

[Federal Register: May 31, 2007 (Volume 72, Number 104)]
[Notices]               
[Page 30408-30409]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31my07-108]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55799; File No. SR-NSX-2006-16]

 
Self-Regulatory Organizations; National Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Regarding the Annual Certification 
of Compliance and Supervisory Processes

 May 22, 2007.

I. Introduction

    On November 22, 2006, the National Stock Exchange, Inc. (``NSX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change regarding the annual certification of compliance 
supervisory processes. On April 9, 2007, the NSX filed Amendment No. 1 
to the proposed rule change (``Amendment No. 1'').\3\ The proposed rule 
change was published for comment in the Federal Register on April 19, 
2007,\4\ and the Commission received no comments on the proposal. This 
order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, which supplemented the original filing, 
the NSX provided more information regarding the certification 
process and corrected a grammatical error.
    \4\ See Exchange Act Release No. 55631 (April 13, 2007), 72 FR 
19733 (April 19, 2007) (SR-NSX-2006-16).
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II. Description of the Proposal

    The Exchange proposed Rule 5.7 to require each Equity Trading 
Permit (``ETP'') Holder to have its Chief Executive Officer (``CEO''), 
or equivalent officer, certify annually to having in place processes to 
establish, maintain, review, modify, and test policies and procedures 
reasonably designed to achieve compliance with applicable NSX rules and 
federal securities laws and regulations. The Exchange explains that 
this will help promote comprehensive and effective compliance policies 
and written supervisory procedures among NSX ETP Holders, and that 
compliance with applicable NSX rules and federal securities laws and 
regulations is the foundation of ensuring investor protection and 
market integrity and is essential to the efficacy of self-regulation. 
Similar requirements are already in place for NASD and NYSE member 
firms, addressing their compliance with the rules of those self-
regulatory organizations.\5\
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    \5\ See NASD Rule 3013(b) and Interpretative Material 3013 (``IM 
3013''); NYSE Rule 342.30.
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    The proposed rule change also would create a new Interpretation and 
Policy .01 to NSX Rule 5.7. This interpretation sets forth the language 
of the required certification.\6\ The interpretation also sets forth 
additional guidance for following those requirements, explaining that 
during the required annual meeting between the CEO and chief compliance 
officer, the parties should discuss and review the matters that are 
subject of the certification as well as the ETP Holder's compliance 
efforts to date, and also should identify and address significant 
compliance problems and plans for emerging business areas.\7\ ETP 
Holders must also prepare a report that documents the ETP Holder's 
processes for establishing, maintaining, reviewing, testing and 
modifying compliance policies.\8\ The report may be combined with 
compliance reports or similar reports required by other self-regulatory 
organizations.\9\
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    \6\ The certification would state that the ETP Holder has in 
place processes to: (a) Establish and maintain policies and 
procedures reasonably designed to achieve compliance with applicable 
NSX rules and federal securities laws and regulations; (b) modify 
such policies and procedures as business, regulatory and legislative 
changes and events dictate; and (c) test the effectiveness of such 
policies and procedures on a periodic basis, the timing and extent 
of which is reasonably designed to ensure continuing compliance with 
applicable NSX rules, and federal securities laws and regulations. 
See Proposed Interpretation and Policy .01, paragraph 1.
    In addition, the certification would have to state that the CEO 
or equivalent officer has conducted one or more meetings with the 
chief compliance officer in the preceding 12 months to satisfy these 
obligations. See Proposed Interpretation and Policy .01, paragraph 
2.
    The certification further would provide that the ETP Holder's 
processes are evidenced in a report that has been reviewed by the 
CEO or equivalent officer, chief compliance officer, and such other 
officers as the ETP Holder may deem necessary, and that the final 
report would be submitted to the ETP Holder's board of directors and 
audit committee at the earlier of their next scheduled meetings or 
within 45 days of the date of execution of the certification. See 
Proposed Interpretation and Policy .01, paragraph 3.
    Finally, the certification would provide that the CEO or 
equivalent officer has consulted with the chief compliance officer 
and other officers as applicable, as well as such other employees, 
outside consultants, lawyers and accountants, to the extent deemed 
appropriate to attest to the statements made in the certification. 
See Proposed Interpretation and Policy .01, paragraph 4.
    \7\ See Proposed Interpretation and Policy .01.
    \8\ See id. Any principal designated by the ETP Holder may 
prepare the report, which must be produced prior to execution of the 
certification and be reviewed by the CEO or equivalent officer, 
chief compliance officer and any other officers the ETP Holder deems 
necessary to make the certification. It must be provided to the ETP 
Holder's board of directors and audit committee in final form either 
prior to execution of the certification or at the earlier of their 
next scheduled meetings or within 45 days of execution of the 
certification. The report should include the manner and frequency in 
which the processes are administered, and identify the officers and 
supervisors responsible for that administration. The report, 
however, need not contain any conclusions resulting from following 
those processes.
    \9\ In that case, the report must be titled in a manner that 
indicates it is responsive to the requirements of the certification 
and Rule 5.7; (2) an ETP Holder that submits a report for review in 
response to a NSX request must submit the report in its entirety; 
and (3) the ETP Holder must make the report in a timely manner.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with Section 6(b) of the Act,\10\ and, in 
particular, with Section 6(b)(5) \11\ of the Act, which requires, among 
other things, that the NSX's rules be designed to promote just and 
equitable principles of trade, to prevent fraudulent and manipulative 
acts and practices, and, in general, to protect investors and the 
public interest.\12\
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    \10\ 15 U.S.C. 78(f)(b).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    The proposal that NSX ETP Holders follow procedures to help ensure 
compliance with NSX rules and the federal securities laws will 
complement broker-dealers' obligations under other self-regulatory 
organization rules, while particularly promoting compliance with rules 
specific to NSX. By permitting member firms to make the required 
reports in conjunction with reports required by other self-regulatory 
organizations, moreover, the proposal should accomplish those aims in 
an efficient manner.

[[Page 30409]]

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\13\ that the proposed rule change (SR-NSX-2006-16), as modified by 
Amendment No. 1, be, and hereby is, approved.
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    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
 [FR Doc. E7-10375 Filed 5-30-07; 8:45 am]

BILLING CODE 8010-01-P
