[Federal Register Volume 66, Number 24 (Monday, February 5, 2001)]
[Proposed Rules]
[Pages 8912-8925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-2731]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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 

  Federal Register / Vol. 66, No. 24 / Monday, February 5, 2001 / 
Proposed Rules  

[[Page 8912]]



SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 249

[Release No. 34-43860; File No. S7-03-01]
RIN 3235-AI06


Proposed Rule Changes of Self-Regulatory Organizations

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
proposing to amend the requirements applicable to self-regulatory 
organization (``SRO'') filings of proposed rule changes with the 
Commission. Specifically, the Commission is proposing to issue a 
release relating to the proposed rule change within 10 business days of 
receipt (or within such longer period as to which the SRO consents in 
writing) and allow the majority of trading rules to be effective upon 
filing. The amendments are designed to expedite the review of SRO 
rules, and to allow SROs to more quickly introduce changes to their 
markets.

DATES: Comments must be received by April 6, 2001.

ADDRESSES: All comments concerning the rule proposals should be 
submitted in triplicate to Jonathan G. Katz, Secretary, U.S. Securities 
and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-
0609. Comments also may be submitted electronically at the following E-
mail address: [email protected]. All comment letters should refer 
to File Number S7-03-01, this file number should be included on the 
subject line if E-mail is used. Comment letters will be available for 
inspection and copying in the public reference room at the same 
address. Electronically submitted comment letters will be posted on the 
Commission's Internet web site http://www.sec.gov.

FOR FURTHER INFORMATION CONTACT: Jack Drogin, Assistant Director, at 
(202) 942-0188; Elizabeth Badawy, Accountant, at (202) 942-0740; Terri 
Evans, Special Counsel, at (202) 942-4162; Joseph Morra, Special 
Counsel, at (202) 942-0781; and Sonia Patton, Attorney, at (202) 942-
0753; Division of Market Regulation, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-1001.

SUPPLEMENTAL INFORMATION:

I. Introduction

    Under section 19(b) of the Securities Exchange Act of 1934 
(``Exchange Act'' or ``Act''), SROs generally must file proposed rule 
changes with the Commission for notice, public comment, and Commission 
approval, prior to implementation.\1\ The purpose of this requirement 
is to help to ensure, through Commission review and the public comment 
process, that SROs carry out the purposes of the Exchange Act.\2\ 
Increasingly, however, SROs operating securities markets are facing 
competition from alternative trading systems (``ATSs''),\3\ which as 
broker-dealers are not subject to the same rule filing requirements. 
They also are competing with foreign markets as technology has allowed 
U.S. broker-dealers to indirectly access overseas markets.
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    \1\ 15 U.S.C. 78s(b). Section 3(a)(26) of the Act, 15 U.S.C. 
78c(a)(26), defines the term ``self-regulatory organization'' to 
mean any national securities exchange, registered securities 
association, registered clearing agency, and, for purposes of 
Section 19(b) and other limited purposes, the Municipal Securities 
Rulemaking Board (``MSRB'').
    \2\ The Commission review and public comment process help 
ensure, for example, that SROs refrain from using their regulatory 
powers in an unfair or anticompetitive manner to the detriment of 
investors.
    \3\ An alternative trading system is any ``organization, 
association, person, group of persons or system'' that (1) brings 
together purchasers and sellers of securities or otherwise performs 
functions that are commonly performed by a stock exchange, and (2) 
does not establish conduct rules or discipline subscribers other 
than by exclusion from trading. 17 CFR 242.300(a).
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    The Commission believes that investors are best served by a 
regulatory structure that facilitates fair and vigorous competition 
among market participants and fosters investor protection.\4\ 
Accordingly, over the years, the Commission has periodically revised 
the rule filing requirements to meet the changing needs of SROs in a 
competitive financial marketplace. For example, in 1994, the Commission 
adopted amendments to Rule 19b-4 \5\ to expedite the rule filing review 
process for certain non-controversial filings.\6\ In addition, in 1998 
the Commission amended Rule 19b-4 to allow SROs to list and trade new 
derivative securities products pursuant to existing SRO trading rules, 
surveillance programs, and listing standards without submitting a 
proposed rule change pursuant to Section 19(b).\7\ The Commission's 
goal was to speed the introduction of new derivative securities 
products and enable SROs to maintain a competitive balance with the 
overseas and OTC derivative markets.\8\
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    \4\ Congress emphasized this principle when it amended the Act 
in 1975:
    In 1936, this Committee [on Banking, Housing and Urban Affairs] 
pointed out that a major responsibility of the SEC in the 
administration of the securities laws is to ``create a fair field of 
competition.'' This responsibility continues today. . . . The 
objective would be to enhance competition and to allow economic 
forces, interacting within a fair regulatory field, to arrive 
appropriate variations in practices and services. It would obviously 
be contrary to this purpose to compel elimination of differences 
between types of markets or types of firms that might be competition 
enhancing.
    S. Rep. No. 75, 94th Cong., 1st Sess., at 8 (1975) (emphasis 
added) (``Senate Report'').
    \5\ 17 CFR 240.19b-4.
    \6\ See Securities Exchange Act Release No. 35123 (Dec. 20, 
1994), 59 FR 66692 (Dec. 28, 1994) (hereafter referred to as the 
``Non-Controversial Rule Adopting Release'').
    \7\ See Securities Exchange Act Release No. 40761 (Dec. 8, 
1998), 63 FR 70952 (Dec. 22, 1998) (hereafter referred to as the 
``New Products Adopting Release'').
    \8\ Id.
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    The Commission believes that it is now appropriate to consider 
further amending the rule filing process to allow SROs operating 
securities markets to be more competitive in today's marketplace. 
Enhancing the SROs' ability to implement and to respond quickly to 
changes in the marketplace should encourage innovation and better 
services to investors, such as further automating the execution of 
trades. Investors should also benefit from a competitive environment in 
which SROs may easily adapt their trading rules to respond to market 
opportunities. Therefore, the Commission is proposing to replace Rule 
19b-4 \9\ in its entirety with a new rule, Rule 19b-6.\10\
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    \9\ 17 CFR 240.19b-4.
    \10\ 17 CFR 240.19b-6.

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[[Page 8913]]

II. Background

A. Current Procedures for Submission and Approval of SRO Rule Filings

    Section 19(b)(1) of the Act \11\ requires each SRO to file with the 
Commission its proposed rule changes \12\ accompanied by a concise 
general statement of the basis for, and purpose of, the proposed rule 
change. Once an SRO files a proposed rule change, the Commission must 
publish notice of it and provide an opportunity for public comment. The 
proposed rule change may not take effect unless the Commission approves 
it, or as discussed below, it is otherwise permitted to become 
effective under Section 19(b)(3) of the Act.\13\
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    \11\ 15 U.S.C. 78s(b)(1).
    \12\ Section 19(b)(1) of the Act requires each SRO to file with 
the Commission ``any proposed rule or any proposed change in, 
addition to, or deletion from the rules of . . . [a] self-regulatory 
organization.'' In turn, Sections 3(a)(27) and 3(a)(28) of the Act 
provide, essentially, that the term ``rules of a self-regulatory 
organization'' means (i) the rules of the MSRB or the constitution, 
articles of incorporation, bylaws, and rules, or instruments 
corresponding to the foregoing, of any other SRO and (ii) such 
stated policies, practices, and interpretations of an SRO (other 
than the MSRB) as the Commission, by rule, may determine to be 
deemed to be rules.
    \13\ 15 U.S.C. 78s(b)(3).
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    Section 19(b)(2) of the Act \14\ delineates the standards and time 
periods for Commission action either to approve a proposed rule change 
or to institute and conclude a proceeding to determine whether a 
proposed rule change should be disapproved. The Commission must approve 
a proposed rule change if it finds that the proposal is consistent with 
the requirements of the Act and the rules and regulations applicable to 
the SRO proposing the rule change.\15\ If the Commission does not make 
that finding, it must institute proceedings to determine whether to 
disapprove the proposed rule change.\16\ The Commission also may 
approve a proposed rule change on an accelerated basis prior to 30 days 
after publication of the notice in the Federal Register if the 
Commission finds good cause for doing so and publishes its reasons.\17\
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    \14\ 15 U.S.C. 78s(b)(2).
    \15\ Id.
    \16\ Id.
    \17\ 15 U.S.C. 78s(b)(2).
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    Section 19(b)(3) of the Act \18\ provides that, in certain 
circumstances, a proposed rule change may become effective without the 
notice and approval procedures specified in section 19(b)(2).\19\ 
Specifically, section 19(b)(3)(A) \20\ allows certain types of proposed 
rule changes to be effective upon filing with the Commission if 
designated by an SRO as falling within any of the following categories: 
(1) Constituting a stated policy, practice, or interpretation with 
respect to the meaning, administration, or enforcement of an existing 
rule of the SRO; \21\ (2) establishing or changing a due, fee, or other 
charge imposed by the SRO; \22\ or (3) concerned solely with the 
administration of the SRO.\23\ Section 19(b)(3)(A)(iii) \24\ also 
grants the Commission the authority to expand by rule the scope of 
proposed rule changes immediately effective under section 
19(b)(3)(A),\25\ if the Commission determines that such expansion is 
consistent with the public interest and the purposes of section 19(b). 
Rule 19b-4(f) \26\ implements the authority of section 19(b)(3)(A) \27\ 
by detailing further the scope of proposed rule changes that may be 
filed under that Section. The language of Rule 19b-4(f) tracks those 
categories enumerated in section 19(b)(3)(A), and includes a category 
adopted in 1980 relating to registered clearing agencies,\28\ as well 
as categories adopted in 1994 relating to minor systems changes and 
non-controversial filings.\29\
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    \18\ 15 U.S.C. 78s(b)(3).
    \19\ 15 U.S.C. 78s(b)(2).
    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ Rule 19b-4(b) defines the term ``stated policy, practice or 
interpretation'' to mean generally any material aspect of the 
operation of the facilities of the SRO or any statement made 
available to the membership, participants, or specified persons that 
establishes or changes any standard, limit, or guideline with 
respect to rights and obligations of specified persons or the 
meaning, administration, or enforcement of an existing rule. 17 CFR 
240.19b-4(b).
    \22\ The Commission has stated that as a matter of general 
policy, a proposed rule change of an SRO, other than the MSRB, that 
establishes or changes a due, fee, or other charge applicable to a 
non-member or non-participant should be filed under section 19(b)(2) 
for full notice and comment. See Securities Exchange Act Release No. 
17258 (Oct. 30, 1980), 45 FR 73906, at 73910 (Nov. 7, 1980). The 
Commission emphasizes that a proposed rule change that is filed 
pursuant to section 19(b)(3)(A), 15 U.S.C. 78s(b)(3)(A), may not 
become effective retroactively. For example, if a proposed rule 
change regarding fees was properly filed under section 19(b)(3)(A), 
15 U.S.C. 78s(b)(3)(A), on December 3rd, the fee would be effective 
as of December 3rd. The SRO could not apply the fee as of December 
1st.
    \23\ The Commission, however, notes that a rule that solely 
addresses floor decorum or safety is not required to be filed with 
the Commission.
    \24\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \25\ 15 U.S.C. 78s(b)(3)(A).
    \26\ 17 CFR 240.19b-4(f).
    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ See Securities Exchange Act Release No. 17258 (Oct. 30, 
1980), 45 FR 73906 (Nov. 7, 1980).
    \29\ See Non-Controversial Rule Adopting Release, supra note 6.
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B. Purpose of Proposed Rule 19b-6

