[Federal Register Volume 70, Number 12 (Wednesday, January 19, 2005)]
[Notices]
[Pages 3075-3077]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-172]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51012; File No. SR-CTA/CQ-2004-01]


Consolidated Tape Association; Notice of Filing of the Seventh 
Substantive Amendment to the Second Restatement of the Consolidated 
Tape Association Plan and the Fifth Substantive Amendment to the 
Restated Consolidated Quotation Plan

January 10, 2005.
    Pursuant to Rule 11Aa3-2 \1\ under the Securities Exchange Act of 
1934 (``Act''), notice is hereby given that on December 3, 2004, the 
Consolidated Tape Association (``CTA'') Plan and Consolidated Quotation 
(``CQ'') Plan Participants (``Participants'') \2\ filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') a 
proposal to amend the CTA and CQ Plans (collectively, the ``Plans''). 
The proposal represents the 7th substantive amendment made to the 
Second Restatement of the CTA Plan and the 5th substantive amendment to 
the Restated CQ Plan, and reflects changes unanimously adopted by the 
Participants. The proposed amendments would modify the procedures for 
joining the Plans as a new Participant. In addition, the proposed 
amendments would perform the ``housekeeping'' function of incorporating 
into the text of the Plans changes to the corporate names and addresses 
of some Participants. The Commission is publishing this notice to 
solicit comments from interested persons on the proposed amendments to 
the Plans.
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    \1\ 17 CFR 240.11Aa3-2.
    \2\ Each Participant executed the proposed amendments. The 
Participants are the American Stock Exchange LLC (``Amex''); Boston 
Stock Exchange, Inc. (``BSE''); Chicago Board Options Exchange, Inc. 
(``CBOE''); Chicago Stock Exchange (``CHX''), Inc.; National 
Association of Securities Dealers, Inc. (``NASD''); National Stock 
Exchange (``NSX''); New York Stock Exchange, Inc. (``NYSE''); 
Pacific Exchange, Inc. (``PCX''); and Philadelphia Stock Exchange, 
Inc. (``Phlx'').
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I. Description and Purpose of the Amendments

