Collection Practices Under Section 31 of the Exchange Act

Rules 31 and 31T under the Exchange Act are adopted pursuant to 15 U.S.C. 78a et seq., particularly Sections 6, 15A, 17A, 19, 23(a), and 31 of the Exchange Act (15 U.S.C. 78f, 78o-3, 78q-1, 78s, 78w(a), and 78ee).

List of Subjects

17 CFR Part 200

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

17 CFR Parts 240 and 249

Reporting and recordkeeping requirements, Securities.

Text of Final Rule

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

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

1. The authority citation for part 200 continues to read in part as follows:

Authority: 15 U.S.C. 77s, 77o, 77sss, 78d, 78d-1, 78d-2, 78w, 78ll(d), 78mm, 79t, 80a-37, 80b-11, and 7202, unless otherwise noted.

2. Section 200.30-3 is amended by adding new paragraph (a)(82) as follows:

§ 200.30-3 Delegation of authority to Director of Division of Market Regulation.

* * * * *

(a) * * *

(82) To calculate the amount of fees and assessments due from covered SROs based on the trade data that the covered SROs submit on Form R31 (17 CFR 249.11) and to issue Section 31 bills to covered SROs, in consultation with the Executive Director and the Chief Economist, pursuant to Rules 31 and 31T of this chapter (17 CFR 240.31 and 240.31T).

* * * * *

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, 77z-2, 77z-3, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted.

* * * * *

4. Section 240.31-1 is removed.

5. Section 240.31 is added to read as follows:

§ 240.31 Section 31 transaction fees.

(a) Definitions. For the purpose of this section, the following definitions shall apply:

(1) Assessment charge means the amount owed by a covered SRO for a covered round turn transaction pursuant to section 31(d) of the Act (15 U.S.C. 78ee(d)).

(2) Billing period means, for a single calendar year:

(i) January 1 through August 31 ("billing period 1"); or

(ii) September 1 through December 31 ("billing period 2").

(3) Charge date means the date on which a covered sale or covered round turn transaction occurs for purposes of determining the liability of a covered SRO pursuant to section 31 of the Act (15 U.S.C. 78ee). The charge date is:

(i) The settlement date, with respect to any covered sale (other than a covered sale resulting from the exercise of an option settled by physical delivery or from the maturation of a security future settled by physical delivery) or covered round turn transaction that a covered SRO is required to report to the Commission based on data that the covered SRO receives from a designated clearing agency;

(ii) The exercise date, with respect to a covered sale resulting from the exercise of an option settled by physical delivery;

(iii) The maturity date, with respect to a covered sale resulting from the maturation of a security future settled by physical delivery; and

(iv) The trade date, with respect to all other covered sales and covered round turn transactions.

(4) Covered association means any national securities association by or through any member of which covered sales or covered round turn transactions occur otherwise than on a national securities exchange.

(5) Covered exchange means any national securities exchange on which covered sales or covered round turn transactions occur.

(6) Covered sale means a sale of a security, other than an exempt sale or a sale of a security future, occurring on a national securities exchange or by or through any member of a national securities association otherwise than on a national securities exchange.

(7) Covered round turn transaction means a round turn transaction in a security future, other than a round turn transaction in a future on a narrow-based security index, occurring on a national securities exchange or by or through a member of a national securities association otherwise than on a national securities exchange.

(8) Covered SRO means a covered exchange or covered association.

(9) Designated clearing agency means a clearing agency registered under section 17A of the Act (15 U.S.C. 78q-1) that clears and settles covered sales or covered round turn transactions.

(10) Due date means:

(i) March 15, with respect to the amounts owed by covered SROs under section 31 of the Act (15 U.S.C. 78ee) for covered sales and covered round turn transactions having a charge date in billing period 2; and

(ii) September 30, with respect to the amounts owed by covered SROs under section 31 of the Act (15 U.S.C. 78ee) for covered sales and covered round turn transactions having a charge date in billing period 1.

(11) Exempt sale means:

(i) Any sale of a security offered pursuant to an effective registration statement under the Securities Act of 1933 (except a sale of a put or call option issued by the Options Clearing Corporation) or offered in accordance with an exemption from registration afforded by section 3(a) or 3(b) of the Securities Act of 1933 (15 U.S.C. 77c(a) or 77c(b)), or a rule thereunder;

(ii) Any sale of a security by an issuer not involving any public offering within the meaning of section 4(2) of the Securities Act of 1933 (15 U.S.C. 77d(2));

(iii) Any sale of a security pursuant to and in consummation of a tender or exchange offer;

(iv) Any sale of a security upon the exercise of a warrant or right (except a put or call), or upon the conversion of a convertible security;

(v) Any sale of a security that is executed outside the United States and is not reported, or required to be reported, to a transaction reporting association as defined in § 240.11Aa3-1 and any approved plan filed thereunder;

(vi) Any sale of an option on a security index (including both a narrow-based security index and a non-narrow-based security index);

(vii) Any sale of a bond, debenture, or other evidence of indebtedness; and

(viii) Any recognized riskless principal sale.

(12) Fee rate means the fee rate applicable to covered sales under section 31(b) or (c) of the Act (15 U.S.C. 78ee(b) or (c)), as adjusted from time to time by the Commission pursuant to section 31(j) of the Act (15 U.S.C. 78ee(j)).

(13) Narrow-based security index means the same as in section 3(a)(55)(B) and (C) of the Act (15 U.S.C. 78c(a)(55)(B) and (C)).

(14) Recognized riskless principal sale means a sale of a security where all of the following conditions are satisfied:

(i) A broker-dealer receives from a customer an order to buy (sell) a security;

(ii) The broker-dealer engages in two contemporaneous offsetting transactions as principal, one in which the broker-dealer buys (sells) the security from (to) a third party and the other in which the broker-dealer sells (buys) the security to (from) the customer; and

(iii) The Commission, pursuant to section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)), has approved a proposed rule change submitted by the covered SRO on which the second of the two contemporaneous offsetting transactions occurs that permits that transaction to be reported as riskless.

(15) Round turn transaction in a security future means one purchase and one sale of a contract of sale for future delivery.

(16) Physical delivery exchange-traded option means a securities option that is listed and registered on a national securities exchange and settled by the physical delivery of the underlying securities.

(17) Section 31 bill means the bill sent by the Commission to a covered SRO pursuant to section 31 of the Act (15 U.S.C. 78ee) showing the total amount due from the covered SRO for the billing period, as calculated by the Commission based on the data submitted by the covered SRO in its Form R31 (§ 249.11 of this chapter) submissions for the months of the billing period.

(18) Trade reporting system means an automated facility operated by a covered SRO used to collect or compare trade data.

(b) Reporting of covered sales and covered round turn transactions.

