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					                                                                               17
                                                                               Part 240 to End
                                                                               Revised as of April 1, 2005



                                                                               Commodity and
                                                                               Securities Exchanges

                                                                               Containing a codification of documents
                                                                               of general applicability and future effect

                                                                               As of April 1, 2005

                                                                               With Ancillaries

                                                                               Published by
                                                                               Office of the Federal Register
                                                                               National Archives and Records
                                                                               Administration


                                                                               A Special Edition of the Federal Register




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                                                    U.S. GOVERNMENT OFFICIAL EDITION NOTICE

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                                                        Table of Contents
                                                                                                                                               Page
                                Explanation ................................................................................................     v



                                Title 17:


                                           Chapter II—Securities and Exchange Commission (Continued) ......                                       3


                                           Chapter IV—Department of the Treasury .......................................                        955


                                Finding Aids:


                                      Material Approved for Incorporation by Reference ............................                            1029


                                      Table of CFR Titles and Chapters .......................................................                 1031


                                      Alphabetical List of Agencies Appearing in the CFR .........................                             1049


                                      Table of OMB Control Numbers ..........................................................                  1059


                                      List of CFR Sections Affected .............................................................              1065




                                                                                          iii



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                                                               Cite this Code:                CFR

                                                               To cite the regulations in
                                                                this volume use title,
                                                                part and section num-
                                                                ber. Thus, 17 CFR
                                                                240.0–1 refers to title 17,
                                                                part 240, section 0–1.




                                                                                      iv



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                                                                               Explanation
                                   The Code of Federal Regulations is a codification of the general and permanent
                                rules published in the Federal Register by the Executive departments and agen-
                                cies of the Federal Government. The Code is divided into 50 titles which represent
                                broad areas subject to Federal regulation. Each title is divided into chapters
                                which usually bear the name of the issuing agency. Each chapter is further sub-
                                divided into parts covering specific regulatory areas.
                                   Each volume of the Code is revised at least once each calendar year and issued
                                on a quarterly basis approximately as follows:
                                     Title 1 through Title 16..............................................................as of January 1
                                     Title 17 through Title 27 .................................................................as of April 1
                                     Title 28 through Title 41 ..................................................................as of July 1
                                     Title 42 through Title 50 .............................................................as of October 1
                                   The appropriate revision date is printed on the cover of each volume.
                                LEGAL STATUS
                                   The contents of the Federal Register are required to be judicially noticed (44
                                U.S.C. 1507). The Code of Federal Regulations is prima facie evidence of the text
                                of the original documents (44 U.S.C. 1510).
                                HOW TO USE THE CODE OF FEDERAL REGULATIONS
                                   The Code of Federal Regulations is kept up to date by the individual issues
                                of the Federal Register. These two publications must be used together to deter-
                                mine the latest version of any given rule.
                                   To determine whether a Code volume has been amended since its revision date
                                (in this case, April 1, 2005), consult the ‘‘List of CFR Sections Affected (LSA),’’
                                which is issued monthly, and the ‘‘Cumulative List of Parts Affected,’’ which
                                appears in the Reader Aids section of the daily Federal Register. These two lists
                                will identify the Federal Register page number of the latest amendment of any
                                given rule.
                                EFFECTIVE AND EXPIRATION DATES
                                   Each volume of the Code contains amendments published in the Federal Reg-
                                ister since the last revision of that volume of the Code. Source citations for
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                                Register and date of publication. Publication dates and effective dates are usu-
                                ally not the same and care must be exercised by the user in determining the
                                actual effective date. In instances where the effective date is beyond the cut-
                                off date for the Code a note has been inserted to reflect the future effective
                                date. In those instances where a regulation published in the Federal Register
                                states a date certain for expiration, an appropriate note will be inserted following
                                the text.
                                OMB CONTROL NUMBERS
                                  The Paperwork Reduction Act of 1980 (Pub. L. 96–511) requires Federal agencies
                                to display an OMB control number with their information collection request.

                                                                                      v



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                                Many agencies have begun publishing numerous OMB control numbers as amend-
                                ments to existing regulations in the CFR. These OMB numbers are placed as
                                close as possible to the applicable recordkeeping or reporting requirements.
                                OBSOLETE PROVISIONS
                                   Provisions that become obsolete before the revision date stated on the cover
                                of each volume are not carried. Code users may find the text of provisions in
                                effect on a given date in the past by using the appropriate numerical list of
                                sections affected. For the period before January 1, 2001, consult either the List
                                of CFR Sections Affected, 1949–1963, 1964–1972, 1973–1985, or 1986–2000, published
                                in 11 separate volumes. For the period beginning January 1, 2001, a ‘‘List of CFR
                                Sections Affected’’ is published at the end of each CFR volume.
                                INCORPORATION BY REFERENCE
                                   What is incorporation by reference? Incorporation by reference was established
                                by statute and allows Federal agencies to meet the requirement to publish regu-
                                lations in the Federal Register by referring to materials already published else-
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                                must approve it. The legal effect of incorporation by reference is that the mate-
                                rial is treated as if it were published in full in the Federal Register (5 U.S.C.
                                552(a)). This material, like any other properly issued regulation, has the force
                                of law.
                                   What is a proper incorporation by reference? The Director of the Federal Register
                                will approve an incorporation by reference only when the requirements of 1 CFR
                                part 51 are met. Some of the elements on which approval is based are:
                                   (a) The incorporation will substantially reduce the volume of material pub-
                                lished in the Federal Register.
                                   (b) The matter incorporated is in fact available to the extent necessary to
                                afford fairness and uniformity in the administrative process.
                                   (c) The incorporating document is drafted and submitted for publication in
                                accordance with 1 CFR part 51.
                                   Properly approved incorporations by reference in this volume are listed in the
                                Finding Aids at the end of this volume.
                                   What if the material incorporated by reference cannot be found? If you have any
                                problem locating or obtaining a copy of material listed in the Finding Aids of
                                this volume as an approved incorporation by reference, please contact the agency
                                that issued the regulation containing that incorporation. If, after contacting the
                                agency, you find the material is not available, please notify the Director of the
                                Federal Register, National Archives and Records Administration, Washington DC
                                20408, or call 202-741-6010.
                                CFR INDEXES AND TABULAR GUIDES
                                   A subject index to the Code of Federal Regulations is contained in a separate
                                volume, revised annually as of January 1, entitled CFR INDEX AND FINDING AIDS.
                                This volume contains the Parallel Table of Statutory Authorities and Agency
                                Rules (Table I). A list of CFR titles, chapters, and parts and an alphabetical
                                list of agencies publishing in the CFR are also included in this volume.
                                   An index to the text of ‘‘Title 3—The President’’ is carried within that volume.
                                   The Federal Register Index is issued monthly in cumulative form. This index
                                is based on a consolidation of the ‘‘Contents’’ entries in the daily Federal Reg-
                                ister.
                                   A List of CFR Sections Affected (LSA) is published monthly, keyed to the
                                revision dates of the 50 CFR titles.

                                                                                      vi



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                                REPUBLICATION OF MATERIAL
                                   There are no restrictions on the republication of textual material appearing
                                in the Code of Federal Regulations.
                                INQUIRIES
                                  For a legal interpretation or explanation of any regulation in this volume,
                                contact the issuing agency. The issuing agency’s name appears at the top of
                                odd-numbered pages.
                                  For inquiries concerning CFR reference assistance, call 202-741-6000 or write
                                to the Director, Office of the Federal Register, National Archives and Records
                                Administration, Washington, DC 20408 or e-mail fedreg.info@nara.gov.
                                SALES
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                                ELECTRONIC SERVICES
                                   The full text of the Code of Federal Regulations, the LSA (List of CFR Sections
                                Affected), The United States Government Manual, the Federal Register, Public
                                Laws, Public Papers, Weekly Compilation of Presidential Documents and the Pri-
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                                contains links to GPO Access.

                                                                                                         RAYMOND A. MOSLEY,
                                                                                                                          Director,
                                                                                                       Office of the Federal Register.
                                   April 1, 2005.




                                                                                     vii



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                                                                               THIS TITLE

                                   Title 17—COMMODITY AND SECURITIES EXCHANGES is composed of three volumes.
                                The first volume containing parts 1 to 199, comprises Chapter I—Commodity Fu-
                                tures Trading Commission. The second volume contains Chapter II—Securities
                                and Exchange Commission, parts 200 to 239. The third volume, comprising part
                                240 to end, contains the remaining regulations of the Securities and Exchange
                                Commission, and Chapter IV—Department of the Treasury. The contents of these
                                volumes represent all current regulations issued by the Commodity Futures
                                Trading Commission, the Securities and Exchange Commission, and the Depart-
                                ment of the Treasury as of April 1, 2005.

                                   The OMB control numbers for the Securities and Exchange Commission appear
                                in § 200.800 of Chapter II. For the convenience of the user, § 200.800 is reprinted
                                in the Finding Aids section of the volume containing part 240 to end.

                                  For this volume, Robert J. Sheehan was Chief Editor. The Code of Federal
                                Regulations publication program is under the direction of Frances D. McDonald,
                                assisted by Alomha S. Morris.




                                                                                      ix



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                                           Title 17—Commodity
                                                and Securities
                                                 Exchanges
                                                               (This book contains part 240 to end)




                                                                                                                                    Part

                                CHAPTER II—Securities             and Exchange Commission (Contin-
                                   ued) ....................................................................................        240
                                CHAPTER IV—Department                      of the Treasury .............................            400




                                                                                      1



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                                       CHAPTER II—SECURITIES AND EXCHANGE
                                                        COMMISSION (CONTINUED)


                                Part                                                                                                Page
                                240            General rules and regulations, Securities Exchange
                                                 Act of 1934 ............................................................             5
                                241            Interpretative releases relating to the Securities
                                                 Exchange Act of 1934 and general rules and regu-
                                                 lations thereunder ................................................                548
                                242            Regulations M, SHO, ATS, and AC and customer
                                                 margin requirements for security futures ............                              554
                                243            Regulation FD .........................................................              584
                                244            Regulation G ...........................................................             586
                                245            Regulation blackout trading restriction .................                            588
                                248            Regulation S-P: Privacy of consumer financial in-
                                                 formation .............................................................            594
                                249            Forms, Securities Exchange Act of 1934 ..................                            613
                                249a           Forms, Securities Investor Protection Act of 1970
                                                 [Reserved]
                                249b           Further forms, Securities Exchange Act of 1934 .....                                 631
                                250            General rules and regulations, Public Utility Hold-
                                                 ing Company Act of 1935 .......................................                    632
                                251            Interpretative releases relating to the Public Util-
                                                 ity Holding Company Act of 1935 and general
                                                 rules and regulations thereunder .........................                         676
                                256            Uniform system of accounts for mutual service
                                                 companies and subsidiary service companies,
                                                 Public Utility Holding Company Act of 1935 ........                                677
                                257            Preservation and destruction of records of reg-
                                                 istered public utility holding companies and of
                                                 mutual and subsidiary service companies ............                               695
                                259            Forms prescribed under the Public Utility Holding
                                                 Company Act of 1935 .............................................                  702
                                260            General rules and regulations, Trust Indenture Act
                                                 of 1939 ...................................................................        706
                                261            Interpretative releases relating to the Trust Inden-
                                                 ture Act of 1939 and general rules and regulations
                                                 thereunder ............................................................            723

                                                                                      3



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                                                                                                       17 CFR Ch. II (4–1–05 Edition)

                                Part                                                                                                Page
                                269            Forms prescribed under the Trust Indenture Act of
                                                 1939 .......................................................................       724
                                270            Rules and regulations, Investment Company Act of
                                                 1940 .......................................................................       726
                                271            Interpretative releases relating to the Investment
                                                 Company Act of 1940 and general rules and regu-
                                                 lations thereunder ................................................                887
                                274            Forms prescribed under the Investment Company
                                                 Act of 1940 ............................................................           890
                                275            Rules and regulations, Investment Advisers Act of
                                                 1940 .......................................................................       898
                                276            Interpretative releases relating to the Investment
                                                 Advisers Act of 1940 and general rules and regula-
                                                 tions thereunder ...................................................               932
                                279            Forms prescribed under the Investment Advisers
                                                 Act of 1940 ............................................................           933
                                281            Interpretative releases relating to corporate reor-
                                                 ganizations under Chapter X of the Bankruptcy
                                                 Act .......................................................................        934
                                285            Rules and regulations pursuant to section 15(a) of
                                                 the Bretton Woods Agreements Act .....................                             934
                                286            General rules and regulations pursuant to section
                                                 11(a) of the Inter-American Development Bank
                                                 Act .......................................................................        936
                                287            General rules and regulations pursuant to section
                                                 11(a) of the Asian Development Bank Act ............                               938
                                288            General rules and regulations pursuant to section
                                                 9(a) of the African Development Bank Act ..........                                939
                                289            General rules and regulations pursuant to section
                                                 13(a) of the International Finance Corporation
                                                 Act .......................................................................        941
                                290            General rules and regulations pursuant to section
                                                 9(a) of the European Bank for Reconstruction
                                                 and Development Act ...........................................                    944
                                300            Rules of the Securities Investor Protection Cor-
                                                 poration ................................................................          946
                                301            Forms, Securities Investor Protection Corporation                                    952




                                                                                      4



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                                PART 240—GENERAL RULES AND                                 DEFINITION OF ‘‘EQUITY SECURITY’’ AS USED IN
                                                                                                      SECTIONS 12(G) AND 16
                                  REGULATIONS, SECURITIES EX-
                                                                                           240.3a11–1 Definition of the term ‘‘equity se-
                                  CHANGE ACT OF 1934                                           curity’’.

                                 Subpart A—Rules and Regulations Under                                 MISCELLANEOUS EXEMPTIONS
                                   the Securities Exchange Act of 1934                     240.3a12–1 Exemption of certain mortgages
                                                                                               and interests in mortgages.
                                           RULES OF GENERAL APPLICATION                    240.3a12–2 [Reserved]
                                Sec.                                                       240.3a12–3 Exemption from sections 14(a),
                                240.0–1 Definitions.                                           14(b), 14(c), 14(f), and 16 for securities of
                                                                                               certain foreign issuers.
                                240.0–2 Business hours of the Commission.
                                                                                           240.3a12–4 Exemptions from sections 15(a)
                                240.0–3 Filing of material with the Commis-                    and 15(c)(3) for certain mortgage securi-
                                    sion.                                                      ties.
                                240.0–4 Nondisclosure of information ob-                   240.3a12–5 Exemption of certain investment
                                    tained in examinations and investiga-                      contract securities from sections 7(c) and
                                    tions.                                                     11(d)(1).
                                240.0–5 Reference to rule by obsolete des-                 240.3a12–6 Definition of ‘‘common trust
                                    ignation.                                                  fund’’ as used in section 3(a)(12) of the
                                240.0–6 Disclosure detrimental to the na-                      Act.
                                    tional defense or foreign policy.                      240.3a12–7 Exemption for certain derivative
                                240.0–8 Application of rules to registered                     securities traded otherwise than on a na-
                                    broker-dealers.                                            tional securities exchange.
                                                                                           240.3a12–8 Exemption for designated foreign
                                240.0–9 Payment of fees.
                                                                                               government securities for purposes of fu-
                                240.0–10 Small entities under the Securities                   tures trading.
                                    Exchange Act for purposes of the Regu-                 240.3a12–9 Exemption of certain direct par-
                                    latory Flexibility Act.                                    ticipation program securities from the
                                240.0–11 Filing fees for certain acquisitions,                 arranging provisions of sections 7(c) and
                                    dispositions and similar transactions.                     11(d)(1).
                                240.0–12 Commission procedures for filing                  240.3a12–10 Exemption of certain securities
                                    applications for orders for exemptive re-                  issued by the Resolution Funding Cor-
                                    lief under Section 36 of the Exchange                      poration.
                                    Act.                                                   240.3a12–11 Exemption from sections 8(a),
                                240.3a1–1 Exemption from the definition of                     14(a), 14(b), and 14(c) for debt securities
                                    ‘‘Exchange’’ under Section 3(a)(1) of the                  listed on a national securities exchange.
                                                                                           240.3a12–12 Exemption from certain provi-
                                    Act.
                                                                                               sions of section 16 of the Act for asset-
                                240.3a4–1 Associated persons of an issuer
                                                                                               backed securities.
                                    deemed not to be brokers.                              240.3a40–1 Designation of financial responsi-
                                240.3a4–2 Exemption from the definition of                     bility rules.
                                    ‘‘broker’’ for bank calculating compensa-              240.3a43–1 Customer-related government se-
                                    tion for effecting transactions in fidu-                   curities activities incidental to the fu-
                                    ciary accounts.                                            tures-related business of a futures com-
                                240.3a4–3 Exemption from the definition of                     mission merchant registered with the
                                    ‘‘broker’’ for bank effecting transactions                 Commodity Futures Trading Commis-
                                    as an indenture trustee in a no-load                       sion.
                                    money market fund.                                     240.3a44–1 Proprietary government securi-
                                240.3a4–4 Exemption from the definition of                     ties transactions incidental to the fu-
                                    ‘‘broker’’ for small bank effecting trans-                 tures-related business of a CFTC-regu-
                                    actions in investment company securi-                      lated person.
                                                                                           240.3a51–1 Definition of ‘‘penny stock’’.
                                    ties in a tax-deferred custody account.
                                                                                           240.3a55–1 Method for determining market
                                240.3a4–5 Exemption from the definition of                     capitalization and dollar value of aver-
                                    ‘‘broker’’ for banks effecting trans-                      age daily trading volume; application of
                                    actions in securities in a custody ac-                     the definition of narrow-based security
                                    count.                                                     index.
                                240.3a4–6 Exemption from the definition of                 240.3a55–2 Indexes underlying futures con-
                                    ‘‘broker’’ for banks that execute trans-                   tracts trading for fewer than 30 days.
                                    actions in investment company securi-                  240.3a55–3 Futures contracts on security in-
                                    ties through NSCC Mutual Fund Serv-                        dexes trading on or subject to the rules
                                    ices.                                                      of a foreign board of trade.
                                240.3a5–1 Exemption from the definition of
                                    ‘‘dealer’’ for a bank engaged in riskless                                  DEFINITIONS
                                    principal transactions.                                240.3b–1    Definition of ‘‘listed’’.

                                                                                       5



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                                Pt. 240                                                                 17 CFR Ch. II (4–1–05 Edition)
                                240.3b–2 Definition of ‘‘officer’’.                        MANIPULATIVE AND DECEPTIVE DEVICES AND
                                240.3b–3 [Reserved]                                                    CONTRIVANCES
                                240.3b–4 Definition of ‘‘foreign govern-                  240.10b–1 Prohibition of use of manipulative
                                    ment,’’ ‘‘foreign issuer’’ and ‘‘foreign pri-             or deceptive devices or contrivances with
                                    vate issuer’’.                                            respect to certain securities exempted
                                240.3b–5 Non-exempt securities issued under                   from registration.
                                    governmental obligations.                             240.10b–2 [Reserved]
                                240.3b–6 Liability for certain statements by              240.10b–3 Employment of manipulative and
                                    issuers.                                                  deceptive devices by brokers or dealers.
                                240.3b–7 Definition of ‘‘executive officer’’.             240.10b–4 [Reserved]
                                240.3b–8 Definitions of ‘‘Qualified OTC Mar-              240.10b–5 Employment of manipulative and
                                    ket Maker, Qualified Third Market                         deceptive devices.
                                    Maker’’ and ‘‘Qualified Block Posi-                   240.10b5–1 Trading ‘‘on the basis of’’ mate-
                                    tioner’’.                                                 rial nonpublic information in insider
                                240.3b–9 Definition of ‘‘bank’’ for purposes                  trading cases.
                                    of section 3(a) (4) and (5) of the Act.               240.10b5–2 Duties of trust or confidence in
                                240.3b–10 [Reserved]                                          misappropriation insider trading cases.
                                240.3b–11 Definitions relating to limited                 240.10b–6—240.10b–8 [Reserved]
                                    partnership roll-up transactions for pur-             240.10b–9 Prohibited representations in con-
                                    poses of sections 6(b)(9), 14(h) and                      nection with certain offerings.
                                    15A(b)(12)–(13).                                      240.10b–10 Confirmation of transactions.
                                240.3b–12 Definition of OTC derivatives deal-             240.10b–13 [Reserved]
                                    er.                                                   240.10b–16 Disclosure of credit terms in mar-
                                240.3b–13 Definition of eligible OTC deriva-                  gin transactions.
                                    tive instrument.                                      240.10b–17 Untimely       announcements      of
                                240.3b–14 Definition of cash management se-                   record dates.
                                    curities activities.                                  240.10b–18 Purchases of certain equity secu-
                                240.3b–15 Definition of ancillary portfolio                   rities by the issuer and others.
                                    management securities activities.                     240.10b–21 [Reserved]
                                240.3b–16 Definitions of terms used in Sec-
                                    tion 3(a)(1) of the Act.                                          REPORTS UNDER SECTION 10A
                                240.3b–17 Definitions of terms used in Sec-               240.10A–1 Notice to the Commission Pursu-
                                    tion 3(a)(4) of the Act.                                  ant to Section 10A of the Act.
                                240.3b–18 Definitions of terms used in Sec-               240.10A–2 Auditor independence.
                                    tion 3(a)(5) of the Act.                              240.10A–3 Listing standards relating to
                                240.3b–19 Definition of ‘‘issuer’’ in section                 audit committees.
                                    3(a)(8) of the Act in relation to asset-
                                    backed securities.                                      ADOPTION OF FLOOR TRADING REGULATION
                                                                                                         (RULE 11A–1)
                                REGISTRATION AND EXEMPTION OF EXCHANGES
                                                                                          240.11a–1 Regulation of floor trading.
                                240.6a–1 Application for registration as a                240.11a1–1(T) Transactions yielding priority,
                                    national securities exchange or exemp-                    parity, and precedence.
                                    tion from registration based on limited               240.11a1–2 Transactions for certain accounts
                                    volume.                                                   of associated persons of members.
                                240.6a–2 Amendments to application.                       240.11a1–3(T) Bona fide hedge transactions
                                240.6a–3 Supplemental material to be filed                    in certain securities.
                                    by exchanges.                                         240.11a1–4(T) Bond transactions on national
                                240.6a–4 Notice of registration under Sec-                    securities exchanges.
                                    tion 6(g) of the Act, amendment to such               240.11a1–5 Transactions by registered com-
                                    notice, and supplemental materials to be                  petitive market makers and registered
                                    filed by exchanges registered under Sec-                  equity market makers.
                                    tion 6(g) of the Act.                                 240.11a1–6 Transactions for certain accounts
                                240.6h–1 Settlement and regulatory halt re-                   of OTC derivatives dealers.
                                    quirements for security futures products.             240.11a2–2(T) Transactions effected by ex-
                                240.7c2–1 [Reserved]                                          change members through other members.
                                 HYPOTHECATION OF CUSTOMERS’’ SECURITIES                     ADOPTION OF REGULATION ON CONDUCT OF
                                240.8c–1 Hypothecation of customers’’ secu-                               SPECIALISTS
                                    rities.                                               240.11b–1    Regulation of specialists.
                                240.9b–1 Options disclosure document.
                                                                                             EXEMPTION OF CERTAIN SECURITIES FROM
                                                    SHORT SALES                                         SECTION 11(D)(1)
                                240.10a–1    Short sales.                                 240.11d1–1 Exemption of certain securities
                                240.10a–2    [Reserved]                                       from section 11(d)(1).

                                                                                      6



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                                Securities and Exchange Commission                                                                   Pt. 240
                                240.11d1–2 Exemption from section 11(d)(1)                240.12b–13    Preparation of statement or re-
                                    for certain investment company securi-                    port.
                                    ties held by broker-dealers as collateral             240.12b–14    Riders; inserts.
                                    in margin accounts.                                   240.12b–15    Amendments.
                                240.11d2–1 Exemption from Section 11(d)(2)
                                    for certain broker-dealers effecting                     GENERAL REQUIREMENTS AS TO CONTENTS
                                    transactions for customers security fu-               240.12b–20 Additional information.
                                    tures products in futures accounts.                   240.12b–21 Information unknown or not
                                                                                              available.
                                  REGISTRATION OF SECURITIES INFORMATION
                                                                                          240.12b–22 Disclaimer of control.
                                               PROCESSORS
                                                                                          240.12b–23 Incorporation by reference.
                                240.11Aa2–1 Designation of national market                240.12b–24 [Reserved]
                                    system securities.                                    240.12b–25 Notification of inability to time-
                                240.11Aa3–1 Dissemination of transaction                      ly file all or any required portion of a
                                    reports and last sale data with respect to                Form 10–K, 10–KSB, 20–F, 11–K, N–SAR,
                                    transactions in reported securities.                      N–CSR, 10–Q, 10–QSB or 10–D.
                                240.11Aa3–2 Filing and amendment of na-
                                    tional market system plans.                                                EXHIBITS
                                240.11Ab2–1 Registration of securities infor-             240.12b–30 Additional exhibits.
                                    mation processors: Form of application                240.12b–31 Omission of substantially iden-
                                    and amendments.                                           tical documents.
                                240.11Ac1–1 Dissemination of quotations.                  240.12b–32 Incorporation of exhibits by ref-
                                240.11Ac1–2 Display of transaction reports,                   erence.
                                    last sale data and quotation information.             240.12b–33 Annual reports to other Federal
                                240.11Ac1–3 Customer account statements.                      agencies.
                                240.11Ac1–4 Display of customer limit or-
                                    ders.                                                                 SPECIAL PROVISIONS
                                240.11Ac1–5 Disclosure of order routing in-
                                                                                          240.12b–35 [Reserved]
                                    formation.
                                                                                          240.12b–36 Use of financial statements filed
                                240.11Ac1–6 Disclosure of order execution in-
                                                                                              under other acts.
                                    formation.
                                                                                          240.12b–37 Satisfaction of filing require-
                                  SECURITIES EXEMPTED FROM REGISTRATION                       ments.
                                240.12a–4 Exemption of certain warrants                          CERTIFICATION BY EXCHANGES AND
                                    from section 12(a).                                          EFFECTIVENESS OF REGISTRATION
                                240.12a–5 Temporary exemption of sub-
                                                                                          240.12d1–1 Registration effective as to class
                                    stituted or additional securities.
                                240.12a–6 Exemption of securities under-                      or series.
                                    lying certain options from section 12(a).             240.12d1–2 Effectiveness of registration.
                                240.12a–7 Exemption of stock contained in                 240.12d1–3 Requirements as to certification.
                                    standardized market baskets from sec-                 240.12d1–4 Date of receipt of certification by
                                    tion 12(a) of the Act.                                    Commission.
                                240.12a–8 Exemption of depositary shares.                 240.12d1–5 Operation of certification on sub-
                                240.12a–9 Exemption of standardized options                   sequent amendments.
                                    from section 12(a) of the Act.                        240.12d1–6 Withdrawal of certification.

                                      REGULATION 12B: REGISTRATION AND                     SUSPENSION OF TRADING, WITHDRAWAL, AND
                                                 REPORTING                                 STRIKING FROM LISTING AND REGISTRATION
                                                                                          240.12d2–1 Suspension of trading.
                                                        GENERAL                           240.12d2–2 Removal from listing and reg-
                                240.12b–1 Scope of regulation.                                istration.
                                240.12b–2 Definitions.
                                240.12b–3 Title of securities.                                            UNLISTED TRADING
                                240.12b–4 Supplemental information.                       240.12f–1 Applications for permission to re-
                                240.12b–5 Determination of affiliates of                      instate unlisted trading privileges.
                                    banks.                                                240.12f–2 Extending unlisted trading privi-
                                240.12b–6 When securities are deemed to be                    leges to a security that is the subject of
                                    registered.                                               an initial public offering.
                                240.12b–7 [Reserved]                                      240.12f–3 Termination or suspension of un-
                                                                                              listed trading privileges.
                                              FORMAL REQUIREMENTS
                                                                                          240.12f–4 Exemption of securities admitted
                                240.12b–10 Requirements as to proper form.                    to unlisted trading privileges from sec-
                                240.12b–11 Number of copies; signatures;                      tions 13, 14, and 16.
                                    binding.                                              240.12f–5 Exchange rules for securities to
                                240.12b–12 Requirements as to paper, print-                   which unlisted trading privileges are ex-
                                    ing and language.                                         tended.

                                                                                      7



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                                Pt. 240                                                                 17 CFR Ch. II (4–1–05 Edition)
                                240.12f–6    [Reserved]                                                     REGULATION 13D

                                  EXTENSIONS AND TEMPORARY EXEMPTIONS;                     240.13d–1 Filing of Schedules 13D and 13G.
                                               DEFINITIONS                                 240.13d–2 Filing of amendments to Sched-
                                                                                               ules 13D or 13G.
                                240.12g–1 Exemption from section 12(g).                    240.13d–3 Determination of beneficial owner.
                                240.12g–2 Securities deemed to be registered               240.13d–4 Disclaimer of beneficial owner-
                                    pursuant to section 12(g)(1) upon termi-                   ship.
                                    nation of exemption pursuant to section                240.13d–5 Acquisition of securities.
                                    12(g)(2) (A) or (B).                                   240.13d–6 Exemption of certain acquisitions.
                                240.12g–3 Registration of securities of suc-               240.13d–7 Dissemination.
                                    cessor issuers under section 12(b) or 12(g).           240.13d–101 Schedule 13D—Information to be
                                240.12g3–2 Exemptions for American deposi-                     included in statements filed pursuant to
                                    tary receipts and certain foreign securi-                  § 240.13d–1(a) and amendments thereto
                                    ties.                                                      filed pursuant to § 240.13d–2(a).
                                240.12g–4 Certifications of termination of                 240.13d–102 Schedule 13G—Information to be
                                    registration under section 12(g).                          included in statements filed pursuant to
                                240.12g5–1 Definition of securities ‘‘held of                  § 240.13d–1(b), (c), and (d) and amend-
                                    record’’.                                                  ments thereto filed pursuant to § 240.13d–
                                240.12g5–2 Definition of ‘‘total assets’’.                     2(b).
                                240.12h–1 Exemptions       from    registration            240.13e–1 Purchase of securities by the
                                    under section 12(g) of the Act.                            issuer during a third-party tender offer.
                                                                                           240.13e–2 [Reserved]
                                240.12h–2 [Reserved]
                                                                                           240.13e–3 Going private transactions by cer-
                                240.12h–3 Suspension of duty to file reports                   tain issuers or their affiliates.
                                    under section 15(d).                                   240.13e–4 Tender offers by issuers.
                                240.12h–4 Exemption from duty to file re-                  240.13e–100 Schedule       13E–3,   Transaction
                                    ports under section 15(d).                                 statement under section 13(e) of the Se-
                                240.12h–5 Exemption for subsidiary issuers                     curities Exchange Act of 1934 and Rule
                                    of guaranteed securities and subsidiary                    13e–3 (§ 240.13e–3) thereunder.
                                    guarantors.                                            240.13e–101 [Reserved]
                                                                                           240.13e–102 Schedule 13E–4F. Tender offer
                                REGULATION 13A: REPORTS OF ISSUERS OF SE-
                                                                                               statement pursuant to section 13(e) (1) of
                                 CURITIES REGISTERED PURSUANT TO SECTION
                                                                                               the Securities Exchange Act of 1934 and
                                 12
                                                                                               § 240.13e–4 thereunder.
                                                  ANNUAL REPORTS                           240.13f–1 Reporting by institutional invest-
                                                                                               ment managers of information with re-
                                240.13a–1 Requirements of annual reports.                      spect to accounts over which they exer-
                                240.13a–2 [Reserved]                                           cise investment discretion.
                                240.13a–3 Reporting by Form 40–F reg-                      240.13k–1 Foreign bank exemption from the
                                    istrant.                                                   insider lending prohibition under section
                                                                                               13(k).
                                                   OTHER REPORTS
                                                                                            REGULATION 14A: SOLICITATIONS OF PROXIES
                                240.13a–10 Transition reports.
                                240.13a–11 Current reports on Form 8–K                     240.14a–1 Definitions.
                                    (§ 249.308 of this chapter).                           240.14a–2 Solicitations to which § 240.14a–3
                                240.13a–13 Quarterly reports on Form 10–Q                      to § 240.14a–15 apply.
                                    and Form 10–QSB (§ 249.308a and § 249.308b             240.14a–3 Information to be furnished to se-
                                    of this chapter).                                          curity holders.
                                240.13a–14 Certification of disclosure in an-              240.14a–4 Requirements as to proxy.
                                    nual and quarterly reports.                            240.14a–5 Presentation of information in
                                240.13a–15 Controls and procedures.                            proxy statement.
                                240.13a–16 Reports of foreign private issuers              240.14a–6 Filing requirements.
                                                                                           240.14a–7 Obligations of registrants to pro-
                                    on Form 6–K (17 CFR 249.306).
                                                                                               vide a list of, or mail soliciting material
                                240.13a–17 Reports of asset-backed issuers
                                                                                               to, security holders.
                                    on Form 10–D (§ 249.312 of this chapter).
                                                                                           240.14a–8 Shareholder proposals.
                                240.13a–18 Compliance with servicing cri-                  240.14a–9 False or misleading statements.
                                    teria for asset-backed securities.                     240.14a–10 Prohibition of certain solicita-
                                REGULATION 13B–2: MAINTENANCE OF RECORDS                       tions.
                                  AND PREPARATION OF REQUIRED REPORTS
                                                                                           240.14a–11 [Reserved]
                                                                                           240.14a–12 Solicitation before furnishing a
                                240.13b2–1 Falsification   of     accounting                   proxy statement.
                                    records.                                               240.14a–13 Obligation of registrants in com-
                                240.13b2–2 Representations and conduct in                      municating with beneficial owners.
                                    connection with the preparation of re-                 240.14a–14 Modified or superseded docu-
                                    quired reports and documents.                              ments.

                                                                                       8



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                                Securities and Exchange Commission                                                                  Pt. 240
                                240.14a–15 Differential and contingent com-               240.14d–101 Schedule 14D–9.
                                    pensation in connection with roll-up                  240.14d–102 Schedule 14D–1F. Tender offer
                                    transactions.                                             statement pursuant to rule 14d–1(b)
                                240.14a–101 Schedule 14A. Information re-                     under the Securities Exchange Act of
                                    quired in proxy statement.                                1934.
                                240.14a–102 [Reserved]                                    240.14d–103 Schedule 14D–9F. Solicitation/
                                240.14a–103 Notice of Exempt Solicitation.                    recommendation statement pursuant to
                                    Information to be included in statements                  section 14(d)(4) of the Securities Ex-
                                    submitted by or on behalf of a person                     change Act of 1934 and rules 14d–1(b) and
                                    pursuant to § 240.14a–6(g).                               14e–2(c) thereunder.
                                240.14a–104 Notice of Exempt Preliminary
                                    Roll-up Communication. Information re-                                 REGULATION 14E
                                    garding ownership interests and any po-               240.14e–1 Unlawful tender offer practices.
                                    tential conflicts of interest to be in-               240.14e–2 Position of subject company with
                                    cluded in statements submitted by or on                   respect to a tender offer.
                                    behalf of a person pursuant to § 240.14a–             240.14e–3 Transactions in securities on the
                                    2(b)(4) and § 240.14a–6(n).                               basis of material, nonpublic information
                                240.14b–1 Obligation of registered brokers                    in the context of tender offers.
                                    and dealers in connection with the                    240.14e–4 Prohibited transactions in connec-
                                    prompt forwarding of certain commu-                       tion with partial tender offers.
                                    nications to beneficial owners.                       240.14e–5 Prohibiting purchases outside of a
                                240.14b–2 Obligation of banks, associations                   tender offer.
                                    and other entities that exercise fiduciary            240.14e–6 Repurchase offers by certain
                                    powers in connection with the prompt                      closed-end registered investment compa-
                                    forwarding of certain communications to                   nies.
                                    beneficial owners.                                    240.14e–7 Unlawful tender offer practices in
                                      REGULATION 14C: DISTRIBUTION OF                         connection with roll-ups.
                                   INFORMATION PURSUANT TO SECTION 14(C)                  240.14e–8 Prohibited conduct in connection
                                                                                              with pre-commencement communica-
                                240.14c–1 Definitions.                                        tions.
                                240.14c–2 Distribution of information state-              240.14f–1 Change in majority of directors.
                                    ment.
                                240.14c–3 Annual report to be furnished se-                 EXEMPTION OF CERTAIN OTC DERIVATIVES
                                    curity holders.                                                       DEALERS
                                240.14c–4 Presentation of information in in-
                                                                                          240.15a–1 Securities activities of OTC de-
                                    formation statement.
                                                                                              rivatives dealers.
                                240.14c–5 Filing requirements.
                                240.14c–6 False or misleading statements.                    EXEMPTION OF CERTAIN SECURITIES FROM
                                240.14c–7 Providing copies of material for                               SECTION 15(A)
                                    certain beneficial owners.
                                240.14c–101 Schedule 14C. Information re-                 240.15a–2 Exemption of certain securities of
                                    quired in information statement.                          cooperative apartment houses from sec-
                                                                                              tion 15(a).
                                                  REGULATION 14D                          240.15a–3 [Reserved]
                                                                                          240.15a–4 Forty-five day exemption from
                                240.14d–1 Scope of and definitions applicable
                                                                                              registration for certain members of na-
                                    to Regulations 14D and 14E.
                                240.14d–2 Commencement of a tender offer.                     tional securities exchanges.
                                240.14d–3 Filing and transmission of tender               240.15a–5 Exemption of certain nonbank
                                    offer statement.                                          lenders.
                                240.14d–4 Dissemination of tender offers to                  REGISTRATION OF BROKERS AND DEALERS
                                    security holders.
                                240.14d–5 Dissemination of certain tender                 240.15a–6 Exemption of certain foreign bro-
                                    offers by the use of stockholder lists and                kers or dealers.
                                    security position listings.                           240.15a–7 Exemption from the definitions of
                                240.14d–6 Disclosure of tender offer informa-                 ‘‘broker’’ or ‘‘dealer’’ for banks for lim-
                                    tion to security holders.                                 ited period of time.
                                240.14d–7 Additional withdrawal rights.                   240.15a–8 Exemption for banks from Section
                                240.14d–8 Exemption from statutory pro                        29 liability.
                                    rata requirements.                                    240.15a–9 Exemption from the definitions of
                                240.14d–9 Recommendation or solicitation                      ‘‘broker’’ and ‘‘dealer’’ for savings asso-
                                    by the subject company and others.                        ciations and savings banks.
                                240.14d–10 Equal treatment of security hold-              240.15a–10 Exemption of certain brokers or
                                    ers.                                                      dealers with respect to security futures
                                240.14d–11 Subsequent offering period.                        products.
                                240.14d–100 Schedule TO. Tender offer state-              240.15a–11 Exemption from the definitions of
                                    ment under section 14(d)(1) or 13(e)(1) of                ‘‘broker’’ and ‘‘dealer’’ for banks engag-
                                    the Securities Exchange Act of 1934.                      ing in securities lending transactions.

                                                                                      9



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                                Pt. 240                                                                17 CFR Ch. II (4–1–05 Edition)
                                240.15b1–1 Application for registration of                     modities transactions (Appendix B to 17
                                    brokers or dealers.                                        CFR 240.15c3–1).
                                240.15b1–2 [Reserved]                                      240.15c3–1c Consolidated computations of
                                240.15b1–3 Registration of successor to reg-                   net capital and aggregate indebtedness
                                    istered broker or dealer.                                  for certain subsidiaries and affiliates
                                240.15b1–4 Registration of fiduciaries.                        (Appendix C to 17 CFR 240.15c3–1).
                                240.15b1–5 Consent to service of process to                240.15c3–1d Satisfactory         Subordination
                                    be furnished by nonresident brokers or                     Agreements (Appendix D to 17 CFR
                                    dealers and by nonresident general part-                   240.15c3–1).
                                    ners or managing agents of brokers or                  240.15c3–1e Deductions for market and cred-
                                    dealers.                                                   it risk for certain brokers or dealers (Ap-
                                240.15b2–2 Inspection of newly registered                      pendix E to 17 CFR 240.15c3–1).
                                    brokers and dealers.                                   240.15c3–1f Optional market and credit risk
                                240.15b3–1 Amendments to application.                          requirements for OTC derivatives dealers
                                240.15b5–1 Extension of registration for pur-                  (Appendix F to 17 CFR 240.15c3–1)
                                    poses of the Securities Investor Protec-               240.15c3–1g Conditions for ultimate holding
                                    tion Act of 1970 after cancellation or rev-                companies of certain brokers or dealers
                                    ocation.                                                   (Appendix G to 17 CFR 240.15c3–1).
                                240.15b6–1 Withdrawal from registration.                   240.15c3–2 Customers’ free credit balances.
                                240.15b7–1 Compliance with qualification re-               240.15c3–3 Customer       protection—reserves
                                                                                               and custody of securities.
                                    quirements of self-regulatory organiza-
                                                                                           240.15c3–3a Exhibit A—formula for deter-
                                    tions.
                                                                                               mination reserve requirement of brokers
                                240.15b7–3T Operational capability in a Year
                                                                                               and dealers under § 240.15c3–3.
                                    2000 environment.
                                                                                           240.15c3–4 Internal risk management con-
                                240.15b9–1 Exemption for certain exchange
                                                                                               trol systems for OTC derivatives dealers.
                                    members.                                               240.15c6–1 Settlement cycle.
                                240.15b9–2 Exemption from SRO membership
                                    for OTC derivatives dealers.                            REGULATION 15D: REPORTS OF REGISTRANTS
                                240.15b11–1 Registration by notice of secu-                    UNDER THE SECURITIES ACT OF 1933
                                    rity futures product broker-dealers.
                                                                                                          ANNUAL REPORTS
                                    RULES RELATING TO OVER-THE-COUNTER
                                                 MARKETS                                   240.15d–1 Requirement of annual reports.
                                                                                           240.15d–2 Special financial report.
                                240.15c1–1 Definitions.                                    240.15d–3 Reports for depositary shares reg-
                                240.15c1–2 Fraud and misrepresentation.                        istered on Form F–6.
                                240.15c1–3 Misrepresentation by brokers,                   240.15d–4 Reporting by Form 40–F Reg-
                                    dealers and municipal securities dealers                   istrants.
                                    as to registration.                                    240.15d–5 Reporting by successor issuers.
                                240.15c1–4 [Reserved]                                      240.15d–6 Suspension of duty to file reports.
                                240.15c1–5 Disclosure of control.
                                240.15c1–6 Disclosure of interest in distribu-                             OTHER REPORTS
                                    tion.                                                  240.15d–10 Transition reports.
                                240.15c1–7 Discretionary accounts.                         240.15d–11 Current reports on Form 8–K
                                240.15c1–8 Sales at the market.                                (§ 249.308 of this chapter).
                                240.15c1–9 Use of pro forma balance sheets.                240.15d–13 Quarterly reports on Form 10–Q
                                240.15c2–1 Hypothecation of customers’ se-                     and Form 10–QSB (§ 249.308a and § 249.308b
                                    curities.                                                  of this chapter).
                                240.15c2–3 [Reserved]                                      240.15d–14 Certification of disclosure in an-
                                240.15c2–4 Transmission or maintenance of                      nual and quarterly reports.
                                    payments received in connection with                   240.15d–15 Controls and procedures.
                                    underwritings.                                         240.15d–16 Reports of foreign private issuers
                                240.15c2–5 Disclosure and other require-                       on Form 6–K [17 CFR 249.306].
                                    ments when extending or arranging cred-                240.15d–17 Reports of asset-backed issuers
                                    it in certain transactions.                                on Form 10–D (§ 249.312 of this chapter).
                                240.15c2–6 [Reserved]                                      240.15d–18 Compliance with servicing cri-
                                240.15c2–7 Identification of quotations.                       teria for asset-backed securities.
                                240.15c2–8 Delivery of prospectus.
                                240.15c2–11 Initiation or resumption of                        EXEMPTION OF CERTAIN ISSUERS FROM
                                    quotations without specific information.                        SECTION 15(D) OF THE ACT
                                240.15c2–12 Municipal securities disclosure.               240.15d–21 Reports for employee stock pur-
                                240.15c3–1 Net capital requirements for bro-                   chase, savings and similar plans.
                                    kers or dealers.                                       240.15d–22 Reporting regarding asset-backed
                                240.15c3–1a Options (Appendix A to 17 CFR                      securities under section 15(d) of the Act.
                                    240.15c3–1).                                           240.15d–23 Reporting regarding certain secu-
                                240.15c3–1b Adjustments to net worth and                       rities underlying asset-backed securities
                                    aggregate indebtedness for certain com-                    under section 15(d) of the Act.

                                                                                      10



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                                Securities and Exchange Commission                                                                  Pt. 240
                                240.15g–1 Exemptions for certain trans-                    240.15Cc1–1 Withdrawal from registration of
                                    actions.                                                   government securities brokers or govern-
                                240.15g–2 Risk disclosure document relating                    ment securities dealers.
                                    to the penny stock market.
                                240.15g–3 Broker or dealer disclosure of                      REPORTS OF DIRECTORS, OFFICERS, AND
                                    quotations and other information relat-                        PRINCIPAL SHAREHOLDERS
                                    ing to the penny stock market.                         240.16a–1 Definition of terms.
                                240.15g–4 Disclosure of compensation to bro-               240.16a–2 Persons and transactions subject
                                    kers or dealers.                                           to section 16.
                                240.15g–5 Disclosure of compensation of as-                240.16a–3 Reporting transactions and hold-
                                    sociated persons in connection with                        ings.
                                    penny stock transactions.                              240.16a–4 Derivative securities.
                                240.15g–6 Account statements for penny                     240.16a–5 Odd-lot dealers.
                                    stock customers.                                       240.16a–6 Small acquisitions.
                                240.15g–8 Sales of escrowed securities of                  240.16a–7 Transactions effected in connec-
                                    blank check companies.                                     tion with a distribution.
                                240.15g–9 Sales practice requirements for                  240.16a–8 Trusts.
                                    certain low-priced securities.                         240.16a–9 Stock splits, stock dividends, and
                                240.15g–100 Schedule 15G—Information to be                     pro rata rights.
                                    included in the document distributed                   240.16a–10 Exemptions under section 16(a).
                                    pursuant to 17 CFR 240.15g–2.                          240.16a–11 Dividend or interest reinvestment
                                                                                               plans.
                                    NATIONAL AND AFFILIATED SECURITIES                     240.16a–12 Domestic relations orders.
                                              ASSOCIATIONS                                 240.16a–13 Change in form of beneficial own-
                                240.15Aa–1 Registration of a national or an                    ership.
                                    affiliated securities association.
                                                                                           EXEMPTION OF CERTAIN TRANSACTIONS FROM
                                240.15Aj–1 Amendments and supplements to
                                                                                                        SECTION 16(B)
                                    registration statements of securities as-
                                    sociations.                                            240.16b–1 Transactions approved by a regu-
                                240.15Al2–1 [Reserved]                                         latory authority.
                                240.15Ba2–1 Application for registration of                240.16b–2 [Reserved]
                                    municipal securities dealers which are                 240.16b–3 Transactions between an issuer
                                    banks or separately identifiable depart-                   and its officers or directors.
                                    ments or divisions of banks.                           240.16b–4 [Reserved]
                                240.15Ba2–2 Application for registration of                240.16b–5 Bona fide gifts and inheritance.
                                    non-bank municipal securities dealers                  240.16b–6 Derivative securities.
                                    whose business is exclusively intrastate.              240.16b–7 Mergers,      reclassifications, and
                                240.15Ba2–4 Registration of successor to reg-                  consolidations.
                                    istered municipal securities dealer.                   240.16b–8 Voting trusts.
                                240.15Ba2–5 Registration of fiduciaries.
                                                                                           EXEMPTION OF CERTAIN TRANSACTIONS FROM
                                240.15Ba2–6 [Reserved]
                                                                                                         SECTION 16(C)
                                240.15Bc3–1 Withdrawal from registration of
                                    municipal securities dealers.                          240.16c–1 Brokers.
                                240.15Bc7–1 Availability of examination re-                240.16c–2 Transactions effected in connec-
                                    ports.                                                     tion with a distribution.
                                                                                           240.16c–3 Exemption of sales of securities to
                                REGISTRATION OF GOVERNMENT SECURITIES                          be acquired.
                                 BROKERS AND GOVERNMENT SECURITIES                         240.16c–4 Derivative securities.
                                 DEALERS
                                                                                                      ARBITRAGE TRANSACTIONS
                                240.15Ca1–1 Notice of government securities
                                    broker-dealer activities.                              240.16e–1 Arbitrage transactions under sec-
                                240.15Ca2–1 Application for registration as a                  tion 16.
                                    government securities broker or govern-
                                    ment securities dealer.                                 PRESERVATION OF RECORDS AND REPORTS OF
                                240.15Ca2–2 [Reserved]                                           CERTAIN STABILIZING ACTIVITIES
                                240.15Ca2–3 Registration of successor to reg-              240.17a–1 Recordkeeping rule for national
                                    istered government securities broker or                    securities exchanges, national securities
                                    government securities dealer.                              associations, registered clearing agencies
                                240.15Ca2–4 Registration of fiduciaries.                       and the Municipal Securities Rule-
                                240.15Ca2–5 Consent to service of process to                   making Board.
                                    be furnished by non-resident government                240.17a–2 Recordkeeping requirements relat-
                                    securities brokers or government securi-                   ing to stabilizing activities.
                                    ties dealers and by non-resident general               240.17a–3 Records to be made by certain ex-
                                    partners or managing agents of govern-                     change members, brokers and dealers.
                                    ment securities brokers or government                  240.17a–4 Records to be preserved by certain
                                    securities dealers.                                        exchange members, brokers and dealers.

                                                                                      11



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                                Pt. 240                                                                17 CFR Ch. II (4–1–05 Edition)
                                240.17a–5 Reports to be made by certain bro-               240.17i–7 Calculations of Allowable Capital
                                    kers and dealers.                                          and Risk Allowances or Alternative Cap-
                                240.17a–6 Right of national securities ex-                     ital Assessment.
                                    change, national securities association,               240.17i–8 Notification     Requirements       for
                                    registered clearing agency or the Munic-                   SIBHCs.
                                    ipal Securities Rulemaking Board to de-                240.17Ab2–1 Registration of clearing agen-
                                    stroy or dispose of documents.                             cies.
                                240.17a–7 Records of non-resident brokers                  240.17Ac2–1 Application for registration of
                                    and dealers.                                               transfer agents.
                                240.17a–8 Financial recordkeeping and re-                  240.17Ac2–2 Annual reporting requirement
                                    porting of currency and foreign trans-                     for registered transfer agents.
                                    actions.                                               240.17Ac3–1 Withdrawal from registration
                                240.17a–9T Records to be made and retained                     with the Commission.
                                    by certain exchange members, brokers                   240.17Ad–1 Definitions.
                                    and dealers.                                           240.17Ad–2 Turnaround, processing, and for-
                                240.17a–10 Report of revenue and expenses.                     warding of items.
                                240.17a–11 Notification provisions for bro-                240.17Ad–3 Limitations on expansion.
                                    kers and dealers.                                      240.17Ad–4 Applicability      of   §§ 240.17Ad–2,
                                240.17a–12 Reports to be made by certain                       240.17Ad–3 and 240.17Ad–6(a) (1) through
                                    OTC derivatives dealers.                                   (7) and (11).
                                240.17a–13 Quarterly security counts to be
                                                                                           240.17Ad–5 Written inquiries and requests.
                                    made by certain exchange members, bro-
                                                                                           240.17Ad–6 Recordkeeping.
                                    kers, and dealers.
                                                                                           240.17Ad–7 Record retention.
                                240.17a–18 [Reserved]
                                                                                           240.17Ad–8 Securities position listings.
                                240.17a–19 Form X–17A–19 Report by na-
                                                                                           240.17Ad–9 Definitions.
                                    tional securities exchanges and reg-
                                    istered national securities associations               240.17Ad–10 Prompt posting of certificate
                                    of changes in the membership status of                     detail to master securityholder files,
                                    any of their members.                                      maintenance of accurate securityholder
                                240.17a–21 Reports of the Municipal Securi-                    files, communications between co-trans-
                                    ties Rulemaking Board.                                     fer agents and recordkeeping transfer
                                240.17a–22 Supplemental material of reg-                       agents, maintenance of current control
                                    istered clearing agencies.                                 book, retention of certificate detail and
                                240.17a–23 Recordkeeping and reporting re-                     ‘‘buy-in’’ of physical over-issuance.
                                    quirements relating to broker-dealer                   240.17Ad–11 Reports regarding aged record
                                    trading systems.                                           differences, buy-ins and failure to post
                                240.17a–25 Electronic submission of securi-                    certificate      detail      to       master
                                    ties transaction information by exchange                   securityholder and subsidiary files.
                                    members, brokers, and dealers.                         240.17Ad–12 Safeguarding of funds and secu-
                                240.17d–1 Examination for compliance with                      rities.
                                    applicable financial responsibility rules.             240.17Ad–13 Annual study and evaluation of
                                240.17d–2 Program for allocation of regu-                      internal accounting control.
                                    latory responsibility.                                 240.17Ad–14 Tender agents.
                                240.17f–1 Requirements for reporting and in-               240.17Ad–15 Signature guarantees.
                                    quiry with respect to missing, lost, coun-             240.17Ad–16 Notice of assumption or termi-
                                    terfeit or stolen securities.                              nation of transfer agent services.
                                240.17f–2 Fingerprinting of securities indus-              240.17Ad–17 Transfer agents’ obligation to
                                    try personnel.                                             search for lost securityholders.
                                240.17h–1T Risk assessment recordkeeping                   240.17Ad–18 Year 2000 Reports to be made by
                                    requirements for associated persons of                     certain transfer agents.
                                    brokers and dealers.                                   240.17Ad–19 Requirements for cancellation,
                                240.17h–2T Risk assessment reporting re-                       processing, storage, transportation, and
                                    quirements for brokers and dealers.                        destruction or other disposition of secu-
                                                                                               rities certificates.
                                   SUPERVISED INVESTMENT BANK HOLDING                      240.17Ad–20 Issuer restrictions or prohibi-
                                             COMPANY RULES                                     tions on ownership by securities inter-
                                240.17i–1 Definitions.                                         mediaries.
                                240.17i–2 Notice of Intention to be Super-                 240.17Ad–21T Operational capability in a
                                    vised by the Commission as an SIBHC.                       Year 2000 environment.
                                240.17i–3 Withdrawal of Supervision as an                    SUSPENSION AND EXPULSION OF EXCHANGE
                                    SIBHC.                                                                 MEMBERS
                                240.17i–4 Internal Risk Management Control
                                    System Requirements for SIBHCs.                        240.19a3–1 [Reserved]
                                240.17i–5 Record Creation, Maintenance, and                240.19b–3 [Reserved]
                                    Access Requirements for SIBHCs.                        240.19b–4 Filings with respect to proposed
                                240.17i–6 Reporting     Requirements     for                   rule changes by self-regulatory organiza-
                                    SIBHCs.                                                    tions.

                                                                                      12



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                                Securities and Exchange Commission                                                                     Pt. 240
                                240.19b–5 Temporary exemption from the fil-                     the Securities Investor Protection Act
                                    ing requirements of Section 19(b) of the                    of 1970 [Reserved]
                                    Act.
                                240.19b–7 Filings with respect to proposed
                                                                                             AUTHORITY: 15 U.S.C. 77c, 77d, 77g, 77j, 77s,
                                    rule changes submitted pursuant to Sec-
                                                                                           77z–2, 77z–3, 77eee, 77ggg, 77nnn, 77sss, 77ttt,
                                    tion 19(b)(7) of the Act.
                                240.19c–1 Governing certain off-board agen-                78c, 78d, 78e, 78f, 78g, 78i, 78j, 78j–1, 78k, 78k–
                                    cy transactions by members of national                 1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u–5, 78w,
                                    securities exchanges.                                  78x, 78ll, 78mm, 79q, 79t, 80a–20, 80a–23, 80a–29,
                                240.19c–3 Governing off-board trading by                   80a–37, 80b–3, 80b–4, 80b–11, and 7201 et seq.;
                                    members of national securities ex-                     and 18 U.S.C. 1350, unless otherwise noted.
                                    changes.                                                 Section 240.3a4–1 also issued under secs. 3
                                240.19c–4 Governing certain listing or au-                 and 15, 89 Stat. 97, as amended, 89 Stat. 121 as
                                    thorization determinations by national                 amended;
                                    securities exchanges and associations.                   Section 240.3a12–8 also issued under 15
                                240.19c–5 Governing the multiple listing of                U.S.C. 78a et seq., particularly secs. 3(a)(12),
                                    options on national securities exchanges.              15 U.S.C. 78c(a)(12), and 23(a), 15 U.S.C.
                                240.19d–1 Notices by self-regulatory organi-               78w(a);
                                    zations of final disciplinary actions, de-               Section 240.3a12–10 also issued under 15
                                    nials, bars, or limitations respecting                 U.S.C. 78b and c;
                                    membership, association, participation,                  Section 240.3a12–9 also issued under secs.
                                    or access to services, and summary sus-                3(a)(12), 7(c), 11(d)(1), 15 U.S.C. 78c(a)(12),
                                    pensions.                                              78g(c), 78k(d)(1));
                                240.19d–2 Applications for stays of discipli-                Sections 240.3a43–1 and 240.3a44–1 also
                                    nary sanctions or summary suspensions                  issued under sec. 3; 15 U.S.C. 78c;
                                    by a self-regulatory organization.                       Section 240.3b–6 is also issued under 15
                                240.19d–3 Applications for review of final                 U.S.C. 77f, 77g, 77h, 77j, 77s(a).
                                    disciplinary sanctions, denials of mem-                  Section 240.3b–9 also issued under secs. 2, 3
                                    bership, participation or association, or              and 15, 89 Stat. 97, as amended, 89 Stat. 121,
                                    prohibitions or limitations of access to               as amended (15 U.S.C. 78b, 78c, 78o);
                                    services imposed by self-regulatory orga-                Section 240.9b–1 is also issued under sec. 2,
                                    nizations.                                             7, 10, 19(a), 48 Stat. 74, 78, 81, 85; secs. 201, 205,
                                240.19d–4 Notice by the Public Company Ac-                 209, 120, 48 Stat. 905, 906, 908; secs. 1–4, 8, 68
                                    counting Oversight Board of disapproval                Stat. 683, 685; sec. 12(a), 73 Stat. 143; sec. 7(a),
                                    of registration or of disciplinary action.             74 Stat. 412; sec. 27(a), 84 Stat. 1433; sec.
                                240.19g2–1 Enforcement of compliance by                    308(a)(2), 90 Stat. 57; sec. 505, 94 Stat. 2292;
                                    national securities exchanges and reg-                 secs. 9, 15, 23(a), 48 Stat. 889, 895, 901; sec.
                                    istered securities associations with the               230(a), 49 Stat. 704; secs. 3, 8, 49 Stat. 1377,
                                    Act and rules and regulations there-                   1379; sec. 2, 52 Stat. 1075; secs. 6, 10, 78 Stat.
                                    under.                                                 570–574, 580; sec. 11(d), 84 Stat. 121; sec. 18, 89
                                240.19h–1 Notice by a self-regulatory organi-              Stat. 155; sec. 204, 91 Stat. 1500; 15 U.S.C. 77b,
                                    zation of proposed admission to or con-                77g, 77j, 77s(a), 78i, 78o, 78w(a);
                                    tinuance in membership or particiption                   Section 240.10b–10 is also issued under secs.
                                    or association with a member of any per-               2, 3, 9, 10, 11, 11A, 15, 17, 23, 48 Stat. 891, 89
                                    son subject to a statutory disqualifica-               Stat. 97, 121, 137, 156, (15 U.S.C. 78b, 78c, 78i,
                                    tion, and applications to the Commission               78j, 78k, 78k–1, 78o, 78q).
                                    for relief therefrom.                                    Section 240.12a–7 also issued under 15
                                                                                           U.S.C. 78a et seq., particularly secs. 3(a)(12),
                                INSPECTION AND PUBLICATION OF INFORMATION                  15 U.S.C. 78c(a)(12), 6, 15 U.S.C. 78(f), 11A, 15
                                           FILED UNDER THE ACT                             U.S.C. 78k, 12, 15 U.S.C. 78(l), and 23(a)(1), 15
                                240.24b–1 Documents to be kept public by                   U.S.C. 78(w)(a)(1).
                                    exchanges.                                               Sections 240.12b–1 to 240.12b–36 also issued
                                240.24b–2 Nondisclosure of information filed               under secs. 3, 12, 13, 15, 48 Stat. 892, as
                                    with the Commission and with any ex-                   amended, 894, 895, as amended; 15 U.S.C. 78c,
                                    change.                                                78l, 78m, 78o;
                                240.24b–3 Information filed by issuers and                   Section 240.12b–15 is also issued under secs.
                                    others under sections 12, 13, 14, and 16.              3(a) and 302, Pub.L. No. 107–204, 116 Stat. 745.
                                240.24c–1 Access to nonpublic information.                   Section 240.12b–25 is also issued under 15
                                240.31 Section 31 transaction fees.                        U.S.C. 80a–8, 80a–24(a), 80a–29, and 80a–37.
                                240.31T Temporary rule regarding fiscal                      Section 240.12g–3 is also issued under 15
                                    year 2004.                                             U.S.C. 77f, 77g, 77h, 77j, 77s(a).
                                240.36a1–1 Exemption from Section 7 for                      Section 240.12g3–2 is also issued under 15
                                    OTC derivatives dealers.                               U.S.C. 77f, 77g, 77h, 77j, 77s(a).
                                240.36a1–2 Exemption from SIPA for OTC                       Section 240.13a–10 is also issued under secs.
                                    derivatives dealers.                                   3(a) and 302, Pub.L. No. 107–204, 116 Stat. 745.
                                                                                             Section 240.13a–11 is also issued under secs.
                                Subpart B—Rules and Regulations Under                      3(a) and 306(a), Pub. L. 107–204, 116 Stat. 745.

