-------------------- BEGINNING OF PAGE #1 ------------------- SECURITIES AND EXCHANGE COMMISSION 17 CFR Parts 200, 240 and 249 Release No. 34-35123; File No. S7-17-94 RIN: 3235-AG15 Proposed Rule Changes of Self Regulatory Organizations; Annual Filing of Amendments to Registration Statements of National Securities Exchanges, Securities Associations, and Reports of the Municipal Securities Rulemaking Board AGENCY: Securities and Exchange Commission ACTION: Final rules SUMMARY: The Securities and Exchange Commission ("Commission") is adopting amendments to Rule 19b-4 and Form 19b-4 under the Securities Exchange Act of 1934 to expand the scope of proposed rule changes filed by self-regulatory organizations that may become effective immediately. The Commission also is amending its rules to delegate to the Director of the Division of Market Regulation certain related functions. The amendments implement recommendations contained in the Market 2000 report and are designed to expedite and streamline the process by which proposed rule changes of self-regulatory organizations are filed and become effective. In addition, the Commission is streamlining and conforming the requirements for national securities exchanges and securities associations to file annual amendments to their registration statements, and for the Municipal Securities Rulemaking Board to file annual reports. EFFECTIVE DATE: [ Insert date 30 days after publication in the Federal Register ] FOR FURTHER INFORMATION CONTACT: (prior to the effective date) Catherine McGuire, Chief Counsel, or Andrew S. Margolin, Senior Counsel, Office of Chief Counsel, at (202) 942-0073; (after the effective date) for exchange rules, Sharon Lawson, Assistant Director, at (202) 942-0182, or Ivette Lopez, Senior Special Counsel, at (202) 942-0765; for National Association of Securities Dealers and Municipal Securities Rulemaking Board rules, Katherine A. England, Assistant Director, at (202) 942- 0154; for clearing agency rules, Jerry Carpenter, Assistant Director, at (202) 942-4187, Office of Market Supervision, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 5-1, Washington, D.C. 20549. SUPPLEMENTARY INFORMATION: I. Introduction On June 1, 1994, the Commission proposed for public comment amendments to Rule 19b-4-[1]- and Form 19b-4-[2]- under the Securities Exchange Act of 1934-[3]- ("Exchange Act" or "Act"), the rule and form applicable to the process by which self- regulatory organizations ("SROs") file proposed rule changes with the Commission.-[4]- The proposal was intended to expedite the rule filing process by expanding the categories of proposed rule changes that may become effective upon filing pursuant to Section 19(b)(3)(A)-[5]- of the Act to include certain systems changes and other noncontroversial filings. The Commission also proposed -[1]- 17 CFR 240.19b-4. -[2]- 17 CFR 249.819. -[3]- 15 U.S.C. 78a, et seq. -[4]- Securities Exchange Act Release No. 34140 (June 1, 1994), 59 FR 29393 ("Proposing Release"). -[5]- 15 U.S.C. 78s(b)(3)(A). -------------------- BEGINNING OF PAGE #2 ------------------- amendments to Rules 6a-2,-[6]- 15Aj-1,-[7]- 17a-21,-[8]- and Form X-15AJ-2-[9]- under the Act, to streamline and conform the annual filing requirements of amendments to registration statements of national securities exchanges and securities associations, and annual reports of the Municipal Securities Rulemaking Board ("MSRB"). The proposals implement recommendations contained in the Division of Market Regulation's ("Division") Market 2000 report.-[10]- The report recommended that the rule filing process be expedited for routine procedural and administrative modifications to existing order-entry and trading systems. The Division also agreed to consider other types of SRO proposals that could be subject to an expedited review process. The Commission received nine comment letters in response to its request for comments.-[11]- Commenters expressed general support for these proposals, and also suggested other ways to improve the SRO rule filing process. The Commission has determined to adopt the amendments substantially as proposed with some modifications designed to address the comments -[6]- 17 CFR 240.6a-2. -[7]- 17 CFR 240.15Aj-1. -[8]- 17 CFR 240.17a-21. -[9]- 17 CFR 249.803. -[10]- Division of Market Regulation, Market 2000: An Examination of Current Equity Market Developments (January, 1994). -[11]- See Letters to Jonathan G. Katz, Secretary, Securities and Exchange Commission, from: James E. Buck, Senior Vice President and Secretary, New York Stock Exchange ("NYSE"), dated August 12, 1994; Richard G. Ketchum, Chief Operating Officer and Executive Vice President, National Association of Securities Dealers ("NASD"), dated August 16, 1994; James F. Duffy, Executive Vice President and General Counsel, American Stock Exchange ("Amex"), dated August 18, 1994; Michael L. Myers, Schiff Hardin & Waite [on behalf of the Chicago Board Options Exchange ("CBOE") and the Options Clearing Corporation ("OCC")], dated August 12, 1994; J. Craig Long, Secretary, Chicago Stock Exchange ("CHX"), dated August 8, 1994; Larry R. Shotwell, Executive Vice President, Pacific Stock Exchange ("PSE"), dated August 12, 1994; David C. Clapp, Chairman, Municipal Securities Rulemaking Board ("MSRB"), dated August 3, 1994; William W. Uchimoto, First Vice President and General Counsel, Philadelphia Stock Exchange ("Phlx"), dated August 19, 1994; and John I. Fitzgerald, Executive Vice President, Boston Stock Exchange ("BSE"), dated August 8, 1994. The comment letters and a summary of comments are contained in Public File No. S7-17-94. -------------------- BEGINNING OF PAGE #3 ------------------- received.-[12]- The Commission also is providing further clarification on the application of amended Rule 19b-4. II. Amendments to Rule 19b-4 Under Section 19(b) of the Act, an SRO is required to file with the Commission its proposed rule changes.-[13]- Once a proposed rule change is filed, the Commission is required to publish notice of it and provide an opportunity for public comment. The proposed rule change may not take effect unless approved by the Commission or unless the rule change is within the class of rule changes effective upon filing pursuant to Section 19(b)(3)(A).-[14]- Under Section 19(b)(3)(A) of the Act and Rule 19b-4(e) thereunder, a proposed rule change may take effect upon filing without the notice and approval procedures required by Section 19(b)(2) if the proposed rule change comes within prescribed statutory categories,-[15]- including matters which the Commission may, consistent with the public interest and the purposes of this subsection, specify by rule. Accordingly, the Commission is amending Rule 19b-4 to add two new categories of proposed rule changes that can become effective in this manner: (1) routine procedural and administrative modifications to existing order-entry and trading systems (the "existing systems category"); and (2) certain other noncontroversial filings (the "noncontroversial category").-[16]- The Commission believes that these amendments are consistent with the general principles of the Exchange Act applicable to the approval of SRO rule changes that ensure that meaningful public comment is reflected where necessary. All rule changes that become effective under Section 19(b)(3)(A) will continue to be subject to abrogation by the Commission within 60 days of the filing.-[17]- A. Systems Changes -[12]- These amendments may affect clearing agencies for which the Commission is not the appropriate regulatory agency as defined in Exchange Act 3(a)(34), 15 U.S.C. 78c(a)(34). Therefore, in accordance with Exchange Act 17A(d)(3)(A)(i), 15 U.S.C. 78q-1(d)(3)(A)(i), at least 15 days before this announcement, the Commission consulted and requested the views of the Board of Governors of the Federal Reserve System. -[13]- 15 U.S.C. 78s(b) -[14]- See Proposing Release for a more complete discussion of this process. -[15]- These include rule changes that (1) constitute a stated policy, practice, or interpretation with respect to the meaning, administration, or enforcement of an existing rule of the SRO, (2) establish or change a due, fee, or other charge imposed by the SRO, or (3) that are concerned solely with the administration of the SRO. 15 U.S.C. 78s(b)(3)(A). -[16]- These categories will be established by amending Rule 19b-4 to add paragraph (e)(5) for the systems category and paragraph (e)(6) for the noncontroversial category, and by making conforming changes to Form 19b-4. -[17]- 15 U.S.C. 78s(b)(3)(C). -------------------- BEGINNING OF PAGE #4 ------------------- In the Proposing Release, the Commission proposed to allow SRO rule changes dealing with routine procedural and administrative modifications to existing order-entry and trading systems to become effective upon filing pursuant to Section 19(b)(3)(A) of the Act. Historically, it has been required that these modifications be filed under Section 19(b)(2).