[Federal Register Volume 69, Number 65 (Monday, April 5, 2004)]
[Proposed Rules]
[Pages 17864-17879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-7538]



[[Page 17863]]

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

Part V





Securities and Exchange Commission





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



17 CFR Parts 232, 240, and 249



Proposed Rule Changes of Self-Regulatory Organizations; Proposed Rule

  Federal Register / Vol. 69, No. 65 / Monday, April 5, 2004 / Proposed 
Rules  

[[Page 17864]]


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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 232, 240, and 249

[Release No. 34-49505; File No. S7-18-04]
RIN 3235-AJ20


Proposed Rule Changes of Self-Regulatory Organizations

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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

SUMMARY: The Securities and Exchange Commission (``Commission'') is 
proposing to amend certain requirements relating to rule changes 
proposed by self-regulatory organizations (``SROs''). Specifically, SRO 
proposed rule changes would be required to be filed electronically with 
the Commission, rather than in paper form. In addition, the Commission 
is proposing to require SROs to post all proposed rule changes, as well 
as current and complete sets of their rules, on their websites. The 
Commission is also proposing to make certain technical amendments to 
the requirements for SRO rule changes under the Securities Exchange Act 
of 1934 (``Act''). Together, the proposed amendments are designed to 
modernize the SRO rule filing process by making it more efficient and 
cost effective. The proposed amendments also should improve the 
transparency of the rule filing process and assure that all SRO members 
and other interested persons have ready access to an accurate, up-to-
date version of SRO rules.

DATES: Comments should be submitted on or before June 4, 2004.

ADDRESSES: Comments may be submitted electronically or by paper. 
Electronic comments may be submitted by: (1) Electronic form on the SEC 
website (http://www.sec.gov) or (2) e-mail to [email protected]. 
Mail paper comments in triplicate to Jonathan G. Katz, Secretary, 
Securities and Exchange Commission, 450 Fifth Street NW., Washington, 
DC 20549-0609. All submissions should refer to file number S7-18-04; 
this file number should be included on the subject line if e-mail is 
used. To help us process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet website (http://www.sec.gov). Comments are 
also available for public inspection and copying in the Commission's 
Public Reference Room, 450 Fifth Street NW., Washington, DC 20549. We 
do not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly.

FOR FURTHER INFORMATION CONTACT: Florence Harmon, Senior Special 
Counsel, at (202) 942-0773; Elizabeth Badawy, Accountant, at (202) 942-
0740; Joseph Morra, Special Counsel, at (202) 942-0781; Sonia Trocchio, 
Special Counsel, at (202) 942-0753; Cyndi N. Rodriguez, Special 
Counsel, at (202) 942-4163; Michael L. Milone, Special Counsel, at 
(202) 942-0179 (clearance and settlement SROs), Timothy Fox, Attorney, 
at (202) 942-0146, Division of Market Regulation, Securities and 
Exchange Commission, 450 Fifth Street NW., Washington, DC 20549-1001.

SUPPLEMENTARY INFORMATION: 

I. Introduction

    Under Section 19(b) of the Act, SROs generally must file proposed 
rule changes with the Commission for notice, public comment, and 
Commission approval, prior to implementation.\1\ This requirement helps 
assure, through Commission review and the public comment process, that 
SROs' rules are consistent with the purposes of the Act.
---------------------------------------------------------------------------

    \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''). Currently, there are 27 SROs that file 
proposed rule changes with the Commission. Section 107 of the 
Sarbanes-Oxley Act of 2002 provides that the Public Company 
Accounting Oversight Board (``PCAOB'') shall file proposed rule 
changes with the Commission ``as if the Board were a registered 
securities association for purposes of that section 19(b) * * *.'' 
15 U.S.C. 7217(b)(4). Because PCAOB rule filings are not tracked by 
the SRO Rule Tracking System (``SRTS''), the Division of Market 
Regulation's (``Division'') internal tracking database for rule 
filings, the Commission is not requiring, at this time, the PCAOB to 
file electronically its proposed rules. Further, as the proposal for 
web posting of proposed and final SRO rules is designed to make the 
SRO rule filings in the SRTS accessible to the public in a uniform 
manner, the Commission does not intend for these proposed amendments 
to apply to the PCAOB.
---------------------------------------------------------------------------

    The Commission is proposing changes to the rule filing process that 
should make it more efficient and transparent and reduce costs for the 
SROs and the public. First, the Commission would require SROs to file 
their proposed rule changes with the Commission electronically, rather 
than in paper format. By amending Rule 19b-4 and Form 19b-4 to require 
electronic filing, the rule filing process would be initiated more 
quickly and economically, to the benefit of both the Commission and the 
SROs, as well as SRO members, investors, and other interested persons. 
In addition, the proposed amendments should permit the Commission to 
monitor and process proposed SRO rule changes more efficiently and 
effectively. Second, the Commission would mandate that SROs promptly 
post on their websites a copy of all proposed rule changes filed with 
the Commission. Website posting of SRO proposed rule changes should 
facilitate the ability of interested persons to comment on the 
proposals and save resources currently used to monitor the Commission's 
Public Reference Room for proposed rule changes. The Commission is also 
proposing that SROs maintain a current and complete version of their 
rules on their websites. Current practices in this area vary 
considerably among SROs, often resulting in confusion by SRO members, 
others seeking to comply with SRO rules, and other interested parties. 
Finally, the Commission is proposing to make certain technical 
amendments to clarify Rule 19b-4 and to reflect practice.

II. Background

    Section 19(b)(1) of the Act \2\ requires each SRO to file with the 
Commission its proposed rule changes,\3\ accompanied by a concise 
general statement of the basis for, and purpose of, the proposed rule 
change.\4\ 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 it is otherwise permitted to become 
effective under Section 19(b)(3)(A) or Section 19(b)(7) of the Act.\5\
---------------------------------------------------------------------------

    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 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.'' See 15 U.S.C. 78s(b)(1).
    \4\ Many proposed rule changes are filed pursuant to Section 
19(b)(1) of the Act for a 21-day notice and comment period. 15 
U.S.C. 78s(b)(1). The Act requires the Commission, within 35 days of 
publication, to either issue an order approving a proposed rule 
change or to institute a proceeding to determine whether a proposed 
rule change should be disapproved. The Commission may extend this 
35-day period up to 90 days if it publishes its findings for doing 
so. 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. 15 U.S.C. 78s(b)(2).
    Section 19(b)(3)(A) of the Act and Section 19(b)(7) of the Act 
provide that, in certain circumstances, a proposed rule change may 
become effective without the approval procedures specified in 
Section 19(b)(2) of the Act. 15 U.S.C. 78s(b)(3)(A); 15 U.S.C. 
78s(b)(7); 15 U.S.C. 78s(b)(2).
    \5\ 15 U.S.C. 78s(b)(3)(A); 15 U.S.C. 78s(b)(7).

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

[[Page 17865]]

    The SRO rule filing process under the Act serves several important 
policy goals. First, the notice and comment requirement helps assure 
that interested persons have an opportunity to provide input into SRO 
actions that could have a significant impact on the market, market 
participants--both professionals and individual investors--and 
others.\6\ Second, the rule filing process allows the Commission to 
review proposed rule changes to determine whether they are consistent 
with the Act, including the national market system goals of fair 
competition, price transparency, best execution, and investor 
protection. Finally, the rule filing process helps assure that SRO 
members, among others, are treated fairly in accordance with the Act, 
such that there is fair representation of members in the selection of 
the SRO's directors and the administration of its affairs, the 
equitable allocation of reasonable dues, fees, and other charges, and 
the appropriate and fair discipline of members.
---------------------------------------------------------------------------

    \6\ 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.
---------------------------------------------------------------------------

III. Proposed Amendments

A. Electronic Filing

    The Commission proposes to modernize the rule filing process by 
requiring SROs to file proposed rule changes electronically with the 
Commission through a web-based system.\7\ To implement electronic web-
based filing of proposed SRO rule changes, the Commission would amend 
Rule 19b-4 and Form 19b-4 to require that all Forms 19b-4, and any 
amendments thereto, be submitted electronically to the Commission in 
accordance with the procedures, and in the format, specified therein. 
Each SRO would have access to a secure website that would enable 
authorized individuals at the SRO to file with the Commission an 
electronic Form 19b-4 on behalf of the SRO.\8\ The current requirement 
in Form 19b-4 that SROs submit multiple, paper copies of proposed rule 
changes would be eliminated. Under the proposed amendments, a proposed 
rule change would be deemed filed with the Commission on the business 
day that it is submitted electronically, so long as the Commission 
receives it on or before 5:30 p.m., Eastern Standard Time or Eastern 
Daylight Savings Time, and it is filed in accordance with the 
requirements of Rule 19b-4 and Form 19b-4, as amended.
---------------------------------------------------------------------------

    \7\ The Commission previously proposed electronic filing of SRO 
proposed rule changes in the Rule 19b-6 proposal. See Securities 
Exchange Act Release No. 43860 (January 19, 2001), 66 FR 8912 
(February 5, 2001). The Commission has not taken action on this 
proposal.
    \8\ The SRO would determine which individuals would be supplied 
with User IDs and passwords to access the secure website. See infra 
Note 13.
---------------------------------------------------------------------------

    Occasionally, an SRO may find it necessary to file documents that 
cannot be submitted in electronic format, such as pre-filing comment 
letters from SRO members or other exhibits. In addition, it may not be 
appropriate to require proprietary and other information subject to a 
request for confidential treatment to be filed electronically.\9\ 
Accordingly, the proposed amendments to Rule 19b-4 and Form 19b-4 
retain the flexibility to permit portions of a rule filing to be made 
in paper form under limited circumstances.
---------------------------------------------------------------------------

    \9\ In a similar context, Section 232.202(c) of Regulation S-T 
governing EDGAR filers permits paper filing of confidential 
treatment requests and the information with respect to which 
confidential treatment is requested. SROs sometimes submit 
confidential surveillance procedures or proprietary data to the 
Commission in connection with proposed rule changes, which may not 
be electronically accessible, and, in any event, is segregated from 
the public file pursuant to a Freedom of Information Act (``FOIA'') 
exemption request.
---------------------------------------------------------------------------