    The rule filing process under the Exchange Act serves several 
important policy goals. First, the administrative notice and comment 
procedure helps to ensure that interested persons have an opportunity 
to provide input into SRO actions that may have a significant impact on 
market participants and individual investors.\30\ In addition, the rule 
filing process allows the Commission to review proposed rule changes to 
help ensure that they are consistent with the Act and the goals of the 
national market system, such as fair competition among markets, 
transparency of prices, best execution of customer orders, and orderly 
and linked markets. As Congress has stated on a number of occasions, 
SROs are ``quasi-public agencies, not private clubs, and * * * their 
goal is the prevention of inequitable and unfair practices and the 
advancement of the public interest.'' \31\ An important way for the 
Commission to help ensure that the SROs are serving those goals is 
through its review of SRO rule filings.
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    \30\ For example, SROs exercise certain quasi-governmental 
powers over members through their ability to impose disciplinary 
sanctions, deny membership, and require members to cease doing 
business entirely or in specified ways.
    \31\ Securities Industry Report of the Subcommittee on 
Securities, S. Doc. No. 13, 93d Cong., 1st Sess. 156 (1973).
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    While the Commission continues to believe that the rule review 
process serves fundamental public policy goals, it also believes that 
it is time to reevaluate the process in order to accommodate changes in 
the marketplace and the need of SROs for greater certainty. The 
competitive landscape has shifted dramatically since the Commission 
first began reviewing SRO proposed rules 25 years ago. With the 
expanding integration of on-line technology in the securities industry, 
ATSs are transforming the structure of the nation's capital markets. 
For example, electronic communication networks (``ECNs''), which are a 
type of ATS, now account for approximately 30 percent of the total 
share volume and 40 percent of the dollar volume in Nasdaq securities, 
and approximately 3 percent of the total share and dollar volume in 
listed securities.\32\ Broker-dealers also have developed automated 
systems that allow investors in the U.S. to trade indirectly on foreign 
markets.
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    \32\ See Division of Market Regulation, Commission, Study of 
Electronic Communication Networks and After-Hours Trading (2000).
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    Because ATSs, which are not registered as exchanges and therefore 
do not have self-regulatory responsibilities, do not have to submit 
trading rules to the Commission for approval, and because most foreign 
exchanges have different regulatory requirements than U.S. markets, 
ATSs and most foreign

[[Page 8914]]

exchanges can often make changes to their trading procedures and 
systems swiftly. U.S. SROs can be placed at a competitive disadvantage 
because they must wait for the completion of the public comment period 
and the Commission review process before implementing similar changes. 
The Commission, therefore, is proposing to revise the process for SRO 
trading rules to allow U.S. SROs to alter the majority of trading rules 
without waiting for Commission approval. The Commission would be able 
to abrogate a trading rule and activate the normal notice and comment 
period where a trading rule raises significant issues, including its 
conformity to the federal securities laws. By expediting the rule 
filing process, the Commission's goal is to strike a balance between 
the need for greater flexibility and certainty, and its statutory 
obligation to oversee SRO actions.

III. Description of Rule 19b-6

    To streamline the rule filing process, the Commission is proposing 
to completely replace Rule 19b-4 \33\ with new Rule 19b-6, which 
incorporates certain provisions from Rule 19b-4.\34\ In addition, the 
Commission is proposing to replace Form 19b-4 with new Form 19b-6 to 
reflect the changes made by the proposed rule. Generally, proposed Rule 
19b-6 would (1) require that the Commission issue a release relating to 
the proposed rule change within 10 business days of filing with the 
Commission or within such longer time period as to which the SRO 
consents in writing; (2) eliminate the pre-filing requirement and the 
30-day delayed operational period before a non-controversial rule 
change can be filed or become operative; (3) expand the categories of 
proposed rule changes that qualify for immediate effectiveness to 
include trading rules (other than a trading rule that would make 
fundamental structural changes to the market, and that would 
significantly affect the protection of investors or the public interest 
or impose a significant burden on competition); (4) clarify that where 
a proposed rule change has become effective pursuant to section 
19(b)(3)(A) of the Exchange Act,\35\ no inference may be made regarding 
whether the proposed rule change is in the public interest, including 
any impact on competition; and (5) permit SROs to file proposed rule 
changes electronically.
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    \33\ 17 CFR 240.19b-4.
    \34\ Unless clearly inconsistent with the language of Rule 19b-
6, prior interpretations of Rule 19b-4 will continue to apply. See, 
e.g., Securities Exchange Act Release No. 17258 (October 30, 1980), 
45 FR 73906 at note 40 (November 7, 1980) (As a matter of general 
policy, a proposed rule change of an SRO, other than the MSRB, that 
establishes or changes a due, fee, or other charge applicable to a 
non-member or non-participant should be filed under section 19(b)(2) 
for full notice and comment.).
    \35\ 15 U.S.C. 78s(b)(3)(A).
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A. Issuance of a Release Relating to Proposed Rule Changes Within 10 
Business Days of Filing

    In the past, commenters have stated that ``the rule filing process, 
in general, could be shortened if SRO rules that [were] submitted to 
the Commission in proper form were published for notice and comment 
immediately, or within a set period of time, such as ten business 
days.'' \36\ The Commission agrees that prompt issuance of a release 
relating to a properly drafted proposed rule change would further 
enhance the efficiency of the rule filing process under section 19(b) 
of the Act.\37\ The Commission is therefore proposing to issue a 
release relating to filed proposed rule changes that meet the 
requirements of the rule within 10 business days of receipt by the 
Commission or within such longer period as to which the SRO consents in 
writing.\38\
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    \36\ See New Products Adopting Release, supra note 7, citing 
comment letters; see also Non-Controversial Rule Adopting Release, 
supra note 6.
    \37\ 15 U.S.C. 78s(b).
    \38\ Proposed Rule 19b-6(a). This proposal would apply not only 
to national securities exchanges and association, but also to 
clearing organizations.
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    The Commission notes that proposals must be drafted with precision 
if they are to elicit meaningful public comment. In light of past 
problems with SROs submitting unclear and internally inconsistent rule 
filings, the Commission is proposing to prescribe in Rule 19b-6(f) and 
Form 19b-6 the items that must be included in a rule filing for it to 
be considered properly filed. Proposed Rule 19b-6(f) states that in 
order for a proposed rule change to be properly filed, it must provide 
an accurate statement of the authority for and basis of the proposed 
rule change, including the impact on competition, as well as a summary 
of any written comments received by the SRO. In addition, the SRO's 
proposed rule change must not be inconsistent with the existing rules 
of the SRO and must contain a certification from a senior SRO official 
regarding its accuracy and completeness. Under proposed Rule 19b-6, 
incomplete or inadequate filings will not be deemed to have been filed 
with the Commission; the Commission will return to an SRO any filings 
that fail to comply with the directions in proposed Form 19b-6, which 
are described further in Part F below.

B. Proposed Changes to Non-Controversial Filings Category

    Generally, Rule 19b-4(f)(6) \39\ allows proposed rule changes that 
are non-controversial to be effective upon filing with the Commission, 
provided that the SRO submits written notice of its intent to file the 
proposal at least five business days in advance of filing. Non-
controversial rule changes do not become operative until 30 days after 
the date of filing.\40\ At the time the Commission adopted this rule, 
several commenters recommended that the 30-day period be shortened, 
eliminated, or applied only in specific instances.\41\ The Commission, 
however, believed that the 30-day delayed operational date for non-
controversial filings was necessary to allow the Commission the 
opportunity to abrogate a rule change without significant disruption to 
existing operations if the Commission determined after subsequent 
review or public comment that the proposal was not properly filed 
within the non-controversial category.\42\
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    \39\ 17 CFR 240.19b-4(f)(6).
    \40\ The Commission has frequently exercised its authority to 
shorten or waive either the five-day advance notice requirement or 
the 30-day delay in operational effectiveness. 17 CFR 240.19b-
4(f)(5)(iii) and Non-Controversial Rule Adopting Release, supra note 
6.
    \41\ See Non-Controversial Rule Adopting Release, supra note 6, 
citing comments.
    \42\ Id.
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    In light of its experience with this provision, the Commission 
preliminarily believes that it may now be appropriate to eliminate the 
30-day delayed operational date and the five-day pre-filing requirement 
for non-controversial rule filings. Eliminating the time periods in 
this provision would enable SROs to implement immediately those rule 
changes that do not significantly affect the protection of investors or 
the public interest, do not impose any significant burden on 
competition, are not designed to permit unfair discrimination between 
customers, issuers, and brokers or dealers, and do not relate to 
trading rules (which are covered in a separate provision). The 
Commission notes that because the majority of rule filings submitted 
pursuant to this provision to date have been truly non-controversial, 
abrogation under this category has been unnecessary.
    The Commission notes that it retains the statutory authority to 
abrogate a proposed rule change submitted under section 19(b)(3)(A) of 
the Act \43\ within 60 days of the date of filing of the

[[Page 8915]]

proposed rule change.\44\ In other words, the Commission could require 
that the SRO refile the proposed rule change under section 19(b)(2) for 
regular notice and comment if it determined, for example, that the rule 
change was controversial and warranted further public comment. Once 
abrogated, a proposed rule change would not be effective unless 
subsequently approved by Commission order. Because these changes to the 
existing rule filing process would give the SROs greater flexibility, 
the Commission would be prepared to use its abrogation authority more 
often than it has in the past. For example, it could abrogate if it 
determined upon subsequent review or public comment that a proposed 
rule change was inappropriately submitted under Section 19(b)(3)(A) or 
otherwise raised significant legal or policy concerns that would 
justify further review pursuant to section 19(b)(2).
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    \43\ 15 U.S.C. 78s(b)(3)(A).
    \44\ 15 U.S.C. 78s(b)(3)(C). See also Section F, infra.
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    The Commission is also proposing three technical changes to the 
non-controversial filing category. First, the Commission is proposing 
to specifically exclude from this category SRO trading rules because 
the Commission is proposing a separate provision for these rules, as 
discussed below. Second, the Commission is proposing to clarify that a 
proposed rule change filed under this category may not ``unfairly 
discriminate between customers, issuers, and brokers or dealers.'' The 
Commission notes that this merely restates the requirement under 
section 6(b)(5) of the Act \45\ that the rules of an exchange not be 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers. Third, the Commission is amending the rule 
language to clarify that it is intended to apply solely to minor 
proposed rule changes and other proposed rule changes that are 
substantially the same as the rule of another self-regulatory 
organization that previously was filed with and approved by the 
Commission pursuant to section 19(b)(2) of the Exchange Act \46\ (i.e., 
so-called ``copycat filings'').
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    \45\ 15 U.S.C. 78f(b)(5).
    \46\ 15 U.S.C. 78s(b)(2).
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C. Immediate Effectiveness of Trading Rules