                                                                                      13



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                                Pt. 240                                                                   17 CFR Ch. II (4–1–05 Edition)
                                  Section 240.13a–14 is also issued under secs.                 Section 240.15d–5 is also issued under 15
                                3(a) and 302, Pub. L. No. 107–204, 116 Stat. 745.            U.S.C. 77f, 77g, 77h, 77j, 77s(a).
                                  Section 240.13a–15 is also issued under secs.                 Section 240.15d–10 is also issued under 15
                                3(a) and 302, Pub. L. No. 107–204, 116 Stat. 745.            U.S.C. 80a–20(a) and 80a–37(a), and secs. 3(a)
                                  Sections 240.13e–4, 240.14d–7, 240.14d–10 and              and 302, Pub. L. No. 107–204, 116 Stat. 745.
                                240.14e–1 also issued under secs. 3(b), 9(a)(6),                Section 240.15d–11 is also issued under secs.
                                10(b), 13(e), 14(d) and 14(e), 15 U.S.C. 78c(b),             3(a) and 306(a), Pub. L. 107–204, 116 Stat. 745.
                                78i(a)(6), 78j(b), 78m(e), 78n(d) and 78n(e) and                Section 240.15d–14 is also issued under secs.
                                sec. 23(c) of the Investment Company Act of                  3(a) and 302, Pub. L. No. 107–204, 116 Stat. 745.
                                1940, 15 U.S.C 80a–23(c);                                       Section 240.15d–15 is also issued under secs.
                                  Sections 240.13e–4 to 240.13e–101 also issued              3(a) and 302, Pub. L. No. 107–204, 116 Stat. 745.
                                under secs. 3(b), 9(a)(6), 10(b), 13(e), 14(e),                 Sections 240.15Ca1–1, 240.15Ca2–1, 240.15Ca2–
                                15(c)(1), 48 Stat. 882, 889, 891, 894, 895, 901, sec.        2,    240.15Ca2–3,     240.15Ca2–4,     240.15Ca2–5,
                                8, 49 Stat. 1379, sec. 5, 78 Stat. 569, 570, secs.           240.15Cc1–1 also issued under secs. 3, 15C; 15
                                2, 3, 82 Stat. 454, 455, secs. 1, 2, 3–5, 84 Stat.           U.S.C. 78c, 78o–5;
                                1497, secs. 3, 18, 89 Stat. 97, 155; 15 U.S.C.                  Section 240.17a–3 also issued under secs. 2,
                                78c(b), 78i(a)(6), 78j(b), 78m(e), 78n(e), 78o(c);           17, 23a, 48 Stat. 897, as amended; 15 U.S.C.
                                sec. 23(c) of the Investment Company Act of                  78d–1, 78d–2, 78q; secs. 12, 14, 17, 23(a), 48 Stat.
                                1940; 54 Stat. 825; 15 U.S.C. 80a–23(c);                     892, 895, 897, 901; secs. 1, 4, 8, 49 Stat. 1375,
                                  Section 240.13f-2(T) also issued under sec.                1379; sec. 203(a), 49 Stat. 704; sec. 5, 52 Stat.
                                13(f)(1) (15 U.S.C. 78m(f)(1));                              1076; sec. 202, 68 Stat. 686; secs. 3, 5, 10, 78
                                  Sections 240.14a–1, 240.14a–3, 240.14a–13,                 Stat. 565–568, 569, 570, 580; secs. 1, 3, 82 Stat.
                                240.14b–1, 240.14b–2, 240.14c–1, and 240.14c–7               454, 455; secs. 28(c), 3–5, 84 Stat. 1435, 1497; sec.
                                also issued under secs. 12, 15 U.S.C. 781, and               105(b), 88 Stat. 1503; secs. 8, 9, 14, 18, 89 Stat.
                                14, Pub. L. 99–222, 99 Stat. 1737, 15 U.S.C. 78n;            117, 118, 137, 155; 15 U.S.C. 78l, 78n, 78q, 78w(a);
                                  Sections 240.14a–3, 240.14a–13, 240.14b–1 and                 Section 240.17a–4 also issued under secs. 2,
                                240.14c–7 also issued under secs. 12, 14 and 17,             17, 23(a), 48 Stat. 897, as amended; 15 U.S.C.
                                15 U.S.C. 781, 78n and 78g;                                  78a, 78d–1, 78d–2; sec. 14, Pub. L. 94–29, 89
                                  Sections 240.14c–1 to 240.14c–101 also issued              Stat. 137 (15 U.S.C. 78a); sec. 18, Pub. L. 94–29,
                                under sec. 14, 48 Stat. 895; 15 U.S.C. 78n;                  89 Stat. 155 (15 U.S.C. 78w);
                                  Section 240.14d–1 is also issued under 15                     Section 240.17a–23 also issued under 15
                                U.S.C. 77g, 77j, 77s(a), 77ttt(a), 79t, 80a–37.              U.S.C. 78b, 78c, 78o, 78q, and 78w(a).
                                  Section 240.14e–2 is also issued under 15                     Section 240.17f–1 is also authorized under
                                U.S.C. 77g, 77h, 77s(a), 77sss, 79t, 80a–37(a).              sections 2, 17 and 17A, 48 Stat. 891, 89 Stat.
                                  Section 240.14e–4 also issued under the Ex-                137, 141 (15 U.S.C. 78b, 78q, 78q–1);
                                change Act, 15 U.S.C. 78a et seq., and particu-                 Section 240.17h–1T also issued under 15
                                larly sections 3(b), 10(a), 10(b), 14(e), 15(c),             U.S.C. 78q.
                                and 23(a) of the Exchange Act (15 U.S.C.                        Sections 240.17Ac2–1(c) and 240.17Ac2–2 also
                                78c(b), 78j(a), 78j(b), 78n(e), 78o(c), and                  issued under secs. 17, 17A and 23(a); 48 Stat.
                                78w(a)).                                                     897, as amended, 89 Stat. 137, 141 and 48 Stat.
                                  Section 240.15a–6, also issued under secs. 3,              901 (15 U.S.C. 78q, 78q–1, 78w(a));
                                10, 15, and 17, 15 U.S.C. 78c, 78j, 78o, and 78q;               Section 240.17Ad–1 is also issued under
                                  Section 240.15b1–3 also issued under sec. 15,              secs. 2, 17, 17A and 23(a); 48 Stat. 841 as
                                17; 15 U.S.C. 78o 78q;                                       amended, 48 Stat. 897, as amended, 89 Stat.
                                  Sections 240.15b1–3 and 240.15b2–1 also                    137, 141, and 48 Stat. 901 (15 U.S.C. 78b, 78q,
                                issued under 15 U.S.C. 78o, 78q;                             78q–1, 78w);
                                  Section 240.15b2–2 also issued under secs. 3,                 Sections 240.17Ad–5 and 240.17Ad–10 are also
                                15; 15 U.S.C. 78c, 78o;                                      issued under secs. 3 and 17A; 48 Stat. 882, as
                                  Sections 240.15b10–1 to 240.15b10–9 also                   amended, and 89 Stat. (15 U.S.C. 78c and 78q–
                                issued under secs. 15, 17, 48 Stat. 895, 897, sec.           1);
                                203, 49 Stat. 704, secs. 4, 8, 49 Stat. 1379, sec.              Section 240.17Ad–7 also issued under 15
                                5, 52 Stat. 1076, sec. 6, 78 Stat. 570; 15 U.S.C.            U.S.C. 78b, 78q, and 78q–1.
                                78o, 78q, 12 U.S.C. 241 nt.;
                                                                                                Sections 240.19c–4 also issued under secs. 6,
                                  Section 240.15c2–6, also issued under secs. 3,
                                                                                             11A, 14, 15A, 19 and 23 of the Securities Ex-
                                10, and 15, 15 U.S.C. 78c, 78j, and 78o.
                                                                                             change Act of 1934 (15 U.S.C. 78o–3, and 78s);
                                  Section 240.15c2–11 also issued under 15
                                                                                                Section 240.19c–5 also issued under Sections
                                U.S.C. 78j(b), 78o(c), 78q(a), and 78w(a).
                                                                                             6, 11A, and 19 of the Securities Exchange Act
                                  Section 240.15c2–12 also issued under 15
                                                                                             of 1934, 48 Stat. 885, as amended, 89 Stat. 111,
                                U.S.C. 78b, 78c, 78j, 78o, 78o–4 and 78q.
                                                                                             as amended, and 48 Stat. 898, as amended, 15
                                  Section 240.15c3–1 is also issued under secs.
                                                                                             U.S.C. 78f, 78k–1, and 78s.
                                15(c)(3), 15 U.S.C. 78o(c)(3).
                                                                                                Section 240.31–1 is also issued under sec. 31,
                                  Section 240.15c3–3 is also issued under 15
                                                                                             48 Stat. 904, as amended (15 U.S.C. 78ee).
                                U.S.C. 78o(c)(2), 78(c)(3), 78q(a), 78w(a); sec.
                                6(c), 84 Stat. 1652; 15 U.S.C. 78fff.                          EDITORIAL NOTE: Nomenclature changes to
                                  Section 240.15c3–3(o) is also issued under                 part 240 appear at 57 FR 36501, Aug. 13, 1992,
                                Pub. L. 106–554, 114 Stat. 2763, section 203.                and 57 FR 47409, Oct. 16, 1992.

                                                                                        14



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                                Securities and Exchange Commission                                                                    § 240.0–2
                                  NOTE: In §§ 240.0–1 to 240.24b–3, the numbers              (6) The term electronic filing means a
                                to the right of the decimal point correspond               document under the federal securities
                                with the respective rule numbers of the rules              laws that is transmitted or delivered to
                                and regulations under the Securities Ex-
                                change Act of 1934.
                                                                                           the Commission in electronic format.
                                                                                             (b) Unless otherwise specifically stat-
                                     ATTENTION ELECTRONIC FILERS                           ed, the terms used in this part shall
                                THIS REGULATION SHOULD BE READ IN                          have the meaning defined in the act.
                                CONJUNCTION WITH REGULATION S-T                              (c) A rule or regulation which defines
                                (PART 232 OF THIS CHAPTER), WHICH                          a term without express reference to the
                                GOVERNS THE PREPARATION AND SUB-                           act or to the rules and regulations, or
                                MISSION OF DOCUMENTS IN ELECTRONIC                         to a portion thereof, defines such term
                                FORMAT. MANY PROVISIONS RELATING                           for all purposes as used both in the act
                                TO THE PREPARATION AND SUBMISSION
                                                                                           and in the rules and regulations, unless
                                OF DOCUMENTS IN PAPER FORMAT CON-
                                TAINED IN THIS REGULATION ARE SU-                          the context otherwise specifically re-
                                PERSEDED BY THE PROVISIONS OF REG-                         quires.
                                ULATION S-T FOR DOCUMENTS RE-                                (d) Unless otherwise specified or the
                                QUIRED TO BE FILED IN ELECTRONIC                           context otherwise requires, the term
                                FORMAT.                                                    prospectus means a prospectus meeting
                                                                                           the requirements of section 10(a) of the
                                Subpart A—Rules and Regulations                            Securities Act of 1933 as amended.
                                   Under the Securities Ex-                                  CROSS REFERENCES: For definition of ‘‘list-
                                   change Act of 1934                                      ed’’, see § 240.3b–1; ‘‘officer’’, § 240.3b–2; ‘‘short
                                                                                           sale’’, § 240.3b–3. For additional definitions,
                                     RULES OF GENERAL APPLICATION                          see § 240.15c1–1.
                                                                                           [13 FR 8178, Dec. 22, 1948, as amended at 13
                                § 240.0–1     Definitions.
                                                                                           FR 9321, Dec. 31, 1948; 19 FR 6730, Oct. 20, 1954;
                                  (a) As used in the rules and regula-                     58 FR 14682, Mar. 18, 1993; 62 FR 36459, July 8,
                                tions in this part, prescribed by the                      1997]
                                Commission pursuant to Title I of the
                                Securities Exchange Act of 1934 (48                        § 240.0–2 Business hours of the Com-
                                Stat. 881–905; 15 U.S.C. chapter 2B), un-                      mission.
                                less the context otherwise specifically                      (a) The principal office of the Com-
                                requires:                                                  mission, at 450 Fifth Street, NW.,
                                  (1) The term Commission means the                        Washington, DC 20549, is open each day,
                                Securities and Exchange Commission.                        except Saturdays, Sundays, and federal
                                  (2) The term act means Title I of the                    holidays, from 9 a.m. to 5:30 p.m., East-
                                Securities Exchange Act of 1934.                           ern Standard Time or Eastern Daylight
                                  (3) The term section refers to a sec-                    Saving Time, whichever currently is in
                                tion of the Securities Exchange Act of                     effect in Washington, DC, provided that
                                1934. 1                                                    hours for the filing of documents pur-
                                  (4) The term rules and regulations re-                   suant to the Act or the rules and regu-
                                fers to all rules and regulations adopt-                   lations thereunder are as set forth in
                                ed by the Commission pursuant to the                       paragraphs (b) and (c) of this section.
                                act, including the forms for registra-                       (b) Submissions made in paper. Paper
                                tion and reports and the accompanying                      documents filed with or otherwise fur-
                                instructions thereto.                                      nished to the Commission may be sub-
                                  (5) The term electronic filer means a                    mitted to the Commission each day,
                                person or an entity that submits filings                   except Saturdays, Sundays and federal
                                electronically pursuant to Rules 100                       holidays, from 8 a.m. to 5:30 p.m., East-
                                and 101 of Regulation S-T (§§ 232.100 and                  ern Standard Time or Eastern Daylight
                                232.101 of this chapter, respectively).                    Saving Time, whichever is currently in
                                                                                           effect.
                                  1 The provisions of paragraph (a)(3) of 17
                                                                                             (c) Electronic filings. Filings made by
                                CFR 240.0–1 relate to the terminology of
                                                                                           direct transmission may be submitted
                                rules and regulations as published by the Se-              to the Commission each day, except
                                curities and Exchange Commission and are                   Saturdays, Sundays and federal holi-
                                inapplicable to the terminology appearing in               days, from 8 a.m. to 10 p.m., Eastern
                                the Code of Federal Regulations.                           Standard Time or Eastern Daylight

                                                                                      15



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                                § 240.0–3                                                              17 CFR Ch. II (4–1–05 Edition)

                                Saving Time, whichever is currently in                     in paragraph (b) of this section where
                                effect.                                                    such exhibit can be found or where it is
                                  CROSS REFERENCES: For registration and
                                                                                           stated that the exhibit is incorporated
                                exemption of exchanges, see §§ 240.6a–1 to                 by reference. Further, the first page of
                                240.6a–3. For forms for permanent registra-                the manually signed document shall
                                tion of securities, see § 240.12b–1. For regula-           list the page in the filing where the ex-
                                tions relating to registration of securities,              hibit index is located.
                                see §§ 240.12b–1 to 240.12b–36. For forms for ap-
                                plications for registration of brokers and                 [44 FR 4666, Jan. 23, 1979, as amended at 45
                                dealers, see §§ 240.15b1–1 to 240.15b9–1.                  FR 58828, Sept. 5, 1980]
                                [58 FR 14682, Mar. 18, 1993, as amended at 65
                                FR 24801, Apr. 27, 2000; 68 FR 25799, May 13,              § 240.0–4 Nondisclosure of information
                                2003]                                                          obtained in examinations and in-
                                                                                               vestigations.
                                § 240.0–3 Filing of material with the                        Information or documents obtained
                                    Commission.                                            by officers or employees of the Com-
                                  (a) All papers required to be filed                      mission in the course of any examina-
                                with the Commission pursuant to the                        tion or investigation pursuant to sec-
                                Act or the rules and regulations there-                    tion 17(a) (48 Stat. 897, section 4, 49
                                under shall be filed at the principal of-                  Stat. 1379; 15 U.S.C. 78q(a)) or 21(a) (48
                                fice in Washington, DC. Material may                       Stat. 899; 15 U.S.C. 78u(a)) shall, unless
                                be filed by delivery to the Commission,                    made a matter of public record, be
                                through the mails or otherwise. The                        deemed confidential. Except as pro-
                                date on which papers are actually re-                      vided by 17 CFR 203.2, officers and em-
                                ceived by the Commission shall be the                      ployees are hereby prohibited from
                                date of filing thereof if all of the re-
                                                                                           making such confidential information
                                quirements with respect to the filing
                                                                                           or documents or any other non-public
                                have been complied with, except that if
                                                                                           records of the Commission available to
                                the last day on which papers can be ac-
                                cepted as timely filed falls on a Satur-                   anyone other than a member, officer or
                                day, Sunday or holiday, such papers                        employee of the Commission, unless
                                may be filed on the first business day                     the Commission or the General Coun-
                                following.                                                 sel, pursuant to delegated authority,
                                  (b) The manually signed original (or                     authorizes the disclosure of such infor-
                                in the case of duplicate originals, one                    mation or the production of such docu-
                                duplicate original) of all registrations,                  ments as not being contrary to the
                                applications, statements, reports, or                      public interest. Any officer or em-
                                other documents filed under the Secu-                      ployee who is served with a subpoena
                                rities Exchange Act of 1934, as amend-                     requiring the disclosure of such infor-
                                ed, shall be numbered sequentially (in                     mation or the production of such docu-
                                addition to any internal numbering                         ments shall appear in court and, unless
                                which otherwise may be present) by                         the authorization described in the pre-
                                handwritten, typed, printed, or other                      ceding sentence shall have been given,
                                legible form of notation from the fac-                     shall respectfully decline to disclose
                                ing page of the document through the                       the information or produce the docu-
                                last page of that document and any ex-                     ments called for, basing his or her re-
                                hibits or attachments thereto. Further,                    fusal upon this section. Any officer or
                                the total number of pages contained in                     employee who is served with such a
                                a numbered original shall be set forth                     subpoena shall promptly advise the
                                on the first page of the document.                         General Counsel of the service of such
                                  (c) Each document filed shall contain
                                                                                           subpoena, the nature of the informa-
                                an exhibit index, which should imme-
                                                                                           tion or documents sought, and any cir-
                                diately precede the exhibits filed with
                                                                                           cumstances which may bear upon the
                                such document. The index shall list
                                each exhibit filed and identify by hand-
                                written, typed, printed, or other legible
                                form of notation in the manually
                                signed original, the page number in the
                                sequential numbering system described

                                                                                      16



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                                Securities and Exchange Commission                                                                  § 240.0–9

                                desirability of making available such                       that effect shall be submitted for the
                                information or documents.                                   information of the Commission. A reg-
                                (Sec. 19, 48 Stat. 85; sec. 20, 48 Stat. 86; sec.
                                                                                            istrant may rely upon any such state-
                                21, 48 Stat. 899; sec. 23, 48 Stat. 901; sec. 18, 49        ment in filing or omitting any docu-
                                Stat. 831; sec. 20, 49 Stat. 833; sec. 319, 53              ment or information to which the
                                Stat. 1173; sec. 321, 53 Stat. 1174; sec. 38, 54            statement relates.
                                Stat. 841; sec. 42, 54 Stat. 842; sec. 209, 54                (c) The Commission may protect any
                                Stat. 853; sec. 211, 54 Stat. 855; sec. 1, 76 Stat.         information in its possession which
                                394. (15 U.S.C. 77s, 77t, 78u, 78w, 79r, 79t, 77sss,        may require classification in the inter-
                                77uuu, 80a–37, 80a–41, 80b–9, 80b–11, 78d–1))
                                                                                            ests of national defense or foreign pol-
                                [44 FR 50836, Aug. 30, 1979, as amended at 53               icy pending determination by an appro-
                                FR 17459, May 17, 1988]                                     priate department or agency as to
                                                                                            whether such information should be
                                § 240.0–5 Reference to rule by obsolete
                                    designation.                                            classified.
                                                                                              (d) It shall be the duty of the reg-
                                   Wherever in any rule, form, or in-                       istrant to submit the documents or in-
                                struction book specific reference is                        formation referred to in paragraph (a)
                                made to a rule by number or other des-                      of this section to the appropriate de-
                                ignation which is now obsolete, such                        partment or agency of the United
                                reference shall be deemed to be made                        States prior to filing them with the
                                to the corresponding rule or rules in                       Commission and to obtain and submit
                                the existing general rules and regula-                      to the Commission, at the time of fil-
                                tions.                                                      ing such documents or information, or
                                [13 FR 8179, Dec. 22, 1948]                                 in lieu thereof, as the case may be, the
                                                                                            statements from such department or
                                § 240.0–6 Disclosure detrimental to the                     agency required by paragraph (b) of
                                     national defense or foreign policy.                    this section. All such statements shall
                                   (a) Any requirement to the contrary                      be in writing.
                                notwithstanding, no registration state-                     [33 FR 7682, May 24, 1968]
                                ment, report, proxy statement or other
                                document filed with the Commission or                       § 240.0–8 Application of rules to reg-
                                any securities exchange shall contain                           istered broker-dealers.
                                any document or information which,                             Any provision of any rule or regula-
                                pursuant to Executive order, has been                       tion under the Act which prohibits any
                                classified by an appropriate depart-                        act, practice, or course of business by
                                ment or agency of the United States                         any person if the mails or any means
                                for protection in the interests of na-                      or instrumentality of interstate com-
                                tional defense or foreign policy.                           merce are used in connection there-
                                   (b) Where a document or information
                                                                                            with, shall also prohibit any such act,
                                is omitted pursuant to paragraph (a) of
                                                                                            practice, or course of business by any
                                this section, there shall be filed, in lieu
                                                                                            broker or dealer registered pursuant to
                                of such document or information, a
                                                                                            section 15(b) of the Act, or any person
                                statement from an appropriate depart-
                                                                                            acting on behalf of such a broker or
                                ment or agency of the United States to
                                                                                            dealer, irrespective of any use of the
                                the effect that such document or infor-
                                                                                            mails or any means or instrumentality
                                mation has been classified or that the
                                                                                            of interstate commerce.
                                status thereof is awaiting determina-
                                tion. Where a document is omitted pur-                      [29 FR 12555, Sept. 3, 1964]
                                suant to paragraph (a) of this section,
                                but information relating to the subject                     § 240.0–9 Payment of fees.
                                matter of such document is neverthe-                           All payment of fees shall be made in
                                less included in material filed with the                    cash, certified check or by United
                                Commission pursuant to a determina-                         States postal money order, bank cash-
                                tion of an appropriate department or                        ier’s check or bank money order pay-
                                agency of the United States that dis-                       able to the Securities and Exchange
                                closure of such information would not                       Commission, omitting the name or
                                be contrary to the interests of national                    title of any official of the Commission.
                                defense or foreign policy, a statement                      Payment of fees required by this sec-
                                from such department or agency to                           tion shall be made in accordance with

                                                                                       17



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                                § 240.0–10                                                             17 CFR Ch. II (4–1–05 Edition)

                                the directions set forth in § 202.3a of                      (3) Is not affiliated with any person
                                this chapter.                                              (other than a natural person) that is
                                [61 FR 49959, Sept. 24, 1996]                              not a small business or small organiza-
                                                                                           tion as defined in this section;
                                § 240.0–10 Small entities under the Se-                      (e) When used with reference to an
                                     curities Exchange Act for purposes                    exchange, mean any exchange that:
                                     of the Regulatory Flexibility Act.                      (1) Has been exempted from the re-
                                   For purposes of Commission rule-                        porting requirements of § 240.11Aa3–1;
                                making in accordance with the provi-                       and
                                sions of Chapter Six of the Administra-                      (2) Is not affiliated with any person
                                tive Procedure Act (5 U.S.C. 601 et seq.),                 (other than a natural person) that is
                                and unless otherwise defined for pur-                      not a small business or small organiza-
                                poses of a particular rulemaking pro-                      tion as defined in this section;
                                ceeding, the term small business or small                    (f) When used with reference to a mu-
                                organization shall:                                        nicipal securities dealer that is a bank
                                   (a) When used with reference to an
                                                                                           (including any separately identifiable
                                ‘‘issuer’’ or a ‘‘person,’’ other than an
                                                                                           department or division of a bank),
                                investment company, mean an ‘‘issuer’’
                                                                                           mean any such municipal securities
                                or ‘‘person’’ that, on the last day of its
                                                                                           dealer that:
                                most recent fiscal year, had total as-
                                sets of $5 million or less;                                  (1) Had, or is a department of a bank
                                   (b) When used with reference to an                      that had, total assets of less than $10
                                ‘‘issuer’’ or ‘‘person’’ that is an invest-                million at all times during the pre-
                                ment company, have the meaning as-                         ceding fiscal year (or in the time that
                                cribed to those terms by § 270.0–10 of                     it has been in business, if shorter);
                                this chapter;                                                (2) Had an average monthly volume
                                   (c) When used with reference to a                       of municipal securities transactions in
                                broker or dealer, mean a broker or                         the preceding fiscal year (or in the
                                dealer that:                                               time it has been registered, if shorter)
                                   (1) Had total capital (net worth plus                   of less than $100,000; and
                                subordinated liabilities) of less than                       (3) Is not affiliated with any person
                                $500,000 on the date in the prior fiscal                   (other than a natural person) that is
                                year as of which its audited financial                     not a small business or small organiza-
                                statements were prepared pursuant to                       tion as defined in this section;
                                § 240.17a–5(d) or, if not required to file                   (g) When used with reference to a se-
                                such statements, a broker or dealer                        curities information processor, mean a
                                that had total capital (net worth plus                     securities information processor that:
                                subordinated liabilities) of less than                       (1) Had gross revenues of less than $10
                                $500,000 on the last business day of the                   million during the preceding fiscal
                                preceding fiscal year (or in the time                      year (or in the time it has been in busi-
                                that it has been in business, if shorter);                 ness, if shorter);
                                and
                                                                                             (2) Provided service to fewer than 100
                                   (2) Is not affiliated with any person
                                                                                           interrogation devices or moving tick-
                                (other than a natural person) that is
                                                                                           ers at all times during the preceding
                                not a small business or small organiza-
                                                                                           fiscal year (or in the time that it has
                                tion as defined in this section;
                                   (d) When used with reference to a                       been in business, if shorter); and
                                clearing agency, mean a clearing agen-                       (3) Is not affiliated with any person
                                cy that:                                                   (other than a natural person) that is
                                   (1) Compared, cleared and settled less                  not a small business or small organiza-
                                than $500 million in securities trans-                     tion under this section; and
                                actions during the preceding fiscal year                     (h) When used with reference to a
                                (or in the time that it has been in busi-                  transfer agent, mean a transfer agent
                                ness, if shorter);                                         that:
                                   (2) Had less than $200 million of funds                   (1) Received less than 500 items for
                                and securities in its custody or control                   transfer and less than 500 items for
                                at all times during the preceding fiscal                   processing during the preceding six
                                year (or in the time that it has been in                   months (or in the time that it has been
                                business, if shorter); and                                 in business, if shorter);

                                                                                      18



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                                Securities and Exchange Commission                                                             § 240.0–11

                                   (2) Transferred items only of issuers                   management or policies of such other
                                that would be deemed ‘‘small busi-                         person.
                                nesses’’ or ‘‘small organizations’’ as de-                   (k) For purposes of paragraph (g) of
                                fined in this section; and                                 this section, ‘‘interrogation device’’
                                   (3) Maintained master shareholder                       shall refer to any device that may be
                                files that in the aggregate contained                      used to read or receive securities infor-
                                less than 1,000 shareholder accounts or                    mation, including quotations, indica-
                                was the named transfer agent for less                      tions of interest, last sale data and
                                than 1,000 shareholder accounts at all                     transaction reports, and shall include
                                times during the preceding fiscal year                     proprietary terminals or personal com-
                                (or in the time that it has been in busi-                  puters that receive securities informa-
                                ness, if shorter); and                                     tion via computer-to-computer inter-
                                   (4) Is not affiliated with any person                   faces or gateway access.
                                (other than a natural person) that is                      [47 FR 5222, Feb. 4, 1982, as amended at 51 FR
                                not a small business or small organiza-                    25362, July 14, 1986; 63 FR 35514, June 30, 1998]
                                tion under this section.
                                   (i) For purposes of paragraph (c) of                    § 240.0–11 Filing fees for certain acqui-
                                                                                                sitions, dispositions and similar
                                this section, a broker or dealer is affili-                     transactions.
                                ated with another person if:
                                                                                              (a) General. (1) At the time of filing a
                                   (1) Such broker or dealer controls, is
                                                                                           disclosure document described in para-
                                controlled by, or is under common con-
                                                                                           graphs (b) through (d) of this section
                                trol with such other person; a person
                                                                                           relating to certain acquisitions, dis-
                                shall be deemed to control another per-
                                                                                           positions, business combinations, con-
                                son if that person has the right to vote
                                                                                           solidations or similar transactions, the
                                25 percent or more of the voting securi-
                                                                                           person filing the specified document
                                ties of such other person or is entitled
                                                                                           shall pay a fee payable to the Commis-
                                to receive 25 percent or more of the net
                                                                                           sion to be calculated as set forth in
                                profits of such other person or is other-
                                                                                           paragraphs (b) through (d) of this sec-
                                wise able to direct or cause the direc-
                                                                                           tion.
                                tion of the management or policies of                         (2) Only one fee per transaction is re-
                                such other person; or                                      quired to be paid. A required fee shall
                                   (2) Such broker or dealer introduces                    be reduced in an amount equal to any
                                transactions in securities, other than                     fee paid with respect to such trans-
                                registered investment company securi-                      action pursuant to either section 6(b)
                                ties or interests or participations in in-                 of the Securities Act of 1933 or any ap-
                                surance company separate accounts, to                      plicable provision of this rule; the fee
                                such other person, or introduces ac-                       requirements under section 6(b) shall
                                counts of customers or other brokers                       be reduced in an amount equal to the
                                or dealers, other than accounts that                       fee paid the Commission with respect
                                hold only registered investment com-                       to a transaction under this regulation.
                                pany securities or interests or partici-                   No part of a filing fee is refundable.
                                pations in insurance company separate                         (3) If at any time after the initial
                                accounts, to such other person that                        payment the aggregate consideration
                                carries such accounts on a fully dis-                      offered is increased, an additional fil-
                                closed basis.                                              ing fee based upon such increase shall
                                   (j) For purposes of paragraphs (d)                      be paid with the required amended fil-
                                through (h) of this section, a person is                   ing.
                                affiliated with another person if that                        (4) When the fee is based upon the
                                person controls, is controlled by, or is                   market value of securities, such mar-
                                under common control with such other                       ket value shall be established by either
                                person; a person shall be deemed to                        the average of the high and low prices
                                control another person if that person                      reported in the consolidated reporting
                                has the right to vote 25 percent or                        system (for exchange traded securities
                                more of the voting securities of such                      and last sale reported over-the-counter
                                other person or is entitled to receive 25                  securities) or the average of the bid
                                percent or more of the net profits of                      and asked price (for other over-the-
                                such other person or is otherwise able                     counter securities) as of a specified
                                to direct or cause the direction of the                    date within 5 business days prior to the

                                                                                      19



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                                § 240.0–11                                                             17 CFR Ch. II (4–1–05 Edition)

                                date of the filing. If there is no market                     (i) The value of securities or other
                                for the securities, the value shall be                     property to be transferred to security
                                based upon the book value of the secu-                     holders, whether or not in combination
                                rities computed as of the latest prac-                     with a cash payment for the same secu-
                                ticable date prior to the date of the fil-                 rities, shall be based upon the market
                                ing, unless the issuer of the securities                   value of the securities to be received
                                is in bankruptcy or receivership or has                    by the acquiring person as established
                                an accumulated capital deficit, in                         in accordance with paragraph (a)(4) of
                                which case one-third of the principal                      this section.
                                amount, par value or stated value of                          (ii) Notwithstanding the above,
                                the securities shall be used.                              where the acquisition, merger or con-
                                  (5) The cover page of the filing shall                   solidation is for the sole purpose of
                                set forth the calculation of the fee in                    changing the registrant’s domicile, no
                                tabular format, as well as the amount                      filing fee is required to be paid.
                                offset by a previous filing and the iden-                     (2) For preliminary material involv-
                                tification of such filing, if applicable.                  ing a vote upon a proposed sale or
                                  (b) Section 13(e)(1) filings. At the time                other disposition of substantially all
                                of filing such statement as the Com-                       the assets of the registrant, a fee of
                                mission may require pursuant to sec-                       one-fiftieth of one percent of the aggre-
                                tion 13(e)(1) of the Exchange Act, a fee                   gate of the cash and the value of the
                                of one-fiftieth of one percent of the                      securities (other than its own) and
                                value of the securities proposed to be                     other property to be received by the
                                acquired by the acquiring person. The                      registrant. In the case of a disposition
                                value of the securities proposed to be                     in which the registrant will not receive
                                acquired shall be determined as fol-                       any property, such as at liquidation or
                                lows:                                                      spin-off, the fee shall be one-fiftieth of
                                  (1) The value of the securities to be                    one percent of the aggregate of the
                                acquired solely for cash shall be the
                                                                                           cash and the value of the securities and
                                amount of cash to be paid for them:
                                                                                           other property to be distributed to se-
                                  (2) The value of the securities to be
                                                                                           curity holders.
                                acquired with securities or other non-
                                cash consideration, whether or not in                         (i) The value of the securities to be
                                combination with a cash payment for                        received (or distributed in the case of a
                                the same securities, shall be based                        spin-off or liquidation) shall be based
                                upon the market value of the securities                    upon the market value of such securi-
                                to be received by the acquiring person                     ties as established in accordance with
                                as established in accordance with para-                    paragraph (a)(4) of this section.
                                graph (a)(4) of this section.                                 (ii) The value of other property shall
                                  (c) Proxy and information statement fil-                 be a bona fide estimate of the fair mar-
                                ings. At the time of filing a preliminary                  ket value of such property.
                                proxy statement pursuant to Rule 14a–                         (3) Where two or more companies are
                                6(a) or preliminary information state-                     involved in the transaction, each shall
                                ment pursuant to Rule 14c–5(a) that                        pay a proportionate share of such fee,
                                concerns a merger, consolidation, ac-                      determined by the persons involved.
                                quisition of a company, or proposed                           (4) Notwithstanding the above, the
                                sale or other disposition of substan-                      fee required by this paragraph (c) shall
                                tially all the assets of the registrant                    not be payable for a proxy statement
                                (including a liquidation), the following                   filed by a company registered under
                                fee:                                                       the Investment Company Act of 1940.
                                  (1) For preliminary material involv-                        (d) Schedule 14D–1 filings. At the time
                                ing a vote upon a merger, consolidation                    of filing a Schedule 14D–1, a fee of one-
                                or acquisition of a company, a fee of                      fiftieth of one percent of the aggregate
                                one-fiftieth of one percent of the pro-                    of the cash or of the value of the secu-
                                posed cash payment or of the value of                      rities or other property offered by the
                                the securities and other property to be                    bidder. Where the bidder is offering se-
                                transferred to security holders in the                     curities or other non-cash consider-
                                transaction. The fee is payable whether                    ation for some or all of the securities
                                the registrant is acquiring another                        to be acquired, whether or not in com-
                                company or being acquired.                                 bination with a cash payment for the

                                                                                      20



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                                Securities and Exchange Commission                                                             § 240.0–12

                                same securities, the value of the con-                     of applications must be at least 11⁄2
                                sideration to be offered for such securi-                  inches wide, and if the application is
                                ties shall be based upon the market                        bound, it must be bound on the left
                                value of the securities to be received                     side. All typewritten or printed mate-
                                by the bidder as established in accord-                    rial must be on one side of the paper
                                ance with paragraph (a)(4) of this sec-                    only and must be set forth in black ink
                                tion.                                                      so as to permit photocopying.
                                [51 FR 2476, Jan. 17, 1986, as amended at 58                 (d) Every application (electronic or
                                FR 14682, Mar. 18, 1993; 61 FR 49959, Sept. 24,            paper) must contain the name, address
                                1996]                                                      and telephone number of each appli-
                                                                                           cant and the name, address, and tele-
                                § 240.0–12 Commission procedures for                       phone number of a person to whom any
                                     filing applications for orders for ex-
                                     emptive relief under Section 36 of                    questions regarding the application
                                     the Exchange Act.                                     should be directed. The Commission
                                                                                           will not consider hypothetical or anon-
                                   (a) The application shall be in writ-
                                                                                           ymous requests for exemptive relief.
                                ing in the form of a letter, must in-
                                clude any supporting documents nec-                        Each applicant shall state the basis for
                                essary to make the application com-                        the relief sought, and identify the an-
                                plete, and otherwise must comply with                      ticipated benefits for investors and any
                                § 240.0–3. All applications must be sub-                   conditions or limitations the applicant
                                mitted to the Office of the Secretary of                   believes would be appropriate for the
                                the Commission. Requestors may seek                        protection of investors. Applicants
                                confidential treatment of their applica-                   should also cite to and discuss applica-
                                tions to the extent provided under                         ble precedent.
                                § 200.81 of this chapter. If an application                  (e) Amendments to the application
                                is     incomplete,     the    Commission,                  should be prepared and submitted as
                                through the Division handling the ap-                      set forth in these procedures and
                                plication, may request that the appli-                     should be marked to show what
                                cation be withdrawn unless the appli-                      changes have been made.
                                cant can justify, based on all the facts                     (f) After the filing is complete, the
                                and circumstances, why supporting                          applicable Division will review the ap-
                                materials have not been submitted and                      plication. Once all questions and issues
                                undertakes to submit the omitted ma-                       have been answered to the satisfaction
                                terials promptly.                                          of the Division, the staff will make an
                                   (b) An applicant may submit a re-                       appropriate recommendation to the
                                quest electronically in standard elec-                     Commission. After consideration of the
                                tronic mail text or ASCII format. The                      recommendation by the Commission,
                                electronic mailbox to use for these ap-                    the Commission’s Office of the Sec-
                                plications is described on the Commis-                     retary will issue an appropriate re-
                                sion’s website at www.sec.gov in the
                                                                                           sponse and will notify the applicant. If
                                ‘‘Exchange Act Exemptive Applica-
                                                                                           the application pertains to a section of
                                tions’’ subsection located under the
                                                                                           the Exchange Act pursuant to which
                                ‘‘Current SEC Rulemaking’’ section. In
                                the event electronic mailboxes are re-                     the Commission has delegated its au-
                                vised in the future, applicants can find                   thority to the appropriate Division, the
                                the appropriate mailbox by accessing                       Division Director or his or her designee
                                the Commission’s website directory of                      will issue an appropriate response and
                                electronic      mailboxes      at    http://               notify the applicant.
                                www.sec.gov/asec/mailboxs.htm.                               (g) The Commission, in its sole dis-
                                   (c) An applicant also may submit a                      cretion, may choose to publish in the
                                request in paper format. Five copies of                    FEDERAL REGISTER a notice that the
                                every paper application and every                          application has been submitted. The
                                amendment to such an application                           notice would provide that any person
                                must be submitted to the Office of the                     may, within the period specified there-
                                Secretary at 450 Fifth Street, N.W.,                       in, submit to the Commission any in-
                                Washington, D.C. 20549. Applications                       formation that relates to the Commis-
                                must be on white paper no larger than                      sion action requested in the applica-
                                81⁄2 by 11 inches in size. The left margin                 tion. The notice also would indicate

                                                                                      21



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                                § 240.3a1–1                                                            17 CFR Ch. II (4–1–05 Edition)

                                the earliest date on which the Commis-                        (3) For purposes of paragraph (b) of
                                sion would take final action on the ap-                    this section, each of the following shall
                                plication, but in no event would such                      be considered a ‘‘class of securities’’:
                                action be taken earlier than 25 days                          (i) Equity securities, which shall
                                following publication of the notice in                     have the same meaning as in § 240.3a11–
                                the FEDERAL REGISTER.                                      1;
                                  (h) The Commission may, in its sole                         (ii) Listed options, which shall mean
                                discretion, schedule a hearing on the                      any options traded on a national secu-
                                matter addressed by the application.                       rities exchange or automated facility
                                [63 FR 8102, Feb. 18. 1998]                                of a national securities exchange;
                                                                                              (iii) Unlisted options, which shall
                                § 240.3a1–1 Exemption from the defini-                     mean any options other than those
                                      tion of ‘‘Exchange’’ under Section
                                      3(a)(1) of the Act.                                  traded on a national securities ex-
                                                                                           change or automated facility of a na-
                                   (a) An organization, association, or                    tional securities association;
                                group of persons shall be exempt from                         (iv) Municipal securities, which shall
                                the definition of the term ‘‘exchange’’                    have the same meaning as in section
                                under section 3(a)(1) of the Act, (15                      3(a)(29) of the Act, (15 U.S.C. 78c(a)(29));
                                U.S.C. 78c(a)(1)), if such organization,
                                                                                              (v) Investment grade corporate debt
                                association, or group of persons:
                                                                                           securities, which shall mean any secu-
                                   (1) Is operated by a national securi-
                                                                                           rity that:
                                ties association;
                                   (2) Is in compliance with Regulation                       (A) Evidences a liability of the issuer
                                ATS, 17 CFR 242.300 through 242.303; or                    of such security;
                                   (3) Pursuant to paragraph (a) of                           (B) Has a fixed maturity date that is
                                § 242.301 of Regulation ATS, 17 CFR                        at least one year following the date of
                                242.301(a), is not required to comply                      issuance;
                                with Regulation ATS, 17 CFR 242.300                           (C) Is rated in one of the four highest
                                through 242.303.                                           ratings categories by at least one Na-
                                   (b) Notwithstanding paragraph (a) of                    tionally Recognized Statistical Rat-
                                this section, an organization, associa-                    ings Organization; and
                                tion, or group of persons shall not be                        (D) Is not an exempted security, as
                                exempt under this section from the def-                    defined in section 3(a)(12) of the Act,
                                inition of ‘‘exchange,’’ if:                               (15 U.S.C. 78c(a)(12));
                                   (1) During three of the preceding four                     (vi) Non-investment grade corporate
                                calendar quarters such organization,                       debt securities, which shall mean any
                                association, or group of persons had:                      security that:
                                   (i) Fifty percent or more of the aver-                     (A) Evidences a liability of the issuer
                                age daily dollar trading volume in any                     of such security;
                                security and five percent or more of                          (B) Has a fixed maturity date that is
                                the average daily dollar trading vol-                      at least one year following the date of
                                ume in any class of securities; or                         issuance;
                                   (ii) Forty percent or more of the av-
                                                                                              (C) Is not rated in one of the four
                                erage daily dollar trading volume in
                                                                                           highest ratings categories by at least
                                any class of securities; and
                                                                                           one Nationally Recognized Statistical
                                   (2) The Commission determines, after
                                notice to the organization, association,                   Ratings Organization; and
                                or group of persons, and an opportunity                       (D) Is not an exempted security, as
                                for such organization, association, or                     defined in section 3(a)(12) of the Act,
                                group of persons to respond, that such                     (15 U.S.C. 78o);
                                an exemption would not be necessary                           (vii) Foreign corporate debt securi-
                                or appropriate in the public interest or                   ties, which shall mean any security
                                consistent with the protection of inves-                   that:
                                tors taking into account the require-                         (A) Evidences a liability of the issuer
                                ments for exchange registration under                      of such debt security;
                                section 6 of the Act, (15 U.S.C. 78f), and                    (B) Is issued by a corporation or
                                the objectives of the national market                      other organization incorporated or or-
                                system under section 11A of the Act,                       ganized under the laws of any foreign
                                (15 U.S.C 78k–1).                                          country; and

                                                                                      22



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                                Securities and Exchange Commission                                                            § 240.3a4–1

                                  (C) Has a fixed maturity date that is                      (C) That are made pursuant to a plan
                                at least one year following the date of                    or agreement submitted for the vote or
                                issuance; and                                              consent of the security holders who
                                  (viii) Foreign sovereign debt securi-                    will receive securities of the issuer in
                                ties, which shall mean any security                        connection with a reclassification of
                                that:                                                      securities of the issuer, a merger or
                                  (A) Evidences a liability of the issuer                  consolidation or a similar plan of ac-
                                of such debt security;                                     quisition involving an exchange of se-
                                  (B) Is issued or guaranteed by the                       curities, or a transfer of assets of any
                                government of a foreign country, any                       other person to the issuer in exchange
                                political subdivision of a foreign coun-                   for securities of the issuer; or
                                try, or any supranational entity; and                        (D) That are made pursuant to a
                                  (C) Does not have a maturity date of                     bonus, profit-sharing, pension, retire-
                                a year or less following the date of                       ment, thrift, savings, incentive, stock
                                issuance.                                                  purchase, stock ownership, stock ap-
                                [63 FR 70917, Dec. 22, 1998]
                                                                                           preciation, stock option, dividend rein-
                                                                                           vestment or similar plan for employees
                                § 240.3a4–1 Associated persons of an                       of an issuer or a subsidiary of the
                                    issuer deemed not to be brokers.                       issuer;
                                  (a) An associated person of an issuer                      (ii) The associated person meets all
                                of securities shall not be deemed to be                    of the following conditions:
                                a broker solely by reason of his partici-                    (A) The associated person primarily
                                pation in the sale of the securities of                    performs, or is intended primarily to
                                such issuer if the associated person:                      perform at the end of the offering, sub-
                                  (1) Is not subject to a statutory dis-                   stantial duties for or on behalf of the
                                qualification, as that term is defined in                  issuer otherwise than in connection
                                section 3(a)(39) of the Act, at the time                   with transactions in securities; and
                                of his participation; and                                    (B) The associated person was not a
                                  (2) Is not compensated in connection                     broker or dealer, or an associated per-
                                with his participation by the payment                      son of a broker or dealer, within the
                                of commissions or other remuneration                       preceding 12 months; and
                                based either directly or indirectly on                       (C) The associated person does not
                                transactions in securities; and                            participate in selling an offering of se-
                                  (3) Is not at the time of his participa-                 curities for any issuer more than once
                                tion an associated person of a broker or                   every 12 months other than in reliance
                                dealer; and                                                on paragraph (a)(4)(i) or (iii) of this
                                  (4) Meets the conditions of any one of                   section, except that for securities
                                paragraph (a)(4) (i), (ii), or (iii) of this               issued pursuant to rule 415 under the
                                section.                                                   Securities Act of 1933, the 12 months
                                  (i) The associated person restricts his                  shall begin with the last sale of any se-
                                participation to transactions involving                    curity included within one rule 415 reg-
                                offers and sales of securities:                            istration.
                                  (A) To a registered broker or dealer;                      (iii) The associated person restricts
                                a registered investment company (or                        his participation to any one or more of
                                registered separate account); an insur-                    the following activities:
                                ance company; a bank; a savings and                          (A) Preparing any written commu-
                                loan association; a trust company or                       nication or delivering such commu-
                                similar institution supervised by a                        nication through the mails or other
                                state or federal banking authority; or a                   means that does not involve oral solici-
                                trust for which a bank, a savings and                      tation by the associated person of a po-
                                loan association, a trust company, or a                    tential purchaser; Provided, however,
                                registered investment adviser either is                    that the content of such communica-
                                the trustee or is authorized in writing                    tion is approved by a partner, officer or
                                to make investment decisions; or                           director of the issuer;
                                  (B) That are exempted by reason of                         (B) Responding to inquiries of a po-
                                section 3(a)(7), 3(a)(9) or 3(a)(10) of the                tential purchaser in a communication
                                Securities Act of 1933 from the reg-                       initiated by the potential purchaser;
                                istration provisions of that Act; or                       Provided, however, That the content of

                                                                                      23



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                                § 240.3a4–2                                                            17 CFR Ch. II (4–1–05 Edition)

                                such responses are limited to informa-                     § 240.3a4–2 Exemption from the defini-
                                tion contained in a registration state-                          tion of ‘‘broker’’ for bank calcu-
                                ment filed under the Securities Act of                           lating compensation for effecting
                                1933 or other offering document; or                              transactions in fiduciary accounts.
                                  (C) Performing ministerial and cler-                        (a) A bank that meets the conditions
                                ical work involved in effecting any                        for exception from the definition of the
                                transaction.                                               term        ‘‘broker’’   under     Section
                                  (b) No presumption shall arise that                      3(a)(4)(B)(ii) of the Act (15 U.S.C.
                                an associated person of an issuer has                      78c(a)(4)(B)(ii)), except for the ‘‘chiefly
                                                                                           compensated’’ condition in Section
                                violated section 15(a) of the Act solely
                                                                                           3(a)(4)(B)(ii)(I) of the Act (15 U.S.C.
                                by reason of his participation in the
                                                                                           78c(a)(4)(B)(ii)(I)), is exempt from the
                                sale of securities of the issuer if he                     definition of the term ‘‘broker’’ under
                                does not meet the conditions specified                     Section 3(a)(4) of the Act (15 U.S.C.
                                in paragraph (a) of this section.                          78c(a)(4)) solely for effecting trans-
                                  (c) Definitions. When used in this sec-                  actions in securities pursuant to Sec-
                                tion:                                                      tion 3(a)(4)(B)(ii) of the Act (15 U.S.C.
                                  (1) The term associated person of an                     78c(a)(4)(B)(ii)) if:
                                issuer means any natural person who is                        (1) The bank can demonstrate that
                                a partner, officer, director, or em-                       sales compensation, as defined in
                                ployee of:                                                 § 240.3b–17(j), received during the imme-
                                  (i) The issuer;                                          diately preceding year is less than 10%
                                  (ii) A corporate general partner of a                    of the total amount of relationship
                                limited partnership that is the issuer;                    compensation, as defined in § 240.3b–
                                  (iii) A company or partnership that                      17(i), received during that year;
                                controls, is controlled by, or is under                       (2) The bank maintains procedures
                                                                                           reasonably designed to ensure compli-
                                common control with, the issuer; or
                                                                                           ance with the ‘‘chiefly compensated’’
                                  (iv) An investment adviser registered                    condition in Section 3(a)(4)(B)(ii)(I) of
                                under the Investment Advisers Act of                       the Act (15 U.S.C. 78c(a)(4)(B)(ii)(I))
                                1940 to an investment company reg-                         with respect to a trust or fiduciary ac-
                                istered under the Investment Company                       count:
                                Act of 1940 which is the issuer.                              (i) When the account is opened;
                                  (2) The term associated person of a                         (ii) When the compensation arrange-
                                broker or dealer means any partner, offi-                  ment for the account is changed; and
                                cer, director, or branch manager of                           (iii) When sales compensation, as de-
                                such broker or dealer (or any person                       fined in § 240.3b–17, received from the
                                occupying a similar status or per-                         account is reviewed by the bank for
                                forming similar functions), any person                     purposes of determining an employee’s
                                directly or indirectly controlling, con-                   compensation; and
                                trolled by, or under common control                           (3) The bank complies with Section
                                with such broker or dealer, or any em-                     3(a)(4)(C) of the Act (15 U.S.C.
                                ployee of such broker or dealer, except                    78c(a)(4)(C)).
                                that any person associated with a                             (b) For purposes of this section, the
                                broker or dealer whose functions are                       term year means either a calendar year
                                                                                           or other fiscal year consistently used
                                solely clerical or ministerial and any
                                                                                           by the bank for recordkeeping and re-
                                person who is required under the laws
                                                                                           porting purposes.
                                of any State to register as a broker or
                                dealer in that State solely because                        [66 FR 27796, May 18, 2001]
                                such person is an issuer of securities or
                                                                                           § 240.3a4–3 Exemption from the defini-
                                associated person of an issuer of securi-                      tion of ‘‘broker’’ for bank effecting
                                ties shall not be included in the mean-                        transactions as an indenture trust-
                                ing of such term for purposes of this                          ee in a no-load money market fund.
                                section.                                                      A bank that meets the conditions for
                                [50 FR 27946, July 9, 1985]                                exception from the definition of the
                                                                                           term      ‘‘broker’’    under      Section
                                                                                           3(a)(4)(B)(ii) of the Act (15 U.S.C.
                                                                                           78c(a)(4)(B)(ii)), except for the ‘‘chiefly

                                                                                      24



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                                Securities and Exchange Commission                                                            § 240.3a4–4

                                compensated’’ condition in Section                         of 1940 (15 U.S.C. 80a–2(a)(3)), of the
                                3(a)(4)(B)(ii)(I) of the Act (15 U.S.C.                    bank and that have similar character-
                                78c(a)(4)(B)(ii)(I)), is exempt from the                   istics to the securities of investment
                                definition of the term ‘‘broker’’ under                    companies made available that are af-
                                Section 3(a)(4) of the Act (15 U.S.C.                      filiated persons;
                                78c(a)(4)) solely for effecting trans-                        (5) The bank does not solicit securi-
                                actions as an indenture trustee in a no-                   ties transactions except through the
                                load money market fund, as defined in                      following activities:
                                § 240.3b–17(f) and § 240.3b–17(e), respec-                    (i) Delivering advertising and sales
                                tively.                                                    literature for the security that is pre-
                                [66 FR 27796, May 18, 2001]                                pared by the registered broker-dealer
                                                                                           that is the principal underwriter of an
                                § 240.3a4–4 Exemption from the defini-                     open-end      management        investment
                                      tion of ‘‘broker’’ for small bank ef-                company registered under the Invest-
                                      fecting transactions in investment                   ment Company Act of 1940 (15 U.S.C.
                                      company securities in a tax-de-
                                      ferred custody account.                              80a–1 et seq.), or prepared by an open-
                                                                                           end management investment company
                                   (a) A small bank is exempt from the                     registered under the Investment Com-
                                definition of the term ‘‘broker’’ under                    pany Act of 1940 (15 U.S.C. 80a–1 et seq.)
                                Section 3(a)(4) of the Act (15 U.S.C.                      that is not an affiliated person, as de-
                                78c(a)(4)) solely for effecting trans-                     fined in Section 2(a)(3) of the Invest-
                                actions in securities of an open-end                       ment Company Act of 1940 (15 U.S.C.
                                management investment company reg-                         80a–2(a)(3)), of the bank;
                                istered under the Investment Company                          (ii) Responding to inquiries of a po-
                                Act of 1940 (15 U.S.C. 80a–1 et seq.) in a                 tential purchaser in a communication
                                tax-deferred account for which the                         initiated by the potential purchaser;
                                bank acts as custodian under Section                       provided, however, that the content of
                                3(a)(4)(B)(viii) of the Act (15 U.S.C.
                                                                                           such responses is limited to informa-
                                78c(a)(4)(B)(viii)) if:
                                                                                           tion contained in a registration state-
                                   (1) The bank is not associated with a
                                                                                           ment for the security of an investment
                                broker or dealer and does not have an
                                                                                           company filed under the Securities Act
                                arrangement with a broker or dealer to
                                                                                           of 1933 (15 U.S.C. 77a et seq.) or sales lit-
                                effect transactions in securities for the
                                                                                           erature prepared by the investment
                                bank’s customers;
                                                                                           company security’s principal under-
                                   (2) Any bank employee effecting such
                                                                                           writer that is a registered broker-deal-
                                transactions:
                                                                                           er;
                                   (i) Is not an associated person of a
                                broker or dealer;                                             (iii) Advertising of trust activities, if
                                   (ii) Primarily performs duties for the                  any,      permitted       under     Section
                                bank other than effecting transactions                     3(a)(4)(B)(ii)(II) of the Act (15 U.S.C.
                                in securities for customers; and                           78c(a)(4)(B)(ii)(II)); or
                                   (iii) Does not receive compensation                        (iv) Notifying its existing customers
                                for such transactions from the bank,                       that it accepts orders for investment
                                the executing broker or dealer, or any                     company securities in conjunction with
                                other person related to:                                   solicitations related to its other activi-
                                   (A) The size, value, or completion of                   ties concerning tax-deferred accounts;
                                any securities transaction;                                and
                                   (B) The amount of securities-related                       (6) The bank’s annual compensation
                                assets gathered; or                                        related to effecting transactions in se-
                                   (C) The size or value of any cus-                       curities pursuant to this exemption is
                                tomer’s securities account;                                less than 3% of its annual revenue.
                                   (3) The bank complies with Section                         (b) Definitions. For purposes of this
                                3(a)(4)(C) of the Act (15 U.S.C.                           section:
                                78c(a)(4)(C));                                                (1) The phrase compensation related to
                                   (4) The bank makes available to the                     effecting transactions in securities pursu-
                                tax-deferred account the securities of                     ant to this exemption means the total
                                investment companies that are not af-                      annual compensation received for ef-
                                filiated persons, as defined in Section                    fecting transactions in securities pur-
                                2(a)(3) of the Investment Company Act                      suant to this exemption, including fees

                                                                                      25



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                                § 240.3a4–5                                                            17 CFR Ch. II (4–1–05 Edition)

                                received from investment companies                            (1) The bank does not directly or in-
                                for distribution.                                          directly receive any compensation for
                                   (2) The term networking arrangement                     effecting such transactions;
                                means a contractual or other written                          (2) Any bank employee effecting such
                                arrangement with a broker or dealer to                     transactions:
                                effect transactions in securities for the                     (i) Is not an associated person of a
                                bank’s customers.                                          broker or dealer;
                                   (3) The term principal underwriter has                     (ii) Primarily performs duties for the
                                the meaning given in Section 2(a)(29) of                   bank other than effecting transactions
                                the Investment Company Act of 1940 (15                     in securities for customers;
                                U.S.C. 80a–2(a)(29)).                                         (iii) Does not receive compensation
                                   (4) The term revenue means the total                    for such transactions related to:
                                annual net interest income and non-                           (A) The size, value, or completion of
                                interest income from the bank’s most                       any securities transaction;
                                recent Consolidated Reports of Condi-                         (B) The amount of securities-related
                                tion and Income (Call Reports) or any                      assets gathered; or
                                successor forms the bank is required to                       (C) The size or value of any cus-
                                file by its appropriate Federal banking                    tomer’s securities account; and
                                agency (as defined in Section 3 of the                        (iv) Does not receive compensation
                                FDIA (12 U.S.C. 1813).                                     for the referral of any customer to the
                                   (5) (i) The term small bank means a                     broker or dealer;
                                bank that:                                                    (3) The bank complies with Section
                                   (A) Had less than $100 million in as-                   3(a)(4)(C) of the Act (15 U.S.C.
                                sets as of December 31 of both of the                      78c(a)(4)(C));
                                prior two calendar years; and                                 (4) The bank makes available to the
                                   (B) Is not, and since December 31 of                    account the securities of investment
                                the third prior calendar year has not                      companies with similar characteristics
                                been, an affiliate of a bank holding                       that are not affiliated persons, as de-
                                company or a financial holding com-                        fined in Section 2(a)(3) of the Invest-
                                pany that as of December 31 of both of                     ment Company Act of 1940 (15 U.S.C.
                                the prior two calendar years had con-                      80a–2(a)(3)), of the bank, if the bank
                                solidated assets of more than $1 billion.                  makes available the securities of in-
                                   (ii) For purposes of this paragraph                     vestment companies that are affiliated
                                (b)(5) the terms affiliate, bank holding                   persons, as defined in Section 2(a)(3) of
                                company, and financial holding company                     the Investment Company Act of 1940 (15
                                have the same meanings as given in the                     U.S.C. 80a–2(a)(3)); and
                                Bank Holding Company Act of 1956 (12                          (5) The bank does not solicit securi-
                                U.S.C. 1841 et seq.).                                      ties transactions except through the
                                   (6) The term tax-deferred account                       following activities:
                                means those accounts described in Sec-                        (i) Delivering advertising and sales
                                tions 401(a), 403, 408, and 408A under                     literature for the security that is pre-
                                Subchapter D and in Section 457 under                      pared by the registered broker-dealer
                                Subchapter E of the Internal Revenue                       that is the principal underwriter of an
                                Code of 1986 (26 U.S.C. 1 et seq.).                        investment company, or prepared by an
                                [66 FR 27796, May 18, 2001]                                investment company that is not an af-
                                                                                           filiated person, as defined in Section
                                § 240.3a4–5 Exemption from the defini-                     2(a)(3) of the Investment Company Act
                                    tion of ‘‘broker’’ for banks effecting                 of 1940 (15 U.S.C. 80a–2(a)(3)), of the
                                    transactions in securities in a cus-                   bank;
                                    tody account.                                             (ii) Responding to inquiries of a po-
                                  (a) A bank is exempt from the defini-                    tential purchaser in a communication
                                tion of the term ‘‘broker’’ under Sec-                     initiated by the potential purchaser of
                                tion 3(a)(4) of the Act (15 U.S.C.                         the security; provided, however, that
                                78c(a)(4)) solely for effecting trans-                     the content of such responses is limited
                                actions in securities in an account for                    to information contained in a registra-
                                which the bank acts as custodian under                     tion statement for the security filed
                                Section 3(a)(4)(B)(viii) of the Act (15                    under the Securities Act of 1933 (15
                                U.S.C. 78c(a)(4)(B)(viii)) if:                             U.S.C. 77a et seq.) or sales literature

                                                                                      26



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                                Securities and Exchange Commission                                                           § 240.3a12–3

                                prepared by the principal underwriter                      offset a contemporaneous                 purchase
                                that is a registered broker-dealer;                        from such customer.
                                  (iii) Advertising of trust activities, if
                                                                                           [68 FR 8700, Feb. 24, 2003]
                                any,     permitted        under   Section
                                3(a)(4)(B)(ii)(II) of the Act (15 U.S.C.                    DEFINITION OF ‘‘EQUITY SECURITY’’ AS
                                78c(a)(4)(B)(ii)(II)); and                                     USED IN SECTIONS 12(G) AND 16
                                  (iv) Notifying its existing customers
                                that it accepts orders for securities in                   § 240.3a11–1. Definition         of   the    term
                                conjunction with solicitations related                         ‘‘equity security.’’
                                to its other custody activities.
                                                                                             The term equity security is hereby de-
                                  (b) For purposes of this section, the
                                                                                           fined to include any stock or similar
                                term principal underwriter has the
                                meaning given in Section 2(a)(29) of the                   security, certificate of interest or par-
                                Investment Company Act of 1940 (15                         ticipation in any profit sharing agree-
                                U.S.C. 80a–2(a)(29)).                                      ment, preorganization certificate or
                                                                                           subscription, transferable share, voting
                                [66 FR 27796, May 18, 2001]                                trust certificate or certificate of de-
                                                                                           posit for an equity security, limited
                                § 240.3a4–6 Exemption from the defini-                     partnership interest, interest in a joint
                                    tion of ‘‘broker’’ for banks that exe-
                                    cute transactions in investment                        venture, or certificate of interest in a
                                    company securities through NSCC                        business trust; any security future on
                                    Mutual Fund Services.                                  any such security; or any security con-
                                  A bank that meets the conditions for                     vertible, with or without consideration
                                an exception or exemption from the                         into such a security, or carrying any
                                definition of the term ‘‘broker,’’ except                  warrant or right to subscribe to or pur-
                                for the condition in Section 3(a)(4)(C)(i)                 chase such a security; or any such war-
                                of the Act (15 U.S.C. 78c(a)(4)(C)(i)), is                 rant or right; or any put, call, straddle,
                                exempt from such condition solely for                      or other option or privilege of buying
                                transactions in investment company                         such a security from or selling such a
                                securities effected through the Na-                        security to another without being
                                tional Securities Clearing Corpora-                        bound to do so.
                                tion’s Mutual Fund Services.                               [67 FR 19673, Apr. 23, 2002]
                                [66 FR 27796, May 18, 2001]
                                                                                                  MISCELLANEOUS EXEMPTIONS
                                § 240.3a5–1 Exemption from the defini-
                                    tion of ‘‘dealer’’ for a bank engaged                  § 240.3a12–1 Exemption   of   certain
                                    in riskless principal transactions.                        mortgages and interests in mort-
                                                                                               gages.
                                  (a) A bank is exempt from the defini-
                                tion of the term ‘‘dealer’’ to the extent                    Mortgages, as defined in section
                                that it engages in or effects riskless                     302(d) of the Emergency Home Finance
                                principal transactions if the number of                    Act of 1970, which are or have been sold
                                such riskless principal transactions                       by the Federal Home Loan Mortgage
                                during a calendar year combined with                       Corporation are hereby exempted from
                                transactions in which the bank is act-                     the operation of such provisions of the
                                ing as an agent for a customer pursu-                      Act as by their terms do not apply to
                                ant to section 3(a)(4)(B)(xi) of the Act                   an ‘‘exempted security’’ or to ‘‘ex-
                                (15 U.S.C. 78c(a)(4)(B)(xi)) during that                   empted securities’’.
                                same year does not exceed 500.
                                                                                           (Sec. 3(a)(12), 48 Stat. 882, 15 U.S.C. 78(c))
                                  (b) For purposes of this section, the
                                term riskless principal transaction                        [37 FR 25167, Nov. 28, 1972]
                                means a transaction in which, after
                                having received an order to buy from a                     § 240.3a12–2     [Reserved]
                                customer, the bank purchased the secu-
                                rity from another person to offset a                       § 240.3a12–3 Exemption from sections
                                contemporaneous sale to such cus-                              14(a), 14(b), 14(c), 14(f) and 16 for
                                tomer or, after having received an                             securities of certain foreign issuers.
                                order to sell from a customer, the bank                      (a) Securities for which the filing of
                                sold the security to another person to                     registration statements on Form 18 [17

                                                                                      27



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                                § 240.3a12–4                                                           17 CFR Ch. II (4–1–05 Edition)

                                CFR 249.218] are authorized shall be ex-                   § 240.3a12–5 Exemption of certain in-
                                empt from the operation of sections 14                         vestment contract securities from
                                and 16 of the Act.                                             sections 7(c) and 11(d)(1).
                                   (b) Securities registered by a foreign                    (a) An investment contract security
                                private issuer, as defined in Rule 3b–4                    involving the direct ownership of speci-
                                (§ 240.3b–4 of this chapter), shall be ex-                 fied residential real property shall be
                                empt from sections 14(a), 14(b), 14(c),                    exempted from the provisions of sec-
                                14(f) and 16 of the Act.
                                                                                           tions 7(c) and 11(d)(1) of the Act with
                                [44 FR 70137, Dec. 6, 1979, as amended at 47               respect to any transaction by a broker
                                FR 54780, Dec. 6, 1982; 56 FR 30067, July 1,               or dealer who, directly or indirectly,
                                1991]                                                      arranges for the extension or mainte-
                                § 240.3a12–4 Exemptions from sections                      nance of credit on the security to or
                                     15(a) and 15(c)(3) for certain mort-                  from a customer, if the credit:
                                     gage securities.                                        (1) Is secured by a lien, mortgage,
                                   (a) When used in this Rule the fol-                     deed of trust, or any other similar se-
                                lowing terms shall have the meanings                       curity interest related only to real
                                indicated:                                                 property: Provided, however, That this
                                   (1) The term whole loan mortgage                        provision shall not prevent a lender
                                means an evidence of indebtedness se-                      from requiring (i) a security interest in
                                cured by mortgage, deed of trust, or                       the common areas and recreational fa-
                                other lien upon real estate or upon                        cilities or furniture and fixtures inci-
                                leasehold interests therein where the                      dental to the investment contract if
                                entire mortgage, deed or other lien is                     the purchase of such furniture and fix-
                                transferred with the entire evidence of                    tures is required by, or subject to the
                                indebtedness.                                              approval of, the issuer, as a condition
                                   (2) The term aggregated whole loan                      of purchase; or (ii) an assignment of fu-
                                mortgage means two or more whole loan                      ture rentals in the event of default by
                                mortgages that are grouped together                        the purchaser or a co-signer or guar-
                                and sold to one person in one trans-                       antor on the debt obligation other than
                                action.                                                    the issuer, its affiliates, or any broker
                                   (3) The term participation interest                     or dealer offering such securities;
                                means an undivided interest rep-                             (2) Is to be repaid by periodic pay-
                                resenting one of only two such inter-                      ments of principal and interest pursu-
                                ests in a whole loan mortgage or in an                     ant to an amortization schedule estab-
                                aggregated whole loan mortgage, pro-                       lished by the governing instruments:
                                vided that the other interest is re-                       Provided, however, That this provision
                                tained by the originator of such par-                      shall not prevent the extension of cred-
                                ticipation interest.                                       it on terms which require the payment
                                   (4) The term commitment means a con-                    of interest only, if extended in compli-
                                tract to purchase a whole loan mort-                       ance with the other provisions of this
                                gage, an aggregated whole loan mort-                       rule; and
                                gage or a participation interest which                       (3) Is extended by a lender which is
                                by its terms requires that the contract                    not, directly or indirectly controlling,
                                be fully executed within 2 years.                          controlled by, or under common con-
                                   (5) The term mortgage security means                    trol with the broker or dealer or the
                                a whole loan mortgage, an aggregated                       issuer of the securities or affiliates
                                whole loan mortgage, a participation                       thereof.
                                interest, or a commitment.                                   (b) For purposes of this rule:
                                   (b) A mortgage security shall be                          (1) Residential real property shall mean
                                deemed an ‘‘exempted security’’ for                        real property containing living accom-
                                purposes of subsections (a) and (c)(3) of                  modations, whether used on a perma-
                                section 15 of the Act provided that, in                    nent or transient basis, and may in-
                                the case of and at the time of any sale                    clude furniture or fixtures if required
                                of the mortgage security by a broker or                    as a condition of purchase of the in-
                                dealer, such mortgage security is not                      vestment contract or if subject to the
                                in default and has an unpaid principal                     approval of the issuer.
                                amount of at least $50,000.                                  (2) Direct ownership shall mean own-
                                [39 FR 19945, June 5, 1974]                                ership of a fee or leasehold estate or a

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                                Securities and Exchange Commission                                                           § 240.3a12–8

                                beneficial interest in a trust the pur-                    § 240.3a12–7 Exemption for certain de-
                                chase of which, under applicable local                         rivative securities traded otherwise
                                law, is financed and secured by a secu-                        than on a national securities ex-
                                rity interest therein similar to a mort-                       change.
                                gage or deed of trust, but it shall not                      Any put, call, straddle, option, or
                                include an interest in a real estate in-                   privilege traded exclusively otherwise
                                vestment trust, an interest in a general                   than on a national securities exchange
                                or limited partnership, or similar indi-                   and for which quotations are not dis-
                                rect interest in the ownership of real                     seminated through an automated
                                property.                                                  quotation system of a registered secu-
                                                                                           rities association, which relates to any
                                (Sec. 3(a)(12), 48 Stat. 882, as amended 84                securities which are direct obligations
                                Stat. 718, 1435, 1499 (15 U.S.C. 78c(12)); sec.            of, or obligations guaranteed as to
                                7(c), 48 Stat. 886, as amended 82 Stat. 452 (15            principal or interest by, the United
                                U.S.C. 78g(c)); sec. 11(d)(1), 48 Stat. 891 as
                                                                                           States, or securities issued or guaran-
                                amended 68 Stat. 636 (15 U.S.C. 78k(d)(1)); sec.
                                                                                           teed by a corporation in which the
                                15(c), 48 Stat. 895, as amended 52 Stat. 1075, 84
                                Stat. 1653 (15 U.S.C. 78o(c)); sec. 23(a), 48              United States has a direct or indirect
                                Stat. 901, as amended 49 Stat. 704, 1379 (15               interest as shall be designated for ex-
                                U.S.C. 78w(a)))                                            emption by the Secretary of the Treas-
                                                                                           ury pursuant to section 3(a)(12) of the
                                [40 FR 6646, Feb. 13, 1975]                                Act, shall be exempt from all provi-
                                                                                           sions of the Act which by their terms
                                § 240.3a12–6 Definition of ‘‘common
                                                                                           do not apply to any ‘‘exempted secu-
                                    trust fund’’ as used in section
                                    3(a)(12) of the Act.                                   rity’’ or ‘‘exempted securities,’’ pro-
                                                                                           vided that the securities underlying
                                  The term common trust fund as used                       such put, call, straddle, option or privi-
                                in section 3(a)(12) of the Act (15 U.S.C.                  lege represent an obligation equal to or
                                78c(a)(12)) shall include a common                         exceeding $250,000 principal amount.
                                trust fund which is maintained by a
                                                                                           (15 U.S.C. 78a et seq., and particularly secs.
                                bank which is a member of an affili-                       3(a)(12), 15(a)(2) and 23(a) (15 U.S.C. 78c(a)(12),
                                ated group, as defined in section 1504(a)                  78o(a)(2) and 78w(a)))
                                of the Internal Revenue Code of 1954 (26
                                                                                           [49 FR 5073, Feb. 10, 1984]
                                U.S.C. 1504(a)), and which is main-
                                tained exclusively for the collective in-                  § 240.3a12–8 Exemption for designated
                                vestment and reinvestment of monies                            foreign government securities for
                                contributed thereto by one or more                             purposes of futures trading.
                                bank members of such affiliated group                        (a) When used in this Rule, the fol-
                                in the capacity of trustee, executor, ad-                  lowing terms shall have the meaning
                                ministrator, or guardian; Provided,                        indicated:
                                That:                                                        (1) The term designated foreign govern-
                                  (a) The common trust fund is oper-                       ment security shall mean a security not
                                ated in compliance with the same state                     registered under the Securities Act of
                                and federal regulatory requirements as                     1933 nor the subject of any American
                                would apply if the bank maintaining                        depositary receipt so registered, and
                                such fund and any other contributing                       representing a debt obligation of the
                                banks were the same entity; and                            government of
                                  (b) The rights of persons for whose                        (i) The United Kingdom of Great
                                benefit a contributing bank acts as                        Britain and Northern Ireland;
                                trustee, executor, administrator, or                         (ii) Canada;
                                guardian would not be diminished by                          (iii) Japan;
                                reason of the maintenance of such com-                       (iv) The Commonwealth of Australia;
                                mon trust fund by another bank mem-                          (v) The Republic of France;
                                ber of the affiliated group.                                 (vi) New Zealand;
                                                                                             (vii) The Republic of Austria;
                                (15 U.S.C. 78c(b))                                           (viii) The Kingdom of Denmark;
                                [43 FR 2392, Jan. 17, 1978]                                  (ix) The Republic of Finland;
                                                                                             (x) The Kingdom of the Netherlands;
                                                                                             (xi) Switzerland;

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                                § 240.3a12–9                                                           17 CFR Ch. II (4–1–05 Edition)

                                   (xii) The Federal Republic of Ger-                         (2) The mandatory deferred payments
                                many;                                                      bear a reasonable relationship to the
                                   (xiii) The Republic of Ireland;                         capital needs and program objectives
                                   (xiv) The Republic of Italy;                            described in a business development
                                   (xv) The Kingdom of Spain;                              plan disclosed to investors in a reg-
                                   (xvi) The United Mexican States;                        istration statement filed with the Com-
                                   (xvii) The Federative Republic of                       mission under the Securities Act of
                                Brazil;                                                    1933 or, where no registration state-
                                   (xviii) The Republic of Argentina;                      ment is required to be filed with the
                                   (xix) The Republic of Venezuela;                        Commission, as part of a statement
                                   (xx) The Kingdom of Belgium; or                         filed with the relevant state securities
                                   (xxi) The Kingdom of Sweden.                            administrator;
                                   (2) The term qualifying foreign futures                    (3) Not less than 50 percent of the
                                contracts shall mean any contracts for                     purchase price of the direct participa-
                                the purchase or sale of a designated                       tion program security is paid by the in-
                                foreign government security for future                     vestor at the time of sale;
                                delivery, as ‘‘future delivery’’ is de-                       (4) The total purchase price of the di-
                                fined in 7 U.S.C. 2, provided such con-                    rect participation program security is
                                tracts require delivery outside the                        due within three years in specified
                                United States, any of its possessions or                   property programs or two years in non-
                                territories, and are traded on or                          specified property programs. Such pay-
                                through a board of trade, as defined at                    in periods are to be measured from the
                                7 U.S.C. 2.                                                earlier of the completion of the offer-
                                   (b) Any designated foreign govern-                      ing or one year following the effective
                                ment security shall, for purposes only                     date of the offering.
                                of the offer, sale or confirmation of                         (b) For purposes of this rule:
                                sale of qualifying foreign futures con-                       (1) Direct participation program shall
                                tracts, be exempted from all provisions                    mean a program financed through the
                                of the Act which by their terms do not                     sale of securities, other than securities
                                apply to an ‘‘exempted security’’ or                       that are listed on an exchange, quoted
                                ‘‘exempted securities.’’                                   on NASDAQ, or will otherwise be ac-
                                (15 U.S.C. 78a et seq., and particularly secs.             tively traded during the pay-in period
                                3(a)(12), and 23(a) 15 U.S.C. 78c(a)(12), and              as a result of efforts by the issuer, un-
                                78w(a))                                                    derwriter, or other participants in the
                                [49 FR 8599, Mar. 8, 1984, as amended at 51 FR             initial distribution of such securities,
                                25998, July 18, 1986; 52 FR 8877, Mar. 20, 1987;           that provides for flow-through tax con-
                                52 FR 42279, Nov. 4, 1987; 53 FR 43863, Oct. 31,           sequences to its investors; Provided,
                                1988; 57 FR 1378, Jan. 14, 1992; 59 FR 54815,              however, That the term ‘‘direct partici-
                                Nov. 2, 1994; 60 FR 62326, Dec. 6, 1995; 61 FR             pation program’’ does not include real
                                10274, Mar. 13, 1996; 64 FR 10567, Mar. 5, 1999;
                                64 FR 29553, June 2, 1999
                                                                                           estate investment trusts, Subchapter S
                                                                                           corporate offerings, tax qualified pen-
                                § 240.3a12–9 Exemption of certain di-                      sion and profit sharing plans under sec-
                                    rect participation program securi-                     tions 401 and 403(a) of the Internal Rev-
                                    ties from the arranging provisions                     enue Code (‘‘Code’’), tax shelter annu-
                                    of sections 7(c) and 11(d)(1).                         ities under section 403(b) of the Code,
                                  (a) Direct participation program se-                     individual retirement plans under sec-
                                curities sold on a basis whereby the                       tion 408 of the Code, and any issuer, in-
                                purchase price is paid to the issuer in                    cluding a separate account, that is reg-
                                one or more mandatory deferred pay-                        istered under the Investment Company
                                ments shall be deemed to be exempted                       Act of 1940.
                                securities for purposes of the arranging                      (2) Business development plan shall
                                provisions of sections 7(c) and 11(d)(1)                   mean a specific plan describing the
                                of the Act, provided that:                                 program’s anticipated economic devel-
                                  (1) The securities are registered                        opment and the amounts of future cap-
                                under the Securities Act of 1933 or are                    ital contributions, in the form of man-
                                sold or offered exclusively on an intra-                   datory deferred payments, to be re-
                                state basis in reliance upon section                       quired at specified times or upon the
                                3(a)(11) of that Act;                                      occurrence of certain events.