    As to signature requirements, Form 19b-4 currently requires that a 
``duly authorized officer'' of an SRO manually sign all rule 
filings.\10\ The Commission proposes to amend Form 19b-4 so that SROs 
would be required to file their proposed rule changes with an 
electronic signature.\11\ Furthermore, each duly authorized signatory 
would be required to obtain a ``digital ID'' in order to provide both 
the Commission and the SRO with assurances that the Form 19b-4 has been 
transmitted without external interference.\12\ As with the EDGAR 
system, any required signatures with respect to an SRO proposed rule 
change would appear in typed form.\13\ In addition, each signatory 
would be required to manually sign the Form 19b-4, authenticating, 
acknowledging, or otherwise adopting his or her electronic signature 
that is attached to or logically associated with the filing.\14\ In 
accordance with Rule 17a-1 of the Act,\15\ the SRO would be required to 
retain that manual signature page of the rule filing, authenticating 
the signatory's electronic signature, for not less than five years 
after the Form 19b-4 is filed with the Commission \16\ and, upon 
request, furnish a copy of it to the Commission or its staff.\17\
---------------------------------------------------------------------------

    \10\ The signature requirement of Form 19b-4 states that 
``pursuant to the requirements of the Act, the [SRO] has caused the 
filing to be signed on its behalf by the undersigned thereunto duly 
authorized.''
    \11\ The Commission notes that the Electronic Signatures in 
Global and National Commerce Act, 15 U.S.C. 7001, et seq. does not 
apply in this regard.
    \12\ A digital ID, sometimes called a ``digital certificate,'' 
is a file on the computer that identifies the user. Computers can 
use a digital ID to create a digital signature that verifies both 
that the message originated from a specific person and that the 
message has not been altered either intentionally or accidentally. 
The user obtains a digital ID from a ``Certificate Authority'' 
(``CA'') for a modest sum (currently approximately $15 per year). 
When the SRO electronically sends the Form 19b-4 to the Commission, 
the digital ID will encrypt the data through a system that uses 
``key pairs.'' With key pairs, the SRO's software application uses 
one key to encrypt the document. When the Commission receives the 
SRO's electronic document, the Commission's software will use a 
matching key to decrypt the document.
    \13\ See Rule 301 of Regulation S-T. 17 CFR 232.301. The 
Commission proposes defining ``electronic signature'' as an 
electronic entry in the form of a magnetic impulse or other form of 
computer data compilation of any letter or series of letters or 
characters comprising a name, executed, adopted or authorized as a 
signature. This definition is the same as the definition that 
governs EDGAR filings in Rule 302 of Regulation S-T, 17 CFR 232.302.
    \14\ See Rule 302(b) of Regulation S-T, which requires similar 
authentication, acknowledgement, or otherwise adoption of his or her 
signature that appears in typed form within the electronic filing. 
17 CFR 232.302(b).
    \15\ 17 CFR 240.17a-1.
    \16\ Id.
    \17\ See Proposed Rule 19b-4(j). These requirements were adapted 
from Section 232.302 of Regulation S-T, 17 CFR 232.302 for EDGAR 
filers.
---------------------------------------------------------------------------

    In recent years, the Commission has been processing increasing 
volumes of SRO rule proposals, as both the number of SROs and SRO 
facilities,\18\ and their rulemaking activity, has increased.\19\ The 
Commission believes that requiring SROs to file proposed rule changes 
electronically would have several benefits.
---------------------------------------------------------------------------

    \18\ For instance, in February 2000, the Commission approved the 
registration of the International Securities Exchange, Inc., and in 
October 2001, the Commission approved a proposed Pacific Exchange, 
Inc. (``PCX'') rule change to create a facility of PCX, the 
Archipelago Exchange, LLC. In addition, in January 2004, the Boston 
Stock Exchange, Inc. (``BSE'') created the Boston Options Exchange, 
LLC (``BOX'') as a new electronic options facility of the BSE. 
Division staff also must quickly review effective-upon-filing rule 
changes from new notice-registered exchanges, such as One Chicago, 
LLC and NQLX, LLC.
    \19\ The Division has processed approximately 28% more rule 
filings since fiscal year 2001 and has processed approximately 60% 
more rule filings since fiscal year 1999.
---------------------------------------------------------------------------

    First, electronic filing of proposed rule changes should speed the 
initiation of the rule filing process. In today's highly competitive 
market environment, SROs are under pressure to complete the rule filing 
process quickly.\20\ Under

[[Page 17866]]

the current system, SROs send paper copies of proposed rule changes to 
the Commission via messenger, overnight delivery, or U.S. mail. Once 
the Commission receives a proposed rule change, internal processing of 
paper filings may take several days before the rule filing is received 
by the staff person assigned to review it. Electronic filing would 
substantially reduce the time it takes to process SRO rule filings by 
eliminating paper delivery, copying and distribution.
---------------------------------------------------------------------------

    \20\ For example, SROs that operate securities markets are 
facing increased competition from electronic communication networks 
(``ECNs''), which as registered broker-dealers are not subject to 
the rule filing requirements that are imposed on SROs, and foreign 
markets, which may be subject to less rigorous regulatory 
requirements in their home jurisdictions.
---------------------------------------------------------------------------

    Second, electronic rule filing should reduce costs for the SROs 
\21\ and should also result in a more efficient use of Commission 
resources. The SROs no longer would incur delivery costs for paper 
filings or the SRO staff time currently devoted to preparing filing 
packages. The Commission also would benefit from reducing the personnel 
time currently associated with manually processing paper filings.
---------------------------------------------------------------------------

    \21\ See Section VI, infra.
---------------------------------------------------------------------------

    Finally, by integrating the electronic filing technology with SRTS, 
Commission staff could more easily monitor and process proposed SRO 
rule changes. Pertinent information regarding proposed rule changes, as 
well as amendments, would be captured automatically by SRTS.\22\ As a 
result, the Commission would be able to monitor electronically the 
progress of SRO rule filings from initial receipt through final 
disposition, and thereby enhance its management of the rule filing 
process.
---------------------------------------------------------------------------

    \22\ Such data would include whether the proposed rule change is 
filed pursuant to Section 19(b)(3)(A) or Section 19(b)(2) of the 
Act. 15 U.S.C. 78s(b)(3)(A); 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

B. Posting of Proposed Rule Changes on SRO Websites

    The Commission also is proposing to amend Rule 19b-4 to require 
each SRO to post all proposed rule changes, and any amendments thereto, 
on its public website no later than the next business day after filing 
with the Commission. The Commission has chosen the next business day to 
provide interested persons with quick access to the proposed rule 
change, while at the same time providing SROs with sufficient time to 
comply with this posting requirement. A copy of the complete proposed 
rule change would continue to be available in the Commission's Public 
Reference Room, but in electronic and paper format. The Commission 
believes that website accessibility of proposed SRO rule changes would 
facilitate the ability of interested persons to comment on the 
proposals and save SRO resources currently used to monitor the 
Commission's Public Reference Room for competitors' proposed rule 
changes. By providing ready access to proposed SRO rule changes, 
effective public comment should be facilitated, thus enhancing the 
transparency of the rule filing process.\23\ Although practices vary, 
several SROs now post selected rule filings on their websites. Nearly 
all of the SROs have informally indicated to Commission staff that they 
favor such increased accessibility to proposed rule filings, as long as 
it is a uniform requirement.
---------------------------------------------------------------------------

    \23\ It can take as long as seven to ten days for the notice of 
the proposed rule change to appear in the Federal Register. All SROs 
have websites, and the expeditious posting of the Form 19b-4 should 
facilitate the public comment process. If the SRO withdrew the 
proposed rule change, the SRO could remove the proposed rule change 
from its website.
---------------------------------------------------------------------------

C. Posting of Current and Complete Rule Text on SRO Websites

    In addition, the Commission proposes to amend Rule 19b-4 to require 
SROs to post and maintain a current and complete version of their rules 
on their websites. Under the proposal, each SRO would be required to 
update its public website to reflect rule changes no later than the 
next business day after it has been notified of Commission approval of 
the rule change or Commission notice of an effective-upon-filing SRO 
rule.\24\ The Commission has chosen the next business day to provide 
interested persons with prompt access to the SROs' rules, while at the 
same time providing SROs with sufficient time to comply with this 
posting requirement. If an approved rule change is not effective for a 
certain period after Commission approval, the SRO would be required to 
indicate clearly the implementation date in the relevant rule text. 
Notification to the SRO would either be done electronically through 
SRTS or by faxing the Commission's approval order or the Commission's 
notice of effective-upon-filing SRO rules to the SRO. Current practices 
with respect to website availability of rules vary considerably among 
SROs, often resulting in confusion by SRO members and others seeking to 
comply with SRO rules, as well as other interested persons. Members and 
other interested parties often need prompt and accurate notification of 
SRO rule changes to be able to comply with such rules. The Commission 
believes that this proposal should help assure that current, accurate, 
and complete versions of the rules of each SRO are readily accessible 
to interested parties, thus enhancing compliance with SRO rules.
---------------------------------------------------------------------------

    \24\ Practices vary among SROs as to the extent to which they 
post rule text on their websites and the timeliness with which such 
rule text is updated. Prompt posting of SRO rule changes'on a next 
business day basis'should reduce confusion and facilitate compliance 
by market participants.
---------------------------------------------------------------------------

D. Amendments to Rule 19b-4

    The Commission is proposing to make two amendments to clarify Rule 
19b-4 and reflect current practice. First, the Commission is proposing 
to amend Rule 19b-4(e), which addresses rule filing requirements 
applicable to ``new derivative securities products,'' to clarify that 
that term does not include a single equity option or a security futures 
product.\25\ Second, the Commission is proposing to amend Rule 19b-
4(f)(2) to more clearly reflect the Commission's stated position that a 
proposed fee change applicable to non-members and non-participants must 
be filed under Section 19(b)(2) of the Act for full notice and comment, 
and not filed under Section 19(b)(3)(A)(ii) of the Act.\26\
---------------------------------------------------------------------------

    \25\ See Securities Exchange Act Release No. 40761 (December 8, 
1998), 63 FR 70952 (December 22, 1998) (``New Product Release''). As 
the options markets already had listing standards for single equity 
options that addressed relevant regulatory concerns, the Commission 
did not intend for SROs to comply with Rule 19b-4(e) for single 
equity options. Similarly, the Commission did not intend to include 
traditional issuer warrants and traditional convertible securities 
in the definition of ``new derivative securities product.'' Id. at 
70956.
    \26\ See Securities Exchange Act Release No. 35123 (December 20, 
1994), 59 FR 66692 (December 28, 1994). (``[A]s a matter of general 
policy, an SRO proposed rule change that establishes or changes a 
due, fee or other charge applicable to a non-member or non-
participant must be filed under Section 19(b)(2) for full notice and 
comment.'' Id. At 66697; see also Securities Exchange Act Release 
No. 17258 (October 30, 1980), 45 FR 73906 (November 7, 
1980)(footnote 40). The terms ``member'' and ``participant'' are 
defined in Section 3(a)(3)(A) and Section 3(a)(24), respectively, of 
the Act.
---------------------------------------------------------------------------