(1) Each covered SRO shall submit a completed Form R31 (§ 249.11 of this chapter) to the Commission within ten business days after the end of each month.

(2) A covered exchange shall provide on Form R31 the following data on covered sales and covered round turn transactions occurring on that exchange and having a charge date in that month:

(i) The aggregate dollar amount of covered sales that it reported to a designated clearing agency, as reflected in the data provided by the designated clearing agency;

(ii) The aggregate dollar amount of covered sales resulting from the exercise of physical delivery exchange-traded options or from matured security futures, as reflected in the data provided by a designated clearing agency that clears and settles options or security futures;

(iii) The aggregate dollar amount of covered sales that it captured in a trade reporting system but did not report to a designated clearing agency;

(iv) The aggregate dollar amount of covered sales that it neither captured in a trade reporting system nor reported to a designated clearing agency; and

(v) The total number of covered round turn transactions that it reported to a designated clearing agency, as reflected in the data provided by the designated clearing agency.

(3) A covered association shall provide on Form R31 the following data on covered sales and covered round turn transactions occurring by or through any member of such association otherwise than on a national securities exchange and having a charge date in that month:

(i) The aggregate dollar amount of covered sales that it captured in a trade reporting system;

(ii) The aggregate dollar amount of covered sales that it did not capture in a trade reporting system; and

(iii) The total number of covered round turn transactions that it reported to a designated clearing agency, as reflected in the data provided by the designated clearing agency.

(4) Duties of designated clearing agency.

(i) A designated clearing agency shall provide a covered SRO, upon request, the data in its possession needed by the covered SRO to complete Part I of Form R31 (§ 249.11 of this chapter).

(ii) If a covered exchange trades physical delivery exchange-traded options or security futures that settle by physical delivery of the underlying securities, the designated clearing agency that clears and settles such transactions shall provide that covered exchange with the data in its possession relating to the covered sales resulting from the exercise of such options or from the matured security futures. If, during a particular month, the designated clearing agency cannot determine the covered exchange on which the options or security futures originally were traded, the designated clearing agency shall assign covered sales resulting from exercises or maturations as follows. To provide Form R31 data to the covered exchange for a particular month, the designated clearing agency shall:

(A) Calculate the aggregate dollar amount of all covered sales in the previous calendar month resulting from exercises and maturations, respectively, occurring on all covered exchanges for which it clears and settles transactions;

(B) Calculate, for the previous calendar month, the aggregate dollar amount of covered sales of physical delivery exchange-traded options occurring on each covered exchange for which it clears and settles transactions, and the aggregate dollar amount of covered sales of physical delivery exchange-traded options occurring on all such exchanges collectively;

(C) Calculate, for the previous calendar month, the total number of covered round turn transactions in security futures that settle by physical delivery that occurred on each covered exchange for which it clears and settles transactions, and the total number of covered round turn transactions in security futures that settle by physical delivery that occurred on all such exchanges collectively;

(D) Determine for the previous calendar month each covered exchange's percentage of the total dollar volume of physical delivery exchange-traded options ("exercise percentage") and each covered exchange's percentage of the total number of covered round turn transactions in security futures that settle by physical delivery ("maturation percentage"); and

(E) In the current month, assign to each covered exchange for which it clears and settles covered sales the exercise percentage of the aggregate dollar amount of covered sales on all covered exchanges resulting from the exercise of physical delivery exchange-traded options and the maturation percentage of all covered sales on all covered exchanges resulting from the maturation of security futures that settle by physical delivery.

(5) A covered SRO shall provide in Part I of Form R31 only the data supplied to it by a designated clearing agency.

(c) Calculation and billing of section 31 fees.

(1) The amount due from a covered SRO for a billing period, as reflected in its Section 31 bill, shall be the sum of the monthly amounts due for each month in the billing period.

(2) The monthly amount due from a covered SRO shall equal:

(i) The aggregate dollar amount of its covered sales that have a charge date in that month, times the fee rate; plus

(ii) The total number of its covered round turn transactions that have a charge date in that month, times the assessment charge.

(3) By the due date, each covered SRO shall pay the Commission, either directly or through a designated clearing agency acting as agent, the entire amount due for the billing period, as reflected in its Section 31 bill.

6. Section 240.31T is added to read as follows:

§ 240.31T Temporary rule regarding fiscal year 2004.

(a) Definitions.

(1) For the purpose of this section, the following definitions shall apply:

(i) FY2004 adjustment amount means the FY2004 recalculated amount minus the FY2004 prepayment amount.

(ii) FY2004 prepayment amount means the total dollar amount of fees and assessments paid by a covered SRO pursuant to the March 15, 2004, due date for covered sales and covered round turn transactions having a charge date between September 1, 2003, and December 31, 2003, inclusive.

(iii) FY2004 recalculated amount means the total dollar amount of fees and assessments owed by a covered SRO for covered sales and covered round turn transactions having a charge date between September 1, 2003, and December 31, 2003, inclusive, as calculated by the Commission based on the data submitted by the covered SRO in its Form R31 (§ 249.11 of this chapter) submissions for September 2003, October 2003, November 2003, and December 2003, and indicated on a Section 31 bill for these months.

(2) Any term used in this section that is defined in § 240.30(a) of this chapter shall have the same meaning as in § 240.30(a) of this chapter.

(b) By August 13, 2004, each covered SRO shall submit to the Commission a completed Form R31 for each of the months September 2003 to June 2004, inclusive.

(c) If the FY2004 adjustment amount of a covered SRO is a positive number, the covered SRO shall include the FY2004 adjustment amount with the payment for its next Section 31 bill.

(d) If the FY2004 adjustment amount is a negative number, the Commission shall credit the FY2004 adjustment amount to the covered SRO's next Section 31 bill.

(e) Notwithstanding paragraph (a)(1)(iii) of this section, any covered exchange that as of August 2003 was calculating its Section 31 fees based on the trade date of its covered sales shall not include on its September 2003 Form R31 data for any covered sale having a trade date before September 1, 2003.

(f) This temporary section shall expire on January 1, 2005.

PART 249 - FORMS, SECURITIES EXCHANGE ACT OF 1934

7. The authority citation for part 249 continues to read in part as follows:

Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted.

* * * * *

8. Section 249.11 and Form R31 (referenced in § 249.11) are added to read as follows:

§ 249.11 Form R31 for reporting covered sales and covered round turn transactions under section 31 of the Act.