-[18]- The proposed amendments limit the scope of the existing systems category to those systems changes that: (1) do not significantly affect the protection of investors or the public interest; (2) do not impose any significant burden on competition; and (3) do not have the effect of limiting the access to or availability of the system. Commenters supported this proposal because it would address concerns that the filing process with respect to these types of rule changes can be too lengthy, and hampers the ability of SROs to provide prompt, flexible, and innovative systems changes. Several commenters, however, requested further clarification of when a systems change requires a filing, and whether such filings would be eligible to become effective upon filing under the existing systems category. 1. Systems Changes that Require Rule Change Filings The NASD commented that certain changes related to order- entry and trading systems should not be considered proposed rule changes at all and should be exempt from the filing process. The NASD cited changes involving the format and appearance of screens, keystroke commands, underlying hardware and software changes, and the user manuals and technical guides to system operation. The NASD stated that these filings rarely would pose significant concerns in the areas of investor protection, public interest, or fair competition. While changes to the format and appearance of screens, or changes involving the underlying hardware and software may not need to be filed pursuant to Section 19(b)(2) in many instances, the Commission cannot state as a general matter that these changes are never required to be filed. For example, if an SRO decided to alter the format and appearance of a system providing quotation information by excluding the market maker or market specialist identifier, thus making it virtually impossible for a system user to determine the origination of a quote, the SRO would then be required to file a proposed rule change with the Commission. The Exchange Act requires SROs to have rules designed, among other things, to remove impediments to and perfect the mechanism of a free and open market and a national market system.-[19]- Thus, any change to a system providing quotation information that would affect the maintenance of a free and open market or a national market system would be required to be filed with the Commission. Similarly, changes to keystroke commands would generally not require a filing. If such a change, however, would have the effect of prohibiting entry of certain types of orders, such as a series of keystrokes so cumbersome that it has the effect of prohibiting the entry of orders priced outside the current inside market, that change would require a filing pursuant to Section -[18]- See, e.g., Letter from Richard T. Chase, Assistant Director, SEC, to Frank Wilson, Executive Vice President, NASD (February 4, 1983). -[19]- 15 U.S.C. 78f(b)(5) and 78o-3(b)(6). -------------------- BEGINNING OF PAGE #5 ------------------- 19(b)(2).-[20]- While software or hardware changes generally do not require a filing pursuant to Section 19(b)(2), the Commission has suggested that significant hardware and software changes be reported to the Commission on an annual and an as-needed basis, as stated in its most recent Automation Review Policy.-[21]- User manuals and technical guides for a particular system, as a general matter, need not be filed with the Commission. It has been the Commission's experience, however, that at times, a clear understanding of how the system functions may be achieved only by reviewing the rules of the SRO in conjunction with the user manual or technical guide. The Commission believes that it is more appropriate to have the relevant information in the SRO's rules so that it may be available to anyone seeking an understanding of the system's operation.-[22]- It is the SRO's -[20]- In fact, the Commission recently was presented with a situation which raised this very issue and demonstrated the need for filing pursuant to Section 19(b)(2). On October 25, 1993, the NASD filed with the Commission a proposed rule change to modify the SelectNet service by prohibiting entry of orders in SelectNet priced outside the inside Nasdaq market. Securities Exchange Act Release No. 33101 (Oct. 25, 1993), 58 FR 58363 (File No. SR-NASD-93-60). The NASD filed that rule change pursuant to Section 19(b)(3)(A) of the Act which became effective immediately. On October 29, 1993, pursuant to Section 19(b)(3)(C) of the Act, the Commission abrogated the rule change on the basis that it should have been filed pursuant to Section 19(b)(2) and thus, subject to notice and comment. Securities Exchange Act Release No. 33116 (Oct. 29, 1993), 58 FR 58883. On November 1, 1993, the NASD refiled with the Commission the proposed rule change pursuant to Section 19(b)(2) of the Act. Securities Exchange Act Release No. 33141 (Nov. 3, 1993), 58 FR 59504 (File No. SR-NASD-93-61). Due to concerns about whether the NASD's proposal was consistent with the Act, the Commission instituted proceedings pursuant to Section 19(b)(2)(B) of the Act to determine whether the proposed rule change should be disapproved. Securities Exchange Act Release No. 34000 (May 3, 1994), 59 FR 23909. Subsequently, the NASD modified the SelectNet keystroke procedures for entering and accepting orders outside the inside Nasdaq market. The modification provided a warning to SelectNet participants that the order is priced outside the inside market but allows participants to override the warning. Because this modification neither significantly altered SelectNet nor denied access to SelectNet, the change was not considered a proposed rule change and thus did not require filing with the Commission. As a result, the NASD withdrew its proposed rule change and the Commission terminated the proceedings to determine whether to disapprove the proposal. Securities Exchange Act Release No. 34486 (Aug. 4, 1994), 59 FR 40933. -[21]- Securities Exchange Act Release No. 29185 (May 9, 1991), 56 FR 22490. -[22]- The SRO's rules should indicate, for example, the types and size of orders, and with specificity, the manner in which orders will be processed in the system. (continued...) -------------------- BEGINNING OF PAGE #6 ------------------- responsibility to make the initial determination of whether an action an SRO is contemplating will require a filing, including whether to file user manuals and technical guides. Whether any particular guide needs to be filed must be determined on a case by case basis.-[23]- 2. Scope of Filings Eligible for the Existing Systems Category In the Proposing Release, the Commission cited examples of the type of proposed rule change that would be within the existing systems category. For example, a proposed rule change that would increase marginally the maximum number of shares per order that could be executed through an SRO's small order routing and execution system, or a proposed rule change that would expand the number of series or classes eligible for options routing and execution systems generally could be filed pursuant to Section 19(b)(3)(A). In addition, the Commission believes that the following recent filings also exemplify the type that would qualify for the existing systems category: a rule change requiring the use of a special indicator for average-priced trade reports,-[24]- and one requiring OTC Bulletin Board ("OTCBB") market makers to append a fifth character to their market maker identifier as a geographic indicator when trading away from primary offices.-[25]- The NASD suggested that the term "trading system" should be clarified to include automated services that support trading, trade reporting, and clearance and settlement, such as the OTCBB and the Automated Confirmation Transaction service ("ACT"). The NASD recommended that changes to these systems should be eligible under either the existing systems category, or the noncontroversial category discussed below. The Amex requested that the Commission make clear that changes to automatic equity order execution systems that could interfere with providing best execution would be precluded from filing under Section 19(b)(3)(A). The Amex also requested that the Commission not limit the availability of the existing systems category to only marginal increases in the number of shares per order that can be entered and executed through a small order routing and execution system, as stated in the Proposing Release, but also include significant increases in certain circumstances. -[22]-(...continued) Specifically, with respect to a system such as SelectNet, it is important to know how the different types of orders are displayed and to whom they are displayed. See Letter from David Humphreville and Caroline B. Austin, Co-Chairs, National Specialist Association to Jonathan G. Katz, Secretary, SEC, dated November 6, 1992 (commenting on File No. SR-NASD-92- 16). Information explaining the combination of keystrokes that must be used to accept an order may be more appropriate for a user manual or technical guide. -[23]- If an SRO has failed to explain clearly in its rules how a particular system