[Federal Register: July 6, 2006 (Volume 71, Number 129)]
[Notices]
[Page 38451-38480]
[DOCID:fr06jy06-134]

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

Part II

Securities and Exchange Commission

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

Self-Regulatory Organizations; National Stock Exchange; Notice

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54044; File No. SR-NSX-2006-08]

Self-Regulatory Organizations; National Stock Exchange; Notice of
Filing of Proposed Rule Change and Amendment No. 1 Thereto To Amend Its
Trading Rules To Provide for a Strict Price-Time Priority Market and
Other Related Changes

June 26, 2006.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 6, 2006, the National Stock Exchange SM(``NSX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the NSX. On June 22,
2006, the Exchange submitted Amendment No. 1 to the proposed rule
change.\3\ The Commission is publishing this notice to solicit comments
on the proposed rule change, as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Amendment No. 1 inserted a new NSX Rule 2.11 relating to NSX
Securities, LLC in the Exchange's rules. Amendment No. 1 also
revised NSX Rules 11.3(b) and 11.12 relating to crosses, Midpoint
Crosses, and Clean Crosses, to reflect the delayed compliance date
for Rule 611 of Regulation NMS under the Act and to add a
requirement that Clean Crosses have an aggregate value of at least
$100,000. In addition, Amendment No. 1 made corresponding changes to
Item 3 of the proposed rule change to reflect these additional rule
changes and also made additional minor clarifying edits.
---------------------------------------------------------------------------

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

    The Exchange is proposing to amend Chapter 11 of the Exchange Rules
(relating to Trading Rules) in order to incorporate a strict price-time
priority automatic execution trading model to replace the Exchange's
current market structure. In connection with the changes to its Trading
Rules, the Exchange is also proposing to include certain new
definitions and general provisions in the Exchange Rules, to move rules
relating to exchange products to another new chapter of the Exchange
Rules, and to make certain other technical changes in connection with
the new trading system. The text of the proposed rule change is set
forth below. Proposed new language is in italics; proposed deletions
are in [brackets].
* * * * *
RULES OF NATIONAL STOCK EXCHANGE, INC.
* * * * *

CHAPTER I. Adoption, Interpretation and Application of Rules, and
Definitions

* * * * *
Rule 1.4. [Reserved.] Effective Time
    (a) All Exchange Rules shall be effective when approved by the
Commission in accordance with the Act and the rules and regulations
thereunder, except for those Rules that are effective upon filing with
the Commission in accordance with the Act and the rules thereunder and
except as otherwise specifically provided in this Rule 1.4 or elsewhere
in these Rules.
    (b) Rule 11.11(c)(7)(iv) (relating to Sweep Orders) shall not
become effective until the compliance date for Rule 611 of Regulation
NMS under the Act (``Regulation NMS'').
    (c) Prior to the compliance date for the appropriate sections of
Regulation NMS, the following Rules shall only apply to quotations for
securities subject to the Intermarket Trading System Plan:
    (i) The second sentence of the lead-in to Rule 11.15 (Order
Execution); and
    (ii) Rule 11.22 (Locking or Crossing Quotations in NMS Stocks).
Rule 1.5. Definitions
    A.
    (1) No change.

Authorized Trader

    (2) The term ``Authorized Trader'' or ``AT'' shall mean a person
who may submit orders (or who supervises a routing engine that may
automatically submit orders) to the Exchange's trading facilities on
behalf of his or her ETP Holder or Sponsored Participant.
    B.-K. No change.
    L. [Reserved.]

Listing Exchange

    (1) The term ``Listing Exchange'' shall mean the national
securities exchange or association on which a security is listed.
    M. [Reserved.]

Market Maker

    (1) The term ``Market Maker'' shall mean an ETP Holder that acts as
a Market Maker pursuant to Chapter XI.