This form shall be used by each national securities exchange to report to the Commission within ten business days after the end of every month the aggregate dollar amount of sales of securities that occurred on the exchange, had a charge date in the month of the report, and are subject to fees pursuant to section 31(b) of the Act (15 U.S.C. 78ee) and § 240.31 of this chapter; and the total number of round turn transactions in security futures that occurred on the exchange, had a charge date in the month of the report, and are subject to assessments pursuant to section 31(d) of the Act and § 240.31 of this chapter. This form also shall be used by a national securities association to report to the Commission within ten business days after the end of every month the aggregate dollar amount of sales of securities that occurred by or through a member of the association otherwise than on a national securities exchange, had a charge date in the month of the report, and are subject to fees pursuant to section 31(c) of the Act and § 240.31 of this chapter; and the total number of round turn transactions in security futures that occurred by or through any member of the association otherwise than on a national securities exchange, had a charge date in the month of the report, and are subject to assessments pursuant to section 31(d) of the Act and § 240.31 of this chapter.

Note: The text of Form R31 does not, and this amendment will not, appear in the Code of Federal Regulations.

FORM R31

OMB APPROVALOMB Number:3235-0597Expires:March 31, 2007Estimated average burden
hours per form:1.5UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM FOR REPORTING COVERED SALES AND COVERED ROUND TURN TRANSACTIONS UNDER SECTION 31 OF THE SECURITIES EXCHANGE ACT OF 1934

FORM R31 INSTRUCTIONS

A. EXPLANATION OF TERMS USED IN THIS FORM

CHARGE DATE - The date on which a covered sale or covered round turn transaction occurs for purposes of determining the liability of a covered SRO pursuant to Section 31 of the Securities Exchange Act of 1934 ("Exchange Act") (15 U.S.C. 78ee). The charge date is: (1) the settlement date, with respect to any covered sale (other than a covered sale resulting from the exercise of an option settled by physical delivery or from the maturation of a security future settled by physical delivery) or covered round turn transaction that a covered SRO is required to report to the Commission based on data that the covered SRO receives from a designated clearing agency; (2) the exercise date, with respect to a covered sale resulting from the exercise of an option settled by physical delivery; (3) the maturity date, with respect to a covered sale resulting from the maturation of a security future settled by physical delivery; and (4) the trade date, with respect to all other covered sales and covered round turn transactions.

COVERED ASSOCIATION - Any national securities association by or though any member of which covered sales or covered round turn transactions occur otherwise than on a national securities exchange.

COVERED EXCHANGE - Any national securities exchange on which covered sales or covered round turn transactions occur.

COVERED SALE - A sale of a security, other than an exempt sale or a sale of a security future, occurring on a national securities exchange or by or through any member of a national securities association otherwise than on a national securities exchange.

COVERED ROUND TURN TRANSACTION - A round turn transaction in a security future, other than a round turn transaction in a future on a narrow-based security index, occurring on a national securities exchange or by or through a member of a national securities association otherwise than on a national securities exchange.

COVERED SRO - A covered exchange or a covered association.

DESIGNATED CLEARING AGENCY - A clearing agency registered under Section 17A of the Exchange Act (15 U.S.C. 78q-1) that clears and settles covered sales or covered round turn transactions.

EX-CLEARING TRANSACTION - A sale of a security that clears and settles otherwise than through a designated clearing agency.

EXEMPT SALE - (1) Any sale of a security offered pursuant to an effective registration statement under the Securities Act of 1933 ("Securities Act") (except a sale of a put or call option issued by the Options Clearing Corporation) or offered in accordance with an exemption from registration afforded by Section 3(a) or 3(b) thereof (15 U.S.C. 77c(a) or 77c(b)), or a rule thereunder; (2) any sale of a security by an issuer not involving any public offering within the meaning of Section 4(2) of the Securities Act (15 U.S.C. 77d(2)); (3) any sale of a security pursuant to and in consummation of a tender or exchange offer; (4) any sale of a security upon the exercise of a warrant or right (except a put or call), or upon the conversion of a convertible security; (5) any sale of a security that is executed outside the United States and is not reported, or required to be reported, to a transaction reporting association as defined in 17 CFR 240.11Aa3-1 and any approved plan filed thereunder; (6) any sale of an option on a security index (including both a narrow-based security index and a non-narrow-based security index); (7) any sale of a bond, debenture, or other evidence of indebtedness; and (viii) any recognized riskless principal sale.

FEE RATE - The fee rate applicable to covered sales under Section 31(b) or (c) of the Exchange Act (15 U.S.C. 78ee(b) or (c)), as adjusted from time to time by the Commission pursuant to Section 31(j) of the Exchange Act (15 U.S.C. 78ee(j)).

NARROW-BASED SECURITY INDEX - Has the same meaning as in Sections 3(a)(55)(B) and (C) of the Exchange Act (15 U.S.C. 78c(a)(55)(B) and (C)).

PHYSICAL DELIVERY EXCHANGE-TRADED OPTION - An option that is listed and registered on a national securities exchange and that is settled by the physical delivery of the underlying securities.

QUALIFIED SPECIAL REPRESENTATIVE - A member of a designated clearing agency that operates, has an affiliate that operates, or clears for a broker-dealer that operates, an automated execution system where the designated clearing agency member is on the contra-side of every transaction.

RECOGNIZED RISKLESS PRINCIPAL SALE - A sale of a security where all of the following conditions are satisfied: (1) A broker-dealer receives from a customer an order to buy (sell) a security; (2) The broker-dealer engages in two contemporaneous offsetting transactions as principal, one in which the broker-dealer buys (sells) the security from (to) a third party and the other in which the broker-dealer sells (buys) the security to (from) the customer; and (3) The Commission, pursuant to Section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)), has approved a proposed rule change submitted by the covered SRO on which the second of the two contemporaneous offsetting transactions occurs that permits that transaction to be reported as riskless.

TRADE REPORTING SYSTEM - An automated facility operated by a covered SRO used to collect or compare trade data.