A. Rule 11Aa3-2 \3\
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    \3\ 17 CFR 240.11Aa3-2.
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    The proposed amendments would modify the procedures pursuant to 
which a new national securities exchange or new national securities 
association may join the Plans as a new Participant. More specifically, 
the proposed amendments would modify the process for determining the 
fees that a new national securities exchange or a new national 
securities association must pay in order to join the Plans.
    Currently, both Plans require a new entrant to pay the Participants 
an amount that ``attributes an appropriate value to the assets, both 
tangible and intangible, that CTA has created and will make available 
to such new Participant.'' \4\ The Plans allow for the Participants to 
consider one or more of six factors in assessing the appropriate 
value.\5\ The Commission approved the addition of these entry-fee 
criteria to both Plans in 1993.\6\ However, since the criteria were 
adopted, no entity has joined the Plans. CBOE was the last Participant 
to join the Plans, having done so in 1991.
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    \4\ Section III(c) of the Plans.
    \5\ Id.
    \6\ See Securities Exchange Act Release No. 33319 (December 10, 
1993), 58 FR 66040 (December 17, 1993) (File No. S7-27-93).
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    In 1999, the Options Price Reporting Authority (``OPRA'') Plan 
Participants sought to adopt the same criteria adopted by the CTA to 
determine the appropriate participation fee to join the OPRA Plan.\7\ 
The Commission received negative comments regarding the previously 
approved factors OPRA proposed to consider in determining the amount of 
its participation fee. The commenters asserted that the proposed OPRA 
Plan criteria could create a barrier to entry into the options industry 
that could harm competition. In response, OPRA modified and adopted 
new, more objective factors to be considered in determining the 
appropriate new entrant participation fee.\8\ Consequently, in light of 
the comments received on the current CTA/CQ Plan criteria that OPRA was 
proposing to adopt, at the October 2001 CTA meeting, a Division of 
Market Regulation (``Division'') staff member suggested that the CTA 
consider amending its Plan criteria for determining new entrant fees to 
conform to the criteria that was more recently adopted by OPRA.
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    \7\ See Securities Exchange Act Release No. 42002 (October 13, 
1999), 64 FR 56543 (October 20, 1999) (notice of File No. SR-OPRA-
99-01).
    \8\ See Securities Exchange Act Release No. 43697 (December 8, 
2000), 65 FR 78518 (December 15, 2000) (order approving File No. SR-
OPRA-00-08); see also Securities Exchange Act Release Nos. 43347 
(September 26, 2000), 65 FR 59035 (October 3, 2000) (notice of File 
No. SR-OPRA-00-08); and 42817 (May 24, 2000), 65 FR 35147 (June 1, 
2000) (notice of filing and order granting accelerated effectiveness 
to File No. SR-OPRA-99-01).
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    In 2002, The Nasdaq Stock Market, Inc. (``Nasdaq'') and Island ECN 
expressed interest in joining the Plans and inquired as to the amount 
of the entry fee. In response, the Participants engaged Deloitte & 
Touche, asking it to assign a value to each of the six current Plan 
criteria for determining a new entrant's fee. The Division expressed 
concerns to the Participants regarding the methodology contemplated by 
the CTA and Deloitte & Touche because it believed that the methodology 
contained factors that should not be considered in determining a proper 
entrance fee for new entrants.\9\ The Division further noted that the 
entrance fee amount the Committee was considering at the time might 
have an anti-competitive effect on potential new entrants.\10\
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    \9\ See letters to William J. Brodsky, Chairman and Chief 
Executive Officer, CBOE; David Colker, President and Chief Executive 
Officer, NSX; Philip D. DeFeo, Chairman and Chief Executive Officer, 
PCX; Meyer S. Frucher, Chairman and Chief Executive Officer, Phlx; 
Richard Grasso, Chairman and Chief Executive Officer, NYSE; David A. 
Herron, Chief Executive Officer, CHX; Richard Ketchum, President and 
Deputy Chairman, Nasdaq; Kenneth L. Leibler, Chairman and Chief 
Executive Officer, BSE; and Salvatore F. Sadano, Chairman and Chief 
Executive Officer, Amex, from Annette L. Nazareth, Director, dated 
March 13, 2003.
    \10\ Id.
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    In light of the Division's concerns that the current Plan standards 
do not provide an objective basis for determining entrance fees for new 
Participants and that the fees should be based solely on objective 
criteria and costs that could be easily calculated and that could be 
readily discernable (similar to the methodology currently used for 
determining such fees in the OPRA Plan),\11\ the Participants are 
proposing new standards for determining a new Participant's entry fee 
based on the OPRA Plan criteria. The proposed amendments would allow 
the Participants to consider one or both of the following in 
determining a new entrant's fee: (1) The portion of costs previously 
paid by the CTA for the development, expansion and maintenance of CTA's 
facilities which, under generally accepted accounting principles 
(``GAAP''), could have been treated as capital expenditures and, if so 
treated, would have been amortized over the five years preceding the 
admission of the new Participant (and for this purpose all such capital 
expenditures shall be deemed to have a five-year amortizable life) 
\12\; and (2) previous amounts paid by other new