Market Maker Authorized Trader

    (2) The term ``Market Maker Authorized Trader'' or ``MMAT'' shall
mean an authorized trader who performs market making activities
pursuant to Chapter XI on behalf of a Market Maker.
    N. [Reserved.]

NSX Book

    (1) The term ``NSX Book'' shall mean the System's electronic file
of orders.
    O. No change.
    P.
    (1) No change.

Protected NBBO

    (2) The term ``Protected NBBO'' shall mean the national best bid or
offer that is a protected quotation.

Protected Quotation

    (3) The term ``protected quotation'' means a bid or offer in a
stock that (i) is displayed by an automated trading center; (ii) is
disseminated pursuant to a national market system plan approved by the
Commission; and (iii) is an automated quotation that is the best bid or
best offer of a national securities exchange or association.
    Q. [Reserved.]

Qualified Clearing Agency

    (1) The term ``Qualified Clearing Agency'' means a clearing agency
registered with the Commission pursuant to Section 17A of the Act that
is deemed qualified by the Exchange.
    R. [Reserved.]

Regular Trading Hours

    (1) The term ``Regular Trading Hours'' means the time between 8:30
a.m. and 3:00 p.m. Central Time.
    S.

Sponsored Participant

    (1) The term ``Sponsored Participant'' shall mean a person which
has entered into a sponsorship arrangement with a Sponsoring ETP Holder
pursuant to Rule 11.9.

Sponsoring ETP Holder

    (2) The term ``Sponsoring ETP Holder'' shall mean a broker-dealer
that has been issued an ETP by the Exchange who has been designated by
a Sponsored Participant to execute, clear and settle transactions
resulting from the System. The Sponsoring ETP Holder shall be either
(i) a clearing firm with membership in a clearing agency registered
with the Commission that maintains facilities through which
transactions may be cleared or (ii) a correspondent firm with a
clearing arrangement with any such clearing firm.

Statutory Disqualification

    (3) The term ``statutory disqualification'' shall mean any
statutory disqualification as defined in the Act.

System

    (4) The term ``System'' shall mean the electronic securities
communications and trading facility designated by the Board through
which orders of Users are consolidated for ranking and execution.
    T. [Reserved.]

Top of Book

    (1) The term ``Top of Book'' shall mean the best-ranked order to
buy (or sell) in the NSX Book as ranked pursuant to Rule 11.14.
    U. [Reserved.]

User

    (1) The term ``User'' shall mean any ETP Holder or Sponsored
Participant who is authorized to obtain access to the System pursuant
to Rule 11.9.

UTP Security

    (2) The term ``UTP Security'' shall mean any security that is not
listed on the Exchange but is traded on the Exchange pursuant to
unlisted trading privileges.
    V.-Z. No change.
* * * * *

CHAPTER II. ETP Holders of the Exchange

* * * * *
Rule 2.4. Restrictions
    (a)-(e) No change.
Interpretations and Policies
    .01-.02 No change.
    [.03 An Exchange member may only give-up its own or another
Exchange member's clearing number when executing a transaction on the
Exchange; provided, however, that a member may give-up a non-member's
clearing number when executing a transaction on the Exchange if (i) the
non-member (a) is a registered broker-dealer and is a self-clearing
member of the National Securities Clearing Corporation (``NSCC'') and
(b) consents to the disciplinary jurisdiction of the Exchange and
agrees to adhere to all applicable Exchange By-Laws and Rules; and (ii)
the executing member's guaranteeing clearing firm, who must be an
Exchange member, agrees to accept financial responsibility for all
transactions given-up to the non-member, including but not limited to,
responsibility to clear and settle the non-member's trades in the event
that the non-member or the NSCC does not accept any such trades].
* * * * *