B. GENERAL INSTRUCTIONS

1. A covered exchange shall use Form R31 to report to the Commission, pursuant to Section 31 of the Exchange Act and Rule 31 thereunder (17 CFR 240.31), data regarding all covered sales and covered round turn transactions that: (1) occurred on the exchange; and (2) have a charge date in the month for which this form is being submitted. 
2. A covered association shall use Form R31 to report to the Commission, pursuant to Section 31 of the Exchange Act and Rule 31 thereunder, data regarding all covered sales that: (1) occurred by or through any member of the association otherwise than on a national securities exchange; and (2) have a charge date in the month for which this form is being submitted.
3. Form R31 shall be submitted within ten business days after the end of every month, and such other times as stipulated in temporary Rule 31T (17 CFR 240.31T). 
4. A covered exchange must obtain the data necessary to complete Part I of this Form R31 from a designated clearing agency. Pursuant to Rule 31, a designated clearing agency is required, upon request, to provide a covered SRO with the data in its possession needed by the covered SRO to complete Form R31. A covered exchange shall provide in Part I of this Form R31 only the data supplied to it by a designated clearing agency. 
5. For any item that requests the aggregate dollar amount of covered sales, enter responses "A" and "B" as follows. For any month in which the Commission does not adjust the fee rate, enter the aggregate dollar amount of covered sales for the entire month in "A" and leave "B" blank. For any month in which the Commission adjusts the fee rate, enter in "A" the aggregate dollar amount of covered sales having a charge date in that month before the date of the fee rate adjustment, and enter in "B" the aggregate dollar amount of covered sales having a charge date in that month on or after the date of the fee rate adjustment. The total number of covered round turn transactions should be provided in a single entry. 
6. CONTACT EMPLOYEE - The individual listed on the Execution Page (Page 3) of Form R31 as the contact employee must be authorized to represent on behalf of the covered SRO that the information provided on this Form R31 is complete and accurate. 
7. FORMAT - A covered SRO must file this Form R31 with the Commission in paper. Please type all information. Use only the current version of Form R31 or a reproduction. Attach an Execution Page (Page 3) with an original manual signature. 
8. WHERE TO FILE AND NUMBER OF COPIES - Submit one original and two copies of Form R31 to: Securities and Exchange Commission; Attention: Form R31; Office of Economic Analysis; 450 Fifth Street, NW; Washington, DC 20549-1105. 
9. PAPERWORK REDUCTION ACT DISCLOSURE 

• Form R31 requires covered SROs to provide data regarding all covered sales and covered round turn transactions having a charge date in the month for which this form is being submitted. 
• An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a currently valid control number. Sections 3(a)(1), 5, 6(a), 15A(a), 17A(b), and 23(a) of the Exchange Act (15 U.S.C. 78c(a)(1), 78e, 78f(a), 78o-3(a), 78q-1(b), and 78w(a)) authorize the Commission to collect information on this Form R31. 
• Form R31 is designed to enable the Commission to determine the amount of fees and assessments that are due from every covered SRO under Section 31 of the Exchange Act. 
• The Commission has estimated that each respondent will spend, on average, approximately 1.5 hours completing this Form R31. This average includes designated clearing agencies as respondents. 
• Any member of the public may direct to the Commission any comments concerning the accuracy of this burden estimate and any suggestions for reducing this burden. 
• No assurance of confidentiality is given by the Commission with respect to the responses made in Form R31. The public has access to the information contained in Form R31. 
• This collection of information has been reviewed by the Office of Management and Budget in accordance with the clearance requirements of 44 U.S.C. 3507. The applicable Privacy Act system of records is SEC-2 and the routine uses of the records are set forth at 40 FR 39255 (August 27, 1975) and 41 FR 5318 (February 5, 1976).

Form R31

Page 1

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM FOR REPORTING COVERED SALES AND COVERED ROUND TURN TRANSACTIONS UNDER SECTION 31 OF THE SECURITIES EXCHANGE ACT OF 1934

Date filed
(MM/DD/YYYY)

WARNING: INTENTIONAL MISSTATEMENTS OR OMISSIONS OF FACTS MAY CONSTITUTE CRIMINAL VIOLATIONS

1. State the name of the covered SRO:

2. State the month and year for which this Form R31 is being filed:

3. Provide the following information for the contact employee:

Name:

Title:

Telephone Number:

E-mail Address:

Street Address:

PART I

QUESTIONS 4-7 TO BE COMPLETED BY COVERED EXCHANGES

4. Provide the aggregate dollar amount of covered sales of equity securities that: (a) occurred on the exchange; (b) had a charge date in the month of this report; and (c) the exchange reported to a designated clearing agency, as reflected in the data provided by a designated clearing agency:

(A)

(B)

5. Provide the aggregate dollar amount of covered sales of options that: (a) occurred on the exchange; (b) had a charge date in the month of this report; and (c) the exchange reported to a designated clearing agency, as reflected in the data provided by a designated clearing agency:

(A)

(B)

6 Provide the total number of covered round turn transactions that: (a) occurred on the exchange; (b) had a charge date in the month of this report; and (c) the exchange reported to a designated clearing agency:

7. Provide the aggregate dollar amount of covered sales of equity securities that: (a) occurred on the exchange; (b) had a charge date in the month of this report; and (c) resulted from the maturation of a security future or the exercise of a physical delivery exchange-traded option, as reflected in the data provided by a designated clearing agency that clears and settles options or security futures:

(A)

(B)

DO NOT WRITE BELOW THIS LINE - FOR OFFICIAL USE ONLY

Form R31

Page 2

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM FOR REPORTING COVERED SALES AND COVERED ROUND TURN TRANSACTIONS UNDER SECTION 31 OF THE SECURITIES EXCHANGE ACT OF 1934

Date filed
(MM/DD/YYYY)

PART II

QUESTIONS 8-9 TO BE COMPLETED BY COVERED EXCHANGES

8. Provide the aggregate dollar amount of covered sales that: (a) occurred on the exchange; (b) had a charge date in the month of this report; (c) the covered exchange captured in a trade reporting system; and (d) were reported to a designated clearing agency by a qualified special representative:

(A)

(B)

9. Provide the aggregate dollar amount of covered sales that: (a) occurred on the exchange; (b) had a charge date in the month of this report; (c) the exchange captured in a trade reporting system; and (d) were ex-clearing transactions:

(A)

(B)

QUESTION 10 TO BE COMPLETED BY COVERED ASSOCIATIONS

10. For each trade reporting system of the association, provide the aggregate dollar amount of covered sales that: (a) occurred by or through a member of the association otherwise than on a national securities exchange; (b) had a charge date in the month of this report; and (c) the association captured in the trade reporting system:

Name of Trade Reporting System:

(A)

(B)

Name of Trade Reporting System:

(A)

(B)

PART III

QUESTION 11 TO BE COMPLETED BY COVERED EXCHANGES

11. Provide the aggregate dollar amount of covered sales that: (a) occurred on the exchange; (b) had a charge date in the month of this report; and (c) the exchange neither captured in a trade reporting system nor reported to a designated clearing agency:

(A)

(B)

QUESTION 12 TO BE COMPLETED BY COVERED ASSOCIATIONS

12. Provide the aggregate dollar amount of covered sales that: (a) occurred by or through a member of the association otherwise than on a national securities exchange; (b) had a charge date in the month of this report; and (c) the association did not capture in a trade reporting system:

(A)

(B)

DO NOT WRITE BELOW THIS LINE - FOR OFFICIAL USE ONLY

Form R31

Page 3

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM FOR REPORTING COVERED SALES AND COVERED ROUND TURN TRANSACTIONS UNDER SECTION 31 OF THE SECURITIES EXCHANGE ACT OF 1934

Date filed
(MM/DD/YYYY)

EXECUTION:

The undersigned has executed this form on behalf of, and with the authority of, the covered SRO. The undersigned and the covered SRO represent that the information and statements contained herein are current, true, and complete.