functions, including who has access to the system, it should consider submitting a proposed rule change comprising the relevant information contained in the guide or manual. -[24]- File No. SR-NASD-93-20. -[25]- File No. SR-NASD-93-74. -------------------- BEGINNING OF PAGE #7 ------------------- While the Commission generally believes that it may be reasonable to interpret broadly the term "trading system," to include related automated services such as the OTCBB or ACT, such that changes to those services could be eligible for filing under the existing systems category, the Commission also believes, for example, that a proposal to expand the category of eligible securities in connection with a system to include foreign securities would raise investor protection and competitive concerns, and would thus be subject to review pursuant to Section 19(b)(2). The Commission recognizes, as noted by the Amex, that a proposed rule change that interferes with best execution obligations would significantly affect the protection of investors and thus would not satisfy the conditions for expedited treatment set forth in the rule. The Commission also believes that a proposed rule change that substantially increases the number of shares per order routed or executed through a small order execution system may in some circumstances be eligible for expedited treatment. Such a proposed rule change, however, generally would not be eligible to become effective upon filing under the existing systems category because a change in the order size of substantial magnitude would not qualify as a modification of an existing system, but in effect establishes a new system. Thus, it generally will be more appropriate to file significant increases in order size under the noncontroversial category discussed below. The Commission is adopting the amendments concerning existing systems changes as originally proposed. The Commission believes that, because these types of proposed rule changes deal with operational details of existing systems and are subject to certain limitations in the rule, they do not require the full notice and review procedures of Section 19(b)(2). The amendments bring the filing procedures for this type of proposed rule change in line with procedures that have been in effect for clearing agencies since 1980.-[26]- B. Noncontroversial Filings As proposed, the amendments to Rule 19b-4 also would expand the scope of proposed rule changes that may become effective upon filing under Section 19(b)(3)(A) to include certain noncontroversial filings. For these filings, SROs would be required to provide written notice to the Commission five business days prior to the filing.-[27]- This notice would -[26]- A proposed rule change of a registered clearing agency can become effective upon filing pursuant to Rule 19b- 4 if it effects a change in an existing service that (1) 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 (2) does not significantly affect the respective rights or obligations of the clearing agency or persons using the service. See Securities Exchange Act Release No. 17258 (October 30, 1980), 45 FR 73906. -[27]- As stated in the Proposing Release, the Commission expects that such notices will be informal and often transmitted by facsimile. The notice should be directed to the appropriate Division staff responsible for reviewing that SRO's filings of proposed rule changes. The Commission intends to place this notice in a public file. See Exchange Act 23(a)(3), 15 (continued...) -------------------- BEGINNING OF PAGE #8 ------------------- provide Commission staff an opportunity to discuss with the SRO whether there exists an adequate basis upon which the proposed rule change may properly qualify under Section 19(b)(3)(A), and could elicit guidance from Commission staff to help the SRO identify those aspects of a proposed rule change that the Commission deems important.-[28]- Proposed rule changes in the noncontroversial category, by their terms, would become operative 30 days after the date of publication of the notice, or such shorter time as the Commission may designate. The proposal of the noncontroversial category elicited significant comment. The comments focused on the timing of the effectiveness of these noncontroversial filings, and the scope of proposed rule changes that may be filed under this category. Commenters also voiced concerns relating to the publication of notices of proposed rule changes generally. 1. Timing of Effectiveness Commenters indicated that the 30-day delayed operational date was too lengthy for noncontroversial rule filings and that, in any case, the operational date was not predictable.-[29]- Commenters offered a variety of suggestions about how to address this issue. While some suggested that the period be shortened,-[30]- others suggested eliminating the period altogether or granting authority to delay the operation of the rule only in specific circumstances.-[31]- Several recommended that the 30-day period run from the date of the filing rather than the date of publication.-[32]- The Amex requested that the Commission clarify procedures applicable to the filing of amendments to proposed rule changes under the noncontroversial category, and requested that there be an explicit mechanism for requesting that the 30-day period be shortened. The Amex also recommended that the five-day period for submitting a pre-filing notice be a maximum, and not a minimum period, so as not to preclude submission of the subsequent filing less than five days later, in the event that the Commission determines in a shorter time that the filing is appropriately filed under this category. Related to the timing of effectiveness is the matter of publishing notices of proposed rule changes. Several commenters -[27]-(...continued) U.S.C. 78w(a)(3). For every clearing agency for which the Commission is not the appropriate regulatory agency, the notice also must be filed with the appropriate regulatory agency for the clearing agency as required by Exchange Act 17(c)(1), 15 U.S.C. 78q(c)(1). Consistent with the requirements of that section, the Commission also would expect the MSRB to file such notices with each agency enumerated in Exchange Act 3(a)(34)(A), 15 U.S.C. 78c(a)(34)(A). -[28]- This also should 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. -[29]- See, e.g., Letter from NYSE. -[30]- See, e.g., Letter from Amex. -[31]- Letter from NYSE. -[32]- Letters from CBOE, CHX, Phlx. -------------------- BEGINNING OF PAGE #9 ------------------- were critical of the length of time between the filing of a proposed rule change and its publication in the Federal Register. The CBOE, for example, argued that in some cases the publication of the notice has been inordinately delayed. The Phlx stated that the delay results from a lengthy pre-publication review by the Commission. The NYSE and the NASD suggested that the Commission adopt an internal guideline on publishing notices to address this perceived problem. The Commission believes that a 30-day delayed operational date for noncontroversial filings is necessary and appropriate. If, as a result of either subsequent Commission review or public comment, it is determined that a proposed rule change was not properly filed as within the noncontroversial category, the 30- day period would allow the Commission to abrogate the rule change without a significant disruption in existing operations. To address concerns of commenters, however, the Commission has determined to commence the 30-day period with the filing date of the proposed rule change, instead of the publication date as originally proposed. This will enable SROs to implement a proposed rule change more quickly, while preserving the opportunity for meaningful public comment. A 30-day period triggered by the filing date provides predictability while assuring that the filing is reviewed not only by the staff but also by commenters. With respect to amendments to filings in the noncontroversial category, the Commission believes that any substantive amendment would trigger a new 30-day period, assuming that the changes do not render the filing ineligible for this category. The staff would, however, have discretion to accept editorial changes without triggering a new 30-day period. The Commission notes that this procedure was designed to expedite those SRO filings that are inherently simple and concise, and that would otherwise require little in the way of extended review or analysis by the Commission. A filing requiring further substantive amendments may indicate that it is not appropriate for the expedited treatment afforded by the noncontroversial category. Form 19b-4 also has been amended to state that an SRO requesting the Commission to shorten the 30-day period should provide a statement explaining why the Commission should do so. With respect to the five-day pre-filing period, the Commission is amending the rule to permit the Commission to designate a shorter period if appropriate. As the Commission has stated in the past, its intent is to publish all notices of proposed rule changes promptly.