    Under the Commission's proposal, SROs would have the choice to file 
proposed rule changes governing most trading rules to take effect 
pursuant to section 19(b)(2) \47\ or section 19(b)(3) of the Act.\48\ 
Under section 19(b)(3), the proposed rule change would be effective 
upon filing provided that the SRO had established procedures for the 
effective surveillance of activity conducted pursuant to the trading 
rule and for enforcement of the rule.\49\ However, those few trading 
rules that make fundamental structural changes to the market, and that 
significantly affect the protection of investors or the public interest 
or impose a significant burden on competition, would not be eligible to 
become immediately effective.\50\ The Commission also wishes to 
emphasize that an SRO filing a proposed trading rule for immediate 
effectiveness pursuant to section 19(b)(3)(A) must be prepared to cease 
applying the proposed trading rule promptly upon Commission abrogation 
of the proposed rule change. If the Commission abrogates a proposed 
rule change, the SRO may not continue to implement the rule unless it 
is approved by the Commission pursuant to section 19(b)(2) of the 
Exchange Act.
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    \47\ 15 U.S.C. 78s(b)(2).
    \48\ 15 U.S.C. 78s(b)(3).
    \49\ Proposed Form 19b-6 would require that the chief executive 
officer, general counsel, or other officer or director of the self-
regulatory organization that exercises similar authority to certify 
that the self-regulatory organization had established procedures to 
conduct surveillance for compliance with, and enforce, the proposed 
rule change.
    \50\ See discussion at Part D, infra.
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    Trading rules would be defined broadly to include SRO rules 
governing the trading of securities through the SRO or its facilities. 
The definition includes rules governing: use of or access to an order 
entry, routing, or execution system; member proprietary trading; 
display of quotations; market maker activities; \51\ trading units; 
order types; odd lot differentials; \52\ priority of orders, bids, and 
offers (but not handling of customer orders, including limit orders); 
fast markets; trading hours; national securities exchange or national 
securities association rules governing comparison, clearance and 
settlement of transactions by means of exchange or association 
facilities; \53\ disagreements on executions; obligations of 
specialists to maintain fair and orderly markets; \54\ special 
offerings; exchange distributions; \55\ closing contracts; \56\ 
authority and actions of order book officials; \57\ activities of floor 
brokers; \58\ and trading activities of specialists and lead market 
makers.
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    \51\ One example of this type of filing is a filing submitted by 
the Pacific Exchange, Inc. (``PCX'') that allowed Lead Market Makers 
to perform certain floor broker functions in addition to order book 
official and market maker functions. A Lead Market Maker is 
permitted, but not obligated, to accept non-discretionary orders 
that are not eligible to be placed in the public order book, and is 
permitted to represent such orders as a floor broker. See File No. 
SR-PCX-99-25.
    \52\ An example of this type of filing is File No. SR-CHX-94-23, 
which allowed The Chicago Stock Exchange (``CHX'') specialists to 
charge a differential for certain odd lot trades.
    \53\ See, e.g., File No. SR-NYSE-91-09 (relating to the New York 
Stock Exchange (``NYSE'') overnight comparison system allowing (1) 
security position movements and (2) the comparison of cash ``ex-
clearing house'' transactions). Rule 19b-6 would not include SRO 
rules governing trade reporting and also would not apply to the 
rules of a registered clearing agency.
    \54\ One example of this type of rule filing is a filing 
submitted by the NYSE adopting an ``adjusted stabilization'' method 
of measuring specialist performance. See File No. SR-NYSE-99-01.
    \55\ This is intended to cover proposed rule changes such as 
File No. SR-NYSE-97-15, which amended NYSE Rule 392 to require 
notification by member organizations of any stabilizing bid made in 
connection with an offering of an exchange-listed security.
    \56\ One example of this type of rule filing is File No. SR-
NYSE-82-23, which amended NYSE Rules 282, 284, and 289 relating to 
the reduction of NYSE staff involvement in processing buy-ins and to 
provide for the delivery of buy-ins from the initiating firm 
directly to the defaulting firm.
    \57\ This is intended to cover proposed rule changes such as 
File No. SR-CBOE-98-27, which amended Chicago Board Options 
Exchange's (``CBOE's'') rules governing the execution of orders by 
order book officials or designated primary market makers' book staff 
to provide for the electronic execution of certain orders on the 
``live ammo'' screen. The proposal allowed an order book official or 
a designated primary market maker to designate orders to be 
electronically executed against market makers standing in the crowd.
    \58\ An example of this kind of proposed rule change is File No. 
SR-PCX-99-17, which allowed PCX floor brokers to represent 
telephonic orders in the crowd without a written ticket, provided 
the ticket has already been completed, time stamped, and is being 
delivered to the floor broker in the crowd.
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    For example, rules eligible for immediate effectiveness would 
include rules extending the close of trading, affecting the crossing of 
orders or the priority of orders,\59\ mandating executions of orders up 
to a particular size at the displayed bid or offer, or affecting the 
operation of certain small order execution systems.\60\ The proposed 
trading rule definition would also encompass proposed rule changes 
suspending firm quotes in fast markets \61\ or requiring the 
dissemination of an inferior quote whenever the market maker fails to

[[Page 8916]]

execute the full size of an incoming order.\62\
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    \59\ For example, the PCX submitted a proposed rule change that 
entitled floor brokers, under certain conditions, to cross a 
specified percentage of a customer order that the floor broker 
brought to the post on behalf of the floor broker's member firm 
before market makers in the crowd could participate in the 
transaction. See File No. SR-PCX-99-18. In addition, the NYSE 
submitted a proposed rule change that would facilitate the crossing 
of certain orders of a specified minimum size against certain 
displayed quotes. See File No. SR-NYSE-99-24.
    \60\ One example of this type of filing is a proposed rule 
change submitted by the American Stock Exchange (``Amex'') that 
increased from 50 to 100 the maximum number of equity and index 
option contracts in an order that may be entered through the Amex 
Order File System into the Amex Options Display Book. See File No. 
SR-Amex-99-11.
    \61\ See, e.g., File No. SR-CBOE-99-52.
    \62\ See, e.g., File No. SR-NASD-99-20.
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    This proposal would be limited to trading rules, where SROs need 
greater flexibility because they must respond quickly to competition in 
the marketplace. SROs do not face the same competition with respect to 
member regulation. Only SROs exercise quasi-governmental powers in 
enforcing compliance by members with both the legal requirements of the 
Act and ethical standards that extend beyond those requirements. 
Accordingly, the definition of trading rule would not include rules 
governing membership, member regulation, discipline, arbitration, or 
financial responsibility (such as margin, net capital, and 
recordkeeping). Rules affecting customer communications or suitability 
also would not be included under the proposed definition of a trading 
rule. Finally, the definition of trading rule would not include rules 
affecting listing standards or corporate governance. The Commission 
believes that public comment and Commission approval of these types of 
rules are critical to help ensure that investor protection and listing 
standards are not compromised, and that members of an SRO are afforded 
due process.\63\
---------------------------------------------------------------------------

    \63\ The Commission will issue a release relating to these types 
of rules within 10 business days under Rule 19b-6(a).
---------------------------------------------------------------------------

D. Trading Rules Ineligible for Immediate Effectiveness

    SRO trading rules occasionally involve fundamental issues of market 
structure and fairness to customers, members, and non-members, 
including potentially anti-competitive or discriminatory conduct on the 
part of the SRO's market. The Commission believes that trading rules 
that would have a significant impact on market structure or competition 
should be subject to the full notice and comment process. It is through 
this process that the public has an opportunity to raise concerns, for 
example, about an SRO's use of its regulatory powers to unfairly 
advantage its market at the expense of its competitors. The Commission, 
therefore, is proposing to exclude from Rule 19b-6(b)(6) trading rules 
that would make fundamental structural changes to that SRO's market and 
that significantly affect investors or impose a significant burden on 
competition. These rules would be subject to the regular notice and 
comment period pursuant to section 19(b)(2) of the Act. For example, 
under proposed Rule 19b-6, SRO rules dealing with the conversion to 
decimal pricing would not have been effective upon filing, although 
they would likely have been considered trading rules within the 
proposed definition of that term. The transition from quoting in 
fractions to quoting in decimals, and the technological concerns and 
investor protection issues associated with that transition, have far 
reaching ramifications for the securities markets.\64\
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    \64\ See Order Directing the Exchanges and the NASD to Submit a 
Decimalization Implementation Plan Pursuant to Section 11A(a)(3)(B) 
of the Act, Securities Exchange Act Release No. 42360 (January 28, 
2000).
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E. Request for Comment

    The Commission requests the views of commenters on the proposed 
rule, including whether it provides SROs with sufficient flexibility to 
adapt to changes in their marketplaces while ensuring that the goals of 
the national market system are satisfied. In addition, to assist 
commenters, the Commission specifically requests comment on the 
following:
    1. Is the definition of a trading rule appropriate? Is it over-
inclusive or under-inclusive?
    2. Should proposed rule changes that are considered non-
controversial or that govern trading rules become operative immediately 
or should the operative date be suspended for 60 days to allow the 
Commission to abrogate those proposed rule changes without disrupting 
the operation of the SROs?
    3. What other types of proposed rule changes should the Commission 
consider making eligible for immediate effectiveness? For example, 
should it include listing standards, new products, or position limits? 
Would investors and market participants continue to be adequately 
protected if other types of rule changes were included?