Rule 2.11 NSX Securities, LLC

    For so long as NSX Securities, LLC (``NSX Securities'') is
affiliated with the Exchange and is providing outbound routing of
orders from the Exchange to other securities exchanges, facilities of
securities exchanges, automated trading systems, electronic
communications networks or other brokers or dealers (collectively,
``Trading Centers'') (such function of NSX Securities is referred to as
the ``Outbound Router''), each of the Exchange and NSX Securities shall
undertake as follows:
    1. The Exchange will regulate the Outbound Router function of NSX
Securities as a facility (as defined in Section 3(a)(2) of the Act),
subject to Section 6 of the Act. In particular, and without limitation,
under the Act, the Exchange will be responsible for filing with the
Commission rule changes and fees relating to the NSX Securities
Outbound Router function and NSX Securities will be subject to exchange
non-discrimination requirements.
    2. The National Association of Securities Dealers (``NASD''), a
self-regulatory organization unaffiliated with the Exchange or any of
its affiliates, will carry out oversight and enforcement
responsibilities as the designated examining authority designated by
the Commission pursuant to Rule 17d-1 of the Act with the
responsibility for examining NSX Securities for compliance with the
applicable financial responsibility rules.
    3. An ETP Holder's use of NSX Securities to route orders to another
Trading Center will be optional. Any ETP Holder that does not want to
use NSX Securities may use other routers to route orders to other
Trading Centers.
    4. NSX Securities will not engage in any business other than (a)
its Outbound Router function and (b) any other activities it may engage
in as approved by the Commission.
* * * * *

CHAPTER III. Rules of Fair Practice

* * * * *
Rule 3.6. Fair Dealing with Customers
    (a)-(f) No change.
Interpretations and Policies
    .01 [Designated Dealers] ETP Holders who handle customer orders on
the Exchange shall establish and enforce fixed standards for queuing
and executing customer orders.
* * * * *

CHAPTER V. Supervision

* * * * *
Rule 5.5. Chinese Wall Procedures
    (a) An [Exchange Designated Dealer] ETP Holder that trades for its
own account in a security, acts as a Market Maker on the Exchange, or
has a specialist operation on another market (an ETP Holder engaged in
any of the foregoing is referred to in this Rule 5.5 as a
``specialist'') must establish a functional separation (``Chinese
Wall'') between the specialist operation and any associated or
affiliated persons as appropriate to its operation. [and further]
Further, all ETP Holders must establish, maintain and enforce written
procedures reasonably designed to prevent the misuse of material, non-
public information, which includes review of employee and proprietary
trading, memorialization and documentation of procedures, substantive
supervision of interdepartmental communications by the [Exchange
specialist] firm's Compliance Department and procedures concerning
proprietary trading when the firm is in possession of material, non-
public information. The [Exchange specialist] firm must obtain the
prior written approval of the Exchange that it has complied with the
requirements above in establishing functional separation as appropriate
to the operation and that it has established proper compliance and
audit procedures to ensure the maintenance of the functional
separation. A copy of these Chinese Wall procedures, and any amendments
thereto, must be filed with the Exchange's Surveillance Department.
    (b)-(e) No change.
* * * * *

CHAPTER XI. Trading Rules

Rule 11.1. Hours of Trading
    (a) [Except as provided below, the hours of trading on the Exchange
shall be from 8:30 a.m. to 3:05 p.m. local Chicago time during normal
business days.
    (b) Unless otherwise provided by the Board, the hours of trading
for any security traded on the Exchange which is also traded on another
national securities exchange or on the Nasdaq Stock Market (hereinafter
``Nasdaq'') (``dually traded'') or exchanges and Nasdaq (``multiply
traded'') shall be, in addition to the hours of trading set forth in
paragraph (a) of this Rule, the hours during which the security is
traded on the principal exchange or Nasdaq.
    (c) For purposes of this Chapter, the term ``principal exchange,''
when used with respect to a dually or multiply-traded security, shall
mean the exchange or Nasdaq with the greatest trading volume in that
security for the preceding calendar month.] The Exchange shall open for
the transaction of business during such hours as is