-[33]- In light of comments received, the Commission will redouble its efforts to do so in the future. The Commission notes, however, that notices of proposed rule changes need to be clear in order to elicit meaningful public comment. Although a proposed rule change may be accepted as filed, the Commission believes that it should not be published until it has reached an adequate level of clarity regarding the issues raised by the filing. For complex filings, this can require more extensive review. Filings of rule changes also need to include information necessary to enable the Commission's staff to conduct a complete review. Any filings that fail to comply with the requirements of Form 19b-4 may be returned to the SRO and will be deemed not to have been filed with the Commission. -[33]- Securities Exchange Act Release No. 17258 (October 30, 1980), 45 FR 73906. -------------------- BEGINNING OF PAGE #10 ------------------- 2. Scope of Filings Eligible for the Noncontroversial Category Many commenters requested further clarification of the scope of this proposal. While it would be impossible to identify with certainty in advance every type of proposed rule change that may qualify for the noncontroversial category, the discussion below should assist SROs in assessing its availability. The noncontroversial category applies only to those proposed rule changes that are properly designated by the SRO as not significantly affecting the protection of investors or the public interest and not imposing any significant burden on competition. As indicated in the Proposing Release, proposed rule changes meeting these criteria generally are less likely to engender adverse comments or require the degree of review attendant with more controversial filings. In the Proposing Release, the Commission cited examples of proposed rule changes that would be eligible for the noncontroversial category, such as certain proposed rule changes that would add an existing rule to an SRO's minor rule violation plan, and proposed rule changes that permit the transmission of data to or from the SRO by computer interface or other electronic means. The Proposing Release also made clear, however, that for policy reasons, a proposed rule change that would reduce public representation in the administration of the affairs of an SRO or that would amend the procedures for arbitration or disciplinary proceedings would not be a proper candidate to become effective under Section 19(b)(3)(A). In its comment letter, the NYSE stated that the scope of the proposal for noncontroversial filings would depend on the interpretation of the term "significant" as it is used in the amendments. In requesting that the Commission provide further guidance on the scope of this proposal, the NYSE indicated that, based on a survey of its filings for 1993 and the first half of 1994, its staff believed that the overwhelming majority of its rule changes would not have been eligible for expedited treatment. The NASD and the Amex suggested that the Commission apply an expedited approach to proposed rule changes that "clone" or are virtually identical to other rule changes filed by another SRO that already have been approved by the Commission. The NASD also questioned the general utility of the noncontroversial category to the extent that a competitor could unjustifiably impede the expedited treatment of an SRO's proposed rule change simply by filing a perfunctory adverse comment letter. The Commission would like to make clear that although it intends to expedite the rule filing process, it is doing so only with respect to the universe of proposed rule changes that are not likely to engender adverse comments or otherwise warrant the type of review required by Section 19(b)(2) of the Act. With respect to the NYSE's survey of its filings, the Commission staff has determined that, of 72 NYSE proposed rule changes identified as being filed during the period surveyed by the NYSE, at least seventeen, in retrospect, would have qualified for expedited treatment under the noncontroversial category. These include filings that: (1) conformed the NYSE pre-opening application to the Intermarket Trading System by clarifying the use of a cancellation notification sent after a pre-opening notification;-[34]- (2) similar to other proposals approved for the Amex and CBOE, provided for the listing and trading of quarterly index expiration options;-[35]- (3) amended floor -[34]- File No. SR-NYSE-93-01. -[35]- File No. SR-NYSE-93-04. -------------------- BEGINNING OF PAGE #11 ------------------- conduct and safety guidelines not dealing with procedural rights of offender (two filings);-[36]- (4) rescinded two NYSE rules, Rules 391 and 392, which served little purpose in light of the Commission's rescission of its Rule 10b-2;-[37]- (5) extended until January 31, 1994, off-hours trading and the matched market- on-close pilot program;-[38]- (6) added to the exchange's minor rule violation plan NYSE Rule 410B, which requires members and member organizations to report trades in exchange listed stocks not otherwise reported to the Consolidated Tape;-[39]- (7) related to registration and fingerprinting of floor members and employees;-[40]- (8) amended the exchange's minor rule violation plan to include exchange procedures with respect to entry and cancellation of market-at-the-close orders on expiration days, and other rules for which determinations of violations can be made objectively (two filings);-[41]- (9) extended for one year the NYSE's pilot program for position limit exemptions for certain hedged equity and stock index option positions;-[42]- (10) increased insubstantially the exchange's continuing listing fees;-[43]- (11) extended Rule 103A relating to specialist stock reallocation;-[44]- (12) amended NYSE Rule 321 by clarifying the term "control" and substituting the word "subsidiary" for the word "affiliate" in Rules 113 and 122;-[45]- (13) authorized the NYSE to provide to the Central Registration Depository information concerning pending formal disciplinary proceedings;-[46]- (14) for audit trail reporting purposes, added identification codes for short sales exempt from Commission or exchange rules;-[47]- and (15) extended the exchange's circuit breaker pilot program.-[48]- In addition, the staff of the Commission has identified other filings that are representative of the types of filings that could qualify for the noncontroversial category. These include filings that: (1) deleted that part of Schedule D to NASD by-laws concerning publication and dissemination of quotations to the news media, to reflect current NASD practice;-[49]- (2) -[36]- File Nos. SR-NYSE-93-14 and SR-NYSE-93-25. -[37]- File No. SR-NYSE-93-20. -[38]- File No. SR-NYSE-93-23. -[39]- File No. SR-NYSE-93-24. -[40]- File No. SR-NYSE-93-28. -[41]- File Nos. SR-NYSE-93-35 and SR-NYSE-93-38. -[42]- File No. SR-NYSE-93-42. -[43]- File No. SR-NYSE-93-46. See discussion on fee-related filings in this section, infra. -[44]- File No. SR-NYSE-94-07. -[45]- File No. SR-NYSE-94-09. -[46]- File No. SR-NYSE-94-11. -[47]- File No. SR-NYSE-94-16. -[48]- File No. SR-NYSE-94-34. -[49]- File No. SR-NASD-93-14. -------------------- BEGINNING OF PAGE #12 ------------------- deleted the section of NASD by-laws regarding a local quotations program that had been phased out;-[50]- (3) required members to adjust certain orders when securities are quoted ex-dividend, ex- rights, and ex-interest;-[51]- (4) eliminated existing regulatory requirements for non-Nasdaq OTC securities once real-time reporting of those securities had been approved by the Commission;-[52]- (5) extended previously approved pilot linkages between Nasdaq and foreign exchanges;-[53]- (6) mandated market maker use of registered clearing agencies;-[54]- and (7) provided a procedure for the immediate publication of final disciplinary sanctions.-[55]- Moreover, it is the Commission's view that mechanical or simple editorial changes to existing rules, such as when a change in an SRO's rule numbering system results in incorrect cross-references in other rules, may be filed within the noncontroversial category. As noted above, under Section 19(b)(3)(A)(ii) of the Act, rule changes that establish or change a due, fee, or other charge imposed by the SRO may become effective upon filing.-[56]- The Commission notes that the filing of a proposed fee applicable to members may nonetheless raise significant regulatory issues and thus be required, consistent with current Commission policy, to be submitted pursuant to Section 19(b)(2).-[57]- In addition, the Commission continues to believe that, as a matter of general policy, an SRO proposed rule change that establishes or changes a due, fee or other charge applicable to a non-member or non- participant must be filed under Section 19(b)(2) for full notice and comment.