E. Technical Amendments to Regulation S-T

    Regulation S-T \27\ currently states that all Exchange Act filings, 
except for Form 25,\28\ must be submitted in paper. Therefore, the 
Commission is proposing to make a technical amendment to Regulation S-T 
to reflect that the Form 19b-4 will be filed electronically.
---------------------------------------------------------------------------

    \27\ 17 CFR 232.101.
    \28\ 17 CFR 249.25.
---------------------------------------------------------------------------

F. Form 19b-4 Amendments; Commission Policy

1. Form 19b-4 Amendments
    Form 19b-4 would be amended to eliminate the required submission of 
nine paper copies and instead require electronic filing of Form 19b-
4.\29\ To access the secure Internet site for web-based filing of the 
Form 19b-4, the SRO

[[Page 17867]]

would submit to the Commission an External Application User 
Authentication Form (``EAUF'') \30\ to register each individual at the 
SRO who will be submitting Forms 19b-4 on behalf of the SRO. Upon 
receipt and verification of the information in the EAUF process, the 
Commission would issue each such person a User ID and Password to 
permit access to the Commission's secure website. As Form 19b-4 will be 
electronic, initially the authorized user at an SRO would access a 
screen containing a filing template, referenced as Page 1, in which it 
could identify the SRO and the statutory section pursuant to which the 
rule filing would be submitted (i.e., Section 19(b)(2), Section 
19(b)(3)(A), or Section 19(b)(3)(B)).\31\ Page 1 of Form 19b-4 will 
also require a brief description of the proposed rule change, as well 
as an indication whether a pilot is being proposed. The SRO would 
provide contact information and place the electronic signature of a 
duly authorized officer on this Page 1 initial screen.\32\ The second 
screen of the electronic Form 19b-4 would provide the SRO with a means 
to attach the proposed rule change and related exhibits in Microsoft 
Word format.\33\ SRO users would have electronic access to the general 
instructions for using the Form, as adapted for electronic filing.\34\ 
Finally, the SRO would use the electronic Form 19b-4 to amend or 
withdraw a rule filing pending with the Commission or to file an 
extension of the statutory period in Section 19 of the Act in which the 
Commission is required to act on the rule filing.\35\
---------------------------------------------------------------------------

    \29\ The proposed amendments to Form 19b-4 are attached as 
Appendix A.
    \30\ This Commission web-based application currently exists and 
allows authorized external users to access select Commission 
systems.
    \31\ The authorized user also would be able to indicate if there 
would be a separate filing of any hard copy exhibits that are unable 
to be submitted electronically.
    \32\ As noted in Section III. A. above, a ``duly authorized 
officer'' at the SRO would be required to place his or her 
``electronic signature'' on the Form 19b-4 before it is transmitted 
electronically to the Commission.
    \33\ Exhibits 2 and 3 may not be available in Microsoft Word and 
could be submitted in another acceptable electronic format or in 
paper.
    \34\ For example, the SRO would click separate boxes on the 
second screen to attach one Microsoft Word document containing Items 
I through IV of the Form 19b-4 and other documents for the different 
exhibits: the completed notice of the proposed rule change for 
publication in the Federal Register; copies of notices issued by the 
SRO soliciting comment and copies of all written comments; copies of 
transcripts or summaries of any public meeting; copies of any form, 
report, or questionnaire; marked copies of amendments; and separate 
rule text, if the SRO wishes to attach such rule text as an exhibit, 
instead of including it in Item I of the Form 19b-4.
    \35\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

    In addition, the Commission notes that, generally, Form 19b-4 
requires, and will continue to require, 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.\36\ In 
addition, 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 consistency with the Act and rules 
thereunder, and its impact on competition, if any, as well as a summary 
of any written comments received by the SRO. The proposed rule change 
must be consistent with the existing rules of the SRO, including any 
other proposed rule changes. Form 19b-4 also contains certain technical 
requirements so that information presented in the Form is 
comprehensible. Finally, as stated, the chief executive officer, 
general counsel, or other officer or director of the SRO that exercises 
similar authority must electronically sign the Form 19b-4.
---------------------------------------------------------------------------

    \36\ 17 CFR 249.819.
---------------------------------------------------------------------------

2. Commission Policy: Accurate, Consistent, and Complete Forms 19b-4
    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. Form 19b-4 states that ``[t]his 
form, including the exhibits, is intended to elicit information 
necessary for the public to provide meaningful comment on the proposed 
rule change and for the Commission to determine whether the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to the self-regulatory 
organization. The SRO must provide all the information called for by 
the form, including the exhibits, and must present the information in a 
clear and comprehensible manner.'' \37\ The Commission, however, 
receives many SRO proposed rule changes that are not carefully prepared 
in accordance with Form 19b-4.
---------------------------------------------------------------------------

    \37\ Id.
---------------------------------------------------------------------------

    Currently, Commission staff devotes significant time to processing 
proposed rule changes, reviewing them for accuracy and completeness, 
and preparing them for publication. The Commission encourages SRO staff 
to review carefully proposed rule changes to ensure, among other 
things, that the filings: (1) Contain a properly completed Form 19b-4; 
(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; and (4) state that the proposal is not inconsistent with the 
existing rules of the SRO, including any other rules proposed to be 
amended. As described in the current Form 19b-4, filings that do not 
comply with the foregoing are deemed not filed and returned to the SRO. 
Consistent with the requirements of Rule 19b-4 and Form 19b-4, 
electronically filed proposed rule changes that do not comply with the 
foregoing will continue to be returned to the SRO, but in electronic 
format, and, consistent with current practice, will be deemed not filed 
with the Commission until all required information has been provided.

IV. Request for Comment

    The Commission requests the views of commenters on all aspects of 
the proposed amendments, discussed above, to Rule 19b-4 and Form 19b-4 
under the Act. In particular, the Commission requests comment on the 
following:
    1. Are there positive or negative implications, in addition to 
those discussed above, of the Commission requiring SROs to file all 
proposed rule changes electronically?
    2. Is there a need for additional exceptions to the electronic rule 
filing requirement for SROs? For example, should express accommodation 
be made for paper filings in emergency situations when web-based, 
electronic filing may be temporarily unavailable? If so, what specific 
situations should be excepted, and what accommodations should be made? 
Should the existing Rule and Form requirements be available for use in 
such a situation?
    3. Is the requirement that SROs post all proposed rule changes, and 
any amendments, on their websites no later than the next business day 
after filing with the Commission appropriate? Should this time period 
be longer or shorter?
    4. If the SRO proposed rule change is incomplete because it does 
not comply with the requirements of Rule 19b-4 and Form 19b-4 and 
deemed not properly filed and returned to the SRO, should the SRO 
inform the public of the status of the proposed rule change? Similarly, 
if the SRO withdraws a proposed rule change, should the SRO inform the 
public of the withdrawal? Should that information be required to be 
maintained on the SRO's website?

[[Page 17868]]

The Commission believes such requirement may be necessary to provide 
needed information to those monitoring the proposed rule change.
    5. Is the requirement that SROs update their websites to reflect 
rule changes no later than the next business day after notification of 
Commission approval appropriate? Should this time period be longer or 
shorter? Is the proposed process for Commission notification to the SRO 
of its approval order of a SRO proposed rule or the Commission's notice 
of an effective-upon-filing SRO rule, through SRTS or facsimile, 
adequate? If an SRO rule change is not effective until a certain period 
after Commission approval, should the website update be delayed until 
the effective date?
    6. Are the SRO recordkeeping requirements for the page containing 
the manual signature of the Form 19b-4 appropriate?
    7. There are currently seven national market system plans that have 
been approved by the Commission. Three of these plans are also 
transaction reporting plans. In the equity securities market, there are 
four plans. The Intermarket Trading System (``ITS'') Plan governs 
trading of exchange-listed securities by exchanges and Nasdaq market 
makers. The ITS Operating Committee administers the ITS Plan. The 
Consolidated Tape Association (``CTA'') administers two plans: the 
Consolidated Tape Plan \38\ and the Consolidated Quotation Plan. These 
plans address how trades in exchange-listed equity securities are 
reported and how quotations for these securities are made public. The 
OTC/UTP Plan \39\ addresses how both transaction and quotation 
information in Nasdaq-listed securities is consolidated and 
disseminated.
---------------------------------------------------------------------------

    \38\ The Consolidated Tape Plan is also a transaction reporting 
plan.
    \39\ The formal name of the OTC/UTP Plan is: Joint Self-
Regulatory Organization Plan Governing the Collection, 
Consolidation, and Dissemination of Quotation and Transaction 
Information for Nasdaq-Listed Securities Traded on Exchanges on an 
Unlisted Trading Privilege Basis. The OTC/UTP Plans is also a 
transaction reporting plan.
---------------------------------------------------------------------------

    In the options market, there are three plans. The Plan for 
Reporting of Consolidated Options Last Sale Reports and Quotation 
Information (``OPRA Plan'') is the transaction reporting plan for 
options. The Plan for the Purpose of Creating and Operating an Options 
Intermarket Linkage (``Linkage Plan'') governs inter-market trading of 
options. The Plan for the Purpose of Developing and Implementing 
Procedures Designed to Facilitate the Listing and Trading of 
Standardized Options (``Options Listing Procedures Plan'' or ``OLPP'') 
governs the listing of standardized options. The OPRA Plan is 
administered by the Options Price Reporting Authority (``OPRA''), the 
Linkage Plan is administered by the Options Linkage Authority 
(``OLA''), and the OLPP is administered by The Options Clearing 
Corporation and the options exchanges.
    Should the plan administrators for each of these plans post on 
their websites or on a separate plan website a current version of the 
plans as well as proposed amendments to these plans within the time 
periods proposed for SROs?

