[Federal Register Volume 71, Number 250 (Friday, December 29, 2006)]
[Notices]
[Pages 78476-78479]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-22400]



[[Page 78476]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54983; File No. SR-Amex-2006-87]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing and Order Granting Accelerated Approval of a Proposed 
Rule Change and Amendment Nos. 1 and 2 Thereto Relating to Criteria for 
Securities That Underline Options Traded on the Exchange

December 20, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on September 13, 2006, the American Stock Exchange LLC (``Amex'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
The Exchange filed Amendment No. 1 to the proposed rule change on 
November 22, 2006.\3\ The Exchange filed Amendment No. 2 to the 
proposed rule change on December 14, 2006.\4\ This order provides 
notice of the proposed rule change as modified by Amendment Nos. 1 and 
2 and approved the proposed rule change as amended on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 replaced and superseded the proposed rule 
change as originally filed in its entirety.
    \4\ In Amendment No. 2, which supplemented the filing as amended 
by Amendment No. 1, the Exchange corrected typographical errors and 
made non-substantive, technical changes to the proposed rule text 
contained in Exhibits 4 and 5 of Amendment No. 1 to the proposed 
rule change, and also made a minor clarifying change to Section I of 
the 19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Amex Rules 3, 915, 916, and 957 to 
enable the listing and trading on the Exchange of options on Exchange-
Traded Fund Shares that hold a specified non-U.S. currency or 
currencies. The text of the proposed rule change is available at the 
Amex, the Commission's Public Reference Room, and on the Amex's Web 
site at http://www.amex.com.

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 Exchange 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 those statements may be examined at the places specified in 
Item III below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant aspects of such 
statements.

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

1. Purpose
    The purpose of the proposed rule change is to amend Amex Rules 3, 
915, 916, and 957 to enable the listing and trading on the Exchange of 
options on Exchange-Traded Fund Shares that hold a specified non-U.S. 
currency or currencies. Amex Rule 915, Commentary .06, currently 
provides that securities deemed appropriate for options trading shall 
include shares or other securities (``Exchange-Traded Fund Shares'' or 
``ETFs'') that are principally traded on a national securities exchange 
or through the facilities of a registered national securities 
association, and are defined as an NMS Stock. Commentary .06 further 
states that these shares or securities must also represent an interest 
in a registered investment company organized as an open-end management 
investment company, a unit investment trust or a similar entity which 
holds securities constituting or otherwise based on or representing an 
investment in an index or portfolio of securities. The Exchange 
proposes to amend Commentary .06 to Rule 915 to expand the type of 
options to include options on ETFs that represent an interest in a 
trust or other similar entity that holds specified non-U.S. currency or 
currencies deposited with the trust or similar entity. The Exchange is 
also proposing to require that for Funds that hold a specified non-U.S. 
currency or currencies deposited with the trust, the Exchange will have 
entered into a comprehensive surveillance sharing agreement with the 
marketplace or marketplaces with last sale reporting that represent(s) 
the highest volume in derivatives (options or futures) on the specified 
non-U.S. currency or currencies, which are utilized by the national 
securities exchange where the underlying Funds are listed and 
traded.\5\
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    \5\ See proposed Amex Rule 915, Commentary .06(b)(iv).
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    The proposed amendment to Amex Rule 915 would permit the Exchange 
to list options on, for example, the Euro Currency Trust 
(``Trust'').\6\ The Trust issues Euro Shares (``Shares'') that 
represent units of fractional undivided beneficial interest in, and 
ownership of, the Trust. PADCO Advisors II, Inc., d/b/a Rydex 
Investments, is the sponsor of the Trust (``Sponsor'') \7\ and may be 
deemed the ``issuer'' of the Shares pursuant to Section 2(a)(4) of the 
Securities Act of 1933, as amended. The Bank of New York is the trustee 
of the Trust (``Trustee''), JPMorgan Chase Bank, N.A., London Branch, 
is the depository for the Trust, and Rydex Distributors, Inc. is the 
distributor for the Trust. The Trust intends to issue additional Shares 
on a continuous basis through the Trustee.
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    \6\ See Securities Exchange Act Release No. 53059 (January 5, 
2006), 71 FR 2072 (January 12, 2006) (SR-Amex-2005-128).
    \7\ The Sponsor maintains a public Web site on behalf of the 
Trust, http://www.currencyshares.com, which contains information 
about the Trust and the Shares.
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    As stated in the Trust's registration statement, the investment 
objective of the Trust is for the Shares to reflect the price of the 
euro.\8\ The Shares may be purchased from the Trust only in one or more 
blocks of 50,000 Shares, as described in the prospectus under 
``Creation and Redemption of Shares.'' A block of 50,000 shares is 
called a Basket. The Trust issues Shares in Baskets on a continuous 
basis to certain authorized participants (``Authorized Participants''). 
Each Basket, when created, is offered and sold to an Authorized 
Participant at a price in euro equal to the net asset value (``NAV'') 
for 50,000 Shares on the day that the order to create the Basket is 
accepted by the Trustee. On December 12, 2005, the Shares were sold to 
the public by Authorized Participants at varying prices in dollars by 
reference to, among other things, the market price of euro and the 
trading price of the Shares on the New York Stock Exchange LLC 
(``NYSE'') at the time of each sale. The Shares trade on the NYSE under 
the symbol ``FXE.'' The Shares may also trade in other markets.
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    \8\ See Registration No. 333-125581. The Exchange notes that the 
Trust is not a registered investment company under the Investment 
Company Act of 1940 (the ``1940 Act'') and is not required to 
register under the 1940 Act.
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    The Exchange believes that permitting options on foreign currency-
based Exchange-Traded Fund Shares to trade on the Exchange is 
consistent with the