-[58]- While filings concerning fees applicable to -[50]- File No. SR-NASD-93-40. -[51]- File No. SR-NASD-93-52. -[52]- File No. SR-NASD-93-68. -[53]- File Nos. SR-NASD-94-23, SR-NASD-94-25, and SR-NASD- 94-30. -[54]- File No. SR-NASD-94-28. -[55]- File No. SR-NASD-94-59. -[56]- See note 15, supra. -[57]- See, e.g., Securities Exchange Act Release No. 32377 (May 27, 1993), 58 FR 31568 (File No. SR-NYSE-93-08) (approving NYSE proposal to grant an additional system credit to member and member organizations for all individual and agency orders of a certain size, except orders for the account of a non-member competing market maker, routed through the NYSE's SuperDot system for execution); Securities Exchange Act Release No. 27286 (September 21, 1989), 54 FR 40224 (File No. SR-NASD- 88-55) (approving NASD proposal relating to the imposition on certain member firms of an assessment on annual gross income from transactions in U.S. Government Securities). -[58]- Securities Exchange Act Release No. 17258 (October 30, 1980), 45 FR 73906, at 73910 n.40. See, e.g., Securities Exchange Act Release Nos. 33123 (October 29, 1993), 58 FR 59083 (File No. SR-NASD-93-49) (approving NASD proposal to extend Bond Quotation Data Service (continued...) -------------------- BEGINNING OF PAGE #13 ------------------- non-members have not been eligible to become effective upon filing under Section 19(b)(3)(A)(ii), some such filings now may qualify for expedited treatment under the noncontroversial category.-[59]- Furthermore, the Commission will retain a flexible approach in applying amended Rule 19b-4. For example, absent unusual circumstances, filings that are virtually identical to an SRO filing already approved by the Commission will be eligible for expedited treatment under the noncontroversial category. While the Commission generally requires that proposals for exchange listing of new hybrid securities be submitted to the Commission for full review pursuant to Section 19(b)(2) of the Act to ensure that all significant regulatory concerns have been addressed, the Commission also believes that new proposals relating to these products that only change certain characteristics of the products could be eligible for expedited treatment under the noncontroversial category. Once the staff has completed the review process for a particular new product, the need for a full review of subsequent similar proposals is significantly reduced. For example, the Commission has required exchanges to submit for full review under Section 19(b)(2) proposals to list and trade MITTS and SUNS, which are products linked to various baskets of securities.-[60]- Because the review of new proposals that seek to change, for example, only the composition of the underlying baskets generally will be limited to the composition of those baskets, and because the Commission is now familiar with the basic structure for MITTS and SUNS, subsequent proposals should be eligible for the noncontroversial category.-[61]- This will expedite the approval of the listing of these products. The Commission notes, however, that an expedited approach would not necessarily apply, as the Amex suggested, to a proposal to trade index warrants on a stock index previously approved by the Commission for options trading. While use of the procedure could be considered on a case by case basis, as a general rule different types of derivative products, albeit based on the same underlying index, may not be sufficiently identical to be eligible for this treatment. With respect to the concern that a competitor may cause a proposed rule change of an SRO to be deemed improperly filed -[58]-(...continued) fees to non-member subscribers); 34272 (June 28, 1994), 59 FR 34701 (File No. SR-Amex-94-12) (approving Amex proposal to reduce maximum fees for original stock listings by domestic and foreign issuers). -[59]- For example, if an SRO proposes a reasonable and relatively minor increase in an existing fee, or a proposal that is virtually identical to fees of other SROs, provided that the proposal does not raise other regulatory issues, such proposal would qualify under the noncontroversial category. -[60]- See Securities Exchange Act Release No. 32840 (September 2, 1993), 58 FR 47485 (order approving Global Telecommunications MITTS portfolio). -[61]- See, e.g., Securities Exchange Act Release No. 34655 (September 12, 1994), 59 FR 47966 (order approving the listing of REIT Portfolio MITTS); Securities Exchange Act Release No. 33495 (January 19, 1994), 59 FR 03883 (order approving the listing of Telecommunications Basket SUNS). -------------------- BEGINNING OF PAGE #14 ------------------- under the noncontroversial category merely by submitting a comment letter critical of the filing, the Commission expects that a comment letter would have to raise issues that legitimately suggest that the proposed rule change is inconsistent with the requirements of the Exchange Act or regulations thereunder applicable to that SRO in order for the rule change to be abrogated and refiled under Section 19(b)(2). The CBOE commented that it is unclear whether the notice published by the Commission indicating that a rule change has become effective upon filing would be sufficient to prevent a collateral attack based on the assertion that the rule change was improperly filed under the Act. The Commission concurs with the CBOE's interpretation that a rule change filed under Rule 19b- 4(e) is deemed to have been properly filed thereunder if the Commission fails to abrogate it within the 60 day period for such action. Finally, the CHX urged the Commission to interpret all corporate governance changes that do not decrease the number of public governors as being within the provision of Section 19(b)(3)(A) that permits a proposed rule change to take effect upon filing if it is "concerned solely with the administration of the SRO." The governance structure of the SROs is the subject of specific statutory standards. Because a change in the overall makeup of the governance structure of an SRO could be effected without necessarily decreasing the number of public governors, the Commission does not concur in this interpretation. In sum, the Commission is adopting amendments to Rule 19b-4 for the noncontroversial category with the following modifications: (1) the 30-day period after which a noncontroversial filing may become effective will begin with the filing date; (2) Form 19b-4 will state that an SRO requesting the Commission to shorten the 30-day period should provide a statement explaining its reasons for so requesting; and (3) Rule 19b-4 will permit the Commission to shorten the 5-day period in which SROs are required to file a notice of their intent to file, if appropriate.-[62]- C. Delegation of Authority to the Director of the Division of Market Regulation The Commission currently has the authority under Section 19(b)(3)(C) of the Exchange Act to abrogate summarily within 60 days of filing any proposed rule change that becomes effective under Section 19(b)(3)(A) 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.-[63]- The Proposing Release indicated that if the proposals to expand the scope of Section 19(b)(3)(A) are adopted, the Commission will revise its rules to delegate this abrogation authority to the Director of the Division of Market Regulation. As indicated in the Proposing Release, this would be necessary to facilitate an expected increase in the volume of proposed rule changes that would be filed under Section 19(b)(3)(A). In particular, the Commission expects that the staff will abrogate filings if it becomes aware of issues that would warrant further consideration under the procedures set -[62]- The Commission is delegating to the Director of the Division of Market Regulation the functions of shortening the 30 and five-day periods. See Section II.C. below. -[63]- 15 U.S.C. 78s(b)(3)(C). -------------------- BEGINNING OF PAGE #15 ------------------- forth in Section 19(b)(2), such as those involving possible burdens on competition or effects on investor protection. Accordingly, the Commission is delegating this function, as well as the related functions of shortening the 30 and five-day periods under paragraph (e)(6) of Rule 19b-4, to the Director of the Division. In addition, the Commission is delegating to the Director of the Division the authority under Section 19(b)(2)(B) of the Exchange Act to institute proceedings to determine whether a proposed rule change should be disapproved.-[64]- It is the Commission's view at this time that filings that are not resolved within six months of submission generally should be withdrawn or, in the alternative, subject to disapproval proceedings. Although the Commission has directed its staff to request that SROs withdraw a number of filings of proposed rule changes not approved within that period, this delegation of authority is necessary to enable the Division to implement these internal guidelines. The Commission does not intend to prevent SROs from moving forward with their rule changes. The Commission suggests, however, that when it becomes obvious that a resolution of issues for a particular filing is not forthcoming, it may be more appropriate for the SRO to advance the initiative outside of the rule filing mechanism until such time as it is in form for approval. The staff of the Commission will be available to assist SROs in this regard.