determined by the Board, with notice to ETP Holders.
    (b) The Exchange will be open for the transaction of business on
business days. The Exchange will not be open for business on the
following holidays: New Year's Day, Dr. Martin Luther King Jr. Day,
Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day or Christmas. When any holiday observed by the
Exchange falls on a Saturday, the Exchange will not be open for
business on the preceding Friday. When any holiday observed by the
Exchange falls on a Sunday, the Exchange will not be open for business
on the following Monday, unless otherwise indicated by the Exchange.
Rule 11.2. [Unit] Units of Trading
    [The unit of trading of stocks on the Exchange shall be 100 shares,
and the unit of trading of bonds on the Exchange shall be $1,000
original principal amount, except in the case of a dually or multiply-
traded security where the principal exchange or Nasdaq shall have a
different unit of trading or when the Board of the Exchange shall
provide otherwise.]
    One hundred (100) shares shall constitute a ``round lot,'' any
amount less than 100 shares shall constitute an ``odd lot,'' and any
amount greater than 100 shares that is not a multiple of a round lot
shall constitute a ``mixed lot.''
Rule 11.3. Price Variations
    (a) No change.
    (b) Except as provided in Rule 11.12(c) or (d), Crosses executed in
accordance with Rule 11.12 must improve each side of the Top of Book by
at least $0.01 per share. No Crosses may be executed in increments
smaller than those permitted by Rule 11.3(a), except for Midpoint
Crosses (as defined in Rule 11.2(c)), which may be executed in
increments as little as one-half the minimum increment permitted by
Rule 11.3(a).
Rule 11.4. [Trading Ex-Dividend, Etc.] Securities Eligible for Trading
    [Transactions in stocks (except those made for ``cash'') shall be
ex-dividend or ex-rights on the second business day preceding the
record date fixed by the corporation or the date of the closing of the
transfer books, except in the case of a dually or multiply-traded
security where the principal exchange or Nasdaq on which a security is
traded shall have a different rule or when the Board of the Exchange
shall provide otherwise. Should such record date or such closing of
transfer books occur upon a day other than a business day, this Rule
shall apply for the third preceding business day. Transactions in
stocks made for ``cash'' shall be ex-dividend or ex-rights on the
business day following said record date or date of closing of transfer
books. In respect to stock dividends and/or splits which are 25% or
greater, the ex-dividend date shall be the first business date
following the payable date, except in the case of a dually or multiply-
traded security where the principal exchange or Nasdaq on which such a
security is traded shall have a different rule or when the Board of the
Exchange shall provide otherwise.]
    The Exchange shall designate securities for trading. Any class of
securities listed or admitted to unlisted trading privileges on the
Exchange pursuant to Chapter XV of these Rules shall be eligible to
become designated for trading on the Exchange. All securities
designated for trading are eligible for odd-lot, round-lot and mixed-
lot executions, unless otherwise indicated by the Exchange or limited
pursuant to these Rules.
Rule 11.5. [Orders to be Reduced and Increased on Ex-Date] Registration
of Market Makers
    [(a) Except in the case of a dually or multiply-traded security
where the principal exchange or Nasdaq on which a security is traded
shall have a different rule or the Board of the Exchange shall provide
otherwise, when a security is quoted ``ex-dividend,'' ``ex-