F. Operation of Proposed Rule 19b-6

    As discussed above, under proposed Rule 19b-6, the Commission will 
issue a release relating to properly filed proposed rule changes 
submitted pursuant to section 19(b)(1) within ten business days of 
filing or within such longer period as to which the SRO consents in 
writing. SROs will continue to have the option to file their proposals 
for regular notice, comment and approval under section 19(b)(2) or for 
immediate effectiveness under section 19(b)(3)(A).\65\
---------------------------------------------------------------------------

    \65\ But see note 74, infra.
---------------------------------------------------------------------------

    A proposed rule change will be not considered filed on the date it 
is received by the Commission unless: (1) A properly completed Form 
19b-6 is submitted; (2) in order to elicit meaningful comment, it is 
accompanied by (a) a clear and accurate statement of the authority for, 
and basis and purpose of, such rule change, including the impact on 
competition, if any, and (b) a summary of any written comments received 
by the SRO on the proposed rule change; (3) it is not inconsistent with 
the existing rules of the SRO, including any other rules proposed to be 
amended; and (4) the chief executive officer, general counsel, or other 
officer or director of the SRO that exercises similar authority, 
certifies to the accuracy and completeness of the statements made on 
new Form 19b-6 (the form is discussed in part F below).
    If the filing is complete, including the certification, the 
Commission will post the proposal on the Commission's web page and send 
it to the Federal Register for publication. The notice would typically 
provide for a 21-day comment period, beginning on the date after the 
notice appears in the Federal Register. If the filing is incomplete, it 
would not be deemed filed and would be returned to the SRO.
    The Commission may abrogate an SRO rule submitted for immediate 
effectiveness under section 19(b)(3)(A) and Rule 19b-6 within 60 days 
from the date the proposed rule change is filed with the 
Commission.\66\ As discussed above, the Commission may determine that 
abrogation is appropriate when a filing raises concerns about unfair 
discrimination or competition, raises controversial issues, or 
otherwise could substantially benefit from notice and comment. This 
decision will be based not only on the Commission's initial examination 
of the filing, but also on comments the Commission receives during the 
21-day comment period. The Commission anticipates that the large 
majority of these proposed rule changes would be effective upon filing 
and would not be subsequently abrogated. If the Commission abrogates a 
proposed rule change, the SRO must refile the proposed rule change with 
the Commission for review pursuant to section 19(b)(2).\67\
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    \66\ 15 U.S.C. 78s(b)(3)(C).
    \67\ Section 19(b)(3)(C) states that ``the Commission summarily 
may abrogate the change in the rules of the self-regulatory 
organization * * * and require that the proposed rule change be 
refiled in accordance with'' section 19(b)(1) and reviewed in 
accordance with section 19(b)(2).
---------------------------------------------------------------------------

    If an SRO wishes to make a substantive amendment to a proposed rule 
change filed for immediate effectiveness, the SRO must refile the 
proposed rule change in its entirety. At that point, the 60-day 
abrogation period would run from the date of filing of the

[[Page 8917]]

new amended filing, and the proposed rule change, in its entirety, 
would be deemed effective upon filing of the amendment and not from the 
date of the initial filing. If an SRO makes a timely \68\ technical 
amendment (i.e., to correct cross-references or other citations or to 
clarify minor points) to a filing, the 60-day abrogation period would 
continue to run from the date of the original filing, and the proposed 
rule change would be deemed effective as of the date of the original 
filing; the amendment therefore would not affect the abrogation period. 
Substantive amendments to proposed rule changes will be published in 
the Federal Register and posted on the Commission's web site. This will 
give the public the opportunity to comment on the substantive change. 
The Commission notes that its decision to abrogate or its failure to 
abrogate a proposed SRO rule change is not reviewable under section 25 
of the Exchange Act.\69\ If the Commission abrogates a proposed rule 
change, the abrogation will not affect the validity or force of the 
proposed rule change during the period the rule was in effect.\70\
---------------------------------------------------------------------------

    \68\ A ``timely'' technical amendment to a proposed rule change 
must be received by the Commission with enough time prior to the end 
of the abrogation period to ensure that the filing is complete and 
accurate. If a technical amendment is not timely filed, the 
Commission may choose to abrogate the proposed rule change as 
incomplete or inaccurate. In general, to be considered timely, 
technical amendments must be received by the Commission not less 
than ten business days prior to the end of the abrogation period.
    \69\ 15 U.S.C. 78y. See 15 U.S.C. 78s.
    \70\ 15 U.S.C. 78s(b)(3)(C).
---------------------------------------------------------------------------

G. Form 19b-6

    Generally, Form 19b-6 requires an SRO to (1) submit a complete 
description of the terms of its proposal; (2) describe the impact of 
the proposed rule change on various segments of the market, including 
members, member constituencies, and non-members; and (3) describe how 
the filing relates to existing rules of the SRO. In addition to the 
foregoing, a proposed rule change must provide an accurate statement of 
the authority and statutory basis for, and purpose of, the proposed 
rule change, including its impact on competition, if any, as well as a 
summary of any written comments received by the SRO.\71\ The proposed 
rule change must also be consistent with the existing rules of the SRO, 
including any other proposed rule changes. And finally, the chief 
executive officer, general counsel, or other officer or director of the 
SRO that exercises similar authority must certify to the accuracy and 
completeness of the statements made on Form 19b-6, and certify that the 
SRO will enforce and conduct surveillance for compliance with the rule.
---------------------------------------------------------------------------

    \71\ These requirements exist today under Form 19b-40.
---------------------------------------------------------------------------

    The Commission firmly believes that, to provide the public with a 
meaningful opportunity to comment, a proposed rule change must be 
accurate, consistent, and complete. Currently, Commission staff devotes 
significant time to processing proposed rule changes, reviewing them 
for accuracy and completeness, and preparing them for publication. This 
time is lengthened because the SROs often must correct, clarify, or 
further substantiate their proposals to address issues identified by 
the reviewing staff. In the future, because of the expedited process 
and the immediate effectiveness of many proposals, proposed rule 
changes that do not: (1) Contain a properly completed Form 19b-6; (2) 
contain a clear and accurate statement of the authority for, and basis 
and purpose of, such rule change, including the impact on competition; 
(3) contain a summary of any written comments received by the SRO; (4) 
state that the proposal is not inconsistent with the existing rules of 
the SRO, including any other rules proposed to be amended; and (5) 
include the certification described above will not be deemed filed. 
These proposed rule changes will be returned to the SRO and will not be 
deemed filed until all required information has been provided.

H. Where a Proposed Rule Change Becomes Effective Upon Filing Pursuant 
to Section 19(b)(3)(A) of the Act, No Inference May Be Made Regarding 
Whether the Proposed Rule Change Is in the Public Interest, Including 
Any Impact on Competition

    Subsection (h) of Rule 19b-6 clarifies that where a proposed rule 
change becomes effective upon filing pursuant to section 19(b)(3)(A) of 
the Act,\72\ no inference may be made regarding whether the proposed 
rule change is in the public interest, including whether it has an 
impact on competition. Although the Commission intends to conduct a 
review of proposed rule changes that are effective on filing in order 
to determine whether they raise significant issues requiring abrogation 
of the filing, the Commission will not be taking final action unless it 
chooses to abrogate the proposed rule change and subsequently issues an 
order approving or disapproving the proposal pursuant to section 
19(b)(2) of the Act. Therefore, the Commission will not necessarily 
have made a final determination on whether the proposed rule change is 
in the public interest, including whether it has an impact on 
competition, where the proposal has become effective upon filing 
pursuant to section 19(b)(3)(A) of the Exchange Act. Absent a 
Commission order approving the proposed SRO rule change pursuant to 
section 19(b)(2), a person may not necessarily draw conclusions about 
whether the proposed rule change is in the public interest, including 
whether it has an impact on competition. However, if an SRO determines 
that it would like the Commission to make such a determination, the SRO 
still has the option of submitting the proposed rule change under 
section 19(b)(2) \73\ instead of section 19(b)(3).\74\
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    \72\ See, e.g., 15 U.S.C. 78c(f) (requiring the Commission, when 
it is engaged in the review of an SRO rule and is required to 
consider or determine whether an action is necessary or appropriate 
in the public interest, to consider whether the action will promote 
efficiency, competition, and capital formation), 15 U.S.C. 78f 
(requiring that the rules of an exchange be designed, in general, to 
protect investors and the public interest and not be designed to 
permit unfair discrimination between customers, issuers, brokers, or 
dealers), 15 U.S.C. 78o-3 (requiring that the rules of an 
association not be designed to permit unfair discrimination between 
customers, issuers, broker or dealers and do not impose any burden 
on competition not necessary or appropriate in furtherance of the 
Exchange Act).
    \73\ 15 U.S.C. 78s(b)(2).
    \74\ 15 U.S.C. 78s(b)(3). Under this proposal, an SRO could 
submit a proposed rule change either under section 19(b)(3)(A) for 
immediate effectiveness or under section 19(b)(2) for notice and 
comment and Commission approval. An SRO would not be able to submit 
a proposed rule change under section 19(b)(3)(A) and then submit the 
same rule language under section 19(b)(2). Of course, if the 
Commission abrogated an SRO proposed rule change that was filed 
pursuant to section 19(b)(3), the proposed rule change would be 
reviewed under section 19(b)(2) upon filing by the SRO.
---------------------------------------------------------------------------

I. Electronic Submission

    Currently, SROs are required to submit nine copies of Form 19b-4 
before a proposal is deemed filed. Under Rule 19b-6, the Commission is 
proposing to allow SROs to file proposed rule changes with the 
Commission electronically, provided they promptly file nine paper 
copies, one of which must be manually signed. SROs that elect to file 
proposed rule changes electronically must do so in accordance with 
standards to be published by the Commission. Proposed rule changes that 
are not filed pursuant to these standards will not be deemed filed and 
will be returned to the SRO.

J. Request for Comment

    In addition to requesting comment on the Commission's overall 
approach to rule filings under proposed Rule 19b-6,

[[Page 8918]]

the Commission requests comment on the following:
    1. Should the Commission continue to require paper copies and 
manual signatures on proposed rule filings? If not, under what 
conditions should SROs be permitted to file electronically? Should the 
Commission continue to require the submission of one paper copy with a 
manual signature?
    2. What implications are there if the Commission requires SROs to 
file proposed rule filings through an electronic system?

K. Additional Ways To Streamline the Rule Filing Process

    The Commission is also considering issuing abbreviated approval 
orders for proposed rule changes filed under section 19(b)(2) if a 
proposal raises no significant issues and the Commission does not 
receive any comment letters. An abbreviated approval order would cite 
the relevant statutory provisions, but would not include a detailed 
analysis, as it does today. The Commission requests comment on whether 
abbreviated orders raise any policy concerns.

IV. Request for Comment

    Interested persons are invited to submit written data, views, and 
arguments concerning the proposed rulemaking. Persons making written 
submissions should file three copies thereof with Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609. Comments also may be submitted 
electronically at the following E-mail address: [email protected]. 
All submissions should refer to File No. S7-03-01, (this file number 
should be included on the subject line if E-mail is used), and should 
be submitted by April 6, 2001. Comment letters received will be 
available for public inspection and copying in the Commission's Public 
Reference Room. Electronically submitted comment letters will be posted 
on the Commission's Internet web site http://www.sec.gov.

V. Costs and Benefits of the Proposed Rulemaking

    The Commission is proposing to amend the requirements applicable to 
SRO filings of proposed rule changes with the Commission. Specifically, 
the Commission is proposing to issue a release relating to all proposed 
rule changes within 10 business days of receipt (or within such longer 
period as to which the SRO consents in writing) and allow the majority 
of trading rules to be effective upon filing. The Commission is 
considering the costs and benefits of proposed Rule 19b-6.