V. Paperwork 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.\40\ The Commission has submitted the 
information to the Office of Management and Budget (``OMB'') for review 
in accordance with 44 U.S.C. 3507 and 5 CFR 1320.11. The Commission is 
proposing to submit the current collection of information titled ``Rule 
19b-4 Under the Securities Exchange Act of 1934'' (OMB Control Nos. 
3235-0045, 3235-0504). The Commission is also proposing to submit the 
current collection of information titled ``Form 19b-4 Under the 
Securities Exchange Act of 1934'' (OMB Control No. 3235-0045). 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.
---------------------------------------------------------------------------

    \40\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

A. Summary of Collection of Information

    Rule 19b-4 currently requires an SRO seeking Commission approval 
for a proposed rule change to provide the information stipulated in 
Form 19b-4. Form 19b-4 currently 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-4 also currently 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 by the SRO 
from SRO members. The proposed amendments would not change the 
information currently required by Rule 19b-4 or Form 19b-4; the 
proposed amendments would only require that such information be 
submitted electronically. The proposed amendments, however, would 
require website posting of all proposed rule changes, and any 
amendments thereto. In addition, the proposed amendments would require 
SROs to post a current and complete set of their rules on their 
websites. Several SROs currently post some of this information on their 
websites. SROs are required by Sections 6(b)(1),\41\ 15A(b)(2),\42\ 
17A,\43\ and 15B \44\ of the Act to enforce compliance with their 
rules. Presumably, each SRO maintains a current and complete set of its 
rules to facilitate compliance with this requirement.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(b)(1).
    \42\ 15 U.S.C. 78o-3(b)(2).
    \43\ 15 U.S.C. 78q-1.
    \44\ 15 U.S.C. 78o-4.
---------------------------------------------------------------------------

B. Proposed Use of Information

    The information provided via EAUF, as required by the proposed 
amendments to Form 19b-4, would be used by the Commission to verify the 
identity of the SRO individual and provide such individual access to a 
secure Commission website for filing of the Form 19b-4. The Commission 
proposes to require that SROs post their proposed rule changes on their 
websites so that these proposals could be viewed by the general public, 
SRO members, competing SROs, other market participants, and Commission 
staff. The information would enable interested parties to more easily 
access SRO rules and rule filings, which would facilitate public 
comment on proposed SRO rules. Additionally, SRO staff, members, 
industry participants, and Commission staff would utilize the accurate 
and current version of SRO rules that are posted on the SRO website to 
facilitate compliance with such rules.

C. Respondents

    There are currently 27 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 fiscal year 2003, these 
respondents filed 769 rule change proposals and 510 amendments to those 
proposed rule change proposals, for a total of 1279 filings that are 
subject to the current collection of information. Of these 769 proposed 
rule changes filed by SROs, 705 ultimately became effective because the 
SROs withdrew 64 proposed rule changes.

D. Total Annual Reporting and Recordkeeping Burden

    The proposed amendments to Rule 19b-4 and Form 19b-4 are designed 
to

[[Page 17869]]

modernize the SRO rule filing process and to make the process more 
efficient by conserving both SRO and Commission resources. Rule 19b-4 
and Form 19b-4 would be amended to require SROs to electronically file 
their proposed rule changes. In addition, Form 19b-4 would be revised 
to accommodate electronic submission. The Commission expects that an 
electronic form would reduce by one hour the amount of SRO clerical 
time required to prepare the average filing. The proposed amendments 
would also require SROs to post all proposed rule changes, and any 
amendments, on their websites, as well as maintain a current and 
complete set of their rules on their websites. The Commission staff 
estimates that it would take an SRO 30 minutes to post a filing on its 
website, irrespective of whether this filing is an SRO rule change 
proposal, amendment, or final SRO rule.
    An SRO rule change proposal is generally filed with the Commission 
after an SRO's staff has obtained approval by its Board. 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 ten hours of clerical work. The amount of time 
required to prepare amendments varies because some amendments are 
comprehensive, while other amendments are submitted in the form of a 
one-page letter. The Commission staff estimates that, under current 
rules, four hours is the amount of time required to prepare an 
amendment to the rule proposal. This figure includes an estimated two 
hours of in-house legal work and two hours of clerical work.
    With the proposed electronic filing, the Commission staff estimates 
that 34 hours is the amount of time that would be required to complete 
an average rule filing and at three hours the amount of time required 
to complete an average amendment. These figures reflect the one hour in 
savings in clerical hours that would result from the use of an 
electronic form for both the rule filings and the amendments.\45\ The 
Commission staff estimates that the reporting burden for filing rule 
change proposals and amendments with the Commission under the proposed 
amendments would be 27,676 hours (769 rule change proposals x 34 hours 
+ 510 amendments x 3 hours).
---------------------------------------------------------------------------

    \45\ The SROs' one hour time savings would result from the 
elimination of tasks such as making multiple copies of the Form 19b-
4 and amendments, arranging for couriers, and making follow-up 
telephone calls to ensure Commission receipt.
---------------------------------------------------------------------------

    The Commission staff estimates that 30 minutes is the amount of 
time that would be required to post a proposed rule on an SRO's website 
and that 30 minutes is the amount of time that would be required to 
post an amendment on an SRO's website. The Commission staff estimates 
that the reporting burden for posting rule change proposals and 
amendments on the SRO websites would be 640 hours (769 rule change 
proposals \46\ x 0.5 hours + 510 amendments x 0.5 hours).
---------------------------------------------------------------------------

    \46\ This number includes SRO proposed rule changes that the 
Commission notices pursuant to Section 19(b)(3)(A) of the Act, which 
are effective-upon-filing, and SRO proposed rule changes that the 
Commission notices and accelerates approval in the same document 
pursuant to Section 19(b)(2) of the Act, along with notices issued 
by the Commission pursuant to Section 19(b)(2) of the Act.
---------------------------------------------------------------------------

    The Commission staff estimates that one hour would be the amount of 
time required to post an SRO's current rules on its website. Currently, 
22 of the 27 SROs have posted their rules on their websites; five have 
not.\47\ The Commission staff estimates that the total reporting burden 
for posting current rules on the SROs' websites would be 27 hours (27 
SROs x 1 hour) because each SRO should have a current version of its 
rules available for posting on its website.
---------------------------------------------------------------------------

    \47\ The National Stock Exchange, Inc. (f/k/a Cincinnati Stock 
Exchange, Inc.), Chicago Stock Exchange, Inc., Boston Stock Exchange 
Clearing Corporation, INET Futures Exchange, LLC, and Pacific 
Clearing Corporation do not appear to post their final rules on 
their websites.
---------------------------------------------------------------------------

    The Commission staff estimates that two hours is the amount of time 
that would be required to update the SRO's website when the SRO's 
proposed rule becomes effective. Therefore, each time the Commission 
approves an SRO rule change or does not abrogate an SRO effective-upon-
filing rule change (total of 705 rules in fiscal year 2003), the 
Commission staff estimates that the reporting burden for updating the 
already website posted SRO rules on the SRO website would be 1410 hours 
(705 SRO Commission approved or non-abrogated rules x 2 hours).
    The Commission staff estimates that the total annual reporting 
burden under the proposed rule would be 29,753 hours (27,676 hours for 
filing proposed rule changes and amendments + 640 hours for posting 
proposed rule changes and amendments on the SROs' websites + 27 hours 
for initial posting of accurate SRO rule text on SRO websites + 1410 
hours for updating SRO final rules on SRO websites).
    The Commission does not expect that the proposed amendments with 
regard to electronic filing would impose any material additional costs 
on SROs. Instead, the Commission believes that the proposed amendments 
to Rule 19b-4 and Form 19b-4, on balance, would reduce paperwork costs 
related to the submission of SRO proposed rule changes. The technology 
for electronic filing would be web-based; therefore, the SROs should 
not have any technology expenditures for electronic filing because all 
SROs currently have access to the Internet.
    However, each SRO would be required to obtain a digital ID from a 
certificating authority. The Commission staff estimates the annual cost 
of the ID to be $15 for each SRO. The Commission staff estimates that 
SROs would purchase two such digital IDs for their staff. Thus, the 
annual cost of the ID for all SROs would be $810 (27 SROs x $15 x 2).
    As previously stated, the SROs could incur nominal costs on posting 
on their website their proposed rules, amendments thereto, no later 
than the next business day after filing with or approval by the 
Commission. With regard to posting of accurate and complete text of SRO 
final rules, the Commission notes that most of the SROs currently post 
some of this information, if not all of this information, on their 
websites. Some SROs currently rely on CCH, Incorporated (``CCH'') to 
maintain a current version of their rules, and a cost may be involved 
in expediting prompt publication of rule changes with CCH. However, the 
Commission notes that SROs are required by Sections 6(b)(1),\48\ 
15A(b)(2),\49\ 17A,\50\ and 15B \51\ of the Act to enforce compliance 
with their rules. Therefore, at all times, each SRO should maintain a 
current and complete set of its rules to facilitate compliance with 
this requirement. Accordingly, the Commission does not believe that 
SROs would incur material costs in simply posting this information on 
their websites.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b)(1).
    \49\ 15 U.S.C. 78o-3(b)(2).
    \50\ 15 U.S.C. 78q-1.
    \51\ 15 U.S.C. 78o-4.
---------------------------------------------------------------------------

E. Retention Period of Recordkeeping Requirements

    The SROs would be required to retain records of the collection of 
information (the manually signed signature page of the Form 19b-4) for 
a period of not less than five years, the first two years in an easily 
accessible place, according to the

[[Page 17870]]

current recordkeeping requirements set forth in Rule 17a-1 of the 
Act.\52\ The SROs would be required to retain proposed rule changes, 
and any amendments, on their websites until the proposal is either 
approved or disapproved. The SRO would be required at all times to 
maintain an accurate and up-to-date copy of all of its rules on its 
website.
---------------------------------------------------------------------------

    \52\ SROs may also destroy or otherwise dispose of such records 
at the end of five years according to Rule 17a-6 of the Act. 17 CFR 
240.17a-6.
---------------------------------------------------------------------------

F. Collection of Information Is Mandatory

    Any collection of information pursuant to the proposed amendments 
to Rule 19b-4 and Form 19b-4 to require electronic filing with the 
Commission of SRO proposed rule changes would be a mandatory collection 
of information filed with the Commission as a means for the Commission 
to review, and, as required, take action with respect to SRO proposed 
rule changes. Any collection of information pursuant to the proposed 
amendments to require website posting by the SROs of their proposed and 
final rules would also be a mandatory collection of information; 
however, it would not be a collection of information filed with the 
Commission upon which the Commission would review and take action.

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, and the posting of proposed and final 
rules on the SRO website, and thus not information filed with the 
Commission, the collection of information pursuant to the proposed 
amendments to Rule 19b-4 and Form 19b-4 under the Act would not be 
confidential and would be publicly available.\53\
---------------------------------------------------------------------------

    \53\ However, consistent with applicable law, proposed SRO rule 
changes containing proprietary or otherwise sensitive information 
may be kept confidential and nonpublic.
---------------------------------------------------------------------------

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;
    (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 
(``OMB''), 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. S7-18-04. 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. S7-18-04, and be submitted to the Securities and 
Exchange Commission, Records Management, Office of Filings and 
Information Services, 450 Fifth Street, NW., Washington, DC 20549.