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                                Securities and Exchange Commission                                                          § 240.3a43–1

                                  (3) Specified property program shall                     § 240.3a40–1 Designation          of     financial
                                mean a direct participation program in                         responsibility rules.
                                which, at the date of effectiveness,                         The term financial responsibility rules
                                more than 75 percent of the net pro-                       for purposes of the Securities Investor
                                ceeds from the sale of program securi-                     Protection Act of 1970 shall include:
                                ties are committed to specific pur-
                                                                                             (a) Any rule adopted by the Commis-
                                chases or expenditures. Non-specified
                                                                                           sion pursuant to sections 8, 15(c)(3),
                                property program shall mean any other
                                                                                           17(a) or 17(e)(1)(A) of the Securities Ex-
                                direct participation program.
                                                                                           change Act of 1934;
                                [51 FR 8801, Mar. 14, 1986]                                  (b) Any rule adopted by the Commis-
                                                                                           sion relating to hypothecation or lend-
                                § 240.3a12–10 Exemption of certain se-                     ing of customer securities;
                                    curities issued by the Resolution
                                    Funding Corporation.                                     (c) Any rule adopted by any self-regu-
                                                                                           latory organization relating to capital,
                                   Securities that are issued by the Res-                  margin, recordkeeping, hypothecation
                                olution Funding Corporation pursuant                       or lending requirements; and
                                to section 21B(f) of the Federal Home                        (d) Any other rule adopted by the
                                Loan Bank Act (12 U.S.C. 1421 et seq.)                     Commission or any self-regulatory or-
                                are exempt from the operation of all                       ganization relating to the protection of
                                provisions of the Act that by their                        funds or securities.
                                terms do not apply to any ‘‘exempted
                                security’’ or to ‘‘exempted securities.’’                  (Secs. 3, 15(c)(3), 17(a) and 23 (15 U.S.C. 78c,
                                                                                           78o, 78q(a) and 78u))
                                [54 FR 37789, Sept. 13, 1989]
                                                                                           [44 FR 28318, May 15, 1979]
                                § 240.3a12–11 Exemption from sections
                                     8(a), 14(a), 14(b), and 14(c) for debt                § 240.3a43–1 Customer-related govern-
                                     securities listed on a national secu-                     ment securities activities incidental
                                     rities exchange.                                          to the futures-related business of a
                                                                                               futures commission merchant reg-
                                   (a) Debt securities that are listed for                     istered with the Commodity Fu-
                                trading on a national securities ex-                           tures Trading Commission.
                                change shall be exempt from the re-
                                strictions on borrowing of section 8(a)                      (a) A futures commission merchant
                                of the Act (15 U.S.C. 78h(a)).                             registered with the Commodity Fu-
                                   (b) Debt securities registered pursu-                   tures Trading Commission (‘‘CFTC’’) is
                                ant to the provisions of section 12(b) of                  not a government securities broker or
                                the Act (15 U.S.C. 78l(b)) shall be ex-                    government securities dealer solely be-
                                empt from sections 14(a), 14(b), and                       cause such futures commission mer-
                                14(c) of the Act (15 U.S.C. 78n(a), (b),                   chant effects transactions in govern-
                                and (c)), except that §§ 240.14a-1, 240.14a-               ment securities that are defined in
                                2(a), 240.14a-9, 240.14a-13, 240.14b-1,                    paragraph (b) of this section as inci-
                                240.14b-2, 240.14c-1, 240.14c-6 and 240.14c-               dental to such person’s futures-related
                                7 shall continue to apply.                                 business.
                                   (c) For purposes of this section, debt                    (b) Provided that the futures com-
                                securities is defined to mean any securi-                  mission merchant maintains in a regu-
                                ties that are not ‘‘equity securities’’ as                 lated account all funds and securities
                                defined in section 3(a)(11) of the Act (15                 associated with such government secu-
                                U.S.C. 78c(a)(11)) and § 240.3a11–1 there-                 rities transactions (except funds and
                                under.                                                     securities associated with transactions
                                                                                           under paragraph (b)(1)(i) of this section
                                [59 FR 55347, Nov. 7, 1994]                                and does not advertise that it is in the
                                                                                           business of effecting transactions in
                                § 240.3a12–12 Exemption from certain
                                     provisions of section 16 of the Act                   government securities otherwise than
                                     for asset-backed securities.                          in connection with futures or options
                                                                                           on futures trading or the investment of
                                   Asset-backed securities, as defined in                  margin or excess funds related to such
                                § 229.1101 of this chapter, are exempt                     trading or the trading of any other in-
                                from section 16 of the Act (15 U.S.C.                      strument subject to CFTC jurisdiction,
                                78p).                                                      the following transactions in govern-
                                [70 FR 1620, Jan. 7, 2005]                                 ment securities are incidental to the

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                                § 240.3a44–1                                                           17 CFR Ch. II (4–1–05 Edition)

                                futures-related business of such a fu-                     funds or securities used as margin for
                                tures commission merchant:                                 or excess funds related to futures con-
                                  (1) Transactions as agent for a cus-                     tracts, options on futures or any other
                                tomer—                                                     instruments subject to CFTC jurisdic-
                                  (i) To effect delivery pursuant to a                     tion that trade outside the United
                                futures contract; or                                       States, its territories, or possessions,
                                  (ii) For risk reduction or arbitrage of                  the term regulated account means such
                                existing or contemporaneously created                      separate regulated account or any
                                postions in futures or options on fu-                      other account subject to record-keep-
                                tures;                                                     ing regulations of the CFTC.
                                  (2) Transactions as agent for a cus-                       (3) Unsolicited transaction means a
                                tomer for investment of margin and ex-                     transaction that is not effected in a
                                cess funds related to futures or options                   discretionary account or recommended
                                on futures trading or the trading of                       to a customer by the futures commis-
                                other instruments subject to CFTC ju-                      sion merchant, an associated person of
                                risdiction, provided further that,                         a futures commission merchant, a busi-
                                  (i) Such transactions involve Treas-                     ness affiliate that is controlled by, con-
                                ury securities with a maturity of less                     trolling, or under common control with
                                than 93 days at the time of the                            the futures commission merchant, or
                                transation.                                                an introducing broker that is guaran-
                                  (ii) Such transactions generate no                       teed by the futures commission mer-
                                monetary profit for the futures com-                       chant.
                                mission merchant in excess of the costs                      (4) Futures and futures contracts mean
                                of executing such transactions, or                         contracts of sale of a commodity for fu-
                                  (iii) Such transactions are unsolic-                     ture delivery traded on or subject to
                                ited, and commissions and other in-                        the rules of a contract market des-
                                come generated on transactions pursu-                      ignated by the CFTC or traded on or
                                ant to this paragraph (b)(2)(iii) (includ-                 subject to the rules of any board of
                                ing transactional fees paid by the fu-                     trade located outside the United
                                tures    commission     merchant      and                  States, its territories, or possessions.
                                charged to its customer) do not exceed
                                                                                             (5) Options on futures means puts or
                                2% of such futures commission mer-
                                                                                           calls on a futures contract traded on or
                                chant’s total commission revenues;
                                                                                           subject to the rules of a contract mar-
                                  (3) Exchange of futures for physicals
                                                                                           ket designated by the CFTC or traded
                                transactions as agent for or as prin-
                                                                                           or subject to the rules of any board of
                                cipal with a customer; and
                                                                                           trade located outside the United
                                  (4) Any transaction or transactions
                                                                                           States, its territories, or possessions.
                                that the Commission exempts, either
                                unconditionally or on specified terms                      [52 FR 27969, July 24, 1987]
                                and conditions, as incidental to the fu-
                                tures-related business of a specified fu-                  § 240.3a44–1 Proprietary government
                                tures commission merchant, a specified                         securities transactions incidental to
                                category of futures commission mer-                            the futures-related business of a
                                chants, or futures commission mer-                             CFTC-regulated person.
                                chants generally.                                             (a) A person registered with the Com-
                                  (c) Definitions. (1) Customer means                      modity Futures Trading Commission
                                any person for whom the futures com-                       (‘‘CFTC’’), a contract market des-
                                mission merchant effects or intends to                     ignated by the CFTC, such a contract
                                effect transactions in futures, options                    market’s affiliated clearing organiza-
                                on futures, or any other instruments                       tion, or any floor trader or such a con-
                                subject to CFTC jurisdiction.                              tract market (hereinafter referred to
                                  (2) Regulated account means a cus-                       collectively as a ‘‘CFTC-regulated per-
                                tomer segregation account subject to                       son’’) is not a government securities
                                the regulations of the CFTC; provided,                     dealer solely because such person ef-
                                however, that, where such regulations                      fects transactions for its own account
                                do not permit to be maintained in such                     in government securities that are de-
                                an account or require to be maintained                     fined in paragraph (b) of this section as
                                in a separate regulated account funds                      incidental to such person’s futures-re-
                                or securities in proprietary accounts or                   lated business.

                                                                                      32



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                                Securities and Exchange Commission                                                          § 240.3a51–1

                                   (b) Provided that a CFTC-regulated                      CFTC-regulated person, a specified cat-
                                person does not advertise or otherwise                     egory of CFTC-regulated persons, or
                                hold itself out as a government securi-                    CFTC-regulated persons generally.
                                ties dealer except as permitted under                        (c) Definitions. (1) Segregated customer
                                rule 3a43-1 (§ 240.3a43–1) the following                   funds means funds subject to CFTC seg-
                                transactions in government securities                      regation requirements.
                                for its own account are incidental to                        (2) Futures and futures contracts
                                the futures-related business of such a                     means contracts of sale of a com-
                                CFTC-regulated person:                                     modity for future delivery traded on or
                                   (1) Transactions to effect delivery of                  subject to the rules of a contract mar-
                                a government security pursuant to a                        ket designated by the CFTC or traded
                                futures contract;                                          on or subject to the rules of any board
                                   (2) Exchange of futures for physicals                   of trade located outside the United
                                transactions with (i) a government se-                     States, its territories, or possessions.
                                curities broker or government securi-                        (3) Options on futures means puts or
                                ties dealer that has registered with the                   calls on a futures contract traded on or
                                Commission or filed notice pursuant to                     subject to the rules of a contract mar-
                                section 15C(a) of the Act or (ii) a CFTC-                  ket designated by the CFTC or traded
                                regulated person;                                          on or subject to the rules of any board
                                   (3) Transactions (including repur-                      of trade located outside the United
                                chase agreements and reverse repur-                        States, its territories, or possessions.
                                chase     agreements)    involving    seg-
                                regated customer funds and securities                      [52 FR 27970, July 24, 1987]
                                or funds and securities held by a clear-
                                ing organization with (i) a government                     § 240.3a51–1    Definition        of     ‘‘penny
                                securities broker or government secu-                          stock’’.
                                rities dealer that has registered with                       For purposes of section 3(a)(51) of the
                                the Commission of filed notice pursu-                      Act, the term ‘‘penny stock’’ shall
                                ant to section 15C(a) of the Act or (ii)                   mean any equity security other than a
                                a bank;                                                    security:
                                   (4) Transactions for risk reduction or                    (a) That is a reported security, as de-
                                arbitrage of existing or contempora-                       fined in 17 CFR 240.11Aa3–1(a) of this
                                neously created positions in futures or                    chapter;
                                options on futures with (i) a govern-
                                                                                           except that a security that is reg-
                                ment securities broker or government
                                                                                           istered on the American Stock Ex-
                                securities dealer that has registered
                                                                                           change, Inc. pursuant to the listing cri-
                                with the Commission or filed notice
                                                                                           teria of the Emerging Company Mar-
                                pursuant to section 15C(a) of the Act or
                                                                                           ketplace, but that does not otherwise
                                (ii) a CFTC-regulated person;
                                                                                           satisfy the requirements of paragraph
                                   (5) Repurchase and reverse repur-
                                                                                           (b), (c), or (d) of this section, shall be a
                                chase agreement transactions between
                                                                                           penny stock for purposes of section
                                a futures commission merchant acting
                                                                                           15(b)(6) of the Act;
                                in a proprietary capacity and another
                                CFTC-regulated person acting in a pro-                       (b) That is issued by an investment
                                prietary capacity and contempora-                          company registered under the Invest-
                                neous offsetting transactions between                      ment Company Act of 1940;
                                such a futures commission merchant                           (c) That is a put or call option issued
                                and (i) a government securities broker                     by the Options Clearing Corporation;
                                or government securities dealer that                         (d) Except for purposes of section 7(b)
                                has registered with the Commission or                      of the Securities Act and Rule 419 (17
                                filed notice pursuant to section 15C(a)                    CFR 230.419), that has a price of five
                                of the Act, (ii) a bank, or (iii) a CFTC-                  dollars or more;
                                regulated person acting in a propri-                         (1) For purposes of paragraph (d) of
                                etary capacity; and                                        this section:
                                   (6) Any transaction or transactions                       (i) A security has a price of five dol-
                                that the Commission exempts, either                        lars or more for a particular trans-
                                unconditionally or on specified terms                      action if the security is purchased or
                                and conditions, as incidental to the fu-                   sold in that transaction at a price of
                                tures related business of a specified                      five dollars or more, excluding any

                                                                                      33



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                                § 240.3a51–1                                                           17 CFR Ch. II (4–1–05 Edition)

                                broker or dealer commission, commis-                         (2) The security is purchased or sold
                                sion equivalent, mark-up, or mark-                         in a transaction that is effected on or
                                down; and                                                  through the facilities of the national
                                   (ii) Other than in connection with a                    securities exchange, or that is part of a
                                particular transaction, a security has a                   distribution of the security;
                                price of five dollars or more at a given                   except that a security that satisfies the
                                time if the inside bid quotation is five                   requirements of this paragraph, but
                                dollars or more; provided, however, that                   that does not otherwise satisfy the re-
                                if there is no such inside bid quotation,                  quirements of paragraph (a), (b), (c), or
                                a security has a price of five dollars or                  (d) of this section, shall be a penny
                                more at a given time if the average of                     stock for purposes of Section 15(b)(6) of
                                three      or   more      interdealer  bid                 the Act;
                                quotations at specified prices displayed                     (f) That is authorized, or approved for
                                at that time in an interdealer                             authorization upon notice of issuance,
                                quotation system, as defined in 17 CFR                     for quotation in the National Associa-
                                240.15c2–7(c)(1), by three or more mar-                    tion of Securities Dealers’ Automated
                                ket makers in the security, is five dol-                   Quotation system (NASDAQ), provided
                                lars or more.                                              that price and volume information
                                   (iii) The term ‘‘inside bid quotation’’                 with respect to transactions in that se-
                                shall mean the highest bid quotation                       curity is required to be reported on a
                                for the security displayed by a market                     current and continuing basis and is
                                maker in the security on an automated                      made available to vendors of market
                                interdealer quotation system that has                      information pursuant to the rules of
                                the characteristics set forth in section                   the National Association of Securities
                                17B(b)(2) of the Act, or such other auto-                  Dealers, Inc.;
                                mated interdealer quotation system                         except that a security that satisfies the
                                designated by the Commission for pur-                      requirements of this paragraph, but
                                poses of this section, at any time in                      that does not otherwise satisfy the re-
                                which at least two market makers are                       quirements of paragraphs (a), (b), (c),
                                contemporaneously displaying on such                       or (d) of this section, shall be a penny
                                system bid and offer quotations for the                    stock for purposes of section 15(b)(6) of
                                security at specified prices.                              the Act; or
                                   (2) If a security is a unit composed of                    (g) Whose issuer has:
                                one or more securities, the unit price                        (1) Net tangible assets (i.e., total as-
                                divided by the number of shares of the                     sets less intangible assets and liabil-
                                unit that are not warrants, options,                       ities) in excess of $2,000,000, if the
                                rights, or similar securities must be                      issuer has been in continuous operation
                                five dollars or more, as determined in                     for at least three years, or $5,000,000, if
                                accordance with paragraph (d)(1) of                        the issuer has been in continuous oper-
                                this section, and any share of the unit                    ation for less than three years; or
                                that is a warrant, option, right, or                          (2) Average revenue of at least
                                similar security, or a convertible secu-                   $6,000,000 for the last three years.
                                rity, must have an exercise price or                          (3) For purposes of paragraph (g) of
                                conversion price of five dollars or                        this section, net tangible assets or av-
                                more;                                                      erage revenues must be demonstrated
                                   (e) That is registered, or approved for                 by financial statements dated less than
                                registration upon notice of issuance, on                   fifteen months prior to the date of the
                                a national securities exchange that                        transaction that the broker or dealer
                                makes transaction reports available                        has reviewed and has a reasonable basis
                                pursuant to 17 CFR 240.11Aa3–1 of this                     for believing are accurate in relation
                                chapter, provided that:                                    to the date of the transaction, and:
                                   (1) Price and volume information                           (i) If the issuer is other than a for-
                                with respect to transactions in that se-                   eign private issuer, are the most recent
                                curity is required to be reported on a                     financial statements for the issuer that
                                current and continuing basis and is                        have been audited and reported on by
                                made available to vendors of market                        an independent public accountant in
                                information pursuant to the rules of                       accordance with the provisions of 17
                                the national securities exchange; and                      CFR 210.2–02; or

                                                                                      34



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                                Securities and Exchange Commission                                                          § 240.3a55–1

                                  (ii) If the issuer is a foreign private                  tified from the universe of all reported
                                issuer, are the most recent financial                      securities, as defined in § 240.11Ac1–1,
                                statements for the issuer that have                        that are common stock or depositary
                                been filed with the Commission or fur-                     shares.
                                nished to the Commission pursuant to                         (b) Dollar value of ADTV. (1) For pur-
                                17 CFR 240.12g3–2(b); provided, however,                   poses of Section 3(a)(55)(B) of the Act
                                that if financial statements for the                       (15 U.S.C. 78c(a)(55)(B)):
                                issuer dated less than fifteen months                        (i)(A) The method to be used to deter-
                                prior to the date of the transaction                       mine the dollar value of ADTV of a se-
                                have not been filed with or furnished to                   curity is to sum the dollar value of
                                the Commission, financial statements                       ADTV of all reported transactions in
                                dated within fifteen months prior to                       such security in each jurisdiction as
                                the transaction shall be prepared in ac-                   calculated pursuant to paragraphs
                                cordance with generally accepted ac-                       (b)(1)(ii) and (iii).
                                counting principles in the country of                        (B) The dollar value of ADTV of a se-
                                incorporation, audited in compliance                       curity shall include the value of all re-
                                with the requirements of that jurisdic-                    ported transactions for such security
                                tion, and reported on by an accountant                     and for any depositary share that rep-
                                duly registered and in good standing in                    resents such security.
                                accordance with the regulations of that                      (C) The dollar value of ADTV of a de-
                                jurisdiction.                                              positary share shall include the value
                                  (4) The broker or dealer shall pre-                      of all reported transactions for such de-
                                serve, as part of its records, copies of                   positary share and for the security
                                the financial statements required by                       that is represented by such depositary
                                paragraph (g)(3) of this section for the                   share.
                                period specified in 17 CFR 240.17a–4(b).                     (ii) For trading in a security in the
                                                                                           United States, the method to be used
                                [57 FR 18032, Apr. 28, 1992, as amended at 58
                                FR 58101, Oct. 29, 1993]                                   to determine the dollar value of ADTV
                                                                                           as of the preceding 6 full calendar
                                § 240.3a55–1 Method for determining                        months is to sum the value of all re-
                                      market capitalization and dollar                     ported transactions in such security
                                      value of average daily trading vol-                  for each U.S. trading day during the
                                      ume; application of the definition of                preceding 6 full calendar months, and
                                      narrow-based security index.                         to divide this sum by the total number
                                   (a) Market capitalization. For purposes                 of such trading days.
                                of Section 3(a)(55)(C)(i)(III)(bb) of the                    (iii)(A) For trading in a security in a
                                Act (15 U.S.C. 78c(a)(55)(C)(i)(III)(bb)):                 jurisdiction other than the United
                                   (1) On a particular day, a security                     States, the method to be used to deter-
                                shall be 1 of 750 securities with the                      mine the dollar value of ADTV as of
                                largest market capitalization as of the                    the preceding 6 full calendar months is
                                preceding 6 full calendar months when                      to sum the value in U.S. dollars of all
                                it is included on a list of such securi-                   reported transactions in such security
                                ties designated by the Commission and                      in such jurisdiction for each trading
                                the CFTC as applicable for that day.                       day during the preceding 6 full cal-
                                   (2) In the event that the Commission                    endar months, and to divide this sum
                                and the CFTC have not designated a                         by the total number of trading days in
                                list under paragraph (a)(1) of this sec-                   such jurisdiction during the preceding
                                tion:                                                      6 full calendar months.
                                   (i) The method to be used to deter-                       (B) If the value of reported trans-
                                mine market capitalization of a secu-                      actions used in calculating the ADTV
                                rity as of the preceding 6 full calendar                   of     securities     under    paragraph
                                months is to sum the values of the                         (b)(1)(iii)(A) is reported in a currency
                                market capitalization of such security                     other than U.S. dollars, the total value
                                for each U.S. trading day of the pre-                      of each day’s transactions in such cur-
                                ceding 6 full calendar months, and to                      rency shall be converted into U.S. dol-
                                divide this sum by the total number of                     lars on the basis of a spot rate of ex-
                                such trading days.                                         change for that day obtained from at
                                   (ii) The 750 securities with the larg-                  least one independent entity that pro-
                                est market capitalization shall be iden-                   vides or disseminates foreign exchange

                                                                                      35



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                                § 240.3a55–1                                                           17 CFR Ch. II (4–1–05 Edition)

                                quotations in the ordinary course of its                     (i) If reported transactions in the se-
                                business.                                                  curity have taken place in the United
                                  (iv) The dollar value of ADTV of the                     States, the price at which the last
                                lowest weighted 25% of an index is the                     transaction in such security took place
                                sum of the dollar value of ADTV of                         in the regular trading session of the
                                each of the component securities com-                      principal market for the security in
                                prising the lowest weighted 25% of such                    the United States.
                                index.                                                       (ii) If no reported transactions in a
                                  (2)    For     purposes     of   Section                 security have taken place in the United
                                3(a)(55)(C)(i)(III)(cc) of the Act (15                     States, the closing price of such secu-
                                U.S.C. 78c(a)(55)(C)(i)(III)(cc)):                         rity shall be the closing price of any
                                  (i) On a particular day, a security                      depositary share representing such se-
                                shall be 1 of 675 securities with the                      curity divided by the number of shares
                                largest dollar value of ADTV as of the                     represented by such depositary share.
                                preceding 6 full calendar months when                        (iii) If no reported transactions in a
                                it is included on a list of such securi-                   security or in a depositary share rep-
                                ties designated by the Commission and                      resenting such security have taken
                                the CFTC as applicable for that day.                       place in the United States, the closing
                                  (ii) In the event that the Commission                    price of such security shall be the price
                                and the CFTC have not designated a                         at which the last transaction in such
                                list under paragraph (b)(2) of this sec-                   security took place in the regular trad-
                                tion:                                                      ing session of the principal market for
                                  (A) The method to be used to deter-                      the security. If such price is reported
                                mine the dollar value of ADTV of a se-                     in a currency other than U.S. dollars,
                                curity as of the preceding 6 full cal-                     such price shall be converted into U.S.
                                endar months is to sum the value of all                    dollars on the basis of a spot rate of ex-
                                reported transactions in such security                     change relevant for the time of the
                                in the United States for each U.S. trad-                   transaction obtained from at least one
                                ing day during the preceding 6 full cal-                   independent entity that provides or
                                endar months, and to divide this sum                       disseminates         foreign     exchange
                                by the total number of such trading                        quotations in the ordinary course of its
                                days.                                                      business.
                                  (B) The 675 securities with the larg-                      (3) Depositary share has the same
                                est dollar value of ADTV shall be iden-                    meaning as in § 240.12b–2.
                                tified from the universe of all reported                     (4) Foreign financial regulatory author-
                                securities as defined in § 240.11Ac1–1                     ity has the same meaning as in Section
                                that are common stock or depositary                        3(a)(52) of the Act (15 U.S.C. 78c(a)(52)).
                                shares.                                                      (5) Lowest weighted 25% of an index.
                                  (c) Depositary Shares and Section 12                     With respect to any particular day, the
                                Registration. For purposes of Section                      lowest weighted component securities
                                3(a)(55)(C) of the Act (15 U.S.C.                          comprising, in the aggregate, 25% of an
                                78c(a)(55)(C)), the requirement that                       index’s weighting for purposes of Sec-
                                each component security of an index be                     tion 3(a)(55)(B)(iv) of the Act (15 U.S.C.
                                registered pursuant to Section 12 of the                   78c(a)(55)(B)(iv)) (‘‘lowest weighted 25%
                                Act (15 U.S.C. 78l) shall be satisfied                     of an index’’) means those securities:
                                with respect to any security that is a                       (i) That are the lowest weighted secu-
                                depositary share if the deposited secu-                    rities when all the securities in such
                                rities underlying the depositary share                     index are ranked from lowest to high-
                                are registered pursuant to Section 12 of                   est based on the index’s weighting
                                the Act and the depositary share is reg-                   methodology; and
                                istered under the Securities Act of 1933                     (ii) For which the sum of the weight
                                (15 U.S.C. 77a et seq.) on Form F–6 (17                    of such securities is equal to, or less
                                CFR 239.36).                                               than, 25% of the index’s total
                                  (d) Definitions. For purposes of this                    weighting.
                                section:                                                     (6) Market capitalization of a security
                                  (1) CFTC means Commodity Futures                         on a particular day:
                                Trading Commission.                                          (i) If the security is not a depositary
                                  (2) Closing price of a security means:                   share, is the product of:

                                                                                      36



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                                Securities and Exchange Commission                                                          § 240.3a55–2

                                  (A) The closing price of such security                     (12) Weighting of a component secu-
                                on that same day; and                                      rity of an index means the percentage
                                  (B) The number of outstanding shares                     of such index’s value represented, or
                                of such security on that same day.                         accounted for, by such component se-
                                  (ii) If the security is a depositary                     curity.
                                share, is the product of:                                  [66 FR 44514, Aug. 23, 2001]
                                  (A) The closing price of the deposi-
                                tary share on that same day divided by                     § 240.3a55–2 Indexes underlying fu-
                                the number of deposited securities rep-                        tures contracts trading for fewer
                                resented by such depositary share; and                         than 30 days.
                                  (B) The number of outstanding shares                       (a) An index on which a contract of
                                of the security represented by the de-                     sale for future delivery is trading on a
                                positary share on that same day.                           designated contract market, registered
                                  (7) Outstanding shares of a security                     derivatives transaction execution facil-
                                means the number of outstanding                            ity, or foreign board of trade is not a
                                shares of such security as reported on                     narrow-based security index under Sec-
                                the most recent Form 10–K, Form 10–Q,                      tion 3(a)(55) of the Act (15 U.S.C.
                                Form 10–KSB, Form 10–QSB, or Form                          78c(a)(55)) for the first 30 days of trad-
                                20–F (17 CFR 249.310, 249.308a, 249.310b,                  ing, if:
                                249.308b, or 249.220f) filed with the Com-                   (1) Such index would not have been a
                                mission by the issuer of such security,                    narrow-based security index on each
                                including any change to such number                        trading day of the preceding 6 full cal-
                                of outstanding shares subsequently re-
                                                                                           endar months with respect to a date no
                                ported by the issuer on a Form 8–K (17
                                                                                           earlier than 30 days prior to the com-
                                CFR 249.308).
                                                                                           mencement of trading of such contract;
                                  (8) Preceding 6 full calendar months
                                                                                             (2) On each trading day of the pre-
                                means, with respect to a particular
                                                                                           ceding 6 full calendar months with re-
                                day, the period of time beginning on
                                                                                           spect to a date no earlier than 30 days
                                the same day of the month 6 months
                                                                                           prior to the commencement of trading
                                before and ending on the day prior to
                                                                                           such contract:
                                such day.
                                                                                             (i) Such index had more than 9 com-
                                  (9) Principal market for a security
                                                                                           ponent securities;
                                means the single securities market
                                with the largest reported trading vol-                       (ii) No component security in such
                                ume for the security during the pre-                       index comprised more than 30 percent
                                ceding 6 full calendar months.                             of the index’s weighting;
                                  (10) Reported transaction means:                           (iii) The 5 highest weighted compo-
                                  (i) With respect to securities trans-                    nent securities in such index did not
                                actions in the United States, any                          comprise, in the aggregate, more than
                                transaction for which a transaction re-                    60 percent of the index’s weighting; and
                                port is collected, processed, and made                       (iv) The dollar value of the trading
                                available pursuant to an effective                         volume of the lowest weighted 25% of
                                transaction reporting plan, or for                         such index was not less than $50 mil-
                                which a transaction report, last sale                      lion (or in the case of an index with 15
                                data, or quotation information is dis-                     or more component securities, $30 mil-
                                seminated through an automated                             lion); or
                                quotation system as described in Sec-                        (3) On each trading day of the pre-
                                tion 3(a)(51)(A)(ii) of the Act (15 U.S.C.                 ceding 6 full calendar months, with re-
                                78c(a)(51)(A)(ii); and                                     spect to a date no earlier than 30 days
                                  (ii) With respect to securities trans-                   prior to the commencement of trading
                                actions outside the United States, any                     such contract:
                                transaction that has been reported to a                      (i) Such index had at least 9 compo-
                                foreign financial regulatory authority                     nent securities;
                                in the jurisdiction where such trans-                        (ii) No component security in such
                                action has taken place.                                    index comprised more than 30 percent
                                  (11) U.S. trading day means any day                      of the index’s weighting; and
                                on which a national securities ex-                           (iii) Each component security in such
                                change is open for trading.                                index was:

                                                                                      37



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                                § 240.3a55–3                                                            17 CFR Ch. II (4–1–05 Edition)

                                  (A) Registered pursuant to Section 12                    § 240.3a55–3 Futures contracts on se-
                                of the Act (15 U.S.C. 78) or was a depos-                      curity indexes trading on or subject
                                itary share representing a security reg-                       to the rules of a foreign board of
                                istered pursuant to Section 12 of the                          trade.
                                Act;                                                          When a contract of sale for future de-
                                  (B) 1 of 750 securities with the largest                 livery on a security index is traded on
                                market capitalization that day; and                        or subject to the rules of a foreign
                                  (C) 1 of 675 securities with the largest                 board of trade, such index shall not be
                                dollar value of trading volume that                        a narrow-based security index if it
                                day.                                                       would not be a narrow-based security
                                                                                           index if a futures contract on such
                                  (b) An index that is not a narrow-
                                                                                           index were traded on a designated con-
                                based security index for the first 30                      tract market or registered derivatives
                                days of trading pursuant to paragraph                      transaction execution facility.
                                (a) of this section, shall become a nar-
                                row-based security index if such index                     [66 FR 44514, Aug. 23, 2001]
                                has been a narrow-based security index                                      DEFINITIONS
                                for more than 45 business days over 3
                                consecutive calendar months.                               § 240.3b–1 Definition of ‘‘listed’’.
                                  (c) An index that becomes a narrow-                         The term listed means admitted to
                                based security index solely because it                     full trading privileges upon application
                                was a narrow-based security index for                      by the issuer or its fiscal agent or, in
                                more than 45 business days over 3 con-                     the case of the securities of a foreign
                                secutive calendar months pursuant to                       corporation, upon application by a
                                paragraph (b) of this section shall not                    banker engaged in distributing them;
                                be a narrow-based security index for                       and includes securities for which au-
                                the following 3 calendar months.                           thority to add to the list on official no-
                                  (d) Definitions. For purposes of this                    tice of issuance has been granted.
                                section:                                                   (Sec. 3, 48 Stat. 884; 15 U.S.C. 78c)
                                  (1) Market capitalization has the same
                                                                                           [13 FR 8179, Dec. 22, 1948]
                                meaning as in § 240.3a55–1(d)(6).
                                  (2) Dollar value of trading volume of a                  § 240.3b–2 Definition of ‘‘officer’’.
                                security on a particular day is the                           The term officer means a president,
                                value in U.S. dollars of all reported                      vice president, secretary, treasury or
                                transactions in such security on that                      principal financial officer, comptroller
                                day. If the value of reported trans-                       or principal accounting officer, and any
                                actions used in calculating dollar value                   person    routinely   performing      cor-
                                of trading volume is reported in a cur-                    responding functions with respect to
                                rency other than U.S. dollars, the total                   any organization whether incorporated
                                value of each day’s transactions shall                     or unincorporated.
                                be converted into U.S. dollars on the
                                                                                           [47 FR 11464, Mar. 16, 1982; 47 FR 11819, Mar.
                                basis of a spot rate of exchange for that                  19, 1982]
                                day obtained from at least one inde-
                                pendent entity that provides or dis-                       § 240.3b–3    [Reserved]
                                seminates foreign exchange quotations
                                in the ordinary course of its business.                    § 240.3b–4 Definition of ‘‘foreign gov-
                                                                                                ernment,’’ ‘‘foreign issuer’’ and ‘‘for-
                                  (3) Lowest weighted 25% of an index                           eign private issuer’’.
                                has the same meaning as in § 240.3a55–
                                1(d)(5).                                                      (a) The term foreign government
                                                                                           means the government of any foreign
                                  (4) Preceding 6 full calendar months has
                                                                                           country or of any political subdivision
                                the same meaning as in § 240.3a55–                         of a foreign country.
                                1(d)(8).                                                      (b) The term foreign issuer means any
                                  (5) Reported transaction has the same                    issuer which is a foreign government, a
                                meaning as in § 240.3a55–1(d)(10).                         national of any foreign country or a
                                [66 FR 44514, Aug. 23, 2001]                               corporation or other organization in-
                                                                                           corporated or organized under the laws
                                                                                           of any foreign country.

                                                                                      38



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                                Securities and Exchange Commission                                                               § 240.3b–5

                                  (c) The term foreign private issuer                      and based on information otherwise provided
                                means any foreign issuer other than a                      to you.
                                foreign government except an issuer                        (Secs. 6, 7, 8, 10, 19(a), 48 Stat. 78, 79, 81, 85;
                                meeting the following conditions:                          secs. 205, 209, 48 Stat. 906, 908; sec. 301, 54
                                                                                           Stat. 857; sec. 8, 68 Stat. 685; sec. 1, 79 Stat.
                                  (1) More than 50 percent of the
                                                                                           1051; sec. 308(a)(2), 90 Stat. 57; secs. 12, 13,
                                issuer’s outstanding voting securities                     15(d), 23(a), 48 Stat. 892, 894, 895, 901; secs. 1,
                                are directly or indirectly held of record                  3, 8, 49 Stat. 1375, 1377, 1379; sec. 203(a), 49
                                by residents of the United States; and                     Stat. 704; sec. 202, 68 Stat. 686; secs. 3, 4, 6, 78
                                  (2) Any of the following:                                Stat. 565–574; secs. 1, 2, 82 Stat. 454; sec. 28(c),
                                                                                           84 Stat. 1435; secs. 1, 2, 84 Stat. 1497; sec.
                                  (i) The majority of the executive offi-
                                                                                           105(b), 88 Stat. 1503; secs. 8, 9, 10, 18, 89 Stat.
                                cers or directors are United States citi-                  117, 118, 119, 155; sec. 308(b), 90 Stat. 57; secs.
                                zens or residents;                                         202, 203, 204, 91 Stat. 1494, 1498, 1500; 15 U.S.C.
                                  (ii) More than 50 percent of the assets                  77f, 77g, 77h, 77j, 77s(a), 78l, 78m, 78o(d),
                                of the issuer are located in the United                    78w(a))
                                States; or                                                 [32 FR 7848, May 30, 1967, as amended at 48
                                  (iii) The business of the issuer is ad-                  FR 46739, Oct. 14, 1983; 64 FR 53912, Oct. 5,
                                ministered principally in the United                       1999]
                                States.                                                    § 240.3b–5 Non-exempt           securities
                                   Instruction to paragraph (c)(1): To deter-                   issued under governmental obliga-
                                mine the percentage of outstanding voting                       tions.
                                securities held by U.S. residents:                            (a) Any part of an obligation evi-
                                   A. Use the method of calculating record                 denced by any bond, note, debenture,
                                ownership in Rule 12g3–2(a) under the Act                  or other evidence of indebtedness
                                (§ 240.12g3–2(a)), except that your inquiry as             issued by any governmental unit speci-
                                to the amount of shares represented by ac-                 fied in section 3(a)(12) of the Act which
                                counts of customers resident in the United                 is payable from payments to be made
                                States may be limited to brokers, dealers,                 in respect of property or money which
                                banks and other nominees located in:                       is or will be used, under a lease, sale, or
                                   (1) The United States,                                  loan arrangement, by or for industrial
                                   (2) Your jurisdiction of incorporation, and             or commercial enterprise, shall be
                                   (3) The jurisdiction that is the primary                deemed to be a separate ‘‘security’’
                                trading market for your voting securities, if
                                                                                           within the meaning of section 3(a)(10)
                                different than your jurisdiction of incorpora-
                                tion.
                                                                                           of the Act, issued by the lessee or obli-
                                   B. If, after reasonable inquiry, you are un-
                                                                                           gor under the lease, sale or loan ar-
                                able to obtain information about the amount                rangement.
                                of shares represented by accounts of cus-                     (b) An obligation shall not be deemed
                                tomers resident in the United States, you                  a separate ‘‘security’’ as defined in
                                may assume, for purposes of this definition,               paragraph (a) of this section if, (1) the
                                that the customers are residents of the juris-             obligation is payable from the general
                                diction in which the nominee has its prin-                 revenues of a governmental unit, speci-
                                cipal place of business.                                   fied in section 3(a)(12) of the Act, hav-
                                   C. Count shares of voting securities bene-              ing other resources which may be used
                                ficially owned by residents of the United                  for the payment of the obligation, or
                                States as reported on reports of beneficial                (2) the obligation relates to a public
                                ownership provided to you or filed publicly                project or facility owned and operated
                                                                                           by or on behalf of and under the con-
                                                                                           trol of a governmental unit specified in
                                                                                           such section, or (3) the obligation re-
                                                                                           lates to a facility which is leased to
                                                                                           and under the control of an industrial
                                                                                           or commercial enterprise but is a part
                                                                                           of a public project which, as a whole, is
                                                                                           owned by and under the general control
                                                                                           of a governmental unit specified in
                                                                                           such section, or an instrumentality
                                                                                           thereof.
                                                                                              (c) This rule shall apply to trans-
                                                                                           actions of the character described in

                                                                                      39



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                                § 240.3b–6                                                             17 CFR Ch. II (4–1–05 Edition)

                                paragraph (a) of this section only with                    ments of section 13(a) or 15(d) of the
                                respect to bonds, notes, debentures or                     Securities Exchange Act of 1934, the
                                other evidences of indebtedness sold                       statements are made in a registration
                                after December 31, 1968.                                   statement filed under the Securities
                                (Sec. 3, 48 Stat. 882; 15 U.S.C. 78c, 77s)
                                                                                           Act of 1933 offering statement or solici-
                                                                                           tation of interest written document or
                                [33 FR 12648, Sept. 6, 1968, as amended at 35              broadcast script under Regulation A or
                                FR 6000, Apr. 11, 1970]
                                                                                           pursuant to section 12 (b) or (g) of the
                                § 240.3b–6 Liability for certain state-                    Securities Exchange Act of 1934, and
                                      ments by issuers.                                       (ii) The statements are not made by
                                                                                           or on behalf of an issuer that is an in-
                                   (a) A statement within the coverage
                                                                                           vestment company registered under
                                of paragraph (b) of this section which is
                                                                                           the Investment Company Act of 1940;
                                made by or on behalf of an issuer or by
                                                                                           and
                                an outside reviewer retained by the
                                                                                              (2) Information which is disclosed in
                                issuer shall be deemed not to be a
                                                                                           a document filed with the Commission
                                fraudulent statement (as defined in
                                                                                           in Part I of a quarterly report on Form
                                paragraph (d) of this section), unless it
                                                                                           10–Q and Form 10–QSB (§ 249.308a of this
                                is shown that such statement was made
                                or reaffirmed without a reasonable                         chapter) or in an annual report to
                                basis or was disclosed other than in                       shareholders meeting the requirements
                                good faith.                                                of Rules 14a–3 (b) and (c) or 14c–3 (a)
                                   (b) This rule applies to the following                  and (b) under the Securities Exchange
                                statements:                                                Act of 1934 (§§ 240.14a–3 (b) and (c) or
                                   (1) A forward-looking statement (as                     240.14c–3 (a) and (b) of this chapter) and
                                defined in paragraph (c) of this section)                  which relates to (i) the effects of
                                made in a document filed with the                          changing prices on the business enter-
                                Commission, in Part I of a quarterly                       prise, presented voluntarily or pursu-
                                report on Form 10–Q and Form 10–QSB,                       ant to Item 303 of Regulation S-K
                                § 249.308a of this chapter, or in an an-                   (§ 229.303 of this chapter) or Regulation
                                nual report to share-holders meeting                       S-B (§ 228.303 of this chapter) ‘‘Manage-
                                the requirements of Rules 14a–3(b) and                     ment’s Discussion and Analysis of Fi-
                                (c) or 14c–3(a) and (b) under the Securi-                  nancial Condition and Results of Oper-
                                ties Exchange Act of 1934, a statement                     ations’’ or Item 5 of Form 20–F, ‘‘Oper-
                                reaffirming      such    forward-looking                   ating and Financial Review and Pros-
                                statement subsequent to the date the                       pects’’, or Item 302 of Regulation S-K
                                document was filed or the annual re-                       (§ 229.302 of this chapter), ‘‘Supple-
                                port was made publicly available, or a                     mentary financial information,’’ or
                                forward-looking statement made prior                       Rule 3–20(c) of Regulation S-X (§ 210.3–
                                to the date the document was filed or                      20(c)) of this chapter) or (ii) the value
                                the date the annual report was made                        of proved oil and gas reserves (such as
                                publicly available if such statement is                    a standardized measure of discounted
                                reaffirmed in a filed document, in Part                    future net cash flows relating to proved
                                I of a quarterly report on Form 10–Q                       oil and gas reserves as set forth in
                                and Form 10–QSB, or in an annual re-                       paragraphs 30–34 of Statement of Fi-
                                port made publicly available within a                      nancial Accounting Standards No. 69)
                                reasonable time after the making of                        presented voluntarily or pursuant to
                                such forward-looking statement; Pro-                       Item 302 of Regulation S-K (§ 229.302 of
                                vided, That:                                               this chapter).
                                   (i) At the time such statements are                        (c) For the purpose of this rule, the
                                made or reaffirmed, either the issuer is                   term forward-looking statement shall
                                subject to the reporting requirements                      mean and shall be limited to:
                                of section 13(a) or 15(d) of the Securi-                      (1) A statement containing a projec-
                                ties Exchange Act of 1934 and has com-                     tion of revenues, income (loss), earn-
                                plied with the requirements of Rule                        ings (loss) per share, capital expendi-
                                13a–1 or 15d–1 thereunder, if applicable,                  tures, dividends, capital structure or
                                to file its most recent annual report on                   other financial items;
                                Form 10–K and Form 10–KSB or Form                             (2) A statement of management’s
                                20–F or Form 40–F; or if the issuer is                     plans and objectives for future oper-
                                not subject to the reporting require-                      ations;

                                                                                      40



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                                Securities and Exchange Commission                                                             § 240.3b–8

                                  (3) A statement of future economic                       § 240.3b–8 Definitions of ‘‘Qualified
                                performance contained in manage-                               OTC Market Maker, Qualified Third
                                ment’s discussion and analysis of fi-                          Market Maker’’ and ‘‘Qualified
                                nancial condition and results of oper-                         Block Positioner’’.
                                ations included pursuant to Item 303 of                       For the purposes of Regulation U
                                Regulation S-K (§ 229.303 of this chap-                    under the Act (12 CFR part 221):
                                ter) or Item 5 of Form 20–F or                                (a) The term Qualified OTC Market
                                  (4) Disclosed statements of the as-                      Maker in an over-the-counter (‘‘OTC’’)
                                sumptions underlying or relating to                        margin security means a dealer in any
                                any of the statements described in                         ‘‘OTC Margin Security’’ (as that term
                                paragraphs (c) (1), (2), or (3) of this sec-               is defined in section 2(j) of Regulation
                                tion.                                                      U (12 CFR 221.2(j)) who (1) is a broker
                                  (d) For the purpose of this rule the                     or dealer registered pursuant to section
                                term fraudulent statement shall mean a                     15 of the Act, (2) is subject to and is in
                                statement which is an untrue state-                        compliance with Rule 15c3–1 (17 CFR
                                ment of a material fact, a statement                       240.15c3–1), (3) has and maintains min-
                                false or misleading with respect to any                    imum net capital, as defined in Rule
                                material fact, an omission to state a                      15c3–1, of the lesser of (i) $250,000 or (ii)
                                material fact necessary to make a                          $25,000 plus $5,000 for each security in
                                statement not misleading, or which                         excess of five with regard to which the
                                                                                           broker or dealer is, or is seeking to be-
                                constitutes the employment of a ma-
                                                                                           come a Qualified OTC Market Maker,
                                nipulative, deceptive, or fraudulent de-
                                                                                           and (4) except when such activity is un-
                                vice, contrivance, scheme, transaction,
                                                                                           lawful, meets all of the following con-
                                act, practice, course of business, or an                   ditions with respect to such security:
                                artifice to defraud, as those terms are                    (i) He regularly publishes bona fide,
                                used in the Securities Exchange Act of                     competitive bid and offer quotations in
                                1934 or the rules or regulations promul-                   a recognized inter-dealer quotation
                                gated thereunder.                                          system, (ii) he furnishes bona fide,
                                [46 FR 13990, Feb. 25, 1981, as amended at 46              competitive bid and offer quotations to
                                FR 19457, Mar. 31, 1981; 47 FR 11464, Mar. 16,             other brokers and dealers on request,
                                1982; 47 FR 54780, Dec. 6, 1982; 47 FR 57915,              (iii) he is ready, willing and able to ef-
                                Dec. 29, 1982; 48 FR 19876, May 3, 1983; 56 FR             fect     transactions     in    reasonable
                                30067, July 1, 1991; 57 FR 36494, Aug. 13, 1992;           amounts, and at his quoted prices, with
                                64 FR 53912, Oct. 5, 1999]                                 other brokers and dealers, and (iv) he
                                                                                           has a reasonable average rate of inven-
                                § 240.3b–7      Definition of ‘‘executive offi-            tory turnover in such security.
                                    cer’’.
                                                                                              (b) The term Qualified Third Market
                                  The term executive officer, when used                    Maker means a dealer in any stock reg-
                                with reference to a registrant, means                      istered on a national securities ex-
                                its president, any vice president of the                   change (‘‘exchange’’) who (1) is a
                                registrant in charge of a principal busi-                  broker or dealer registered pursuant to
                                ness unit, division or function (such as                   section 15 of the Act, (2) is subject to
                                sales, administration or finance), any                     and is in compliance with Rule 15c3–1
                                other officer who performs a policy                        (17 CFR 240.15c3–1), (3) has and main-
                                making function or any other person                        tains minimum net capital, as defined
                                who performs similar policy making                         in Rule 15c3–1, of the lesser of (i)
                                functions for the registrant. Executive                    $500,000 or (ii) $100,000 plus $20,000 for
                                officers of subsidiaries may be deemed                     each security in excess of five with re-
                                executive officers of the registrant if                    gard to which the broker or dealer is,
                                they perform such policy making func-                      or is seeking to become, a Qualified
                                tions for the registrant.                                  Third Market Maker, and (4) except
                                                                                           when such activity is unlawful, meets
                                [47 FR 11464, Mar. 16, 1982, as amended at 56              all of the following conditions with re-
                                FR 7265, Feb. 21, 1991]                                    spect to such security: (i) He furnishes
                                                                                           bona fide, competitive bid and offer
                                                                                           quotations at all times to other bro-
                                                                                           kers and dealers on request, (ii) he is

                                                                                      41



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                                § 240.3b–9                                                             17 CFR Ch. II (4–1–05 Edition)

                                ready, willing and able to effect trans-                     (i) Such broker-dealer is clearly iden-
                                actions for his own account in reason-                     tified as the person performing the bro-
                                able amounts, and at his quoted prices                     kerage services;
                                with other brokers and dealers, and                          (ii) Bank employees perform only
                                (iii) he has a reasonable average rate of                  clerical and ministerial functions in
                                inventory turnover in such security.                       connection with brokerage trans-
                                   (c) The term Qualified Block Positioner                 actions unless such employees are
                                means a dealer who (1) is a broker or                      qualified as registered representatives
                                dealer registered pursuant to section 15                   pursuant to the requirements of the
                                of the Act, (2) is subject to and in com-                  self-regulatory organizations;
                                pliance with Rule 15c3–1 (17 CFR                             (iii) Bank employees do not receive,
                                240.15c3–1), (3) has and maintains min-                    directly or indirectly, compensation
                                imum net capital, as defined in Rule                       for any brokerage activities unless
                                15c3–1 of $1,000,000 and (4) except when                   such employees are qualified as reg-
                                such activity is unlawful, meets all of                    istered representatives pursuant to the
                                the following conditions: (i) He engages                   requirements of the self-regulatory or-
                                in the activity of purchasing long or                      ganizations; and
                                selling short, from time to time, from                       (iv) Such services are provided by the
                                or to a customer (other than a partner                     broker-dealer on a basis in which all
                                or a joint venture or other entity in                      customers are fully disclosed.
                                which a partner, the dealer, or a person                     (2) Directly or indirectly receives
                                associated with such dealer, as defined                    transaction-related compensation for
                                in section 3(a) (18) of the Act, partici-                  providing brokerage services for trust,
                                pates) a block of stock with a current                     managing agency or other accounts to
                                market value of $200,000 or more in a                      which the bank provides advice, pro-
                                single transaction, or in several trans-                   vided, however, that this subsection
                                actions at approximately the same                          shall not apply if the bank executes
                                time, from a single source to facilitate                   transactions through a registered
                                a sale or purchase by such customer,                       broker-dealer and:
                                (ii) he has determined in the exercise of                    (i)   Each    account   independently
                                reasonable diligence that the block                        chooses the broker-dealer through
                                could not be sold to or purchased from                     which execution is effected;
                                others on equivalent or better terms,                        (ii) The bank’s personnel do not re-
                                and (iii) he sells the shares comprising                   ceive, directly or indirectly, trans-
                                the block as rapidly as possible com-                      action-related compensation or com-
                                mensurate with the circumstances.                          pensation based upon the number of ac-
                                                                                           counts choosing to use the registered
                                (15 U.S.C. 78a et seq., as amended by Pub. L.              broker-dealer; and
                                94–29 (June 4, 1975), particularly secs. 2, 3, 11,           (iii) The brokerage services are pro-
                                15, 17 and 23 thereof (15 U.S.C. 78b, 78c, 78k,
                                78o, 78q and 78w))
                                                                                           vided by the broker-dealer on a basis in
                                                                                           which all customers are fully disclosed;
                                [48 FR 39606, Sept. 1, 1983]                               or
                                                                                             (3) Deals in or underwrites securities.
                                § 240.3b–9 Definition of ‘‘bank’’ for pur-                   (b) This rule shall not apply to any
                                    poses of section 3(a) (4) and (5) of                   bank that engages in one or more of
                                    the Act.
                                                                                           the following activities only:
                                  (a) The term bank as used in the defi-                     (1) Effects transactions in exempted
                                nition of broker and dealer in section                     or municipal securities as defined in
                                3(a) (4) and (5) of the Act does not in-                   the Act or in commercial paper, bank-
                                clude a bank that:                                         ers’ acceptances or commercial bills;
                                  (1) Publicly solicits brokerage busi-                      (2) Effects no more than 1,000 trans-
                                ness for which it receives transaction-                    actions each year in securities other
                                related compensation, unless the bank                      than exempted or municipal securities
                                enters into a contractual or other ar-                     as defined in the Act or in commercial
                                rangement with a broker-dealer reg-                        paper, bankers’ acceptances or com-
                                istered under the Act pursuant to                          mercial bills;
                                which the broker-dealer will offer bro-                      (3) Effects transactions for the in-
                                kerage services on or off the premises                     vestment portfolio of affiliated compa-
                                of the bank, provided that:                                nies;

                                                                                      42



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                                Securities and Exchange Commission                                                            § 240.3b–12

                                  (4) Effects transactions as part of a                    istered under the Investment Company
                                program for the investment or rein-                        Act of 1940 (15 U.S.C. 80a–1 et seq.) or
                                vestment of bank deposit funds into                        any Business Development Company as
                                any no-load open-end investment com-                       defined in section 2(a)(48) of that Act
                                pany registered pursuant to the Invest-                    (15 U.S.C. 80a–2(a)(48)).
                                ment Company Act of 1940 that at-                            (c) The term regularly traded shall be
                                tempts to maintain a constant net                          defined as in Item 901(c)(2)(v)(C) of Reg-
                                asset value per share or has an invest-                    ulation S-K (§ 229.901(c)(2)(v)(C) of this
                                ment policy calling for investment of                      chapter).
                                at least 80% of its assets in debt securi-
                                ties maturing in thirteen months or                        [59 FR 63684, Dec. 8, 1994]
                                less;
                                  (5) Effects transactions as part of any                  § 240.3b–12 Definition of OTC deriva-
                                bonus, profit-sharing, pension, retire-                        tives dealer.
                                ment, thrift, savings, incentive, stock                      The term OTC derivatives dealer
                                purchase, stock ownership, stock ap-                       means any dealer that is affiliated with
                                preciation, stock option, dividend rein-                   a registered broker or dealer (other
                                vestment or similar plan for employees                     than an OTC derivatives dealer), and
                                or shareholders of an issuer or its sub-                   whose securities activities:
                                sidiaries;                                                   (a) Are limited to:
                                  (6) Effects transactions pursuant to                       (1) Engaging in dealer activities in
                                sections 3(b), 4(2) and 4(6) of the Securi-                eligible OTC derivative instruments
                                ties Act of 1933 and the rules and regu-
                                                                                           that are securities;
                                lations thereunder; or
                                  (7) Is subject to section 15(e) of the                     (2) Issuing and reacquiring securities
                                Act.                                                       that are issued by the dealer, including
                                  (c) The Commission, upon written re-                     warrants on securities, hybrid securi-
                                quest, or upon its own motion, may ex-                     ties, and structured notes;
                                empt a bank, either unconditionally or                       (3) Engaging in cash management se-
                                on specific terms and conditions, where                    curities activities;
                                the Commisison determines that the                           (4) Engaging in ancillary portfolio
                                bank’s activities are not within the in-                   management securities activities; and
                                tended meaning and purpose of this                           (5) Engaging in such other securities
                                rule.                                                      activities that the Commission des-
                                  (d) For purposes of this section, the                    ignates by order pursuant to § 240.15a–
                                term transaction-related compensation                      1(b)(1); and
                                shall mean monetary profit to the                            (b) Consist primarily of the activities
                                bank in excess of cost recovery for pro-                   described in paragraphs (a)(1), (a)(2),
                                viding brokerage execution services.                       and (a)(3) of this section; and
                                [50 FR 28394, July 12, 1985]                                 (c) Do not consist of any other secu-
                                                                                           rities activities, including engaging in
                                § 240.3b–10      [Reserved]                                any transaction in any security that is
                                                                                           not an eligible OTC derivative instru-
                                § 240.3b–11 Definitions relating to lim-
                                     ited partnership roll-up trans-                       ment, except as permitted under para-
                                     actions for purposes of sections                      graphs (a)(3), (a)(4), and (a)(5) of this
                                     6(b)(9), 14(h) and 15A(b)(12)–(13).                   section.
                                   For purposes of sections 6(b)(9), 14(h)                   (d) For purposes of this section, the
                                and 15A(b)(12)–(13) of the Act (15 U.S.C.                  term hybrid security means a security
                                78f(b)(9), 78n(h) and 78o–3(b)(12)–(13)):                  that incorporates payment features
                                   (a) The term limited partnership roll-                  economically similar to options, for-
                                up transaction does not include a trans-                   wards, futures, swap agreements, or
                                action involving only entities that are                    collars involving currencies, interest
                                not ‘‘finite-life’’ as defined in Item                     or other rates, commodities, securities,
                                901(b)(2)       of     Regulation       S-K                indices, quantitative measures, or
                                (§ 229.901(b)(2) of this chapter).                         other financial or economic interests
                                   (b) The term limited partnership roll-                  or property of any kind, or any pay-
                                up transaction does not include a trans-                   ment or delivery that is dependent on
                                action involving only entities reg-                        the occurrence or nonoccurrence of any

                                                                                      43



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                                § 240.3b–13                                                            17 CFR Ch. II (4–1–05 Edition)

                                event associated with a potential fi-                      istered national securities association,
                                nancial, economic, or commercial con-                      or facility or market thereof; or
                                sequence (or any combination, per-                           (ii) Except as otherwise determined
                                mutation, or derivative of such con-                       by the Commission by order pursuant
                                tract or underlying interest).                             to § 240.15a–1(b)(2), one of a class of fun-
                                [63 FR 59394, Nov. 3, 1998]
                                                                                           gible instruments that are standard-
                                                                                           ized as to their material economic
                                § 240.3b–13 Definition of eligible OTC                     terms.
                                      derivative instrument.                                 (c) The Commission may issue an
                                   (a) Except as otherwise provided in                     order pursuant to § 240.15a–1(b)(3) clari-
                                paragraph (b) of this section, the term                    fying whether certain contracts, agree-
                                eligible OTC derivative instrument means                   ments, or transactions are within the
                                any contract, agreement, or trans-                         scope of eligible OTC derivative instru-
                                action that:                                               ment.
                                   (1) Provides, in whole or in part, on a                   (d) For purposes of this section, the
                                firm or contingent basis, for the pur-                     term eligible forward contract means a
                                chase or sale of, or is based on the                       forward contract that provides for the
                                value of, or any interest in, one or                       purchase or sale of a security other
                                more commodities, securities, cur-                         than a government security, provided
                                rencies, interest or other rates, indices,                 that, if such contract provides for the
                                quantitative measures, or other finan-                     purchase or sale of margin stock (as de-
                                cial or economic interests or property                     fined in Regulation U of the Regula-
                                                                                           tions of the Board of Governors of the
                                of any kind; or
                                   (2) Involves any payment or delivery                    Federal Reserve System, 12 CFR Part
                                                                                           221), such contract either:
                                that is dependent on the occurrence or
                                                                                             (1) Provides for the purchase or sale
                                nonoccurrence of any event associated
                                                                                           of such stock by the issuer thereof (or
                                with a potential financial, economic,
                                                                                           an affiliate that is not a bank or a
                                or commercial consequence; or
                                                                                           broker or dealer); or
                                   (3) Involves any combination or per-
                                                                                             (2) Provides for the transfer of trans-
                                mutation of any contract, agreement,
                                                                                           action collateral in an amount that
                                or transaction or underlying interest,
                                                                                           would satisfy the requirements, if any,
                                property, or event described in para-
                                                                                           that would be applicable assuming the
                                graphs (a)(1) or (a)(2) of this section.
                                                                                           OTC derivatives dealer party to such
                                   (b) The term eligible OTC derivative in-
                                                                                           transaction were not eligible for the
                                strument does not include any contract,
                                                                                           exemption from Regulation T of the
                                agreement, or transaction that:
                                   (1) Provides for the purchase or sale                   Regulations of the Board of Governors
                                                                                           of the Federal Reserve System, 12 CFR
                                of a security, on a firm basis, unless:
                                   (i) The settlement date for such pur-                   part 220, set forth in § 240.36a1–1.
                                chase or sale occurs at least one year                     [63 FR 59395, Nov. 3, 1998]
                                following the trade date or, in the case
                                of an eligible forward contract, at least                  § 240.3b–14 Definition of cash manage-
                                four months following the trade date;                           ment securities activities.
                                or                                                            The term cash management securities
                                   (ii) The material economic features                     activities means securities activities
                                of the contract, agreement, or trans-                      that are limited to transactions involv-
                                action consist primarily of features of                    ing:
                                a type described in paragraph (a) of                          (a) Any taking possession of, and any
                                this section other than the provision                      subsequent sale or disposition of, col-
                                for the purchase or sale of a security                     lateral provided by a counterparty, or
                                on a firm basis; or                                        any acquisition of, and any subsequent
                                   (2) Provides, in whole or in part, on a                 sale or disposition of, collateral to be
                                firm or contingent basis, for the pur-                     provided to a counterparty, in connec-
                                chase or sale of, or is based on the                       tion with any securities activities of
                                value of, or any interest in, any secu-                    the dealer permitted under § 240.15a–1
                                rity (or group or index of securities),                    or any non-securities activities of the
                                and is:                                                    dealer that involve eligible OTC deriva-
                                   (i) Listed on, or traded on or through,                 tive instruments or other financial in-
                                a national securities exchange or reg-                     struments;