-[65]- The Commission believes that this will maintain accountability on the part of both Commission staff and SROs by assuring that complex filings are not abandoned and allowed to stagnate within the rule filing process. These amendments add new paragraphs (a)(57), (a)(58), and (a)(59) to Rule 30-3 of the Commission's rules of Organization and Program Management. D. Submission of Form 19b-4 on Computer Diskette and Miscellaneous Amendments The Commission noted in the Proposing Release that significant staff resources are devoted to processing proposed rule changes and preparing them for publication, and encouraged SROs to submit Form 19b-4 and the notice for publication (Exhibit 1 to the form) on computer diskette in an appropriate wordprocessing format.-[66]- The paper version of these documents would continue to be required, but the electronic version would provide a more efficient way for Commission staff to review and prepare the initial notice for publication in the Federal Register. The Commission also is adopting amendments as proposed that will reduce the number of copies of Form 19b-4 and Exhibit 1 that SROs must submit from twelve to nine, including the manually signed original. Although the Commission originally proposed reducing the number of copies to eight, it has determined that nine copies would be optimal based on current staff distribution -[64]- 15 U.S.C. 78s(b)(2)(B). -[65]- The Commission recognizes that in certain instances there will be differences in opinion between the staff and SROs regarding the handling of a rule filing. In such instances, the SROs are always free to inform the Commission so that it may help expedite the processing of the filing in an appropriate manner. -[66]- Currently, the staff of the Commission uses Wordperfect 5.0. -------------------- BEGINNING OF PAGE #16 ------------------- requirements. In addition, the Commission is correcting miscellaneous outdated references contained in the form with respect to the Commission's address and appropriate offices within the Division to which filings of proposed rule changes should be directed. III. Amendments to the Annual Filing Requirements for SROs and the MSRB A registered or exempted securities exchange generally must file annual amendments to its registration statement with the Commission pursuant to Rule 6a-2 under the Exchange Act.-[67]- The information contained in these annual filings includes, among other things, lists of officers, governors, and committee members, as well as various forms used by the exchange, listing applications, listing fee schedules, membership lists, and securities listed on the exchange.-[68]- Exchange Act rules also contain similar annual filing requirements for national securities associations-[69]- and the MSRB.-[70]- In the Proposing Release, the Commission stated that some of this information is either publicly available, becomes available to the Commission through other means, or is not useful enough to justify the burden placed on the exchanges in collecting and filing it with the Commission each year. The Commission thus proposed amendments to streamline and conform the annual filing requirements for SROs. A. Rule 6a-2: Annual Filing Requirements of Exchanges The proposed amendments would eliminate or reduce the annual filing requirement for certain information, and give exchanges flexibility in making their filings. Commenters supported this proposal. The NYSE suggested that the Commission adopt more extensive amendments that would relieve SROs of the need to file any information annually that is made available to the Commission throughout the year in periodic publications, such as an exchange's bulletins and information memos. The Commission has determined to adopt the amendments to Rule 6a-2 as proposed, with the exception of one minor modification concerning the proposal to add the date of election to membership for each member, discussed below at Section III.B. The amendments to Rule 6a-2 will eliminate or reduce the information required to be filed annually in the following exhibits to exchange registration: Exhibit B (forms pertaining to application for membership and approval as a person associated with a member); Exhibit C (forms of financial statements, reports, or questionnaires relating to financial responsibility); Exhibit D (documents comprising listing applications including agreements required in connection therewith, and a schedule of listing fees); Exhibit I (list of all individual members and -[67]- Exchange Act Rule 6a-2, 17 CFR 240.6a-2. These filings are submitted on Exchange Act Form 1-A, 17 CFR 249.1a. -[68]- Rule 6a-2(b) also requires the filing of complete sets of the constitution, by-laws, rules, and related documents of the exchange, but only once every three years. -[69]- See Exchange Act Rule 15Aj-1, 17 CFR 240.15Aj-1; Form X-15AJ-2, 17 CFR 249.803. Currently, the NASD is the only national securities association registered with the Commission. -[70]- See Exchange Act Rule 17a-21, 17 CFR 240.17a-21. -------------------- BEGINNING OF PAGE #17 ------------------- related information); Exhibit J (certain information related to a list of all member organizations of the exchange); and Exhibit K (schedule of securities listed on the exchange). In addition, the amendments to Rule 6a-2 would provide the following alternatives to the annual filing requirement for the remaining exhibits to exchange registration other than Exhibits E and F (i.e., Exhibits A(1), A(2), A(3), G, H, J, L, and M).-[71]- Exchanges would have the option, in lieu of the annual filing, to publish or cooperate in the publication of this information on an annual or more frequent basis, and to certify to the accuracy of the information. Exchanges would have the additional option of keeping the information in Exhibits A(1), A(2), A(3), L, and M up to date, and certifying that the information is up to date and available to the Commission and the public upon request. In response to the recommendation that SROs be relieved of the need to file altogether any information that may be available to the Commission, the Commission believes that it would be inconsistent with the requirements of Section 6 of the Exchange Act to rely upon informal, piecemeal publications as a surrogate for a comprehensive filing that is a component of an exchange's registration with the Commission. Furthermore, some of the required exhibits deal with financial information of the exchange that enable the Commission to comply with its obligations to provide Congress with a statement and analysis of the expenses and operations of each SRO.-[72]- B. Rule 15Aj-1 and Form X-15AJ-2; Rule 17a-21: Annual Filing Requirements for Securities Associations and Reports of the Municipal Securities Rulemaking Board Both the NASD and the MSRB endorsed the proposal to streamline their annual filing requirements and conform them to the requirements now applicable to exchanges.-[73]- The Commission is adopting amendments to Rules 15Aj-1, 17a-21, and Form X-15AJ-2 under the Exchange Act to streamline the annual filing requirements for the NASD and MSRB and make them more uniform. Like exchanges, these SROs will have similar alternative options for the filing of comparable information. -[71]- Exhibit A(1) contains the constitution, articles of incorporation, by-laws, and rules of the exchange; Exhibit A(2) contains written rulings, settled practices, and interpretations not contained in A(1); Exhibit A(3) contains the constitution, articles of incorporation, by-laws, and rules of each affiliate or subsidiary of the exchange; Exhibit G contains a list of officers and committee members; Exhibit H contains similar information for affiliates or subsidiaries; Exhibit L contains a schedule of securities admitted to unlisted trading practices; and Exhibit M contains a schedule of unregistered securities admitted to trading on the exchange that are exempt from registration. -[72]- See Exchange Act 23(b), 15 U.S.C. 78w(b). -[73]- In its comment letter, the NASD also recommended that the Commission review the filing requirements applicable to exclusive securities information processors ("SIPs"), similarly to eliminate obsolete or duplicate filing requirements. This suggestion is outside the scope of the original proposal. Nevertheless, the Commission intends to review and streamline the annual filing requirements applicable to exclusive SIPs. -------------------- BEGINNING OF PAGE #18 ------------------- With respect to the proposal to add the date of election to membership for each member, the NASD commented that in some cases this date is not readily available and may be difficult to report. While the Commission is adopting the requirement to add the date of election to membership for each member, this information will be required only for those members elected to membership after December 31, 1994. A conforming modification also has been made to Rule 6a-2 for exchanges, thus applying the same standard to all SROs. This information serves an important purpose by enabling Commission staff to monitor the obligation of broker-dealers to become members of an SRO,-[74]- and designate an appropriate designated examining authority for member broker- dealers.