distribution,'' ``ex-rights'' or ``ex-interest,'' the following kinds
of orders shall be reduced in price and increased in shares, in the
case of stock dividends and stock distributions which result in round
lots, on the day the security sells ex: (i) Open buy orders; (ii) Open
stock orders to sell (with open stop limit orders to sell, the limit,
as well as the stop price, shall be reduced). The following orders
shall not be reduced: (i) Open stop orders to buy; (ii) Open sell
orders.
    (b) The procedure to be followed in reducing the above kinds of
orders shall be as follows: (i) In the case of a cash dividend
disbursement, the price shall be reduced by the amount of such
disbursement in an amount equal to, or a multiple of, the variation in
which bids and offers are made. Should the disbursement be in an amount
other than the variation in which bids and offers are made, or a
multiple thereof, orders shall be reduced by the next higher variation;
(ii) In the case of stock dividends or other stock distribution, open
buy orders and open stop orders to sell shall be reduced in price by
the proportional value of a stock dividend or stock distribution on the
day a security sells ex-dividend or ex-distribution. The new price of
the order is determined by dividing the price of the original order by
100% plus the percentage value of the stock dividend or stock
distribution. If, as a result of this calculation, the price is not
equivalent to or is not a multiple of the variation of a dollar in
which bids and offers are made in the particular security, the price
should be rounded to the next lower variation; (iii) In the case of
reverse splits, all orders (including open sell orders and open stop
orders to buy) should be cancelled.
    (c) In the case of a stock dividend or stock distribution, the
procedure to be followed in increasing open buy orders and open stop
orders to sell shall be as follows: (i) When there is a stock dividend
or stock distribution which results in one of more full shares for each
share held, the number of shares in open buy orders and open stop
orders to sell shall be increased accordingly; (ii) When there is a
stock dividend or stock distribution on less than a one-for-one basis
which thus results in fractional shares, open buy orders and open stop
orders to sell shall be increased to the lowest full round lot; (iii)
When there is a stock dividend or stock distribution which results in
fractional shares combined with full shares, the number of shares in
open buy orders and open stop orders to sell shall be increased to the
lowest full round lot.
    (d) Open orders held by a member prior to the day a stock sells ex-
dividend, ex-distribution or ex-rights shall be reduced in price and,
if the above is applicable, increased in shares by the value of the
dividend or distribution of rights, unless the member is otherwise
instructed by the customer from whom the orders were received. In this
regard, a customer may enter a Do Not Reduce or ``DNR'' order if he
does not want the price of an order reduced for cash dividends, or a Do
Not Increase or ``DNI'' order if he does not want an order increased in
shares for stock dividends or stock distributions.]
    (a) No ETP Holder shall act as a Market Maker in any security
unless such ETP Holder is registered as a Market Maker in such security
by the Exchange pursuant to this Rule and the Exchange has not
suspended or cancelled such registration. Registered Market Makers are
designated as dealers on the Exchange for all purposes under the Act
and the rules and regulations thereunder.
    (b) An applicant for registration as a Market Maker shall file an
application in writing on such form as the Exchange may prescribe.
Applications shall be