A. Benefits

    The Commission preliminarily believes that, by expediting the rule 
filing process, the proposed rule will reduce significantly the SROs' 
regulatory burden and help SROs maintain their competitive balance with 
other market centers. For example, Commission staff determined that for 
1999, it took the Commission approximately 101 days, on average (with a 
median of 67 days), to approve 95 rule filings submitted under section 
19(b)(2) that potentially could qualify for expedited treatment under 
the new rule.\75\
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    \75\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    Because, under the proposed rule, trading rules that otherwise 
would have been filed under section 19(b)(2) of the Act \76\ may become 
immediately effective under section 19(b)(3),\77\ the Commission 
believes that the proposed rule will foster innovation by allowing the 
SROs to more quickly adapt and meet the needs of market participants 
without waiting for Commission approval of their proposed rule changes. 
As a result, the Commission believes that the SROs may be able to more 
quickly implement new technology, which can enhance and improve trading 
efficiency. Improved trading efficiency could benefit investors (for 
example, by providing faster executions). In addition, the Commission 
believes that the ability of the SROs to more quickly adapt to changes 
could allow them to better compete in a global marketplace, especially 
because foreign markets may be subject to different regulations than 
U.S. markets. The Commission expects that the other changes proposed 
under Rule 19b-6, such as electronic filing and issuing a release 
relating to all proposed rule changes within 10 business days of 
receipt, will also expedite the processing of SRO proposed rule 
changes.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78s(b)(2).
    \77\ 15 U.S.C. 78s(b)(3).
---------------------------------------------------------------------------

B. Costs

    The Commission does not expect that the proposed rule will impose 
any additional costs on SROs, and may in fact reduce costs related to 
SRO rule changes. SROs are already obligated to submit proposed rule 
changes to the Commission and are further subject to potential 
abrogation of proposed rule changes submitted under section 
19(b)(3)(A).\78\ Proposed Rule 19b-6 is only intended to expedite the 
rule filing process. Further, the Commission expects that market 
participants will still be able to provide meaningful comment on 
proposed rule changes submitted by the SROs, because those filings will 
be published in the Federal Register.
---------------------------------------------------------------------------

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

C. Request for Comment

    To assist the Commission in its evaluation of the costs and 
benefits that may result from proposed Rule 19b-6, commenters are 
requested to provide analysis and data relating to the anticipated 
costs and benefits associated with the proposed rule. Specifically, the 
Commission requests commenters to address whether proposed Rule 19b-6 
would generate the anticipated benefits or impose any costs on U.S. 
investors or others.

VI. Consideration of the Burden on Competition, Promotion of 
Efficiency, and Capital Formation

    Section 23(a) of the Exchange Act \79\ requires the Commission, 
when promulgating rules under the Exchange Act, to consider the anti-
competitive effects of such rules, if any, and to balance any impact 
against the regulatory benefits gained in furtherance of the purposes 
of the Act. Section 3(f) of the Exchange Act \80\ requires the 
Commission, when engaged in rulemaking where it is required to 
consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \79\ 15 U.S.C. 78w(a)(2).
    \80\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The proposed rule is intended to expedite the review of SRO rules, 
and to allow SROs to more quickly introduce changes to their markets. 
The Commission is proposing to issue a release relating to the proposal 
within 10 business days of receipt (or within such longer period as to 
which the SRO consents in writing) and allow the majority of trading 
rules to be effective upon filing. This should help to foster 
innovation, increase competition, and thereby benefit investors. The 
Commission solicits comments on the impact of the proposed rule on 
competition, including competition between SROs, alternative trading 
systems, and other market participants. Finally, commenters should 
consider the proposed rule's effect on efficiency and capital 
formation.

[[Page 8919]]

VII. Initial Regulatory Flexibility Analysis

    Section 3(a) of the Regulatory Flexibility Act \81\ requires the 
Commission to undertake an initial regulatory flexibility analysis of 
the proposed rule 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.\82\ Rule 19b-6 and Form 19b-6 
apply only to SROs. Furthermore, the proposed amendments are intended 
to streamline a process to which these SROs already are subject. The 
Chairman has certified that the proposed amendments, if adopted, would 
not have a significant economic impact on a substantial number of small 
entities. A copy of the certification is attached as Appendix A to this 
document.
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    \81\ 5 U.S.C. 603(a).
    \82\ 5 U.S.C. 605(b).
---------------------------------------------------------------------------

VIII. Paper Work Reduction Act

    Certain provisions of the proposed rule and form contain 
``collection of information requirements'' within the meaning of the 
Paperwork Reduction Act of 1995.\83\ The Commission has submitted the 
collection to the Office of Management and Budget (``OMB'') in 
accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. The Commission is 
proposing to replace the current collection of information titled 
``Rule 19b-4 Under the Securities Exchange Act of 1934'' (OMB Control 
No. 3235-0045; SEC File No. 270-38) with a new information collection 
titled ``Rule 19b-6 Under the Securities Exchange Act of 1934.'' The 
Commission is also proposing to replace the current collection of 
information titled ``Form 19b-4 Under the Securities Exchange Act of 
1934'' (OMB Control No. 3235-0045; SEC File No. 270-38) with a new 
collection of information titled ``Form 19b-6 Under the Securities 
Exchange Act of 1934.'' 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.
---------------------------------------------------------------------------

    \83\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

A. Summary of Collection of Information

    Rule 19b-6 would require an SRO seeking Commission approval for a 
proposed rule change to provide the information stipulated in Form 19b-
6. Form 19b-6 calls for a description of: the terms of a proposed rule 
change; the proposed rule change's impact on various market segments; 
and the relationship between the proposed rule change and the SRO's 
existing rules. Form 19b-6 also calls for an accurate statement of the 
authority and statutory basis for, and purpose of, the proposed rule 
change; the proposal's impact on competition; and a summary of any 
written comments received from SRO members.

B. Proposed Use of Information

    The information obtained under Rule 19b-6 would be used by the 
Commission to review rule change proposals filed by SROs pursuant to 
section 19(b)(1) of the Act \84\ and to provide notice of the proposals 
to the general public. The Commission relies upon the information 
received in SRO rule change proposals, as well as public comment 
regarding the information, in reviewing and reaching decisions about 
any required action with respect to proposed rule changes.
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    \84\ 15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------

C. Respondents

    There are currently 24 SROs subject to the collection of 
information, though that number may vary owing to the consolidation of 
SROs or the introduction of new entities. In recent years, these 
respondents have each filed an average of 21 rule change proposals per 
year, for an average annual total of approximately 500 filings subject 
to the current collection of information.

D. Total Annual Reporting and Recordkeeping Burden

    Proposed Rule 19b-6 is designed to streamline the rule filing 
process. For example, Rule 19b-6 would permit SROs to electronically 
file their rule change proposals. In addition, Form 19b-6 has been 
designed to be simpler than Form 19b-4. The Commission predicts that a 
simplified form will reduce by two hours the amount of SRO clerical 
time required to prepare the average filing.
    A rule proposal is generally filed with the Commission after an 
SRO's staff has obtained approval by its board. Frequently, a 
substantial portion of the filing can be drawn from the materials 
prepared for the board's review. Therefore, the time required to 
complete a filing varies significantly and is difficult to separate 
from the time an SRO spends in developing internally the proposed rule 
change. However, several SROs have estimated at 35 hours the amount of 
time required to complete an average rule filing using present Form 
19b-4. This figure includes an estimated 25 hours of in-house legal 
work and 10 hours of clerical work.
    The Commission estimates at 33 hours the amount of time that would 
be required to complete an average rule filing using proposed Form 19b-
6. This figure reflects the two hours savings in clerical hours 
resulting from the use of a simpler form. Using the estimate of 33 
hours per rule filing under proposed Rule 19b-6, the total annual 
reporting burden under the new rule is 16,500 hours. This is based on 
an average of 500 rule change proposals received by the Commission each 
year, as noted in Subsection C, above. The Commission also estimates 
that an SRO will incur costs of $150.00 for overhead, including 
telephone charges, copying, and postage, for each proposed Form 19b-6 
that it submits.

E. Retention Period of Record Keeping Requirements

    The SROs would be required to retain records of the collection of 
information for a period of not less than five years, the first two 
years in an easily accessible place, according to the current 
recordkeeping requirements set forth in Rule 17a-1 under the Act.\85\
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    \85\ SROs may also destroy or otherwise dispose of such records 
at the end of five years according to Rule 17a-6 under the Act. 17 
CFR 240.17a-6.
---------------------------------------------------------------------------

F. Collection of Information Is Mandatory

    Any collection of information pursuant to proposed Rule 19b-6 and 
Form 19b-6 under the Act would be mandatory as a means for the 
Commission to review, and, as required, take action with respect to SRO 
rule change proposals.

G. Responses to Collection of Information Will Not Be Kept Confidential

    Other than information for which an SRO requests confidential 
treatment and which may be withheld from the public in accordance with 
the provisions of 5 U.S.C. 522, the collection of information pursuant 
to proposed Rule 19b-6 and Form 19b-6 under the Act would not be 
confidential and would be publicly available.\86\
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    \86\ A proposed rule change containing proprietary or otherwise 
sensitive information, such as details of an SRO's disaster 
operational back-up system, for example, would not be made public.
---------------------------------------------------------------------------

H. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), the Commission solicits 
comments to:
    (1) Evaluate whether the proposed collection of information is 
necessary for the performance of the functions of the agency, including 
whether the information shall have practical utility;

[[Page 8920]]

    (2) Evaluate the accuracy of the agency's estimate of the burden of 
the proposed collection of information;
    (3) Enhance the quality, utility and clarity of the information to 
be collected; and
    (4) Minimize the burden of collection of information on those who 
are to respond, including through the use of automated collection 
techniques or other forms of information technology.
    Persons wishing to submit comments on the collection of information 
requirements should direct them to the following persons: (1) Desk 
Officer for the Securities and Exchange Commission, Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Room 3208, New Executive Office Building, Washington, DC 20503; and (2) 
Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549-0609 with reference to File No. 
S7-03-01. OMB is required to make a decision concerning the collection 
of information between 30 and 60 days after publication, so a comment 
to OMB is best assured of having its full effect if OMB receives it 
within 30 days of publication. The Commission has submitted the 
proposed collection of information to OMB for approval. Requests for 
the materials submitted to OMB by the Commission with regard to this 
collection of information should be in writing, refer to File No. S7-
03-01, and be submitted to the Securities and Exchange Commission, 
Records Management, Office of Filings and Information Services, 450 
Fifth Street, NW., Washington, DC 20549.

IX. Statutory Basis and Text of Proposed Amendments

    The deletion of Rule 19b-4 and Form 19b-4 and the addition of Rule 
19b-6 and Form 19b-b under the Exchange Act is being proposed pursuant 
to 15 U.S.C. 78a et seq., particularly sections 3(a)(26), 3(a)(27), 
3(b), 6, 15A, 15B, 17A, 19(b), 23(a) and 36(a) of the Act.