VI. Costs and Benefits of the Proposed Rulemaking

    The Commission is considering the costs and benefits of the 
proposed amendments to Rule 19b-4 and Form 19b-4 discussed above. As 
noted above, the Commission staff estimates that the total annual 
paperwork reporting burden under the proposed rule would be 29,753 
hours. The Commission staff, however, believes that there would be an 
overall reduction of costs based on the proposed amendments.\54\ The 
Commission encourages commenters to identify, discuss, analyze, and 
supply relevant data regarding any such costs or benefits.
---------------------------------------------------------------------------

    \54\ As noted in the Paperwork Reduction Act analysis, the 
Commission staff based this total reporting burden of 29,753 hours 
on 27,676 hours for filing proposed rule changes and amendments + 
640 hours for posting proposed rule changes and amendments on the 
SROs' websites + 27 hours for initial posting of accurate SRO rule 
text on SROs' websites + 1410 hours for updating SRO final rules on 
SROs' websites.
---------------------------------------------------------------------------

A. Benefits

    The proposed amendments are designed to modernize the filing, 
receipt, and processing of SRO proposed rule changes and to make the 
SRO rule filing process more efficient by conserving both SRO and 
Commission resources. The Commission believes that the proposed changes 
to Rule 19b-4 and Form 19b-4 would permit SROs to file proposed rule 
changes with the Commission more quickly and economically. For example, 
SROs are currently required to pay for delivery costs of multiple paper 
copies to the Commission as well as the costs associated with 
monitoring the Commission's Public Reference Room for competitors' rule 
filings. Requiring SROs to file electronically proposed rule changes 
should reduce expenses associated with clerical time, postage, and 
copying and should increase the speed, accuracy, and availability of 
information beneficial to investors, other SROs, and financial markets.
    Because Commission staff would no longer manually process the 
receipt and distribution of SRO rule filings, electronic filing would 
also expedite the Commission's receipt of SRO proposed rule changes and 
provide the SROs with the certainty that the Commission has received 
the proposed rule changes and has captured pertinent information about 
the rule changes in SRTS. The Commission believes that integrating the 
electronic filing technology with SRTS should also enhance the 
Commission's ability to monitor and process SRO proposed rule changes.
    Moreover, requiring SROs to post proposed rule changes on their 
websites no later than the next business day after filing with the 
Commission should increase availability of SRO proposed rules, and 
thereby facilitate the ability of interested parties to comment on 
proposed rule changes. For instance, the posting of proposed rule 
changes would provide the public with access to the filings on the 
SROs' websites and thereby reduce the burden on SRO and Commission 
staff of providing information about proposed rule changes to 
interested parties. The Commission believes that the posting of the 
proposed rule changes would also save SRO resources that are currently 
being used to monitor the Commission's Public Reference Room for 
competitors' proposed rule changes. Furthermore, requiring an SRO to 
post and maintain on its website a current and complete set of its 
rules could eliminate the confusion among SROs, members of the 
industry, and the public regarding the accuracy of SRO rule text and 
facilitate

[[Page 17871]]

immediate availability of an SRO's rule text.

B. Costs

    As noted, the Commission staff estimates that there would be 
paperwork reporting costs of 29,753 hours under the proposed rule. The 
Commission, however, does not expect that the proposed amendments would 
impose additional costs on SROs. Instead, the Commission believes that 
the proposed amendments to Rule 19b-4 and Form 19b-4, on balance, would 
reduce costs related to the submission of SRO proposed rule changes. 
The technology for electronic filing would be web-based; therefore, the 
SRO should not have any technology expenditures for electronic filing 
because all SROs currently have access to the Internet. Most of the 
information that would be required to be submitted by the SROs 
electronically is currently submitted in multiple paper copies to the 
Commission. There are personnel and delivery costs associated with 
paper filings that would not be incurred with electronic filing. 
Accordingly, the Commission believes that the proposed amendments to 
Rule 19b-4 and Form 19b-4, by requiring the SROs to submit proposed 
rule changes in electronic format, would reduce their costs.
    If the proposed changes were adopted, the Commission believes that 
SROs could incur some costs associated with training their personnel 
about the procedures for submitting proposed rule changes in electronic 
format and submission of the information via EAUF. However, the 
Commission believes that such costs would be one-time costs and 
insubstantial since the SROs are already familiar with the information 
required in filing a proposed rule change with the Commission and would 
only be required to submit the same information electronically under 
this proposal. The Commission staff believes that the SROs could also 
incur some minimal costs (currently $15 per year) associated with 
purchasing digital IDs for each duly authorized officer electronic 
signatories.\55\ The Commission also believes that the SROs would have 
to make temporary adjustments to their recordkeeping procedures since, 
under the proposal, the SROs would be required to print out the Form 
19b-4 signature block, manually sign proposed rule changes, and retain 
the manual signature for not less than five years. However, there 
should be no additional costs associated with such recordkeeping as 
SROs are currently required to retain the Form 19b-4 for not less than 
five years. The Commission requests comment on the anticipated costs, 
if any, on SROs to comply with the proposed requirement of retaining a 
manual signature of each proposed rule change submitted electronically.
---------------------------------------------------------------------------

    \55\ The Commission staff estimates that each SRO will purchase 
two of their staff such digital IDs. Thus, the annual cost of the 
digital ID for all SROs would be $810 (27 SROs x $15 x 2).
---------------------------------------------------------------------------

    Moreover, the Commission believes that the proposed requirement 
that SROs post proposed rule changes, as well as a current and complete 
version of their rules, on their websites would impose some but not 
substantial costs on most SROs. The Commission notes that most of the 
SROs currently post some of this information, if not all of this 
information, on their websites. Some SROs currently rely on CCH to 
maintain a current version of their rules, and a cost could be involved 
in expediting prompt publication of rule changes with CCH or 
maintaining a current version of their rules at the SRO. However, the 
Commission notes that SROs are required by Sections 6(b)(1),\56\ 
15A(b)(2),\57\ 17A,\58\ and 15B \59\ of the Act to enforce compliance 
with their rules. Therefore, at all times, each SRO should maintain a 
current and complete set of its rules to facilitate compliance with 
this requirement. Accordingly, the Commission does not believe that 
SROs would incur substantial costs in simply posting this information 
on their websites because if the SRO does not currently maintain a 
current and complete set of its rules, it should have done so and have 
provided for such administrative costs.
---------------------------------------------------------------------------

    \56\ 15 U.S.C. 78f(b)(1).
    \57\ 15 U.S.C. 78o-3(b)(2).
    \58\ 15 U.S.C. 78q-1.
    \59\ 15 U.S.C. 78o-4.
---------------------------------------------------------------------------

C. Request for Comment

    The Commission requests data to quantify the costs and the benefits 
above. The Commission seeks estimates of these costs and benefits, as 
well as any costs and benefits not already defined, which could result 
from the adoption of these proposed amendments to Rule 19b-4 and Form 
19b-4. Specifically, the Commission requests commenters to address 
whether proposed amendments to Rule 19b-4 and Form 19b-4 that would 
require electronic filing of SRO proposed rule changes, the posting of 
these proposed rule changes on the SROs' websites, as well as the 
posting and maintenance of current and complete sets of rules on the 
SROs' websites, would generate the anticipated benefits or impose any 
unanticipated costs on the SROs and the public.

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

    Section 3(f) of the Act \60\ requires the Commission, whenever it 
engages in rulemaking 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. In addition, Section 23(a)(2) of the Act \61\ 
requires the Commission, when promulgating rules under the Act, to 
consider the impact any such rules would have on competition. Section 
23(a)(2) further provides that the Commission may not adopt a rule that 
would impose a burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act.
---------------------------------------------------------------------------

    \60\ 15 U.S.C. 78c(f).
    \61\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The proposed amendments to Rule 19b-4 and Form 19b-4 are intended 
to modernize the receipt and review of SRO proposed rule changes and to 
make the SRO rule filing process more efficient by conserving both SRO 
and Commission resources. They also are intended to improve the 
transparency of the SRO rule filing process and facilitate access to 
current and complete sets of SRO rules. All of these changes should 
help to foster innovation, increase competition, efficiency, and 
capital formation and thereby benefit investors.
    The Commission generally requests comment on the competitive or 
anticompetitive effects of these amendments to Rule 19b-4 and Form 19b-
4 on any market participants if adopted as proposed. The Commission 
also requests comment on what impact the amendments, if adopted, would 
have on efficiency and capital formation. Commenters should provide 
analysis and empirical data to support their views on the costs and 
benefits associated with the proposal.

VIII. Initial Regulatory Flexibility Analysis

    Section 3(a) of the Regulatory Flexibility Act \62\ requires the 
Commission to undertake an initial regulatory flexibility analysis of 
the proposed rule on small entities unless the Commission certifies 
that the rule, if adopted, would not have a significant economic impact 
on a substantial number of small entities.\63\ Twenty-

[[Page 17872]]

seven SROs \64\--the 13 national securities exchanges, the 11 clearing 
agencies, and the two national securities associations and the 
Municipal Securities Rulemaking Board--would be required to provide the 
Commission with information pursuant to Rule 19b-4 and Form 19b-4. Rule 
19b-4 and Form 19b-4 apply only to SROs and no SRO is a small entity. 
Accordingly, the Commission certifies that the proposed amendments, if 
adopted, would not have a significant economic impact on a substantial 
number of small entities.\65\
---------------------------------------------------------------------------