MM/DD/YY:

Name of Covered SRO:

BY:

Signature:

Print Name and Title:

This page must be completed in full with original, manual signature.

DO NOT WRITE BELOW THIS LINE - FOR OFFICIAL USE ONLY

By the Commission.

Jill M. Peterson
Assistant Secretary

Date: June 28, 2004

1 P.L. 107-289, 31 U.S.C. 3515. The Accountability Act requires each federal executive agency with appropriated budget authority of more than $25 million to prepare annual audited financial statements.

2 15 U.S.C. 78ee.

3 15 U.S.C. 78ee(b).

4 One exchange - the International Securities Exchange ("ISE") - trades only options. Three exchanges - the New York Stock Exchange ("NYSE"), the Chicago Stock Exchange ("CHX"), and the National Stock Exchange ("NSX") - trade only equity securities. Five exchanges - the American Stock Exchange ("Amex"), the Boston Stock Exchange ("BSX"), the Chicago Board Options Exchange ("CBOE"), the Pacific Exchange ("PCX"), and the Philadelphia Stock Exchange ("Phlx") - trade both options and equity securities.

5 15 U.S.C. 78ee(c).

6 Currently, only one national securities association - the National Association of Securities Dealers ("NASD") - is subject to this requirement. The National Futures Authority is also registered with the Commission as a national securities association but currently is not required to pay fees or assessments under Section 31.

7 15 U.S.C. 78ee(d).

8 Paragraphs (b) and (c) of Section 31 require the Commission to collect "fees" on sales of securities (other than security futures and certain other enumerated securities). Paragraph (d) of Section 31 requires the Commission to collect "assessments" on transactions in security futures.

9 A "round turn transaction" is one purchase and one sale of a contract of sale for future delivery. See 15 U.S.C. 78ee(d); 17 CFR 240.31(a)(15).

10 Currently, only two national securities exchanges - NQLX and OneChicago - trade security futures.

11 See Securities Exchange Act Release No. 49014 (January 20, 2004), 69 FR 4018 (January 27, 2004) (File No. S7-05-04) ("Proposing Release").

12 15 U.S.C. 78q-1.

13 In addition, OCC clears and settles all transactions in security futures occurring on the two national securities exchanges that trade security futures. OCC tabulates the total number of round turn transactions in security futures and pays the Section 31 assessments on behalf of these exchanges.

14 Letter from Ernest A. Pittarelli, Chairman, Securities Industry Association Operations Committee, to Jonathan G. Katz, Secretary, Commission, dated March 5, 2004 ("SIA Comment").

15 Letter from David A. Herron, Chief Executive Officer, CHX, to Jonathan G. Katz, Secretary, Commission, dated February 26, 2004 ("CHX Comment").

16 Letter from Darla C. Stuckey, Corporate Secretary, NYSE, to Jonathan G. Katz, Secretary, Commission, dated March 17, 2004 ("NYSE Comment").

17 Letter from Amex, CBOE, ISE, OCC, PCX, and Phlx to Jonathan G. Katz, Secretary, Commission, dated March 1, 2004 ("OCC Comment").

18 See letter from John A. Boese, Vice President, BSE, to Jonathan G. Katz, Secretary, Commission, dated March 16, 2004 ("BSE Comment").

19 See infra notes 46-47 and accompanying text.

20 A QSR is a member of NSCC that operates, has an affiliate that operates, or clears for a broker-dealer that operates an automated execution system where the designated clearing agency member is on the contra-side of every transaction. See Form R31 Instructions; NSCC Rule 39.

21 The Commission has been informed that there are in excess of 20 ECNs trading in the OTC markets that may account for up to 50% of OTC volume.

22 A "covered exchange" is "any national securities exchange on which covered sales or covered round turn transactions occur." 17 CFR 240.31(a)(5).

23 A "covered association" is "any national securities association by or through any member of which covered sales or covered round turn transactions occur otherwise than on a national securities exchange." 17 CFR 240.31(a)(4).

24 See 17 CFR 240.31(a)(8).

25 See 17 CFR 240.31(b)(1).

26 A "covered sale" is "a sale of a security, other than an exempt sale or a sale of a security future, occurring on a national securities exchange or by or through any member of a national securities association otherwise than on a national securities exchange." 17 CFR 240.31(a)(6). See also infra notes 52-54 and accompanying text (discussing "exempt sales").

27 A "covered round turn transaction" is "a round turn transaction in a security future, other than a round turn transaction in a future on a narrow-based security index, occurring on a national securities exchange or by or through a member of a national securities association otherwise than on a national securities exchange." 17 CFR 240.31(a)(7).

28 A covered sale occurring by or though a member of an association on a national securities exchange would create liability under Section 31 for the exchange rather than the association.

29 The "fee rate" is the fee rate applicable to covered sales under Section 31(b) or (c) of the Exchange Act, 15 U.S.C. 78ee(b) or (c), as adjusted from time to time by the Commission pursuant to Section 31(j), 15 U.S.C. 78ee(j). See 17 CFR 240.31(a)(12).

30 The "assessment charge" is the amount owed by a covered SRO for a covered round turn transaction pursuant to Section 31(d) of the Exchange Act, 15 U.S.C. 78ee(d). See 17 CFR 240.31(a)(1).

31 15 U.S.C. 78ee(j).

32 15 U.S.C. 78ee(d).

33 15 U.S.C. 78ee(e).

34 See 17 CFR 240.31(a)(10).

35 See 17 CFR 240.31(a)(2).

36 See 17 CFR 240.31(a)(17) and (c)(1).

37 See 17 CFR 240.31(c)(3). The covered SRO may pay its Section 31 bill directly or through a designated clearing agency acting as agent of the covered SRO. See infra Section II(B)(1).

38 The "charge date" is the date on which a covered sale or covered round turn transaction occurs for purposes of determining the liability of a covered SRO pursuant to Section 31. The charge date is: (i) the settlement date, with respect to any covered sale (other than a covered sale resulting from the exercise of an option settled by physical delivery or from the maturation of a security future settled by physical delivery) or covered round turn transaction that a covered SRO is required to report to the Commission based on data that the covered SRO receives from a designated clearing agency; (ii) the exercise date, with respect to a covered sale resulting from the exercise of an option settled by physical delivery; (iii) the maturity date, with respect to a covered sale resulting from the maturation of a security future settled by physical delivery; and (iv) the trade date, with respect to all other covered sales and covered round turn transactions. See 17 CFR 240.31(a)(3); see also infra notes 56-64 and accompanying text (discussing revisions made to definition of "charge date" in final rule).

39 A "designated clearing agency" means a clearing agency registered under Section 17A of the Exchange Act, 15 U.S.C. 78q-1, that clears and settles covered sales or covered round turn transactions. See 17 CFR 240.31(a)(9).