[[Page 78477]]

Commission's approval order of a rule change filed by the NYSE to list 
and trade shares of the Trust.\9\ This proposed rule change to the 
Exchange's listing criteria for Exchange-Traded Fund Shares is intended 
to provide appropriate listing standards for options on shares of these 
and similar types of foreign currency-based Exchange-Traded Fund Shares 
that may be listed in the future.
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    \9\ See Securities Exchange Act Release No. 52843 (November 28, 
2005), 70 FR 72486 (December 5, 2005) (SR-NYSE-2005-65).
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    For options trading, Exchange-Traded Fund Shares will continue to 
need to satisfy the listing standards in Commentary .06 to Amex Rule 
915. Specifically, the Exchange-Traded Fund Shares must be traded on a 
national securities exchange or through the facilities of a registered 
national securities association and must be an ``NMS Stock'' as defined 
under Rule 600 of Regulation NMS.\10\ The Exchange-Traded Fund Shares 
must also either: (1) Meet the criteria and guidelines under Amex Rule 
915 (Criteria for Underlying Securities); or (2) be available for 
creation or redemption each business day in cash or in-kind from the 
investment company, issuing trust, or other entity at a price related 
to the net asset value, and the investment company, issuing trust, or 
other entity shall provide that Exchange-Traded Fund Shares may be 
created even though some or all of the securities required to be 
deposited have not been received by the unit investment trust or the 
management investment company, provided the authorized creation 
participant has undertaken to deliver the shares as soon as possible 
and such undertaking has been secured by the delivery and maintenance 
of collateral consisting of cash or cash equivalents satisfactory to 
the fund which underlies the option as described in the fund or unit 
trust prospectus.
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    \10\ In light of the implementation of certain aspects of 
Regulation NMS, the Exchange hereby seeks to amend Commentary .06 to 
Amex Rule 915 to reflect that Exchange-Traded Fund Shares must be 
NMS Stocks as defined under Rule 600 of Regulation NMS instead of 
``national market'' securities.
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    Under the applicable continued listing criteria in Commentary .07 
to Amex Rule 916, the Exchange-Traded Fund Shares may be subject to 
delisting as follows: (1) Following the initial twelve-month period 
beginning upon the commencement of trading of the Exchange-Traded Fund 
Shares, there are fewer than 50 record and/or beneficial holders of the 
Exchange-Traded Fund Shares for 30 or more consecutive trading days; 
(2) the value of the euro is no longer calculated or available; \11\ or 
(3) such other event occurs or condition exists that in the opinion of 
the Exchange makes further dealing on the Exchange inadvisable. 
Additionally, the Exchange-Traded Fund Shares shall not be deemed to 
meet the requirements for continued approval, and the Exchange shall 
not open for trading any additional series of option contracts of the 
class covering such Exchange-Traded Fund Shares, if trading in the 
shares is halted or suspended on their primary market, or if the 
Exchange-Traded Fund Shares are delisted in accordance with the terms 
of Amex Rule 916.
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    \11\ The Exchange states that euro pricing information based on 
the euro spot price is available to investors on a 24-hour basis 
from numerous financial information service providers, and there are 
a variety of other public Web sites proving information on foreign 
currency and euro, including Bloomberg, CBS MarketWatch, and Yahoo! 
Finance.
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    The Exchange represents that the expansion of the types of 
investments that may be held by an Exchange-Traded Fund Share under 
Amex rules will not have any effect on the rules pertaining to position 
and exercise limits \12\ or margin.\13\
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    \12\ See Amex Rules 904 and 905.
    \13\ See Amex Rule 462.
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    The Exchange is proposing to amend Amex Rule 957 to ensure that 
Specialists and Registered Traders handling Exchange-Traded Fund Shares 
provide the Exchange with all necessary information relating to their 
trading in the applicable non-U.S. currency, non-U.S. currency options, 
futures or options on futures on such currency, or any other 
derivatives based on such currency. In addition, the revision to Amex 
Rule 957 will prohibit a specialist or registered trader from engaging 
in trading in non-U.S. currency, non-U.S. currency options, futures, 
options on futures or non-U.S. currency and other derivatives based on 
such currency from trading in an account which has not been reported to 
the Exchange.
    Finally, the Exchange is proposing to amend Amex Rule 3 to require 
members and member organizations to establish, maintain, and enforce 
written policies and procedures to prevent the misuse of material 
nonpublic information in connection with trading in securities issued 
by, among others, currency trust shares or similar entities, or in any 
related securities or related options or other derivative securities, 
or in any related non-U.S. currency, non-U.S. currency options, futures 
or options on futures on such currency, or any other derivatives based 
on such currency while in possession of material nonpublic information 
concerning that currency trust share or similar entity. The Exchange 
further proposes to require such procedures to prevent the trading of 
any of the foregoing securities while in possession of knowledge 
concerning imminent transactions of the same securities. Finally, the 
Exchange proposes to require procedures to prevent the disclosure of 
material nonpublic information involving the foregoing to another 
person.
    The Exchange represents that it has an adequate surveillance 
program in place for options on Exchange-Traded Fund Shares based on 
the value of a non-U.S. currency or currencies. In addition, the 
Exchange may obtain trading information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges who are members or 
affiliates of the ISG. Specifically, the Amex can obtain such 
information from the Philadelphia Stock Exchange (``Phlx'') in 
connection with euro options trading on the Phlx and from the Chicago 
Mercantile Exchange (``CME'') and the London International Financial 
Futures Exchange (``LIFFE'') in connection with euro futures trading on 
those exchanges.\14\
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    \14\ The Amex and PHLX are members of the ISG. CME and LIFFE are 
affiliate members of the ISG.
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2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) \15\ of 
the Act, in general, and furthers the objectives of Section 
6(b)(5),\16\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, protect investors and the public interest.
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    \15\ 15 U.S.C. 78f(b).
    \16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