    \62\ 5 U.S.C. 603(a).
    \63\ 5 U.S.C. 605(b).
    \64\ American Stock Exchange LLC, Boston Stock Clearing 
Corporation, Boston Stock Exchange, Inc., Chicago Board Options 
Exchange, Inc., Chicago Mercantile Exchange, Inc., Chicago Stock 
Exchange, Inc., The Depository Trust Co., Emerging Markets Clearing 
Corporation, Fixed Income Clearing Corporation, INET Futures 
Exchange, LLC, International Securities Exchange, Inc., Midwest 
Clearing Corporation, Midwest Securities Trust Co., Municipal 
Securities Rulemaking Board, National Association of Securities 
Dealers, Inc., National Futures Association, National Securities 
Clearing Corporation, The National Stock Exchange, Inc. (f/k/a 
Cincinnati Stock Exchange, Inc.), New York Stock Exchange, Inc., 
NQLX, LLC, One Chicago, LLC, The Options Clearing Corporation, 
Pacific Exchange, Inc., Pacific Clearing Corporation, Pacific 
Securities Depository Trust, Co., Philadelphia Stock Exchange, Inc., 
and Stock Clearing Corporation of Philadelphia.
    \65\ See 17 CFR 240.0-10(d) and (e). Paragraph (d) of Rule 0-10 
of the Act states that the term ``small business,'' when referring 
to a clearing agency, means a clearing agency that: (1) Compared, 
cleared and settled less than $500 million in securities 
transactions during the preceding fiscal year (or in the time that 
it has been in business, if shorter); (2) had less than $200 million 
of funds and securities in its custody or control at all times 
during the preceding fiscal year (or in the time that it has been in 
business, if shorter); and (3) is not affiliated with any person 
(other than a natural person) that is not a small business or small 
organization as defined in Rule 0-10. Paragraph (e) of Rule 0-10 
states that the term ``small business,'' when referring to an 
exchange, means any exchange that has been exempted from the 
reporting requirements of Rule 11Aa3-1 under the Act, 17 CFR 
2450.11Aa3-1, and is not affiliated with any person (other than a 
natural person) that is not a small business or small organization 
as defined in Rule 0-10. The Commission also has found that the NASD 
is not a small business.
---------------------------------------------------------------------------

IX. Statutory Basis and Text of Proposed Amendments

    The amendments to Regulation S-T under the Securities Act of 1933, 
Rule 19b-4 and Form 19b-4 under the Act are 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 232, 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 232--REGULATION S-T--GENERAL RULES AND REGULATIONS FOR 
ELECTRONIC FILINGS

    1. The authority citation for part 232 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s(a), 77sss(a), 
78c(b), 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79t(a), 80a-8, 80a-
29, 80a-30 and 80a-37.

* * * * *
    2. Section 232.101 is amended by:
    a. Removing the word ``and'' at the end of paragraph (a)(1)(vii);
    b. Removing the period at the end of paragraph (a)(1)(viii) and in 
its place adding ``; and'';
    c. Adding paragraph (a)(1)((ix); and
    d. Revising paragraph (c)(9).
    The additions and revisions read as follows:


Sec.  232.101  Mandated electronic submissions and exceptions.

    (a) * * *
    (1) * * *
    (ix) Form 19b-4 (Sec.  249.819 of this chapter).
* * * * *
    (c) * * *
    (9) Exchange Act filings submitted to the Division of Market 
Regulation, except for Form 19b-4 (Sec.  249.819 of this chapter).
* * * * *

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

    3. The authority citation for part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-
3, 80b-4, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless 
otherwise noted.

* * * * *
    4. Section 240.19b-4 is amended by:
    a. Adding a preliminary note;
    b. Revising paragraph (a), the introductory text of paragraph (e), 
paragraph (f)(2); and
    c. Adding paragraphs (j), (k), (l), and (m).
    The additions and revisions read as follows:


Sec.  240.19b-4  Filings with respect to proposed rule changes by self-
regulatory organizations.

    Preliminary Note: A self-regulatory organization must also refer to 
Form 19b-4 (17 CFR 249.819) for further requirements with respect to 
the filing of proposed rule changes.
    (a) Filings with respect to proposed rule changes by a self-
regulatory organization, except filings with respect to proposed rules 
changes by self-regulatory organizations submitted pursuant to section 
19(b)(7) of the Act (15 U.S.C. 78s(b)(7), shall be made electronically 
on Form 19b-4 (17 CFR 249.819).
* * * * *
    (e) For the purposes of this paragraph, new derivative securities 
product means any type of option, warrant, hybrid securities product or 
any other security, other than a single equity option or a security 
futures product, whose value is based, in whole or in part, upon the 
performance of, or interest in, an underlying instrument.
* * * * *
    (f) * * *
    (2) Establishing or changing a due, fee, or other charge applicable 
only to a member;
* * * * *
    (j) Filings with respect to proposed rule changes by a self-
regulatory organization submitted on Form 19b-4 (17 CFR 249.819) 
electronically shall contain an electronic signature. For the purposes 
of this section, the term electronic signature means an electronic 
entry in the form of a magnetic impulse or other form of computer data 
compilation of any letter or series of letters or characters comprising 
a name, executed, adopted or authorized as a signature. Each signatory 
to an electronically submitted rule filing shall manually sign a 
signature page or other document, in the manner prescribed by Form 19b-
4, authenticating, acknowledging or otherwise adopting his or her 
signature that appears in typed form within the electronic filing. Such 
document shall be executed before or at the time the rule filing is 
electronically submitted and shall be retained by the filer in 
accordance with Sec.  240.17a-1.
    (k) If the conditions of this section and Form 19b-4 (17 CFR 
249.819) are otherwise satisfied, all filings submitted electronically 
on or before 5:30 p.m. Eastern Standard Time or Eastern Daylight Saving 
Time, whichever is currently in effect, on a business day, shall be 
deemed filed on that business day, and all filings submitted after 5:30 
p.m. Eastern Standard Time or Eastern Daylight Saving Time, whichever 
is currently in effect, shall be deemed filed on the next business day.
    (l) The self-regulatory organization shall post the proposed rule 
change, and any amendments thereto, on its website no later than the 
next business day after the filing of the proposed rule change,

[[Page 17873]]

and any amendments thereto, with the Commission.
    (m) The self-regulatory organization shall post and maintain a 
current and complete version of its rules on its website. The self-
regulatory organization shall update its website to reflect rule 
changes no later than the next business day after it has been notified 
of the Commission's approval of a proposed rule change filed pursuant 
to section 19(b)(2) of the Act (15 U.S.C. 78s(b)) or of the 
Commission's notice of a proposed rule change filed pursuant to section 
19(b)(3)(A) or section 19(b)(7) of the Act (15 U.S.C. 78s(b)(3)(A) or 
15 U.S.C. 78s(b)(7)). If a rule change is not effective for a certain 
period, the self-regulatory organization shall clearly indicate the 
effective date in the relevant rule text.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

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

    Authority: 15 U.S.C. 78a, et seq. and 7201 et seq.; and 18 
U.S.C. 1350, unless otherwise noted.
* * * * *
    6. Section 249.819 and Form 19b-4 are revised to read as follows:

    [Note: Form 19b-4 is attached as Appendix A to this document.]

Sec.  249.819  Form 19b-4, for electronic filing 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 (15 
U.S.C. 78c(a)(26)), to file electronically proposed rule changes with 
the Commission pursuant to section 19(b) of the Act and Sec.  240.19b-4 
of this chapter.

    By the Commission.

    Dated: March 30, 2004.
Margaret H. McFarland,
Deputy Secretary.

    [Note: Appendix A to the preamble will not appear in the Code of 
Federal Regulations.]

Appendix A--General Instructions for Form 19b-4

A. Use of the Form

    All self-regulatory organization proposed rule changes, except 
filings with respect to proposed rule changes by self-regulatory 
organizations submitted pursuant to Section 19(b)(7) \66\ of the 
Securities Exchange Act of 1934 (``Act''), shall be filed in an 
electronic format through the SRO Rule Tracking System (``SRTS'') 
operated by the Commission. This form shall be used for filings of 
proposed rule changes by all self-regulatory organizations pursuant 
to Section 19(b) of the Act, except filings with respect to proposed 
rule changes by self-regulatory organizations submitted pursuant to 
Section 19(b)(7) of the 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.
---------------------------------------------------------------------------

    \66\ Because section 19(b)(7)(C) of the Act states that filings 
abrogated pursuant to this section should be re-filed pursuant to 
paragraph (b)(1) of section 19 of the Act, SROs are required to file 
electronically such proposed rule changes in accordance with this 
form.
---------------------------------------------------------------------------

B. Need for Careful Preparation of the Completed Form, Including 
Exhibits

    This form, including the exhibits, is intended to elicit 
information necessary for the public to provide meaningful comment 
on the proposed rule change and for the Commission to determine 
whether the proposed rule change is consistent with the requirements 
of the Act and the rules and regulations thereunder applicable to 
the self-regulatory organization. The self-regulatory organization 
must provide all the information called for by the form, including 
the exhibits, and must present the information in a clear and 
comprehensible manner.
    The proposed rule change shall be considered filed on the date 
on which the Commission receives the proposed rule change if the 
filing complies with all requirements of this form. Any filing that 
does not comply with the requirements of this form may be returned 
to the self-regulatory organization at any time before the issuance 
of the notice of filing. Any filing so returned shall for all 
purposes be deemed not to have been filed with the Commission. See 
also Rule 0-3 under the Act (17 CFR 240.0-3).

C. Documents Comprising the Completed Form

    The completed form filed with the Commission shall consist of 
the Form 19b-4 Page 1, numbers and captions for all items, responses 
to all items, and exhibits required in Item 9. In responding to an 
item, the completed form may omit the text of the item as contained 
herein if the response is prepared to indicate to the reader the 
coverage of the item without the reader having to refer to the text 
of the item or its instructions. Each filing shall be marked on the 
Form 19b-4 with the initials of the self-regulatory organization, 
the four-digit year, and the number of the filing for the year 
(i.e., SRO-YYYY-XX). If the SRO is filing Exhibit 2 and 3 via paper, 
the exhibits must be filed within 5 days of the electronic 
submission of all other required documents.

D. Amendments

    If information on this form is or becomes inaccurate before the 
Commission takes action on the proposed rule change, the self-
regulatory organization shall file amendments correcting any such 
inaccuracy. Amendments shall be filed as specified in Instruction F.
    Amendments to a filing shall include the Form 19b-4 Page 1 
marked to number consecutively the amendments, numbers and captions 
for each amended item, amended response to the item, and required 
exhibits. The amended response to Item 3 shall explain the purpose 
of the amendment and, if the amendment changes the purpose of or 
basis for the proposed rule change, the amended response shall also 
provide a revised purpose and basis statement for the proposed rule 
change. Exhibit 1 shall be re-filed if there is a material change 
from the immediately preceding filing in the language of the 
proposed rule change or in the information provided.
    If the amendment alters the text of an existing rule, the 
amendment shall include the text of the existing rule, marked in the 
manner described in Item 1(a) using brackets to indicate words to be 
deleted from the existing rule and underscoring to indicate words to 
be added. The purpose of this marking requirement is to maintain a 
current copy of how the text of the existing rule is being changed.
    If the amendment alters the text of the proposed rule change as 
it appeared in the immediately preceding filing (even if the 
proposed rule change does not alter the text of an existing rule), 
the amendment shall include, as Exhibit 4, the entire text of the 
rule as altered. This full text shall be marked, in any convenient 
manner, to indicate additions to and deletions from the immediately 
preceding filing. The purpose of Exhibit 4 is to permit the staff to 
identify immediately the changes made from the text of the rule with 
which it has been working.
    If the self-regulatory organization is amending only part of the 
text of a lengthy proposed rule change, it may, with the 
Commission's permission, file only those portions of the text of the 
proposed rule change in which changes are being made if the filing 
(i.e., partial amendment) is clearly understandable on its face. 
Such partial amendment shall be clearly identified and marked to 
show deletions and additions.
    If, after the rule change is filed but before the Commission 
takes final action on it, the self-regulatory organization receives 
or prepares any correspondence or other communications reduced to 
writing (including comment letters) to and from such self-regulatory 
organization concerning the proposed rule change, the communications 
shall be filed as Exhibit 2. If information in the communication 
makes the rule change filing inaccurate, the filing shall be amended 
to correct the inaccuracy. If such communications cannot be filed 
electronically in accordance with Instruction F, the communications 
shall be filed in accordance with Instruction G.