                                                                                      44



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                                Securities and Exchange Commission                                                            § 240.3b–16

                                  (b) Cash management, in connection                       ties are within the scope of ancillary
                                with any securities activities of the                      portfolio management securities ac-
                                dealer permitted under § 240.15a–1 or                      tivities.
                                any non-securities activities of the                       [63 FR 59395, Nov. 3, 1998]
                                dealer that involve eligible OTC deriva-
                                tive instruments or other financial in-                    § 240.3b–16 Definitions of terms used
                                struments; or                                                    in Section 3(a)(1) of the Act.
                                  (c) Financing of positions of the deal-                     (a) An organization, association, or
                                er acquired in connection with any se-                     group of persons shall be considered to
                                curities activities of the dealer per-                     constitute, maintain, or provide ‘‘a
                                mitted under § 240.15a–1 or any non-se-                    market place or facilities for bringing
                                curities activities that involve eligible                  together purchasers and sellers of secu-
                                OTC derivative instruments or other fi-                    rities or for otherwise performing with
                                nancial instruments.                                       respect to securities the functions com-
                                [63 FR 59395, Nov. 3, 1998]                                monly performed by a stock ex-
                                                                                           change,’’ as those terms are used in
                                § 240.3b–15 Definition      of    ancillary                section 3(a)(1) of the Act, (15 U.S.C.
                                      portfolio management securities ac-                  78c(a)(1)), if such organization, associa-
                                      tivities.                                            tion, or group of persons:
                                   (a) The term ancillary portfolio man-                      (1) Brings together the orders for se-
                                agement securities activities means secu-                  curities of multiple buyers and sellers;
                                rities activities that:                                    and
                                   (1) Are limited to transactions in                         (2) Uses established, non-discre-
                                connection with:                                           tionary methods (whether by providing
                                   (i) Dealer activities in eligible OTC                   a trading facility or by setting rules)
                                derivative instruments;                                    under which such orders interact with
                                   (ii) The issuance of securities by the                  each other, and the buyers and sellers
                                dealer; or                                                 entering such orders agree to the terms
                                   (iii) Such other securities activities                  of a trade.
                                that the Commission designates by                             (b) An organization, association, or
                                order pursuant to § 240.15a–1(b)(1); and                   group of persons shall not be consid-
                                   (2) Are conducted for the purpose of                    ered to constitute, maintain, or pro-
                                reducing the market or credit risk of                      vide ‘‘a market place or facilities for
                                the dealer or consist of incidental trad-                  bringing together purchasers and sell-
                                ing activities for portfolio manage-                       ers of securities or for otherwise per-
                                ment purposes; and                                         forming with respect to securities the
                                   (3) Are limited to risk exposures                       functions commonly performed by a
                                within the market, credit, leverage,                       stock exchange,’’ solely because such
                                and liquidity risk parameters set forth                    organization, association, or group of
                                in:                                                        persons engages in one or more of the
                                   (i) The trading authorizations grant-                   following activities:
                                ed to the associated person (or to the                        (1) Routes orders to a national secu-
                                supervisor of such associated person)                      rities exchange, a market operated by
                                who executes a particular transaction                      a national securities association, or a
                                for, or on behalf of, the dealer; and                      broker-dealer for execution; or
                                   (ii) The written guidelines approved                       (2) Allows persons to enter orders for
                                by the governing body of the dealer and                    execution against the bids and offers of
                                included in the internal risk manage-                      a single dealer; and
                                ment control system for the dealer pur-                       (i) As an incidental part of these ac-
                                suant to § 240.15c3–4; and                                 tivities, matches orders that are not
                                   (4) Are conducted solely by one or                      displayed to any person other than the
                                more associated persons of the dealer                      dealer and its employees; or
                                who perform substantial duties for, or                        (ii) In the course of acting as a mar-
                                on behalf of, the dealer in connection                     ket maker registered with a self-regu-
                                with its dealer activities in eligible                     latory organization, displays the limit
                                OTC derivative instruments.                                orders of such market maker’s, or
                                   (b) The Commission may issue an                         other broker-dealer’s, customers; and
                                order pursuant to § 240.15a–1(b)(4) clari-                    (A) Matches customer orders with
                                fying whether certain securities activi-                   such displayed limit orders; and

                                                                                      45



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                                § 240.3b–17                                                            17 CFR Ch. II (4–1–05 Edition)

                                  (B) As an incidental part of its mar-                    Trust Indenture Act of 1939 (15 U.S.C.
                                ket making activities, crosses or                          77ddd).
                                matches orders that are not displayed                         (d) The term investment adviser if the
                                to any person other than the market                        bank receives a fee for its investment ad-
                                maker and its employees.                                   vice means a bank that has a relation-
                                  (c) For purposes of this section the                     ship with the customer paying the fee
                                term order means any firm indication                       in which the bank:
                                of a willingness to buy or sell a secu-                       (1) Provides, in return for the fee,
                                rity, as either principal or agent, in-                    continuous and regular investment ad-
                                cluding any bid or offer quotation,                        vice to the customer’s account that is
                                market order, limit order, or other                        based upon the individual needs of the
                                priced order.                                              customer; and
                                  (d) For the purposes of this section,                       (2) Under state law, federal law, con-
                                the terms bid and offer shall have the                     tract, or customer agreement owes a
                                same meaning as under § 240.11Ac1–1.                       duty of loyalty, including an affirma-
                                  (e) The Commission may condi-                            tive duty to make full and fair disclo-
                                tionally or unconditionally exempt any                     sure to the customer of all material
                                organization, association, or group of                     facts relating to conflicts.
                                persons from the definition in para-                          (e) The term money market fund
                                graph (a) of this section.                                 means an open-end management in-
                                                                                           vestment company registered under
                                [63 FR 70918, Dec. 22, 1998]                               the Investment Company Act of 1940 (15
                                                                                           U.S.C. 80a–1 et seq.) that is regulated as
                                § 240.3b–17 Definitions of terms used                      a money market fund pursuant to
                                    in Section 3(a)(4) of the Act.
                                                                                           § 270.2a–7 of this chapter.
                                   For purposes of Section 3(a)(4) of the                     (f)(1) The term no-load in the context
                                Act (15 U.S.C. 78c(a)(4)):                                 of an investment company registered
                                   (a) The term chiefly compensated                        under the Investment Company Act of
                                means that the ‘‘relationship com-                         1940 (15 U.S.C. 80a–1 et seq.) means:
                                pensation’’ received by a bank from a                         (i) Purchases of the investment com-
                                trust or fiduciary account exceeds the                     pany’s securities are not subject to a
                                ‘‘sales compensation’’ received by the                     sales load, as that term is defined in
                                bank from such account during the im-                      Section 2(a)(35) of the Investment Com-
                                mediately preceding year, which is ei-                     pany Act of 1940 (15 U.S.C. 80a–2(a)(35)),
                                ther a calendar year or other fiscal                       or a deferred sales load, as that term is
                                year consistently used by the bank for                     defined in § 270.6c–10 of this chapter;
                                recordkeeping and reporting purposes.                      and
                                   (b) The term flat or capped per order                      (ii) The investment company’s total
                                processing fee equal to not more than the                  charges against net assets for sales or
                                cost incurred by the bank in connection                    sales promotion expenses and personal
                                with executing securities transactions for                 service or the maintenance of share-
                                trustee and fiduciary customers means a                    holder accounts do not exceed 0.25 of
                                fee that is no more than the amount a                      1% of average net assets annually and
                                broker-dealer charged the bank for exe-                    are disclosed in the money market
                                cuting the transaction, plus the costs                     fund’s prospectus.
                                of any resources of the bank that are                         (2) For purposes of paragraph (f)(1) of
                                exclusively dedicated to transaction                       this section, charges for the following
                                execution, comparison, and settlement                      will not be considered charges for per-
                                for trust and fiduciary customers.                         sonal service or for the maintenance of
                                   (c) The term indenture trustee means                    shareholder accounts:
                                any trustee for an indenture to which                         (i) Transfer agent and subtransfer
                                the definition given in Section 303 of                     agent services for beneficial owners of
                                the Trust Indenture Act of 1939 (15                        the investment company shares;
                                U.S.C. 77ccc) applies, and any trustee                        (ii) Aggregating and processing pur-
                                for an indenture to which the defini-                      chase and redemption orders;
                                tion in Section 303 of the Trust Inden-                       (iii) Providing beneficial owners with
                                ture Act of 1939 (15 U.S.C. 77ccc) would                   statements showing their positions in
                                apply but for an exemption from quali-                     the investment companies;
                                fication pursuant to Section 304 of the                       (iv) Processing dividend payments;

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                                Securities and Exchange Commission                                                            § 240.3b–17

                                  (v) Providing subaccounting services                     terly, or other basis), a percentage of
                                for investment company shares held                         assets under management fee, or a flat
                                beneficially;                                              or capped per order processing fee
                                  (vi) Forwarding shareholder commu-                       equal to not more than the cost in-
                                nications, such as proxies, shareholder                    curred by the bank in connection with
                                reports, dividend and tax notices, and                     executing securities transactions for
                                updating prospectuses to beneficial                        trust and fiduciary accounts, or any
                                owners; or (vii) Receiving, tabulating,                    combination of such fees.
                                and transmitting proxies executed by                         (j) The term sales compensation means
                                beneficial owners.                                         any compensation received by a bank
                                  (g)(1) The term nominal one-time cash                    in connection with activities for which
                                fee of a fixed dollar amount means a pay-                  the bank relies on an exception under
                                ment in either of the following forms                      Section 3(a)(4)(B)(ii) of the Act (15
                                that meets the requirements of sub-                        U.S.C. 78c(a)(4)(B)(ii)) that:
                                paragraph (2):                                               (1) Is a fee for effecting a transaction
                                  (i) A payment that does not exceed                       in securities that is not a flat or
                                one hour of the gross cash wages of the                    capped per order processing fee equal
                                unregistered bank employee making a                        to not more than the cost incurred by
                                referral; or                                               the bank in connection with executing
                                  (ii) Points in a system or program                       securities transactions for trustee and
                                that covers a range of bank products                       fiduciary customers;
                                and non-securities related services                          (2) Is compensation that if paid to a
                                where the points count toward a bonus                      broker or dealer would be payment for
                                that is cash or non-cash if the points                     order flow, as defined in § 240.10b–10;
                                (and their value) awarded for referrals                      (3) Is a finders’ fee received in con-
                                involving securities are not greater                       nection with a securities transaction
                                than the points (and their value)                          or account, except a fee received pursu-
                                awarded for activities not involving se-                   ant to Section 3(a)(4)(B)(i) of the Act
                                curities.                                                  (15 U.S.C. 78c(a)(4)(B)(i));
                                  (2) Regardless of the form of pay-                         (4) Is a fee paid for an offering of se-
                                ment, the payment may not be related                       curities that is not received directly
                                to:                                                        from a customer or beneficiary, or di-
                                  (i) The size, value, or completion of                    rectly from the assets of the trust or fi-
                                any securities transaction;                                duciary account;
                                  (ii) The amount of securities-related                      (5) Is a fee paid pursuant to a Rule
                                assets gathered;                                           12b–1 plan under the Investment Com-
                                  (iii) The size or value of any cus-                      pany Act of 1940 (15 U.S.C. 80a–1 et seq.);
                                tomer’s bank or securities account; or                     or
                                  (iv) The customer’s financial status.                      (6) Is a fee paid by an investment
                                  (h) The term referral means a bank                       company for personal service or the
                                employee arranging a first securities-                     maintenance of shareholder accounts,
                                related contact between a registered                       except a fee that is not part of a Rule
                                broker-dealer and a bank customer, but                     12b–1 plan under the Investment Com-
                                does not include any activity (includ-                     pany Act of 1940 (15 U.S.C. 80a–1 et seq.)
                                ing any part of the account opening                        for:
                                process) related to effecting trans-                         (i) Transfer agent and subtransfer
                                actions in securities beyond arranging                     agent services for beneficial owners of
                                that first contact.                                        shares in the investment company;
                                  (i) The term relationship compensation                     (ii) Aggregating and processing pur-
                                means any compensation received by a                       chase and redemption orders;
                                bank in connection with activities for                       (iii) Providing beneficial owners with
                                which the bank relies on an exception                      statements showing their positions in
                                under Section 3(a)(4)(B)(ii) of the Act                    the investment companies;
                                (15 U.S.C. 78c(a)(4)(B)(ii)) that is re-                     (iv) Processing dividend payments;
                                ceived directly from a customer or ben-                      (v) Providing subaccounting services
                                eficiary, or directly from the assets of                   for shares in the investment company
                                the trust or fiduciary account, and con-                   held beneficially;
                                sists solely of an administration or an-                     (vi) Forwarding shareholder commu-
                                nual fee (payable on a monthly, quar-                      nications, such as proxies, shareholder

                                                                                      47



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                                § 240.3b–18                                                            17 CFR Ch. II (4–1–05 Edition)

                                reports, dividend and tax notices, and                       (ii) The bank or its affiliates, other
                                updating prospectuses to beneficial                        than its broker or dealer affiliates,
                                owners; or                                                 fund the obligation in a timely man-
                                  (vii) Receiving, tabulating, and                         ner, not to exceed six months after the
                                transmitting proxies executed by bene-                     obligation is created.
                                ficial owners.                                               (f) The term pool means more than
                                  (k) The term trustee capacity in Sec-                    one obligation or type of obligation
                                tion 3(a)(4)(B)(ii) of the Act (15 U.S.C.
                                                                                           grouped together to provide collateral
                                78c(a)(4)(B)(ii)) includes an indenture
                                                                                           for a securities offering.
                                trustee or a trustee for a tax-deferred
                                account described in Sections 401(a),                        (g) The term predominantly originated
                                408, and 408A under subchapter D and in                    means that no less than 85% of the
                                Section 457 under subchapter E of the                      value of the obligations in any pool
                                Internal Revenue Code of 1986 (26                          were originated by:
                                U.S.C. 1 et seq.).                                           (1) The bank or its affiliates, other
                                                                                           than its broker or dealer affiliates; or
                                [66 FR 27798, May 18, 2001]
                                                                                             (2) Banks that are members of a syn-
                                § 240.3b–18 Definitions of terms used                      dicate of banks and affiliates of such
                                      in Section 3(a)(5) of the Act.                       banks, other than their broker or deal-
                                   For the purposes of section 3(a)(5)(C)                  er affiliates, if the obligations or pool
                                of the Act (15 U.S.C. 78c(a)(5)(C):                        of obligations consist of mortgage obli-
                                   (a) The term affiliate means any com-                   gations or consumer-related receiv-
                                pany that controls, is controlled by, or                   ables.
                                is under common control with another                         (3) For this purpose, the bank and its
                                company.                                                   affiliates include any financial institu-
                                   (b) The term consumer-related receiv-                   tion with which the bank or its affili-
                                able means any obligation incurred by                      ates have merged but does not include
                                any natural person to pay money aris-                      the purchase of a pool of obligations or
                                ing out of a transaction in which the                      the purchase of a line of business.
                                money, property, insurance, or services                      (h) The term syndicate of banks means
                                (being purchased) are primarily for per-                   a group of banks that acts jointly, on a
                                sonal, family, or household purposes.
                                                                                           temporary basis, to issue through a
                                   (c) The term member as it relates to
                                                                                           grantor trust or other separate entity,
                                the term ‘‘syndicate of banks’’ means a
                                                                                           securities backed by obligations origi-
                                bank that is a participant in a syn-
                                dicate of banks and together with its                      nated by each of the individual banks
                                affiliates, other than its broker or deal-                 or their affiliates, other than their
                                er affiliates, originates no less than                     broker or dealer affiliates.
                                10% of the value of the obligations in a                   [68 FR 8700, Feb. 24, 2003]
                                pool of obligations used to back the se-
                                curities issued through a grantor trust                    § 240.3b–19 Definition of ‘‘issuer’’ in
                                or other separate entity.                                      section 3(a)(8) of the Act in relation
                                   (d) The term obligation means any                           to asset-backed securities.
                                note, draft, acceptance, loan, lease, re-                     The following applies with respect to
                                ceivable, or other evidence of indebted-                   asset-backed securities under the Act.
                                ness that is not a security issued by a                    Terms used in this section have the
                                person other than the bank.                                same meaning as in Item 1101 of Regu-
                                   (e) The term originated means:
                                                                                           lation AB (§ 229.1101 of this chapter).
                                   (1) Funding an obligation at the time
                                that the obligation is created; or                            (a) The depositor for the asset-backed
                                   (2) Initially approving and under-                      securities acting solely in its capacity
                                writing the obligation, or initially                       as depositor to the issuing entity is the
                                agreeing to purchase the obligation,                       ‘‘issuer’’ for purposes of the asset-
                                provided that:                                             backed securities of that issuing enti-
                                   (i) The obligation conforms to the                      ty.
                                underwriting standards or is evidenced                        (b) The person acting in the capacity
                                by the loan documents of the bank or                       as the depositor specified in paragraph
                                its affiliates, other than its broker or                   (a) of this section is a different
                                dealer affiliates; and                                     ‘‘issuer’’ from that same person acting

                                                                                      48



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                                Securities and Exchange Commission                                                             § 240.6a–2

                                as a depositor for another issuing enti-                   days after any action is taken that ren-
                                ty or for purposes of that person’s own                    ders inaccurate, or that causes to be
                                securities.                                                incomplete, any of the following:
                                [70 FR 1620, Jan. 7, 2005]
                                                                                              (1) Information filed on the Execu-
                                                                                           tion Page of Form 1, or amendment
                                     REGISTRATION AND EXEMPTION OF                         thereto; or
                                              EXCHANGES                                       (2) Information filed as part of Exhib-
                                                                                           its C, F, G, H, J, K or M, or any amend-
                                § 240.6a–1 Application for registration                    ments thereto.
                                     as a national securities exchange or                     (b) On or before June 30 of each year,
                                     exemption from registration based                     a national securities exchange, or an
                                     on limited volume.
                                                                                           exchange exempted from such registra-
                                   (a) An application for registration as                  tion based on limited volume, shall
                                a national securities exchange, or for                     file, as an amendment to Form 1, the
                                exemption from such registration                           following:
                                based on limited volume, shall be filed                       (1) Exhibits D and I as of the end of
                                on Form 1 (§ 249.1 of this chapter), in                    the latest fiscal year of the exchange;
                                accordance with the instructions con-                      and
                                tained therein.                                               (2) Exhibits K, M, and N, which shall
                                   (b) Promptly after the discovery that                   be up to date as of the latest date prac-
                                any information filed on Form 1 was                        ticable within 3 months of the date the
                                inaccurate when filed, the exchange                        amendment is filed.
                                shall file with the Commission an                             (c) On or before June 30, 2001 and
                                amendment correcting such inaccu-                          every 3 years thereafter, a national se-
                                racy.                                                      curities exchange, or an exchange ex-
                                   (c) Promptly after the discovery that                   empted from such registration based on
                                any information in the statement, any                      limited volume, shall file, as an amend-
                                exhibit, or any amendment was inac-                        ment to Form 1, complete Exhibits A,
                                curate when filed, the exchange shall                      B, C and J. The information filed under
                                file with the Commission an amend-                         this paragraph (c) shall be current as of
                                ment correcting such inaccuracy.                           the latest practicable date, but shall,
                                   (d) Whenever the number of changes                      at a minimum, be up to date within 3
                                to be reported in an amendment, or the                     months as of the date the amendment
                                number of amendments filed, are so                         is filed.
                                great that the purpose of clarity will                        (d)(1) If an exchange, on an annual or
                                be promoted by the filing of a new com-                    more frequent basis, publishes, or co-
                                plete statement and exhibits, an ex-
                                                                                           operates in the publication of, any of
                                change may, at its election, or shall,
                                                                                           the information required to be filed by
                                upon request of the Commission, file as
                                                                                           paragraphs (b)(2) and (c) of this section,
                                an amendment a complete new state-
                                                                                           in lieu of filing such information, an
                                ment together with all exhibits which
                                                                                           exchange may:
                                are prescribed to be filed in connection
                                                                                              (i) Identify the publication in which
                                with Form 1.
                                                                                           such information is available, the
                                (Secs. 5, 6, 17, 48 Stat. 885, 897, as amended; 15         name, address, and telephone number
                                U.S.C. 78e, 78f, 78q)                                      of the person from whom such publica-
                                [14 FR 7759, Dec. 29, 1949, as amended at 63               tion may be obtained, and the price of
                                FR 70918, Dec. 22, 1998]                                   such publication; and
                                                                                              (ii) Certify to the accuracy of such
                                § 240.6a–2 Amendments to application.                      information as of its publication date.
                                   (a) A national securities exchange, or                     (2) If an exchange keeps the informa-
                                an exchange exempted from such reg-                        tion required under paragraphs (b)(2)
                                istration based on limited volume,                         and (c) of this section up to date and
                                shall file an amendment to Form 1,                         makes it available to the Commission
                                (§ 249.1 of this chapter), which shall set                 and the public upon request, in lieu of
                                forth the nature and effective date of                     filing such information, an exchange
                                the action taken and shall provide any                     may certify that the information is
                                new information and correct any infor-                     kept up to date and is available to the
                                mation rendered inaccurate, on Form                        Commission and the public upon re-
                                1, (§ 249.1 of this chapter), within 10                    quest.

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                                § 240.6a–3                                                             17 CFR Ch. II (4–1–05 Edition)

                                   (3) If the information required to be                   days after issuing or making such ma-
                                filed under paragraphs (b)(2) and (c) of                   terial available to members, partici-
                                this section is available continuously                     pants or subscribers.
                                on an Internet web site controlled by                         (2) If the information required to be
                                an exchange, in lieu of filing such in-                    filed under paragraph (a)(1) of this sec-
                                formation with the Commission, such                        tion is available continuously on an
                                exchange may:                                              Internet web site controlled by an ex-
                                   (i) Indicate the location of the Inter-                 change, in lieu of filing such informa-
                                net web site where such information
                                                                                           tion with the Commission, such ex-
                                may be found; and
                                   (ii) Certify that the information                       change may:
                                available at such location is accurate                        (i) Indicate the location of the Inter-
                                as of its date.                                            net web site where such information
                                   (e) The Commission may exempt a                         may be found; and
                                national securities exchange, or an ex-                       (ii) Certify that the information
                                change exempted from such registra-                        available at such location is accurate
                                tion based on limited volume, from fil-                    as of its date.
                                ing the amendment required by this                            (b) Within 15 days after the end of
                                section for any affiliate or subsidiary                    each calendar month, a national secu-
                                listed in Exhibit C of the exchange’s                      rities exchange or an exchange exempt-
                                application for registration, as amend-                    ed from such registration based on lim-
                                ed, that either:                                           ited volume, shall file a report con-
                                   (1) Is listed in Exhibit C of the appli-                cerning the securities sold on such ex-
                                cation for registration or notice of reg-                  change during the calendar month.
                                istration, as amended, of one or more                      Such report shall set forth:
                                other national securities exchanges; or
                                                                                              (1) The number of shares of stock
                                   (2) Was an inactive subsidiary
                                throughout the subsidiary’s latest fis-                    sold and the aggregate dollar amount
                                cal year. Any such exemption may be                        of such stock sold;
                                granted upon terms and conditions the                         (2) The principal amount of bonds
                                Commission deems necessary or appro-                       sold and the aggregate dollar amount
                                priate in the public interest or for the                   of such bonds sold; and
                                protection of investors, provided how-                        (3) The number of rights and war-
                                ever, that at least one national securi-                   rants sold and the aggregate dollar
                                ties exchange shall be required to file                    amount of such rights and warrants
                                the amendments required by this sec-                       sold.
                                tion for an affiliate or subsidiary de-                       (c) A national securities exchange
                                scribed in paragraph (e)(1) of this sec-                   registered pursuant to Section 6(g)(1)
                                tion.                                                      of the Act (15 U.S.C. 78f(g)(1)) shall be
                                   (f) A national securities exchange                      exempt from the requirements of this
                                registered pursuant to Section 6(g)(1)                     section.
                                of the Act (15 U.S.C. 78f(g)(1)) shall be
                                exempt from the requirements of this                       [63 FR 70919, Dec. 22, 1998, as amended at 66
                                section.                                                   FR 43741, Aug. 20, 2001]

                                [63 FR 70918, Dec. 22, 1998, as amended at 66              § 240.6a–4 Notice of registration under
                                FR 43741, Aug. 20, 2001]                                       Section 6(g) of the Act, amendment
                                                                                               to such notice, and supplemental
                                § 240.6a–3 Supplemental material to be                         materials to be filed by exchanges
                                     filed by exchanges.                                       registered under Section 6(g) of the
                                   (a)(1) A national securities exchange,                      Act.
                                or an exchange exempted from such
                                                                                              (a) Notice of registration. (1) An ex-
                                registration based on limited volume,
                                                                                           change may register as a national secu-
                                shall file with the Commission any ma-
                                                                                           rities exchange solely for the purposes
                                terial (including notices, circulars, bul-
                                letins, lists, and periodicals) issued or                  of trading security futures products by
                                made generally available to members                        filing Form 1–N (§ 249.10 of this chapter)
                                of, or participants or subscribers to,                     (‘‘notice of registration’’), in accord-
                                the exchange. Such material shall be                       ance with the instructions contained
                                filed with the Commission within 10                        therein, if:

                                                                                      50



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                                Securities and Exchange Commission                                                             § 240.6a–4

                                   (i) The exchange is a board of trade,                   of this chapter) which shall be current
                                as that term in defined in the Com-                        of as of the latest practicable date, but
                                modity Exchange Act (7 U.S.C. 1a(2)),                      shall, at a minimum, be up-to-date
                                that:                                                      within 30 days. A Security Futures
                                   (A) Has been designated a contract                      Product Exchange shall make such
                                market by the Commodity Futures                            records available to the Commission
                                Trading Commission and such designa-                       and the public upon request.
                                tion is not suspended by order of the                         (3) On or before June 30, 2002, and by
                                Commodity Futures Trading Commis-                          June 30 every year thereafter, a Secu-
                                sion; or                                                   rity Futures Product Exchange shall
                                   (B) Is registered as a derivative                       file, as an amendment to Form 1–N
                                transaction execution facility under                       (§ 249.10 of this chapter), Exhibits F, H,
                                Section 5a of the Commodity Exchange                       and I, which shall be current of as of
                                Act (7 U.S.C. 7a) and such registration                    the latest practicable date, but shall,
                                is not suspended by the Commodity Fu-                      at a minimum, be up-to-date within
                                tures Trading Commission; and                              three months as of the date the amend-
                                   (ii) Such exchange does not serve as a                  ment is filed.
                                market place for transactions in secu-                        (4) On or before June 30, 2004, and by
                                rities other than:                                         June 30 every three years thereafter, a
                                   (A) Security futures products; or                       Security Futures Product Exchange
                                   (B) Futures on exempted securities or                   shall file, as an amendment to Form 1–
                                on groups or indexes of securities or                      N (§ 249.10 of this chapter), complete
                                options thereon that have been author-                     Exhibits A, B, C, and E, which shall be
                                ized under Section 2(a)(1)(C) of the                       current of as of the latest practicable
                                Commodity Exchange Act (7 U.S.C. 2a).                      date, but shall, at a minimum, be up-
                                   (2) Promptly after the discovery that                   to-date within three months as of the
                                any information filed on Form 1–N                          date the amendment is filed.
                                (§ 249.10 of this chapter) was inaccurate
                                                                                              (5)(i) If a Security Futures Product
                                when filed, the exchange shall file with
                                                                                           Exchange, on an annual or more fre-
                                the Commission an amendment cor-
                                                                                           quent basis, publishes, or cooperates in
                                recting such inaccuracy.
                                   (b) Amendment to notice of registration.                the publication of, any of the informa-
                                (1) A national securities exchange reg-                    tion required to be filed by paragraphs
                                istered pursuant to Section 6(g)(1) of                     (b)(3) and (b)(4) of this section, in lieu
                                the Act (15 U.S.C. 78f(g)(1)) (‘‘Security                  of filing such information, a Security
                                Futures Product Exchange’’) shall file                     Futures Product Exchange may satisfy
                                an amendment to Form 1–N (§ 249.10 of                      this filing requirement by:
                                this chapter), which shall set forth the                      (A) Identifying the publication in
                                nature and effective date of the action                    which such information is available,
                                taken and shall provide any new infor-                     the name, address, and telephone num-
                                mation and correct any information                         ber of the person from whom such pub-
                                rendered inaccurate, on Form 1–N                           lication may be obtained, and the price
                                (§ 249.10 of this chapter), within:                        of such publication; and
                                   (i) Ten days after any action is taken                     (B) Certifying to the accuracy of such
                                that renders inaccurate, or that causes                    information as of its publication date.
                                to be incomplete, any information filed                       (ii) If a Security Futures Product Ex-
                                on the Execution Page of Form 1–N                          change keeps the information required
                                (§ 249.10 of this chapter), or amendment                   under paragraphs (b)(3) and (b)(4) of
                                thereto; or                                                this section up-to-date and makes it
                                   (ii) 30 days after any action is taken                  available to the Commission and the
                                that renders inaccurate, or that causes                    public upon request, in lieu of filing
                                to be incomplete, any information filed                    such information, a Security Futures
                                as part of Exhibit F to Form 1–N                           Product Exchange may satisfy this fil-
                                (§ 249.10 of this chapter), or any amend-                  ing requirement by certifying that the
                                ments thereto.                                             information is kept up-to-date and is
                                   (2) A Security Futures Product Ex-                      available to the Commission and the
                                change shall maintain records relating                     public upon request.
                                to changes in information required in                         (iii) If the information required to be
                                Exhibits C and E to Form 1–N (§ 249.10                     filed under paragraphs (b)(3) and (b)(4)

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                                § 240.6h–1                                                             17 CFR Ch. II (4–1–05 Edition)

                                of this section is available continu-                      Commission within ten days after
                                ously on an Internet web site con-                         issuing or making such material avail-
                                trolled by a Security Futures Product                      able to members, participants, or sub-
                                Exchange, in lieu of filing such infor-                    scribers.
                                mation with the Commission, such Se-                          (ii) If the information required to be
                                curity Futures Product Exchange may                        filed under paragraph (c)(1)(i) of this
                                satisfy this filing requirement by:                        section is available continuously on an
                                   (A) Indicating the location of the                      Internet web site controlled by an ex-
                                Internet web site where such informa-                      change, in lieu of filing such informa-
                                tion may be found; and                                     tion with the Commission, such ex-
                                   (B) Certifying that the information                     change may:
                                available at such location is accurate                        (A) Indicate the location of the Inter-
                                as of its date.                                            net web site where such information
                                   (6)(i) The Commission may exempt a                      may be found; and
                                Security Futures Product Exchange                             (B) Certify that the information
                                from filing the amendment required by                      available at such location is accurate
                                this section for any affiliate or sub-                     as of its date.
                                sidiary listed in Exhibit C to Form 1–N                       (2) Within 15 days after the end of
                                (§ 249.10 of this chapter), as amended,                    each calendar month, a Security Fu-
                                that either:                                               tures Product Exchange shall file a re-
                                   (A) Is listed in Exhibit C to Form 1                    port concerning the security futures
                                (§ 249.1 of this chapter) or to Form 1–N                   products traded on such exchange dur-
                                (§ 249.10 of this chapter), as amended, of                 ing the previous calendar month. Such
                                one or more other national securities                      a report shall:
                                exchanges; or                                                 (i) For each contract of sale for fu-
                                   (B) Was an inactive affiliate or sub-                   ture delivery of a single security, the
                                sidiary throughout the affiliate’s or                      number of contracts traded on such ex-
                                subsidiary’s latest fiscal year.                           change during the relevant calendar
                                   (ii) Any such exemption may be                          month and the total number of shares
                                granted upon terms and conditions the                      underlying such contracts traded; and
                                Commission deems necessary or appro-                          (ii)For each contract of sale for fu-
                                priate in the public interest or for the                   ture delivery of a narrow-based secu-
                                protection of investors, provided how-                     rity index, the number of contracts
                                ever, that at least one national securi-                   traded on such exchange during the rel-
                                ties exchange shall be required to file                    evant calendar month and the total
                                the amendments required by this sec-                       number of shares represented by the
                                tion for an affiliate or subsidiary de-                    index underlying such contracts trad-
                                scribed in paragraph (b)(6)(i) of this                     ed.
                                section.                                                   [66 FR 43741, Aug. 20, 2001]
                                   (7) If a Security Futures Product Ex-
                                change has filed documents with the                        § 240.6h–1 Settlement and regulatory
                                Commodity Futures Trading Commis-                               halt requirements for security fu-
                                sion, to the extent that such docu-                             tures products.
                                ments contain information satisfying                          (a) For the purposes of this section:
                                the Commission’s informational re-                            (1) Opening price means the price at
                                quirements, copies of such documents                       which a security opened for trading, or
                                may be filed with the Commission in                        a price that fairly reflects the price at
                                lieu of the required written notice.                       which a security opened for trading,
                                   (c) Supplemental material to be filed by                during the regular trading session of
                                Security Futures Product Exchanges.                        the national securities exchange or na-
                                (1)(i) A Security Futures Product Ex-                      tional securities association that lists
                                change shall file with the Commission                      the security. If the security is not list-
                                any material related to the trading of                     ed on a national securities exchange or
                                security futures products (including                       a national securities association, then
                                notices, circulars, bulletins, lists, and                  opening price shall mean the price at
                                periodicals) issued or made generally                      which a security opened for trading, or
                                available to members of, participants                      a price that fairly reflects the price at
                                in, or subscribers to, the exchange.                       which a security opened for trading, on
                                Such material shall be filed with the                      the primary market for the security.

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                                Securities and Exchange Commission                                                             § 240.8c–1

                                  (2) Regular trading session of a secu-                   the maintenance of a fair and orderly
                                rity means the normal hours for busi-                      market in such security futures prod-
                                ness of a national securities exchange                     uct, and consistency of interpretation
                                or national securities association that                    and practice, the clearing agency shall
                                lists the security.                                        have the authority to determine, under
                                  (3) Regulatory halt means a delay,                       its rules, a final settlement price for
                                halt, or suspension in the trading of a                    such security futures product.
                                security, that is instituted by the na-                      (c) Regulatory trading halts. The rules
                                tional securities exchange or national                     of a national securities exchange or na-
                                securities association that lists the se-                  tional securities association registered
                                curity, as a result of:                                    pursuant to Section 15A(a) of the Act
                                  (i) A determination that there are                       (15 U.S.C. 78o–3(a)) that lists or trades
                                matters relating to the security or                        one or more security futures products
                                issuer that have not been adequately                       must include the following provisions:
                                disclosed to the public, or that there                       (1) Trading of a security futures prod-
                                are regulatory problems relating to the                    uct based on a single security shall be
                                security which should be clarified be-                     halted at all times that a regulatory
                                fore trading is permitted to continue;                     halt has been instituted for the under-
                                or                                                         lying security; and
                                  (ii) The operation of circuit breaker                      (2) Trading of a security futures prod-
                                procedures to halt or suspend trading                      uct based on a narrow-based security
                                in all equity securities trading on that                   index shall be halted at all times that
                                national securities exchange or na-                        a regulatory halt has been instituted
                                tional securities association.                             for one or more underlying securities
                                  (b) Final settlement prices for security                 that constitute 50 percent or more of
                                futures products.                                          the market capitalization of the nar-
                                  (1) The final settlement price of a                      row-based security index.
                                cash-settled security futures product                        (d) The Commission may exempt
                                must fairly reflect the opening price of                   from the requirements of this section,
                                the underlying security or securities.                     either unconditionally or on specified
                                  (2) Notwithstanding paragraph (b)(1)                     terms and conditions, any national se-
                                of this section, if an opening price for                   curities exchange or national securi-
                                one or more securities underlying a se-                    ties association, if the Commission de-
                                curity futures product is not readily                      termines that such exemption is nec-
                                available, the final settlement price of                   essary or appropriate in the public in-
                                the security futures product shall fair-                   terest and consistent with the protec-
                                ly reflect:                                                tion of investors. An exemption grant-
                                  (i) The price of the underlying secu-                    ed pursuant to this paragraph shall not
                                rity or securities during the most re-                     operate as an exemption from any
                                cent regular trading session for such                      Commodity Futures Trading Commis-
                                security or securities; or                                 sion rules. Any exemption that may be
                                  (ii) The next available opening price                    required from such rules must be ob-
                                of the underlying security or securi-                      tained separately from the Commodity
                                ties.                                                      Futures Trading Commission.
                                  (3) Notwithstanding paragraph (b)(1)                     [67 FR 36762, May 24, 2002]
                                or (b)(2) of this section, if a clearing
                                agency registered under Section 17A of                     § 240.7c2–1    [Reserved]
                                the Act (15 U.S.C. 78q–1), or exempt
                                from registration pursuant to Section                           HYPOTHECATION OF CUSTOMERS’
                                17A(b)(7) of the Act (15 U.S.C. 78q–                                    SECURITIES
                                1(b)(7)), to which the final settlement
                                price of a security futures product is or                  § 240.8c–1 Hypothecation of customers’
                                would be reported determines, pursu-                            securities.
                                ant to its rules, that such final settle-                     (a) General provisions. No member of a
                                ment price is not consistent with the                      national securities exchange, and no
                                protection of investors and the public                     broker or dealer who transacts a busi-
                                interest, taking into account such fac-                    ness in securities through the medium
                                tors as fairness to buyers and sellers of                  of any such member shall, directly or
                                the affected security futures product,                     indirectly, hypothecate or arrange for

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                                § 240.8c–1                                                             17 CFR Ch. II (4–1–05 Edition)

                                or permit the continued hypothecation                      not include any counterparty who has
                                of any securities carried for the ac-                      delivered collateral to an OTC deriva-
                                count of any customer under cir-                           tives dealer pursuant to a transaction
                                cumstances:                                                in an eligible OTC derivative instru-
                                  (1) That will permit the commingling                     ment, or pursuant to the OTC deriva-
                                of securities carried for the account of                   tives dealer’s cash management securi-
                                any such customer with securities car-                     ties activities or ancillary portfolio
                                ried for the account of any other cus-                     management securities activities, and
                                tomer, without first obtaining the                         who has received a prominent written
                                written consent of each such customer                      notice from the OTC derivatives dealer
                                to such hypothecation;                                     that:
                                  (2) That will permit such securities                        (i) Except as otherwise agreed in
                                to be commingled with securities car-                      writing by the OTC derivatives dealer
                                ried for the account of any person                         and the counterparty, the dealer may
                                other than a bona fide customer of                         repledge or otherwise use the collateral
                                such member, broker or dealer under a                      in its business;
                                lien for a loan made to such member,                          (ii) In the event of the OTC deriva-
                                broker or dealer; or                                       tives dealer’s failure, the counterparty
                                  (3) That will permit securities car-                     will likely be considered an unsecured
                                ried for the account of customers to be                    creditor of the dealer as to that collat-
                                hypothecated or subjected to any lien                      eral;
                                or liens or claim or claims of the
                                                                                              (iii) The Securities Investor Protec-
                                pledges or pledgees, for a sum which
                                                                                           tion Act of 1970 (15 U.S.C. 78aaa
                                exceeds the aggregate indebtedness of
                                                                                           through 78lll) does not protect the
                                all customers in respect of securities
                                                                                           counterparty; and
                                carried for their accounts; except that
                                                                                              (iv) The collateral will not be subject
                                this clause shall not be deemed to be
                                                                                           to the requirements of § 240.8c–1,
                                violated by reason of an excess arising
                                                                                           § 240.15c2–1, § 240.15c3–2, or § 240.15c3–3;
                                on any day through the reduction of
                                the aggregate indebtedness of cus-                            (2) The term securities carried for the
                                tomers on such day, provided that                          account of any customer shall be deemed
                                funds or securities in an amount suffi-                    to mean:
                                cient to eliminate such excess are paid                       (i) Securities received by or on behalf
                                or placed in transfer to pledgees for the                  of such member, broker or dealer for
                                purpose of reducing the sum of the                         the account of any customer;
                                liens or claims to which securities car-                      (ii) Securities sold and appropriated
                                ried for the account of customers are                      by such member, broker or dealer to a
                                subjected as promptly as practicable                       customer, except that if such securities
                                after such reduction occurs, but before                    were subject to a lien when appro-
                                the lapse of one-half hour after the                       priated to a customer they shall not be
                                commencement of banking hours on                           deemed to be ‘‘securities carried for
                                the next banking day at the place                          the account of any customer’’ pending
                                where the largest principal amount of                      their release from such lien as prompt-
                                loans of such member, broker or dealer                     ly as practicable:
                                are payable and, in any event, before                         (iii) Securities sold, but not appro-
                                such member, broker or dealer on such                      priated, by such member, broker or
                                day has obtained or increased any bank                     dealer to a customer who has made any
                                loan collateralized by securities car-                     payment therefor, to the extent that
                                ried for the account of customers.                         such member, broker or dealer owns
                                  (b) Definitions. For the purposes of                     and has received delivery of securities
                                this section:                                              of like kind, except that if such securi-
                                  (1) The term customer shall not in-                      ties were subject to a lien when such
                                clude any general or special partner or                    payment was made they shall not be
                                any director or officer of such member,                    deemed to be ‘‘securities carried for
                                broker or dealer, or any participant, as                   the account of any customer’’ pending
                                such, in any joint, group or syndicate                     their release from such lien as prompt-
                                account with such member, broker or                        ly as practicable:
                                dealer or with any partner, officer or                        (3) ‘‘Aggregate indebtedness’’ shall
                                director thereof. The term also shall                      not be deemed to be reduced by reason

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                                Securities and Exchange Commission                                                             § 240.8c–1

                                of uncollected items. In computing ag-                        (e) Exemption for certain liens on secu-
                                gregate indebtedness, related guaran-                      rities of noncustomers. The provisions of
                                teed and guarantor accounts shall be                       paragraph (a)(2) of this section shall
                                treated as a single account and consid-                    not be deemed to prevent such member,
                                ered on a consolidated basis, and bal-                     broker or dealer from permitting secu-
                                ances in accounts carrying both long                       rities not carried for the account of a
                                and short positions shall be adjusted by                   customer to be subjected (1) to a lien
                                treating the market value of the secu-                     for a loan made against securities car-
                                rities required to cover such short posi-                  ried for the account of customers, or (2)
                                tions as though such market value                          to a lien for a loan made and to be re-
                                were a debit; and                                          paid on the same calendar day. For the
                                   (4) In computing the sum of the liens                   purpose of this exemption, a loan shall
                                or claims to which securities carried                      be deemed to be ‘‘made against securi-
                                for the account of customers of a mem-                     ties carried for the account of cus-
                                ber, broker or dealer are subject, any                     tomers’’ if only securities carried for
                                rehypothecation of such securities by                      the account of customers are used to
                                another member, broker or dealer who                       obtain or to increase such loan or as
                                is subject to this section or to                           substitutes for other securities carried
                                § 240.15c2–1 shall be disregarded.                         for the account of customers.
                                   (c) Exemption for cash accounts. The                       (f) Notice and certification require-
                                provisions of paragraph (a)(1) of this                     ments. No person subject to this section
                                section shall not apply to any
                                                                                           shall hypothecate any security carried
                                hypothecation of securities carried for
                                                                                           for the account of a customer unless at
                                the account of a customer in a special
                                                                                           or prior to the time of each such
                                cash account within the meaning of 12
                                                                                           hypothecation, he gives written notice
                                CFR 220.4(c): Provided, That at or be-
                                fore the completion of the transaction                     to the pledgee that the security
                                of purchase of such securities for, or of                  pledged is carried for the account of a
                                sale of such securities to, such cus-                      customer and that such hypothecation
                                tomer, written notice is given or sent                     does not contravene any provision of
                                to such customer disclosing that such                      this section, except that in the case of
                                securities are or may be hypothecated                      an omnibus account the members,
                                under circumstances which will permit                      broker or dealer for whom such ac-
                                the commingling thereof with securi-                       count is carried may furnish a signed
                                ties carried for the account of other                      statement to the person carrying such
                                customers. The term the completion of                      account that all securities carried
                                the transaction shall have the meaning                     therein by such member, broker or
                                given to such term by § 240.15c1–1(b).                     dealer will be securities carried for the
                                   (d) Exemption for clearinghouse liens.                  account of his customers and that the
                                The provisions of paragraphs (a)(2),                       hypothecation thereof by such mem-
                                (a)(3), and (f) of this section shall not                  ber, broker or dealer will not con-
                                apply to any lien or claim of the clear-                   travene any provision of this section.
                                ing corporation, or similar department                     The provisions of this paragraph shall
                                or association, of a national securities                   not apply to any hypothecation of se-
                                exchange or a registered national secu-                    curities under any lien or claim of a
                                rities association for a loan made and                     pledgee securing a loan made and to be
                                to be repaid on the same calendar day,                     repaid on the same calendar day.
                                which is incidental to the clearing of                        (g) The fact that securities carried
                                transactions in securities or loans                        for the accounts of customers and secu-
                                through such corporation, department,                      rities carried for the accounts of others
                                or association: Provided, however, That                    are represented by one or more certifi-
                                for the purpose of paragraph (a)(3) of                     cates in the custody of a clearing cor-
                                this section, ‘‘aggregate indebtedness                     poration or other subsidiary organiza-
                                of all customers in respect of securities                  tion of either a national securities ex-
                                carried for their accounts’’ shall not
                                                                                           change or of a registered national secu-
                                include indebtedness in respect of any
                                                                                           rities association, or of a custodian
                                securities subject to any lien or claim
                                                                                           bank, in accordance with a system for
                                exempted by this paragraph.

                                                                                      55



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                                § 240.9b–1                                                              17 CFR Ch. II (4–1–05 Edition)

                                the central handling of securities es-                     and 2822 in tabulation, part 241 of this chap-
                                tablished by a national securities ex-                     ter.
                                change or a registered national securi-                    [13 FR 8180, Dec. 22, 1948, as amended at 31
                                ties association, pursuant to which sys-                   FR 7740, June 1, 1966; 37 FR 73, Jan. 5, 1973; 63
                                tem the hypothecation of such securi-                      FR 59395, Nov. 3, 1998]
                                ties is effected by bookkeeping entries
                                without physical delivery of such secu-                    § 240.9b–1    Options     disclosure      docu-
                                rities, shall not, in and of itself, result                    ment.
                                in a commingling of securities prohib-                        (a) Definitions. The following defini-
                                ited by paragraph (a)(1) or (a)(2) of this                 tions shall apply for the purpose of this
                                section, whenever a participating                          rule.
                                member, broker or dealer hypothecates                         (1) Options market means a national
                                securities in accordance with such sys-
                                                                                           securities exchange, an automated
                                tem: Provided, however, That (1) any
                                                                                           quotation system of a registered secu-
                                such custodian of any securities held
                                                                                           rities association or a foreign securi-
                                by or for such system shall agree that
                                                                                           ties exchange on which standardized
                                it will not for any reason, including the
                                                                                           options are traded.
                                assertion of any claim, right or lien of
                                any kind, refuse to refrain from                              (2) Options class means all options
                                promptly delivering any such securi-                       contracts covering the same under-
                                ties (other than securities then hypoth-                   lying instrument.
                                ecated in accordance with such system)                        (3) Options disclosure document means
                                to such clearing corporation or other                      a document, including all amendments
                                subsidiary organization or as directed                     and supplements thereto, prepared by
                                by it, except that nothing in such                         one or more options markets which has
                                agreement shall be deemed to require                       been filed with the Commission or dis-
                                the custodian to deliver any securities                    tributed in accordance with paragraph
                                in contravention of any notice of levy,                    (b) of this section. Definitive options dis-
                                seizure or similar notice, or order or                     closure document or document means an
                                judgment, issued or directed by a gov-                     options disclosure document furnished
                                ernmental agency or court, or officer                      to customers in accordance with para-
                                thereof, having jurisdiction over such                     graph (b) of this section.
                                custodian, which on its face affects                          (4) Standardized options are options
                                such securities; (2) such systems shall                    contracts trading on a national securi-
                                have safeguards in the handling, trans-                    ties exchange, an automated quotation
                                fer and delivery of securities and provi-                  system of a registered securities asso-
                                sions for fidelity bond coverage of the                    ciation, or a foreign securities ex-
                                employees and agents of the clearing                       change which relate to options classes
                                corporation or other subsidiary organi-                    the terms of which are limited to spe-
                                zation and for periodic examinations                       cific expiration dates and exercise
                                by independent public accountants; and                     prices, or such other securities as the
                                (3) the provisions of this paragraph                       Commission may, by order, designate.
                                shall not be effective with respect to                        (b)(1) Five preliminary copies of an
                                any particular system unless the agree-
                                                                                           options disclosure document con-
                                ment required by paragraph (g)(1) of
                                                                                           taining the information specified in
                                this section and the safeguards and
                                                                                           paragraph (c) of this section shall be
                                provisions required by paragraph (g)(2)
                                                                                           filed with the Commission by an op-
                                of this section shall have been deemed
                                                                                           tions market at least 60 days prior to
                                adequate by the Commission for the
                                                                                           the date definitive copies are furnished
                                protection of investors, and unless any
                                                                                           to customers, unless the commission
                                subsequent amendments to such agree-
                                                                                           determines otherwise having due re-
                                ment, safeguards or provisions shall
                                                                                           gard to the adequacy of the informa-
                                have been deemed adequate by the
                                                                                           tion disclosed and the public interest
                                Commission for the protection of in-
                                                                                           and protection of investors. Five copies
                                vestors.
                                                                                           of the definitive options disclosure doc-
                                (Secs. 3, 8, 15, 48 Stat. 882, 888, 895; 15 U.S.C.         ument shall be filed with the Commis-
                                78c, 78h, 78o)                                             sion not later than the date the options
                                  CROSS REFERENCE: For interpretative re-                  disclosure document is furnished to
                                leases applicable to § 240.8c–1, see Nos. 2690             customers. Notwithstanding the above,

                                                                                      56



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                                Securities and Exchange Commission                                                             § 240.9b–1

                                the use of an options disclosure docu-                     lowing information, unless otherwise
                                ment shall not be permitted unless the                     provided by the Commission, with re-
                                options class to which such document                       spect to the options classes covered by
                                relates is the subject of an effective                     the document:
                                registration statement on Form S–20                          (1) A glossary of terms;
                                under the Securities Act of 1933, or is                      (2) A discussion of the mechanics of
                                exempt from registration under the Se-                     exercising the options;
                                curities Act of 1933 (15 U.S.C. 77a et                       (3) A discussion of the risks of being
                                seq.).
                                                                                           a holder or writer of the options;
                                   (2)(i) If the information contained in
                                the options disclosure document be-                          (4) The identification of the market
                                comes or will become materially inac-                      or markets in which the options are
                                curate or incomplete or there is or will                   traded;
                                be an omission of material information                       (5) A brief reference to the trans-
                                necessary to make the options disclo-                      action costs, margin requirements and
                                sure document not misleading, the op-                      tax consequences of options trading;
                                tions market shall amend or supple-                          (6) The identification of the issuer of
                                ment its options disclosure document                       the options;
                                by filing five copies of an amendment                        (7) A general identification of the
                                or supplement to such options disclo-                      type of instrument or instruments un-
                                sure document with the Commission at                       derlying the options class or classes
                                least 30 days prior to the date defini-                    covered by the document;
                                tive copies are furnished to customers,                      (8) If the options are not exempt from
                                unless the Commission determines oth-                      registration under the Securities Act
                                erwise having due regard to the ade-                       of 1933 (15 U.S.C. 77a et seq.), the reg-
                                quacy of the information disclosed and                     istration of the options on form S–20
                                the public interest and protection of
                                                                                           (17 CFR 239.20) and the availability of
                                investors. Five copies of the definitive
                                                                                           the prospectus and the information in
                                options       disclosure   document,    as
                                amended or supplemented, shall be                          part II of the registration statement;
                                filed with the Commission not later                        and
                                than the date the amendment or sup-                          (9) Such other information as the
                                plement, or the amended options dis-                       Commission may specify.
                                closure document, is furnished to cus-                       (d) Broker-dealer obligations. (1) No
                                tomers.                                                    broker or dealer shall accept an order
                                   (ii)     Notwithstanding     paragraph                  from a customer to purchase or sell an
                                (b)(2)(i) of this section, an options mar-                 option contract relating to an options
                                ket may distribute an amendment or                         class that is the subject of a definitive
                                supplement to an options disclosure                        options disclosure document, or ap-
                                document prior to such 30 day period if                    prove the customer’s account for the
                                it determines, in good faith, that such                    trading of such option, unless the
                                delivery is necessary to ensure timely                     broker or dealer furnishes or has fur-
                                and accurate disclosure with respect to                    nished to the customer a copy of the
                                one or more of the options classes cov-                    definitive options disclosure document.
                                ered by the document. Five copies of                         (2) If a definitive options disclosure
                                any amendment or supplement distrib-                       document relating to an options class
                                uted pursuant to this paragraph shall                      is amended or supplemented, each
                                be filed with the Commission at the                        broker and dealer shall promptly send
                                time of distribution. In that instance,                    a copy of the definitive amendment or
                                if the Commission determines, having
                                                                                           supplement or a copy of the definitive
                                given due regard to the adequacy of the
                                                                                           options disclosure document as amend-
                                information disclosed and the public
                                                                                           ed to each customer whose account is
                                interest and the protection of inves-
                                tors, it may require refiling of the                       approved for trading the options class
                                amendment pursuant to paragraph                            or classes to which the amendment or
                                (b)(2)(i) of this section.                                 supplement relates.
                                   (c) Information required in an options                  [47 FR 41956, Sept. 23, 1982, as amended at 51
                                disclosure document. An options disclo-                    FR 14982, Apr. 22, 1986; 65 FR 64139, Oct. 26,
                                sure document shall contain the fol-                       2000; 68 FR 192, Jan. 2, 2003]

                                                                                      57



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                                § 240.10a–1                                                            17 CFR Ch. II (4–1–05 Edition)

                                                   SHORT SALES                             any such security on such exchange
                                                                                           otherwise than in accordance with such
                                § 240.10a–1 Short sales.                                   rule, and compliance with any such
                                   (a)(1)(i) No person shall, for his own                  rule of an exchange shall constitute
                                account or for the account of any other                    compliance with this paragraph (a).
                                person, effect a short sale of any secu-                     (3) In determining the price at which
                                rity registered on, or admitted to un-                     a short sale may be effected after a se-
                                listed trading privileges on, a national                   curity goes ex-dividend, ex-right, or ex-
                                securities exchange, if trades in such                     any other distribution, all sale prices
                                security are reported pursuant to an                       prior to the ‘‘ex’’ date may be reduced
                                ‘‘effective transaction reporting plan’’                   by the value of such distribution.
                                as defined in § 240.11Aa3–1 (Rule 11Aa3–                     (b) No person shall, for his own ac-
                                1 under the Act), and information as to                    count or for the account of any other
                                such trades is made available in ac-                       person, effect on a national securities
                                cordance with such plan on a real-time                     exchange a short sale of any security
                                basis to vendors of market transaction                     not covered by paragraph (a) of this
                                information, (A) below the price at                        rule, (1) below the price at which the
                                which the last sale thereof, regular                       last sale thereof, regular way, was ef-
                                way, was reported pursuant to an effec-                    fected on such exchange, or (2) at such
                                tive transaction reporting plan; or (B)                    price unless such price is above the
                                at such price unless such price is above                   next preceding different price at which
                                the next proceeding different price at                     a sale of such security, regular way,
                                which a sale of such security, regular                     was effected on such exchange. In de-
                                way, was reported pursuant to an effec-                    termining the price at which a short
                                tive transaction reporting plan.                           sale may be effected after a security
                                   (ii) The provisions of paragraph                        goes ex-dividend, ex-right, or ex-any
                                (a)(1)(i) of this section hereof shall not                 other distribution, all sale prices prior
                                apply to transactions by any person in                     to the ‘‘ex’’ date may be reduced by the
                                NASDAQ securities as defined in                            value of such distribution.
                                § 240.11Aa3–1 (Rule 11Aa3–1 under the
                                                                                             (c)—(d) [Reserved]
                                Act) except for those NASDAQ securi-
                                ties for which transaction reports are                       (e) The provisions of paragraphs (a)
                                collected, processed, and made avail-                      and (b) of this section (and of any ex-
                                able pursuant to the plan originally                       change rule adopted in accordance with
                                submitted to the Commission pursuant                       paragraph (a) of this section) shall not
                                to Rule 17a–15 (subsequently amended                       apply to:
                                and redesignated as Rule 11Aa3–1)                            (1) Any sale by any person, for an ac-
                                under the Act, which plan was declared                     count in which he has an interest, if
                                effective as of May 17, 1974.                              such person owns the security sold and
                                   (2) Notwithstanding paragraph (a)(1)                    intends to deliver such security as soon
                                of this section, any exchange, by rule,                    as is possible without undue inconven-
                                may require that no person shall, for                      ience or expense;
                                his own account or the account of any                        (2) Any broker or dealer in respect of
                                other person, effect a short sale of any                   a sale, for an account in which he has
                                such security on that exchange (i)                         no interest, pursuant to an order to sell
                                below the price at which the last sale                     which is marked ‘‘long’’;
                                thereof, regular way, was effected on                        (3) Any sale by an odd-lot dealer or
                                such exchange, or (ii) at such price un-                   an exchange with which it is registered
                                less such price is above the next pre-                     for such security, or any over-the-
                                ceding different price at which a sale of                  counter sale by a third market maker
                                such securities, regular way, was ef-                      to offset odd-lot orders of customers;
                                fected on such exchange, if that ex-                         (4) Any sale by an odd-lot dealer on
                                change determines that such action is                      an exchange with which it is registered
                                necessary or appropriate in its market                     for such security, or any over-the-
                                in the public interest or for the protec-                  counter sale by a third market maker
                                tion of investors; and, if an exchange                     to liquidate a long position which is
                                adopts such a rule, no person shall, for                   less than a round lot, provided such
                                his own account or for the account of                      sale does not change the position of
                                any other person, effect a short sale of                   such odd-lot dealer or such market

                                                                                      58



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                                Securities and Exchange Commission                                                            § 240.10a–1

                                maker by more than the unit of trad-                       profitting from a current difference be-
                                ing;                                                       tween the price of security sold and the
                                   (5) Any sale of a security covered by                   security owned and that such right of
                                paragraph (a) of this section (except a                    acquisition was originally attached to
                                sale to a stabilizing bid complying with                   or represented by another security or
                                § 242.104 of this chapter) by a registered                 was issued to all the holders of any
                                specialist or registered exchange mar-                     such class of securities of the issuer.
                                ket maker for its own account on any                          (8) Any sale of a security registered
                                exchange with which it is registered for                   on, or admitted to unlisted trading
                                such security, or by a third market                        privileges on, a national securities ex-
                                maker for its own account over-the-                        change effected for a special inter-
                                counter,                                                   national arbitrage account for the bona
                                   (i) Effected at a price equal to or                     fide purpose of profitting from a cur-
                                above the last sale, regular way, re-                      rent difference between the price of
                                ported for such security pursuant to an                    such security on a securities market
                                effective transaction reporting plan; or                   not within or subject to the jurisdic-
                                   (ii) Effected at a price equal to the
                                                                                           tion of the United States and on a se-
                                most recent offer communicated for
                                                                                           curities market subject to the jurisdic-
                                the security by such registered spe-
                                                                                           tion of the United States; provided the
                                cialist, registered exchange market
                                                                                           seller at the time of such sale knows
                                maker or third market maker to an ex-
                                                                                           or, by virtue of information currently
                                change or a national securities associa-
                                                                                           received, has reasonable grounds to be-
                                tion     (‘‘association’’)  pursuant     to
                                                                                           lieve that an offer enabling him to
                                § 240.11Ac1–1, if such offer, when com-
                                                                                           cover such sale is then available to him
                                municated, was equal to or above the
                                                                                           such foreign securities market and in-
                                last sale, regular way, reported for
                                such security pursuant to an effective                     tends to accept such offer immediately;
                                transaction reporting plan:                                   (9) [Reserved]
                                                                                              (10) Any sale by an underwriter, or
                                Provided, however, That any exchange,
                                                                                           any member of a syndicate or group
                                by rule, may prohibit its registered
                                specialist and registered exchange mar-                    participating in the distribution of a
                                ket makers from availing themselves                        security, in connection with an over-al-
                                of the exemption afforded by this para-                    lotment of securities, or any lay-off
                                graph (e)(5) if that exchange deter-                       sale by such a person in connection
                                mines that such action is necessary or                     with a distribution of securities
                                appropriate in its market in the public                    through rights or a standby under-
                                interest or for the protection of inves-                   writing commitment; or
                                tors;                                                         (11) Any sale of a security covered by
                                   (6) Any sale of a security covered by                   paragraph (a) of this section (except a
                                paragraph (b) of this section on a na-                     sale to a stabilizing bid complying with
                                tional securities exchange (except a                       § 242.104 of this chapter) by any broker
                                sale to a stabilizing bid complying with                   or dealer, for his own account or for
                                § 242.104 of this chapter) effected with                   the account of any other person, ef-
                                the approval of such exchange which is                     fected at a price to the most recent
                                necessary to equalize the price of such                    offer communicated by such broker or
                                security thereon with the current price                    dealer to an exchange or association
                                of such security on another national                       pursuant to § 240.11Ac1-1 in an amount
                                securities exchange which is the prin-                     less than or equal to the quotation size
                                cipal exchange market for such secu-                       associated with such offer, if such
                                rity;                                                      offer, when communicated, was (i)
                                   (7) Any sale of a security for a special                above the price at which the last sale,
                                arbitrage acccount by a person who                         regular way, for such security was re-
                                then owns another security by virtue of                    ported pursuant to an effective trans-
                                which he is, or presently will be, enti-                   action reporting plan; or (ii) at such
                                tled to acquire an equivalent number of                    last sale price, if such last sale price is
                                securities of the same class as the secu-                  above the next preceding different
                                rities sold; provided such sale, or the                    price at which a sale of such security,
                                purchase with such sale offsets, is ef-                    regular way, was reported pursuant to
                                fected for the bona fide purpose of                        an effective transaction reporting plan.