40 A "physical delivery exchange-traded option" is "a securities option that is listed and registered on a national securities exchange and settled by the physical delivery of the underlying securities." 17 CFR 240.31(a)(16).

41 See infra Section II(B)(3) (revising the Commission's proposal relating to covered sales resulting from exercises of physical delivery exchange-traded options and from matured security futures).

42 See 17 CFR 240.31(b)(5).

43 See 17 CFR 240.31(b)(4)(i). See also infra Section II(B)(9) (discussing possible liability of a designated clearing agency).

44 A "trade reporting system" is "an automated facility operated by a covered SRO used to collect or compare trade data." 17 CFR 240.31(a)(18).

45 An "ex-clearing transaction" is a securities transaction that is not reported to a designated clearing agency and clears and settles otherwise than through a designated clearing agency. See Form R31 Instructions. A cash, next day, or seller's option trade that is reported to NSCC should be reported in Part I; a cash, next day, or seller's option trade that is not reported to NSCC should be reported in Part II (assuming this trade were captured in a trade reporting system). See infra Section II(B)(7).

46 In paragraphs (b)(3)(ii) and (iii) of proposed Rule 31, the Commission inadvertently used the term "trade comparison system" to describe the facility in which a covered association captures trade data. In Rule 31 as adopted, the Commission has corrected this to the defined term "trade reporting system."

47 Currently, there is one covered association, NASD. It operates two trade reporting systems within the meaning of Rule 31, the Automated Confirmation Transaction Service ("ACT") and the Trade Reporting and Confirmation Service ("TRACS"). TRACS is the trade reporting system for the Alternative Display Facility ("ADF"), a pilot system that NASD operates for members that choose to quote or effect trades in Nasdaq securities otherwise than through Nasdaq's SuperMontage system or on an exchange. See Securities Exchange Act Release No. 46249 (July 24, 2002), 67 FR 49821 (July 21, 2002) (approving ADF pilot). ACT is the trade reporting system for all other OTC equity trades that must be trade-reported pursuant to NASD rules.

48 See NASD Rules 4632(e)(2), 6130(a), and 6420(e)(2).

49 See NASD Rules 4632(e)(6), 4642(e)(5), and 6420(e)(8) (providing that "purchases or sales of securities effected upon the exercise of an option pursuant to the terms thereof or the exercise of any other right to acquire securities at a pre-established consideration unrelated to the current market" need not be reported to ACT).

50 See NASD Rules 4632(e)(5), 4642(e)(4), 6420(e)(5), and 6920(e)(2) (providing that transactions at a price unrelated to the current market - for example, to make a gift - need not be reported to ACT). A gift of a security without consideration is not a "sale" for purpose of Sections 31(c) of the Exchange Act, 15 U.S.C. 78ee(c), and is not subject to Section 31 fees. However, if consideration is given for the securities, even if that consideration is not at the current market price, the transaction is a covered sale, provided the securities in question are registered on a national securities exchange. See 15 U.S.C. 78ee(c).

51 15 U.S.C. 78ee(f).

52 A "narrow-based security index" has the same meaning as in Section 3(a)(55)(B) and (C) of the Exchange Act, 15 U.S.C. 78c(a)(55)(B) and (C). See 17 CFR 240.31(a)(13).

53 See Securities Exchange Act Release No. 45371 (January 31, 2002), 67 FR 5199 (February 5, 2002).

54 See infra Section II(B)(8).

55 See former Rule 31-1(g) under the Exchange Act, 17 CFR 240.31-1(g).

56 BSE Comment.

57 See letter from Donald F. Donahue, President, National Securities Clearing Corporation, Inc., to Jonathan G. Katz, Secretary, Commission, dated May 12, 2004 ("NSCC Comment"); NYSE Comment.

58 See NYSE Comment.

59 As a general matter, NASD and the equities exchanges currently use the trade date as the basis for Section 31 calculations, while OCC, the options exchanges, and the security futures exchanges use the settlement date. However, for sales of securities resulting from the maturation of security futures or the exercise of physical delivery exchange-traded options, OCC bases its Section 31 calculations on the date of maturation or exercise.

60 Rule 31 requires covered SROs to submit Form R31 on a monthly basis, so there will be 11 additional occasions (other than the August/September transition and any transitions caused by fee rate changes) when a discrepancy might arise as to when a sale "occurred."

61 See infra Section II(B)(3).

62 There must be physical delivery of the underlying securities for there to be a covered sale. The cash settlement of a derivative product does not result in a covered sale.

63 Currently, Section 31 fees on these covered sales are paid by NASD and NASD collects data on these transactions from its members using a paper-based reporting system.

64 The following example will demonstrate the effect of a different charge date applying during a transitional period created by a fee rate change. Assume that equity security XYZ is traded on covered exchange E and OTC through members of covered association A, and that a fee rate increase becomes effective on April 1. Therefore, for the last three business days of March, a different fee rate will apply based on whether XYZ is traded OTC through members of association A (which will use the lower fee rate) or on exchange E (where the trades will not "occur" until they are settled in April, thus making them subject to the higher fee rate). However, the size of the difference is likely to be very small. For example, on April 1, 2003, the Commission implemented the largest increase in the fee rate since Congress amended Section 31 to allow fee rate changes. The Commission increased the fee rate from $25.20 per million of sales transacted to $46.80 per million, an increase of $21.60 per million. For a covered sale having the principal amount of $25,000, this fee rate differential would result in an extra charge to B of only $0.54 ($21.60/$1 million x $25,000). This example also assumes that exchange E reports its covered sales to NSCC for clearance and settlement, broker B is a member of both E and A, and both E and A pass Section 31 fees to their members.

65 See e-mail from Thomas J. Westergard to rule-comments@sec.gov dated February 23, 2004; letter from William O'Brien, Chief Operating Officer, Brut LLC, to Commission, dated March 8, 2004 ("Brut Comment"); letter from Kathleen O'Mara, Associate General Counsel, NASD, to Jonathan G. Katz, Secretary, Commission, dated April 30, 2004 ("NASD Comment"); BSE Comment; CHX Comment; OCC Comment; NSCC Comment; NYSE Comment; SIA Comment.

66 See Proposing Release, 69 FR at 4026.

67 See BSE Comment; NSCC Comment; OCC Comment.

68 OCC also calculates and pays Section 31 assessments to the Commission on behalf of the two security futures exchanges, although these exchanges were not signatories to the OCC Comment. In addition, since the Commission proposed Rule 31, a sixth national securities exchange - BSE - has started to trade options through its facility, the Boston Options Exchange. OCC clears and settles options transactions negotiated on BSE. BSE, like the security futures exchanges, was not a signatory to the OCC Comment.