E. Completion of Action by the Self-Regulatory Organization on the 
Proposed Rule Change

    The Commission will not approve a proposed rule change before 
the self-regulatory organization has completed all action required 
to be taken under its constitution, articles of incorporation, 
bylaws, rules, or instruments corresponding thereto (excluding 
action specified in any such instrument with respect to (i) 
compliance with the procedures of the Act or (ii) the formal filing 
of amendments pursuant to state law). Nevertheless, proposed rule 
changes (other than proposed rule changes that are to take, or to be 
put into, effect pursuant to Section 19(b)(3) of the Act) may be 
initially filed before the completion of all

[[Page 17874]]

such action if the self-regulatory organization consents, under Item 
6 of this form, to an extension of the period of time specified in 
Section 19(b)(2) or Section 19(b)(7)(D) of the Act until at least 
thirty-five days after the self-regulatory organization has filed an 
appropriate amendment setting forth the taking of all such action. 
If a proposed rule change to be filed for review under Section 
19(b)(2) or Section 19(b)(7)(D) of the Act is in preliminary form, 
the self-regulatory organization may elect to file initially Exhibit 
1 setting forth a description of the subjects and issues expected to 
be involved.

F. Signature and Filing of the Completed Form

    All proposed rule changes, amendments, and withdrawals of 
proposed rule changes shall be filed through the SRTS. In order to 
file Form 19b-4 through SRTS, self-regulatory organizations must 
request access to the SEC's External Application Server by 
completing a request for an external account user ID and password. 
Initial requests will be received by contacting the Market 
Regulation Administrator located on our website (http://www.sec.gov). E-mail will be sent to the requestor that will provide 
a link to a secure website where basic profile information will be 
requested.
    A duly authorized officer of the self-regulatory organization 
shall electronically sign the completed Form 19b-4 as indicated on 
Page 1 of the form. In addition, a duly authorized officer of the 
self-regulatory organization shall manually sign one copy of the 
completed Form 19b-4, and the manually signed signature page shall 
be maintained pursuant to Section 17 of the Act. A registered 
clearing agency for which the Commission is not the appropriate 
regulatory agency shall also file with its appropriate regulatory 
agency three copies of the form, one of which shall be manually 
signed, including exhibits. The Municipal Securities Rulemaking 
Board shall also file copies of the form, including exhibits, with 
the Board of Governors of the Federal Reserve System, the 
Comptroller of the Currency, and the Federal Deposit Insurance 
Corporation.

G. Procedures for Submission of Paper Documents for Exhibits 2 and 
3

    To the extent that Exhibits 2 and 3 cannot be filed 
electronically in accordance with Instruction F, four copies of 
Exhibits 2 and 3 shall be filed with the Division of Market 
Regulation, Securities and Exchange Commission, 450 Fifth Street, 
NW., Washington, DC 20549-1001. Page 1 of the electronic Form 19b-4 
shall accompany paper submissions of Exhibits 2 and 3. If the SRO is 
filing Exhibit 2 and 3 via paper, they must be filed within five 
days of the electronic filing of all other required documents.

H. Withdrawals of Proposed Rule Changes

    If a self-regulatory organization determines to withdraw a 
proposed rule change, it must complete Page 1 of the Form 19b-4 and 
indicate by selecting the appropriate check box to withdraw the 
filing.

I. Procedures for Granting an Extension of Time for Commission 
Final Action

    After the Commission publishes notice of a proposed rule change, 
if a self-regulatory organization wishes to grant the Commission an 
extension of the time to take final action as specified in Section 
19(b)(2), the self-regulatory organization shall indicate on the 
Form 19b-4 Page 1 the granting of said extension as well as the date 
the extension expires.
BILLING CODE 8010-01-P

[[Page 17875]]

[GRAPHIC] [TIFF OMITTED] TP05AP04.012


[[Page 17876]]


[GRAPHIC] [TIFF OMITTED] TP05AP04.013

Information To Be Included in the Completed Form (``Form 19b-4 
Information'')

1. Text of the Proposed Rule Change
    (a) Include the text of the proposed rule change. Changes in, 
additions to, or deletions from, any existing rule shall be set forth 
with brackets used to indicate words to be deleted and underscoring 
used to indicate words to be added.
    If any form, report, or questionnaire or the completion of such is
    (i) proposed to be used in connection with the implementation or 
operation of the proposed rule change, or
    (ii) prescribed or referred to in the proposed rule change, or
    (iii) voluntary or required pursuant to an existing rule of the 
self-regulatory organization, such form, report, or questionnaire, 
together with a statement identifying any existing rule that requires 
completion of the form, report, or questionnaire, shall be attached as 
Exhibit 3. If the form, report, or questionnaire cannot be filed 
electronically in accordance with Instruction F, the documents shall be 
filed in accordance with Instruction G.
    (b) If the self-regulatory organization reasonably expects that the 
proposed rule change will have any direct effect, or significant 
indirect effect, on the application of any other rule of the self-
regulatory organization, set forth the designation or title of any such 
rule and describe the anticipated effect of the proposed rule change on 
the application of such other rule.
    (c) Include the file numbers for prior filings with respect to any 
existing rule specified in response to Item 1(b).

[[Page 17877]]

2. Procedures of the Self-Regulatory Organization
    Describe action on the proposed rule change taken by the members or 
board of directors or other governing body of the self-regulatory 
organization (by amendment if initial filing is prior to completion of 
final action). See Instruction E.
3. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change
    Provide a statement of the purpose of the proposed rule change and 
its basis under the Act and the rules and regulations thereunder 
applicable to the self-regulatory organization. With respect to 
proposed rule changes filed pursuant to Section 19(b)(1) of the Act, 
except for proposed rule changes that have been abrogated pursuant to 
Section 19(b)(7)(C) of the Act, the statement should be sufficiently 
detailed and specific to support a finding under Section 19(b)(2) 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. With respect to 
proposed rule changes filed pursuant to Section 19(b)(1) of the Act 
that have been abrogated pursuant to Section 19(b)(7)(C) of the Act, 
the statement should be sufficiently detailed and specific to support a 
finding under Section 19(b)(7)(D) of the Act that the proposed rule 
change does not unduly burden competition or efficiency, does not 
conflict with the securities laws, and is not inconsistent with the 
public interest or the protection of investors. At a minimum, the 
statement should:
    (a) 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; and
    (b) With respect to the proposed rule changes filed pursuant to 
both Sections 19(b)(1) and 19(b)(2) of the Act, explain why the 
proposed rule change is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to the self-regulatory 
organization. A mere assertion that the proposed rule change is 
consistent with those requirements is not sufficient. With respect to a 
proposed rule change filed pursuant to Section 19(b)(1) of the Act that 
has been abrogated pursuant to Section 19(b)(7)(C) of the Act, explain 
why the proposed rule change does not unduly burden competition or 
efficiency, does not conflict with the securities laws, and is not 
inconsistent with the public interest and the protection of investors, 
in accordance with Section 19(b)(7)(D) of the Act. A mere assertion 
that the proposed rule change satisfies these requirements is not 
sufficient. 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 it is responsible. Certain limitations that the Act imposes on 
self-regulatory organizations are summarized in the notes that follow.

    Note 1: National Securities Exchanges and Registered Securities 
Associations. Under Sections 6 and 15A of the Act, rules of a 
national securities exchange or registered securities association 
may not permit unfair discrimination between customers, issuers, 
brokers, or dealers, and may not regulate, by virtue of any 
authority conferred by the Act, matters not related to the purposes 
of the Act or the administration of the self-regulatory 
organization. Rules of a registered securities association may not 
fix minimum profits or impose any schedule of or fix rates of 
commissions, allowances, discounts, or other fees to be charged by 
its members.
    Under Section 11A(c)(5) of the Act, a national securities 
exchange or registered securities association may not limit or 
condition the participation of any member in any registered clearing 
agency.


    Note 2: Registered Clearing Agencies. Under Section 17A of the 
Act, rules of a registered clearing agency may not permit unfair 
discrimination in the admission of participants or among 
participants in the use of the clearing agency, may not regulate, by 
virtue of any authority conferred by the Act, matters not related to 
the purposes of Section 17A of the Act or the administration of the 
clearing agency, and may not impose any schedule of prices, or fix 
rates or other fees, for services rendered by its participants.


    Note 3: Municipal Securities Rulemaking Board. Under Section 15B 
of the Act, rules of the Municipal Securities Rulemaking Board may 
not permit unfair discrimination between customers, issuers, 
municipal securities brokers, or municipal securities dealers, may 
not fix minimum profits, or impose any schedule or fix rates of 
commissions, allowances, discounts, or other fees to be charged by 
municipal securities brokers or municipal securities dealers, and 
may not regulate, by virtue of any authority conferred by the Act, 
matters not related to the purposes of the Act with respect to 
municipal securities or the administration of the Board.

