff as he deems appropriate and in 
such forms as he may prescribe.
    B. The ROC shall be authorized to retain, at NSX's expense, outside 
counsel and consultants as it deems appropriate to carry out its 
responsibilities.
    C. Meetings of the ROC shall be called by the Chairman of the ROC 
or at the request of a majority of the members of the ROC or the CRO. 
On at least an annual basis, the ROC shall report to the NSX Board on 
the state of the Exchange's regulatory program.
    D. The ROC shall create and maintain complete minutes of all of its 
meetings, and shall also create and maintain records reflecting the 
ROC's recommendations or proposals made to NSX Board, and NSX Board's 
decision as to each such recommendation proposal.
    E. In the event that the ROC's recommended operating budget for 
NSX's regulatory functions either: (1) Is less than the previous year's 
budget by a material amount, (2) is rejected by the NSX Board, (3) is 
reduced by the NSX Board by a material amount, or (4) is altered by the 
NSX Board in a manner that, in the judgment of the ROC, materially 
impairs the ability of NSX to meet its regulatory obligations, then NSX 
shall, within fifteen (15) business days of such NSX Board action, 
notify the Director of the Commission's Division of Market Regulation 
in writing, providing copies of all minutes and other records 
reflecting the ROC's budget proposal and the NSX Board's decision 
regarding such proposal.

Composition

    The Committee members shall be comprised of no less than three 
members, who have been appointed by the Chairman with the approval of 
the Board in a composition consistent with federal securities laws and 
the Exchange By-Laws and Rules. At a minimum, the ROC members shall not 
be, nor have been during the preceding three years, employees of NSX or 
any NSX member firm. The ROC shall elect a Chairperson from among its 
members.
* * * * *

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 Exchange included statements 
concerning the purpose of, and basis for, the proposal and discussed 
any comments it received on the proposed rule change, as amended. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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
    In accordance with the agreed upon undertakings provided in Section 
F.1. of the Order, the NSX is proposing to create a ROC through the 
submission of this rule change. In that regard, the NSX is seeking 
approval of an amendment to the Exchange By-Laws to specifically 
identify the ROC as an Exchange committee. The composition, scope of 
responsibilities, and functions of the ROC will be described in the ROC 
Charter, which would include provisions that mirror the terms of the 
undertaking \6\ along with certifications

[[Page 60117]]