List of Subjects in 17 CFR Parts 240 and 249

    Reporting and recordkeeping requirements, Securities.
    In accordance with the foregoing, Title 17, Chapter II of the Code 
of Federal Regulations is proposed to be amended as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    1. 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, 78f, 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 
and 80b-11, unless otherwise noted.
* * * * *
    2. Section 240.19b-4 is removed and reserved.
    3. Section 240.19b-6 is added to read as follows:


Sec. 240.19b-6  Filings with respect to proposed rule changes by self-
regulatory organizations.

    (a) Filings with respect to proposed rule changes by a self-
regulatory organization shall be made on Form 19b-6 (17 CFR 249.19b-6). 
The Commission shall issue a release relating to a proposed rule change 
filed pursuant to this section within 10 business days of filing with 
the Commission (or within such longer period as to which the self-
regulatory organization consents in writing).
    (b) 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 minor change, or a change substantially the same as 
the rule of another self-regulatory organization that has previously 
been filed and approved pursuant to section 19(b)(2) of the Act (15 
U.S.C. 78s(b)(2)), and:
    (i) Does not significantly affect the protection of investors or 
the public interest;
    (ii) Does not impose any significant burden on competition;
    (iii) Does not unfairly discriminate between customers, issuers, 
and brokers or dealers; and
    (iv) Does not relate to a trading rule; or
    (6) Establishing or changing a trading rule, other than a trading 
rule that would make fundamental structural changes to the market, and 
that significantly affects the protection of investors or the public 
interest or imposes a significant burden on competition; provided that 
the self-regulatory organization certifies that it has established 
procedures for the effective surveillance of activity conducted 
pursuant to, and for the enforcement of, such trading rule.
    (c) A stated policy, practice, or interpretation of the self-
regulatory organization shall be deemed to be a proposed rule change 
unless:
    (1) It is reasonably and fairly implied by an existing rule of the 
self-regulatory organization; or
    (2) It is concerned solely with the administration of the self-
regulatory organization and is not a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule of the self-regulatory organization.
    (d) Regardless of whether it is made generally available, an 
interpretation of an existing rule of a self-regulatory organization 
shall be deemed to be a proposed rule change if:
    (1) It is approved or ratified by the governing body of the self-
regulatory organization; and
    (2) It is not reasonably and fairly implied by that rule.
    (e) (1) The listing and trading of a new derivative securities 
product by a self-regulatory organization shall not be deemed a 
proposed rule change, pursuant to paragraph (c)(1) of this section, if 
the Commission has approved, pursuant to section 19(b)(2) of the Act 
(15 U.S.C. 78s(b)(2)), the self-regulatory organization's procedures 
and listing standards for the product class that would include the new 
derivative securities product, the self-regulatory organization's 
trading rules for the product class have been approved pursuant to 
section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2)) or have taken effect 
pursuant to section 19(b)(3)(A) of the Act (15 U.S.C. 78s(b)(3)(A)), 
and the self-regulatory organization has a surveillance program for the 
product class.
    (2) Self-regulatory organizations shall retain at their principal 
place of business a file, available to Commission staff for inspection, 
of all relevant records and information pertaining to each new 
derivative securities product traded pursuant to this paragraph (e) for 
a period of not less than five years, the

[[Page 8921]]

first two years in an easily accessible place, as prescribed in 
Sec. 240.17a-1.
    (3) When relying on this paragraph (e), a self-regulatory 
organization shall submit Form 19b-6(e) (17 CFR 249.19b-6(e)) to the 
Commission within five business days after commencement of trading a 
new derivative securities product.
    (f) (1) A proposed rule change shall not be deemed filed on the 
date it is received by the Commission unless:
    (i) A completed Form 19b-6 (cite) is submitted;
    (ii) In order to elicit meaningful comment, it is accompanied by:
    (A) A clear and accurate statement of the authority for, and basis 
and purpose of, such rule change, including the impact on competition, 
if any; and
    (B) A summary of any written comments received by the self-
regulatory organization on the proposed rule change;
    (iii) It is not inconsistent with the existing rules of the self-
regulatory organization, including any other rules proposed to be 
amended; and
    (iv) The chief executive officer, general counsel, or other officer 
or director of the self-regulatory organization that exercises similar 
authority, certifies the accuracy and completeness of the statements 
made on Form 19b-6 (17 CFR 249.19b-6).
    (2) Filing a material amendment to a proposed rule change shall be 
deemed to be a refiling of the rule change for purposes of the timing 
requirements of this section and section 19(b) of the Act (15 U.S.C. 
78s(b)).
    (g) For purposes of this section:
    (1) The term trading rule means a rule of a national securities 
exchange or a national securities association that governs the trading 
of securities on the exchange or association or through its facilities:
    (i) The term trading rule shall include rules governing member 
trading, such as rules governing: use of or access to an order entry, 
routing, or execution system; member proprietary trading; display of 
quotations; market maker activities; trading units; order types; odd 
lot differentials; priority of orders, bids, and offers (but not 
customer orders, including limit orders), fast markets; trading hours; 
comparison; clearance and settlement of transactions; disagreements on 
executions; obligations of specialists to maintain fair and orderly 
markets; special offerings; exchange distributions; closing contracts; 
authority and actions of order book officials; activities of floor 
brokers; and trading activities of specialists and lead market makers.
    (ii) The term trading rule shall not include rules governing member 
regulation, such as rules governing: transaction confirmations and 
account statements; member advertising, sales literature, and other 
customer communications; suitability and other sales practices; 
arbitration; disciplinary matters and sanctions; membership and 
eligibility requirements; financial responsibility (e.g., net capital 
and recordkeeping); margin and use of collateral; transaction 
reporting; discretionary handling of customer orders (including limit 
orders); position limits; market surveillance; listing standards; and 
self-regulatory organization corporate governance.
    (2) The term stated policy, practice, or interpretation means:
    (i) Any material aspect of the operation of the facilities of the 
self-regulatory organization; or
    (ii) Any statement made generally available to the membership of, 
to all participants in, or to persons having or seeking access 
(including, in the case of national securities exchanges or registered 
securities associations, through a member) to facilities of, the self-
regulatory organization (``specified persons''), or to a group or 
category of specified persons, that establishes or changes any 
standard, limit, or guideline with respect to:
    (A) The rights, obligations, or privileges of specified persons or, 
in the case of national securities exchanges or registered securities 
associations, persons associated with specified persons; or
    (B) The meaning, administration, or enforcement of an existing 
rule.
    (3) The term new derivative securities product means any type of 
option, warrant, hybrid securities product or any other security whose 
value is based, in whole or in part, upon the performance of, or 
interest in, an underlying instrument.
    (h) Where a proposed rule change becomes effective pursuant to 
paragraph (b) of this section, no inference may be made regarding 
whether the proposed rule change is in the public interest, including 
whether it has an impact on competition.
    (i) After instituting a proceeding to determine whether a proposed 
rule change should be disapproved, the Commission will afford the self-
regulatory organization and interested persons an opportunity to submit 
additional written data, views, and arguments and may afford, in the 
discretion of the Commission, an opportunity to make oral 
presentations.
    (j) Notice of orders issued pursuant to Section 19(b)(2) of the Act 
(15 U.S.C. 78s(b)(2)) will be given by prompt publication thereof, 
together with a statement of written reasons therefore. The Commission 
will promptly notify each self-regulatory organization upon issuing an 
order, pursuant to Section 19(b)(2) of the Act (15 U.S.C. 78s(b)(2), 
approving a proposed rule change by that self-regulatory organization.
    (k) Self-regulatory organizations shall retain at their principal 
place of business a file, available to all interested persons for 
public inspection and copying, of all filings made pursuant to this 
section and all correspondence and other communications reduced to 
writing (including comment letters) to and from such self-regulatory 
organization concerning any such filing, whether such correspondence 
and communications are received or prepared before or after the filing 
of the proposed rule change.
    (l) A proposed rule change by a self-regulatory organization may be 
filed electronically with the Commission, in a format acceptable to the 
Commission, provided that the self-regulatory organization promptly 
thereafter files with the Commission nine paper copies, one of which is 
manually signed.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

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

    Authority: 15 U.S.C. 78a, et seq., unless otherwise noted.
* * * * *
    5. Section 249.818 and Form 19b-6 are added to read as follows:

    [Note:
     Form 19b-6 is attached as Appendix B to this document.]

Sec. 249.818  Form 19b-6, for filings with respect to proposed rule 
changes by all self-regulatory organizations.

    This form shall be used by all self-regulatory organizations, as 
defined in section 3(a)(26) of the Securities Exchange Act of 1934, to 
file proposed rule changes with the Commission pursuant to section 
19(b) of that Act and Rule 19b-6 thereunder.
    6. Section 249.819 and Form 19b-4 are removed and reserved.
    7. Section 249.820 is amended by revising all references to ``19b-
4(e)'' to read ``19b-6(e)''.
    8. Form 19b-4(e) (referenced in Sec. 249.820) is amended by 
revising all references to ``19b-4'' to read ``19b-6'' and all 
references to ``19b-4(e)'' to read ``19b-6(e)''.
    This form shall be used by all self-regulatory organizations, as 
defined in section 3(a)(26) of the Securities Exchange Act of 1934, to 
file proposed

[[Page 8922]]

rule changes with the Commission pursuant to section 19(b) of that Act 
and Rule 19b-6 thereunder.

    Dated: January 19, 2001.

    By the Commission.
Jonathan G. Katz,
Secretary.

    [Note: Appendix A and Appendix B to the Preamble Will Not Appear 
in the Code of Federal Regulations.]


Appendix A--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 Rule 
19b-6 and Form 19b-6 under the Securities Exchange Act of 1934, 17 
CFR 240.19b-6, which would streamline the self-regulatory 
organization (``SRO'') rule filing process would not have a 
significant economic impact on a substantial number of small 
entities. Rule 19b-6 and Form 19b-6 apply only to SROs, none of 
which are small entities. Furthermore, proposed Rule 19b-6 and Form 
19b-6 are intended to streamline a process to which SROs already are 
subject. Accordingly, the proposed rule and form, if adopted, would 
not have a significant impact on a substantial number of small 
entities.

    Dated: January 19, 2001.
Arthur Levitt,
Chairman.

Appendix B--Form 19b-6

OMB APPROVAL

OMB Number: XXXX
Expires: XX-XX-XX
Estimated average burden hours per
response: XX

File No. SR------------------------------------------------------------
Amendment No.----------------------------------------------------------
(If Applicable)*

Securities and Exchange Commission, Washington, DC 20549-1001, Form 
19b-6, Proposed Rule Change by:
----------------------------------------------------------------------
(Exact Name of Self-regulatory Organization)*

    Pursuant to Rule 19b-6 under the Securities Exchange Act of 
1934.
    *(Do not include parenthetical material in completed form).