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Participants to joined the Plans.\13\ In addition, the proposed 
amendments would require the new Participant to reimburse the Plan 
Processor for the costs that the Processor incurs in modifying CTS and 
CQS systems to accommodate the new Participant and for an additional 
capacity costs.\14\ Any disagreement among the Participants regarding 
the fee calculation would be subject to Commission review pursuant to 
Section 11A(b)(5) of the Act.\15\
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    \11\ See letters to Thomas E. Haley, Chairman, CTA, from Annette 
L. Nazareth, Director, Division, Commission, dated August 3, and 
November 3, 2004.
    \12\ The Commission notes that the Participants should only 
consider tangible assets that are capital expenditures under GAAP in 
the fee calculation. In addition, the Commission notes that the 
Participants should not to consider any historical costs of 
operating the systems prior to the time the new Participant joins 
the Plans.
    \13\ The Commission notes that in considering the amounts that 
have been paid by other Participants to join the Plans, the 
Participants should only consider such fees on a ``going forward'' 
basis, which are determined by the proposed methodology. The 
Commission further notes that the fee that CBOE paid to join the 
Plans in 1991 should not be considered because it was not based on 
the proposed factors and therefore does not constitute a relevant 
fee for comparison purposes.
    \14\ The Commission notes that in utilizing this criteria, the 
Participants should not consider any criteria that would result in a 
``double counting'' of costs because the new entrant and other Plan 
participants are required to individually pay their own costs (e.g., 
capacity needs).
    \15\ 15 U.S.C. 78k-1(b)(5).
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    Finally, the proposed amendments would perform the ``housekeeping'' 
function of updating the names and addresses of the Plans'' 
Participants. In the last few years, the ``Pacific Stock Exchange, 
Inc.'' has become the ``Pacific Exchange, Inc.,'' the ``American Stock 
Exchange, Inc.'' has become the ``American Stock Exchange, LLC,'' and 
the Cincinnati Stock Exchange, Inc.'' has become the ``National Stock 
Exchange.''

B. Governing or Constituent Documents

    Not applicable.

C. Implementation of Amendment

    The Participants have manifested their approval of the proposed 
amendments to the Plans by means of their execution of the proposed 
amendments. The proposed amendments would become effective upon 
Commission approval of the amendments.

D. Development and Implementation Phases

    Not applicable.

E. Analysis of Impact on Competition

    The Participants believe that the proposed amendments do not impose 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Participants do not believe 
that the proposed Plan amendments introduce terms that are unreasonably 
discriminatory for the purposes of Section 11A(c)(1)(D) \16\ of the 
Act.
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    \16\ 15 U.S.C. 78k-1(c)(1)(D).
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F. Written Understanding or Agreements Relating to Interpretation of, 
or Participation in, Plan

    Not applicable.

G. Approval by Sponsors in Accordance With Plan

    Upon the Commission's receipt of executed versions of the proposed 
amendments by each of the Plans' Participants, each of the Participants 
shall have approved the proposed amendments in accordance with Section 
IV(b) of the CTA Plan and Section IV(c) of the CQ Plan.

H. Description of Operation of Facility Contemplated by the Proposed 
Amendment

    Not applicable.

I. Terms and Conditions of Access

    See Item I(A) above.

J. Method of Determination and Imposition, and Amount of, Fees and 
Charges

    See Item I(A) above.

K. Method and Frequency of Processor Evaluation

    Not applicable.

L. Dispute Resolution

    Not applicable.

II. Rule 11Aa3-1 \17\
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    \17\ 17 CFR 240.11Aa3-1.
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A. Reporting Requirements

    Not applicable.

B. Manner of Collecting, Processing, Sequencing, Making Available and 
Disseminating Last Sale Information

    Not applicable.

C. Manner of Consolidation

    Not applicable.

D. Standards and Methods Ensuring Promptness, Accuracy and Completeness 
of Transaction Reports

    Not applicable.

E. Rules and Procedures Addressed to Fraudulent or Manipulative 
Dissemination

    Not applicable.

F. Terms of Access to Transaction Reports

    Not applicable.

G. Identification of Marketplace of Execution

    Not applicable.

III. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-CTA/CQ-2004-01 on the subject line.

Paper Comments

     Send 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 SR-CTA/CQ-2004-01. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for inspection 
and copying in the Commission's Public Reference Room. Copies of such 
filing also will be available for inspection and copying at the 
principal office of the CTA. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-CTA/CQ-2004-01 and should be submitted on or before 
February 9, 2005.


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(27).
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Jill M. Petersen,
Assistant Secretary.
 [FR Doc. E5-172 Filed 1-18-05; 8:45 am]
BILLING CODE 8010-01-P