-[75]- IV. Effects on Competition and Regulatory Flexibility Act Considerations Section 23(a)-[76]- of the Act requires the Commission, in adopting rules under the Act, to consider the impact on competition of those rules, if any, and to balance that impact against the regulatory benefits gained in terms of furthering the purposes of the Act. The amendments to Rule 19b-4 apply to all SROs. Furthermore, the amendments are intended to expedite for all SROs a process to which they already are subject under the Act. Similarly, the amendments to the annual filing requirements for SROs are designed to streamline and make uniform those requirements. The Commission is of the view, therefore, that adoption of the proposed amendments to Rules 19b-4, 6a-2, 15Aj- 1, 17a-21, and Forms 19b-4 and X-15AJ-2 would not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act. In addition, Section 3(a) of the Regulatory Flexibility Act-[77]- requires the Commission to undertake an initial regulatory flexibility analysis of the proposed amendments on small entities unless the Chairman certifies that the rule, if adopted, would not have a significant economic impact on a substantial number of small entities.-[78]- Rule 19b-4 and Form 19b-4 apply only to SROs. Rule 6a-2 applies only to national securities exchanges. Rule 15Aj-1 and Form X-15AJ-2 apply only to national securities associations. Rule 17a-21 applies only to the MSRB. Furthermore, the proposed amendments are intended to streamline a process to which these SROs already are subject. In -[74]- Exchange Act 15(b)(8), 15 U.S.C. 78o(b)(8). The importance of this information is also highlighted by Exchange Act 15(b)(1)(B), 15 U.S.C. 78o(b)(1)(B), as amended by the Government Securities Act Amendments of 1993, Pub. L. No. 103-202, 107 Stat. 2345 (1993), which conditions the effectiveness of broker-dealer registration with the Commission on such SRO membership. -[75]- Where a broker-dealer is a member of more than one SRO, the Commission has authority to designate to one SRO the responsibility for examining the member for compliance with applicable financial responsibility rules. Exchange Act 17(d)(1), 15 U.S.C. 78q(d)(1); 17 CFR 240.17d-1. -[76]- 15 U.S.C. 78w(a)(2). -[77]- 5 U.S.C. 603(a). -[78]- 5 U.S.C. 605(b). -------------------- BEGINNING OF PAGE #19 ------------------- the Proposing Release, the Commission indicated that the Chairman has certified that the amendments to Rule 19b-4, Form 19b-4, and Rule 6a-2 would not have a significant economic impact on a substantial number of small entities. The Commission did not receive any comments on the regulatory flexibility certification. The Chairman also has certified that the amendments to Rules 15Aj-1 and 17a-21, and Form X-15AJ-2 would not have a significant economic impact on a substantial number of small entities. This certification, including the reasons therefor, is attached as Appendix A to this release. List of Subjects 17 CFR Part 200 Administrative practice and procedure, Authority delegations (Government agencies), Organizations and functions (Government organizations). 17 CFR Parts 240 and 249 Reporting and recordkeeping requirements, Securities. Statutory Basis and Text of Proposed Amendments In accordance with the foregoing, Title 17, Chapter II of the Code of Federal Regulations is amended as follows: PART 200 -- ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND REQUESTS 1. The authority citation for Part 200, subpart A continues to read in part as follows: Authority: 15 U.S.C. 77s, 78d-1, 78d-2, 78w, 78ll(d), 79t, 77sss, 80a-37, 80b-11, unless otherwise noted. * * * * * 2. Section 200.30-3 is amended by adding paragraphs (a)(57), (a)(58), and (a)(59) to read as follows: 200.30-3 Delegation of authority to Director of Division of Market Regulation. * * * * * (a) * * * (57) Pursuant to Section 19(b)(2)(B) of the Act, 15 U.S.C. 78s(b)(2)(B), to institute proceedings to determine whether a proposed rule change of a self-regulatory organization should be disapproved. (58) Pursuant to Section 19(b)(3)(C) of the Act, 15 U.S.C. 78s(b)(3)(C), to abrogate a change in the rules of a self- regulatory organization and require that it be refiled in accordance with Section 19(b)(1), 15 U.S.C. 78s(b)(1), and reviewed in accordance with Section 19(b)(2), 15 U.S.C. 78s(b)(2), of the Act. (59) Pursuant to paragraph (e)(6)(iii) of Rule 19b-4 ( 240.19b-4 of this chapter), to reduce the period before which a proposed rule change can become operative, and to reduce the period between an SRO submission of a filing and a pre-filing notification. * * * * * PART 240 -- GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934 3. The authority citation for Part 240 continues to read in part as follows: Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, -------------------- BEGINNING OF PAGE #20 ------------------- 78o, 78p, 78q, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted. * * * * * 4. Paragraph (a)(1) of 240.6a-2 is amended by removing ", or in Exhibits B, C and D," and "and Exhibits B, C and D". 5. Revise paragraph (a)(3) of 240.6a-2 to read as follows: 240.6a-2 Periodic amendments to registration statements or exemption statements of exchanges. (a) * * * (3) Complete Exhibits G, H, J, L and M, which shall be up to date as of the latest practicable date within 3 months of the date on which the annual amendment is filed, except that: (i) Exhibit J need only contain the name and principal place of business of each member organization, and for each member organization elected to membership after December 31, 1994, the date of election to membership; (ii) If a national securities exchange publishes or cooperates in the publication of the information required in these exhibits on an annual or more frequent basis, in lieu of filing such an exhibit a national securities exchange may: (A) Identify the publication in which such information is available, the name, address, and telephone number of the person from whom such publication may be obtained, and the price thereof; and (B) Certify to the accuracy of such information as of its date; (iii) If a national securities exchange keeps the information required in Exhibits L and M up to date and makes it available to the Commission and the public on request, in lieu of filing such an exhibit, a national securities exchange may certify that the information is kept up to date and is available to the Commission and the public upon request. * * * * * 6. Section 240.6a-2 is amended by revising paragraph (b) to read as follows: 240.6a-2 Periodic amendments to registration statements or exemption statements of exchanges. * * * * * (b) Unless exempted pursuant to paragraph (c) of this section, on or before June 30, 1983, and every three years thereafter each exchange registered as a national securities exchange shall file complete Exhibits A(1), A(2) and A(3) to its registration statement, which shall be up to date as of the latest practicable date within 3 months of the date on which these exhibits are filed, except that: (1) If a national securities exchange publishes or cooperates in the publication of the information required in these exhibits on an annual or more frequent basis, in lieu of filing such an exhibit a national securities exchange may: (i) Identify the publication in which such information is available, the name, address, and telephone number of the person from whom such publication may be obtained, and the price thereof; and (ii) Certify to the accuracy of such information as of its date; (2) If a national securities exchange keeps the information required in these exhibits up to date and makes it available to the Commission and the public on request, in lieu of filing such an exhibit, a national securities exchange may certify that the information is kept up to date and is available to the Commission and the public upon request. -------------------- BEGINNING OF PAGE #21 ------------------- * * * * * 7. Paragraph (c)(1) of 240.15Aj-1 is revised to read as follows: 240.15Aj-1 Amendments and supplements to registration statements of securities associations. * * * * * (c) Annual supplements. (1) Promptly after March 1 of each year, the association shall file with the Commission an annual consolidated supplement as of such date on Form X-15AJ-2 ( 249.803) except that: (i) If the securities association publishes or cooperates in the publication of the information required in Items 6(a) and 6(b) of Form X-15AJ-2 on an annual or more frequent basis, in lieu of filing such an item the securities association may: (A) Identify the publication in which such information is available, the name, address, and telephone number of the person from whom such publication may be obtained, and the price thereof; and (B) Certify to the accuracy of such information as of its