General Instructions

A. When Should This Form Be Used?

    This Form 19b-6 must be used for filings of proposed rule 
changes by all self-regulatory organizations pursuant to Section 
19(b) of the Securities Exchange Act of 1934 (``Act''). National 
securities exchanges, registered securities associations, registered 
clearing agencies, and the Municipal Securities Rulemaking Board are 
self-regulatory organizations for purposes of this Form 19b-6.

B. Terms

    Unless the context clearly indicates otherwise, terms used in 
this Form 19b-6 have the meaning ascribed to them in the Act, as 
amended, and Rule 19b-6 thereunder.

C. Format Requirements

    The Notice section of this Form 19b-6 must comply with the 
guidelines for publication in the Federal Register as well as any 
requirements for electronic filing as published by the Commission 
(if applicable). The Office of the Federal Register (OFR) [http://www.nara.gov/fedreg] offers guidance on Federal Register publication 
requirements in the Federal Register Document Drafting Handbook, 
October 1998 Revision. For example, all references to the federal 
securities laws must include the corresponding cite to the United 
States Code in a footnote. All references to Commission rules must 
include the corresponding cite to the Code of Federal Regulations in 
a footnote. All references to Securities Exchange Act Releases must 
include the release number, release date, Federal Register cite, 
Federal Register date, and corresponding file number (e.g., SR-
[SRO]-xx-xx). Failure to provide this information will result in the 
proposed rule change being deemed not properly filed. In addition, 
the OFR's Drafting Legal Documents is a general style guide to clear 
and concise legal writing.

D. When Is a Proposed Rule Change Considered Filed?

    To be considered filed, an SRO must include with its proposed 
rule change: a completed Form 19b-6 that includes the cover sheet, 
Notice, Certification, and applicable Exhibits. The proposed rule 
change will be considered filed on the date that the Commission 
receives it if the filing complies with all requirements of this 
Form 19b-6 and the requirements of Rule 19b-6. Any filing that does 
not comply with all of the requirements of this Form 19b-6 will not 
be considered filed with the Commission and will be returned to the 
self-regulatory organization.
    The self-regulatory organization must provide all required 
information, presented in a clear and comprehensible manner, to 
enable the public to provide meaningful comment on the proposal and 
for the Commission to determine whether the proposal is consistent 
with the Act and applicable rules and regulations under the Act. It 
is the responsibility of the self-regulatory organization to prepare 
Items I and II of the Notice.

E. What Other Information Must an SRO Include When Filing a 
Proposed Rule Change?

Exhibit 1

    (i) Copies of all notices issued by the self-regulatory 
organization soliciting comment on the proposed rule change.
    (ii) Copies of all written comments on the proposed rule change 
received by the self-regulatory organization, even if the self-
regulatory organization did not solicit comments. All comments 
should be presented in alphabetical order, together with an 
alphabetical listing of the commenters.
    (iii) Any transcript of comments on the proposed rule change 
made at any public meeting or, if a transcript is not available, a 
summary of comments on the proposed rule change made at any meeting.
    (iv) Any correspondence or other communications reduced to 
writing (including comment letters and e-mails) concerning the 
proposed rule change prepared or received by the self-regulatory 
organization.
    (v) If after the proposed rule change is filed but before the 
Commission takes final action on it, the self-regulatory 
organization prepares or receives any correspondence or other 
communications reduced to writing (including comment letters) 
concerning the proposed rule change, copies of the communications 
must be filed as previously instructed.
    Exhibit 2: Copies of any form, report, or questionnaire that the 
self-regulatory organization proposes to use to help implement or 
operate the proposed rule change, or that is referred to by the 
proposed rule change.
    Exhibit 3: Copies of any systems change notifications in 
accordance with the Commission's Automation Review Policy 
statements. See Securities Exchange Act Release Nos. 27445 (November 
16, 1989) [54 FR 48703] and 29185 (May 9, 1991) [56 FR 22490].

F. What To Do if There Is an Amendment to the Proposed Rule Change

    If information on the Form 19b-6, the Certification, the Notice, 
or any applicable Exhibit is or becomes inaccurate or incomplete 
before the Commission takes action on the proposed rule change, the 
self-regulatory organization must file correcting amendments. Nine 
copies of amendments, including one manually signed copy, must be 
provided. Self-regulatory organizations may file amendments 
electronically in accordance with Commission instructions.
    If an amendment alters the text of the proposed rule change as 
it appeared prior to the amendment, the amendment must mark the 
text, in any convenient manner, to indicate additions to and 
deletions from the immediately preceding filing. The purpose of this 
requirement is to permit the staff to immediately identify any 
changes made to the previous version of the rule text.

G. Where and How To File

    Nine copies of Form 19b-6 and all applicable exhibits must be 
filed with the Office of Market Supervision, Division of Market 
Regulation, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington DC 20549-1001. The chief executive officer, general 
counsel, or other officer or director of the self-regulatory 
organization that exercises similar authority must manually sign at 
least one copy of the completed Form 19b-6. The Form 19b-6 also may 
be filed electronically with the Commission in compliance with such 
guidelines as may be published by the Commission from time to time. 
Please note that any information filed by the SRO requesting 
confidential treatment must be filed on paper with the Commission.
    A registered clearing agency for which the Commission is not the 
appropriate regulatory agency must also file with its appropriate

[[Page 8923]]

regulatory agency three copies of the Form 19b-6, one of which shall 
be manually signed, including exhibits. The Municipal Securities 
Rulemaking Board must also file copies of the Form 19b-6, including 
exhibits, with the Board of Governors of the Federal Reserve System, 
the Comptroller of the Currency, and the Federal Deposit Insurance 
Corporation.

Form 19b-6 Certification

    The chief executive officer, general counsel, or other officer 
or director of the self-regulatory organization that exercises 
similar authority must review the Form 19b-6 (including the Notice 
and all required exhibits (See General Instructions)), complete the 
following certification, and sign the certification statement set 
forth below. The filing will not be considered filed with the 
Commission if the relevant items are not complete. This 
certification incorporates all statements made in the Notice.
    Contact Information: Provide the name(s), telephone number(s) 
and e-mail address(es) of the person(s) on the staff of the self-
regulatory organization prepared to respond to questions and 
comments on the proposed rule change:

Name(s):---------------------------------------------------------------
Telephone number(s):---------------------------------------------------
E-mail address(es):----------------------------------------------------

    The filing is being submitted pursuant to the following section 
of the Securities Exchange Act of 1934 (``Act'') (check box(es)).

{time}  Section 19(b)(2)
{time}  Section 19(b)(3)(A)
{time}  Section 19(b)(3)(B)
{time}  19b-6(b)(5) Rule Filing
    If the proposed rule change is effecting a minor change, or a 
change substantially the same as the rule of another self-regulatory 
organization that has previously been filed and approved, identify 
the rule and explain any differences between the proposed rule 
change and that rule. For the latter, give particular attention to 
differences between the conduct required to comply with the proposed 
rule change and that required to comply with the previously approved 
rule.

{time}  Request for Accelerated Effectiveness
    If the SRO is requesting accelerated effectiveness pursuant to 
Section 19(b)(2), provide a statement explaining why the self-
regulatory organization believes there is good cause for the 
Commission to accelerate effectiveness.

----------------------------------------------------------------------
I, [name, title, self-regulatory organization] certify that (please 
check all applicable items below):

{time}  The filing provides an accurate statement of the authority 
and statutory basis for the proposed rule change.
{time}  The filing does not violate, and is fully consistent with, 
the federal securities laws, including appropriate rules and 
regulations.
{time}  The filing is submitted under the appropriate subsection of 
Section 19(b) and Rule 19b-6(b) as set forth in the Notice.
{time}  The Board of Directors or other governing authority of the 
self-regulatory organization required under its constitution, 
articles of incorporation, bylaws, rules, or corresponding 
instruments has approved the proposed rule change.
{time}  The Notice provides a clear and accurate statement of the 
proposed rule change's impact on competition, including whether the 
proposed rule change would impose any burden on competition not 
necessary or appropriate in furtherance of the purposes of the Act.
{time}  The Notice describes thoroughly the impact of the proposed 
rule change on various segments of the self-regulatory organization, 
including members, member constituencies, and non-members.
{time}  The proposed rule change is not inconsistent with the 
existing rules of the self-regulatory organization, and the Notice 
describes how the proposed rule change relates to these rules.
{time}  If applicable, the Notice contains an accurate summary of 
all comments received (solicited or unsolicited).
{time}  The Notice contains the text of the proposed rule change, in 
the appropriate format required by the Commission.
{time}  If the rule change is filed pursuant to Section 19(b)(3)(A) 
of the Act, appropriate procedures are in place for the effective 
surveillance of activity conducted pursuant to, and enforcement of, 
the proposed rule.
{time}  If a proposed rule change to a trading rule is filed 
pursuant to Section 19(b)(3)(A) of the Act, the issuer is prepared 
to cease applying the proposed trading rule promptly upon Commission 
abrogation of the proposed rule change, and will not continue to 
implement the rule unless and until it is approved by the Commission 
pursuant to Section 19(b)(2) of the Exchange Act.
{time}  If applicable, the issuer has agreed to issue the proposed 
new derivative products, and that issuer has agreed to file under 
Section 19(b) any required rule changes and submit any necessary 
documents to comply with the federal securities laws.
{time}  The Notice is in the format required for publication by the 
Federal Register.
{time}  The Notice identifies prior Commission orders or releases 
impacting the proposed rule change.
    I understand that all statements made in the Notice are 
incorporated by reference into this Certification as representations 
of [name of self-regulatory organization] to the Commission. In 
addition, I have reviewed this Form 19b-6 Certification, the Notice, 
and any other applicable exhibits, and certify that they are 
accurate, complete, and consistent with the federal securities laws 
and other rules of [name of the self-regulatory organization].

Signature:-------------------------------------------------------------
Date:------------------------------------------------------------------
(Signature of chief executive officer, general counsel, other 
officer or director) \1\
---------------------------------------------------------------------------

    \1\ Print name and title.
---------------------------------------------------------------------------

Form 19b-6 Notice

Securities and Exchange Commisison
(Release No. 34-......; File No. SR-....)