procedures similar to those prescribed by Sarbanes-Oxley and which are 
also consistent with the certification procedures contained in the 
Order.
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    \6\ Section F.1. of the Order provides that NSX will undertake 
to create a ROC and further that:
    ``a. Within ninety (90) days of the issuance of the Order, NSX 
shall file proposed rule changes with the [Securities and Exchange] 
Commission in accordance with Section 19(b) of the Exchange Act and 
Rule 19b-4 to create a ROC to oversee all of NSX's regulatory 
functions and responsibilities and to advise regularly the * * * NSX 
Board * * * about NSX's regulatory matters. The ROC members shall 
not be, nor have been in the preceding three years, employees of NSX 
or any NSX member firm. The NSX Board shall appoint the members of 
the ROC. The ROC shall elect a Chairperson from among its members.
    b. The responsibilities of the ROC shall include, but not be 
limited to: (i) oversight of NSX's regulatory functions to enforce 
compliance with the federal securities laws and NSX rules, including 
monitoring the design, implementation, and effectiveness of NSX's 
regulatory programs; (ii) recommending to the NSX Board an adequate 
operating budget for NSX's regulatory functions; (iii) approving the 
promulgation, filing, or issuance of new rules, rule amendments, 
rule interpretations, and regulatory circulars; (iv) taking any 
other action necessary to fulfill its oversight and advisory 
responsibilities; and (v) adopting policies and procedures to ensure 
the independence of the Chief Regulatory Officer described in 
Section F.2.a [of the Order].
    c. The ROC shall be authorized to retain, at NSX's expense, 
outside counsel and consultants as it deems appropriate to carry out 
its responsibilities.
    d. The ROC shall create and maintain complete minutes of all of 
its meetings, and shall also create and maintain records reflecting 
the ROC's recommendations or proposals made to the NSX Board, and 
the NSX Board's decision as to each such recommendation or proposal.
    e. In the event the ROC's recommended operating budget for NSX's 
regulatory functions, as described in Section F.1.b. above, either: 
(i) is less than the previous year's budget by a material amount, 
(ii) is rejected by the NSX Board; (iii) is reduced by the NSX Board 
by a material amount; or (iv) is altered by the NSX Board in a 
manner that, in the judgment of the ROC, materially impairs the 
ability of NSX to meet its regulatory obligations, then NSX shall, 
within fifteen (15) business days of such NSX Board action, notify 
the Director of the Commission's Division of Market Regulation 
(``Market Regulation'') in writing, providing copies of all such 
minutes and other records reflecting the ROC's budget proposal and 
the NSX Board's decision regarding such proposal.
    f. Subject to Commission approval of NSX's proposed rule 
changes, NSX shall fully implement this undertaking within one-
hundred-eighty (180) days of the issuance of this Order.''
    See Order, supra note 4.
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    The ROC members shall be comprised of no less than three members, 
who have been appointed by the NSX Chairman with the approval of the 
Board in a composition consistent with federal securities laws and the 
Exchange By-Laws and Rules. At a minimum, the ROC members shall not be, 
nor have been during the preceding three years, employees of the NSX or 
any NSX member firm. The ROC shall elect a Chairperson from among its 
members.
    With respect to scope of responsibilities, the ROC is a committee 
of the NSX Board that is responsible for oversight of all NSX 
regulatory functions. The ROC is also responsible for keeping the NSX 
Board informed, on a regular basis, concerning the Exchange's 
regulatory functions, for providing advice to the Board concerning 
those functions, and for making recommendations to the Board for NSX 
action with respect to regulatory matters. The scope of 
responsibilities, as detailed in the Commission's Order, is contained 
in the ROC Charter.
    As detailed in the ROC Charter, the ROC's functions include 
responsibility for the oversight of all of NSX's regulatory functions 
in order to promote and enforce compliance with the federal securities 
laws and the NSX rules, including reviewing with the Exchange's Chief 
Regulatory Officer (the ``CRO'') and other appropriate regulatory 
personnel various aspects of the design, implementation, and 
effectiveness of NSX's regulatory programs. The ROC will also review, 
revise and/or approve the CRO's recommendation for a regulatory budget 
to formulate the ROC's recommendation of an adequate operating budget 
and staffing level for NSX's regulatory function to the Board. In 
addition, the ROC will review, evaluate, and, if appropriate, recommend 
to the Board the implementation of any and all actions recommended by 
the CRO and the Regulatory Services Division (the ``Division'') to 
fulfill the Division's and the ROC's oversight and advisory 
responsibilities. The ROC also has the responsibility to assess the 
performance of the CRO and review the CRO's assessment of the 
Division's staff in fulfilling their responsibilities and recommend 
compensation and personnel actions to the Board. The ROC will also 
review, amend, approve or reject the CRO's recommendations respecting 
the promulgation, filing, or issuance of new rules, rule amendments, 
rule interpretations, and regulatory circulars, including the approval 
(or ratification) of all regulatory circulars issued by the NSX within 
thirty five days of the issuance of such regulatory circulars. On at 
least an annual basis, the ROC will review the structural protections 
to separate the Exchange's regulatory function from the commercial 
interest of the Exchange by reviewing the supervisory responsibilities 
of the Chief Executive Officer and the CRO. Further, the ROC will take 
all steps necessary to provide reasonable assurance that NSX is and 
remains in compliance with the Order \7\ and will take any other action 
necessary to fulfill its oversight and advisory responsibilities.
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    \7\ This includes, but is not limited to, the review, assessment 
and approval of (i) the CRO's certification of certain matters to 
the Commission, (ii) the CRO's cooperation and interaction with the 
Regulatory Consultants and the Regulatory Auditors, (iii) the 
Regulatory Division's implementation of the Regulatory Consultant's 
recommendations, (iv) the Regulatory Division's answers to any 
deficiencies noted in the Regulatory Auditors' reports, and (v) the 
Regulatory Division's adoption of certain procedures and programs 
outlined in the Order.
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    As also detailed in the ROC Charter, meetings of the ROC shall be 
called by the Chairman of the ROC or at the request of a majority of 
the members of the ROC or the CRO. On at least an annual basis, the ROC 
shall report to the NSX Board on the state of the Exchange's regulatory 
program. The ROC will also create and maintain complete minutes of all 
of its meetings, and shall also create and maintain records reflecting 
the ROC's recommendations or proposals made to the NSX Board, and the 
NSX Board's decision as to each such recommendation or proposal. As 
also provided in the ROC Charter, in the event that the ROC's 
recommended operating budget for NSX's regulatory functions either: (1) 
Is less than the previous year's budget by a material amount, (2) is 
rejected by the NSX Board, (3) is reduced by the NSX Board by a 
material amount, or (4) is altered by the NSX Board in a manner that, 
in the judgment of the ROC, materially impairs the ability of NSX to 
meet its regulatory obligations, then NSX shall, within fifteen (15) 
business days of such NSX Board action, notify the Director of the 
Commission's Division of Market Regulation in writing, providing copies 
of all minutes and other records reflecting the ROC's budget proposal 
and the NSX Board's decision regarding such proposal.
2. Statutory Basis
    The Exchange believes the proposed rule change, as amended, is 
consistent with Section 6(b) of the Securities Exchange Act of 1934 
(the ``Act'')\8\ in general, and furthers the objectives of Section 
6(b)(5)\9\ in particular, in that it is designed to promote just and 
equitable principles of trade and to remove impediments to and perfect 
the mechanism of a free and open market and a national market system 
and, generally, in that it protects investors and the public interest. 
The proposed rule change, as amended, also furthers the objectives of 
Section 6(b)(1),\10\ in that it helps to assure that the Exchange is so 
organized and has the capacity to be able to carry out the purposes of 
the Act and to comply, and to enforce compliance by its members, with 
the Act.
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    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ 15 U.S.C. 78f(b)(1).
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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 has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    (a) by order approve such proposed rule change, as amended; or
    (b) institute proceedings to determine whether the proposed rule 
change, as amended, should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

[[Page 60118]]

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NSX-2005-07 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NSX-2005-07. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the NSX. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NSX-2005-07 and should be submitted on or before 
November 4, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
J. Lynn Taylor,
Assistant Secretary.
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    \11\ 17 CFR 200.30-3(a)(12).
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[FR Doc. E5-5643 Filed 10-13-05; 8:45 am]

BILLING CODE 8010-01-P