date. (ii) Promptly after March 1, 1995, and every three years thereafter each association shall file complete Exhibit A to Form X-15AJ-2. The information contained in this exhibit shall be up to date as of the latest practicable date within 3 months of the date on which these exhibits are filed. If the association publishes or cooperates in the publication of the information required in this exhibit on an annual or more frequent basis, in lieu of filing such exhibit the association may: (A) Identify the publication in which such information is available, the name, address, and telephone number of the person from whom such publication may be obtained, and the price thereof; and (B) Certify to the accuracy of such information as of its date. If a securities association keeps the information required in this exhibit up to date and makes it available to the Commission and the public upon request, in lieu of filing such an exhibit a securities association may certify that the information is kept up to date and is available to the Commission and the public upon request. * * * * * 8. By revising paragraph (a)(4) of 240.17a-21 to read as follows: 240.17a-21 Reports of the Municipal Securities Rulemaking Board. (a) * * * (4) The Municipal Securities Rulemaking Board shall include in its annual report a statement and an analysis of its expenses and operations including: (i) A balance sheet as of the end of the period covered by the report and a statement of revenues and expenses for the Board for that period; (ii) The rules of the Board including any written interpretations of the rules or staff interpretive letters, except that this information may be included in the annual report once every three years and shall be up to date as of the latest practicable date within 3 months of the date on which this information is filed. If the Board publishes or cooperates in the publication of this information on an annual or more frequent basis, in lieu of including such information in the annual report the Board may: -------------------- BEGINNING OF PAGE #22 ------------------- (A) Identify the publication in which such information is available, the name, address, and telephone number of the person from whom such publication may be obtained, and the price thereof; and (B) Certify to the accuracy of such information as of its date. If the Board keeps this information up to date and makes it available to the Commission and the public upon request, in lieu of filing such information the Board may certify that the information is kept up to date and is available to the Commission and the public upon request; (iii) The following information concerning members of the Board: (A) Name; (B) Dates of commencement and termination of present term of office; (C) Length of time each member has held such office; (D) Name of principal organization with which connected; (E) Title; and (F) City wherein the principal office of such organization is located; (iv) Address of the Board, the name and address of each person authorized to receive notices on behalf of the Board from the Commission, and the name and address of counsel to the Board, if any; and (v) A list, including addresses, as of the latest practicable date, alphabetically arranged, of all municipal securities brokers and municipal securities dealers which have paid to the Board fees and charges to defray the costs and expenses of operating the Board. * * * * * 9. Paragraph (e) of 240.19b-4 is revised to read as follows: 240.19b-4 Filings with respect to proposed rule changes by self-regulatory organizations. * * * * * (e) A proposed rule change may take effect upon filing with the Commission pursuant to Section 19(b)(3)(A) of the Act, 15 U.S.C. 78s(b)(3)(A), if properly designated by the self-regulatory organization as: (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; (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; -------------------- BEGINNING OF PAGE #23 ------------------- (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, or such shorter time as designated by the Commission. * * * * * PART 249 -- FORM, SECURITIES EXCHANGE ACT OF 1934 10. The authority citation for Part 249 continues to read in part as follows: Authority: 15 U.S.C. 78a, et seq., unless otherwise noted; * * * * * 11. Form X-15AJ-2 (referenced in 249.803) is amended by removing items numbered 7 through 28 and redesignating item 29 as number 7. NOTE: Form X-15AJ-2 does not and these amendments will not appear in the Code of Federal Regulations. 12. Form X-15AJ-2 (referenced in 249.803) is amended by revising Exhibit C to reads as follows: NOTE: Form X-15AJ-2 does not and these amendments will not appear in the Code of Federal Regulations. Form X-15AJ-2 * * * * * EXHIBITS TO BE FURNISHED WITH THIS SUPPLEMENT * * * * * Exhibit C. A list, as of latest practicable date, alphabetically arranged, of all members of the association indicating for each-- (1) the name; (2) the principal place of business; and (3) the date of election to membership for each member elected to membership after December 31, 1994. 13. By revising the first sentence of instruction F of the general instructions of Form 19b-4 (referenced in 249.819) to read as follows, and by removing the asterisk contained therein along with its accompanying footnote: NOTE: Form 19b-4 does not and these amendments will not appear in the Code of Federal Regulations. Form 19b-4 * * * * * General Instructions * * * * * F. Signature and Filing of the Completed Form -------------------- BEGINNING OF PAGE #24 ------------------- Nine copies of Form 19b-4, nine copies of Exhibit 1, four copies of Exhibits 2 and 3, and two copies of Exhibit 4 shall be filed with, in the case of filings by securities exchanges, the Assistant Director for Derivatives and Exchange Oversight, in the case of filings by securities associations or the Municipal Securities Rulemaking Board, the Assistant Director for NMS and OTC, and in the case of filings by clearing agencies, the Assistant Director for Securities Processing, Division of Market Regulation, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549. * * * * * * * * 14. Item 7 of the Information to Be Included in the Completed Form of Form 19b-4 (referenced in 249.819) is amended by removing the word "or" from the end of paragraph (b)(iii) and adding paragraphs (b)(v) and (b)(vi) to read as follows: NOTE: Form 19b-4 does not and these amendments will not appear in the Code of Federal Regulations. Form 19b-4 * * * * * 7. Basis for Summary Effectiveness Pursuant to Section 19(b)(3) or for Accelerated Effectiveness Pursuant to Section 19(b)(2) * * * * * (b) * * * (v) effects a change in an existing order-entry or trading system of a self-regulatory organization that (A) does not significantly affect the protection of investors or the public interest; (B) does not impose any significant burden on competition; and (C) does not have the effect of limiting the access to or availability of the system, or (vi) effects a change that (A) does not significantly affect the protection of investors or the public interest; (B) does not impose any significant burden on competition; and (C) 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, or such shorter time as designated by the Commission. If it is requested that the proposed rule change become operative in less than 30 days, provide a statement explaining why the Commission should shorten this time period. * * * * * 15. Section IV of Exhibit 1 of Form 19b-4 (referenced in 249.819) is amended by removing "500 North Capitol Street," and adding in its place "450 Fifth Street, N.W.," and removing "Public Reference Section, 1100 L Street N.W.," and adding in its place "Public Reference Room in". NOTE: Form 19b-4 does not and these amendments will not appear in the Code of Federal Regulations. -------------------- BEGINNING OF PAGE #25 ------------------- Jonathan G. Katz Dated: December 20, 1994 Secretary -------------------- BEGINNING OF PAGE #26 ------------------- Note: This Appendix to the Preamble will not appear in the Code of Federal Regulations APPENDIX A SECURITIES AND EXCHANGE COMMISSION REGULATORY FLEXIBILITY ACT CERTIFICATION I, Arthur Levitt, Chairman of the Securities and Exchange Commission, hereby certify pursuant to 5 U.S.C. 605(b) that proposed amendments to Rules 15Aj-1 and 17a-21, and Form X-15AJ- 2 under the Securities Exchange Act of 1934 set forth in Securities Exchange Act Release No. 35123, if promulgated, will not have a significant economic impact on a substantial number of small entities. The reason for this certification is that the rules and form apply only to the National Association of Securities Dealers and the Municipal Securities Rulemaking Board, and consequently would not impose any significant economic impact on a substantial number of small entities, as that term is defined under the Regulatory Flexibility Act. Furthermore, the proposed amendments are intended to streamline a process to which these self-regulatory organizations already are subject. /s/ Arthur Levitt Dated: December 20, 1994 Chairman