Self-Regulatory Organization; [Notice of Filing of a] [Notice of Filing 
and Immediate Effectiveness of a] Proposed Rule Change by [Name of 
Self-Regulatory Organization] Relating to [brief description of 
proposed rule change]

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934 (``Act''), 15 U.S.C. 78s(b)(1),\1\ and Rule 19b-6 under the 
Act, 17 CFR 240.19b-6, notice is hereby given that on [date \2\], 
the [name of self-regulatory organization] filed with the Securities 
and Exchange Commission (``Commission'') the proposed rule change 
described in Items I and II below. The Commission is publishing this 
notice to solicit comments on the proposed rule change from 
interested persons.
---------------------------------------------------------------------------

    \1\ All cites should be in footnotes.
    \2\ To be completed by the Commission. This date will be the 
date on which the Commission receives the proposed rule change 
filing if the filing complies with all requirements of this Form 
19b-6. See General Instructions.
---------------------------------------------------------------------------

    Section 19(b)(3)(A) Filings. If the proposed rule change is to 
take effect pursuant to Section 19(b)(3)(A) and Rule 19b-6(b), the 
following sentence, with appropriate footnote citation, should be 
included in the first paragraph:

      [self-regulatory organization] filed the proposal pursuant to 
Section 19(b)(3)(A) of the Act,\3\ and Rule 19b-6(b) [applicable 
section] thereunder,\4\ which renders the proposal effective upon 
filing with the Commission.
---------------------------------------------------------------------------

    \3\ 15 U.S.C. 78s(b)(3)(A).
    \4\ Include cite.
---------------------------------------------------------------------------

    For proposed rule changes filed pursuant to Section 
19(b)(3)(A)(ii) and Rule 19b-6(b)(2), the sentence should read:

    [self-regulatory organization] has designated this proposal as 
one establishing or changing a due, fee, or other charge imposed by 
[self-regulatory organization] under Section 19(b)(3)(A)(ii) of the 
Act,\5\ and Rule 19b-6 (b)(2)\6\ thereunder, which renders the 
proposal effective upon filing with the Commission.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(3)(A)(ii).
    \6\ 17 CFR 240.19b-6(b)(2).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    The [name of self-regulatory organization] has prepared 
statements concerning the purpose of, and basis for, the proposed 
rule change, burdens on competition, and comments received from 
members, participants, and others. These statements are set forth in 
Sections A, B, and C below. Section D below sets forth the text of 
the proposed rule change.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose

    Provide a statement of the purpose of the proposed rule. The 
statement must:
     Describe the text of the proposed rule change in a 
sufficiently detailed and specific manner as to support a finding 
under Section

[[Page 8924]]

19(b) of the Act that the proposed rule change is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to the self-regulatory organization;
     Describe the reasons for adopting the proposed rule 
change, any problems the proposed rule change is intended to 
address, the manner in which the proposed rule change will resolve 
those problems, the manner in which the proposed rule change will 
affect various persons (e.g., brokers, dealers, issuers, and 
investors), and any significant problems known to the self-
regulatory organization that persons affected are likely to have in 
complying with the proposed rule change;
     Describe how the proposed rule change relates to 
existing rules of the self-regulatory organization;
     Describe how the proposed rule change relates to any 
applicable provisions of the federal securities laws and the rules 
and regulations thereunder;
     Identify rules of the self-regulatory organization and 
provisions of the federal securities laws that the self-regulatory 
organization reasonably expects the proposed rule change to affect 
and describe the anticipated effect of the proposed rule change on 
each applicable provision of the federal securities laws and 
applicable rules of the self-regulatory organization;
     Set forth the file numbers, release numbers, the 
Federal Register cites and other identifying information for prior 
filings relating to the affected rule and disclose any prior 
Commission order or release impacting the proposed rule change; and
     In the case of a registered clearing agency, also 
explain how the proposed rule change will be implemented 
consistently with the safeguarding of securities and funds in its 
custody or control or for which is it is responsible.

2. Statutory Basis

    Provide a statement of the proposed rule change's basis under 
the Act and the rules and regulations under the Act applicable to 
the self-regulatory organization. This statement must:
     Explain why the proposed rule change is consistent with 
the requirements of the Act and the rules and regulations under the 
Act applicable to the self-regulatory organization;
     Reference and cite the specific section(s) of the Act 
and the rules; and
     Respond specifically to all significant arguments, 
raised by commenters or known to the self-regulatory organization, 
that the proposed rule change is inconsistent with those 
requirements.

B. Self-Regulatory Organization's Statement on Burden on 
Competition

    The information required by this section must be sufficiently 
detailed and specific to support the premise that the proposed rule 
change does not impose any unnecessary or inappropriate burden on 
competition. In responding to this section, the self-regulatory 
organization must:
     State whether the proposed rule change will impose or 
relieve any burden on, or promote, competition;
     Specify the particular categories of persons and kinds 
of businesses that will be burdened and the ways in which the 
proposed rule change will affect them;
     Set forth and respond in detail to written comments 
addressing significant impacts or burdens on competition; and
     Explain why any burden on competition is necessary or 
appropriate in furtherance of the purposes of the Act; or, if the 
self-regulatory organization does not believe that the burden on 
competition is significant, explain why.

C. Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received From Members, Participants, or Others

    State whether or not comments were solicited or received. 
Summarize all comments received (solicited or unsolicited) and 
respond in detail to any significant issues raised about the 
proposed rule change.
    If an issue is summarized and responded to in detail elsewhere 
in this notice, that response need not be duplicated if an 
appropriate cross-reference is made to the place where the response 
can be found.

D. Text of the Proposed Rule Change

    Insert text of the proposed rule change, with deletions in 
brackets and additions underlined. If the self-regulatory 
organization is amending only part of the text of a lengthy rule, it 
may file only those portions of the text being amended if the filing 
is clearly understandable on its face.

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

    Section 19(b)(2) Rule Filing: If the proposed rule change is to 
be considered by the Commission pursuant to section 19(b)(2), the 
following paragraph should be used:
    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission 
may designate up to 90 days of publication if it finds a longer 
period to be appropriate and publishes its reasons for the finding 
or (ii) as to which the self-regulatory organization consents, the 
Commission will:
    A. By order approve the proposed rule change or
    B. Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    Section 19(b)(3)(A) Filing. If the proposed rule change is to 
take, or to be put into, effect pursuant to section 19(b)(3)(A) and 
Rule 19b-6(b), the following paragraph should be used:
    The foregoing rule change has become effective pursuant to 
section 19(b)(3)(A)(insert appropriate subparagraph) of the Act and 
Rule 19b-6(b)[insert appropriate subparagraph] under the Act. At any 
time within 60 days of the date of the filing of the proposed rule 
change, the Commission may summarily abrogate the rule change if the 
Commission believes that abrogation is necessary or appropriate in 
the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. The Commission shall make 
no determination of a proposed rule change's impact on competition, 
efficiency, or capital formation for purposes of section 3(f) of the 
Act (15 U.S.C. 78c(f)) where the proposed rule change takes effect 
upon filing pursuant to paragraph (b) of Rule 19b-6 under the Act, 
and no inference of such a finding shall be made therefrom.
    In addition, the self-regulatory organization must designate 
whether the proposed rule change:
    (i) Is a stated policy, practice, or interpretation with respect 
to the meaning, administration, or enforcement of an existing rule;
    (ii) Establishes or changes a due, fee, or other charge;
    (iii) Is concerned solely with administration of the self-
regulatory organization;
    (iv) Effects a change in an existing service of a registered 
clearing agency that (A) 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 (B) does not 
significantly affect the respective rights or obligations of the 
clearing agency or persons using the service;
    (v) Effects a minor change, or a change substantially the same 
as the rule of another self-regulatory organization that has 
previously been filed and approved pursuant to section 19(b)(2) of 
the Act, and (A) does not significantly affect the protection of 
investors or the public interest; (B) does not impose any 
significant burden on competition; (C) does not unfairly 
discriminate between customers, issuers, and brokers or dealers; and 
(D) does not relate to a trading rule; or
    (vi) Establishes or changes a trading rule, other than a trading 
rule that would make fundamental structural changes to the market, 
and that significantly affects the protection of investors or the 
public interest or imposes a significant burden on competition; 
provided that the self-regulatory organization certifies that it has 
established procedures for the effective surveillance of activity 
conducted pursuant to, and for enforcement of, such trading rule.
    Section 19(b)(3)(B) Filing. If the proposed rule change is to 
take, or to be put into, effect pursuant to section 19(b)(3)(B) and 
Rule 19b-6(b), the following paragraph should be used:
    The foregoing rule change has become effective pursuant to 
section 19(b)(3)(B) of the Act. At any time within 60 days of the 
filing of the proposed rule change, the Commission may summarily 
abrogate the rule change if the Commission believes that abrogation 
is necessary or appropriate in the public interest, for the 
protection of investors, or otherwise in furtherance of the purposes 
of the Act.
    In addition, the self-regulatory organization must set forth the 
basis upon which the Commission should, in the view of the self-
regulatory organization, determine that the protection of investors, 
the maintenance of fair and orderly markets, or the safeguarding of 
securities and funds requires the proposed rule change to be put 
into effect summarily by the Commission.

    Note: The Commission has the power under section 19(b)(3) of the 
Act to abrogate summarily within 60 days of its filing any proposed 
rule change that has taken effect

[[Page 8925]]

upon filing pursuant to section 19(b)(3)(A) of the Act or was put 
into effect summarily by the Commission pursuant to section 
19(b)(3)(B) of the Act. In exercising its summary power under 
section 19(b)(3)(B), the Commission is required to make one of the 
findings described above but may not have a full opportunity to make 
a determination that the proposed rule change otherwise is 
consistent with the requirements of the Act and the rule and 
regulations thereunder. The Commission will generally exercise its 
summary power under section 19(b)(3)(B) only if the proposed rule 
change is promptly filed for consideration under section 19(b)(2) of 
the Act. A summary order under section 19(b)(3)(B) will be effective 
only until the Commission (i) approves the proposed rule change 
pursuant to section 19(b)(2) of the Act, (ii) institutes proceedings 
pursuant to section 19(b)(2)(B) of the Act to determine whether to 
disapprove the proposed rule change, or (iii) disapproves the 
proposed rule change pursuant to section 19(b)(2)(B) of the Act.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed 
rule change is consistent with the Act. Persons making written 
submissions should file nine copies of the submission with the 
Secretary, Securities and Exhange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-1001. Comments also may be submitted 
electronically to the following e-mail address: [email protected]. Copies of the submission, all subsequent 
amendments, all written statements with respect to the proposed rule 
change that are filed with the Commission, and all written 
communications relating to the proposed rule change between the 
Commission and any person, other than those that may be withheld 
from the public in accordance with the provisions of 5 U.S.C. 552, 
will be available for inspection and copying in the Commission's 
Public Reference Room. Copies of these filings will also be 
available for inspection and copying at the principal office of the 
[name of self-regulatory organization]. Electronically submitted 
comments will be posted on the Commission's Internet website (http://www.sec.gov). All submissions should refer to File No. [insert file 
number] and should be submitted by February 26, 2001.
    This Notice was prepared by the [insert name of self-regulatory 
organization.] The Commission has not reviewed the substance of the 
proposed rule change prior to publication.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority (17 CFR 200.30-3(a)(12)).
[Insert name of Secretary],
Secretary.

[FR Doc. 01-2731 Filed 2-2-01; 8:45 am]
BILLING CODE 8010-01-U