4. Self-Regulatory Organization's Statement on Burden on Competition
    State whether the proposed rule change will have an impact on 
competition and, if so, (i) state whether the proposed rule change will 
impose any burden on competition or whether it will relieve any burden 
on, or otherwise promote, competition and (ii) specify the particular 
categories of persons and kinds of businesses on which any burden will 
be imposed and the ways in which the proposed rule change will affect 
them. If the proposed rule change amends an existing rule, state 
whether that existing rule, as amended by the proposed rule change, 
will impose any burden on competition. If any impact on competition is 
not believed to be a significant burden on competition, explain why. 
Explain why any burden on competition is necessary or appropriate in 
furtherance of the purposes of the Act. In providing those 
explanations, set forth and respond in detail to written comments as to 
any significant impact or burden on competition perceived by any person 
who has made comments on the proposed rule change to the self-
regulatory organization. The statement concerning burdens on 
competition should be sufficiently detailed and specific to support a 
Commission finding that the proposed rule change does not impose any 
unnecessary or inappropriate burden on competition.
5. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others
    If written comments were received (whether or not comments were 
solicited) from members of or participants in the self-regulatory 
organization or others, summarize the substance of all such comments 
received and respond in detail to any significant issues that those 
comments raised about the proposed rule change. If an issue is 
summarized and responded to in detail under Item 3 or Item 4, that 
response need not be duplicated if appropriate cross-reference is made 
to the place where the response can be found. If comments were not or 
are not to be solicited, so state.
6. Extension of Time Period for Commission Action
    State whether the self-regulatory organization consents to an 
extension of the time period specified in Section 19(b)(2) or Section 
19(b)(7)(D) of the Act and the duration of the extension, if any, to 
which the self-regulatory organization consents.

    Note: The self-regulatory organization may elect to consent to 
an extension of the time period specified in Section 19(b)(2) or 
Section 19(b)(7)(D) of the Act until it shall file an amendment 
which specifically states that the time period specified in Section 
19(b)(2) or Section 19(b)(7)(D) of the Act shall begin to run on the 
date of filing such amendment.

7. Basis for Summary Effectiveness Pursuant to Section 19(b)(3) or for 
Accelerated Effectiveness Pursuant to Section 19(b)(2) or Section 
19(b)(7)(D)
    (a) If the proposed rule change is to take, or to be put into, 
effect, pursuant to Section 19(b)(3), state whether the filing is made 
pursuant to paragraph (A) or (B) thereof.
    (b) In the case of paragraph (A) of Section 19(b)(3), designate 
that 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 applicable 
only to a member,
    (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

[[Page 17878]]

service, and set forth the basis on which such designation is made,
    (v) effects a change in an existing order-entry or trading system 
of a self-regulatory organization that (A) does not significantly 
affect the protection of investors or the public interest; (B) does not 
impose any significant burden on competition; and (C) does not have the 
effect of limiting the access to or availability of the system, or
    (vi) effects a change that (A) does not significantly affect the 
protection of investors or the public interest; (B) does not impose any 
significant burden on competition; and (C) by its terms, does not 
become operative for 30 days after the date of the filing, or such 
shorter time as the Commission may designate if consistent with the 
protection of investors and the public interest; provided that the 
self-regulatory organization has given the Commission written notice of 
its intent to file the proposed rule change, along with a brief 
description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change, 
or such shorter time as designated by the Commission. If it is 
requested that the proposed rule change become operative in less than 
30 days, provide a statement explaining why the Commission should 
shorten this time period.
    (c) In the case of paragraph (B) of Section 19(b)(3), 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 that the proposed rule change should be 
put into effect summarily by the Commission.

    Note: The Commission has the power under Section 19(b)(3)(C) of 
the Act to abrogate summarily within sixty days of its filing any 
proposed rule change which has taken effect 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 rules and regulations thereunder. The Commission 
will generally exercise its summary power under Section 19(b)(3)(B) 
on condition that the proposed rule change to be declared effective 
summarily shall also be subject to the procedures of Section 
19(b)(2) of the Act. Accordingly, in most cases, a summary order 
under Section 19(b)(3)(B) shall be effective only until such time as 
the Commission shall enter an order, pursuant to Section 19(b)(2)(A) 
of the Act, to approve such proposed rule change or, depending on 
the circumstances, until such time as the Commission shall institute 
proceedings to determine whether to disapprove such proposed rule 
change or, alternatively, such time as the Commission shall, at the 
conclusion of such proceedings, enter an order, pursuant to Section 
19(b)(2)(B), approving or disapproving such proposed rule change.

    (d) If accelerated effectiveness pursuant to Section 19(b)(2) or 
Section 19(b)(7)(D) of the Act is requested, provide a statement 
explaining why there is good cause for the Commission to accelerate 
effectiveness.
8. Proposed Rule Change Based on Rules of Another Self-Regulatory 
Organization or of the Commission
    State whether the proposed rule change is based on a rule either of 
another self-regulatory organization or of the Commission, and, if so, 
identify the rule and explain any differences between the proposed rule 
change and that rule, as the filing self-regulatory organization 
understands it. In explaining any such differences, give particular 
attention to differences between the conduct required to comply with 
the proposed rule change and that required to comply with the other 
rule.
9. Exhibits
    List of exhibits to be filed, as specified in Instructions C and D:
    Exhibit 1. Completed Notice of Proposed Rule Change for publication 
in the Federal Register. Amendments to Exhibit 1 should be filed in 
accordance with Instruction D and F.
    Exhibit 2. (a) Copies of notices issued by the self-regulatory 
organization soliciting comment on the proposed rule change and copies 
of all written comments on the proposed rule change received by the 
self-regulatory organization (whether or not comments were solicited), 
presented in alphabetical order, together with an alphabetical listing 
of such comments. If such notices and comments cannot be filed 
electronically in accordance with Instruction F, the notices and 
comments shall be filed in accordance with Instruction G.
    (b) Copies of any transcript of comments on the proposed rule 
change made at any public meeting or, if a transcript is not available, 
a copy of the summary of comments on the proposed rule change made at 
such meeting. If such transcript of comments or summary of comments 
cannot be filed electronically in accordance with Instruction F, the 
transcript of comments or summary of comments shall be filed in 
accordance with Instruction G.
    (c) 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) to and from such self-regulatory 
organization concerning the proposed rule change, the communications 
shall be filed in accordance with Instruction F. If such communications 
cannot be filed electronically in accordance with Instruction F, the 
communications shall be filed in accordance with Instruction G.
    Exhibit 3. Copies of any form, report, or questionnaire covered by 
Item 1(a). If such form, report, or questionnaire cannot be filed 
electronically in accordance with Instruction F, the form, report, or 
questionnaire shall be filed in accordance with Instruction G.
    Exhibit 4. For amendments to a filing, marked copies, if required 
by Instruction D, of the text of the proposed rule change as amended.
    Exhibit 5. The SRO may choose to attach as Exhibit 5 proposed 
changes to rule text in place of providing it in Item I and which may 
otherwise be more easily readable if provided separately from Form 19b-
4. Exhibit 5 shall be considered part of the proposed rule change.

Specific Instructions for Exhibit 1--Notice of Proposed Rule Change

Exhibit 1

Securities and Exchange Commission

[Release No. 34- ; File No. SR ]

Self-Regulatory Organizations

    Proposed Rule Change By (Name of Self-Regulatory Organization) 
Relating to (brief description of subject matter of proposed rule 
change)
-----------------------------------------------------------------------

General Instructions

A. Format Requirements

    Leave a 1-inch margin at the top, bottom, and right hand side, and 
a 1\1/2\ inch margin at the left hand side. Number all pages 
consecutively. Double space all primary text and single space lists of 
items, quoted material when set apart from primary text, footnotes, and 
notes to tables.

B. Need for Careful Preparation of the Notice

    The self-regulatory organization must provide all information 
required in the notice and present it in a clear and comprehensible 
manner. It is the responsibility of the self-regulatory organization to 
prepare Items I, II and III of the notice. The Commission cautions 
self-regulatory organizations to pay particular attention to assure 
that the notice accurately reflects the information provided in the 
Form 19b-4 it accompanies. Any filing that does not comply with the 
requirements of Form 19b-4, including the requirements applicable to 
the notice, may, at any time before the Commission issues a notice of 
filing, be returned to the self-regulatory organization. Any document 
so returned shall for all purposes be deemed not to have been filed 
with the Commission. See Instruction B to Form 19b-4.
-----------------------------------------------------------------------
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 
1934, 15 U.S.C. 78s(b)(1), notice is hereby given that on (date),\67\ 
the (name of self-regulatory organization) filed with the Securities 
and Exchange Commission the proposed rule change as described in Items 
I, II and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \67\ 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. 
See Instruction B to Form 19b-4.
---------------------------------------------------------------------------

Information to Be Included in the Completed Notice

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    (Supply a brief statement of the terms of substance of the proposed 
rule change. If the

[[Page 17879]]

proposed rule change is relatively brief, a separate statement need not 
be prepared, and the text of the proposed rule change may be inserted 
in lieu of the statement of the terms of substance. If the proposed 
rule change amends an existing rule, indicate changes in the rule by 
brackets for words to be deleted and underlined for words to be added.)

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of and basis for the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in sections (A), (B), and (C) below, 
of the most significant aspects of such statements. (Reproduce the 
headings, and summarize briefly the most significant aspects of the 
responses, to Items 3, 4, and 5 of Form 19b-4, redesignating them as 
(A), (B), and (C), respectively.)

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

    (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 such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.
    (If the proposed rule change is to take, or to be put into, effect 
pursuant to Section 19(b)(3) and subparagraph (f) of Securities 
Exchange Act Rule 19b-4, the following paragraph should be used.)
    The foregoing rule change has become effective pursuant to Section 
19(b)(3) of the Act and paragraph (f) of Rule 19b-4 thereunder. At any 
time within 60 days of the filing of the proposed rule change, the 
Commission may summarily abrogate the rule change if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
    (If the proposed rule change is to be considered by the Commission 
pursuant to Section 19(b)(7)(D) of the Act, 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 such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) After consultation with the Commodity Futures Trading 
Commission, institute proceedings to determine whether the proposed 
rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted 
electronically or by paper. Electronic comments may be submitted by: 
(1) Electronic form on the SEC website (http://www.sec.gov) or (2) e-
mail to [email protected]. Mail paper comments in triplicate to 
Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 
Fifth Street, NW., Washington, DC 20549-0609. All submissions should 
refer to file number XX; this file number should be included on the 
subject line if e-mail is used. To help us process and review your 
comments more efficiently, please use only one method. The Commission 
will post all comments on the Commission's internet website (http://www.sec.gov). Comments are also available for public inspection and 
copying in the Commission's Public Reference Room, 450 Fifth Street, 
NW., Washington, DC 20549. We do not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All comments should be submitted 
on or before April 26, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\68\
---------------------------------------------------------------------------

    \68\ 17 CFR 200.30-3(a).
---------------------------------------------------------------------------

Jonathan G. Katz,
Secretary.
[FR Doc. 04-7538 Filed 4-2-04; 8:45 am]
BILLING CODE 8010-01-P