                                                                                      59



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                                § 240.10a–2                                                            17 CFR Ch. II (4–1–05 Edition)

                                  (12) For the purposes of paragraph                       interstate commerce or of the mails or
                                (e)(8) of this section, a depositary re-                   of any facility of any national securi-
                                ceipt of a security shall be deemed to                     ties exchange to use or employ any
                                be the same security as the security                       such device or contrivance in connec-
                                represented by such receipt. For the                       tion with the purchase or sale of any
                                purposes of paragraphs (e)(3), (4) and (5)                 such security is hereby prohibited.
                                of this section, the term ‘‘third market
                                maker’’ shall mean any broker or deal-                     (Secs. 10, 12, 48 Stat. 891, 892; 15 U.S.C. 78j,
                                er who holds itself out as being willing                   78l)
                                to buy and sell a reported security for
                                                                                              CROSS REFERENCES: For applicability of
                                its own account on a regular and con-                      this section, see §§ 240.12a–4 and 240.12a–5. For
                                tinuous basis otherwise than on an ex-                     regulations relating to employment of ma-
                                change in amounts of less than block                       nipulative and deceptive devices, see
                                size.                                                      §§ 240.10b–3 and 240.10b–5.
                                  (f) This rule shall not prohibit any
                                transaction or transactions which the                      [13 FR 8183, Dec. 22, 1948]
                                Commission, upon written request or
                                                                                           § 240.10b–2    [Reserved]
                                upon its own motion, exempts, either
                                unconditionally or on specified terms                      § 240.10b–3 Employment of manipula-
                                and conditions.                                                tive and deceptive devices by bro-
                                  CROSS REFERENCES: For interpretative re-                     kers or dealers.
                                lease applicable to § 240.10a–1, see No. 1571 in             (a) It shall be unlawful for any
                                tabulation, part 241 of this chapter; for defi-
                                nition of ‘‘short sale’’, see § 240.3b–3.
                                                                                           broker or dealer, directly or indirectly,
                                                                                           by the use of any means or instrumen-
                                [40 FR 25444, June 16, 1975, as amended at 45              tality of interstate commerce, or of the
                                FR 12390, Feb. 26, 1980; 45 FR 79021, Nov. 28,
                                1981; 46 FR 49114, Oct. 8, 1981; 49 FR 9415, Mar.
                                                                                           mails, or of any facility of any national
                                13, 1984; 51 FR 8804, Mar. 14, 1986; 52 FR 24152,          securities exchange, to use or employ,
                                June 29, 1987; 58 FR 18146, Apr. 8, 1993: 62 FR            in connection with the purchase or sale
                                543, Jan. 3, 1997; 69 FR 48029, Aug. 6, 2004]              of any security otherwise than on a na-
                                                                                           tional securities exchange, any act,
                                § 240.10a–2      [Reserved]                                practice, or course of business defined
                                 MANIPULATIVE AND DECEPTIVE DEVICES                        by the Commission to be included with-
                                         AND CONTRIVANCES
                                                                                           in the term ‘‘manipulative, deceptive,
                                                                                           or other fraudulent device or contriv-
                                § 240.10b–1 Prohibition of use of ma-                      ance’’, as such term is used in section
                                    nipulative or deceptive devices or                     15(c)(1) of the act.
                                    contrivances with respect to certain                     (b) It shall be unlawful for any mu-
                                    securities exempted from registra-                     nicipal securities dealer directly or in-
                                    tion.
                                                                                           directly, by the use of any means or in-
                                   The term manipulative or deceptive de-                  strumentality of interstate commerce,
                                vice or contrivance, as used in section                    or of the mails, or of any facility of
                                10(b) (48 Stat. 891; 15 U.S.C. 78j(b)), is                 any national securities exchange, to
                                hereby defined to include any act or                       use or employ, in connection with the
                                omission to act with respect to any se-                    purchase or sale of any municipal secu-
                                curity exempted from the operation of                      rity, any act, practice, or course of
                                section 12(a) (48 Stat. 892; 15 U.S.C.                     business defined by the Commission to
                                78l(a)) pursuant to any section in this                    be included within the term ‘‘manipu-
                                part which specifically provides that                      lative, deceptive, or other fraudulent
                                this section shall be applicable to such
                                                                                           device or contrivance,’’ as such term is
                                security if such act or omission to act
                                                                                           used in section 15(c)(1) of the act.
                                would have been unlawful under sec-
                                tion 9(a) (48 Stat. 889; 15 U.S.C. 78i(a)),                (Secs. 10, 12, 48 Stat. 891, 892, as amended; 15
                                or any rule or regulation heretofore or                    U.S.C. 78j, 78l)
                                hereafter prescribed thereunder, if                          CROSS REFERENCES: See also § 240.10b–5. For
                                done or omitted to be done with re-                        regulation relating to prohibition of manipu-
                                spect to a security registered on a na-                    lative or deceptive devices, see § 240.10b–1.
                                tional securities exchange, and the use                    For the term ‘‘manipulative, deceptive, or
                                of any means or instrumentality of                         other fraudulent device or contrivance’’, as

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                                Securities and Exchange Commission                                                          § 240.10b5–1
                                used in section 15(c)(1) of the act, see                   person who is the source of the mate-
                                §§ 240.15c1–2 to 240.15c1–9.                               rial nonpublic information.
                                [13 FR 8183, Dec. 22, 1948, as amended at 19                 (b) Definition of ‘‘on the basis of.’’ Sub-
                                FR 8017, Dec. 4, 1954; 41 FR 22824, June 7, 1976]          ject to the affirmative defenses in
                                                                                           paragraph (c) of this section, a pur-
                                § 240.10b–4      [Reserved]                                chase or sale of a security of an issuer
                                                                                           is ‘‘on the basis of’’ material nonpublic
                                § 240.10b–5 Employment of manipula-                        information about that security or
                                    tive and deceptive devices.                            issuer if the person making the pur-
                                  It shall be unlawful for any person,                     chase or sale was aware of the material
                                directly or indirectly, by the use of any                  nonpublic information when the person
                                means or instrumentality of interstate                     made the purchase or sale.
                                commerce, or of the mails or of any fa-                      (c) Affirmative defenses. (1)(i) Subject
                                cility of any national securities ex-                      to paragraph (c)(1)(ii) of this section, a
                                change,                                                    person’s purchase or sale is not ‘‘on the
                                  (a) To employ any device, scheme, or                     basis of’’ material nonpublic informa-
                                artifice to defraud,                                       tion if the person making the purchase
                                  (b) To make any untrue statement of                      or sale demonstrates that:
                                a material fact or to omit to state a                        (A) Before becoming aware of the in-
                                material fact necessary in order to                        formation, the person had:
                                make the statements made, in the                             (1) Entered into a binding contract to
                                light of the circumstances under which                     purchase or sell the security,
                                they were made, not misleading, or                           (2) Instructed another person to pur-
                                  (c) To engage in any act, practice, or                   chase or sell the security for the in-
                                course of business which operates or                       structing person’s account, or
                                would operate as a fraud or deceit upon                      (3) Adopted a written plan for trading
                                any person,                                                securities;
                                                                                             (B) The contract, instruction, or plan
                                in connection with the purchase or sale                    described in paragraph (c)(1)(i)(A) of
                                of any security.                                           this Section:
                                (Sec. 10; 48 Stat. 891; 15 U.S.C. 78j)                       (1) Specified the amount of securities
                                                                                           to be purchased or sold and the price at
                                [13 FR 8183, Dec. 22, 1948, as amended at 16
                                FR 7928, Aug. 11, 1951]
                                                                                           which and the date on which the secu-
                                                                                           rities were to be purchased or sold;
                                § 240.10b5–1 Trading ‘‘on the basis of’’                     (2) Included a written formula or al-
                                    material nonpublic information in                      gorithm, or computer program, for de-
                                    insider trading cases.                                 termining the amount of securities to
                                                                                           be purchased or sold and the price at
                                  Preliminary Note to § 240.10b5–1: This provi-
                                sion defines when a purchase or sale con-                  which and the date on which the secu-
                                stitutes trading ‘‘on the basis of’’ material              rities were to be purchased or sold; or
                                nonpublic information in insider trading                     (3) Did not permit the person to exer-
                                cases brought under Section 10(b) of the Act               cise any subsequent influence over
                                and Rule 10b–5 thereunder. The law of insider              how, when, or whether to effect pur-
                                trading is otherwise defined by judicial opin-             chases or sales; provided, in addition,
                                ions construing Rule 10b–5, and Rule 10b5–1                that any other person who, pursuant to
                                does not modify the scope of insider trading
                                                                                           the contract, instruction, or plan, did
                                law in any other respect.
                                                                                           exercise such influence must not have
                                   (a) General. The ‘‘manipulative and                     been aware of the material nonpublic
                                deceptive devices’’ prohibited by Sec-                     information when doing so; and
                                tion 10(b) of the Act (15 U.S.C. 78j) and                    (C) The purchase or sale that oc-
                                § 240.10b–5 thereunder include, among                      curred was pursuant to the contract,
                                other things, the purchase or sale of a                    instruction, or plan. A purchase or sale
                                security of any issuer, on the basis of                    is not ‘‘pursuant to a contract, instruc-
                                material nonpublic information about                       tion, or plan’’ if, among other things,
                                that security or issuer, in breach of a                    the person who entered into the con-
                                duty of trust or confidence that is owed                   tract, instruction, or plan altered or
                                directly, indirectly, or derivatively, to                  deviated from the contract, instruc-
                                the issuer of that security or the share-                  tion, or plan to purchase or sell securi-
                                holders of that issuer, or to any other                    ties (whether by changing the amount,

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                                § 240.10b5–2                                                           17 CFR Ch. II (4–1–05 Edition)

                                price, or timing of the purchase or                        § 240.10b5–2 Duties of trust or con-
                                sale), or entered into or altered a cor-                       fidence in misappropriation insider
                                responding or hedging transaction or                           trading cases.
                                position with respect to those securi-                       PRELIMINARY NOTE TO § 240.10b5–2: This sec-
                                ties.                                                      tion provides a non-exclusive definition of
                                  (ii) Paragraph (c)(1)(i) of this section                 circumstances in which a person has a duty
                                is applicable only when the contract,                      of trust or confidence for purposes of the
                                instruction, or plan to purchase or sell                   ‘‘misappropriation’’ theory of insider trading
                                securities was given or entered into in                    under Section 10(b) of the Act and Rule 10b–
                                                                                           5. The law of insider trading is otherwise de-
                                good faith and not as part of a plan or
                                                                                           fined by judicial opinions construing Rule
                                scheme to evade the prohibitions of                        10b–5, and Rule 10b5–2 does not modify the
                                this section.                                              scope of insider trading law in any other re-
                                  (iii) This paragraph (c)(1)(iii) defines                 spect.
                                certain terms as used in paragraph (c)
                                                                                              (a) Scope of Rule. This section shall
                                of this Section.
                                                                                           apply to any violation of Section 10(b)
                                  (A) Amount. ‘‘Amount’’ means either
                                                                                           of the Act (15 U.S.C. 78j(b)) and
                                a specified number of shares or other
                                                                                           § 240.10b–5 thereunder that is based on
                                securities or a specified dollar value of
                                                                                           the purchase or sale of securities on
                                securities.
                                                                                           the basis of, or the communication of,
                                  (B) Price. ‘‘Price’’ means the market
                                                                                           material nonpublic information mis-
                                price on a particular date or a limit
                                                                                           appropriated in breach of a duty of
                                price, or a particular dollar price.
                                                                                           trust or confidence.
                                  (C) Date. ‘‘Date’’ means, in the case
                                                                                              (b) Enumerated ‘‘duties of trust or con-
                                of a market order, the specific day of
                                                                                           fidence.’’ For purposes of this section, a
                                the year on which the order is to be ex-
                                                                                           ‘‘duty of trust or confidence’’ exists in
                                ecuted (or as soon thereafter as is prac-
                                                                                           the following circumstances, among
                                ticable under ordinary principles of
                                                                                           others:
                                best execution). ‘‘Date’’ means, in the
                                                                                              (1) Whenever a person agrees to
                                case of a limit order, a day of the year
                                                                                           maintain information in confidence;
                                on which the limit order is in force.
                                                                                              (2) Whenever the person commu-
                                  (2) A person other than a natural per-
                                                                                           nicating the material nonpublic infor-
                                son also may demonstrate that a pur-
                                                                                           mation and the person to whom it is
                                chase or sale of securities is not ‘‘on
                                                                                           communicated have a history, pattern,
                                the basis of’’ material nonpublic infor-
                                                                                           or practice of sharing confidences, such
                                mation if the person demonstrates
                                                                                           that the recipient of the information
                                that:
                                                                                           knows or reasonably should know that
                                  (i) The individual making the invest-
                                                                                           the person communicating the mate-
                                ment decision on behalf of the person
                                                                                           rial nonpublic information expects that
                                to purchase or sell the securities was
                                                                                           the recipient will maintain its con-
                                not aware of the information; and
                                                                                           fidentiality; or
                                  (ii) The person had implemented rea-
                                                                                              (3) Whenever a person receives or ob-
                                sonable policies and procedures, taking
                                                                                           tains material nonpublic information
                                into consideration the nature of the
                                                                                           from his or her spouse, parent, child, or
                                person’s business, to ensure that indi-
                                                                                           sibling; provided, however, that the per-
                                viduals making investment decisions
                                                                                           son receiving or obtaining the informa-
                                would not violate the laws prohibiting
                                                                                           tion may demonstrate that no duty of
                                trading on the basis of material non-
                                                                                           trust or confidence existed with respect
                                public information. These policies and
                                                                                           to the information, by establishing
                                procedures may include those that re-
                                                                                           that he or she neither knew nor reason-
                                strict any purchase, sale, and causing
                                                                                           ably should have known that the per-
                                any purchase or sale of any security as
                                                                                           son who was the source of the informa-
                                to which the person has material non-
                                                                                           tion expected that the person would
                                public information, or those that pre-
                                                                                           keep the information confidential, be-
                                vent such individuals from becoming
                                                                                           cause of the parties’ history, pattern,
                                aware of such information.
                                                                                           or practice of sharing and maintaining
                                [65 FR 51737, Aug. 24, 2000]                               confidences, and because there was no

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                                Securities and Exchange Commission                                                          § 240.10b–10

                                agreement or understanding to main-                        § 240.10b–10    Confirmation        of   trans-
                                tain the confidentiality of the informa-                       actions.
                                tion.
                                                                                             PRELIMINARY NOTE. This section requires
                                [65 FR 51738, Aug. 24, 2000]                               broker-dealers to disclose specified informa-
                                                                                           tion in writing to customers at or before
                                §§ 240.10b–6—240.10b–8             [Reserved]              completion of a transaction. The require-
                                                                                           ments under this section that particular in-
                                § 240.10b–9 Prohibited representations                     formation be disclosed is not determinative
                                    in connection with certain offer-                      of a broker-dealer’s obligation under the
                                    ings.                                                  general antifraud provisions of the federal
                                   (a) It shall constitute a manipulative                  securities laws to disclose additional infor-
                                or deception device or contrivance, as                     mation to a customer at the time of the cus-
                                                                                           tomer’s investment decision.
                                used in section 10(b) of the Act, for any
                                person, directly or indirectly, in con-                      (a) Disclosure requirement. It shall be
                                nection with the offer or sale of any se-                  unlawful for any broker or dealer to ef-
                                curity, to make any representation:                        fect for or with an account of a cus-
                                   (1) To the effect that the security is                  tomer any transaction in, or to induce
                                being offered or sold on an ‘‘all-or-                      the purchase or sale by such customer
                                none’’ basis, unless the security is part                  of, any security (other than U.S. Sav-
                                of an offering or distribution being                       ings Bonds or municipal securities) un-
                                made on the condition that all or a                        less such broker or dealer, at or before
                                specified amount of the consideration                      completion of such transaction, gives
                                paid for such security will be promptly                    or sends to such customer written noti-
                                refunded to the purchaser unless (i) all                   fication disclosing:
                                of the securities being offered are sold                     (1) The date and time of the trans-
                                at a specified price within a specified                    action (or the fact that the time of the
                                time, and (ii) the total amount due to                     transaction will be furnished upon
                                the seller is received by him by a speci-                  written request to such customer) and
                                fied date; or                                              the identity, price, and number of
                                   (2) To the effect that the security is                  shares or units (or principal amount) of
                                being offered or sold on any other basis                   such security purchased or sold by such
                                whereby all or part of the consider-                       customer; and
                                ation paid for any such security will be                     (2) Whether the broker or dealer is
                                refunded to the purchaser if all or some                   acting as agent for such customer, as
                                of the securities are not sold, unless                     agent for some other person, as agent
                                the security is part of an offering or                     for both such customer and some other
                                distribution being made on the condi-                      person, or as principal for its own ac-
                                tion that all or a specified part of the                   count; and if the broker or dealer is
                                consideration paid for such security                       acting as principal, whether it is a
                                will be promptly refunded to the pur-                      market maker in the security (other
                                chaser unless (i) a specified number of                    than by reason of acting as a block po-
                                units of the security are sold at a spec-                  sitioner); and
                                ified price within a specified time, and                     (i) If the broker or dealer is acting as
                                (ii) the total amount due to the seller                    agent for such customer, for some
                                is received by him by a specified date.                    other person, or for both such customer
                                   (b) This rule shall not apply to any                    and some other person:
                                offer or sale of securities as to which
                                                                                             (A) The name of the person from
                                the seller has a firm commitment from
                                                                                           whom the security was purchased, or
                                underwriters or others (subject only to
                                                                                           to whom it was sold, for such customer
                                customary conditions precedent, in-
                                                                                           or the fact that the information will be
                                cluding ‘‘market outs’’) for the pur-
                                                                                           furnished upon written request of such
                                chase of all the securities being of-
                                                                                           customer; and
                                fered.
                                                                                             (B) The amount of any remuneration
                                (Sec. 10, 48 Stat. 891, as amended; 15 U.S.C.              received or to be received by the
                                78j)
                                [27 FR 9943, Oct. 10, 1962]

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                                § 240.10b–10                                                           17 CFR Ch. II (4–1–05 Edition)

                                broker from such customer in connec-                         (B) In the case of any other trans-
                                tion with the transaction unless remu-                     action in a reported security, or an eq-
                                neration paid by such customer is de-                      uity security that is quoted on
                                termined pursuant to written agree-                        NASDAQ or traded on a national secu-
                                ment with such customer, otherwise                         rities exchange and that is subject to
                                than on a transaction basis; and                           last sale reporting, the reported trade
                                  (C) For a transaction in any subject                     price, the price to the customer in the
                                security as defined in § 240.11Ac1–2 or a                  transaction, and the difference, if any,
                                security authorized for quotation on an                    between the reported trade price and
                                automated interdealer quotation sys-                       the price to the customer.
                                tem that has the characteristics set                         (3) Whether any odd-lot differential
                                forth in section 17B of this Act (15                       or equivalent fee has been paid by such
                                U.S.C. 78q-2), a statement whether pay-                    customer in connection with the execu-
                                ment for order flow is received by the                     tion of an order for an odd-lot number
                                broker or dealer for transactions in                       of shares or units (or principal amount)
                                such securities and the fact that the                      of a security and the fact that the
                                source and nature of the compensation                      amount of any such differential or fee
                                received in connection with the par-                       will be furnished upon oral or written
                                ticular transaction will be furnished                      request: Provided, however, that such
                                upon written request of the customer;                      disclosure need not be made if the dif-
                                provided, however, that brokers or                         ferential or fee is included in the remu-
                                dealers that do not receive payment for                    neration disclosure, or exempted from
                                order flow in connection with any                          disclosure, pursuant to paragraph
                                transaction have no disclosure obliga-                     (a)(2)(i)(B) of this section; and
                                tion under this paragraph; and                               (4) In the case of any transaction in a
                                  (D) The source and amount of any                         debt security subject to redemption be-
                                other remuneration received or to be                       fore maturity, a statement to the ef-
                                received by the broker in connection                       fect that such debt security may be re-
                                with the transaction: Provided, how-                       deemed in whole or in part before ma-
                                ever, that if, in the case of a purchase,                  turity, that such a redemption could
                                the broker was not participating in a                      affect the yield represented and the
                                distribution, or in the case of a sale,                    fact that additional information is
                                was not participating in a tender offer,                   available upon request; and
                                the written notification may state                           (5) In the case of a transaction in a
                                whether any other remuneration has                         debt security effected exclusively on
                                been or will be received and the fact                      the basis of a dollar price:
                                that the source and amount of such                           (i) The dollar price at which the
                                other remuneration will be furnished                       transaction was effected, and
                                upon written request of such customer;                       (ii) The yield to maturity calculated
                                or                                                         from the dollar price: Provided, how-
                                  (ii) If the broker or dealer is acting                   ever, that this paragraph (a)(5)(ii) shall
                                as principal for its own account:                          not apply to a transaction in a debt se-
                                  (A) In the case where such broker or                     curity that either:
                                dealer is not a market maker in an eq-                       (A) Has a maturity date that may be
                                uity security and, if, after having re-                    extended by the issuer thereof, with a
                                ceived an order to buy from a cus-                         variable interest payable thereon; or
                                tomer, the broker or dealer purchased                        (B) Is an asset-backed security, that
                                the equity security from another per-                      represents an interest in or is secured
                                son to offset a contemporaneous sale to                    by a pool of receivables or other finan-
                                such customer or, after having received                    cial assets that are subject continu-
                                an order to sell from a customer, the                      ously to prepayment; and
                                broker or dealer sold the security to                        (6) In the case of a transaction in a
                                another person to offset a contempora-                     debt security effected on the basis of
                                neous purchase from such customer,                         yield:
                                the difference between the price to the                      (i) The yield at which the transaction
                                customer and the dealer’s contempora-                      was effected, including the percentage
                                neous purchase (for customer pur-                          amount and its characterization (e.g.,
                                chases) or sale price (for customer                        current yield, yield to maturity, or
                                sales); or                                                 yield to call) and if effected at yield to

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                                Securities and Exchange Commission                                                          § 240.10b–10

                                call, the type of call, the call date and                  securities directly from, the registered
                                call price; and                                            open-end investment company or unit
                                  (ii) The dollar price calculated from                    investment trust, its transfer agent, its
                                the yield at which the transaction was                     custodian, or other designated agent,
                                effected; and                                              and such person is not an associated
                                  (iii) If effected on a basis other than                  person of the broker or dealer required
                                yield to maturity and the yield to ma-                     by paragraph (a) of this section to send
                                turity is lower than the represented                       written notification to the customer;
                                yield, the yield to maturity as well as                    and
                                the represented yield; Provided, how-                        (ii) The written notification required
                                ever, that this paragraph (a)(6)(iii) shall                by paragraph (a) of this section is sent
                                not apply to a transaction in a debt se-                   on behalf of the broker or dealer to the
                                curity that either:                                        customer by a person described in para-
                                  (A) Has a maturity date that may be                      graph (a)(9)(i) of this section.
                                extended by the issuer thereof, with a                       (b) Alternative periodic reporting. A
                                variable interest rate payable thereon;                    broker or dealer may effect trans-
                                or                                                         actions for or with the account of a
                                  (B) Is an asset-backed security, that                    customer without giving or sending to
                                represents an interest in or is secured                    such customer the written notification
                                by a pool of receivables or other finan-                   described in paragraph (a) of this sec-
                                cial assets that are subject continu-                      tion if:
                                ously to prepayment; and                                     (1) Such transactions are effected
                                  (7) In the case of a transaction in a                    pursuant to a periodic plan or an in-
                                debt security that is an asset-backed                      vestment company plan, or effected in
                                security, which represents an interest                     shares of any open-end management in-
                                in or is secured by a pool of receivables                  vestment company registered under
                                or other financial assets that are sub-                    the Investment Company Act of 1940
                                ject continuously to prepayment, a                         that holds itself out as a money mar-
                                statement indicating that the actual                       ket fund and attempts to maintain a
                                yield of such asset-backed security                        stable net asset value per share: Pro-
                                may vary according to the rate at                          vided, however, that no sales load is de-
                                which the underlying receivables or                        ducted upon the purchase or redemp-
                                other financial assets are prepaid and a                   tion of shares in the money market
                                statement of the fact that information                     fund; and
                                concerning the factors that affect yield                     (2) Such broker or dealer gives or
                                (including at a minimum estimated                          sends to such customer within five
                                yield, weighted average life, and the                      business days after the end of each
                                prepayment assumptions underlying                          quarterly period, for transactions in-
                                yield) will be furnished upon written                      volving investment company and peri-
                                request of such customer; and                              odic plans, and after the end of each
                                  (8) In the case of a transaction in a                    monthly period, for other transactions
                                debt security, other than a government                     described in paragraph (b)(1) of this
                                security, that the security is unrated                     section, a written statement disclosing
                                by a nationally recognized statistical                     each purchase or redemption, effected
                                rating organization, if such is the case;                  for or with, and each dividend or dis-
                                and                                                        tribution credited to or reinvested for,
                                  (9) That the broker or dealer is not a                   the account of such customer during
                                member of the Securities Investor Pro-                     the month; the date of such trans-
                                tection Corporation (SIPC), or that the                    action; the identity, number, and price
                                broker or dealer clearing or carrying                      of any securities purchased or re-
                                the customer account is not a member                       deemed by such customer in each such
                                of SIPC, if such is the case: Provided,                    transaction; the total number of shares
                                however, that this paragraph (a)(9)                        of such securities in such customer’s
                                shall not apply in the case of a trans-                    account; any remuneration received or
                                action in shares of a registered open-                     to be received by the broker or dealer
                                end investment company or unit in-                         in connection therewith; and that any
                                vestment trust if:                                         other information required by para-
                                  (i) The customer sends funds or secu-                    graph (a) of this section will be fur-
                                rities directly to, or receives funds or                   nished upon written request: Provided,

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                                § 240.10b–10                                                           17 CFR Ch. II (4–1–05 Edition)

                                however, that the written statement                          (6) Investment company plan means
                                may be delivered to some other person                      any plan under which securities issued
                                designated by the customer for dis-                        by an open-end investment company or
                                tribution to the customer; and                             unit investment trust registered under
                                  (3) Such customer is provided with                       the Investment Company Act of 1940
                                prior notification in writing disclosing                   are purchased by a customer (the pay-
                                the intention to send the written infor-                   ments being made directly to, or made
                                mation referred to in paragraph (b)(1)                     payable to, the registered investment
                                of this section in lieu of an immediate                    company, or the principal underwriter,
                                confirmation.                                              custodian, trustee, or other designated
                                  (c) A broker or dealer shall give or                     agent of the registered investment
                                send to a customer information re-                         company), or sold by a customer pursu-
                                quested pursuant to this rule within 5                     ant to:
                                business days of receipt of the request:                     (i) An individual retirement or indi-
                                Provided, however, That in the case of                     vidual pension plan qualified under the
                                information pertaining to a trans-                         Internal Revenue Code;
                                action effected more than 30 days prior                      (ii) A contractual or systematic
                                to receipt of the request, the informa-                    agreement under which the customer
                                tion shall be given or sent to the cus-                    purchases at the applicable public of-
                                tomer within 15 business days.                             fering price, or redeems at the applica-
                                                                                           ble redemption price, such securities in
                                  (d) Definitions. For the purposes of
                                                                                           specified amounts (calculated in secu-
                                this section:
                                                                                           rity units or dollars) at specified time
                                  (1) Customer shall not include a
                                                                                           intervals and setting forth the commis-
                                broker or dealer;                                          sions or charges to be paid by such cus-
                                  (2) Completion of the transaction shall                  tomer in connection therewith (or the
                                have the meaning provided in rule 15c1–                    manner of calculating them; or
                                1 under the Act;                                             (iii) Any other arrangement involv-
                                  (3) Time of the transaction means the                    ing a group of two or more customers
                                time of execution, to the extent fea-                      and contemplating periodic purchases
                                sible, of the customer’s order;                            of such securities by each customer
                                  (4) Debt security as used in paragraphs                  through a person designated by the
                                (a)(3), (4), and (5) only, means any secu-                 group: Provided, That such arrange-
                                rity, such as a bond, debenture, note,                     ment requires the registered invest-
                                or any other similar instrument which                      ment company or its agent—
                                evidences a liability of the issuer (in-                     (A) To give or send to the designated
                                cluding any such security that is con-                     person, at or before the completion of
                                vertible into stock or a similar secu-                     the transaction for the purchase of
                                rity) and fractional or participation in-                  such securities, a written notification
                                terests in one or more of any of the                       of the receipt of the total amount paid
                                foregoing: Provided, however, That secu-                   by the group;
                                rities issued by an investment com-                          (B) To send to anyone in the group
                                pany registered under the Investment                       who was a customer in the prior quar-
                                Company Act of 1940 shall not be in-                       ter and on whose behalf payment has
                                cluded in this definition;                                 not been received in the current quar-
                                  (5) Periodic plan means any written                      ter a quarterly written statement re-
                                authorization for a broker acting as                       flecting that a payment was not re-
                                agent to purchase or sell for a cus-                       ceived on his behalf; and
                                tomer a specific security or securities                      (C) To advise each customer in the
                                (other than securities issued by an                        group if a payment is not received from
                                open end investment company or unit                        the designated person on behalf of the
                                investment trust registered under the                      group within 10 days of a date certain
                                Investment Company Act of 1940), in                        specified in the arrangement for deliv-
                                specific amounts (calculated in secu-                      ery of that payment by the designated
                                rity units or dollars), at specific time                   person and thereafter to send to each
                                intervals and setting forth the commis-                    such customer the written notification
                                sions or charges to be paid by the cus-                    described in paragraph (a) of this sec-
                                tomer in connection therewith (or the                      tion for the next three succeeding pay-
                                manner of calculating them); and                           ments.

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                                Securities and Exchange Commission                                                          § 240.10b–10

                                   (7) Reported security shall have the                    that it effects transactions for cus-
                                meaning provided in Rule 11Aa3–1                           tomers in security futures products in
                                under the Act.                                             a futures account (as that term is de-
                                   (8) Effective transaction reporting plan                fined in § 240.15c3–3(a)(15)), Provided
                                shall have the meaning provided in                         that:
                                Rule 11Aa3–1 under the Act.                                  (1) The broker or dealer that effects
                                   (9) Payment for order flow shall mean                   any transaction for a customer in secu-
                                any monetary payment, service, prop-                       rity futures products in a futures ac-
                                erty, or other benefit that results in re-                 count gives or sends to the customer
                                muneration, compensation, or consid-                       no later than the next business day
                                eration to a broker or dealer from any                     after execution of any futures securi-
                                broker or dealer, national securities                      ties product transaction, written noti-
                                exchange, registered securities associa-                   fication disclosing:
                                tion, or exchange member in return for                       (i) The date the transaction was exe-
                                the routing of customer orders by such                     cuted, the identity of the single secu-
                                broker or dealer to any broker or deal-                    rity or narrow-based security index un-
                                er, national securities exchange, reg-                     derlying the contract for the security
                                istered securities association, or ex-                     futures product, the number of con-
                                change member for execution, includ-                       tracts of such security futures product
                                ing but not limited to: research, clear-                   purchased or sold, the price, and the
                                ance, custody, products or services; re-                   delivery month;
                                ciprocal agreements for the provision                        (ii) The source and amount of any re-
                                of order flow; adjustment of a broker or                   muneration received or to be received
                                dealer’s unfavorable trading errors; of-                   by the broker or dealer in connection
                                fers to participate as underwriter in                      with the transaction, including, but
                                public offerings; stock loans or shared                    not limited to, markups, commissions,
                                interest accrued thereon; discounts, re-                   costs, fees, and other charges incurred
                                bates, or any other reductions of or                       in connection with the transaction,
                                credits against any fee to, or expense                     provided, however, that if no remu-
                                or other financial obligation of, the                      neration is to be paid for an initiating
                                broker or dealer routing a customer                        transaction until the occurrence of the
                                order that exceeds that fee, expense or                    corresponding liquidating transaction,
                                financial obligation.                                      that the broker or dealer may disclose
                                   (10) Asset-backed security means a se-                  the amount of remuneration only on
                                curity that is primarily serviced by the                   the confirmation for the liquidating
                                cashflows of a discrete pool of receiv-                    transaction;
                                ables or other financial assets, either                      (iii) The fact that information about
                                fixed or revolving, that by their terms                    the time of the execution of the trans-
                                convert into cash within a finite time                     action, the identity of the other party
                                period plus any rights or other assets                     to the contract, and whether the
                                designed to assure the servicing or                        broker or dealer is acting as agent for
                                timely distribution of proceeds to the                     such customer, as agent for some other
                                security holders.                                          person, as agent for both such cus-
                                   (e) Security futures products. The pro-                 tomer and some other person, or as
                                visions of paragraphs (a) and (b) of this                  principal for its own account, and if
                                section shall not apply to a broker or                     the broker or dealer is acting as prin-
                                dealer registered pursuant to section                      cipal, whether it is engaging in a block
                                15(b)(11)(A) of the Act (15 U.S.C.                         transaction or an exchange of security
                                78o(b)(11)(A)) to the extent that it ef-                   futures products for physical securi-
                                fects transactions for customers in se-                    ties, will be available upon written re-
                                curity futures products in a futures ac-                   quest of the customer; and
                                count (as that term is defined in                            (iv) Whether payment for order flow
                                § 240.15c3–3(a)(15)) and a broker or deal-                 is received by the broker or dealer for
                                er registered pursuant to section                          such transactions, the amount of this
                                15(b)(1) of the Act (15 U.S.C. 78o(b)(1))                  payment and the fact that the source
                                that is also a futures commission mer-                     and nature of the compensation re-
                                chant registered pursuant to section                       ceived in connection with the par-
                                4f(a)(1) of the Commodity Exchange                         ticular transaction will be furnished
                                Act (7 U.S.C. 6f(a)(1)), to the extent                     upon written request of the customer;

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                                § 240.10b–13                                                           17 CFR Ch. II (4–1–05 Edition)

                                provided, however, that brokers or                         they can be changed; (v) the method of
                                dealers that do not receive payment for                    determining the debit balance or bal-
                                order flow have no disclosure obliga-                      ances on which interest is to be
                                tion under this paragraph.                                 charged and whether credit is to be
                                  (2) Transitional provision.                              given for credit balances in cash ac-
                                  (i) Broker-dealers are not required to                   counts; (vi) what other charges result-
                                comply with paragraph (e)(1)(iii) of this                  ing from the extension of credit, if any,
                                section until June 1, 2003, Provided                       will be made and under what condi-
                                that, if, not withstanding the absence                     tions; and (vii) the nature of any inter-
                                of the disclosure required in that para-                   est or lien retained by the broker or
                                graph, the broker-dealer receives a                        dealer in the security or other property
                                written request from a customer for                        held as collateral and the conditions
                                the information described in paragraph                     under which additional collateral can
                                (e)(1)(iii) of this section, the broker-                   be required: Provided, however, That the
                                dealer must make the information                           requirements of this subparagraph will
                                available to the customer; and                             be met in any case where the account
                                  (ii) Broker-dealers are not required                     is opened by telephone if the informa-
                                to comply with paragraph (e)(1)(iv) of                     tion required to be disclosed is orally
                                this section until June 1, 2003.                           communicated to the customer at that
                                  (f) The Commission may exempt any                        time and the required written state-
                                broker or dealer from the requirements                     ment or statements are sent to the cus-
                                of paragraphs (a) and (b) of this section                  tomer immediately thereafter: And
                                with regard to specific transactions of                    provided, further, That in the case of
                                specific classes of transactions for                       customers to whom credit is already
                                which the broker or dealer will provide                    being extended on the effective date of
                                alternative procedures to effect the                       this section, the written statement or
                                purposes of this section; any such ex-                     statements required hereunder must be
                                emption may be granted subject to                          given or sent to said customers within
                                compliance with such alternative pro-                      90 days after the effective date of this
                                cedures and upon such other stated                         section; and
                                terms and conditions as the Commis-                          (2) Is given or sent a written state-
                                sion may impose.                                           ment or statements, at least quarterly,
                                                                                           for each account in which credit was
                                [43 FR 47503, Oct. 16, 1978, as amended at 48
                                                                                           extended, disclosing (i) the balance at
                                FR 17585, Apr. 25, 1983; 50 FR 37654, Sept. 17,
                                1985; 53 FR 40721, Oct. 18, 1988; 59 FR 55012,             the beginning of the period; the date,
                                Nov. 2, 1994; 59 FR 59620, Nov. 17, 1994; 59 FR            amount and a brief description of each
                                60555, Nov. 25, 1994; 67 FR 58312, Sept. 13, 2002]         debit and credit entered during such
                                                                                           period; the closing balance; and, if in-
                                § 240.10b–13       [Reserved]                              terest is charged for a period different
                                                                                           from the period covered by the state-
                                § 240.10b–16 Disclosure of credit terms                    ment, the balance as of the last day of
                                    in margin transactions.                                the interest period; (ii) the total inter-
                                  (a) It shall be unlawful for any                         est charge for the period during which
                                broker or dealer to extend credit, di-                     interest is charged (or, if interest is
                                rectly or indirectly, to any customer in                   charged separately for separate ac-
                                connection with any securities trans-                      counts, the total interest charge for
                                action unless such broker or dealer has                    each such account), itemized to show
                                established procedures to assure that                      the dates on which the interest period
                                each customer:                                             began and ended; the annual rate or
                                  (1) Is given or sent at the time of                      rates of interest charged and the inter-
                                opening the account, a written state-                      est charge for each such different an-
                                ment or statements disclosing (i) the                      nual rate of interest; and either each
                                conditions under which an interest                         different debit balance on which an in-
                                charge will be imposed; (ii) the annual                    terest calculation was based or the av-
                                rate or rates of interest that can be im-                  erage debit balance for the interest pe-
                                posed; (iii) the method of computing                       riod, except that if an average debit
                                interest; (iv) if rates of interest are                    balance is used, a separate average
                                subject to change without prior notice,                    debit balance must be disclosed for
                                the specific conditions under which                        each interest rate applied; and (iii) all

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                                Securities and Exchange Commission                                                          § 240.10b–17

                                other charges resulting from the exten-                      (1) A dividend or other distribution in
                                sion of credit in that account: Provided,                  cash or in kind, except an ordinary in-
                                however, That if the interest charge                       terest payment on a debt security, but
                                disclosed on a statement is for a period                   including a dividend or distribution of
                                different from the period covered by                       any security of the same or another
                                the statement, there must be printed                       issuer;
                                on the statement appropriate language                        (2) A stock split or reverse split; or
                                to the effect that it should be retained                     (3) A rights or other subscription of-
                                for use in conjunction with the next                       fering.
                                statement containing the remainder of                        (b) Notice shall be deemed to have
                                the required information: And provided                     been given in accordance with this sec-
                                further, That in the case of ‘‘equity                      tion only if:
                                funding programs’’ registered under                          (1) Given to the National Association
                                the Securities Act of 1933, the require-                   of Securities Dealers, Inc., no later
                                ments of this paragraph will be met if                     than 10 days prior to the record date
                                the broker or dealer furnishes to the                      involved or, in case of a rights sub-
                                customer, within 1 month after each                        scription or other offering if such 10
                                extension of credit, a written state-                      days advance notice is not practical, on
                                ment or statements containing the in-                      or before the record date and in no
                                formation required to be disclosed                         event later than the effective date of
                                under this paragraph.                                      the registration statement to which
                                  (b) It shall be unlawful for any                         the offering relates, and such notice in-
                                broker or dealer to make any changes                       cludes:
                                in the terms and conditions under                            (i) Title of the security to which the
                                which credit charges will be made (as                      declaration relates;
                                described in the initial statement made
                                                                                             (ii) Date of declaration;
                                under paragraph (a) of this section),
                                unless the customer shall have been                          (iii) Date of record for determining
                                given not less than thirty (30) days                       holders entitled to receive the dividend
                                written notice of such changes, except                     or other distribution or to participate
                                that no such prior notice shall be nec-                    in the stock or reverse split;
                                essary where such changes are required                       (iv) Date of payment or distribution
                                by law: Provided, however, That if any                     or, in the case of a stock or reverse
                                change for which prior notice would                        split or rights or other subscription of-
                                otherwise be required under this para-                     fering, the date of delivery;
                                graph results in a lower interest charge                     (v) For a dividend or other distribu-
                                to the customer than would have been                       tion including a stock or reverse split
                                imposed before the change, notice of                       or rights or other subscription offering:
                                such change may be given within a rea-                       (a) In cash, the amount of cash to be
                                sonable time after the effective date of                   paid or distributed per share, except if
                                the change.                                                exact per share cash distributions can-
                                                                                           not be given because of existing con-
                                (15 U.S.C. 78j)                                            version rights which may be exercised
                                [34 FR 19718, Dec. 16, 1969]                               during the notice period and which
                                                                                           may affect the per share cash distribu-
                                § 240.10b–17 Untimely announcements                        tion, then a reasonable approximation
                                    of record dates.                                       of the per share distribution may be
                                  (a) It shall constitute a ‘‘manipula-                    provided so long as the actual per share
                                tive or deceptive device or contriv-                       distribution is subsequently provided
                                ance’’ as used in section 10(b) of the                     on the record date,
                                Act for any issuer of a class of securi-                     (b) In the same security, the amount
                                ties publicly traded by the use of any                     of the security outstanding imme-
                                means or instrumentality of interstate                     diately prior to and immediately fol-
                                commerce or of the mails or of any fa-                     lowing the dividend or distribution and
                                cility of any national securities ex-                      the rate of the dividend or distribution,
                                change to fail to give notice in accord-                     (c) In any other security of the same
                                ance with paragraph (b) of this section                    issuer, the amount to be paid or dis-
                                of the following actions relating to                       tributed and the rate of the dividend or
                                such class of securities:                                  distribution,

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                                § 240.10b–18                                                           17 CFR Ch. II (4–1–05 Edition)

                                  (d) In any security of another issuer,                   with a ‘‘safe harbor’’ from liability for
                                the name of the issuer and title of that                   manipulation under sections 9(a)(2) of
                                security, the amount to be paid or dis-                    the Act and § 240.10b–5 under the Act
                                tributed, and the rate of the dividend                     solely by reason of the manner, timing,
                                or distribution and if that security is a                  price, and volume of their repurchases
                                right or a warrant, the subscription                       when they repurchase the issuer’s com-
                                price,                                                     mon stock in the market in accordance
                                  (e) In any other property (including                     with the section’s manner, timing,
                                securities not covered under para-                         price, and volume conditions. As a safe
                                graphs (b)(1)(v) (b) through (d) of this                   harbor, compliance with § 240.10b–18 is
                                section) the identity of the property                      voluntary. To come within the safe
                                and its value and basis for assigning                      harbor, however, an issuer’s repur-
                                that value;                                                chases must satisfy (on a daily basis)
                                  (vi) Method of settlement of frac-                       each of the section’s four conditions.
                                tional interests;                                          Failure to meet any one of the four
                                  (vii) Details of any condition which                     conditions will remove all of the
                                must be satisfied or Government ap-                        issuer’s repurchases from the safe har-
                                proval which must be secured to enable                     bor for that day. The safe harbor,
                                payment of distribution; and in                            moreover, is not available for repur-
                                  (viii) The case of stock or reverse                      chases that, although made in tech-
                                split in addition to the aforementioned                    nical compliance with the section, are
                                information;                                               part of a plan or scheme to evade the
                                  (a) The name and address of the                          federal securities laws.
                                transfer or exchange agent; or                                2. Regardless of whether the repur-
                                  (2) The Commission, upon written re-                     chases are effected in accordance with
                                quest or upon its own motion, exempts                      § 240.10b–18, reporting issuers must re-
                                the issuer from compliance with para-                      port their repurchasing activity as re-
                                graph (b)(1) of this section either un-                    quired by Item 703 of Regulations S-K
                                conditionally or on specified terms or                     and S-B (17 CFR 229.703 and 228.703) and
                                conditions, as not constituting a ma-                      Item 15(e) of Form 20–F (17 CFR
                                nipulative or deceptive device or con-                     249.220f) (regarding foreign private
                                trivance comprehended within the pur-                      issuers), and closed-end management
                                pose of this section; or                                   investment companies that are reg-
                                  (3) Given in accordance with proce-                      istered under the Investment Company
                                dures of the national securities ex-                       Act of 1940 must report their repur-
                                change or exchanges upon which a se-                       chasing activity as required by Item 8
                                curity of such issuer is registered pur-                   of Form N-CSR (17 CFR 249.331; 17 CFR
                                suant to section 12 of the Act which                       274.128).
                                contain requirements substantially                            (a) Definitions. Unless otherwise pro-
                                comparable to those set forth in para-                     vided, all terms used in this section
                                graph (b)(1) of this section.                              shall have the same meaning as in the
                                  (c) The provisions of this rule shall                    Act. In addition, the following defini-
                                not apply, however, to redeemable se-                      tions shall apply:
                                curities issued by open-end investment                        (1) ADTV means the average daily
                                companies and unit investment trusts                       trading volume reported for the secu-
                                registered with the Commission under                       rity during the four calendar weeks
                                the Investment Company Act of 1940.                        preceding the week in which the Rule
                                (Secs. 10(b), 23(a), 48 Stat. 891, as amended, 49          10b–18 purchase is to be effected.
                                Stat. 1379, 15 U.S.C. 78j)                                    (2) Affiliate means any person that di-
                                [36 FR 11514, June 15, 1971, as amended at 37              rectly or indirectly controls, is con-
                                FR 4330, Mar. 2, 1972]                                     trolled by, or is under common control
                                                                                           with, the issuer.
                                § 240.10b–18 Purchases of certain eq-                         (3) Affiliated purchaser means:
                                    uity securities by the issuer and                         (i) A person acting, directly or indi-
                                    others.                                                rectly, in concert with the issuer for
                                                                                           the purpose of acquiring the issuer’s se-
                                      Preliminary Notes to § 240.10b–18
                                                                                           curities; or
                                  1. Section 240.10b–18 provides an                           (ii) An affiliate who, directly or indi-
                                issuer (and its affiliated purchasers)                     rectly, controls the issuer’s purchases

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                                Securities and Exchange Commission                                                          § 240.10b–18

                                of such securities, whose purchases are                    system plan (as defined in § 240.11Aa3–
                                controlled by the issuer, or whose pur-                    2).
                                chases are under common control with                          (7) Market-wide trading suspension
                                those of the issuer; Provided, however,                    means a market-wide trading halt of 30
                                that ‘‘affiliated purchaser’’ shall not                    minutes or more that is:
                                include a broker, dealer, or other per-                       (i) Imposed pursuant to the rules of a
                                son solely by reason of such broker,                       national securities exchange or a na-
                                dealer, or other person effecting Rule                     tional securities association in re-
                                10b–18 purchases on behalf of the issuer                   sponse to a market-wide decline during
                                or for its account, and shall not include                  a single trading session; or
                                an officer or director of the issuer sole-                    (ii) Declared by the Commission pur-
                                ly by reason of that officer or direc-                     suant to its authority under section
                                tor’s participation in the decision to                     12(k) of the Act (15 U.S.C. 78l (k)).
                                authorize Rule 10b–18 purchases by or                         (8) Plan has the meaning contained in
                                on behalf of the issuer.                                   § 242.100 of this chapter.
                                   (4) Agent independent of the issuer has                    (9) Principal market for a security
                                the meaning contained in § 242.100 of                      means the single securities market
                                this chapter.                                              with the largest reported trading vol-
                                   (5) Block means a quantity of stock                     ume for the security during the six full
                                that either:                                               calendar months preceding the week in
                                   (i) Has a purchase price of $200,000 or                 which the Rule 10b–18 purchase is to be
                                more; or                                                   effected.
                                   (ii) Is at least 5,000 shares and has a                    (10) Public float value has the meaning
                                purchase price of at least $50,000; or                     contained in § 242.100 of this chapter.
                                   (iii) Is at least 20 round lots of the se-                 (11) Purchase price means the price
                                curity and totals 150 percent or more of                   paid per share as reported, exclusive of
                                the trading volume for that security                       any commission paid to a broker act-
                                or, in the event that trading volume                       ing as agent, or commission equiva-
                                data are unavailable, is at least 20                       lent, mark-up, or differential paid to a
                                round lots of the security and totals at                   dealer.
                                least one-tenth of one percent (.001) of                      (12) Riskless principal transaction
                                the outstanding shares of the security,                    means a transaction in which a broker
                                exclusive of any shares owned by any                       or dealer after having received an order
                                affiliate; Provided, however, That a                       from an issuer to buy its security, buys
                                block under paragraph (a)(5)(i), (ii), and                 the security as principal in the market
                                (iii) shall not include any amount a                       at the same price to satisfy the issuer’s
                                broker or dealer, acting as principal,                     buy order. The issuer’s buy order must
                                has accumulated for the purpose of sale                    be effected at the same price per-share
                                or resale to the issuer or to any affili-                  at which the broker or dealer bought
                                ated purchaser of the issuer if the                        the shares to satisfy the issuer’s buy
                                issuer or such affiliated purchaser                        order, exclusive of any explicitly dis-
                                knows or has reason to know that such                      closed markup or markdown, commis-
                                amount was accumulated for such pur-                       sion equivalent, or other fee. In addi-
                                pose, nor shall it include any amount                      tion, only the first leg of the trans-
                                that a broker or dealer has sold short                     action, when the broker or dealer buys
                                to the issuer or to any affiliated pur-                    the security in the market as principal,
                                chaser of the issuer if the issuer or                      is reported under the rules of a self-reg-
                                such affiliated purchaser knows or has                     ulatory organization or under the Act.
                                reason to know that the sale was a                         For purposes of this section, the broker
                                short sale.                                                or dealer must have written policies
                                   (6) Consolidated system means a con-                    and procedures in place to assure that,
                                solidated transaction or quotation re-                     at a minimum, the issuer’s buy order
                                porting system that collects and pub-                      was received prior to the offsetting
                                licly disseminates on a current and                        transaction; the offsetting transaction
                                continuous        basis    transaction     or              is allocated to a riskless principal ac-
                                quotation information in common eq-                        count or the issuer’s account within 60
                                uity securities pursuant to an effective                   seconds of the execution; and the
                                transaction reporting plan (as defined                     broker or dealer has supervisory sys-
                                in § 240.11Aa3–1) or a national market                     tems in place to produce records that

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                                § 240.10b–18                                                           17 CFR Ch. II (4–1–05 Edition)

                                enable the broker or dealer to accu-                          (vi) Effected pursuant to a tender
                                rately and readily reconstruct, in a                       offer that is subject to § 240.13e-4 or spe-
                                time-sequenced manner, all orders ef-                      cifically excepted from § 240.13e-4; or
                                fected on a riskless principal basis.                         (vii) Effected pursuant to a tender
                                  (13) Rule 10b–18 purchase means a pur-                   offer that is subject to section 14(d) of
                                chase (or any bid or limit order that                      the Act (15 U.S.C. 78n(d)) and the rules
                                would effect such purchase) of an                          and regulations thereunder.
                                issuer’s common stock (or an equiva-                          (b) Conditions to be met. Rule 10b–18
                                lent interest, including a unit of bene-                   purchases shall not be deemed to have
                                ficial interest in a trust or limited                      violated the anti-manipulation provi-
                                partnership or a depository share) by                      sions of sections 9(a)(2) or 10(b) of the
                                or for the issuer or any affiliated pur-                   Act (15 U.S.C. 78i(a)(2) or 78j(b)), or
                                chaser (including riskless principal                       § 240.10b–5 under the Act, solely by rea-
                                transactions). However, it does not in-                    son of the time, price, or amount of the
                                clude any purchase of such security:                       Rule 10b–18 purchases, or the number of
                                  (i) Effected during the applicable re-                   brokers or dealers used in connection
                                stricted period of a distribution that is                  with such purchases, if the issuer or af-
                                subject to § 242.102 of this chapter;                      filiated purchaser of the issuer effects
                                  (ii) Effected by or for an issuer plan                   the Rule 10b–18 purchases according to
                                by an agent independent of the issuer;                     each of the following conditions:
                                  (iii) Effected as a fractional share                        (1) One broker or dealer. Rule 10b–18
                                purchase (a fractional interest in a se-                   purchases must be effected from or
                                curity) evidenced by a script certifi-                     through only one broker or dealer on
                                cate, order form, or similar document;                     any single day; Provided, however, that:
                                  (iv) Effected during the period from                        (i) The ‘‘one broker or dealer’’ condi-
                                the time of public announcement (as                        tion shall not apply to Rule 10b–18 pur-
                                defined in § 230.165(f)) of a merger, ac-                  chases that are not solicited by or on
                                quisition, or similar transaction in-                      behalf of the issuer or its affiliated pur-
                                volving a recapitalization, until the                      chaser(s);
                                earlier of the completion of such trans-                      (ii) Where Rule 10b–18 purchases are
                                action or the completion of the vote by                    effected by or on behalf of more than
                                target shareholders. This exclusion                        one affiliated purchaser of the issuer
                                does not apply to Rule 10b–18 pur-                         (or the issuer and one or more of its af-
                                chases:                                                    filiated purchasers) on a single day, the
                                  (A) Effected during such transaction                     issuer and all affiliated purchasers
                                in which the consideration is solely                       must use the same broker or dealer;
                                cash and there is no valuation period;                     and
                                or                                                            (iii) Where Rule 10b–18 purchases are
                                  (B) Where:                                               effected on behalf of the issuer by a
                                  (1) The total volume of Rule 10b–18                      broker-dealer that is not an electronic
                                purchases effected on any single day                       communication network (ECN) or
                                does not exceed the lesser of 25% of the                   other     alternative   trading     system
                                security’s four-week ADTV or the                           (ATS), that broker-dealer can access
                                issuer’s average daily Rule 10b–18 pur-                    ECN or other ATS liquidity in order to
                                chases during the three full calendar                      execute repurchases on behalf of the
                                months preceding the date of the an-                       issuer (or any affiliated purchaser of
                                nouncement of such transaction;                            the issuer) on that day.
                                  (2) The issuer’s block purchases ef-                        (2) Time of purchases. Rule 10b–18 pur-
                                fected pursuant to paragraph (b)(4) of                     chases must not be:
                                this section do not exceed the average                        (i) The opening (regular way) pur-
                                size and frequency of the issuer’s block                   chase reported in the consolidated sys-
                                purchases effected pursuant to para-                       tem;
                                graph (b)(4) of this section during the                       (ii) Effected during the 10 minutes
                                three full calendar months preceding                       before the scheduled close of the pri-
                                the date of the announcement of such                       mary trading session in the principal
                                transaction; and                                           market for the security, and the 10
                                  (3) Such purchases are not otherwise                     minutes before the scheduled close of
                                restricted or prohibited;                                  the primary trading session in the mar-
                                  (v) Effected pursuant to § 240.13e-1;                    ket where the purchase is effected, for

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                                Securities and Exchange Commission                                                          § 240.10b–18

                                a security that has an ADTV value of                         (iii) For all other securities, Rule
                                $1 million or more and a public float                      10b–18 purchases must be effected at a
                                value of $150 million or more; and                         price no higher than the highest inde-
                                   (iii) Effected during the 30 minutes                    pendent bid obtained from three inde-
                                before the scheduled close of the pri-                     pendent dealers.
                                mary trading session in the principal                        (4) Volume of purchases. The total vol-
                                market for the security, and the 30                        ume of Rule 10b–18 purchases effected
                                minutes before the scheduled close of                      by or for the issuer and any affiliated
                                the primary trading session in the mar-                    purchasers effected on any single day
                                ket where the purchase is effected, for                    must not exceed 25 percent of the
                                all other securities;                                      ADTV for that security; However, once
                                   (iv) However, for purposes of this sec-                 each week, in lieu of purchasing under
                                tion, Rule 10b–18 purchases may be ef-                     the 25 percent of ADTV limit for that
                                fected following the close of the pri-                     day, the issuer or an affiliated pur-
                                mary trading session until the termi-                      chaser of the issuer may effect one
                                nation of the period in which last sale                    block purchase if:
                                prices are reported in the consolidated
                                                                                             (i) No other Rule 10b–18 purchases are
                                system so long as such purchases are
                                                                                           effected that day, and
                                effected at prices that do not exceed
                                the lower of the closing price of the                        (ii) The block purchase is not in-
                                primary trading session in the prin-                       cluded when calculating a security’s
                                cipal market for the security and any                      four week ADTV under this section.
                                lower bids or sale prices subsequently                       (c) Alternative conditions. The condi-
                                reported in the consolidated system,                       tions of paragraph (b) of this section
                                and all of this section’s conditions are                   shall apply in connection with Rule
                                met. However, for purposes of this sec-                    10b–18 purchases effected during a trad-
                                tion, the issuer may use one broker or                     ing session following the imposition of
                                dealer to effect Rule 10b–18 purchases                     a market-wide trading suspension, ex-
                                during this period that may be dif-                        cept:
                                ferent from the broker or dealer that it                     (1) That the time of purchases condi-
                                used during the primary trading ses-                       tion in paragraph (b)(2) of this section
                                sion. However, the issuer’s Rule 10b–18                    shall not apply, either:
                                purchase may not be the opening trans-                       (i) From the reopening of trading
                                action of the session following the                        until the scheduled close of trading on
                                close of the primary trading session.                      the day that the market-wide trading
                                   (3) Price of purchases. Rule 10b–18 pur-                suspension is imposed; or
                                chases must be effected at a purchase                        (ii) At the opening of trading on the
                                price that:                                                next trading day until the scheduled
                                   (i) Does not exceed the highest inde-                   close of trading that day, if a market-
                                pendent bid or the last independent                        wide trading suspension was in effect
                                transaction price, whichever is higher,                    at the close of trading on the preceding
                                quoted or reported in the consolidated                     day; and
                                system at the time the Rule 10b–18 pur-                      (2) The volume of purchases condi-
                                chase is effected;                                         tion in paragraph (b)(4) of this section
                                   (ii) For securities for which bids and                  is modified so that the amount of Rule
                                transaction prices are not quoted or re-                   10b–18 purchases must not exceed 100
                                ported in the consolidated system,                         percent of the ADTV for that security.
                                Rule 10b–18 purchases must be effected                       (d) Other purchases. No presumption
                                at a purchase price that does not ex-                      shall arise that an issuer or an affili-
                                ceed the highest independent bid or the                    ated purchaser has violated the anti-
                                last independent transaction price,                        manipulation provisions of sections
                                whichever is higher, displayed and dis-                    9(a)(2) or 10(b) of the Act (15 U.S.C.
                                seminated on any national securities                       78i(a)(2) or 78j(b)), or § 240.10b–5 under
                                exchange or on any inter-dealer                            the Act, if the Rule 10b–18 purchases of
                                quotation system (as defined in
                                                                                           such issuer or affiliated purchaser do
                                § 240.15c2–11) that displays at least two
                                                                                           not meet the conditions specified in
                                priced quotations for the security, at
                                                                                           paragraph (b) or (c) of this section.
                                the time the Rule 10b–18 purchase is ef-
                                fected; and                                                [68 FR 64970, Nov. 17, 2003]

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                                § 240.10b–21                                                           17 CFR Ch. II (4–1–05 Edition)

                                § 240.10b–21       [Reserved]                              be deemed to have been made pursuant
                                                                                           to section 10A(b)(3) or section 10A(b)(4)
                                       REPORTS UNDER SECTION 10A                           of the Act, 15 U.S.C. 78j–1(b)(3) or 78j–
                                                                                           1(b)(4), for purposes of the safe harbor
                                § 240.10A–1 Notice to the Commission                       provided by section 10A(c) of the Act,
                                    Pursuant to Section 10A of the Act.                    15 U.S.C. 78j–1(c).
                                  (a)(1) If any issuer with a reporting                       (4) Submission of the notice in para-
                                obligation under the Act receives a re-                    graphs (a)(1) and (a)(2) of this section
                                port requiring a notice to the Commis-                     shall not relieve the issuer from its ob-
                                sion in accordance with section                            ligations to comply fully with all other
                                10A(b)(3) of the Act, 15 U.S.C. 78j–                       reporting      requirements,    including,
                                1(b)(3), the issuer shall submit such no-                  without limitation:
                                tice to the Commission’s Office of the                        (i) The filing requirements of Form 8–
                                Chief Accountant within the time pe-                       K, § 249.308 of this chapter, and Form N-
                                riod prescribed in that section. The no-                   SAR, § 274.101 of this chapter, regarding
                                tice may be provided by facsimile, tele-                   a change in the issuer’s certifying ac-
                                graph, personal delivery, or any other                     countant and
                                means, provided it is received by the Of-                     (ii) The disclosure requirements of
                                fice of the Chief Accountant within the                    item 304 of Regulation S-B or item 304
                                required time period.                                      of Regulation S-K, §§ 228.304 or 229.304 of
                                  (2) The notice specified in paragraph                    this chapter.
                                (a)(1) of this section shall be in writing                    (b)(1) Any independent accountant
                                and:                                                       furnishing to the Commission a copy of
                                  (i) Shall identify the issuer (includ-                   a report (or the documentation of any
                                ing the issuer’s name, address, phone                      oral report) in accordance with section
                                number, and file number assigned to                        10A(b)(3) or section 10A(b)(4) of the Act,
                                the issuer’s filings by the Commission)                    15 U.S.C. 78j–1(b)(3) or 78j–1(b)(4), shall
                                and the independent accountant (in-                        submit that report (or documentation)
                                cluding the independent accountant’s                       to the Commission’s Office of the Chief
                                name and phone number, and the ad-                         Accountant within the time period pre-
                                dress of the independent accountant’s                      scribed by the appropriate section of
                                principal office);                                         the Act. The report (or documentation)
                                  (ii) Shall state the date that the                       may be submitted to the Commission’s
                                issuer received from the independent                       Office of the Chief Accountant by fac-
                                accountant the report specified in sec-                    simile, telegraph, personal delivery, or
                                tion 10A(b)(2) of the Act, 15 U.S.C. 78j–                  any other means, provided it is received
                                1(b)(2);                                                   by the Office of the Chief Accountant
                                  (iii) Shall provide, at the election of                  within the time period set forth in sec-
                                the issuer, either:                                        tion 10A(b)(3) or 10A(b)(4) of the Act, 15
                                  (A) A summary of the independent                         U.S.C. 78j–1(b)(3) or 78j–(b)(4), which-
                                accountant’s report, including a de-                       ever is applicable in the circumstances.
                                scription of the act that the inde-                           (2) If the report (or documentation)
                                pendent accountant has identified as a                     submitted to the Office of the Chief Ac-
                                likely illegal act and the possible effect                 countant in accordance with paragraph
                                of that act on all affected financial                      (b)(1) of this section does not clearly
                                statements of the issuer or those re-                      identify both the issuer (including the
                                lated to the most current three-year                       issuer’s name, address, phone number,
                                period, whichever is shorter; or                           and file number assigned to the issuer’s
                                  (B) A copy of the independent ac-                        filings with the Commission) and the
                                countant’s report; and                                     independent accountant (including the
                                  (iv) May provide additional informa-                     independent accountant’s name and
                                tion regarding the issuer’s views of and                   phone number, and the address of the
                                response to the independent account-                       independent accountant’s principal of-
                                ant’s report.                                              fice), then the independent accountant
                                  (3) Reports of the independent ac-                       shall place that information in a
                                countant submitted by the issuer to                        prominent attachment to the report
                                the Commission’s Office of the Chief                       (or documentation) and shall submit
                                Accountant in accordance with para-                        that attachment to the Office of the
                                graph (a)(2)(iii)(B) of this section shall                 Chief Accountant at the same time and

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                                Securities and Exchange Commission                                                           § 240.10A–3

                                in the same manner as the report (or                       mitted to the Commission, may re-
                                documentation) is submitted to that                        quest that the Commission afford it
                                Office.                                                    confidential treatment by reason of
                                  (3) Submission of the report (or docu-                   personal privacy or business confiden-
                                mentation) by the independent ac-                          tiality, or for any other reason per-
                                countant as described in paragraphs                        mitted by Federal law.
                                (b)(1) and (b)(2) of this section shall not
                                                                                           [62 FR 12749, Mar. 18, 1997]
                                replace, or otherwise satisfy the need
                                for, the newly engaged and former ac-                      § 240.10A–2 Auditor independence.
                                countants’      letters      under     items
                                304(a)(2)(D) and 304(a)(3) of Regulation                      It shall be unlawful for an auditor
                                S-K, §§ 229.304(a)(2)(D) and 229.304(a)(3)                 not to be independent under § 210.2–
                                of this chapter, respectively, and under                   01(c)(2)(iii)(B), (c)(4), (c)(6), (c)(7), and
                                items 304(a)(2)(D) and 304(a)(3) of Regu-                  § 210.2–07.
                                lation    S-B,     §§ 228.304(a)(2)(D)   and               [68 FR 6048, Feb. 5, 2003]
                                228.304(a)(3) of this chapter, respec-
                                tively, and shall not limit, reduce, or                    § 240.10A–3 Listing standards relating
                                affect in any way the independent ac-                           to audit committees.
                                countant’s obligations to comply fully                        (a) Pursuant to section 10A(m) of the
                                with all other legal and professional re-                  Act (15 U.S.C. 78j–1(m)) and section 3 of
                                sponsibilities, including, without limi-                   the Sarbanes-Oxley Act of 2002 (15
                                tation, those under generally accepted                     U.S.C. 7202):
                                auditing standards and the rules or in-                       (1) National securities exchanges. The
                                terpretations of the Commission that                       rules of each national securities ex-
                                modify or supplement those auditing                        change registered pursuant to section 6
                                standards.                                                 of the Act (15 U.S.C. 78f) must, in ac-
                                  (c) A notice or report submitted to                      cordance with the provisions of this
                                the Office of the Chief Accountant in                      section, prohibit the initial or contin-
                                accordance with paragraphs (a) and (b)                     ued listing of any security of an issuer
                                of this section shall be deemed to be an                   that is not in compliance with the re-
                                investigative record and shall be non-                     quirements of any portion of paragraph
                                public and exempt from disclosure pur-                     (b) or (c) of this section.
                                suant to the Freedom of Information                           (2) National securities associations. The
                                Act to the same extent and for the                         rules of each national securities asso-
                                same periods of time that the Commis-                      ciation registered pursuant to section
                                sion’s investigative records are non-                      15A of the Act (15 U.S.C. 78o–3) must, in
                                public and exempt from disclosure                          accordance with the provisions of this
                                under, among other applicable provi-                       section, prohibit the initial or contin-
                                sions, 5 U.S.C. 552(b)(7) and § 200.80(b)(7)               ued listing in an automated inter-deal-
                                of this chapter. Nothing in this para-                     er quotation system of any security of
                                graph, however, shall relieve, limit,                      an issuer that is not in compliance
                                delay, or affect in any way, the obliga-                   with the requirements of any portion
                                tion of any issuer or any independent                      of paragraph (b) or (c) of this section.
                                accountant to make all public disclo-                         (3) Opportunity to cure defects. The
                                sures required by law, by any Commis-                      rules required by paragraphs (a)(1) and
                                sion disclosure item, rule, report, or                     (a)(2) of this section must provide for
                                form, or by any applicable accounting,                     appropriate procedures for a listed
                                auditing, or professional standard.                        issuer to have an opportunity to cure
                                                                                           any defects that would be the basis for
                                           Instruction to Paragraph (c)
                                                                                           a prohibition under paragraph (a) of
                                   Issuers and independent accountants                     this section, before the imposition of
                                may apply for additional bases for con-                    such prohibition. Such rules also may
                                fidential treatment for a notice, report,                  provide that if a member of an audit
                                or part thereof, in accordance with                        committee ceases to be independent in
                                § 200.83 of this chapter. That section in-                 accordance with the requirements of
                                dicates, in part, that any person who,                     this section for reasons outside the
                                pursuant to any requirement of law,                        member’s reasonable control, that per-
                                submits any information or causes or                       son, with notice by the issuer to the
                                permits any information to be sub-                         applicable national securities exchange

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                                § 240.10A–3                                                            17 CFR Ch. II (4–1–05 Edition)

                                or national securities association, may                    be considered to be independent for
                                remain an audit committee member of                        purposes of this paragraph (b)(1), a
                                the listed issuer until the earlier of the                 member of an audit committee of a
                                next annual shareholders meeting of                        listed issuer that is not an investment
                                the listed issuer or one year from the                     company may not, other than in his or
                                occurrence of the event that caused the                    her capacity as a member of the audit
                                member to be no longer independent.                        committee, the board of directors, or
                                  (4) Notification of noncompliance. The                   any other board committee:
                                rules required by paragraphs (a)(1) and                      (A) Accept directly or indirectly any
                                (a)(2) of this section must include a re-                  consulting, advisory, or other compen-
                                quirement that a listed issuer must no-                    satory fee from the issuer or any sub-
                                tify the applicable national securities                    sidiary thereof, provided that, unless
                                exchange or national securities asso-                      the rules of the national securities ex-
                                ciation promptly after an executive of-                    change or national securities associa-
                                ficer of the listed issuer becomes aware                   tion provide otherwise, compensatory
                                of any material noncompliance by the                       fees do not include the receipt of fixed
                                listed issuer with the requirements of                     amounts of compensation under a re-
                                this section.                                              tirement plan (including deferred com-
                                  (5) Implementation. (i) The rules of                     pensation) for prior service with the
                                each national securities exchange or                       listed issuer (provided that such com-
                                national securities association meeting                    pensation is not contingent in any way
                                the requirements of this section must                      on continued service); or
                                be operative, and listed issuers must be                     (B) Be an affiliated person of the
                                in compliance with those rules, by the                     issuer or any subsidiary thereof.
                                following dates:                                             (iii) Independence requirements for in-
                                  (A) July 31, 2005 for foreign private                    vestment company issuers. In order to be
                                issuers and small business issuers (as                     considered to be independent for pur-
                                defined in § 240.12b–2); and                               poses of this paragraph (b)(1), a mem-
                                  (B) For all other listed issuers, the                    ber of an audit committee of a listed
                                earlier of the listed issuer’s first an-                   issuer that is an investment company
                                nual shareholders meeting after Janu-                      may not, other than in his or her ca-
                                ary 15, 2004, or October 31, 2004.                         pacity as a member of the audit com-
                                  (ii) Each national securities ex-                        mittee, the board of directors, or any
                                change and national securities associa-                    other board committee:
                                tion must provide to the Commission,                         (A) Accept directly or indirectly any
                                no later than July 15, 2003, proposed                      consulting, advisory, or other compen-
                                rules or rule amendments that comply                       satory fee from the issuer or any sub-
                                with this section.                                         sidiary thereof, provided that, unless
                                  (iii) Each national securities ex-                       the rules of the national securities ex-
                                change and national securities associa-                    change or national securities associa-
                                tion must have final rules or rule                         tion provide otherwise, compensatory
                                amendments that comply with this sec-                      fees do not include the receipt of fixed
                                tion approved by the Commission no                         amounts of compensation under a re-
                                later than December 1, 2003.                               tirement plan (including deferred com-
                                  (b) Required standards—(1) Independ-                     pensation) for prior service with the
                                ence. (i) Each member of the audit com-                    listed issuer (provided that such com-
                                mittee must be a member of the board                       pensation is not contingent in any way
                                of directors of the listed issuer, and                     on continued service); or
                                must otherwise be independent; pro-                          (B) Be an ‘‘interested person’’ of the
                                vided that, where a listed issuer is one                   issuer as defined in section 2(a)(19) of
                                of two dual holding companies, those                       the Investment Company Act of 1940 (15
                                companies may designate one audit                          U.S.C. 80a–2(a)(19)).
                                committee for both companies so long                         (iv) Exemptions from the independence
                                as each member of the audit com-                           requirements. (A) For an issuer listing
                                mittee is a member of the board of di-                     securities pursuant to a registration
                                rectors of at least one of such dual                       statement under section 12 of the Act
                                holding companies.                                         (15 U.S.C. 78l), or for an issuer that has
                                  (ii) Independence requirements for non-                  a registration statement under the Se-
                                investment company issuers. In order to                    curities Act of 1933 (15 U.S.C. 77a et

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                                Securities and Exchange Commission                                                           § 240.10A–3

                                seq.) covering an initial public offering                  or the chair of, the audit committee;
                                of securities to be listed by the issuer,                  and
                                where in each case the listed issuer was                     (3) Neither the member nor the affil-
                                not, immediately prior to the effective                    iate is an executive officer of the for-
                                date of such registration statement, re-                   eign private issuer.
                                quired to file reports with the Commis-                      (E) An audit committee member of a
                                sion pursuant to section 13(a) or 15(d)                    foreign private issuer may be exempt
                                of the Act (15 U.S.C. 78m(a) or 78o(d)):                   from the requirements of paragraph
                                   (1) All but one of the members of the                   (b)(1)(ii)(B) of this section if that mem-
                                listed issuer’s audit committee may be                     ber meets the following requirements:
                                exempt from the independence require-                        (1) The member is a representative or
                                ments of paragraph (b)(1)(ii) of this sec-                 designee of a foreign government or
                                tion for 90 days from the date of effec-                   foreign governmental entity that is an
                                tiveness of such registration state-                       affiliate of the foreign private issuer;
                                ment; and                                                  and
                                   (2) A minority of the members of the                      (2) The member is not an executive
                                listed issuer’s audit committee may be                     officer of the foreign private issuer.
                                exempt from the independence require-                        (F) In addition to paragraphs
                                ments of paragraph (b)(1)(ii) of this sec-                 (b)(1)(iv)(A) through (E) of this section,
                                tion for one year from the date of effec-                  the Commission may exempt from the
                                tiveness of such registration state-                       requirements of paragraphs (b)(1)(ii) or
                                ment.                                                      (b)(1)(iii) of this section a particular re-
                                   (B) An audit committee member that                      lationship with respect to audit com-
                                sits on the board of directors of a listed                 mittee members, as the Commission
                                issuer and an affiliate of the listed                      determines appropriate in light of the
                                issuer is exempt from the requirements                     circumstances.
                                of paragraph (b)(1)(ii)(B) of this section                   (2) Responsibilities relating to registered
                                if the member, except for being a direc-                   public accounting firms. The audit com-
                                tor on each such board of directors,                       mittee of each listed issuer, in its ca-
                                otherwise meets the independence re-                       pacity as a committee of the board of
                                quirements of paragraph (b)(1)(ii) of                      directors, must be directly responsible
                                this section for each such entity, in-                     for the appointment, compensation, re-
                                cluding the receipt of only ordinary-                      tention and oversight of the work of
                                course compensation for serving as a                       any registered public accounting firm
                                member of the board of directors, audit                    engaged (including resolution of dis-
                                committee or any other board com-                          agreements between management and
                                mittee of each such entity.                                the auditor regarding financial report-
                                   (C) An employee of a foreign private                    ing) for the purpose of preparing or
                                issuer who is not an executive officer of                  issuing an audit report or performing
                                the foreign private issuer is exempt                       other audit, review or attest services
                                from the requirements of paragraph                         for the listed issuer, and each such reg-
                                (b)(1)(ii) of this section if the employee                 istered public accounting firm must re-
                                is elected or named to the board of di-                    port directly to the audit committee.
                                rectors or audit committee of the for-                       (3) Complaints. Each audit committee
                                eign private issuer pursuant to the                        must establish procedures for:
                                issuer’s governing law or documents,                         (i) The receipt, retention, and treat-
                                an employee collective bargaining or                       ment of complaints received by the
                                similar agreement or other home coun-                      listed issuer regarding accounting, in-
                                try legal or listing requirements.                         ternal accounting controls, or auditing
                                   (D) An audit committee member of a                      matters; and
                                foreign private issuer may be exempt                         (ii) The confidential, anonymous sub-
                                from the requirements of paragraph                         mission by employees of the listed
                                (b)(1)(ii)(B) of this section if that mem-                 issuer of concerns regarding question-
                                ber meets the following requirements:                      able accounting or auditing matters.
                                   (1) The member is an affiliate of the                     (4) Authority to engage advisers. Each
                                foreign private issuer or a representa-                    audit committee must have the author-
                                tive of such an affiliate;                                 ity to engage independent counsel and
                                   (2) The member has only observer                        other advisers, as it determines nec-
                                status on, and is not a voting member                      essary to carry out its duties.