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

    No written comments were solicited or received with respect to the 
proposed rule change by the Exchange.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing,

[[Page 78478]]

including whether the proposed rule change, as amended, 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-Amex-2006-87 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-Amex-2006-87. 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 at 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 the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. 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 No. SR-Amex-2006-87 and should be submitted on or before January 
19, 2007.

IV. Commission's Findings and Order Granting Accelerated Approval of 
the Proposed Rule Change

    Amex has asked the Commission to approve its proposal on an 
accelerated basis to accommodate its timetable for listing options on 
Exchange-Traded Fund Shares, as described above. After careful 
consideration, the Commission finds that the proposed rule change is 
consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\17\ In particular, the Commission finds that the proposed 
rule change is consistent with the requirements of Section 6(b)(5) of 
the Act, which requires, among other things, that the rules of an 
exchange be designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.\18\ Further, the Commission finds that the Exchange's 
proposal is substantially similar to one it recently approved for the 
International Securities Exchange LLC (``ISE'').\19\
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    \17\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ See Securities Exchange Act Release No. 54087 (June 30, 
2006), 71 FR 38918 (July 10, 2006) (SR-ISE-2005-60). The Amex stated 
that it based its proposed rule change on the ISE filing.
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    Currently, Amex's rules permit it to list options on Exchange-
Traded Fund Shares that represent an interest in a registered 
investment company organized as an open-end management investment 
company, a unit investment trust or a similar entity which holds 
securities constituting or otherwise based on or representing an 
investment in an index or portfolio of securities.\20\ The Exchange's 
proposal would allow it to list and trade options on Exchange-Traded 
Fund Shares whose investment assets consist of a specified non-U.S. 
currency or currencies deposited with a trust or similar entity. For 
example, the proposed rule change would allow the Exchange to list 
options on the Euro Currency Trust.
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    \20\ See Amex Rule 915, Commentary .06.
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    The underlying Exchange-Traded Fund Shares would continue to need 
to satisfy the listing standards in Amex Rule 915. To accommodate the 
listing and trading of options on Exchange-Traded Fund Shares investing 
primarily in non-U.S. currency, the Exchange proposes to amend Amex 
Rule 3 to require a member or member organization to establish, 
maintain, and enforce written policies and procedures designed to 
prevent the misuse of any material nonpublic information it might have 
or receive in a related security, option, or derivative security or in 
the applicable non-U.S. currency, non-U.S. currency options, futures or 
options on futures on such currency, or any other derivatives based on 
such currency. In addition, the Exchange proposes to amend Amex Rule 
957 to require that Specialists and Registered Traders handling 
Exchange-Traded Fund Shares provide the Exchange with all necessary 
information relating to their trading in the applicable non-U.S. 
currency, non-U.S. currency options, futures or options on futures on 
such currency, or any other derivatives based on such currency. Each 
Specialist and Registered Trader also would be obligated to conduct all 
trading in the Exchange-Traded Fund Shares in account(s) which have 
been reported to the Exchange. The Commission believes that these 
requirements are designed to minimize the potential for manipulating 
the underlying currency held by the Exchange-Traded Fund Shares.
    As proposed, the Exchange-Traded Fund Shares must be traded on a 
national securities exchange or through the facilities of a registered 
national securities association and must be an ``NMS stock'' as defined 
under Rule 600 of Regulation NMS.\21\ The Exchange-Traded Fund Shares 