69 The BSE Comment agreed with the position taken by OCC and the other five options exchanges. In its comment, NSCC stated generally that it agreed with the view that designated clearing agencies should be able to submit payment on behalf of covered SROs but that it had not yet determined "if this is a service it could reasonably provide to a covered SRO."

70 The Commission expects that a designated clearing agency will clearly indicate the amount that it is paying on behalf of each covered exchange for which it is acting as agent. If a covered exchange has requested a designated clearing agency to pay some or all of its Section 31 fees and assessments on its behalf, the Commission also expects that the covered exchange will indicate the total amount that it owes, the amount that it is submitting to the Commission directly, and the amount to be expected from a designated clearing agency.

71 17 CFR 240.31(b)(1).

72 See NASD Comment.

73 The Commission added the words "a completed" between the words "submit" and "Form R31" in paragraph (b)(1) to emphasize that only a submission that includes all relevant data and that has been properly executed complies with the filing requirements of new Rules 31 and 31T.

74 See Proposing Release, 69 FR at 4022, n.37. The other billing period allows for two and a half months between the close of the period (December 31) and the due date for payment (March 15).

75 In addition, one commenter stated that ten business days would be enough time under the proposal, but that "[t]he real burden would be the daily reconciliation required between the information reported back to the exchanges by NSCC and the exchange's own trade reporting systems." BSE Comment. This comment is addressed in Section VII(D)(1)(b), infra.

76 For example, assume that X is long 10 put options and Y is short 10 put options, and that X and Y hold accounts at OCC and NSCC. The security underlying the options is ABC, the strike price is $20, and the options are settled through physical delivery. X elects to exercise the put options and the exercise is assigned to Y. Y now must buy from X 1000 shares of ABC (10 puts x 100 shares underlying each put) for a price of $20,000 ($20/share x 1000 shares). OCC instructs NSCC to move $20,000 from Y's NSCC account to X's NSCC account and to move 1000 shares of ABC from X's NSCC account to Y's NSCC account. OCC also deducts a fee from X's OCC account in the amount of $20,000 times the Section 31 fee rate in effect when the exercise occurs.

77 See Proposing Release, 69 FR at 4022.

78 OCC stated that this is because the exercise of an option takes place through instructions communicated by the holder of the option to OCC, rather than by instructions given to an exchange. See OCC Comment.

79 See paragraph (b)(3)(i) of proposed Rule 31.

80 See NASD Comment; OCC Comment.

81 The following example will illuminate how new paragraph (b)(4)(ii) of Rule 31 will operate. Assume that OCC is required by Rules 31 and 31T to provide exchange E with clearing data to complete its Form R31 for September 2003. Assume also that exchange E in August 2003 accounted for 10% of the aggregate dollar amount of covered sales of options that settled by physical delivery. For September 2003, OCC should allocate to exchange E 10% of the aggregate dollar amount of covered sales resulting from the exercise of physical delivery exchange-traded options and having a charge date in September 2003. For purposes of the pro rata allocation, exchange E's volume of cash-settled options is irrelevant. A cash-settled option cannot lead to a covered sale of the underlying securities, so the volume of cash-settled options should not be included in the proxy for exercise volume.

82 The remaining portions of paragraphs (b) and (c) have been renumbered accordingly.

83 Brut stated that it often submits trades to ACT at the request of clients that utilize the risk-management functionality that ACT offers. See Brut Comment.

84 The Commission notes that neither Section 31 of the Exchange Act nor any Commission rule imposes fees on Brut or any other broker-dealer for covered sales. Section 31 does not give the Commission authority to assess fees on any broker-dealer. These fees are imposed on Brut by the SRO(s) of which it is a member. See infra Section IV.

85 See 17 CFR 240.31(b)(2).

86 See 17 CFR 240.31(b)(3).

87 ITS is a National Market System plan approved by the Commission pursuant to Section 11A of the Exchange Act, 15 U.S.C. 78k-1, and Rule 11Aa3-2 thereunder, 17 CFR 240.11Aa3-2. ITS was developed to facilitate intermarket trading in exchange-listed equity securities based on the current quotation information emanating from the linked markets. Securities eligible for trading through ITS include securities listed or traded pursuant to unlisted trading privileges on NYSE, Amex, or a regional exchange that substantially meets the listing requirements of NYSE or Amex. ITS enables a broker-dealer that is physically present in one market center to execute orders, as principal or agent, in an ITS security at another market center.

88 See letter from Annette L. Nazareth, Director, Division, Commission, to Paul O'Kelly, Executive Vice President, CHX, and James Shelton, Associate Director, NASD, dated March 5, 2001.

89 See 15 U.S.C. 78l(f) (setting forth the circumstances in which a national securities exchange may trade securities pursuant to UTP). See also Securities Exchange Act Release No. 45081 (November 19, 2001), 66 FR 59273 (November 27, 2001) (extending UTP eligibility to all Nasdaq securities).

90 At the time of the no-action letter, the relevant Nasdaq execution system was SelectNet. However, Nasdaq has since replaced SelectNet with SuperMontage. See Securities Exchange Act Release No. 43863 (January 19, 2001), 66 FR 8020 (January 26, 2001) (approving SuperMontage).

91 15 U.S.C. 78ee(b).

92 Any such arrangement would have to be established pursuant to Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b), and Rule 19b-4 thereunder, 17 CFR 240.19b-4.

93 See Proposing Release, 69 FR at 4025.

94 The Commission notes that, in a previous case where it granted an exemption from Section 31, the amounts in question were smaller and the costs of tracking the transactions involved much greater. See Securities Exchange Act Release No. 45371 (January 31, 2002), 67 FR 5199 (February 2, 2002). In this matter, the Commission exercised its authority under Section 31(f) of the Exchange Act, 15 U.S.C. 78ee(f), to exempt sales of options on narrow-based security indexes from Section 31 fees. In the absence of the exemption, an exchange trading such options would have to monitor the value of the underlying indexes on almost a moment-by-moment basis and pay Section 31 fees on option sales only when an index fell under the definition of "narrow-based." The Commission noted that the fees paid by exchanges for all sales of options on indexes that were, or in the near future might become, narrow-based was below $35,000. The Commission concluded that an exemption was warranted "[i]n light of currently low dollar volume of sales of options on narrow-based security indexes and the resources that exchanges and associations must devote to monitoring the narrow-based status of the underlying indexes." 67 FR at 5200. However, the Commission noted that, to the extent that the dollar volume of sales of options on narrow-based security indexes might increase, the Commission might reevaluate whether the exemption were warranted. See id.

95 In later years, however, exempting these sales would result in a higher fee rate on the remaining non-exempt sales. See 15 U.S.C. 78ee(j) (requiring the Commission to adjust the fee rate to attain the target offsetting collection amount).