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                                § 240.10A–3                                                            17 CFR Ch. II (4–1–05 Edition)

                                  (5) Funding. Each listed issuer must                       (ii) The board or body, or statutory
                                provide for appropriate funding, as de-                    auditors is required under home coun-
                                termined by the audit committee, in                        try legal or listing requirements to be
                                its capacity as a committee of the                         either:
                                board of directors, for payment of:                          (A) Separate from the board of direc-
                                  (i) Compensation to any registered                       tors; or
                                public accounting firm engaged for the                       (B) Composed of one or more mem-
                                purpose of preparing or issuing an                         bers of the board of directors and one
                                audit report or performing other audit,                    or more members that are not also
                                review or attest services for the listed                   members of the board of directors;
                                issuer;                                                      (iii) The board or body, or statutory
                                  (ii) Compensation to any advisers                        auditors, are not elected by manage-
                                employed by the audit committee                            ment of such issuer and no executive
                                under paragraph (b)(4) of this section;                    officer of the foreign private issuer is a
                                and                                                        member of such board or body, or stat-
                                  (iii) Ordinary administrative ex-                        utory auditors;
                                penses of the audit committee that are                       (iv) Home country legal or listing
                                necessary or appropriate in carrying                       provisions set forth or provide for
                                out its duties.                                            standards for the independence of such
                                  (c) General exemptions. (1) At any time                  board or body, or statutory auditors,
                                when an issuer has a class of securities                   from the foreign private issuer or the
                                that is listed on a national securities                    management of such issuer;
                                exchange or national securities asso-                        (v) Such board or body, or statutory
                                ciation subject to the requirements of                     auditors, in accordance with any appli-
                                this section, the listing of other classes                 cable home country legal or listing re-
                                of securities of the listed issuer on a                    quirements or the issuer’s governing
                                national securities exchange or na-                        documents, are responsible, to the ex-
                                tional securities association is not sub-                  tent permitted by law, for the appoint-
                                ject to the requirements of this sec-                      ment, retention and oversight of the
                                tion.                                                      work of any registered public account-
                                  (2) At any time when an issuer has a                     ing firm engaged (including, to the ex-
                                class of common equity securities (or                      tent permitted by law, the resolution
                                similar securities) that is listed on a                    of disagreements between management
                                national securities exchange or na-                        and the auditor regarding financial re-
                                tional securities association subject to                   porting) for the purpose of preparing or
                                the requirements of this section, the                      issuing an audit report or performing
                                listing of classes of securities of a di-                  other audit, review or attest services
                                rect or indirect consolidated subsidiary                   for the issuer; and
                                or an at least 50% beneficially owned                        (vi) The audit committee require-
                                subsidiary of the issuer (except classes                   ments of paragraphs (b)(3), (b)(4) and
                                of equity securities, other than non-                      (b)(5) of this section apply to such
                                convertible,    non-participating     pre-                 board or body, or statutory auditors, to
                                ferred securities, of such subsidiary) is                  the extent permitted by law.
                                not subject to the requirements of this                      (4) The listing of a security futures
                                section.                                                   product cleared by a clearing agency
                                  (3) The listing of securities of a for-                  that is registered pursuant to section
                                eign private issuer is not subject to the                  17A of the Act (15 U.S.C. 78q–1) or that
                                requirements of paragraphs (b)(1)                          is exempt from the registration re-
                                through (b)(5) of this section if the for-                 quirements of section 17A pursuant to
                                eign private issuer meets the following                    paragraph (b)(7)(A) of such section is
                                requirements:                                              not subject to the requirements of this
                                  (i) The foreign private issuer has a                     section.
                                board of auditors (or similar body), or                      (5) The listing of a standardized op-
                                has statutory auditors, established and                    tion, as defined in § 240.9b–1(a)(4), issued
                                selected pursuant to home country                          by a clearing agency that is registered
                                legal or listing provisions expressly re-                  pursuant to section 17A of the Act (15
                                quiring or permitting such a board or                      U.S.C. 78q–1) is not subject to the re-
                                similar body;                                              quirements of this section.

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                                Securities and Exchange Commission                                                           § 240.10A–3

                                  (6) The listing of securities of the fol-                   (e) Definitions. Unless the context
                                lowing listed issuers are not subject to                   otherwise requires, all terms used in
                                the requirements of this section:                          this section have the same meaning as
                                  (i) Asset-Backed Issuers (as defined                     in the Act. In addition, unless the con-
                                in § 229.1101 of this chapter);                            text otherwise requires, the following
                                  (ii) Unit investment trusts (as de-                      definitions apply for purposes of this
                                fined in 15 U.S.C. 80a–4(2)); and                          section:
                                  (iii)Foreign governments (as defined                        (1)(i) The term affiliate of, or a person
                                in § 240.3b–4(a)).                                         affiliated with, a specified person,
                                  (7) The listing of securities of a listed                means a person that directly, or indi-
                                issuer is not subject to the require-                      rectly through one or more inter-
                                ments of this section if:                                  mediaries, controls, or is controlled by,
                                                                                           or is under common control with, the
                                  (i) The listed issuer, as reflected in
                                                                                           person specified.
                                the applicable listing application, is or-
                                                                                              (ii)(A) A person will be deemed not to
                                ganized as a trust or other unincor-
                                                                                           be in control of a specified person for
                                porated association that does not have                     purposes of this section if the person:
                                a board of directors or persons acting                        (1) Is not the beneficial owner, di-
                                in a similar capacity; and                                 rectly or indirectly, of more than 10%
                                  (ii) The activities of the listed issuer                 of any class of voting equity securities
                                that is described in paragraph (c)(7)(i)                   of the specified person; and
                                of this section are limited to passively                      (2) Is not an executive officer of the
                                owning or holding (as well as admin-                       specified person.
                                istering and distributing amounts in                          (B) Paragraph (e)(1)(ii)(A) of this sec-
                                respect of) securities, rights, collateral                 tion only creates a safe harbor position
                                or other assets on behalf of or for the                    that a person does not control a speci-
                                benefit of the holders of the listed se-                   fied person. The existence of the safe
                                curities.                                                  harbor does not create a presumption
                                  (d) Disclosure. Any listed issuer                        in any way that a person exceeding the
                                availing itself of an exemption from                       ownership requirement in paragraph
                                the independence standards contained                       (e)(1)(ii)(A)(1) of this section controls
                                in paragraph (b)(1)(iv) of this section                    or is otherwise an affiliate of a speci-
                                (except paragraph (b)(1)(iv)(B) of this                    fied person.
                                section), the general exemption con-                          (iii) The following will be deemed to
                                tained in paragraph (c)(3) of this sec-                    be affiliates:
                                tion or the last sentence of paragraph                        (A) An executive officer of an affil-
                                (a)(3) of this section, must:                              iate;
                                  (1) Disclose its reliance on the ex-                        (B) A director who also is an em-
                                emption and its assessment of whether,                     ployee of an affiliate;
                                and if so, how, such reliance would ma-                       (C) A general partner of an affiliate;
                                terially adversely affect the ability of                   and
                                the audit committee to act independ-                          (D) A managing member of an affil-
                                ently and to satisfy the other require-                    iate.
                                ments of this section in any proxy or                         (iv) For purposes of paragraph
                                information statement for a meeting of                     (e)(1)(i) of this section, dual holding
                                shareholders at which directors are                        companies will not be deemed to be af-
                                elected that is filed with the Commis-                     filiates of or persons affiliated with
                                sion pursuant to the requirements of                       each other by virtue of their dual hold-
                                section 14 of the Act (15 U.S.C. 78n);                     ing company arrangements with each
                                and                                                        other, including where directors of one
                                  (2) Disclose the information specified                   dual holding company are also direc-
                                in paragraph (d)(1) of this section in, or                 tors of the other dual holding com-
                                incorporate such information by ref-                       pany, or where directors of one or both
                                erence from such proxy or information                      dual holding companies are also direc-
                                statement filed with the Commission                        tors of the businesses jointly con-
                                into, its annual report filed with the                     trolled, directly or indirectly, by the
                                Commission pursuant to the require-                        dual holding companies (and, in each
                                ments of section 13(a) or 15(d) of the                     case, receive only ordinary-course com-
                                Act (15 U.S.C. 78m(a) or 78o(d)).                          pensation for serving as a member of

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                                § 240.10A–3                                                            17 CFR Ch. II (4–1–05 Edition)

                                the board of directors, audit committee                    which provides accounting, consulting,
                                or any other board committee of the                        legal, investment banking or financial
                                dual holding companies or any entity                       advisory services to the issuer or any
                                that is jointly controlled, directly or                    subsidiary of the issuer.
                                indirectly, by the dual holding compa-                       (9) The terms listed and listing refer to
                                nies).                                                     securities listed on a national securi-
                                  (2) In the case of foreign private                       ties exchange or listed in an automated
                                issuers with a two-tier board system,                      inter-dealer quotation system of a na-
                                the term board of directors means the                      tional securities association or to
                                supervisory or non-management board.                       issuers of such securities.
                                  (3) In the case of a listed issuer that
                                is a limited partnership or limited li-                           INSTRUCTIONS TO § 240.10A–3
                                ability company where such entity
                                does not have a board of directors or                        1. The requirements in paragraphs (b)(2)
                                                                                           through (b)(5), (c)(3)(v) and (c)(3)(vi) of this
                                equivalent body, the term board of di-
                                                                                           section do not conflict with, and do not af-
                                rectors means the board of directors of                    fect the application of, any requirement or
                                the managing general partner, man-                         ability under a listed issuer’s governing law
                                aging member or equivalent body.                           or documents or other home country legal or
                                  (4) The term control (including the                      listing provisions that requires or permits
                                terms controlling, controlled by and                       shareholders to ultimately vote on, approve
                                under common control with) means the                       or ratify such requirements. The require-
                                possession, direct or indirect, of the                     ments instead relate to the assignment of re-
                                power to direct or cause the direction                     sponsibility as between the audit committee
                                                                                           and management. In such an instance, how-
                                of the management and policies of a
                                                                                           ever, if the listed issuer provides a rec-
                                person, whether through the ownership                      ommendation or nomination regarding such
                                of voting securities, by contract, or                      responsibilities to shareholders, the audit
                                otherwise.                                                 committee of the listed issuer, or body per-
                                  (5) The term dual holding companies                      forming similar functions, must be respon-
                                means two foreign private issuers that:                    sible for making the recommendation or
                                  (i) Are organized in different national                  nomination.
                                jurisdictions;                                               2. The requirements in paragraphs (b)(2)
                                  (ii) Collectively own and supervise                      through (b)(5), (c)(3)(v), (c)(3)(vi) and Instruc-
                                the management of one or more busi-                        tion 1 of this section do not conflict with any
                                                                                           legal or listing requirement in a listed
                                nesses which are conducted as a single
                                                                                           issuer’s home jurisdiction that prohibits the
                                economic enterprise; and                                   full board of directors from delegating such
                                  (iii) Do not conduct any business                        responsibilities to the listed issuer’s audit
                                other than collectively owning and su-                     committee or limits the degree of such dele-
                                pervising such businesses and activities                   gation. In that case, the audit committee, or
                                reasonably incidental thereto.                             body performing similar functions, must be
                                  (6) The term executive officer has the                   granted such responsibilities, which can in-
                                meaning set forth in § 240.3b–7.                           clude advisory powers, with respect to such
                                  (7) The term foreign private issuer has                  matters to the extent permitted by law, in-
                                                                                           cluding submitting nominations or rec-
                                the meaning set forth in § 240.3b–4(c).
                                                                                           ommendations to the full board.
                                  (8) The term indirect acceptance by a
                                                                                             3. The requirements in paragraphs (b)(2)
                                member of an audit committee of any                        through (b)(5), (c)(3)(v) and (c)(3)(vi) of this
                                consulting, advisory or other compen-                      section do not conflict with any legal or list-
                                satory fee includes acceptance of such                     ing requirement in a listed issuer’s home ju-
                                a fee by a spouse, a minor child or step-                  risdiction that vests such responsibilities
                                child or a child or stepchild sharing a                    with a government entity or tribunal. In
                                home with the member or by an entity                       that case, the audit committee, or body per-
                                in which such member is a partner,                         forming similar functions, must be granted
                                member, an officer such as a managing                      such responsibilities, which can include advi-
                                                                                           sory powers, with respect to such matters to
                                director occupying a comparable posi-
                                                                                           the extent permitted by law.
                                tion or executive officer, or occupies a                     4. For purposes of this section, the deter-
                                similar position (except limited part-                     mination of a person’s beneficial ownership
                                ners, non-managing members and those                       must be made in accordance with § 240.13d–3.
                                occupying similar positions who, in
                                each case, have no active role in pro-                     [68 FR 18818, Apr. 16, 2003, as amended at 70
                                viding services to the entity) and                         FR 1620, Jan. 7, 2005]

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                                Securities and Exchange Commission                                                            § 240.11a–1

                                       ADOPTION OF FLOOR TRADING                             (c) For the purpose of this rule the
                                        REGULATION (RULE 11A–1)                            term ‘‘on the floor of such exchange’’
                                                                                           shall include the trading floor; the
                                § 240.11a–1      Regulation of floor trading.              rooms, lobbies, and other premises im-
                                  (a) No member of a national securi-                      mediately adjacent thereto for use of
                                ties exchange, while on the floor of                       members generally; other rooms, lob-
                                such exchange, shall initiate, directly                    bies and premises made available pri-
                                or indirectly, any transaction in any                      marily for use by members generally;
                                security admitted to trading on such                       and the telephone and other facilities
                                exchange, for any account in which                         in any such place.
                                such member has an interest, or for                          (d) Any national securities exchange
                                any such account with respect to which                     may apply for an exemption from the
                                such member has discretion as to the                       provisions of this rule in compliance
                                time of execution, the choice of secu-                     with the provisions of section 11(c) of
                                rity to be bought or sold, the total                       the Act.
                                amount of any security to be bought or                     (Sec. 11, 48 Stat. 891; 15 U.S.C. 78k)
                                sold, or whether any such transaction
                                shall be one of purchase or sale.                          [29 FR 7381, June 6, 1964, as amended at 62 FR
                                                                                           544, Jan. 3, 1997]
                                  (b) The provisions of paragraph (a) of                     NOTE 1: The Commission finding that the
                                this section shall not apply to:                           floor trading plan of the New York Stock Ex-
                                  (1) Any transaction by a registered                      change filed on May 25, 1964 is designed to
                                specialist in a security in which he is                    eliminate floor trading activities not bene-
                                so registered on such exchange;                            ficial to the market hereby declares such
                                  (2) Any transaction for the account                      plan effective August 3, 1964 subject to sus-
                                                                                           pension or termination on sixty days written
                                of an odd-lot dealer in a security in
                                                                                           notice from the Commission, 29 FR 7381,
                                which he is so registered on such ex-                      June 6, 1964.
                                change;                                                      NOTE 2: The text of the Commission’s ac-
                                  (3) Any stabilizing transaction ef-                      tion declaring effective the amendments to
                                fected in compliance with § 242.104 of                     the Floor Trading Plan of the American
                                this chapter to facilitate a distribution                  Stock Exchange (33 FR 1073, Jan. 27, 1968) is
                                of such security in which such member                      as follows:
                                is participating;                                            The Securities and Exchange Commission
                                                                                           acting pursuant to the Securities Exchange
                                  (4) Any bona fide arbitrage trans-                       Act of 1934, particularly sections 11(a) and
                                action;                                                    23(a) thereof, and Rule 11a–1 (17 CFR 240.11a–
                                  (5) Any transaction made with the                        1) under the Act, deeming it necessary for
                                prior approval of a floor official of such                 the exercise of the functions vested in it, and
                                exchange to permit such member to                          having due regard for the maintenance of
                                contribute to the maintenance of a fair                    fair and orderly markets, for the public in-
                                and orderly market in such security, or                    terest, and for the protection of investors,
                                                                                           hereby declares the Floor Trading Plan of
                                any purchase or sale to reverse any                        the American Stock Exchange, as amended
                                such transaction;                                          by amendments filed on May 11, 1967, effec-
                                  (6) Any transaction to offset a trans-                   tive January 31, 1968. If at any time it ap-
                                action made in error; or                                   pears to the Commission to be necessary or
                                  (7) Any transaction effected in con-                     appropriate in the public interest, for the
                                formity with a plan designed to elimi-                     protection of investors, or for the mainte-
                                                                                           nance of fair and orderly markets, or that
                                nate floor trading activities which are
                                                                                           floor trading activities which are not bene-
                                not beneficial to the market and which                     ficial to the market have not been elimi-
                                plan has been adopted by an exchange                       nated by the Floor Trading Plan of the
                                and declared effective by the Commis-                      American Stock Exchange, the Commission
                                sion. For the purpose of this rule, a                      may suspend or terminate the effectiveness
                                plan filed with the Commission by a                        of the plan by sending at least 60 days writ-
                                national securities exchange shall not                     ten notice to the American Stock Exchange.
                                become effective unless the Commis-                        The American Stock Exchange shall have
                                                                                           the opportunity to submit any written data,
                                sion, having due regard for the mainte-
                                                                                           facts, arguments, or modifications in its plan
                                nance of fair and orderly markets, for                     within such 60-day period in such form as the
                                the public interest, and for the protec-                   Commission deems appropriate under the
                                tion of investors, declares the plan to                    circumstances. The Commission has been in-
                                be effective.                                              formed that all persons subject to the Floor

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                                § 240.11a1–1(T)                                                        17 CFR Ch. II (4–1–05 Edition)
                                Trading Plan of the American Stock Ex-                     preceding fiscal year more than 50 per-
                                change, as amended, have had actual notice                 cent of its gross revenues was derived
                                thereof, and the Commission finds that no-                 from one or more of the sources speci-
                                tice and procedure pursuant to section 4 of
                                                                                           fied in that section. In addition to any
                                the Administrative Procedure Act (5 U.S.C.
                                section 553) are impracticable and unneces-                revenue which independently meets the
                                sary and that such Plan, as amended, may                   requirements of section 11(a)(1)(G)(i),
                                be, and is hereby, declared effective on Janu-             revenue derived from any transaction
                                ary 31, 1968.                                              specified in paragraph (A), (B), or (D) of
                                                                                           section 11(a)(1) of the Act or specified
                                § 240.11a1–1(T) Transactions yielding                      in 17 CFR 240.11a1–4(T) shall be deemed
                                     priority, parity, and precedence.                     to be revenue derived from one or more
                                   (a) A transaction effected on a na-                     of the sources specified in section
                                tional securities exchange for the ac-                     11(a)(1)(G)(i). A member may rely on a
                                count of a member which meets the re-                      list of members which are stated to
                                quirements of section 11(a)(1)(G)(i) of                    meet the requirements of section
                                the Act shall be deemed, in accordance                     11(a)(1)(G)(i) if such list is prepared,
                                with the requirements of section                           and updated at least annually, by the
                                11(a)(1)(G)(ii), to be not inconsistent                    exchange. In preparing any such list,
                                with the maintenance of fair and or-                       an exchange may rely on a report
                                derly markets and to yield priority,                       which sets forth a statement of gross
                                parity, and precedence in execution to                     revenues of a member if covered by a
                                orders for the account of persons who                      report of independent accountants for
                                are not members or associated with                         such member to the effect that such re-
                                members of the exchange if such trans-                     port has been prepared in accordance
                                action is effected in compliance with                      with generally accepted accounting
                                each of the following requirements:                        principles.
                                   (1) A member shall disclose that a bid                  (Secs. 2, 3, 6, 11, 11A, and 23, 89 Stat. 97, 104,
                                or offer for its account is for its ac-                    110, 111, 156 (15 U.S.C. 78b, 78c, 78f, 78k, 78k–
                                count to any member with whom such                         1, 78w); secs. 2, 3, 11, 23, 48 Stat. 881, 882, 885,
                                bid or offer is placed or to whom it is                    891, 901, as amended)
                                communicated, and any such member                          [43 FR 11553, Mar. 17, 1978, as amended at 43
                                through whom that bid or offer is com-                     FR 18562, May 1, 1978; 44 FR 6093, Jan. 31,
                                municated shall disclose to others par-                    1979]
                                ticipating in effecting the order that it
                                is for the account of a member.                            § 240.11a1–2 Transactions for certain
                                   (2) Immediately before executing the                         accounts of associated persons of
                                                                                                members.
                                order, a member (other than the spe-
                                cialist in such security) presenting any                      A transaction effected by a member
                                order for the account of a member on                       of a national securities exchange for
                                the exchange shall clearly announce or                     the account of an associated person
                                otherwise indicate to the specialist and                   thereof shall be deemed to be of a kind
                                to other members then present for the                      which is consistent with the purposes
                                trading in such security on the ex-                        of section 11(a)(1) of the Act, the pro-
                                change that he is presenting an order                      tection of investors, and the mainte-
                                for the account of a member.                               nance of fair and orderly markets if the
                                   (3) Notwithstanding rules of priority,                  transaction is effected:
                                parity, and precedence otherwise appli-                       (a) For the account of and for the
                                cable, any member presenting for exe-                      benefit of an associated person, if, as-
                                cution a bid or offer for its own ac-                      suming such transaction were for the
                                count or for the account of another                        account of a member, or
                                member shall grant priority to any bid                        (b) For the account of an associated
                                or offer at the same price for the ac-                     person but for the benefit of an account
                                count of a person who is not, or is not                    carried by such associated person, if,
                                associated with, a member, irrespec-                       assuming such account were carried on
                                tive of the size of any such bid or offer                  the same basis by a member.
                                or the time when entered.                                  The member would have been per-
                                   (b) A member shall be deemed to                         mitted, under section 11(a) of the Act
                                meet the requirements of section                           and the other rules thereunder, to ef-
                                11(a)(1)(G)(i) of the Act if during its                    fect the transaction: Provided, however,

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                                Securities and Exchange Commission                                                         § 240.11a2–2(T)

                                That a transaction may not be effected                      § 240.11a1–5 Transactions   by    reg-
                                by a member for the account of and for                          istered competitive market makers
                                the benefit of an associated person                             and registered equity market mak-
                                under section 11(a)(1)(G) of the Act and                        ers.
                                Rule 11a1–1(T) thereunder unless the                          Any transaction by a New York
                                associated person derived, during its                       Stock Exchange registered competitive
                                preceding fiscal year, more than 50 per-                    market maker or an American Stock
                                cent of its gross revenues from one or                      Exchange registered equity market
                                more of the sources specified in section                    maker effected in compliance with
                                11(a)(1)(G)(i) of the Act.                                  their respective governing rules shall
                                (Secs. 2, 3, 4, 6, 7, 11, 18, 89 Stat. 97, 104, 110,        be deemed to be of a kind which is con-
                                111, 121, 155 (15 U.S.C. 78b, 78c, 78f, 78k, 78k–           sistent with the purposes of section
                                1, 78o, 78w); secs. 2, 3, 10, 23, 48 Stat. 881, 882,        11(a)(1) of the Act, the protection of in-
                                891, 901, as amended (15 U.S.C. 78j))                       vestors, and the maintenance of fair
                                [43 FR 11553, Mar. 17, 1978; 43 FR 14451, Apr.              and orderly markets.
                                6, 1978]
                                                                                            [46 FR 14889, Mar. 3, 1981]
                                § 240.11a1–3(T) Bona fide hedge trans-
                                    actions in certain securities.                          § 240.11a1–6 Transactions for certain
                                                                                                accounts of OTC derivatives deal-
                                   A bona fide hedge transaction ef-                            ers.
                                fected on a national securities ex-
                                change by a member for its own ac-                            A transaction effected by a member
                                count or an account of an associated                        of a national securities exchange for
                                person thereof and involving a long or                      the account of an OTC derivatives deal-
                                short position in a security entitling                      er that is an associated person of that
                                the holder to acquire or sell an equity                     member shall be deemed to be of a kind
                                security, and a long or short position                      that is consistent with the purposes of
                                in one or more other securities enti-                       section 11(a)(1) of the Act (15 U.S.C.
                                tling the holder to acquire or sell such                    78k(a)(1)), the protection of investors,
                                equity security, shall be deemed to be                      and the maintenance of fair and or-
                                of a kind which is consistent with the                      derly markets if, assuming such trans-
                                purposes of section 11(a)(1) of the Act,                    action were for the account of a mem-
                                the protection of investors, and the                        ber, the member would have been per-
                                maintenance of fair and orderly mar-                        mitted, under section 11(a) of the Act
                                kets.                                                       and the other rules thereunder (with
                                (Secs. 2, 3, 6, 11, 11A, and 23, 89 Stat. 97, 104,
                                                                                            the exception of § 240.11a1–2), to effect
                                110, 111, 156 (15 U.S.C. 78b, 78c, 78f, 78k, 78k–           the transaction.
                                1, 78w); secs. 2, 3, 11, 23, 48 Stat. 881, 882, 885,        [63 FR 59396, Nov. 3, 1998]
                                891, 901, as amended)
                                [44 FR 6093, Jan. 31, 1979]                                 § 240.11a2–2(T) Transactions             effected
                                                                                                by exchange members                  through
                                § 240.11a1–4(T) Bond transactions on                            other members.
                                    national securities exchanges.
                                                                                              (a) A member of a national securities
                                   A transaction in a bond, note, deben-                    exchange (the ‘‘initiating member’’)
                                ture, or other form of indebtedness ef-                     may not effect a transaction on that
                                fected on a national securities ex-                         exchange for its own account, the ac-
                                change by a member for its own ac-                          count of an associated person, or an ac-
                                count or the account of an associated                       count with respect to which it or an as-
                                person thereof shall be deemed to be of                     sociated person thereof exercises in-
                                a kind which is consistent with the                         vestment discretion unless:
                                purposes of section 11(a)(1) of the Act,                      (1) The transaction is of a kind de-
                                the protection of investors, and the                        scribed in paragraphs A through H of
                                maintenance of fair and orderly mar-                        section 11(a)(1) of the Act and is ef-
                                kets.                                                       fected in accordance with applicable
                                (Secs. 2, 3, 6, 10, 11, 11A, 15 and 23 of the Secu-         rules and regulations thereunder; or
                                rities Exchange Act of 1934 (15 U.S.C. 78b, 78c,              (2) The transaction is effected in
                                78f, 78j, 78k, 78k–1, 78o, and 78w))                        compliance with each of the following
                                [43 FR 18562, May 1, 1978]                                  conditions:

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                                § 240.11b–1                                                            17 CFR Ch. II (4–1–05 Edition)

                                   (i) The transaction is executed on the                  transact business for the account a
                                floor, or through use of the facilities,                   statement setting forth the total
                                of the exchange by a member (the                           amount of all compensation retained
                                ‘‘executing member’’) which is not an                      by the member or any associated per-
                                associated person of the initiating                        son thereof in connection with effect-
                                member;                                                    ing transactions for that account dur-
                                   (ii) The order for the transaction is                   ing the period covered by the state-
                                transmitted from off the exchange                          ment, which amount shall be exclusive
                                floor;                                                     of all amounts paid to others during
                                   (iii) Neither the initiating member                     that period for services rendered in ef-
                                nor an associated person of the initi-                     fecting such transactions.
                                ating member participates in the exe-                        (e) A transaction effected in compli-
                                cution of the transaction at any time                      ance with the requirements of this sec-
                                after the order for the transaction has                    tion shall be deemed to be of a kind
                                been so transmitted; and                                   which is consistent with the purposes
                                   (iv) In the case of a transaction ef-                   of section 11(a)(1) of the Act, the pro-
                                fected for an account with respect to                      tection of investors, and the mainte-
                                which the initiating member or an as-                      nance of fair and orderly markets.
                                sociated person thereof exercises in-                        (f) The provisions of this section
                                vestment discretion, neither the initi-                    shall not apply to transactions by ex-
                                ating member nor any associated per-                       change members to which, by oper-
                                son thereof retains any compensation                       ation of section 11(a)(3) of the Act, sec-
                                in connection with effecting the trans-                    tion 11(a)(1) of the Act is not effective.
                                action: Provided, however, That this                       (Secs. 2, 3, 4, 6, 7, 11, 18, 89 Stat. 97, 104, 110,
                                condition shall not apply to the extent                    111, 121, 155 (15 U.S.C. 78b, 78c, 78f, 78k, 78k–
                                that the person or persons authorized                      1, 78o, 78w); secs. 2, 3, 10, 23, 48 Stat. 881, 882,
                                to transact business for the account                       891, 901, as amended (15 U.S.C. 78j))
                                have expressly provided otherwise by                       [43 FR 11554, Mar. 17, 1978, as amended at 43
                                written contract referring to section                      FR 18562, May 1, 1978]
                                11(a) of the Act and this section exe-
                                cuted on or after March 15, 1978, by                        ADOPTION OF REGULATION ON CONDUCT
                                each of them and by such exchange                                     OF SPECIALISTS
                                member or associated person exer-
                                cising investment discretion.                              § 240.11b–1 Regulation of specialists.
                                   (b) For purposes of this section, a                        (a)(1) The rules of a national securi-
                                member ‘‘effects’’ a securities trans-                     ties exchange may permit a member of
                                action when it performs any function                       such exchange to register as a spe-
                                in connection with the processing of                       cialist and to act as a dealer.
                                that transaction, including, but not                          (2) The rules of a national securities
                                limited to, (1) transmission of an order                   exchange permitting a member of such
                                for execution, (2) execution of the                        exchange to register as a specialist and
                                order, (3) clearance and settlement of                     to act as a dealer shall include:
                                the transaction, and (4) arranging for                        (i) Adequate minimum capital re-
                                the performance of any such function.                      quirements in view of the markets for
                                   (c) For purposes of this section, the                   securities on such exchange;
                                term ‘‘compensation in connection                             (ii) Requirements, as a condition of a
                                with effecting the transaction’’ refers                    specialist’s registration, that a spe-
                                to compensation directly or indirectly                     cialist engage in a course of dealings
                                received or calculated on a trans-                         for his own account to assist in the
                                action-related basis for the perform-                      maintenance, so far as practicable, of a
                                ance of any function involved in effect-                   fair and orderly market, and that a
                                ing a securities transaction.                              finding by the exchange of any sub-
                                   (d) A member, or an associated per-                     stantial or continued failure by a spe-
                                son of a member, authorized by written                     cialist to engage in such a course of
                                contract to retain compensation in                         dealings will result in the suspension
                                connection with effecting transactions                     or cancellation of such specialist’s reg-
                                pursuant to paragraph (a)(2)(iv) of this                   istration in one or more of the securi-
                                section shall furnish at least annually                    ties in which such specialist is reg-
                                to the person or persons authorized to                     istered;

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                                Securities and Exchange Commission                                                           § 240.11d1–1

                                  (iii) Provisions restricting his deal-                     (d) Any national securities exchange
                                ings so far as practicable to those rea-                   may apply for an exemption from the
                                sonably necessary to permit him to                         provisions of this section in compli-
                                maintain a fair and orderly market or                      ance with the provisions of section
                                necessary to permit him to act as an                       11(c) of the Act.
                                odd-lot dealer;                                            (Sec. 11, 48 Stat. 891, 892; 15 U.S.C. 78k)
                                  (iv) Provisions stating the respon-
                                sibilities of a specialist acting as a                     [29 FR 15863, Nov. 26, 1964, as amended at 46
                                                                                           FR 15135, Mar. 4, 1981]
                                broker in securities in which he is reg-
                                istered; and                                                  EXEMPTION OF CERTAIN SECURITIES
                                  (v) Procedures to provide for the ef-                            FROM SECTION 11(D)(1)
                                fective and systematic surveillance of
                                the activities of specialists.                             § 240.11d1–1 Exemption of certain se-
                                  (b) If after appropriate notice and op-                      curities from section 11(d)(1).
                                portunity for hearing the Commission                         A security shall be exempt from the
                                finds that a member of a national secu-                    provisions of section 11(d)(1) with re-
                                rities exchange registered with such                       spect to any transaction by a broker
                                exchange as a specialist in specified se-                  and dealer who, directly or indirectly
                                curities has, for any account in which                     extends or maintains or arranges for
                                he, his member organization, or any                        the extension or maintenance of credit
                                participant therein has any beneficial                     on the security to or for a customer if:
                                interest, direct or indirect, effected                       (a) The broker and dealer has not
                                transactions in such securities which                      sold the security to the customer or
                                were not part of a course of dealings                      bought the security for the customer’s
                                reasonably necessary to permit such                        account; or
                                specialist to maintain a fair and or-                        (b) The security is acquired by the
                                derly market, or to act as an odd-lot                      customer in exchange with the issuer
                                dealer, in the securities in which he is                   thereof for an outstanding security of
                                registered and were not effected in a                      the same issuer on which credit was
                                manner consistent with the rules                           lawfully maintained for the customer
                                adopted by such exchange pursuant to                       at the time of the exchange; or
                                paragraph (a)(2)(iii) of this section, the                   (c) The customer is a broker or dealer
                                Commission may by order direct such                        or bank; or
                                exchange to cancel, or to suspend for                        (d) The security is acquired by the
                                such period as the Commission may de-                      customer through the exercise of a
                                termine, such specialist’s registration                    right evidenced by a warrant or certifi-
                                in one or more of the securities in                        cate expiring within 90 days after
                                which such specialist is registered: Pro-                  issuance, provided such right was origi-
                                vided, however, If such exchange has                       nally issued to the customer as a
                                itself suspended or cancelled such spe-                    stockholder of the corporation issuing
                                cialist’s registration in one or more of                   the security upon which credit is to be
                                the securities in which such specialist                    extended, or as a stockholder of a com-
                                is registered, no further sanction shall                   pany distributing such security in
                                be imposed pursuant to this paragraph                      order to effectuate the provisions of
                                (b) except in a case where the Commis-                     section 11 of the Public Utility Holding
                                sion finds substantial or continued                        Company Act of 1935. The right shall be
                                misconduct by a specialist: And pro-                       deemed to be issued to the customer as
                                vided, further, That the provisions of                     a stockholder if he actually owned the
                                this paragraph (b) shall not apply to a                    stock giving rise to the right when
                                member of a national securities ex-                        such right accrued, even though such
                                change exempted pursuant to the pro-                       stock was not registered in his name;
                                visions of paragraph (d) of this section.                  and in determining such fact the
                                  (c) For the purposes of this section,                    broker and dealer may rely upon a
                                the term rules of an exchange shall                        signed statement of the customer
                                mean its constitution, articles of incor-                  which the broker and dealer accepts in
                                poration, by-laws, or rules or instru-                     good faith; or
                                ments corresponding thereto, whatever                        (e) Such broker and dealer would oth-
                                the name, and its stated policies.                         erwise be subject to the prohibition of

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                                § 240.11d1–2                                                           17 CFR Ch. II (4–1–05 Edition)

                                section 11(d)(1) with respect to 50 per-                   U.S.C. 78o(b)(1)) that is also a futures
                                cent or less of all the securities of the                  commission merchant registered pur-
                                same class which are outstanding or                        suant to section 4f(a)(1) of the Com-
                                currently being distributed, and such                      modity Exchange Act (7 U.S.C. 6f(a)(1)),
                                broker and dealer sold the security to                     to the extent that it effects trans-
                                the customer or bought the security                        actions for customers in security fu-
                                for the customer’s account on a day                        tures products in a futures account (as
                                when he was not participating in the                       that term is defined in § 240.15c3–
                                distribution of any new issue of such                      3(a)(15)), is exempt from section 11(d)(2)
                                security. A brokerdealer shall be                          of the Act (15 U.S.C. 78k(d)(2)).
                                deemed to be participating in a dis-                       [67 FR 58313, Sept. 13, 2002]
                                tribution of a new issue if (1) he owns,
                                directly or indirectly, any undistrib-                            REGISTRATION OF SECURITIES
                                uted security of such issue, or (2) he is                          INFORMATION PROCESSORS
                                engaged in any stabilizing activities to
                                facilitate a distribution of such issue,                   § 240.11Aa2–1 Designation of national
                                or (3) he is a party to any syndicate                          market system securities.
                                agreement under which such stabi-                             The term national market system secu-
                                lizing activities are being or may be                      rity shall mean any reported security
                                undertaken, or (4) he is a party to an                     as defined in Rule 11Aa3–1.
                                executory agreement to purchase or
                                distribute such issue.                                     [52 FR 24153, June 29, 1987]

                                (Secs. 3, 11, 48 Stat. 882, 891; 15 U.S.C. 78c,            § 240.11Aa3–1 Dissemination of trans-
                                78k)                                                            action reports and last sale data
                                                                                                with respect to transactions in re-
                                [13 FR 8184, Dec. 22, 1948]
                                                                                                ported securities.
                                § 240.11d1–2 Exemption from section                           (a) Definitions. For purposes of this
                                    11(d)(1) for certain investment com-                   section:
                                    pany securities held by broker-deal-                      (1) The term transaction report shall
                                    ers as collateral in margin ac-                        mean a report containing the price and
                                    counts.
                                                                                           volume associated with a transaction
                                   Any securities issued by a registered                   involving the purchase or sale of one or
                                open-end investment company or unit                        more round lots of a security (‘‘trans-
                                investment trust as defined in the In-                     action’’).
                                vestment Company Act of 1940 shall be                         (2) The term transaction reporting plan
                                exempted from the provisions of sec-                       shall mean any plan for collecting,
                                tion 11(d)(1) with respect to any trans-                   processing, making available or dis-
                                action by a person who is a broker and                     seminating transaction reports with
                                a dealer who, directly or indirectly, ex-                  respect to transactions in reported se-
                                tends or maintains or arranges for the                     curities filed with the Commission pur-
                                extension or maintenance of credit on                      suant to, and meeting the require-
                                such security, provided such security                      ments of, this section.
                                has been owned by the person to whom                          (3) The term effective transaction re-
                                credit would be provided for more than                     porting plan shall mean any transaction
                                30 days, or purchased by such person                       reporting plan approved by the Com-
                                pursuant to a plan for the automatic                       mission pursuant to this section.
                                reinvestment of the dividends of such                         (4) The term reported security shall
                                company or trust.                                          mean any security or class of securities
                                (Secs. 2, 3, 11, and 23, Exchange Act, 15 U.S.C.           for which transaction reports are col-
                                78b, 78c, 78k and 78w)                                     lected, processed and made available
                                [49 FR 50174, Dec. 27, 1984]                               pursuant to an effective transaction re-
                                                                                           porting plan.
                                § 240.11d2–1 Exemption from Section                           (5) The term listed equity security
                                    11(d)(2) for certain broker-dealers                    shall mean any equity security listed
                                    effecting transactions for customers                   and registered, or admitted to unlisted
                                    security futures products in futures                   trading privileges, on a national securi-
                                    accounts.                                              ties exchange (‘‘exchange’’).
                                   A broker or dealer registered pursu-                       (6) The term NASDAQ security shall
                                ant to section 15(b)(1) of the Act (15                     mean any registered equity security

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                                Securities and Exchange Commission                                                         § 240.11Aa3–1

                                for which quotation information is dis-                    members otherwise than on an ex-
                                seminated in the National Association                      change.
                                of     Securities   Dealers   Automated                       (2) Any transaction reporting plan, or
                                Quotation system (‘‘NASDAQ’’).                             any amendment thereto, filed pursuant
                                   (7) The term transaction reporting as-                  to this section shall be filed with the
                                sociation shall mean any person author-                    Commission, and considered for ap-
                                ized to implement or administer any                        proval, in accordance with the proce-
                                transaction reporting plan on behalf of                    dures set forth in paragraphs (b) and (c)
                                persons acting jointly under paragraph                     of § 240.11Aa3–2 governing national mar-
                                (b) of this section.                                       ket system plans. Any such plan, or
                                   (8) The term interrogation device shall                 amendment thereto, shall specify, at a
                                mean any securities information re-                        minimum:
                                trieval system capable of displaying                          (i) The listed equity and NASDAQ se-
                                transaction reports or last sale data,                     curities or classes of such securities for
                                upon inquiry, on a current basis on a                      which transaction reports shall be re-
                                terminal or other device.                                  quired by the plan;
                                   (9) The term moving ticker shall mean                      (ii) Reporting requirements with
                                any continuous real-time moving dis-                       repect to transactions in listed equity
                                play of transaction reports or last sale                   securities and NASDAQ securities, for
                                data (other than a market minder) pro-                     any broker or dealer subject to the
                                vided on an interrogation or other dis-                    plan;
                                play device.
                                                                                              (iii) The manner of collecting, proc-
                                   (10) The term market minder shall
                                                                                           essing, sequencing, making available
                                mean any service provided by a vendor
                                                                                           and disseminating transaction reports
                                on an interrogation device or other dis-
                                                                                           and last sale data reported pursuant to
                                play which (i) permits real-time moni-
                                                                                           such plan;
                                toring, on a dynamic basis, of trans-
                                                                                              (iv) The manner such transaction re-
                                action reports or last sale data with re-
                                                                                           ports reported pursuant to such plan
                                spect to a particular security, and (ii)
                                                                                           are to be consolidated with transaction
                                displays the most recent transaction
                                                                                           reports from exchanges and associa-
                                report or last sale data with respect to
                                                                                           tions reported pursuant to any other
                                that security until such report or data
                                                                                           effective transaction reporting plan;
                                has been superseded or supplemented
                                by the display of a new transaction re-                       (v) The applicable standards and
                                port or last sale data reflecting the                      methods which will be utilized to en-
                                next reported transaction in that secu-                    sure promptness of reporting, and accu-
                                rity.                                                      racy and completeness of transaction
                                   (11) The term vendor shall mean any                     reports;
                                securities information processor en-                          (vi) Any rules or procedures which
                                gaged in the business of disseminating                     may be adopted to ensure that trans-
                                transaction reports or last sale data                      action reports or last sale data will not
                                with respect to transactions in re-                        be disseminated in a fraudulent or ma-
                                ported securities to brokers, dealers or                   nipulative manner;
                                investors on a real-time or other cur-                        (vii) Specific terms of access to
                                rent and continuing basis, whether                         transaction reports made available or
                                through an electronic communications                       disseminated pursuant to the plan; and
                                network, moving ticker or interroga-                          (viii) That transaction reports or last
                                tion device.                                               sale data made available to any vendor
                                   (12) The term last sale data shall                      for display on an interrogation device
                                mean any price or volume data associ-                      identify the marketplace where each
                                ated with a transaction.                                   transaction was executed.
                                   (b)(1) Every exchange shall file a                         (3) No transaction reporting plan
                                transaction reporting plan regarding                       filed pursuant to this section, or any
                                transactions in listed equity and                          amendment to an effective transaction
                                NASDAQ security executed through its                       reporting plan, shall become effective
                                facilities, and every association shall                    unless approved by the Commission or
                                file a transaction reporting plan re-                      otherwise permitted in accordance
                                garding transactions in listed equity                      with the procedures set forth in
                                and NASDAQ securities executed by its                      § 240.11Aa3–2 (Rule 11Aa3–2 under the

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                                § 240.11Aa3–1                                                          17 CFR Ch. II (4–1–05 Edition)

                                Act) governing national market system                      or indirectly, the ability of any vendor
                                plans.                                                     to retransmit, for display in moving
                                  (c) Prohibitions and reporting require-                  tickers, transaction reports or last sale
                                ments. (1) No broker or dealer may exe-                    data made available pursuant to any
                                cute any transaction in, or induce or                      effective transaction reporting plan:
                                attempt to induce the purchase or sale                     Provided, however, That an exchange or
                                of, any reported security,                                 association may, by means of an effec-
                                  (i) On or through the facilities of an                   tive transaction reporting plan, condi-
                                exchange unless there is an effective                      tion such retransmission upon appro-
                                transaction reporting plan with respect                    priate undertakings to ensure that any
                                to transactions in such security exe-                      charges for the distribution of trans-
                                cuted on or through such exchange fa-                      action reports or last sale data in mov-
                                cilities; or                                               ing tickers permitted by paragraph (e)
                                  (ii) Otherwise than on an exchange                       of this section are collected.
                                unless there is an effective transaction                      (e) Charges. Nothing in this section
                                reporting plan with respect to trans-                      shall preclude any exchange or associa-
                                actions in such security executed oth-                     tion, separately or jointly, pursuant to
                                erwise than on an exchange by such                         the terms of an effective transaction
                                broker or dealer.                                          reporting plan, from imposing reason-
                                  (2) No exchange or member thereof                        able, uniform charges (irrespective of
                                shall make available or disseminate,                       geographic location) for distribution of
                                on a current and continuing basis,                         transaction reports or last sale data.
                                transaction reports or last sale data                         (f) Appeals. The Commission may, in
                                with respect to transactions in any re-                    its discretion, entertain appeals in con-
                                ported security executed through the                       nection with the implementation or op-
                                facilities of such exchange except pur-                    eration of any effective transaction re-
                                suant to an effective transaction re-                      porting plan in accordance with the
                                porting plan filed by such exchange (ei-                   provisions     of   paragraph    (e)   of
                                ther individually or jointly with other                    § 240.11Aa3–2.
                                persons).                                                     (g) Exemptions. The Commission may
                                  (3) No association or member thereof                     exempt from the provisions of this sec-
                                shall make available or disseminate,                       tion, either unconditionally or on spec-
                                on a current and continuing basis,                         ified terms and conditions, any ex-
                                transaction reports or last sale data                      change, association, broker, dealer or
                                with respect to transactions in any re-                    specified security if the Commission
                                ported security executed by a member                       determines that such exemption is con-
                                of such association otherwise than on                      sistent with the public interest, the
                                an exchange except pursuant to an ef-                      protection of investors and the removal
                                fective transaction reporting plan filed                   of impediments to, and perfection of
                                by such association (either individually                   the mechanisms of, a national market
                                or jointly with other persons).                            system.
                                  (4) Every broker or dealer who is a
                                                                                           (Secs. 2, 3, 6, 9, 10, 15, 17 and 23, Pub. L. 78–
                                member of an exchange or association                       291, 48 Stat. 881, 882, 885, 889, 891, 895, 897 and
                                shall promptly transmit to the ex-                         901, as amended by secs. 2, 3, 4, 11, 14 and 18,
                                change or association of which it is a                     Pub. L. 94–29, 89 Stat. 97, 104, 121, 137 and 155
                                member all information required by                         (15 U.S.C. 78b, 78c, 78f, 78i, 78j, 78o, 78q and
                                any effective transaction reporting                        78w); sec. 15A, as added by sec. 1, Pub. L. 75–
                                plan filed by such exchange or associa-                    719, 52 Stat. 1070, as amended by sec. 12, Pub.
                                tion (either individually or jointly with                  L. 94–29, 89 Stat. 127 (15 U.S.C. 78–3); sec. 11A,
                                other exchanges and/or associations).                      as added by sec. 7, Pub. L. 94–29, 89 Stat. 111
                                                                                           (15 U.S.C. 78k–1); 15 U.S.C. 78a et seq., as
                                  (d) Retransmission of transaction re-                    amended by Pub. L. 84–29 (June 4, 1975) and
                                ports or last sale data. On and after July                 by Pub. L. 98–38 (June 6, 1983), particularly
                                5, 1980, notwithstanding any provision                     secs. 11A, 15, 19 and 23 thereof (15 U.S.C. 78k–
                                of any effective transaction reporting                     1, 78o, 78s and 78w))
                                plan, no exchange or association may,
                                                                                           [45 FR 12388, Feb. 26, 1980, as amended at 46
                                either individually or jointly, by rule,                   FR 14006, Feb. 25, 1981; 46 FR 15872, Mar. 10,
                                stated policy or practice, transaction                     1981; 48 FR 53690, Nov. 29, 1983; 50 FR 38518,
                                reporting plan or otherwise, prohibit,                     Sept. 23, 1985; 52 FR 24153, June 29, 1987; 61 FR
                                condition or otherwise limit, directly                     48328, Sept. 12, 1996]

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                                Securities and Exchange Commission                                                         § 240.11Aa3–2

                                § 240.11Aa3–2 Filing and amendment                           (b) Filing of national market system
                                    of national market system plans.                       plans and amendments thereto. (1) Any
                                  (a) Definitions. For purposes of this                    two or more self-regulatory organiza-
                                section, (1) The term national market                      tions, acting jointly, may file a na-
                                system plan shall mean any joint self-                     tional market system plan or may pro-
                                regulatory organization plan in con-                       pose an amendment to an effective na-
                                nection with                                               tional market system plan (‘‘proposed
                                                                                           amendment’’) by submitting the text of
                                  (i) The planning, development, oper-
                                                                                           the plan or amendment to the Sec-
                                ation or regulation of a national mar-
                                                                                           retary of the Commission, together
                                ket system (or a subsystem thereof) or
                                                                                           with a statement of the purpose of such
                                one or more facilities thereof, or
                                                                                           plan or amendment and, to the extent
                                  (ii) The development and implemen-
                                                                                           applicable, the documents and informa-
                                tation of procedures and/or facilities
                                                                                           tion required by paragraphs (b)(4) and
                                designed to achieve compliance by self-
                                                                                           (5) of this section.
                                regulatory organizations and their
                                                                                             (2) The Commission may propose
                                members with any section of this sub-
                                                                                           amendments to any effective national
                                part promulgated pursuant to section
                                                                                           market system plan by publishing the
                                11A of the Act.
                                                                                           text thereof, together with a statement
                                  (2) The term effective national market                   of the purpose of such amendment, in
                                system plan shall mean any national                        accordance with the provisions of para-
                                market system plan approved by the                         graph (c) of this section.
                                Commission (either temporarily or on                         (3) Self-regulatory organizations are
                                a permanent basis) pursuant to this                        authorized to act jointly in (i) plan-
                                section.                                                   ning, developing, and operating any na-
                                  (3) The term self-regulatory organiza-                   tional market subsystem or facility
                                tion shall mean any national securities                    contemplated by a national market
                                exchange (‘‘exchange’’) or national se-                    system plan, (ii) preparing and filing a
                                curities association (‘‘association’’).                    national market system plan or any
                                  (4) The term joint self-regulatory orga-                 amendment thereto, or (iii) imple-
                                nization plan shall mean a plan as to                      menting or administering an effective
                                which two or more self-regulatory or-                      national market system plan.
                                ganizations, acting jointly, are spon-                       (4) Every national market system
                                sors.                                                      plan filed pursuant to this section, or
                                  (5) The term sponsors, when used in                      any amendment thereto, shall be ac-
                                connection with a national market sys-                     companied by (i) copies of all gov-
                                tem plan, shall mean any self-regu-                        erning or constituent documents relat-
                                latory organization which is a signa-                      ing to any person (other than a self-
                                tory to such plan and has agreed to act                    regulatory organization) authorized to
                                in accordance with the terms of the                        implement or administer such plan on
                                plan.                                                      behalf of its sponsors and (ii), to the
                                  (6) The term participants, when used                     extent applicable,
                                in connection with a national market                         (A) A detailed description of the
                                system plan, shall mean any self-regu-                     manner in which the plan or amend-
                                latory organization which has agreed                       ment, and any facility or procedure
                                to act in accordance with the terms of                     contemplated by the plan or amend-
                                the plan but which is not a signatory of                   ment, will be implemented;
                                such plan.                                                   (B) A listing of all significant phases
                                  (7) The term plan processor shall                        of development and implementation
                                mean any self-regulatory organization                      (including any pilot phase) con-
                                or securities information processor act-                   templated by the plan or amendment,
                                ing as an exclusive processor in connec-                   together with the projected date of
                                tion with the development, implemen-                       completion of each phase;
                                tation and/or operation of any facility                      (C) An analysis of the impact on com-
                                contemplated by an effective national                      petition of implementation of the plan
                                market system plan.                                        or amendment or of any facility con-
                                  (8) The term vendor shall have the                       templated by the plan or amendment;
                                meaning provided in § 240.11Aa3–1 (Rule                      (D) A description of any written un-
                                11Aa3–1 under the Act).                                    derstandings or agreements between or

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                                § 240.11Aa3–2                                                          17 CFR Ch. II (4–1–05 Edition)

                                among plan sponsors or particpants re-                       (7) Any national market system plan
                                lating to interpretations of the plan or                   (or any amendment thereto) which is
                                conditions for becoming a sponsor or                       intended by the sponsors to satisfy a
                                participant in the plan; and                               plan filing requirement contained in
                                  (E) In the case of a proposed amend-                     any other section of this subpart shall,
                                ment, a statement that such amend-                         in addition to compliance with this
                                ment has been approved by the spon-                        section, also comply with the require-
                                sors in accordance with the terms of                       ments of such other section.
                                the plan.                                                    (c) Effectiveness of national market sys-
                                  (5) Every national market system                         tem plans. (1) The Commission shall
                                plan, or any amendment thereto, filed                      publish notice of the filing of any na-
                                pursuant to this section shall include a                   tional market system plan, or any pro-
                                description of the manner in which any                     posed amendment to any effective na-
                                facility contemplated by the plan or                       tional market system plan (including
                                amendment will be operated. Such de-                       any amendment initiated by the Com-
                                scription shall include, to the extent                     mission), together with the terms of
                                applicable,                                                substance of the filing or a description
                                  (i) The terms and conditions under                       of the subjects and issues involved, and
                                which brokers, dealers, and/or self-reg-                   shall provide interested persons an op-
                                ulatory organizations will be granted                      portunity to submit written comments.
                                                                                           No national market system plan, or
                                or denied access (including specific pro-
                                                                                           any amendment thereto, shall become
                                cedures and standards governing the
                                                                                           effective unless approved by the Com-
                                granting or denial of access);
                                                                                           mission or otherwise permitted in ac-
                                  (ii) The method by which any fees or                     cordance with paragraph (c)(3) of this
                                charges collected on behalf of all of the                  section.
                                sponsors and/or participants in connec-                      (2) Within 120 days of the date of pub-
                                tion with access to, or use of, any facil-                 lication of notice of filing of a national
                                ity contemplated by the plan or                            market system plan or an amendment
                                amendment will be determined and im-                       to an effective national market system
                                posed (including any provision for dis-                    plan, or within such longer period as
                                tribution of any net proceeds from such                    the Commission may designate up to
                                fees or charges to the sponsors and/or                     180 days of such date if it finds such
                                participants) and the amount of such                       longer period to be appropriate and
                                fees or charges;                                           publishes its reasons for so finding or
                                  (iii) The method by which, and the                       as to which the sponsors consent, the
                                frequency with which, the performance                      Commission shall approve such plan or
                                of any person acting as plan processor                     amendment, with such changes or sub-
                                with respect to the implementation                         ject to such conditions as the Commis-
                                and/or operation of the plan will be                       sion may deem necessary or appro-
                                evaluated; and                                             priate, if it finds that such plan or
                                  (iv) The method by which disputes                        amendment is necessary or appropriate
                                arising in connection with the oper-                       in the public interest, for the protec-
                                ation of the plan will be resolved.                        tion of investors and the maintenance
                                  (6) In connection with the selection                     of fair and orderly markets, to remove
                                of any person to act as plan processor                     impediments to, and perfect the mech-
                                with respect to any facility con-                          anisms of, a national market system,
                                templated by a national market sys-                        or otherwise in furtherance of the pur-
                                tem plan (including renewal of any                         poses of the Act. Approval of a national
                                contract for any person to so act), the                    market system plan, or an amendment
                                sponsors shall file with the Commis-                       to an effective national market system
                                sion a statement identifying the person                    plan (other than an amendment initi-
                                selected, describing the material terms                    ated by the Commission), shall be by
                                under which such person is to serve as                     order. Promulgation of an amendment
                                plan processor, and indicating the so-                     to an effective national market system
                                licitation efforts, if any, for alter-                     plan initiated by the Commission shall
                                native plan processors, the alternatives                   be by rule.
                                considered and the reasons for selec-                        (3) A proposed amendment may be
                                tion of such person.                                       put into effect upon filing with the

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                                Securities and Exchange Commission                                                         § 240.11Aa3–2

                                Commission if designated by the spon-                      designed to achieve compliance by self-
                                sors as:                                                   regulatory organizations and/or their
                                  (i) Establishing or changing a fee or                    members of any section of this subpart
                                other charge collected on behalf of all                    promulguated pursuant to section 11A
                                of the sponsors and/or participants in                     of the Act, approved by the Commis-
                                connection with access to, or use of,                      sion pursuant to section 11A of the Act
                                any facility contemplated by the plan                      (or pursuant to any rule or regulation
                                or amendment (including changes in                         thereunder) prior to the effective date
                                any provision with respect to distribu-                    of this section (either temporarily or
                                tion of any net proceeds from such fees                    on a permanent basis) shall be deemed
                                or other charges to the sponsors and/or                    to have been filed and approved pursu-
                                participants);                                             ant to this section and no additional
                                  (ii) Concerned solely with the admin-                    filing need be made by the sponsors
                                istration of the plan, or involving the                    with respect to such plan or amend-
                                governing or constituent documents re-                     ment; Provided, however, That all terms
                                lating to any person (other than a self-                   and conditions associated with any
                                regulatory organization) authorized to                     such approval (including time limita-
                                implement or administer such plan on                       tions) shall continue to be applicable;
                                behalf of its sponsors; or                                 and, Provided, further, That any amend-
                                  (iii) Involving solely technical or                      ment to such plan filed with or ap-
                                ministerial matters. At any time with-                     proved by the Commission on or after
                                in 60 days of the filing of any such                       the effective date of this section shall
                                amendment, the Commission may sum-                         be subject to the provisions of, and
                                marily abrogate the amendment and                          considered in accordance with the pro-
                                require that such amendment be refiled                     cedures specified in, this section.
                                in accordance with paragraph (b)(1) of                        (d) Compliance with terms of national
                                this section and reviewed in accordance                    market system plans. Each self-regu-
                                with paragraph (c)(2) of this section, if                  latory organization shall comply with
                                it appears to the Commission that such                     the terms of any effective national
                                action is necessary or appropriate in                      market system plan of which it is a
                                the public interest, for the protection                    sponsor or a participant. Each self-reg-
                                of investors, or the maintenance of fair                   ulatory organization also shall, absent
                                and orderly markets, to remove im-                         reasonable justification or excuse, en-
                                pediments to, and perfect mechanisms                       force compliance with any such plan by
                                of, a national market system or other-                     its members and persons associated
                                wise in furtherance of the purposes of                     with its members.
                                the Act.                                                      (e) Appeals. The Commission may, in
                                  (4) Notwithstanding the provisions of                    its discretion, entertain appeals in con-
                                paragraph (c)(1) of this section, a pro-                   nection with the implementation or op-
                                posed amendment may be put into ef-                        eration of any effective national mar-
                                fect summarily upon publication of no-                     ket system plan as follows:
                                tice of such amendment, on a tem-                             (1) Any action taken or failure to act
                                porary basis not to exceed 120 days, if                    by any person in connection with an ef-
                                the Commission finds that such action                      fective national market system plan
                                is necessary or appropriate in the pub-                    (other than a prohibition or limitation
                                lic interest, for the protection of inves-                 of access reviewable by the Commis-
                                tors or the maintenance of fair and or-                    sion pursuant to section 11A(b)(5) or
                                derly markets, to remove impediments                       section 19(d) of the Act) shall be sub-
                                to, and perfect mechanisms of, a na-                       ject to review by the Commission, on
                                tional market system or otherwise in                       its own motion or upon application by
                                furtherance of the purposes of the Act.                    any person aggrieved thereby (includ-
                                  (5) Any plan (or amendment thereto)                      ing, but not limited to, self-regulatory
                                in connection with:                                        organizations, brokers, dealers, issuers,
                                  (i) The planning, development, oper-                     and vendors), filed not later than 30
                                ation or regulation of a national mar-                     days after notice of such action or fail-
                                ket system (or a subsystem thereof) or                     ure to act or within such longer period
                                one or more facilities thereof; or                         as the Commission may determine.
                                  (ii) The development and implemen-                          (2) Application to the Commission for
                                tation of procedures and/or facilities                     review, or the institution of review by