must also either: (1) Meet the criteria and guidelines under Amex Rule 
915, Commentary .01; or (2) be available for creation or redemption 
each business day from and through the investment company, issuing 
trust, or other entity in cash or in-kind at a price related to net 
asset value, and the investment company, issuing trust, or other entity 
shall provide that shares may be created even though some or all of the 
investments required to be deposited have not been received by the unit 
investment trust or the management investment company, provided that 
the person obligated to deposit the investments has undertaken to 
deliver the investment assets as soon as possible and such undertaking 
has been secured by the delivery and maintenance of collateral 
consisting of cash or cash equivalents satisfactory to the fund which 
underlies the option, as described in the fund or unit trust 
prospectus. Furthermore, the Commission notes that the Exchange has 
represented that the expansion of the types of investments that may be 
held by Exchange-Traded Fund Shares under Amex rules will not have any 
effect on the rules pertaining to position and exercise limits or 
margin.
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    \21\ 17 CFR 242.600(b)(47).
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    Finally, under the proposed change to Amex Rule 916, Commentary 
.07, Exchange-Traded Fund Shares would not be deemed to meet the 
requirements for continued approval, and the Exchange would not open 
for trading any additional series of option contracts of the class 
covering such Exchange-Traded Fund Shares, if the Exchange-Traded Fund 
Shares are delisted in

[[Page 78479]]

accordance with Commentary .01(5) of Amex Rule 916 or trading in the 
shares are halted or suspended in their primary market. Additionally, 
as proposed, the Exchange will consider the suspension of opening 
transactions in any series of options covering Exchange-Traded Fund 
Shares if the value of the non-U.S. currency on which the Exchange-
Traded Fund Shares are based is no longer calculated or available. The 
Commission believes that the proposed change to Amex Rule 916 with 
respect to withdrawal of approval is consistent with the protection of 
investors and the public interest.
    The Commission notes that the Exchange has represented that it has 
an adequate surveillance program in place for options on Exchange-
Traded Fund Shares, including those funds that are based on the value 
of a non-U.S. currency. In addition, the Exchange has represented that 
it is able to obtain currency-related trading information via the ISG 
from other exchanges who are members or affiliates of the ISG, as 
discussed above, in connection with options and futures trading on 
those exchanges.
    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirtieth day after the date of 
publication of the notice of filing thereof in the Federal Register. 
The Exchange has requested accelerated approval because this proposed 
rule change is based on, and is substantially similar to, a proposal by 
the ISE that the Commission recently approved.\22\ Accordingly, this 
proposal raises no new or novel regulatory issues that have not been 
previously considered by the Commission. In addition, the Commission 
notes that it did not receive any comments on the ISE's proposal. The 
Commission believes that expanding Amex Rule 915 to encompass options 
on Exchange-Traded Fund Shares that represent interests in a trust that 
holds non-U.S. currency deposited with the trust will provide investors 
with an additional investment choice and that accelerated approval of 
the proposal will allow investors to begin trading these products 
promptly. Additionally, the proposal contains measures that are 
designed to minimize the potential for manipulation of the underlying 
currency held by the Exchange-Traded Fund Shares. Therefore, the 
Commission finds good cause, consistent with Section 19(b)(2) of the 
Act,\23\ to approve the amended proposal on an accelerated basis.
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    \22\ See Securities Exchange Act Release No. 54087 (June 30, 
2006), 71 FR 38918 (July 10, 2006) (SR-ISE-2005-60).
    \23\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\24\ that the proposed rule change (SR-Amex-2006-87), as modified 
by Amendment Nos. 1 and 2, be, and it hereby is, approved on an 
accelerated basis.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E6-22400 Filed 12-28-06; 8:45 am]
BILLING CODE 8011-01-P