96 Currently, the fee rate is $23.40 per million dollars of covered sales. See Securities Exchange Act Release No. 49332 (February 27, 2004), 69 FR 10278 (March 4, 2004) (making mid-year adjustment to fee rate). Absent an exemption, CHX would owe the Commission $386.10 per day for this $16.5 million of covered sales ($16.5 million/day x $23.40/million) or approximately $8,494.20 per month (assuming 22 business days/month x $386.10/day).

97 See BSE Comment; CHX Comment; NSCC Comment; NYSE Comment.

98 These include "flips," "step-outs," and "correspondent clearing transactions."

99 15 U.S.C. 78ee(f).

100 15 U.S.C. 78s(b)(2).

101 See Securities Exchange Act Release No. 17501 (January 29, 1981), 46 FR 10891 (February 4, 1981).

102 Securities Exchange Act Release No. 41208 (March 24, 1999), 64 FR 15386 (March 31, 1999) ("Second NASD Riskless Principal Order").

103 Second NASD Riskless Principal Order, 64 FR at 15388.

104 See Proposing Release, 69 FR at 4024.

105 17 CFR 240.31(b)(4)(i).

106 See Proposing Release, 69 FR at 4023.

107 NSCC Comment.

108 See 69 FR at 4025.

109 17 CFR 240.30T(a)(1)(ii).

110 17 CFR 240.30T(a)(1)(iii).

111 17 CFR 240.30T(a)(1)(i).

112 See 17 CFR 240.30T(c).

113 See 17 CFR 240.30T(d).

114 See 17 CFR 240.30T(b).

115 See 17 CFR 240.30T(f).

116 See CHX Comment; NASD Comment; NSCC Comment; NYSE Comment.

117 NASD Comment.

118 See CHX Comment; NYSE Comment.

119 See infra Section VIII.

120 Currently, all transactions in options or security futures that occur on a national securities exchange are cleared and settled by OCC. OCC already has in place procedures to filter out exempt transactions listed in former Rule 31-1 under the Exchange Act, 17 CFR 240.31-1. Therefore, the Commission believes that OCC should, with only minor system modifications, be able to tabulate the trade data required by the covered SROs for Part I of Form R31.

121 See 15 U.S.C. 78ee(b) and (c); 17 CFR 240.31(a)(11)(vii).

122 If the terms of the trade were adjusted, the covered SRO would send a third record to the clearing agency with the correct trade data. If the trade were merely canceled, no third record would be sent.

123 For example, assume A sells to B 100 shares of XYZ stock and this trade was reported to NSCC in error. A covered exchange could obtain the same effect as a reversal message by reporting a second trade in which B sells to A 100 shares of XYZ stock.

124 See supra Section II(B)(11).

125 See supra Section II(B)(4).

126 A covered association also could send clearing-only reports to NSCC, but the procedure created by Rule 31 does not rely on clearing data for covered associations. Therefore, Rule 31 does not require NSCC to segregate a covered association's clearing-only reports for trades that were in fact executed on another SRO from the trades that did occur by or through the association's members otherwise than on an exchange.

127 See supra Section II(B)(7).

128 See supra Section II(B)(8).

129 See NASD Comment; NYSE Comment; SIA Comment.

130 See SIA Comment.

131 See NASD Comment.

132 See NYSE Comment.

133 See 15 U.S.C. 78ee(b) and (c).

134 See 15 U.S.C. 78ee(d).

135 See 15 U.S.C. 78ee(a).

136 The SIA Comment discussed three additional reasons for the collection discrepancies: (1) double-counting of OTC odd-lot transactions; (2) orders executed partly on an exchange but partly OTC but confirmed to the customer at a single average price; and (3) the several layers of billing on ECNs and other mechanisms designed to provide trading anonymity that are difficult to reconcile.

137 See 17 CFR 200.30-3(a)(82).

138 5 U.S.C. 553(b)(A).

139 15 U.S.C. 78c(f).

140 15 U.S.C. 78w(a)(2).

141 15 U.S.C. 78ee(j).

142 See 69 FR at 4026.

143 BSE Comment.

144 See infra Section VII(D)(1).

145 See OCC Comment.

146 See supra Section II(B)(8).

147 See supra Sections II(B)(4) and (5).

148 44 U.S.C. 3501 et seq.

149 See 44 U.S.C. 3512(a).

150 See 69 FR at 4028-29.

151 See BSE Comment; CHX Comment; NYSE Comment.

152 See Proposing Release, 69 FR at 4027.

153 See supra Section II(B)(3).

154 The Commission originally estimated that this burden would be 70 staff hours (7 exchanges x 10 hours/exchange). See Proposing Release, 69 FR at 4027. However, since the Commission issued the Proposing Release, a sixth national securities exchange - BSE - began trading options. As with the other options exchanges, OCC calculates, collects, and pays all of the Section 31 fees on BSE's behalf. Therefore, the Commission is increasing this burden estimate to reflect the addition of BSE.

155 See Proposing Release, 69 FR at 4027.

156 BSE Comment.

157 See Proposing Release, 69 FR at 4027.

158 See supra Section II(B)(3).

159 Currently, three exchanges - CHX, NSX, and NYSE - trade only equity securities, which are cleared and settled by NSCC. Three exchanges - ISE, NQLX, and OneChicago - trade securities that are cleared and settled only by OCC. Five exchanges - Amex, BSE, CBOE, PCX, and Phlx - trade both equities and options, thus requiring the clearance and settlement services of both NSCC and OCC.

160 This total of 12.0 burden hours is calculated as follows: (3 OCC-only exchanges x 0.5 hour/exchange = 1.5 hours) + (3 NSCC-only exchanges x 1.0 hour/exchange = 3.0 hours) + (5 dual exchanges x 1.5 hours/exchange = 7.5 hours).

161 See 69 FR at 4028.

162 See supra Section II(B)(3).

163 In addition, the Commission estimates that one designated clearing agency, NSCC, will incur additional financial burdens of $1000 per month or $12,000 per year.

164 See Proposing Release, 69 FR at 4028.

165 The first Form R31 required by Rule 31 also is due by August 13, 2004 (the tenth business day of August) and will cover the month of July 2004.

166 See Proposing Release, 69 FR at 4028.

167 See CHX Comment; NYSE Comment.

168 17 CFR 240.17a-1.

169 17 CFR 240.17a-6.

170 See 69 FR at 4029-30.

171 NASD Comment.

172 See SIA Comment.

173 15 U.S.C. 78ee(j).

174 See supra Section VII.

175 See NYSE Comment (stating that NYSE would have to amend its Rule 440H).

176 15 U.S.C. 78s(b).

177 5 U.S.C. 605(b).

178 See 69 FR at 4030.