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                                § 240.11Aa3–2                                                          17 CFR Ch. II (4–1–05 Edition)

                                the Commission on its own motion,                          ments to, and perfection of the mecha-
                                shall not operate as a stay of any such                    nisms of, a national market system.
                                action unless the Commission deter-
                                                                                           [46 FR 15870, Mar. 10, 1981, as amended at 48
                                mines otherwise, after notice and op-                      FR 53690, Nov. 29, 1983; 69 FR 60300, Oct. 8,
                                portunity for hearing on the question                      2004]
                                of a stay (which hearing may consist
                                                                                             EFFECTIVE DATE NOTE: At 69 FR 60300, Oct.
                                only of affidavits or oral arguments).
                                                                                           8, 2004, § 240.11Aa3–2 was amended by adding
                                   (3) In any proceedings for review, if                   paragraph (b)(8) effective May 9, 2005. For the
                                the Commission, after appropriate no-                      convenience of the user, the added text is set
                                tice and opportunity for hearing (which                    forth as follows:
                                hearing may consist solely of consider-
                                ation of the record of any proceedings                     § 240.11Aa3–2 Filing and amendment of na-
                                                                                               tional market system plans.
                                conducted in connection with such ac-
                                tion or failure to act and an oppor-
                                tunity for the presentation of reasons                          *         *       *         *       *
                                supporting or opposing such action or                        (b) * * *
                                failure to act) and upon consideration                       (8)(i) A participant in an effective national
                                of such other data, views and argu-                        market system plan shall ensure that a cur-
                                ments as it deems relevant, finds that                     rent and complete version of the plan is post-
                                the action or failure to act is in accord-                 ed on a plan Web site or on a Web site des-
                                                                                           ignated by plan participants within two busi-
                                ance with the applicable provisions of
                                                                                           ness days after notification by the Commis-
                                such plan and that the applicable pro-                     sion of effectiveness of the plan. Each partic-
                                visions are, and were, applied in a man-                   ipant in an effective national market system
                                ner consistent with the public interest,                   plan shall ensure that such Web site is up-
                                the protection of investors, the mainte-                   dated to reflect amendments to such plan
                                nance of fair and orderly markets and                      within two business days after the plan par-
                                the removal of impediments to, and                         ticipants have been notified by the Commis-
                                perfection of the mechanisms of, a na-                     sion of its approval of a proposed amendment
                                tional market system, the Commission,                      pursuant to paragraph (c) of this section. If
                                                                                           the amendment is not effective for a certain
                                by order, shall dismiss the proceeding.                    period, the plan participants shall clearly in-
                                If the Commission does not make any                        dicate the effective date in the relevant text
                                such finding, or if it finds that such ac-                 of the plan. Each plan participant also shall
                                tion or failure to act imposes any bur-                    provide a link on its own Web site to the Web
                                den on competition not necessary or                        site with the current version of the plan.
                                appropriate in furtherance of the pur-                       (ii) The plan participants shall ensure that
                                poses of the Act, the Commission, by                       any proposed amendments filed pursuant to
                                order, shall set aside such action and/or                  paragraph (b) of this section are posted on a
                                                                                           plan Web site or a designated Web site no
                                require such action with respect to the
                                                                                           later than two business days after the filing
                                matter reviewed as the Commission                          of the proposed amendments with the Com-
                                deems necessary or appropriate in the                      mission. The plan participants shall main-
                                public interest, for the protection of in-                 tain any proposed amendment to the plan on
                                vestors, and the maintenance of fair                       a plan Web site or a designated Web site
                                and orderly markets, or to remove im-                      until the Commission approves the plan
                                pediments to, and perfect the mecha-                       amendment and the plan participants update
                                nisms of, a national market system.                        the Web site to reflect such amendment or
                                                                                           the plan participants withdraw the proposed
                                   (f) Exemptions. The Commission may
                                                                                           amendment. If the plan participants with-
                                exempt from the provisions of this sec-                    draw proposed amendments, the plan partici-
                                tion, either unconditionally or on spec-                   pants shall remove such amendments from
                                ified terms and conditions, any self-                      the plan Web site or designated Web site
                                regulatory      organization,     member                   within two business days of withdrawal.
                                thereof, or specified security, if the                     Each plan participant shall provide a link to
                                Commission determines that such ex-                        the Web site with the current version of the
                                emption is consistent with the public                      plan.
                                interest, the protection of investors,
                                the maintenance of fair and orderly                             *         *       *         *       *
                                markets and the removal of impedi-


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                                Securities and Exchange Commission                                                         § 240.11Ac1–1

                                § 240.11Ab2–1 Registration of securi-                      porting system, including a trans-
                                     ties information processors: Form                     action reporting system operating pur-
                                     of application and amendments.                        suant to an effective national market
                                   (a) An application for the registra-                    system plan.
                                tion of a securities information proc-                       (6) The term covered security shall
                                essor shall be filed on Form SIP in ac-                    mean any reported security and any
                                cordance with the instructions con-                        other security for which a transaction
                                tained therein.                                            report, last sale data or quotation in-
                                   (b) If any information reported in                      formation is disseminated through an
                                items 1–13 or item 21 of Form SIP or in                    automated quotation system as de-
                                any amendment thereto is or becomes                        scribed in Section 3(a)(51)(A)(ii) of the
                                inaccurate for any reason, whether be-                     Act (15 U.S.C. 78c(a)(51)(A)(ii)).
                                fore or after the registration has been                      (7) The term effective transaction re-
                                granted, the securities information                        porting plan shall have the meaning
                                processor shall promptly file an                           provided in § 240.11Aa3–1(a)(3).
                                amendment on Form SIP correcting                             (8) The term electronic communications
                                such information.                                          network, for the purposes of § 240.11Ac1–
                                   (c) The Commission, upon its own                        1(c)(5), shall mean any electronic sys-
                                motion or upon application by any se-                      tem that widely disseminates to third
                                curities information processor, may                        parties orders entered therein by an ex-
                                conditionally or unconditionally ex-                       change market maker or OTC market
                                empt any securities information proc-                      maker, and permits such orders to be
                                essor from any provision of the rules or                   executed against in whole or in part;
                                regulations adopted under section                          except that the term electronic com-
                                11A(b).                                                    munications network shall not include:
                                   (d) Every amendment filed pursuant                        (i) Any system that crosses multiple
                                to this section shall constitute a ‘‘re-                   orders at one or more specified times
                                port’’ within the meaning of sections                      at a single price set by the ECN (by al-
                                17(a), 18(a) and 32(a) of the Act.                         gorithm or by any derivative pricing
                                [40 FR 45424, Oct. 2, 1975]                                mechanism) and does not allow orders
                                                                                           to be crossed or executed against di-
                                § 240.11Ac1–1 Dissemination            of                  rectly by participants outside of such
                                     quotations.                                           times; or
                                   (a) Definitions. For the purposes of                      (ii) Any system operated by, or on be-
                                this section:                                              half of, an OTC market maker or ex-
                                   (1) The term aggregate quotation size                   change market maker that executes
                                shall mean the sum of the quotation                        customer orders primarily against the
                                sizes of all responsible brokers or deal-                  account of such market maker as prin-
                                ers who have communicated on any ex-                       cipal, other than riskless principal.
                                change bids or offers for a covered se-                      (9) The term exchange market maker
                                curity at the same price.                                  shall mean any member of a national
                                   (2) The term association shall mean                     securities exchange (‘‘exchange’’) who
                                any association of brokers and dealers                     is registered as a specialist or market
                                registered pursuant to Section 15A of                      maker pursuant to the rules of such ex-
                                the Act (15 U.S.C. 78o–3).                                 change.
                                   (3) The terms best bid and best offer                     (10) The term exchange-traded security
                                shall mean the highest priced bid and                      shall mean any covered security or
                                the lowest priced offer.                                   class of covered securities listed and
                                   (4) The terms bid and offer shall mean                  registered, or admitted to unlisted
                                the bid price and the offer price com-                     trading privileges, on an exchange; pro-
                                municated by an exchange member or                         vided, however, That securities not list-
                                OTC market maker to any broker or                          ed on any exchange that are traded
                                dealer, or to any customer, at which it                    pursuant to unlisted trading privileges
                                is willing to buy or sell one or more                      are excluded.
                                round lots of a covered security, as ei-                     (11) The term make available, when
                                ther principal or agent, but shall not                     used with respect to bids, offers,
                                include indications of interest.                           quotation      sizes    and      aggregate
                                   (5) The term consolidated system                        quotation sizes supplied to quotation
                                means the consolidated transaction re-                     vendors by an exchange or association,

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                                § 240.11Ac1–1                                                          17 CFR Ch. II (4–1–05 Edition)

                                shall mean to provide circuit connec-                      to buy at the bid price or sell at the
                                tions at the premises of the exchange                      offer price comprising its bid or offer,
                                or association supplying such data, or                     as either principal or agent; or
                                at a common location determined by                           (ii) In the event such responsible
                                mutual agreement of the exchanges                          broker or dealer has not so specified, a
                                and associations, for the delivery of                      normal unit of trading for that covered
                                such data to quotation vendors.                            security.
                                   (12) The term odd-lot shall mean an                       (19) The term quotation vendor shall
                                order for the purchase or sale of a cov-                   mean any securities information proc-
                                ered security in an amount less than a                     essor engaged in the business of dis-
                                round lot.                                                 seminating to brokers, dealers or in-
                                   (13) The term OTC market maker shall                    vestors on a real-time basis, bids and
                                mean any dealer who holds itself out as                    offers made available pursuant to this
                                being willing to buy from and sell to                      section, whether distributed through
                                its customers, or otherwise, a covered                     an electronic communications network
                                security for its own account on a reg-                     or displayed on a terminal or other dis-
                                ular or continuous basis otherwise                         play device.
                                than on an exchange in amounts of less                       (20) The term reported security means
                                than block size.                                           any security or class of securities for
                                   (14) The term plan processor shall                      which transaction reports are col-
                                have     the    meaning    provided    in
                                                                                           lected, processed and made available
                                § 240.11Aa3–2(a)(7).
                                                                                           pursuant to an effective transaction re-
                                   (15) The term published aggregate
                                                                                           porting plan, or an effective national
                                quotation size shall mean the aggregate
                                                                                           market system plan for reporting
                                quotation size calculated by an ex-
                                                                                           transactions in listed options.
                                change and displayed by a quotation
                                vendor on a terminal or other display                        (21) The term responsible broker or
                                device at the time an order is presented                   dealer shall mean:
                                for execution to a responsible broker or                     (i) When used with respect to bids or
                                dealer.                                                    offers communicated on an exchange,
                                   (16) The terms published bid and pub-                   any member of such exchange who
                                lished offer shall mean the bid or offer                   communicates to another member on
                                of a responsible broker or dealer for a                    such exchange, at the location (or loca-
                                covered security communicated by it                        tions) designated by such exchange for
                                to its exchange or association pursuant                    trading in a covered security, a bid or
                                to this section and displayed by a                         offer for such covered security, as ei-
                                quotation vendor on a terminal or                          ther principal or agent; provided, how-
                                other display device at the time an                        ever, That, in the event two or more
                                order is presented for execution to such                   members of an exchange have commu-
                                responsible broker or dealer.                              nicated on such exchange bids or offers
                                   (17) The term published quotation size                  for a covered security at the same
                                shall mean the quotation size of a re-                     price, each such member shall be con-
                                sponsible broker or dealer commu-                          sidered a ‘‘responsible broker or deal-
                                nicated by it to its exchange or asso-                     er’’ for that bid or offer, subject to the
                                ciation pursuant to this section and                       rules of priority and precedence then in
                                displayed by a quotation vendor on a                       effect on that exchange; and further
                                terminal or other display device at the                    provided, That for a bid or offer which
                                time an order is presented for execu-                      is transmitted from one member of an
                                tion to such responsible broker or deal-                   exchange to another member who un-
                                er.                                                        dertakes to represent such bid or offer
                                   (18) The term quotation size, when                      on such exchange as agent, only the
                                used with respect to a responsible bro-                    last member who undertakes to rep-
                                ker’s or dealer’s bid or offer for a cov-                  resent such bid or offer as agent shall
                                ered security, shall mean:                                 be considered the ‘‘responsible broker
                                   (i) The number of shares (or units of                   or dealer’’ for that bid or offer; and
                                trading) of that covered security which                      (ii) When used with respect to bids
                                such responsible broker or dealer has                      and offers communicated by a member
                                specified, for purposes of dissemination                   of an association to another broker or
                                to quotation vendors, that it is willing                   dealer or to a customer otherwise than

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                                Securities and Exchange Commission                                                         § 240.11Ac1–1

                                on an exchange, the member commu-                            (B) Any other covered security for
                                nicating the bid or offer (regardless of                   which such member acts in the capac-
                                whether such bid or offer is for its own                   ity of an OTC market maker and has in
                                account or on behalf of another per-                       effect an election, pursuant to para-
                                son).                                                      graph (b)(5)(ii) of this section, to com-
                                  (22) The term revised bid or offer shall                 municate to its association bids, offers
                                mean a market maker’s bid or offer                         and quotation sizes for the purpose of
                                which supersedes its published bid or                      making such bids, offers and quotation
                                published offer.                                           sizes available to quotation vendors.
                                  (23) The term revised quotation size                       (26) The term customer means any
                                shall    mean     a   market     maker’s                   person that is not a registered broker-
                                quotation size which supersedes its                        dealer.
                                published quotation size.                                    (27) The term listed option means any
                                  (24) The term specified persons, when                    option traded on a registered national
                                used in connection with any notifica-                      securities exchange or automated facil-
                                tion required to be provided pursuant                      ity of a national securities association.
                                to paragraph (b)(3) of this section and                      (28) The term options class means all
                                any election (or withdrawal thereof)                       of the put option or call option series
                                permitted under paragraph (b)(5) of                        overlying a security, as defined in Sec-
                                this section, shall mean:                                  tion 3(a)(10) of the Act (15 U.S.C.
                                  (i) Each quotation vendor;                               78c(a)(10)).
                                  (ii) Each plan processor; and                              (29) The term options series means the
                                  (iii) The processor for the Options                      contracts in an options class that have
                                Price Reporting Authority (in the case                     the same unit of trade, expiration date,
                                of a notification for a subject security                   and exercise price, and other terms or
                                which is a class of securities under-                      conditions.
                                lying options admitted to trading on                         (30) The term trading rotation means,
                                any exchange).                                             with respect to an options class, the
                                  (25) The term subject security shall                     time period on an exchange during
                                mean:                                                      which:
                                  (i) With respect to an exchange:                           (i) Opening, re-opening, or closing
                                  (A) Any exchange-traded security                         transactions in options series in such
                                other than a security for which the ex-                    options class are not yet completed;
                                ecuted volume of such exchange, dur-                       and
                                ing the most recent calendar quarter,                        (ii) Continuous trading has not yet
                                comprised one percent or less of the ag-                   commenced or has not yet ended for
                                gregate trading volume for such secu-                      the day in options series in such op-
                                rity as reported in the consolidated                       tions class.
                                system; and                                                  (b) Dissemination requirements for ex-
                                  (B) Any other covered security for                       changes and associations. (1) Every ex-
                                which such exchange has in effect an                       change and association shall establish
                                election, pursuant to paragraph (b)(5)(i)                  and maintain procedures and mecha-
                                of this section, to collect, process, and                  nisms for collecting bids, offers,
                                make available to quotation vendors,                       quotation      sizes    and     aggregate
                                bids, offers, quotation sizes, and aggre-                  quotation sizes from responsible bro-
                                gate quotation sizes communicated on                       kers or dealers who are members of
                                such exchange; and                                         such exchange or association, proc-
                                  (ii) With respect to a member of an                      essing such bids, offers and sizes, and
                                association:                                               making such bids, offers and sizes
                                  (A) Any exchange-traded security for                     available to quotation vendors, as fol-
                                which such member acts in the capac-                       lows:
                                ity of an OTC market maker unless the                        (i) Each exchange shall at all times
                                executed volume of such member, dur-                       such exchange is open for trading, col-
                                ing the most recent calendar quarter,                      lect, process and make available to
                                comprised one percent or less of the ag-                   quotation vendors the best bid, the
                                gregate trading volume for such secu-                      best offer, and aggregate quotation
                                rity as reported in the consolidated                       sizes for each subject security listed or
                                system; and                                                admitted to unlisted trading privileges

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                                § 240.11Ac1–1                                                          17 CFR Ch. II (4–1–05 Edition)

                                which is communicated on any ex-                           this section in a manner that accu-
                                change by any responsible broker or                        rately reflects the current state of the
                                dealer, but shall not include:                             market on such exchange, such ex-
                                  (A) Any bid or offer executed imme-                      change shall immediately notify all
                                diately after communication and any                        specified persons of that determina-
                                bid or offer communicated by a respon-                     tion. Upon such notification, respon-
                                sible broker or dealer other than an ex-                   sible brokers or dealers that are mem-
                                change market maker which is can-                          bers of that exchange shall be relieved
                                celled or withdrawn if not executed im-                    of their obligation under paragraph
                                mediately after communication; and                         (c)(2) and (d)(3) of this section and such
                                  (B) Any bid or offer communicated                        exchange shall be relieved of its obliga-
                                during a period when trading in that                       tions under paragraphs (b) (1) and (2) of
                                security has been suspended or halted,                     this section for that security: provided,
                                or prior to the commencement of trad-                      however, That such exchange will con-
                                ing in that security on any trading                        tinue, to the maximum extent prac-
                                day, on that exchange.                                     ticable under the circumstances, to
                                  (ii) Each association shall, at all                      collect, process, and make available to
                                times that last sale information with                      quotation vendors data for that secu-
                                respect to reported securities is re-                      rity in accordance with paragraph
                                ported pursuant to an effective trans-                     (b)(1) of this section.
                                action reporting plan, collect, process                      (ii) During any period an exchange,
                                and make available to quotation ven-                       or any responsible broker or dealer
                                dors the best bid, best offer, and                         that is a member of that exchange, is
                                quotation sizes communicated other-                        relieved of any obligation imposed by
                                wise than on an exchange by each                           this section for any subject security by
                                member of such association acting in                       virtue of a notification made pursuant
                                the capacity of an OTC market maker                        to paragraph (b)(3)(i) of this section,
                                for each subject security and the iden-                    such exchange shall monitor the activ-
                                tity of that member (excluding any bid                     ity or conditions which formed the
                                or offer executed immediately after                        basis for such notification and shall
                                communication), except during any pe-                      immediately renotify all specified per-
                                riod when over-the-counter trading in                      sons when that exchange is once again
                                that security has been suspended.                          capable of collecting, processing, and
                                  (2) Each exchange shall, with respect                    making available to quotation vendors
                                to each published bid and published                        the data for that security required to
                                offer representing a bid or offer of a                     be made available pursuant to para-
                                member for a subject security, estab-                      graph (b)(1) of this section in a manner
                                lish and maintain procedures for                           that accurately reflects the current
                                ascertaining and disclosing to other                       state of the market on such exchange.
                                members of that exchange, upon pres-                       Upon such renotification, any exchange
                                entation of orders sought to be exe-                       or responsible broker or dealer which
                                cuted by them in reliance upon para-                       had been relieved of any obligation im-
                                graph (c)(2) of this section, the identity                 posed by this section as a consequence
                                of the responsible broker or dealer who                    of the prior notification shall again be
                                made such bid or offer and the                             subject to such obligation.
                                quotation size associated with it.                           (4) Nothing in this section shall pre-
                                  (3)(i) If, at any time an exchange is                    clude any exchange or association from
                                open for trading, such exchange deter-                     making available to quotation vendors
                                mines, pursuant to rules approved by                       indications of interest or bids and of-
                                the Securities and Exchange Commis-                        fers for a subject security at any time
                                sion pursuant to section 19(b)(2) of the                   such exchange or association is not re-
                                Act (15 U.S.C. 78s(b)(2)), that the level                  quired to do so pursuant to paragraph
                                of trading activities or the existence of                  (b)(1) of this section.
                                unusual market conditions is such that                       (5)(i) Any exchange may make an
                                the exchange is incapable of collecting,                   election for purposes of paragraph
                                processing, and making available to                        (a)(25)(i)(B) of this section for any cov-
                                quotation vendors the data for a sub-                      ered security, by collecting, processing,
                                ject security required to be made avail-                   and making available bids, offers,
                                able pursuant to paragraph (b)(1) of                       quotation       sizes,   and     aggregate

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                                Securities and Exchange Commission                                                         § 240.11Ac1–1

                                quotation sizes in that security; except                   tion with execution of any such order)
                                that for any covered security pre-                         in any amount up to its published
                                viously listed or admitted to unlisted                     quotation size.
                                trading privileges on only one ex-                            (3)(i) No responsible broker or dealer
                                change and not traded by any OTC                           shall be obligated to execute a trans-
                                market maker, such election shall be                       action for any subject security as pro-
                                made by notifying all specified persons,                   vided in paragraph (c)(2) of this section
                                and shall be effective at the opening of                   to purchase or sell that subject secu-
                                trading on the business day following                      rity in an amount greater than such re-
                                notification.                                              vised quotation if:
                                  (ii) Any member of an association                           (A) Prior to the presentation of an
                                acting in the capacity of an OTC mar-                      order for the purchase or sale of a sub-
                                ket maker may make an election for                         ject security, a responsible broker or
                                purposes of paragraph (a)(25)(ii)(B) of                    dealer has communicated to its ex-
                                this section for any covered security,                     change or association, pursuant to
                                by communicating to its association                        paragraph (c)(1) of this section, a re-
                                bids, offers, and quotation sizes in that                  vised quotation size; or
                                security; except that for any other cov-                      (B) At the time an order for the pur-
                                ered security listed or admitted to un-                    chase or sale of a subject security is
                                listed trading privileges on only one                      presented, a responsible broker or deal-
                                exchange and not traded by any other
                                                                                           er is in the process of effecting a trans-
                                OTC market maker, such election shall
                                                                                           action in such subject security, and im-
                                be made by notifying its association
                                                                                           mediately after the completion of such
                                and all specified persons, and shall be
                                                                                           transaction, it communicates to its ex-
                                effective at the opening of trading on
                                                                                           change or association a revised
                                the business day following notification.
                                                                                           quotation size, such responsible broker
                                  (iii) The election of an exchange or
                                                                                           or dealer shall not be obligated by
                                member of an association for any cov-
                                                                                           paragraph (c)(2) of this section to pur-
                                ered security pursuant to this para-
                                                                                           chase or sell that subject security in an
                                graph (b)(5) shall cease to be in effect if
                                                                                           amount greater than such revised
                                such exchange or member ceases to
                                make available or communicate bids,                        quotation size.
                                offers, and quotation sizes in such secu-                     (ii) No responsible broker or dealer
                                rity.                                                      shall be obligated to execute a trans-
                                  (c) Obligations of responsible brokers                   action for any subject security as pro-
                                and dealers. (1) Each responsible broker                   vided in paragraph (c)(2) of this section
                                or dealer shall promptly communicate                       if:
                                to its exchange or association, pursu-                        (A) Before the order sought to be exe-
                                ant to the procedures established by                       cuted is presented, such responsible
                                that exchange or association, its best                     broker or dealer has communicated to
                                bids, best offers, and quotation sizes for                 its exchange or association pursuant to
                                any subject security.                                      paragraph (c)(1) of this section, a re-
                                  (2) Subject to the provisions of para-                   vised bid or offer; or
                                graph (c)(3) of this section, each re-                        (B) At the time the order sought to
                                sponsible broker or dealer shall be obli-                  be executed is presented, such respon-
                                gated to execute any order to buy or                       sible broker or dealer is in the process
                                sell a subject security, other than an                     of effecting a transaction in such sub-
                                odd-lot order, presented to it by an-                      ject security, and, immediately after
                                other broker or dealer, or any other                       the completion of such transaction,
                                person belonging to a category of per-                     such responsible broker or dealer com-
                                sons with whom such responsible                            municates to its exchange or associa-
                                broker or dealer customarily deals, at                     tion pursuant to paragraph (c)(1) of
                                a price at least as favorable to such                      this section, a revised bid or offer; pro-
                                buyer or seller as the responsible bro-                    vided, however, That such responsible
                                ker’s or dealer’s published bid or pub-                    broker or dealer shall nonetheless be
                                lished offer (exclusive of any commis-                     obligated to execute any such order in
                                sion, commission equivalent or dif-                        such subject security as provided in
                                ferential customarily charged by such                      paragraph (c)(2) of this section at its
                                responsible broker or dealer in connec-                    revised bid or offer in any amount up

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                                § 240.11Ac1–1                                                          17 CFR Ch. II (4–1–05 Edition)

                                to its published quotation size or re-                     acting on behalf of one or more ex-
                                vised quotation size.                                      changes or associations) the prices and
                                  (4) Subject to the provisions of para-                   sizes of the orders at the highest buy
                                graph (b)(4) of this section:                              price and the lowest sell price for such
                                  (i) No exchange or OTC market                            security entered in, and widely dis-
                                maker may make available, dissemi-                         seminated by, the electronic commu-
                                nate or otherwise communicate to any                       nications network by exchange market
                                quotation vendor, directly or indi-                        makers and OTC market makers for
                                rectly, for display on a terminal or                       the covered security, and such prices
                                other display device any bid, offer,                       and sizes are included in the quotation
                                quotation size, or aggregate quotation                     data made available by the exchange,
                                size for any covered security which is                     association, or exclusive processor to
                                not a subject security with respect to                     quotation vendors pursuant to this sec-
                                such exchange or OTC market maker;                         tion; and
                                and                                                           (2) Provides, to any broker or dealer,
                                  (ii) No quotation vendor may dis-                        the ability to effect a transaction with
                                seminate or display on a terminal or                       a priced order widely disseminated by
                                other display device any bid, offer,                       the electronic communications net-
                                quotation size, or aggregate quotation                     work entered therein by an exchange
                                size from any exchange or OTC market                       market maker or OTC market maker
                                maker for any covered security which                       that is:
                                is not a subject security with respect                        (i) Equivalent to the ability of any
                                to such exchange or OTC market                             broker or dealer to effect a transaction
                                maker.                                                     with an exchange market maker or
                                  (5)(i) Entry of any priced order for a                   OTC market maker pursuant to the
                                covered security by an exchange mar-                       rules of the exchange or association to
                                ket maker or OTC market maker in                           which the electronic communications
                                that security into an electronic com-                      network supplies such bids and offers;
                                munications network that widely dis-                       and
                                seminates such order shall be deemed                          (ii) At the price of the highest priced
                                to be:                                                     buy order or lowest priced sell order, or
                                  (A) A bid or offer under this section,                   better, for the lesser of the cumulative
                                to be communicated to the market                           size of such priced orders entered
                                maker’s exchange or association pursu-                     therein by exchange market makers or
                                ant to paragraph (c) of this section for                   OTC market makers at such price, or
                                at least the minimum quotation size                        the size of the execution sought by the
                                that is required by the rules of the                       broker or dealer, for the covered secu-
                                market maker’s exchange or associa-                        rity; or
                                tion if the priced order is for the ac-                       (B) Is an alternative trading system
                                count of a market maker, or the actual                     that:
                                size of the order up to the minimum                           (1) Displays orders and provides the
                                quotation size required if the priced                      ability to effect transactions with such
                                order is for the account of a customer;                    orders under § 242.301(b)(3) of this chap-
                                and                                                        ter; and
                                  (B) A communication of a bid or offer                       (2) Otherwise is in compliance with
                                to a quotation vendor for display on a                     Regulation ATS, § 242.300 through
                                display device for purposes of para-                       § 242.303 of this chapter.
                                graph (c)(4) of this section.                                 (d) Transactions in listed options.
                                  (ii) An exchange market maker or                            (1) An exchange or association:
                                OTC market maker that has entered a                           (i) Shall not be required, under para-
                                priced order for a covered security into                   graph (b) of this section, to collect
                                an electronic communications network                       from responsible brokers or dealers
                                that widely disseminates such order                        who are members of such exchange or
                                shall be deemed to be in compliance                        association, or to make available to
                                with paragraph (c)(5)(i)(A) of this sec-                   quotation vendors, the quotation sizes
                                tion if the electronic communications                      and aggregate quotation sizes for listed
                                network:                                                   options, if such exchange or associa-
                                  (A)(1)Provides to an exchange or as-                     tion establishes by rule and periodi-
                                sociation (or an exclusive processor                       cally publishes the quotation size for

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                                Securities and Exchange Commission                                                         § 240.11Ac1–2

                                which such responsible brokers or deal-                    ty seconds of receiving an order to buy
                                ers are obligated to execute an order to                   or sell a listed option in an amount
                                buy or sell an options series that is a                    greater than the quotation size estab-
                                subject security at its published bid or                   lished by an exchange’s or association’s
                                offer under paragraph (c)(2) of this sec-                  rules pursuant to paragraph (d)(1) of
                                tion;                                                      this section, or its published quotation
                                  (ii) May establish by rule and periodi-                  size must:
                                cally publish a quotation size, which                         (i) Execute the entire order; or
                                shall not be for less than one contract,                      (ii)(A) Execute that portion of the
                                for which responsible brokers or deal-                     order equal to at least:
                                ers who are members of such exchange                          (1) The quotation size established by
                                or association are obligated under                         an exchange’s or association’s rules,
                                paragraph (c)(2) of this section to exe-                   pursuant to paragraph (d)(1) of this sec-
                                cute an order to buy or sell a listed op-                  tion, to the extent that such exchange
                                tion for the account of a broker or                        or association does not collect and
                                dealer that is in an amount different                      make available to quotation vendors
                                from the quotation size for which it is                    quotation size and aggregate quotation
                                obligated to execute an order for the                      size under paragraph (b) of this section;
                                account of a customer; and                                 or
                                  (iii) May establish and maintain pro-                       (2) Its published quotation size; and
                                cedures and mechanisms for collecting                         (B) Revise its bid or offer.
                                from responsible brokers and dealers
                                                                                              (4) Notwithstanding paragraph (d)(3)
                                who are members of such exchange or
                                                                                           of this section, no responsible broker
                                association, and making available to
                                                                                           or dealer shall be obligated to execute
                                quotation vendors, the quotation sizes
                                                                                           a transaction for any listed option as
                                and aggregate quotation sizes in listed
                                                                                           provided in paragraph (c)(2) of this sec-
                                options for which such responsible
                                                                                           tion if:
                                broker or dealer will be obligated
                                                                                              (i) Any of the circumstances in para-
                                under paragraph (c)(2) of this section to
                                                                                           graph (c)(3) of this section exist; or
                                execute an order from a customer to
                                buy or sell a listed option and establish                     (ii) The order for the purchase or sale
                                by rule and periodically publish the                       of a listed option is presented during a
                                size, which shall not be less than one                     trading rotation in that listed option.
                                contract, for which such responsible                          (e) Exemptions. The Commission may
                                brokers or dealers are obligated to exe-                   exempt from the provisions of this sec-
                                cute an order for the account of a                         tion, either unconditionally or on spec-
                                broker or dealer.                                          ified terms and conditions, any respon-
                                  (2) If, pursuant to paragraph (d)(1) of                  sible broker or dealer, electronic com-
                                this section, the rules of an exchange                     munications network, exchange, or as-
                                or association do not require its mem-                     sociation if the Commission deter-
                                bers to communicate to it their                            mines that such exemption is con-
                                quotation sizes for listed options, a re-                  sistent with the public interest, the
                                sponsible broker or dealer that is a                       protection of investors and the removal
                                member of such exchange or associa-                        of impediments to and perfection of the
                                tion shall:                                                mechanism of a national market sys-
                                  (i) Be relieved of its obligations                       tem.
                                under paragraph (c)(1) of this section to                  [61 FR 48328, Sept. 12, 1996, as amended at 63
                                communicate to such exchange or asso-                      FR 70919, Dec. 22, 1998; 65 FR 75461, Dec. 1,
                                ciation its quotation sizes for any list-                  2000]
                                ed option; and
                                  (ii) Comply with its obligations under                   § 240.11Ac1–2 Display of           transaction
                                paragraph (c)(2) of this section by exe-                       reports,   last  sale          data   and
                                cuting any order to buy or sell a listed                       quotation information.
                                option, in an amount up to the size es-                      (a) Definitions. For purposes of this
                                tablished by such exchange’s or asso-                      section, (1) The terms transaction re-
                                ciation’s rules under paragraph (d)(1) of                  port, effective transaction reporting plan,
                                this section.                                              moving ticker, last sale data, market
                                  (3) Thirty second response. Each re-                     minder and interrogation device shall
                                sponsible broker or dealer, within thir-                   have     the    meaning      provided    in

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                                § 240.11Ac1–2                                                          17 CFR Ch. II (4–1–05 Edition)

                                § 240.11Aa3–1 (Rules 11Aa3–1 under the                       (iii) Any display of quotation infor-
                                Act).                                                     mation for that security based on
                                   (2) The term vendor shall mean any                     quotations from all reporting market
                                securities information processor en-                      centers.
                                gaged in the business of disseminating                       (9) The term consolidated price, when
                                transaction reports, last sale data or                    used with respect to a particular re-
                                quotation information with respect to                     ported security, shall mean the price of
                                subject securities to brokers, dealers or                 the most recent transaction report for
                                investors on a real-time or other cur-                    that security reported pursuant to any
                                rent and continuing basis, whether                        effective transaction reporting plan.
                                through an electronic communications                         (10) The term consolidated volume,
                                network, moving ticker or interroga-                      when used with respect to a particular
                                tion device.                                              reported security, shall mean the vol-
                                   (3) The term NASDAQ shall mean the                     ume of the most recent transaction re-
                                electronic inter-dealer quotation sys-                    port for that security reported pursu-
                                tem owned and operated by NASDAQ,                         ant to any effective transaction report-
                                Inc., a subsidiary of the National Asso-                  ing plan.
                                ciation of Securities Dealers, Inc.                          (11) The term cumulative consolidated
                                   (4) The term subject security shall                    volume, when used with respect to a
                                mean,                                                     particular reported security, shall
                                   (i) Any reported security; and                         mean the cumulative volume of all
                                   (ii) Any other equity security as to                   transaction reports for that security
                                which transaction reports, last sale                      reported pursuant to any effective
                                data or quotation information is dis-                     transaction reporting plan during a
                                seminated through NASDAQ.                                 particular trading day.
                                                                                             (12) The term individual market center
                                   (5) The terms quotations and quotation
                                                                                          display shall mean, with respect to a
                                information shall mean bids, offers and,
                                                                                          particular reported security,
                                where applicable, quotation sizes and
                                                                                             (i) Any display (other than a moving
                                aggregate quotation sizes.
                                                                                          ticker or market minder) of trans-
                                   (6) The terms bid and offer shall,
                                                                                          action reports for such security from a
                                   (i) In the case of a reported security,                particular market center;
                                have      the   meaning     provided    in                   (ii) Any display (other than a moving
                                § 240.11Ac1–1 (Rule 11Ac1–1 under the                     ticker or market minder) of last sale
                                Act); and                                                 data for such security, or information
                                   (ii) In the case of any subject secu-                  derived therefrom, based on trans-
                                rity other than a reported security,                      action reports from a particular report-
                                mean the most recent bid price or offer                   ing market center; or
                                price of an over-the-counter market                          (iii) Any display of quotation infor-
                                maker disseminated through Level 2 or                     mation for that security based on
                                3 of NASDAQ.                                              quotations from a particular reporting
                                   (7) The terms quotation size, aggregate                market center.
                                quotation size, third market maker and                       (13) The term over-the-counter market
                                make available shall have the meaning                     maker shall mean, with respect to any
                                provided in § 240.11Ac1–1 (Rule 11Ac1–1                   subject security other than a reported
                                under the Act).                                           security, any broker or dealer which
                                   (8) The term consolidated display shall                holds itself out as being willing to buy
                                mean, with respect to a particular re-                    and sell such security on a regular and
                                ported security,                                          continuous basis otherwise than on an
                                   (i) Any display (other than a moving                   exchange in amounts of less than block
                                ticker or market minder) of trans-                        size.
                                action reports for such security from                        (14) The term reporting market center
                                all reporting market centers;                             shall mean, (i) with respect to a re-
                                   (ii) Any display (other than a moving                  ported security,
                                ticker or market minder) of last sale                        (A) Any national securities exchange
                                data for such security, or information                    (‘‘exchange’’) on which, or through
                                derived therefrom, based on trans-                        whose facilities, transactions in such
                                action reports from all reporting mar-                    security are executed and which col-
                                ket centers; or                                           lects, processes and makes available

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                                Securities and Exchange Commission                                                         § 240.11Ac1–2

                                transaction reports with respect to                       multaneously quotations in that secu-
                                transactions in such security on a cur-                   rity from all reporting market centers.
                                rent basis pursuant to § 240.11Aa3–1                        (17) The term representative bid or
                                (Rule 11Aa3–1 under the Act); and                         offer shall mean any number rep-
                                  (B) Any person acting in the capacity                   resenting a bid price or an offer price
                                of a third market maker with respect                      (as the case may be) for a particular
                                to such security which reports trans-                     subject security which is (i) the mean,
                                actions in such security to a national                    median, mode or weighted average of
                                securities association on a current                       two or more bids or offers of reporting
                                basis pursuant to § 240.11Aa3–1 (Rule                     market centers in such security, (ii)
                                11Aa3–1 under the Act) and dissemi-                       calculated with reference to or derived
                                nates quotations in such security pur-                    from any such mean, median, mode or
                                suant to § 240.11Ac1–1 (Rule 11Ac1–1                      weighted average, or (iii) calculated by
                                under the Act); and                                       adding to or subtracting from the bid
                                  (ii) With respect to a subject security                 or offer of any reporting market center
                                other than a reported security, any                       in such security any number rep-
                                person acting in the capacity of an                       resenting a commission, commission
                                over-the-counter market maker who is                      equivalent, mark-up or differential.
                                authorized to disseminate quotations                        (18) The term market information,
                                in such security, through NASDAQ,                         when used with respect to an indi-
                                and who makes such quotations avail-                      vidual market center display or a con-
                                able through that system on a regular                     solidated display for a particular re-
                                and continuous basis.                                     ported security, shall mean (i) any
                                  (15) The terms best bid and best offer                  transaction reports or last sale data, or
                                shall mean,                                               information derived therefrom, con-
                                  (i) With respect to quotations for a                    tained in any such display, (ii) any
                                reported security, the highest bid or                     quotation information contained in
                                lowest offer for that security made                       any such display, and (iii) any other
                                available by any reporting market cen-                    category of information contained in
                                ter pursuant to § 240.11Ac1–1 (Rule                       any such display which relates to the
                                11Ac1–1 under the Act) (excluding any                     particular reported security involved,
                                bid or offer made available by an ex-                     including, but not limited to, annual or
                                change during any period such ex-                         periodic dividend, ex-dividend date,
                                change is relieved of its obligations                     time of most recent trade and news dis-
                                under paragraphs (b) (1) and (2) of § 240.                semination.
                                11Ac1–1 by virtue of paragraph (b)(3)(i)                    (19) The term market linkage system
                                thereof)); Provided, however, That in                     shall mean any communications and
                                the event two or more reporting mar-                      data processing facility which permits
                                ket centers make available identical                      orders for the purchase and sale of a
                                bids or offers for a reported security,                   subject security to be transmitted from
                                the best bid or best offer (as the case                   one reporting market center to another
                                may be) shall be computed by ranking                      such reporting market center.
                                all such identical bids or offers (as the                   (20) The term reported security shall
                                case may be) first by size (giving the                    mean any security or class of securities
                                highest ranking to the bid or offer as-                   for which transaction reports are col-
                                sociated with the largest size), then by                  lected, processed and made available
                                time (giving the highest ranking to the                   pursuant to an effective transaction re-
                                bid or offer received first in time); and                 porting plan.
                                  (ii) With respect to quotations for a                     (b) Display requirements for transaction
                                subject security other than a reported                    reports and last sale data. (1) No vendor
                                security, the highest bid or lowest offer                 shall distribute, publish, display or
                                (as the case may be) for such security                    otherwise provide to brokers and deal-
                                disseminated by an over-the-counter                       ers on a real-time or other current and
                                market maker in Level 2 or 3 of                           continuing basis, whether through an
                                NASDAQ.                                                   electronic communications network,
                                  (16) The term quotation montage shall                   moving ticker or interrogation device,
                                mean, with respect to a particular sub-                   transaction reports, last sale data or
                                ject security, a display on an interro-                   market information in contravention
                                gation device which disseminates si-                      of the provisions of this section.

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                                § 240.11Ac1–2                                                          17 CFR Ch. II (4–1–05 Edition)

                                  (2) On and after the effective date of                  ket centers in that security in a non-
                                this section, the following require-                      discriminatory manner.
                                ments shall be applicable to the dis-                       (v) No moving ticker or consolidated
                                play of transaction reports, last sale                    last sale display may exclude any
                                data or market information with re-                       transaction report or last sale data
                                spect to reported securities:                             based upon the market center in which
                                  (i) If transaction reports or last sale                 a transaction has been executed.
                                data with respect to a particular re-                       (vi) No vendor may provide any cat-
                                ported security are provided by a ven-                    egory of market information in an in-
                                dor on an interrogation device, such                      dividual market center display for a
                                vendor shall provide on that device a                     particular subject security unless that
                                consolidated display of transaction re-                   category of market information is also
                                ports or last sale data for such security                 provided, on a consolidated basis, as
                                which shall include, at a minimum, (A)                    part of the consolidated last sale dis-
                                the consolidated price for such secu-                     play for that security; Provided, how-
                                rity, (B) the consolidated volume or cu-                  ever, That a vendor may delete from
                                mulative consolidated volume for such                     such consolidated last sale display up
                                security, and (C) an identifier indi-                     to three categories of information if
                                cating the reporting market center as-                    such deletion is necessary to accommo-
                                sociated with such consolidated price                     date the display of any market identi-
                                and consolidated volume (the ‘‘con-                       fiers required by this section.
                                solidated last sale display’’).                             (vii) Transaction reports and last
                                                                                          sale data from all reporting market
                                  (ii) The consolidated last sale display
                                                                                          centers which are third market makers
                                shall be accessed by means of retrieval
                                                                                          may be identified in a consolidated last
                                instructions involving a number of key
                                                                                          sale display or a moving ticker by a
                                strokes which is fewer than the number
                                                                                          single identifier without identification
                                of strokes required to access any indi-
                                                                                          of the individual third market maker
                                vidual market center display of trans-
                                                                                          associated with such transaction re-
                                action reports or last sale data pro-
                                                                                          port or last sale data.
                                vided on that device for such security;
                                                                                            (c) Display requirements for quotation
                                Provided, however, That, notwith-
                                                                                          information. (1) No vendor shall dis-
                                standing the above requirement, a ven-
                                                                                          tribute, publish, display or otherwise
                                dor may provide on that device both                       provide to brokers and dealers on a
                                the consolidated last sale display and                    real-time or other current and con-
                                any such individual market center dis-                    tinuing basis, whether through an elec-
                                plays made available for such security                    tronic communications network, mov-
                                by means of retrieval instructions in-                    ing ticker or interrogation device,
                                volving an equal number of key strokes                    quotation information with respect to
                                if the information request or transmit                    subject securities in contravention of
                                key for the consolidated last sale dis-                   the provisions of this section.
                                play is the most prominent.                                 (2) On and after the effective date of
                                  (iii) Subject to the provisions of                      this section, the following require-
                                paragraph (b)(2)(ii) of this section, a                   ments shall be applicable to the dis-
                                vendor may provide on an interroga-                       play of quotation information with re-
                                tion device an individual market cen-                     spect to subject securities:
                                ter display of transaction reports or                       (i) If quotation information with re-
                                last sale data for a particular reported                  spect to a particular subject security is
                                security for any reporting market cen-                    provided by a vendor on an interroga-
                                ter in such security.                                     tion device, such vendor shall provide
                                  (iv) No moving ticker may include an                    on that device a consolidated display of
                                identifier indicating the reporting mar-                  quotation information for such secu-
                                ket center associated with a particular                   rity (the ‘‘consolidated quotation dis-
                                transaction report with respect to a re-                  play’’) which shall include, at a min-
                                ported security unless such moving                        imum,
                                ticker includes identifiers for all trans-                  (A) The best bid and best offer for
                                action reports for such security (or an                   such security and, in the case of a re-
                                identifiable subset of all such trans-                    ported security, (1) identifiers indi-
                                action reports) from all reporting mar-                   cating the reporting market center

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                                Securities and Exchange Commission                                                         § 240.11Ac1–2

                                making available such best bid and the                    dated quotation display or separate
                                reporting market center making avail-                     quotation montage, (A) identifiers in-
                                able such best offer and (2) the                          dicating the reporting market center
                                quotation size or aggregate quotation                     making available such best bid and the
                                size associated with such best bid and                    reporting market center making avail-
                                the quotation size or aggregate                           able such best offer, and (B) the
                                quotation size associated with such                       quotation size associated with both
                                best offer, or                                            such best bid and best offer.
                                  (B) A quotation montage for that se-                       (v) Each individual market center
                                curity.                                                   display of quotation information or
                                  (ii) The consolidated quotation dis-                    separate quotation montage for a par-
                                play shall be accessed by means of re-                    ticular reported security shall include
                                trieval instructions involving a number                   the quotation size or aggregate
                                of key strokes which is fewer than the                    quotation size associated with each bid
                                number of strokes required to access                      or offer disseminated as part of such
                                any      individual    market      center                 display or montage.
                                quotation display provided on that de-                       (vi) No vendor may provide on any
                                vice by such vendors for such security:                   interrogation device a representative
                                Provided, however, That, notwith-                         bid or offer with respect to any subject
                                standing the above requirement, a ven-                    security.
                                dor may provide on that device both                          (d) Joint display of transaction reports
                                the consolidated quotation display and                    and quotation information. Subject to
                                any individual market center display                      the provisions of paragraphs (b)(2)(ii)
                                of quotation information provided for                     and (c)(2)(ii) of this section regarding
                                such security by means of retrieval in-                   the means of access to consolidated
                                structions involving an equal number                      last sale displays and consolidated
                                of key strokes if the information re-                     quotation displays, a vendor may com-
                                quest or transmit key for the consoli-                    bine the consolidated last sale display
                                dated quotation display is the most                       and the consolidated quotation display
                                prominent.                                                for a particular subject security.
                                  (iii) Subject to the provisions of                         (e) Applicability to brokers and dealers.
                                paragraph (c)(2)(ii) of this section, a                   Subject to the provisions of paragraph
                                vendor may provide on an interroga-                       (f) of this section, no broker or dealer
                                tion device                                               may operate or maintain any display of
                                  (A) An individual market center dis-                    transaction reports, last sale data,
                                play of quotation information for a                       quotation information or market infor-
                                particular subject security for any re-                   mation which would not be permitted
                                porting market center in such security;                   to be provided by a vendor under para-
                                or                                                        graph (b) or (c) of this section.
                                  (B) Either separately or as the con-                       (f) Exchange or market linkage system
                                solidated      quotation    display,    a                 displays. The provisions of this section
                                quotation montage for that security.                      shall not apply to: (1) The dissemina-
                                  (iv) No consolidated quotation dis-                     tion or display of transactions reports,
                                play or separate quotation montage                        last sale data, quotation information
                                provided on an interrogation device                       or market information on the trading
                                may exclude any quotation informa-                        floor or through the facilities of an ex-
                                tion based upon the market center                         change, (2) any display of transaction
                                making available such information:                        reports, last sale data, quotation infor-
                                Provided, however, That for purposes of                   mation or market information oper-
                                providing the consolidated quotation                      ated or maintained by a self-regulatory
                                display or a separate quotation mon-                      organization for monitoring or surveil-
                                tage    for    any   reported   security,                 lance purposes, or (3) any display of
                                quotation information from all report-                    transaction reports, last sale data or
                                ing market centers which are third                        quotation information in connection
                                market makers may be consolidated to                      with the operation of a market linkage
                                derive a best bid and offer for all such                  system implemented in accordance
                                market centers if such interrogation                      with a plan approved by the Commis-
                                device is capable of displaying, either                   sion pursuant to section 11A(a)(3)(B) of
                                separately or as part of the consoli-                     the Act.

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                                § 240.11Ac1–3                                                          17 CFR Ch. II (4–1–05 Edition)

                                   (g) Exemptions. The Commission may                     sociation, or exchange member to
                                exempt from the provisions of this sec-                   which it routes customers’ orders for
                                tion, either unconditionally or on spec-                  execution, including a statement as to
                                ified terms and conditions, any securi-                   whether any payment for order flow is
                                ties information processor, self-regu-                    received for routing customer orders
                                latory organization, broker, dealer or                    and a detailed description of the nature
                                specified subject security if the Com-                    of the compensation received; and
                                mission determines that such exemp-                          (2) The broker’s or dealer’s policies
                                tion is consistent with the public inter-                 for determining where to route cus-
                                est, the protection of investors and the                  tomer orders that are the subject of
                                removal of impediments to, and perfec-                    payment for order flow as defined in
                                tion of the mechanisms of, a national                     § 240.10b–10(e)(9) absent specific instruc-
                                market system.                                            tions from customers, including a de-
                                   (h) Effective date. The effective date                 scription of the extent to which orders
                                of this section shall be April 5, 1980, ex-               can be executed prices superior to the
                                cept for paragraph (c)(2)(vi), which                      best bid or best offer as defined in
                                shall become effective on July 5, 1980,                   § 240.11Ac1–2.
                                and paragraphs (b)(2)(ii), (vi) and                          (b) Exemptions. The Commission,
                                (c)(2)(i), (ii), (iv), (v) which shall be-                upon request or upon its own motion,
                                come effective on October 1, 1981.                        may exempt by rule or by order, any
                                (Secs. 2, 3, 6, 9, 10, 15, 17 and 23, Pub. L. 78–         broker or dealer or any class of brokers
                                291, 48 Stat. 881, 882, 885, 889, 891, 895, 897 and       or dealers, security or class of securi-
                                901, as amended by secs. 2, 3, 4, 11, 14 and 18,          ties from the requirements of para-
                                Pub. L. 94–29, 89 Stat. 97, 104, 121, 137 and 155         graph (a) of this section with respect to
                                (15 U.S.C. 78b, 78c, 78f, 78i, 78j, 78o, 78g and
                                78w); sec. 15A, as added by sec. 1, Pub. L. 75–
                                                                                          any transaction or class of trans-
                                719, 52 Stat. 1070, as amended by sec. 12, Pub.           actions, either unconditionally or on
                                L. 94–29, 89 Stat. 127 (15 U.S.C. 78–3); sec. 11A,        specified terms and conditions, if the
                                as added by sec. 7, Pub. L. 94–29, 89 Stat. 111           Commission determines that such ex-
                                (15 U.S.C. 78k–l); 15 U.S.C. 78a et seq., as              emption is consistent with the pubic
                                amended by Pub. L. 94–29 (June 4, 1975) and               interest and the protection of inves-
                                by Pub. L. 98–38 (June 6, 1983), particularly             tors.
                                secs. 11A, 15, 19 and 23 thereof (15 U.S.C. 78k–
                                1, 78o, 78s and 78w))                                     [59 FR 55012, Nov. 2, 1994]
                                [45 FR 12405, Feb. 26, 1980, as amended at 46
                                FR 43962, Sept. 2, 1981; 48 FR 53691, Nov. 29,            § 240.11Ac1–4 Display            of       customer
                                1983]                                                         limit orders.
                                                                                             (a) Definitions. For purposes of this
                                § 240.11Ac1–3 Customer account state-                     section:
                                     ments.
                                                                                             (1) The term association shall mean
                                   (a) No broker or dealer acting as                      any association of brokers and dealers
                                agent for a customer may effect any                       registered pursuant to Section 15A of
                                transaction in, induce or attempt to in-                  the Act (15 U.S.C. 78o–3).
                                duce the purchase or sale of, or direct                      (2) The terms best bid and best offer
                                orders for purchase or sale of, any sub-                  shall have the meaning provided in
                                ject security as defined in § 240.11Ac1–2
                                                                                          § 240.11Ac1–1(a)(3).
                                or a security authorized for quotation
                                                                                             (3) The terms bid and offer shall have
                                on      an     automated      inter-dealer
                                                                                          the meaning provided in § 240.11Ac1–
                                quotation system that has the charac-
                                teristics set forth in section 17B of the                 1(a)(4).
                                Act (15 U.S.C. 78q–2), unless such                           (4) The term block size shall mean any
                                broker or dealer informs such cus-                        order:
                                tomer, in writing, upon opening a new                        (i) Of at least 10,000 shares; or
                                account and on an annual basis there-                        (ii) For a quantity of stock having a
                                after, of the following:                                  market value of at least $200,000.
                                   (1) The broker’s or dealer’s policies                     (5) The term covered security shall
                                regarding receipt of payment for order                    mean any ‘‘reported security’’ and any
                                flow as defined in § 240.10b–10(e)(9), from               other security for which a transaction
                                any broker or dealer, national securi-                    report, last sale data or quotation in-
                                ties exchange, registered securities as-                  formation is disseminated through an

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                                Securities and Exchange Commission                                                         § 240.11Ac1–4

                                automated quotation system as de-                            (i) The price and the full size of each
                                scribed in section 3(a)(51)(A)(ii) of the                 customer limit order held by the OTC
                                Act (15 U.S.C. 78c(a)(51)(A)(ii)).                        market maker that is at a price that
                                   (6) The term customer limit order shall                would improve the bid or offer of such
                                mean an order to buy or sell a covered                    OTC market maker in such security;
                                security at a specified price that is not                 and
                                for the account of either a broker or                        (ii) The full size of each customer
                                dealer; provided, however, That the                       limit order held by the OTC market
                                term customer limit order shall in-                       maker that:
                                clude an order transmitted by a broker                       (A) Is priced equal to the bid or offer
                                or dealer on behalf of a customer.                        of such OTC market maker for such se-
                                   (7) The term electronic communications                 curity;
                                network shall have the meaning pro-                          (B) Is priced equal to the national
                                vided in § 240.11Ac1–1(a)(8).                             best bid or offer; and
                                   (8) The term exchange-traded security                     (C) Represents more than a de minimis
                                shall have the meaning provided in                        change in relation to the size associ-
                                § 240.11Ac1–1(a)(10).                                     ated with the OTC market maker’s bid
                                   (9) The term OTC market maker shall                    or offer.
                                mean any dealer who holds itself out as                      (c) Exceptions. The requirements in
                                being willing to buy from and sell to                     paragraph (b) of this section shall not
                                its customers, or otherwise, a covered                    apply to any customer limit order:
                                security for its own account on a reg-                       (1) That is executed upon receipt of
                                ular or continuous basis otherwise                        the order.
                                than on a national securities exchange                       (2) That is placed by a customer who
                                in amounts of less than block size.                       expressly requests, either at the time
                                   (10) The term reported security means                  that the order is placed or prior there-
                                any security or class of securities for                   to pursuant to an individually nego-
                                which transaction reports are col-                        tiated agreement with respect to such
                                lected, processed, and made available                     customer’s orders, that the order not
                                pursuant to an effective transaction re-                  be displayed.
                                porting plan.                                                (3) That is an odd-lot order.
                                   (b) Specialists and OTC market makers.                    (4) That is a block size order, unless
                                For all covered securities:                               a customer placing such order requests
                                   (1) Each member of an exchange that                    that the order be displayed.
                                is registered by that exchange as a spe-                     (5) That is delivered immediately
                                cialist, or is authorized by that ex-                     upon receipt to an exchange or associa-
                                change to perform functions substan-                      tion-sponsored system, or an electronic
                                tially similar to that of a specialist,                   communications network that com-
                                shall publish immediately a bid or offer                  plies    with    the     requirements    of
                                that reflects:                                            § 240.11Ac1–1(c)(5)(ii) with respect to
                                   (i) The price and the full size of each                that order.
                                customer limit order held by the spe-                        (6) That is delivered immediately
                                cialist that is at a price that would im-                 upon receipt to another exchange mem-
                                prove the bid or offer of such specialist                 ber or OTC market maker that com-
                                in such security; and                                     plies with the requirements of this sec-
                                   (ii) The full size of each customer                    tion with respect to that order.
                                limit order held by the specialist that:                     (7) That is an ‘‘all or none’’ order.
                                   (A) Is priced equal to the bid or offer                   (d) Exemptions. The Commission may
                                of such specialist for such security;                     exempt from the provisions of this sec-
                                   (B) Is priced equal to the national                    tion, either unconditionally or on spec-
                                best bid or offer; and                                    ified terms and conditions, any respon-
                                   (C) Represents more than a de minimis                  sible broker or dealer, electronic com-
                                change in relation to the size associ-                    munications network, exchange, or as-
                                ated with the specialist’s bid or offer.                  sociation if the Commission deter-
                                   (2) Each registered broker or dealer                   mines that such exemption is con-
                                that acts as an OTC market maker                          sistent with the public interest, the
                                shall publish immediately a bid or offer                  protection of investors and the removal
                                that reflects:                                            of impediments to and perfection of the

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                                § 240.11Ac1–5                                                          17 CFR Ch. II (4–1–05 Edition)

                                mechanism of a national market sys-                       the amount of difference between the
                                tem.                                                      execution price and the midpoint of the
                                [61 FR 48331, Sept. 12, 1996, as amended at 65
                                                                                          consolidated best bid and offer five
                                FR 75462, Dec. 1, 2000]                                   minutes after the time of order execu-
                                                                                          tion and, for sell orders, as double the
                                § 240.11Ac1–5 Disclosure of order exe-                    amount of difference between the mid-
                                     cution information.                                  point of the consolidated best bid and
                                   Preliminary Note: Section 240.11Ac1–5                  offer five minutes after the time of
                                requires market centers to make avail-                    order execution and the execution
                                able standardized, monthly reports of                     price; provided, however, that the mid-
                                statistical     information    concerning                 point of the final consolidated best bid
                                their order executions. This informa-                     and offer disseminated for regular trad-
                                tion is presented in accordance with                      ing hours shall be used to calculate a
                                uniform standards that are based on                       realized spread if it is disseminated
                                broad assumptions about order execu-                      less than five minutes after the time of
                                tion and routing practices. The infor-                    order execution.
                                mation will provide a starting point to                     (4) The term categorized by order size
                                promote visibility and competition on                     shall mean dividing orders into sepa-
                                the part of market centers and broker-                    rate categories for sizes from 100 to 499
                                dealers, particularly on the factors of                   shares, from 500 to 1999 shares, from
                                execution price and speed. The disclo-                    2000 to 4999 shares, and 5000 or greater
                                sures required by this section do not                     shares.
                                encompass all of the factors that may                       (5) The term categorized by order type
                                be important to investors in evaluating                   shall mean dividing orders into sepa-
                                the order routing services of a broker-                   rate categories for market orders, mar-
                                dealer. In addition, any particular mar-                  ketable limit orders, inside-the-quote
                                ket center’s statistics will encompass                    limit orders, at-the-quote limit orders,
                                varying types of orders routed by dif-                    and near-the-quote limit orders.
                                ferent broker-dealers on behalf of cus-                     (6) The term categorized by security
                                tomers with a wide range of objectives.                   shall mean dividing orders into sepa-
                                Accordingly, the statistical informa-                     rate categories for each national mar-
                                tion required by this Section alone                       ket system security that is included in
                                does not create a reliable basis to ad-                   a report.
                                dress whether any particular broker-                        (7) The term consolidated best bid and
                                dealer failed to obtain the most favor-                   offer shall mean the highest firm bid
                                able terms reasonably available under                     and the lowest firm offer for a security
                                the circumstances for customer orders.                    that is calculated and disseminated on
                                   (a) Definitions. For the purposes of                   a current and continuous basis pursu-
                                this section:                                             ant to an effective national market
                                   (1) The term alternative trading system                system plan.
                                shall have the meaning provided in                          (8) The term covered order shall mean
                                § 242.300(c) of this chapter.                             any market order or any limit order
                                   (2) The term average effective spread                  (including immediate-or-cancel orders)
                                shall mean the share-weighted average                     received by a market center during
                                of effective spreads for order execu-                     regular trading hours at a time when a
                                tions calculated, for buy orders, as dou-                 consolidated best bid and offer is being
                                ble the amount of difference between                      disseminated, and, if executed, is exe-
                                the execution price and the midpoint of                   cuted during regular trading hours, but
                                the consolidated best bid and offer at                    shall exclude any order for which the
                                the time of order receipt and, for sell                   customer requests special handling for
                                orders, as double the amount of dif-                      execution, including, but not limited
                                ference between the midpoint of the                       to, orders to be executed at a market
                                consolidated best bid and offer at the                    opening price or a market closing
                                time of order receipt and the execution                   price, orders submitted with stop
                                price.                                                    prices, orders to be executed only at
                                   (3) The term average realized spread                   their full size, orders to be executed on
                                shall mean the share-weighted average                     a particular type of tick or bid, orders
                                of realized spreads for order executions                  submitted on a ‘‘not held’’ basis, orders
                                calculated, for buy orders, as double                     for other than regular settlement, and

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                                Securities and Exchange Commission                                                         § 240.11Ac1–5

                                orders to be executed at prices unre-                       (16) The term effective national market
                                lated to the market price of the secu-                    system plan shall have the meaning pro-
                                rity at the time of execution.                            vided in § 240.11Aa3–2(a)(2).
                                  (9) The term exchange market maker                        (17) The term national market system
                                shall mean any member of a national                       security shall have the meaning pro-
                                securities exchange that is registered                    vided in § 240.11Aa2–1.
                                as a specialist or market maker pursu-                      (18) The term OTC market maker shall
                                ant to the rules of such exchange.                        mean any dealer that holds itself out
                                  (10) The term executed at the quote                     as being willing to buy from and sell to
                                shall mean, for buy orders, execution                     its customers, or others, in the United
                                at a price equal to the consolidated                      States, a national market system secu-
                                best offer at the time of order receipt                   rity for its own account on a regular or
                                and, for sell orders, execution at a                      continuous basis otherwise than on a
                                price equal to the consolidated best bid                  national     securities    exchange    in
                                at the time of order receipt.                             amounts of less than block size.
                                  (11) The term executed outside the                        (19) The term regular trading hours
                                quote shall mean, for buy orders, execu-                  shall mean the time between 9:30 a.m.
                                                                                          and 4:00 p.m. Eastern Time, or such
                                tion at a price higher than the consoli-
                                                                                          other time as is set forth in the proce-
                                dated best offer at the time of order re-
                                                                                          dures established pursuant to para-
                                ceipt and, for sell orders, execution at
                                                                                          graph (c)(2) of this section.
                                a price lower than the consolidated
                                                                                            (20) The term time of order execution
                                best bid at the time of order receipt.
                                                                                          shall mean the time (to the second)
                                  (12) The term executed with price im-                   that an order was executed at any
                                provement shall mean, for buy orders,                     venue.
                                execution at a price lower than the                         (21) The term time of order receipt
                                consolidated best offer at the time of                    shall mean the time (to the second)
                                order receipt and, for sell orders, exe-                  that an order was received by a market
                                cution at a price higher than the con-                    center for execution.
                                solidated best bid at the time of order                     (b) Monthly electronic reports by mar-
                                receipt.                                                  ket centers. (1) Every market center
                                  (13) The terms inside-the-quote limit                   shall make available for each calendar
                                order, at-the-quote limit order, and near-                month, in accordance with the proce-
                                the-quote limit order shall mean non-                     dures established pursuant to para-
                                marketable buy orders with limit                          graph (b)(2) of this section, a report on
                                prices that are, respectively, higher                     the covered orders in national market
                                than, equal to, and lower by $0.10 or                     system securities that it received for
                                less than the consolidated best bid at                    execution from any person. Such report
                                the time of order receipt, and non-mar-                   shall be in electronic form; shall be
                                ketable sell orders with limit prices                     categorized by security, order type,
                                that are, respectively, lower than,                       and order size; and shall include the
                                equal to, and higher by $0.10 or less                     following columns of information:
                                than the consolidated best offer at the                     (i) For market orders, marketable
                                time of order receipt.                                    limit orders, inside-the-quote limit or-
                                  (14) The term market center shall                       ders, at-the-quote limit orders, and
                                mean any exchange market maker,                           near-the-quote limit orders:
                                OTC market maker, alternative trad-                         (A) The number of covered orders;
                                ing system, national securities ex-                         (B) The cumulative number of shares
                                change, or national securities associa-                   of covered orders;
                                tion.                                                       (C) The cumulative number of shares
                                  (15) The term marketable limit order                    of covered orders cancelled prior to
                                shall mean any buy order with a limit                     execution;
                                price equal to or greater than the con-                     (D) The cumulative number of shares
                                solidated best offer at the time of order                 of covered orders executed at the re-
                                receipt, and any sell order with a limit                  ceiving market center;
                                price equal to or less than the consoli-                    (E) The cumulative number of shares
                                dated best bid at the time of order re-                   of covered orders executed at any other
                                ceipt.                                                    venue;

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                                § 240.11Ac1–6                                                          17 CFR Ch. II (4–1–05 Edition)

                                  (F) The cumulative number of shares                     to the public the reports required by
                                of covered orders executed from 0 to 9                    paragraph (b)(1) of this section in a
                                seconds after the time of order receipt;                  uniform, readily accessible, and usable
                                  (G) The cumulative number of shares                     electronic form. In the event there is
                                of covered orders executed from 10 to 29                  no effective national market system
                                seconds after the time of order receipt;                  plan establishing such procedures, mar-
                                  (H) The cumulative number of shares                     ket centers shall prepare their reports
                                of covered orders executed from 30 sec-                   in a consistent, usable, and machine-
                                onds to 59 seconds after the time of                      readable electronic format, and make
                                order receipt;                                            such reports available for downloading
                                  (I) The cumulative number of shares                     from an Internet web site that is free
                                of covered orders executed from 60 sec-                   and readily accessible to the public.
                                onds to 299 seconds after the time of                       (3) A market center shall make avail-
                                order receipt;                                            able the report required by paragraph
                                  (J) The cumulative number of shares                     (b)(1) of this section within one month
                                of covered orders executed from 5 min-                    after the end of the month addressed in
                                utes to 30 minutes after the time of                      the report.
                                order receipt; and                                          (c) Exemptions. The Commission may,
                                  (K) The average realized spread for                     by order upon application, condi-
                                executions of covered orders; and                         tionally or unconditionally exempt any
                                  (ii) For market orders and market-                      person, security, or transaction, or any
                                able limit orders:                                        class or classes of persons, securities,
                                  (A) The average effective spread for                    or transactions, from any provision or
                                executions of covered orders;                             provisions of this section, if the Com-
                                  (B) The cumulative number of shares                     mission determines that such exemp-
                                of covered orders executed with price                     tion is necessary or appropriate in the
                                improvement;                                              public interest, and is consistent with
                                  (C) For shares executed with price                      the protection of investors.
                                improvement, the share-weighted aver-
                                age amount per share that prices were                     [65 FR 75436, Dec. 1, 2000]
                                improved;
                                                                                          § 240.11Ac1–6 Disclosure of order rout-
                                  (D) For shares executed with price                          ing information.
                                improvement, the share-weighted aver-
                                age period from the time of order re-                       (a) Definitions. For the purposes of
                                ceipt to the time of order execution;                     this section:
                                  (E) The cumulative number of shares                       (1) The term covered security shall
                                of covered orders executed at the                         mean:
                                quote;                                                      (i) Any national market system secu-
                                  (F) For shares executed at the quote,                   rity and any other security for which a
                                the share-weighted average period from                    transaction report, last sale data or
                                the time of order receipt to the time of                  quotation information is disseminated
                                order execution;                                          through an automated quotation sys-
                                  (G) The cumulative number of shares                     tem as defined in Section 3(a)(51)(A)(ii)
                                of covered orders executed outside the                    of the Act (15 U.S.C. 78c(a)(51)(A)(ii));
                                quote;                                                    and
                                  (H) For shares executed outside the                       (ii) Any option contract traded on a
                                quote, the share-weighted average                         national securities exchange for which
                                amount per share that prices were out-                    last sale reports and quotation infor-
                                side the quote; and                                       mation are made available pursuant to
                                  (I) For shares executed outside the                     an effective national market system
                                quote, the share-weighted average pe-                     plan.
                                riod from the time of order receipt to                      (2) The term customer order shall
                                the time of order execution.                              mean an order to buy or sell a covered
                                  (2) Every national securities ex-                       security that is not for the account of
                                change on which national market sys-                      a broker or dealer, but shall not in-
                                tem securities are traded and national                    clude any order for a quantity of a se-
                                securities association shall act jointly                  curity having a market value of at
                                in establishing procedures for market                     least $50,000 for a covered security that
                                centers to follow in making available                     is an option contract and a market

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                                Securities and Exchange Commission                                                         § 240.11Ac1–6

                                value of at least $200,000 for any other                    (i) The percentage of total customer
                                covered security.                                         orders for the section that were non-di-
                                   (3) The term directed order shall mean                 rected orders, and the percentages of
                                a customer order that the customer                        total non-directed orders for the sec-
                                specifically instructed the broker or                     tion that were market orders, limit or-
                                dealer to route to a particular venue                     ders, and other orders;
                                for execution.                                              (ii) The identity of the ten venues to
                                   (4) The term make publicly available                   which the largest number of total non-
                                shall mean posting on an Internet web                     directed orders for the section were
                                site that is free and readily accessible                  routed for execution and of any venue
                                to the public, furnishing a written copy                  to which five percent or more of non-
                                to customers on request without                           directed orders were routed for execu-
                                charge, and notifying customers at                        tion, the percentage of total non-di-
                                least annually in writing that a writ-                    rected orders for the section routed to
                                ten copy will be furnished on request.                    the venue, and the percentages of total
                                   (5) The term non-directed order shall                  non-directed market orders, total non-
                                mean any customer order other than a                      directed limit orders, and total non-di-
                                directed order.                                           rected other orders for the section that
                                   (6) The term effective national market                 were routed to the venue; and
                                system plan shall have the meaning pro-                     (iii) A discussion of the material as-
                                vided in § 240.11Aa3–2(a)(2).                             pects of the broker’s or dealer’s rela-
                                   (7) The term national market system                    tionship with each venue identified
                                security shall have the meaning pro-                      pursuant to paragraph (b)(1)(ii) of this
                                vided in § 240.11Aa2–1.                                   section, including a description of any
                                   (8) The term payment for order flow                    arrangement for payment for order
                                shall have the meaning provided in                        flow and any profit-sharing relation-
                                § 240.10b–10(d)(9).                                       ship.
                                   (9) The term profit-sharing relationship                 (2) A broker or dealer shall make the
                                shall mean any ownership or other                         report required by paragraph (b)(1) of
                                type of affiliation under which the                       this section publicly available within
                                broker or dealer, directly or indirectly,                 one month after the end of the quarter
                                may share in any profits that may be                      addressed in the report.
                                derived from the execution of non-di-
                                                                                            (c) Customer requests for information
                                rected orders.
                                                                                          on order routing. (1) Every broker or
                                   (10) The term time of the transaction
                                                                                          dealer shall, on request of a customer,
                                shall have the meaning provided in
                                                                                          disclose to its customer the identity of
                                § 240.10b–10(d)(3).
                                                                                          the venue to which the customer’s or-
                                   (b) Quarterly report on order routing.
                                                                                          ders were routed for execution in the
                                (1) Every broker or dealer shall make
                                                                                          six months prior to the request, wheth-
                                publicly available for each calendar
                                                                                          er the orders were directed orders or
                                quarter a report on its routing of non-
                                                                                          non-directed orders, and the time of
                                directed orders in covered securities
                                                                                          the transactions, if any, that resulted
                                during that quarter. For covered secu-
                                rities other than option contracts, such                  from such orders.
                                report shall be divided into three sepa-                    (2) A broker or dealer shall notify
                                rate sections for securities that are                     customers in writing at least annually
                                listed on the New York Stock Ex-                          of the availability on request of the in-
                                change, Inc., securities that are quali-                  formation specified in paragraph (c)(1)
                                fied for inclusion in the Nasdaq Stock                    of this section.
                                Market, Inc., and securities that are                       (d) Exemptions. The Commission may,
                                listed on the American Stock Exchange                     by order upon application, condi-
                                LLC or any other national securities                      tionally or unconditionally exempt any
                                exchange. Such report also shall in-                      person, security, or transaction, or any
                                clude a separate section for covered se-                  class or classes of persons, securities,
                                curities that are option contracts.                       or transactions, from any provision or
                                Each of the four sections in a report                     provisions of this section, if the Com-
                                shall include the following informa-                      mission determines that such exemp-
                                tion:                                                     tion is necessary or appropriate in the

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                                § 240.12a–4                                                             17 CFR Ch. II (4–1–05 Edition)

                                public interest, and is consistent with                       (1) Such warrant by its terms expires
                                the protection of investors.                               within 90 days after the issuance there-
                                                                                           of;
                                [65 FR 75436, Dec. 1, 2000]
                                                                                              (2) A registration statement under
                                           SECURITIES EXEMPTED FROM                        the Securities Act of 1933 is in effect as
                                                 REGISTRATION                              to such warrant and as to each subject
                                                                                           security, or the applicable terms of any
                                § 240.12a–4 Exemption of certain war-                      exemption from such registration have
                                    rants from section 12(a).                              been met in respect to such warrant
                                                                                           and each subject security; and
                                  (a) When used in this section, the fol-                     (3) Within five days after the ex-
                                lowing terms shall have the meaning                        change has taken official action to
                                indicated unless the context otherwise                     admit such warrant to dealing, it shall
                                requires:                                                  notify the Commission of such action.
                                  (1) The term warrant means any war-                         (c) Notwithstanding paragraph (b) of
                                rant or certificate evidencing a right to                  this section, no exemption pursuant to
                                subscribe to or otherwise acquire an-                      this section shall be available for
                                other security, issued or unissued.                        transactions in any such warrant on
                                  (2) The term beneficiary security                        any exchange on which the beneficiary
                                means a security to the holders of                         security is admitted to dealing unless:
                                which a warrant or right to subscribe                         (1) Each subject security is admitted
                                to or otherwise acquire another secu-                      to dealing or is in process of admission
                                rity is granted.                                           to dealing on a national securities ex-
                                  (3) The term subject security means a                    change; or
                                security which is the subject of a war-                       (2) There is available from a registra-
                                rant or right to subscribe to or other-                    tion statement and periodic reports or
                                wise acquire such security.                                other data filed by the issuer of the
                                  (4) The term in the process of admis-                    subject security, pursuant to any act
                                sion to dealing, in respect of a specified                 administered by the Commission, in-
                                security means that (i) an application                     formation substantially equivalent to
                                has been filed pursuant to section 12 (b)                  that available with respect to a secu-
                                and (c) of the Act for the registration                    rity listed and registered on a national
                                of such security on a national securi-                     securities exchange.
                                ties exchange; or (ii) the Commission                         (d) Notwithstanding the foregoing, an
                                has granted an application made pursu-                     unissued warrant shall not be exempt
                                ant to section 12(f) of the Act to con-                    pursuant to this section unless:
                                tinue or extend unlisted trading privi-                       (1) Formal or official announcement
                                leges to such security on a national se-                   has been made by the issuer specifying
                                curities exchange; or (iii) written no-                    (i) the terms upon which such warrant
                                tice has been filed with the Commis-                       and each subject security is to be
                                sion by a national securities exchange                     issued, (ii) the date, if any, as of which
                                to the effect that such security has                       the security holders entitled to receive
                                been approved for admission to dealing                     such warrant will be determined, (iii)
                                as a security exempted from the oper-                      the approximate date of the issuance of
                                ation of section 12(a) of the Act.                         such warrant, and (iv) the approximate
                                  (b) Any issued or unissued warrant                       date of the issuance of each subject se-
                                granted to the holders of a security ad-                   curity; and,
                                mitted to dealing on a national securi-                       (2) The members of the exchange are
                                ties exchange, shall be exempt from                        subject to rules which provide that the
                                the operation of section 12(a) of the Act                  performance of the contract to pur-
                                to the extent necessary to render law-                     chase and sell an unissued warrant
                                ful the effecting of transactions therein                  shall be conditioned upon the issuance
                                on any national securities exchange (i)                    of such warrant.
                                on which the beneficiary security is ad-                      (e) The Commission may by order
                                mitted to dealing or (ii) on which the                     deny or revoke the exemption of a war-
                                subject security is admitted to dealing                    rant under this section, if, after appro-
                                or is in the process of admission to                       priate notice and opportunity for hear-
                                dealing, subject to the following terms                    ing to the issuer of such warrant and to
                                and conditions:                                            the exchange or exchanges on which

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                                Securities and Exchange Commission                                                            § 240.12a–5

                                such warrant is admitted to dealing as                    exempted from the operation of section
                                an exempted security, it finds that:                      12(a) to the extent necessary to render
                                  (1) Any of the terms or conditions of                   lawful transactions therein on a
                                this section have not been met with re-                   ‘‘when-issued’’ basis on any national
                                spect to such exemption, or                               securities exchange on which the origi-
                                  (2) At any time during the period of                    nal security is lawfully admitted to
                                such exemption transactions have been                     trading.
                                effected on any such exchanges in such                      (2) The exemptions provided by para-
                                warrant which (i) create or induce a                      graph (a)(1) of this section shall be
                                false, misleading or artificial appear-                   available only if the following condi-
                                ance of activity, (ii) unduly or improp-                  tions are met:
                                erly influence the market price, or (iii)                   (i) A registration statement is in ef-
                                make a price which does not reflect the                   fect under the Securities Act of 1933 to
                                true state of the market; or                              the extent required as to the security
                                  (3) Any other facts exist which make                    which is the subject of such exemption,
                                such denial or revocation necessary or                    or the terms of any applicable exemp-
                                appropriate in the public interest or for                 tion from registration under such act
                                the protection of investors.                              have been complied with, if required;
                                  (f) If it appears necessary or appro-                     (ii) Any stockholder approval nec-
                                priate in the public interest or for the                  essary to the issuance of the security
                                protection of investors, the Commis-                      which is the subject of the exemption,
                                sion may summarily suspend the ex-                        has been obtained; and
                                emption of such warrant pending the                         (iii) All other necessary official ac-
                                determination by the Commission                           tion, other than the filing or recording
                                whether such exemption shall be de-                       of charter amendments or other docu-
                                nied or revoked.                                          ments with the appropriate State au-
                                  (g) Section 240.10b–1 shall be applica-                 thorities, has been taken to authorize
                                ble to any warrant exempted by this                       and assure the issuance of the security
                                section.                                                  which is the subject of such exemption.
                                (Secs. 3, 12, 48 Stat. 882, as amended, 892; 15             (b) The exemption provided by this
                                U.S.C. 78c, 78l)                                          section shall terminate on the earliest
                                [15 FR 3450, June 2, 1950, as amended at 18 FR            of the following dates:
                                128, Jan. 7, 1953]                                          (1) When registration of the exempt
                                                                                          security on the exchange become effec-
                                § 240.12a–5 Temporary exemption of                        tive;
                                      substituted or additional securities.                 (2) When the exempt security is
                                   (a)(1) Subject to the conditions of                    granted unlisted trading privileges on
                                paragraph (a)(2) of this section, when-                   the exchange;
                                ever the holders of a security admitted                     (3) The close of business on the tenth
                                to trading on a national securities ex-                   day after (i) withdrawal of an applica-
                                change (hereinafter called the original                   tion for registration of the exempt se-
                                security) obtain the right, by operation                  curity on the exchange; (ii) withdrawal
                                of law or otherwise, to acquire all or                    by the exchange of its certification of
                                any part of a class of another or sub-                    approval of the exempt security for
                                stitute security of the same or another                   listing and registration; (iii) with-
                                issuer, or an additional amount of the                    drawal of an application for admission
                                original security, then:                                  of the exempt security to unlisted trad-
                                   (i) All or any part of the class of such               ing privileges on the exchange; or (iv)
                                other or substituted security shall be                    the sending to the exchange of notice
                                temporarily exempted from the oper-                       of the entry of an order by the Com-
                                ation of section 12(a) to the extent nec-                 mission denying any application for ad-
                                essary to render lawful transactions                      mission of the exempt security to un-
                                therein on an issued or ‘‘when-issued’’                   listed trading privileges on the ex-
                                basis on any national securities ex-                      change;
                                change on which the original, the other                     (4) The close of business on the one
                                or the substituted security is lawfully                   hundred and twentieth day after the
                                admitted to trading; and                                  date on which the exempt security was
                                   (ii) The additional amount of the                      admitted by action of the exchange to
                                original security shall be temporarily                    trading thereon as a security exempted

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                                § 240.12a–6                                                            17 CFR Ch. II (4–1–05 Edition)

                                from the operation of section 12 (a) by                     (2) The term underlying security
                                this section, unless prior thereto an ap-                 means a security which relates to or is
                                plication for registration of the exempt                  the subject of an option.
                                security or for admission of the exempt                     (b) Any underlying security shall be
                                security to unlisted trading privileges                   exempt from the operation of section
                                on the exchange has been filed.                           12(a) of the Act if all of the following
                                  (c) Notwithstanding paragraph (b) of                    terms and conditions are met:
                                this section, the Commission, having                        (1) The related option is duly listed
                                due regard for the public interest and                    and registered on a national securities
                                the protection of investors, may at any                   exchange;
                                time extend the period of exemption of                      (2) The only transactions on such ex-
                                any security by this rule or may sooner                   change with respect to such underlying
                                terminate the exemption upon notice                       securities consist of the delivery of and
                                to the exchange and to the issuer of the                  payment for such underlying securities
                                extension or termination thereof.                         pursuant to the terms of such options
                                  (d) The Exchange shall file with the                    relating to the exercise thereof; and
                                Commission a notification on Form 26 1                      (3) Such underlying security is (i)
                                promptly after taking action to admit                     duly listed and registered on another
                                any security to trading under this sec-                   national securities exchange at the
                                tion: Provided, however, That no notifi-                  time the option is issued; or (ii) duly
                                cation need be filed under this section                   quoted on the National Association of
                                concerning the admission or proposed                      Securities      Dealers       Automated
                                admission to trading of additional                        Quotation System (‘‘NASDAQ’’) at the
                                amounts of a class of security admitted                   time the option is issued.
                                to trading on such exchange.                              (Secs. 3(a)(12); 48 Stat. 882, 84 Stat. 718, 1435,
                                  (e) Section 240.10b–1 shall be applica-                 1499 (15 U.S.C. 78(c)))
                                ble to all securities exempted from the
                                operation of section 12(a) of the act by                  [38 FR 11449, May 8, 1973, as amended at 50
                                                                                          FR 20203, May 15, 1985]
                                this section.
                                (Secs. 3, 12, 48 Stat. 882, 892; 15 U.S.C. 78c (12),      § 240.12a–7 Exemption of stock con-
                                78l)                                                            tained in standardized market bas-
                                                                                                kets from section 12(a) of the Act.
                                [13 FR 8185, Dec. 22, 1948, as amended at 19
                                FR 669, Feb. 5, 1954; 20 FR 2081, Apr. 2, 1955;              (a) Any component stock of a stand-
                                53 FR 41206, Oct. 20, 1988]                               ardized market basket shall be exempt
                                                                                          from the registration requirement of
                                § 240.12a–6 Exemption of securities un-                   section 12(a) of the Act, solely for the
                                     derlying certain options from sec-                   purpose of inclusion in a standardized
                                     tion 12(a).
                                                                                          market basket, provided that all of the
                                   (a) When used in this rule, the fol-                   following terms and conditions are
                                lowing terms shall have the meanings                      met:
                                indicated unless the context otherwise                       (1) The standardized market basket
                                requires:                                                 has been duly approved by the Commis-
                                   (1) The term option shall include any                  sion for listing on a national securities
                                put, call, spread, straddle, or other op-                 exchange pursuant to the requirements
                                tion or privilege of buying a security                    of section 19(b) of the Act; and
                                from or selling a security to another                        (2) The stock is a National Market
                                without being bound to do so, but such                    System security as defined in rule
                                term shall not include any such option                    11Aa2–1 under the Act (17 CFR
                                where the writer is: The issuer of the                    240.11Aa2–1) and is either:
                                security which may be purchased or                           (i) Listed and registered for trading
                                sold upon exercise of the option, or is a                 on a national securities exchange by
                                person that directly, or indirectly,                      the issuer or
                                through one or more intermediaries,                          (ii) Quoted on the National Associa-
                                controls, or is controlled by, or is                      tion of Securities Dealers Automated
                                under common control with such                            Quotation System;
                                issuer;                                                      (b) When used in this rule, the term
                                                                                          standardized market basket means a
                                  1 Copy filed with the Federal Register Divi-            group of at least 100 stocks purchased
                                sion.                                                     or sold in a single execution and at a

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                                Securities and Exchange Commission                                                            § 240.12b–2

                                single trading location with physical                     pursuant to sections 13 and 15(d) of the
                                delivery and transfer of ownership of                     Act, including all amendments to such
                                each component stock resulting from                       statements and reports, except that
                                such execution.                                           any provision in a form covering the
                                [56 FR 28322, June 20, 1991]
                                                                                          same subject matter as any such rule
                                                                                          shall be controlling.
                                § 240.12a–8 Exemption of depositary                       [47 FR 11464, Mar. 16, 1982]
                                    shares.
                                   Depositary shares (as that term is de-                 § 240.12b–2     Definitions.
                                fined in § 240.12b–2) registered on Form                     Unless the context otherwise re-
                                F–6 (§ 239.36 of this chapter), but not                   quires, the following terms, when used
                                the underlying deposited securities,                      in the rules contained in this regula-
                                shall be exempt from the operation of                     tion or in Regulation 13A or 15D or in
                                section 12(a) of the Act (15 U.S.C.                       the forms for statements and reports
                                78l(a)).                                                  filed pursuant to sections 12, 13 or 15(d)
                                [62 FR 39766, July 24, 1997]                              of the act, shall have the respective
                                                                                          meanings indicated in this rule:
                                § 240.12a–9 Exemption of standardized                        Accelerated filer. (1) The term ‘‘accel-
                                    options from section 12(a) of the                     erated filer’’ means an issuer after it
                                    Act.                                                  first meets the following conditions as
                                   The provisions of section 12(a) of the                 of the end of its fiscal year:
                                Act (15 U.S.C. 78l(a)) do not apply in re-                   (i) The aggregate market value of the
                                spect of any standardized option, as de-                  voting and non-voting common equity
                                fined by section 240.9b–1(a)(4), issued by                held by non-affiliates of the issuer is
                                a clearing agency registered under sec-                   $75 million or more;
                                tion 17A of the Act (15 U.S.C. 78q–1) and                    (ii) The issuer has been subject to the
                                traded on a national securities ex-                       requirements of Section 13(a) or 15(d) of
                                change registered pursuant to section                     the Act (15 U.S.C. 78m or 78o(d)) for a
                                6(a) of the Act (15 U.S.C. 78f(a)).                       period of at least twelve calendar
                                [68 FR 192, Jan. 2, 2003]                                 months;
                                                                                             (iii) The issuer has filed at least one
                                   REGULATION 12B: REGISTRATION AND                       annual report pursuant to Section 13(a)
                                              REPORTING                                   or 15(d) of the Act; and
                                                                                             (iv) The issuer is not eligible to use
                                  SOURCE: Sections 240.12b–1 through 240.12b–             Forms 10–KSB and 10–QSB (§ 249.310b
                                36 appear at 13 FR 9321, Dec. 31, 1948, unless            and § 249.308b) for its annual and quar-
                                otherwise noted.                                          terly reports.
                                     ATTENTION ELECTRONIC FILERS                            NOTE TO PARAGRAPH (1): The aggregate
                                THIS REGULATION SHOULD BE READ IN                         market value of the issuer’s outstanding vot-
                                CONJUNCTION WITH REGULATION S-T                           ing and non-voting common equity shall be
                                (PART 232 OF THIS CHAPTER), WHICH                         computed by use of the price at which the
                                GOVERNS THE PREPARATION AND SUB-                          common equity was last sold, or the average
                                MISSION OF DOCUMENTS IN ELECTRONIC                        of the bid and asked prices of such common
                                FORMAT. MANY PROVISIONS RELATING                          equity, in the principal market for such com-
                                TO THE PREPARATION AND SUBMISSION                         mon equity, as of the last business day of the
                                OF DOCUMENTS IN PAPER FORMAT CON-                         issuer’s most recently completed second fis-
                                TAINED IN THIS REGULATION ARE SU-                         cal quarter.
                                PERSEDED BY THE PROVISIONS OF REG-
                                ULATION S-T FOR DOCUMENTS RE-                               (2) Entering and Exiting Accelerated
                                QUIRED TO BE FILED IN ELECTRONIC                          Filer Status. (i) The determination for
                                FORMAT.                                                   whether a non-accelerated filer be-
                                                                                          comes an accelerated filer as of the end
                                                        GENERAL                           of the issuer’s fiscal year governs the
                                                                                          annual report to be filed for that fiscal
                                § 240.12b–1 Scope of regulation.                          year, the quarterly and annual reports
                                   The rules contained in this regula-                    to be filed for the subsequent fiscal
                                tion shall govern all registration state-                 year and all annual and quarterly re-
                                ments pursuant to sections 12(b) and                      ports to be filed thereafter while the
                                12(g) of the Act and all reports filed                    issuer remains an accelerated filer.

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                                § 240.12b–2                                                            17 CFR Ch. II (4–1–05 Edition)

                                  (ii) Once an issuer becomes an accel-                   stock or an equivalent interest, includ-
                                erated filer, it will remain an acceler-                  ing but not limited to a unit of bene-
                                ated filer unless the issuer becomes eli-                 ficial interest in a trust or a limited
                                gible to use Forms 10–KSB and 10–QSB                      partnership interest.
                                for its annual and quarterly reports. In                     Control. The term ‘‘control’’ (includ-
                                that case, the issuer will not become                     ing the terms ‘‘controlling,’’ ‘‘con-
                                an accelerated filer again unless it sub-                 trolled by’’ and ‘‘under common con-
                                sequently meets the conditions in para-                   trol with’’) means the possession, di-
                                graph (1) of this definition.                             rect or indirect, of the power to direct
                                  Affiliate. An ‘‘affiliate’’ of, or a per-               or cause the direction of the manage-
                                son ‘‘affiliated’’ with, a specified per-                 ment and policies of a person, whether
                                son, is a person that directly, or indi-                  through the ownership of voting securi-
                                rectly through one or more inter-
                                                                                          ties, by contract, or otherwise.
                                mediaries, controls, or is controlled by,
                                                                                             Depositary share. The term ‘‘deposi-
                                or is under common control with, the
                                person specified.                                         tary share’’ means a security, evi-
                                  Amount. The term ‘‘amount,’’ when                       denced by an American Depositary Re-
                                used in regard to securities, means the                   ceipt, that represents a foreign secu-
                                principal amount if relating to evi-                      rity or a multiple of or fraction thereof
                                dences of indebtedness, the number of                     deposited with a depositary.
                                shares if relating to shares, and the                        Employee. The term ‘‘employee’’ does
                                number of units if relating to any                        not include a director, trustee, or offi-
                                other kind of security.                                   cer.
                                  Associate. The term ‘‘associate’’ used                     Fiscal year. The term ‘‘fiscal year’’
                                to indicate a relationship with any per-                  means the annual accounting period or,
                                son, means (1) any corporation or orga-                   if no closing date has been adopted, the
                                nization (other than the registrant or a                  calendar year ending on December 31.
                                majority-owned subsidiary of the reg-                        Majority-owned subsidiary. The term
                                istrant) of which such person is an offi-                 ‘‘majority-owned subsidiary’’ means a
                                cer or partner or is, directly or indi-                   subsidiary more than 50 percent of
                                rectly, the beneficial owner of 10 per-                   whose outstanding securities rep-
                                cent or more of any class of equity se-                   resenting the right, other than as af-
                                curities, (2) any trust or other estate in                fected by events of default, to vote for
                                which such person has a substantial                       the election of directors, is owned by
                                beneficial interest or as to which such                   the subsidiary’s parent and/or one or
                                person serves as trustee or in a similar                  more of the parent’s other majority-
                                fiduciary capacity, and (3) any relative                  owned subsidiaries.
                                or spouse of such person, or any rel-
                                                                                             Managing underwriter. The term
                                ative of such spouse, who has the same
                                                                                          ‘‘managing underwriter’’ includes an
                                home as such person or who is a direc-
                                                                                          underwriter (or underwriters) who, by
                                tor or officer of the registrant or any of
                                its parents or subsidiaries.                              contract or otherwise, deals with the
                                  Certified. The term ‘‘certified,’’ when                 registrant; organizes the selling effort;
                                used in regard to financial statements,                   receives some benefit directly or indi-
                                means examined and reported upon                          rectly in which all other underwriters
                                with an opinion expressed by an inde-                     similarly situated do not share in pro-
                                pendent public or certified public ac-                    portion to their respective interests in
                                countant.                                                 the underwriting; or represents any
                                  Charter. The term ‘‘charter’’ includes                  other underwriters in such matters as
                                articles of incorporation, declarations                   maintaining the records of the dis-
                                of trust, articles of association or part-                tribution, arranging the allotments of
                                nership, or any similar instrument, as                    securities offered or arranging for ap-
                                amended, effecting (either with or                        propriate stabilization activities, if
                                without filing with any governmental                      any.
                                agency) the organization or creation of                      Material. The term ‘‘material,’’ when
                                an incorporated or unincorporated per-                    used to qualify a requirement for the
                                son.                                                      furnishing of information as to any
                                  Common equity. The term ‘‘common                        subject, limits the information re-
                                equity’’ means any class of common                        quired to those matters to which there

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                                Securities and Exchange Commission                                                            § 240.12b–2

                                is a substantial likelihood that a rea-                   such person does not otherwise take
                                sonable investor would attach impor-                      part in founding and organizing the en-
                                tance in determining whether to buy or                    terprise.
                                sell the securities registered.                              (2) All persons coming within the def-
                                   Parent. A ‘‘parent’’ of a specified per-               inition of ‘‘promoter’’ in paragraph (1)
                                son is an affiliate controlling such per-                 of this definition may be referred to as
                                son directly, or indirectly through one                   ‘‘founders’’ or ‘‘organizers’’ or by an-
                                or more intermediaries.                                   other term provided that such term is
                                   Predecessor. The term ‘‘predecessor’’                  reasonably descriptive of those per-
                                means a person the major portion of                       sons’ activities with respect to the
                                the business and assets of which an-                      issuer.
                                other person acquired in a single suc-                       Prospectus. Unless otherwise specified
                                cession or in a series of related succes-                 or the context otherwise requires, the
                                sions in each of which the acquiring                      term ‘‘prospectus’’ means a prospectus
                                person acquired the major portion of                      meeting the requirements of section
                                the business and assets of the acquired                   10(a) of the Securities Act of 1933 as
                                person.                                                   amended.
                                   Previously filed or reported. The terms                   Registrant. The term ‘‘registrant’’
                                ‘‘previously filed’’ and ‘‘previously re-                 means an issuer of securities with re-
                                ported’’ mean previously filed with, or                   spect to which a registration state-
                                reported in, a statement under section                    ment or report is to be filed.
                                12, a report under section 13 or 15(d), a                    Registration statement. The term
                                definitive proxy statement or informa-                    ‘‘registration statement’’ or ‘‘state-
                                tion statement under section 14 of the                    ment’’, when used with reference to
                                act, or a registration statement under                    registration pursuant to section 12 of
                                the Securities Act of 1933: Provided,                     the act, includes both an application
                                That information contained in any                         for registration of securities on a na-
                                such document shall be deemed to have                     tional securities exchange pursuant to
                                been previously filed with, or reported                   section 12(b) of the act and a registra-
                                to, an exchange only if such document                     tion statement filed pursuant to sec-
                                is filed with such exchange.                              tion 12(g) of the act.
                                   Principal   underwriter.    The    term                   Share. The term ‘‘share’’ means a
                                ‘‘principal underwriter’’ means an un-                    share of stock in a corporation or unit
                                derwriter in privity of contract with                     of interest in an unincorporated per-
                                the issuer of the securities as to which                  son.
                                he is underwriter.                                           Significant subsidiary. The term ‘‘sig-
                                   Promoter. (1) The term ‘‘promoter’’                    nificant subsidiary’’ means a sub-
                                includes:                                                 sidiary, including its subsidiaries,
                                   (i) Any person who, acting alone or in                 which meets any of the following con-
                                conjunction with one or more other                        ditions:
                                persons, directly or indirectly takes                        (1) The registrant’s and its other sub-
                                initiative in founding and organizing                     sidiaries’ investments in and advances
                                the business or enterprise of an issuer;                  to the subsidiary exceed 10 percent of
                                or                                                        the total assets of the registrant and
                                   (ii) Any person who, in connection                     its subsidiaries consolidated as of the
                                with the founding and organizing of the                   end of the most recently completed fis-
                                business or enterprise of an issuer, di-                  cal year (for a proposed business com-
                                rectly or indirectly receives in consid-                  bination to be accounted for as a pool-
                                eration of services or property, or both                  ing of interests, this condition is also
                                services and property, 10 percent or                      met when the number of common
                                more of any class of securities of the                    shares exchanged or to be exchanged by
                                issuer or 10 percent or more of the pro-                  the registrant exceeds 10 percent of its
                                ceeds from the sale of any class of such                  total common shares outstanding at
                                securities. However, a person who re-                     the date the combination is initiated);
                                ceives such securities or proceeds ei-                    or
                                ther solely as underwriting commis-                          (2) The registrant’s and its other sub-
                                sions or solely in consideration of prop-                 sidiaries’ proportionate share of the
                                erty shall not be deemed a promoter                       total assets (after intercompany elimi-
                                within the meaning of this paragraph if                   nations) of the subsidiary exceeds 10

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                                § 240.12b–3                                                            17 CFR Ch. II (4–1–05 Edition)

                                percent of the total assets of the reg-                   ties, public float shall be computed on the
                                istrants and its subsidiaries consoli-                    basis of the number of shares outstanding
                                dated as of the end of the most re-                       prior to the offering and the estimated pub-
                                                                                          lic offering price of the securities.
                                cently completed fiscal year; or
                                                                                             Subsidiary. A ‘‘subsidiary’’ of a speci-
                                  (3) The registrant’s and its other sub-
                                                                                          fied person is an affiliate controlled by
                                sidiaries’ equity in the income from
                                                                                          such person directly, or indirectly
                                continuing operations before income
                                                                                          through one or more intermediaries.
                                taxes, extraordinary items and cumu-
                                                                                          (See also ‘‘majority-owned subsidiary,’’
                                lative effect of a change in accounting
                                                                                          ‘‘significant subsidiary,’’ and ‘‘totally-
                                principle of the subsidiary exceeds 10
                                                                                          held subsidiary.’’)
                                percent of such income of the reg-
                                                                                             Succession. The term ‘‘succession’’
                                istrant and its subsidiaries consoli-
                                                                                          means the direct acquisition of the as-
                                dated for the most recently completed
                                                                                          sets comprising a going business,
                                fiscal year.
                                                                                          whether by merger, consolidation, pur-
                                  COMPUTATIONAL NOTE: For purposes of                     chase, or other direct transfer. The
                                making the prescribed income test the fol-                term does not include the acquisition
                                lowing guidance should be applied:                        of control of a business unless followed
                                  1. When a loss has been incurred by either
                                the parent and its subsidiaries consolidated
                                                                                          by the direct acquisition of its assets.
                                or the tested subsidiary, but not both, the               The terms ‘‘succeed’’ and ‘‘successor’’
                                equity in the income or loss of the tested                have meanings correlative to the fore-
                                subsidiary should be excluded from the in-                going.
                                come of the registrant and its subsidiaries                  Totally held subsidiary. The term ‘‘to-
                                consolidated for purposes of the computa-                 tally held subsidiary’’ means a sub-
                                tion.                                                     sidiary (1) substantially all of whose
                                  2. If income of the registrant and its sub-
                                                                                          outstanding securities are owned by its
                                sidiaries consolidated for the most recent
                                fiscal year is at least 10 percent lower than             parent and/or the parent’s other totally
                                the average of the income for the last five               held subsidiaries, and (2) which is not
                                fiscal years, such average income should be               indebted to any person other than its
                                substituted for purposes of the computation.              parent and/or the parent’s other totally
                                Any loss years should be omitted for pur-                 held subsidiaries in an amount which is
                                poses of computing average income.                        material in relation to the particular
                                   Small Business Issuer. The term                        subsidiary, excepting indebtedness in-
                                ‘‘small business issuer’’ means an enti-                  curred in the ordinary course of busi-
                                ty that meets the following criteria:                     ness which is not overdue and which
                                   (1) Has revenues of less than                          matures within one year from the date
                                $25,000,000;                                              of its creation, whether evidenced by
                                   (2) Is a U.S. or Canadian issuer;                      securities or not.
                                   (3) Is not an investment company and                      Voting securities. The term ‘‘voting se-
                                is not an asset-backed issuer (as de-                     curities’’ means securities the holders
                                fined in § 229.1101 of this chapter); and                 of which are presently entitled to vote
                                   (4) If a majority owned subsidiary,                    for the election of directors.
                                the parent corporation is also a small                       Wholly-owned subsidiary. The term
                                business issuer.                                          ‘‘wholly-owned subsidiary’’ means a
                                   Provided however, that an entity is                    subsidiary substantially all of whose
                                not a small business issuer if it has a                   outstanding voting securities are
                                public float (the aggregate market                        owned by its parent and/or the parent’s
                                value of the issuer’s outstanding voting                  other wholly-owned subsidiaries.
                                and non-voting common equity held by
                                                                                          [13 FR 9321, Dec. 31, 1948, as amended at 19
                                non-affiliates) of $25,000,000 or more.                   FR 6730, Oct. 30, 1954; 20 FR 8285, Nov. 4, 1955;
                                  NOTE: The public float of a reporting com-              30 FR 2022, Feb. 13, 1965; 47 FR 11464, Mar. 16,
                                pany shall be computed by use of the price at             1982; 47 FR 29841, July 9, 1982; 47 FR 54780,
                                which the stock was last sold, or the average             Dec. 6, 1982; 48 FR 12350, Mar. 24, 1983; 50 FR
                                of the bid and asked prices of such stock, on             25216, June 18, 1985; 57 FR 36494, Aug. 13, 1992;
                                a date within 60 days prior to the end of its             62 FR 26389, May 14, 1997; 67 FR 58505, Sept.
                                most recent fiscal year. The public float of a            16, 2002; 70 FR 1620, Jan. 7, 2005]
                                company filing an initial registration state-
                                ment under the Exchange Act shall be deter-               § 240.12b–3 Title of securities.
                                mined as of a date within 60 days of the date
                                the registration statement is filed. In the                  Wherever the title of securities is re-
                                case of an initial public offering of securi-             quired to be stated there shall be given

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                                Securities and Exchange Commission                                                           § 240.12b–11

                                such information as will indicate the                     ment shall not be taken into consider-
                                type and general character of the secu-                   ation.
                                rities, including the following:
                                  (a) In the case of shares, the par or                   § 240.12b–6 When      securities               are
                                stated value, if any; the rate of divi-                       deemed to be registered.
                                dends, if fixed, and whether cumulative                     A class of securities with respect to
                                or noncumulative; a brief indication of                   which a registration statement has
                                the preference, if any; and if convert-                   been filed pursuant to section 12 of the
                                ible, a statement to that effect.
                                                                                          act shall be deemed to be registered for
                                  (b) In the case of funded debt, the
                                                                                          the purposes of sections 13, 14, 15(d) and
                                rate of interest; the date of maturity,
                                or if the issue matures serially, a brief                 16 of the act and the rules and regula-
                                indication of the serial maturities,                      tions thereunder only when such state-
                                such as ‘‘maturing serially from 1950 to                  ment has become effective as provided
                                1960’’; if the payment of principal or in-                in section 12, and securities of said
                                terest is contingent, an appropriate in-                  class shall not be subject to sections 13,
                                dication of such contingency; a brief                     14 and 16 of the act until such state-
                                indication of the priority of the issue;                  ment has become effective as provided
                                and if convertible, a statement to that                   in section 12.
                                effect.                                                   (Secs. 3, 14, 16, 48 Stat. 882, 895, 896, sec. 3(d),
                                  (c) In the case of any other kind of                    78 Stat. 568; 15 U.S.C. 78c, 78n, 78p, 78l)
                                security, appropriate information of
                                comparable character.                                     [30 FR 482, Jan. 14, 1965]

                                § 240.12b–4 Supplemental information.                     § 240.12b–7     [Reserved]
                                   The Commission or its staff may,
                                                                                                      FORMAL REQUIREMENTS
                                where it is deemed appropriate, request
                                supplemental information concerning                       § 240.12b–10 Requirements as to prop-
                                the registrant, a registration state-                         er form.
                                ment or a periodic or other report
                                under the Act. This information shall                        Every statement or report shall be on
                                not be required to be filed with or                       the form prescribed therefor by the
                                deemed part of the registration state-                    Commission, as in effect on the date of
                                ment or report. The information shall                     filing. Any statement or report shall be
                                be returned to the registrant upon re-                    deemed to be filed on the proper form
                                quest, provided that:                                     unless objection to the form is made by
                                   (a) Such request is made at the time                   the Commission within thirty days
                                such information is furnished to the                      after the date of filing.
                                staff;
                                                                                          (Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as
                                   (b) The return of such information is                  amended, 901; 15 U.S.C. 77d, 78p, 77s, 78x)
                                consistent with the protection of inves-
                                tors; and                                                 [30 FR 2022, Feb. 13, 1965]
                                   (c) The return of such information is
                                consistent with the provisions of the                     § 240.12b–11 Number of copies; signa-
                                Freedom of Information Act (5 U.S.C.                          tures; binding.
                                552).                                                        (a) Except as provided in a particular
                                [47 FR 11465, Mar. 16, 1982]                              form, three complete copies of each
                                                                                          statement or report, including exhibits
                                § 240.12b–5 Determination of affiliates                   and all other papers and documents
                                     of banks.                                            filed as a part thereof, shall be filed
                                   In determining whether a person is                     with the Commission. At least one
                                an ‘‘affiliate’’ or ‘‘parent’’ of a bank or               complete copy of each statement shall
                                whether a bank is a ‘‘subsidiary’’ or                     be filed with each exchange on which
                                ‘‘majority-owner subsidiary’’ of a per-                   the securities covered thereby are to be
                                son within the meaning of those terms                     registered. At least one complete copy
                                as defined in § 240.12b–2, voting securi-                 of each report under section 13 of the
                                ties of the bank held by a corporation                    Act shall be filed with each exchange
                                all of the stock of which is directly                     on which the registrant has securities
                                owned by the United States Govern-                        registered.

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                                § 240.12b–12                                                           17 CFR Ch. II (4–1–05 Edition)

                                  (b) At least one copy of each state-                    which, in the opinion of the Commis-
                                ment or report filed with the Commis-                     sion, produces copies suitable for a per-
                                sion and one copy thereof filed with                      manent record and microfilming. Irre-
                                each exchange shall be signed in the                      spective of the process used, all copies
                                manner prescribed by the appropriate                      of any such material shall be clear,
                                form.                                                     easily readable and suitable for re-
                                  (c) Each copy of a statement or re-                     peated photocopying. Debits in credit
                                port filed with the Commission or with                    categories and credits in debit cat-
                                an exchange shall be bound in one or                      egories shall be designated so as to be
                                more parts. Copies filed with the Com-                    clearly distinguishable as such on pho-
                                mission shall be bound without stiff                      tocopies.
                                covers. The statement or report shall                       (c) The body of all printed state-
                                be bound on the left side in such a                       ments and reports and all notes to fi-
                                manner as to leave the reading matter                     nancial statements and other tabular
                                legible.                                                  data included therein shall be in roman
                                  (d) Signatures. Where the Act or the                    type at least as large and as legible as
                                rules, forms, reports or schedules                        10-point modern type. However, to the
                                thereunder, including paragraph (b) of                    extent necessary for convenient presen-
                                this section, require a document filed                    tation, financial statements and other
                                with or furnished to the Commission to                    tabular data, including tabular data in
                                be signed, such document shall be                         notes, may be in roman type at least as
                                manually signed, or signed using either                   large and as legible as 8-point modern
                                typed signatures or duplicated or fac-                    type. All such type shall be leaded at
                                simile versions of manual signatures.                     least 2 points.
                                Where typed, duplicated or facsimile                        (d)(1) All Exchange Act filings and
                                signatures are used, each signatory to                    submissions must be in the English
                                the filing shall manually sign a signa-                   language, except as otherwise provided
                                ture page or other document authen-                       by this section. If a filing or submis-
                                ticating, acknowledging or otherwise                      sion requires the inclusion of a docu-
                                adopting his or her signature that ap-                    ment that is in a foreign language, a
                                pears in the filing. Such document                        party must submit instead a fair and
                                shall be executed before or at the time                   accurate English translation of the en-
                                the filing is made and shall be retained                  tire foreign language document, except
                                by the filer for a period of five years.                  as provided by paragraph (d)(3) of this
                                Upon request, the filer shall furnish to                  section.
                                the Commission or its staff a copy of                       (2) If a filing or submission subject to
                                any or all documents retained pursuant                    review by the Division of Corporation
                                to this section.                                          Finance requires the inclusion of a for-
                                [47 FR 11465, Mar. 16, 1982, as amended at 60             eign language document as an exhibit
                                FR 26622, May 17, 1995; 61 FR 30403, June 14,             or attachment, a party must submit a
                                1996]                                                     fair and accurate English translation
                                                                                          of the foreign language document if
                                § 240.12b–12 Requirements as to paper,                    consisting of any of the following, or
                                     printing and language.                               an amendment of any of the following:
                                   (a) Statements and reports shall be                      (i) Articles of incorporation, memo-
                                filed on good quality, unglazed white                     randa of association, bylaws, and other
                                paper, no larger than 81⁄2×11 inches in                   comparable documents, whether origi-
                                size, insofar as practicable. To the ex-                  nal or restated;
                                tent that the reduction of larger docu-                     (ii) Instruments defining the rights of
                                ments would render them illegible,                        security holders, including indentures
                                such documents may be filed on paper                      qualified or to be qualified under the
                                larger than 81⁄2×11 inches in size.                       Trust Indenture Act of 1939;
                                   (b) The statement or report and, in-                     (iii) Voting agreements, including
                                sofar as practicable, all papers and doc-                 voting trust agreements;
                                uments filed as a part thereof, shall be                    (iv) Contracts to which directors, of-
                                printed, lithographed, mimeographed,                      ficers, promoters, voting trustees or se-
                                or typewritten. However, the state-                       curity holders named in a registration
                                ment or report or any portion thereof                     statement, report or other document
                                may be prepared by any similar process                    are parties;

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                                Securities and Exchange Commission                                                          § 240.12b–14

                                   (v) Contracts upon which a filer’s                     ter), Schedule 13E–4F (§ 240.13e–102),
                                business is substantially dependent;                      Schedule 14D–1F (§ 240.14d–102), or
                                   (vi) Audited annual and interim con-                   Schedule 14D–9F (§ 240.14d–103), that
                                solidated financial information; and                      contains text in both French and
                                   (vii) Any document that is or will be                  English if the issuer included the
                                the subject of a confidential treatment                   French text to comply with the re-
                                request under § 240.24b–2 or § 230.406 of                 quirements of the Canadian securities
                                this chapter.                                             administrator or other Canadian au-
                                   (3)(i) A party may submit an English                   thority and, for an electronic filing, if
                                summary instead of an English trans-                      the filing is an HTML document, as de-
                                lation of a foreign language document                     fined in Regulation S-T Rule 11 (17 CFR
                                as an exhibit or attachment to a filing                   232.11).
                                or submission subject to review by the                      (e) Where a statement or report is
                                Division of Corporation Finance, as                       distributed to investors through an
                                long as:                                                  electronic medium, issuers may satisfy
                                   (A) The foreign language document                      legibility requirements applicable to
                                does not consist of any of the subject                    printed documents, such as paper size
                                matter enumerated in paragraph (d)(2)                     and type size and font, by presenting
                                of this section; or                                       all required information in a format
                                   (B) The applicable form permits the                    readily communicated to investors.
                                use of an English summary.
                                   (ii) Any English summary submitted                     [47 FR 11466, Mar. 16, 1982, as amended at 47
                                under paragraph (d)(3) of this section                    FR 58238, Dec. 30, 1982; 61 FR 24656, May 15,
                                must:                                                     1996; 67 FR 36704, May 24, 2002]
                                   (A) Fairly and accurately summarize
                                                                                          § 240.12b–13 Preparation of statement
                                the terms of each material provision of                       or report.
                                the foreign language document; and
                                   (B) Fairly and accurately describe                       The statement or report shall con-
                                the terms that have been omitted or                       tain the numbers and captions of all
                                abridged.                                                 items of the appropriate form, but the
                                   (4) When submitting an English sum-                    text of the items may be omitted pro-
                                mary or English translation of a for-                     vided the answers thereto are so pre-
                                eign language document under this sec-                    pared as to indicate to the reader the
                                tion, a party must identify the submis-                   coverage of the items without the ne-
                                sion as either an English summary or                      cessity of his referring to the text of
                                English translation. A party may sub-                     the items or instructions thereto. How-
                                mit a copy of the unabridged foreign                      ever, where any item requires informa-
                                language document when including an                       tion to be given in tabular form, it
                                English summary or English trans-                         shall be given in substantially the tab-
                                lation of a foreign language document                     ular form specified in the item. All in-
                                in a filing or submission. A party must                   structions, whether appearing under
                                provide a copy of any foreign language                    the items of the form or elsewhere
                                document upon the request of Commis-                      therein, are to be omitted. Unless ex-
                                sion staff.                                               pressly provided otherwise, if any item
                                   (5) A foreign government or its polit-                 is inapplicable or the answer thereto is
                                ical subdivision must provide a fair and                  in the negative, an appropriate state-
                                accurate English translation of its lat-                  ment to that effect shall be made.
                                est annual budget submitted as Exhibit                    (Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as
                                B to Form 18 (§ 249.218 of this chapter)                  amended, 901; 15 U.S.C. 77d, 78p, 77s, 78x)
                                or Exhibit (c) to Form 18–K (§ 249.318 of
                                this chapter) only if one is available. If                [30 FR 2023, Feb. 13, 1965]
                                no English translation is available, a
                                filer must provide a copy of the foreign                  § 240.12b–14     Riders; inserts.
                                language version of its latest annual                       Riders shall not be used. If the state-
                                budget as an exhibit.                                     ment or report is typed on a printed
                                   (6) A Canadian issuer may file an ex-                  form, and the space provided for the
                                hibit, attachment or other part of a                      answer to any given item is insuffi-
                                Form 40–F registration statement or                       cient, reference shall be made in such
                                annual report (§ 249.240f of this chap-                   space to a full insert page or pages on

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                                § 240.12b–15                                                           17 CFR Ch. II (4–1–05 Edition)

                                which the item number and caption                               GENERAL REQUIREMENTS AS TO
                                and the complete answer are given.                                      CONTENTS
                                (Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as            § 240.12b–20     Additional information.
                                amended, 901; 15 U.S.C. 77d, 78p, 77s, 78x)
                                                                                            In addition to the information ex-
                                [30 FR 2023, Feb. 13, 1965]
                                                                                          pressly required to be included in a
                                § 240.12b–15       Amendments.                            statement or report, there shall be
                                                                                          added such further material informa-
                                   All amendments must be filed under                     tion, if any, as may be necessary to
                                cover of the form amended, marked                         make the required statements, in the
                                with the letter ‘‘A’’ to designate the                    light of the circumstances under which
                                document as an amendment, e.g., ‘‘10–                     they are made not misleading.
                                K/A,’’ and in compliance with pertinent
                                requirements applicable to statements                     (Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as
                                and reports. Amendments filed pursu-                      amended, 901; 15 U.S.C. 77d, 78p, 77s, 78x)
                                ant to this section must set forth the                    [30 FR 2023, Feb. 13, 1965]
                                complete text of each item as amended.
                                Amendments must be numbered se-                           § 240.12b–21 Information unknown or
                                quentially and be filed separately for                        not available.
                                each statement or report amended.                           Information required need be given
                                Amendments to a statement may be                          only insofar as it is known or reason-
                                filed either before or after registration                 ably available to the registrant. If any
                                becomes effective. Amendments must                        required information is unknown and
                                be signed on behalf of the registrant by                  not reasonably available to the reg-
                                a duly authorized representative of the                   istrant, either because the obtaining
                                registrant. An amendment to any re-                       thereof would involve unreasonable ef-
                                port required to include the certifi-                     fort or expense, or because it rests pe-
                                cations as specified in § 240.13a–14(a) or                culiarly within the knowledge of an-
                                § 240.15d–14(a) must include new certifi-                 other person not affiliated with the
                                cations by each principal executive and                   registrant, the information may be
                                principal financial officer of the reg-                   omitted, subject to the following con-
                                istrant, and an amendment to any re-                      ditions.
                                port required to be accompanied by the                      (a) The registrant shall give such in-
                                certifications as specified in § 240.13a–                 formation on the subject as it possesses
                                14(b) or § 240.15d–14(b) must be accom-                   or can acquire without unreasonable
                                panied by new certifications by each                      effort or expense, together with the
                                principal executive and principal finan-                  sources thereof.
                                cial officer of the registrant. An                          (b) The registrant shall include a
                                amendment to any report required to                       statement either showing that unrea-
                                include the certifications as specified                   sonable effort or expense would be in-
                                in § 240.13a–14(d) or § 240.15d–14(d) must                volved or indicating the absence of any
                                include a new certification by an indi-                   affiliation with the person within
                                vidual specified in § 240.13a–14(e) or                    whose knowledge the information rests
                                § 240.15d–14(e), as applicable. The re-                   and stating the result of a request
                                quirements of the form being amended                      made to such person for the informa-
                                will govern the number of copies to be                    tion.
                                filed in connection with a paper format
                                amendment. Electronic filers satisfy                      § 240.12b–22     Disclaimer of control.
                                the provisions dictating the number of                      If the existence of control is open to
                                copies by filing one copy of the amend-                   reasonable doubt in any instance, the
                                ment in electronic format. See § 232.309                  registrant may disclaim the existence
                                of this chapter (Rule 309 of Regulation                   of control and any admission thereof;
                                S-T).                                                     in such case, however, the registrant
                                [68 FR 36665, June 18, 2003, as amended at 70             shall state the material facts pertinent
                                FR 1620, Jan. 7, 2005]                                    to the possible existence of control.



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                                Securities and Exchange Commission                                                          § 240.12b–25

                                § 240.12b–23 Incorporation      by     ref-               identified in the reference. An express
                                      erence.                                             statement that the specified matter is
                                   (a) Except for information filed as an                 incorporated by reference shall be
                                exhibit which is covered by Rule 12b–32                   made at the particular place in the
                                (17 CFR 240.12b–32), information may be                   statement or report where the informa-
                                incorporated by reference in answer, or                   tion is required. Matter shall not be in-
                                partial answer, to any item of a reg-                     corporated by reference in any case
                                istration statement or report subject                     where such incorporation would render
                                to the following provisions:                              the statement or report incomplete,
                                   (1)   Financial   statements     incor-                unclear or confusing.
                                porated by reference shall satisfy the                    [47 FR 11466, Mar. 16, 1982, as amended at 57
                                requirements of the form or report in                     FR 48977, Oct. 29, 1992; 60 FR 32825, June 23,
                                which they are incorporated. Financial                    1995; 69 FR 15618, Mar. 25, 2004]
                                statements or other financial data re-
                                quired to be given in comparative form                    § 240.12b–24     [Reserved]
                                for two or more fiscal years or periods
                                shall not be incorporated by reference                    § 240.12b–25 Notification        of inability to
                                unless the material incorporated by                           timely file all or any       required por-
                                reference includes the entire period for                      tion of a Form 10–K,         10–KSB, 20–F,
                                                                                              11–K, N–SAR, N–CSR,          10–Q, 10–QSB
                                which the comparative data is given;                          or 10–D.
                                   (2) Information in any part of the
                                registration statement or report may                        (a) If all or any required portion of an
                                be incorporated by reference in answer,                   annual or transition report on Form
                                or partial answer, to any other item of                   10–K, 10–KSB, 20–F or 11–K (17 CFR
                                the registration statement or report;                     249.310, 249.310b, 249.220f or 249.311), a
                                and                                                       quarterly or transition report on Form
                                   (3) Copies of any information or fi-                   10–Q or 10–QSB (17 CFR 249.308a or
                                nancial statement incorporated into a                     249.308b), or a distribution report on
                                registration statement or report by ref-                  Form 10–D (17 CFR 249.312) required to
                                erence, or copies of the pertinent pages                  be filed pursuant to section 13 or 15(d)
                                of the document containing such infor-                    of the Act (15 U.S.C. 78m or 78o(d)) and
                                mation or statement, shall be filed as                    rules thereunder, or if all or any re-
                                an exhibit to the statement or report,                    quired portion of a semi-annual, annual
                                except that:                                              or transition report on Form N–CSR (17
                                   (i) A proxy or information statement                   CFR 249.331; 17 CFR 274.128) or Form N–
                                incorporated by reference in response                     SAR (17 CFR 249.330; 17 CFR 274.101) re-
                                to Part III of Form 10–K and Form 10–                     quired to be filed pursuant to section 13
                                KSB (17 CFR 249.310 and 249.310b);                        or 15(d) of the Act or section 30 of the
                                   (ii) A form of prospectus filed pursu-                 Investment Company Act of 1940 (15
                                ant to 17 CFR 230.424(b) incorporated by                  U.S.C. 80a–29) and the rules thereunder,
                                reference in response to Item 1 of Form                   is not filed within the time period pre-
                                8–A (17 CFR 249.208a); and                                scribed for such report, the registrant,
                                   (iii) Information filed on Form 8–K                    no later than one business day after
                                (17 CFR 249.308) need not be filed as an                  the due date for such report, shall file
                                exhibit.                                                  a Form 12b–25 (17 CFR 249.322) with the
                                   (b) Any incorporation by reference of                  Commission which shall contain disclo-
                                matter pursuant to this section shall                     sure of its inability to file the report
                                be subject to the provisions of § 228.10(f)               timely and the reasons therefor in rea-
                                and § 229.10(d) of this chapter restrict-                 sonable detail.
                                ing incorporation by reference of docu-                     (b) With respect to any report or por-
                                ments which incorporate by reference                      tion of any report described in para-
                                other information. Material incor-                        graph (a) of this section which is not
                                porated by reference shall be clearly                     timely filed because the registrant is
                                identified in the reference by page,                      unable to do so without unreasonable
                                paragraph, caption or otherwise. Where                    effort or expense, such report shall be
                                only certain pages of a document are                      deemed to be filed on the prescribed
                                incorporated by reference and filed as                    due date for such report if:
                                an exhibit, the document from which                         (1) The registrant files the Form 12b–
                                the material is taken shall be clearly                    25 in compliance with paragraph (a) of

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                                § 240.12b–30                                                           17 CFR Ch. II (4–1–05 Edition)

                                this section and, when applicable, fur-                     The following items were the subject of a
                                nishes the exhibit required by para-                      Form 12b–25 and are included herein: (List
                                graph (c) of this section;                                Item Numbers)
                                   (2) The registrant represents in the                      (f) The provisions of this section
                                Form 12b–25 that:                                         shall not apply to financial statements
                                   (i) The reason(s) causing the inability                to be filed by amendment to a form 10–
                                to file timely could not be eliminated                    K as provided for by paragraph (a) of
                                by the registrant without unreasonable                    § 210.3–09 or schedules to be filed by
                                effort or expense; and                                    amendment in accordance with General
                                   (ii) The subject annual report, semi-                  Instruction A to form 10–K.
                                annual report or transition report on                        (g) Electronic filings. The provisions of
                                Form 10–K, 10–KSB, 20–F, 11–K, N–SAR,                     this section shall not apply to reports
                                or N–CSR, or portion thereof, will be                     required to be filed in electronic for-
                                filed no later than the fifteenth cal-                    mat if the sole reason the report is not
                                endar day following the prescribed due                    filed within the time period prescribed
                                date; or the subject quarterly report or                  is that the filer is unable to file the re-
                                transition report on Form 10–Q or 10–                     port in electronic format. Filers unable
                                QSB or distribution report on Form 10–                    to submit a report in electronic format
                                D, or portion thereof, will be filed no                   within the time period prescribed sole-
                                later than the fifth calendar day fol-                    ly due to difficulties with electronic
                                lowing the prescribed due date; and                       filing should comply with either Rule
                                   (3) The report/portion thereof is actu-                201 or 202 of Regulation S-T (§ 232.201
                                ally filed within the period specified by                 and § 232.202 of this chapter), or apply
                                paragraph (b)(2)(ii) of this section.                     for an adjustment of filing date pursu-
                                   (c) If paragraph (b) of this section is                ant to Rule 13(b) of Regulation S-T
                                applicable and the reason the subject                     (§ 232.13(c) of this chapter).
                                report/portion thereof cannot be filed                    [45 FR 23652, Apr. 8, 1980, as amended at 50
                                timely without unreasonable effort or                     FR 1449, Jan. 11, 1985; 50 FR 2957, Jan. 23,
                                expense relates to the inability of any                   1985; 54 FR 10316, Mar. 13, 1989; 58 FR 14683,
                                person, other than the registrant, to                     Mar. 18, 1993; 58 FR 21349, Apr. 21, 1993; 59 FR
                                furnish any required opinion, report or                   67764, Dec. 30, 1994; 68 FR 5364, Feb. 3, 2003; 70
                                certification, the Form 12b–25 shall                      FR 1620, Jan. 7, 2005]
                                have attached as an exhibit a state-
                                ment signed by such person stating the                                        EXHIBITS
                                specific reasons why such person is un-
                                able to furnish the required opinion, re-                 § 240.12b–30     Additional exhibits.
                                port or certification on or before the                      The registrant may file such exhibits
                                date such report must be filed.                           as it may desire, in addition to those
                                   (d) Notwithstanding paragraph (b) of                   required by the appropriate form. Such
                                this section, a registrant will not be el-                exhibits shall be so marked as to indi-
                                igible to use any registration state-                     cate clearly the subject matters to
                                ment form under the Securities Act of                     which they refer.
                                1933 the use of which is predicated on
                                timely filed reports until the subject                    § 240.12b–31 Omission of substantially
                                report is actually filed pursuant to                          identical documents.
                                paragraph (b)(3) of this section.                           In any case where two or more inden-
                                   (e) If a Form 12b–25 filed pursuant to                 tures, contracts, franchises, or other
                                paragraph (a) of this sectin relates only                 documents required to be filed as ex-
                                to a portion of a subject report, the                     hibits are substantially identical in all
                                registrant shall:                                         material respects except as to the par-
                                   (1) File the balance of such report                    ties thereto, the dates of execution, or
                                and indicate on the cover page thereof                    other details, the registrant need file a
                                which disclosure items are omitted;                       copy of only one of such documents,
                                and                                                       with a schedule identifying the other
                                   (2) Include, on the upper right corner                 documents omitted and setting forth
                                of the amendment to the report which                      the material details in which such doc-
                                includes the previously omitted infor-                    uments differ from the document of
                                mation, the following statement:                          which a copy is filed. The Commission

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                                Securities and Exchange Commission                                                          § 240.12d1–1

                                may at any time in its discretion re-                                  SPECIAL PROVISIONS
                                quire the filing of copies of any docu-
                                ments so omitted.                                         § 240.12b–35     [Reserved]
                                                                                          § 240.12b–36 Use of financial state-
                                § 240.12b–32 Incorporation of exhibits                        ments filed under other acts.
                                    by reference.
                                                                                             Where copies of certified financial
                                   (a) Any document or part thereof                       statements filed under other acts ad-
                                filed with the Commission pursuant to                     ministered by the Commission are filed
                                any act administered by the Commis-                       with a statement or report, the ac-
                                sion may, subject to § 228.10(f) and                      countant’s certificate shall be manu-
                                § 229.10(d) of this chapter be incor-                     ally signed or manually signed copies
                                porated by reference as an exhibit to                     of the certificate shall be filed with the
                                any statement or report filed with the                    financial statements. Where such fi-
                                Commission by the same or any other                       nancial statements are incorporated by
                                person. Any document or part thereof                      reference in a statement or report, the
                                filed with an exchange pursuant to the                    written consent of the accountant to
                                act may be incorporated by reference                      such incorporation by reference shall
                                as an exhibit to any statement or re-                     be filed with the statement or report.
                                port filed with the exchange by the                       Such consent shall be dated and signed
                                same or any other person.                                 manually.
                                   (b) If any modification has occurred                   (Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as
                                in the text of any document incor-                        amended, 901; 15 U.S.C. 77d, 78p, 77s, 78x)
                                porated by reference since the filing                     [30 FR 2023, Feb. 13, 1965]
                                thereof, the registrant shall file with
                                the reference a statement containing                      § 240.12b–37 Satisfaction of filing re-
                                the text of any such modification and                          quirements.
                                the date thereof.                                            With regard to issuers eligible to rely
                                                                                          on Release No. 34–45589 (March 18, 2002)
                                (Secs. 4, 16, 19, 24, 48 Stat. 77, 896, 85, as            or Release No. IC–25463 (March 18, 2002)
                                amended, 901; 15 U.S.C. 77d, 78p, 77s, 78x)
                                                                                          (each of which may be viewed on the
                                [13 FR 9321, Dec. 31, 1948, as amended at 30              Commission’s website at www.sec.gov),
                                FR 2023, Feb. 13, 1965; 60 FR 32825, June 23,             filings made in accordance with the
                                1995]                                                     provisions of those Releases shall sat-
                                                                                          isfy the issuer’s requirement to make
                                § 240.12b–33 Annual reports to other                      such a filing under Section 13(a), 14 or
                                    Federal agencies.                                     15(d) of the Act (15 U.S.C. 77m(a), 78n or
                                   Notwithstanding any rule or other                      78o(d)), as applicable, and the Commis-
                                requirement to the contrary, whenever                     sion’s rules and regulations there-
                                copies of an annual report by a reg-                      under.
                                istrant to any other Federal agency are                   [67 FR 13537, Mar. 22, 2002]
                                required or permitted to be filed as an
                                exhibit to an application or report filed                     CERTIFICATION BY EXCHANGES AND
                                by such registrant with the Commis-                           EFFECTIVENESS OF REGISTRATION
                                sion or with a securities exchange, only
                                one copy of such annual report need be                      SOURCE:    Sections    240.12d1–1    through
                                                                                          240.12d–6 appear at 19 FR 670, Feb. 5, 1954, un-
                                filed with the Commission and one                         less otherwise noted.
                                copy thereof with each such exchange,
                                provided appropriate reference to such                    § 240.12d1–1 Registration effective as
                                copy is made in each copy of the appli-                        to class or series.
                                cation or report filed with the Commis-                      (a) An application filed pursuant to
                                sion or with such exchange.                               section 12 (b) and (c) of the act for reg-
                                [18 FR 1441, Mar. 13, 1953]                               istration of a security on a national se-
                                                                                          curities exchange shall be deemed to
                                                                                          apply for registration of the entire
                                                                                          class of such security. Registration
                                                                                          shall become effective, as provided in
                                                                                          section 12(d) of the act, (1) as to the

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                                § 240.12d1–2                                                           17 CFR Ch. II (4–1–05 Edition)

                                shares or amounts of such class then                      tiveness of the Securities Act registra-
                                issued, and (2), without further applica-                 tion statement relating to the class of
                                tion for registration, upon issuance as                   securities.
                                to additional shares or amounts of such                     (c) A registration statement on Form
                                class then or thereafter authorized.                      8–A (17 CFR 249.208a) for the registra-
                                   (b) This section shall apply to classes                tion of a class of securities under Sec-
                                of securities of which a specified num-                   tion 12(g) of the Act (15 U.S.C. 78l(g))
                                ber of shares or amounts was registered                   shall become effective:
                                or registered upon notice of issuance,
                                                                                            (1) If a class of securities is not con-
                                and to applications for registration
                                filed, prior to the close of business on                  currently being registered under the
                                January 28, 1954, as well as to classes                   Se