reviewed by the Exchange, which shall consider such factors including,
but not limited to capital operations, personnel, technical resources,
and disciplinary history. Each Market Maker must have and maintain
minimum net capital of at least the amount required under Rule 15c3-1
of the Act.
    (c) An applicant's registration as a Market Maker shall become
effective upon receipt by the ETP Holder of notice of an approval of
registration by the Exchange.
    (d) The registration of a Market Maker may be suspended or
terminated by the Exchange if the Exchange determines that:
    (1) The Market Maker has substantially or continually failed to
engage in dealings in accordance with Rule 11.8 or elsewhere in these
Rules;
    (2) The Market Maker has failed to meet the minimum net capital
conditions set forth under paragraph (b) above; or
    (3) The Market Maker has failed to maintain fair and orderly
markets.
    (e) Any registered Market Maker may withdraw its registration by
giving written notice to the Exchange. The Exchange may require a
certain minimum prior notice period for withdrawal, and may place such
other conditions on withdrawal and re-registration following
withdrawal, as it deems appropriate in the interests of maintaining
fair and orderly markets.
    (f) Any person aggrieved by any determination under this Rule or
Rules 11.6 or 11.7 below may seek review under Chapter X of Exchange
Rules governing adverse action.
Rule 11.6. [Types of Trading] Obligations of Market Maker Authorized
Traders
    [Issues listed on the Exchange and those admitted to unlisted
trading privileges will be eligible for one of the following three
types of trading:
    (a) Cabinet trading;
    (b) Qualified dealer trading;
    (c) Multiple dealer trading.]
    (a) General. MMATs are permitted to enter orders only for the
account of the Market Maker for which they are registered.
    (b) Registration of Market Maker Authorized Traders. The Exchange
may, upon receiving an application in writing from a Market Maker on a
form prescribed by the Exchange, register a person as a MMAT.
    (1) MMATs may be officers, partners, employees or other associated
persons of ETP Holders that are registered with the Exchange as Market
Makers.
    (2) To be eligible for registration as a MMAT, a person must
successfully complete the General Securities Representative Examination
(Series 7) and any other training and/or certification programs as may
be required by the Exchange; provided, however, the requirement to
complete the Series 7 Examination may be waived by the Exchange if the
applicant MMAT has served as a dealer-specialist or market maker on a
registered national securities exchange or association for at least two
consecutive years within three years of the date of application.
    (3) The Exchange may require a Market Maker to provide any and all
additional information the Exchange deems necessary to establish
whether registration should be granted.
    (4) The Exchange may grant a person conditional registration as a
MMAT subject to any conditions it considers appropriate in the
interests of maintaining a fair and orderly market.
    (5) A Market Maker must ensure that a MMAT is properly qualified to
perform market making activities, including but not limited to ensuring
the MMAT has met the requirements set forth in paragraph (b)(2) of this
Rule.
    (c) Suspension or Withdrawal of Registration.
    (1) The Exchange may suspend or withdraw the registration
previously given to a person to be a MMAT if the Exchange determines
that:
    (A) The person has caused the Market Maker to fail to comply with
the securities laws, rules and regulations or the By-Laws, Rules and
procedures of the Exchange;
    (B) The person is not properly performing the responsibilities of a
MMAT;
    (C) The person has failed to meet the conditions set forth under
paragraph (b) above; or
    (D) The Exchange believes it is in the interest of maintaining fair
and orderly markets.
    (2) If the Exchange suspends the registration of a person as a
MMAT, the Market Maker must not allow the person to submit orders into
the System.
    (3) The registration of a MMAT will be withdrawn upon the written
request of the ETP Holder for which the MMAT is registered. Such
written request shall be submitted on the form prescribed by the
Exchange.
Rule 11.7. [Cabinet Trading] Registration of Market Makers in a
Security
    [Trading in securities for which there is no dealer participation
may be provided through Exchange facilities. Bids and offers of members
shall be registered in a book maintained for such purposes by the
Exchange at a facility located in Chicago, Illinois, or elsewhere as
designated by the Exchange's Board.]
    (a) A Market Maker may become registered in a newly authorized
security or in a security already admitted to dealings on the Exchange
by filing a security registration form with the Exchange. Registration
in the security shall become effective on the first business day
following the Exchange's approval of the registration, unless otherwise
provided by the Exchange. In considering the approval of the
registration of the Market Maker in a security, the Exchange may
consider:
    (1) The financial resources available to the Market Maker;
    (2) The Market Maker's experience, expertise and past performance
in making markets, including the Market Maker's performance in other
securities;
    (3) The Market Maker's operational capability;
    (4) The maintenance and enhancement of competition among Market
Makers in each security in which they are registered;
    (5) The existence of satisfactory arrangements for clearing the
Market Maker's transactions;
    (6) The character of the market for the security, e.g., price,
volatility, and relative liquidity.
    (b) Voluntary Termination of Security Registration. A Market Maker
may voluntarily terminate its registration in a security by providing
the Exchange with a written notice of such termination. The Exchange
may require a certain minimum prior notice period for such termination,
and may place such other conditions on withdrawal and re-registration
following withdrawal, as it deems appropriate in the interests of
maintaining fair and orderly markets. A Market Maker that fails to give
advanced written notice of termination to the Exchange may be subject
to formal disciplinary action pursuant to Chapter VIII of these Rules.
    (c) The Exchange may suspend or terminate any registration of a
Market Maker in a security or securities under this Rule whenever the
Exchange determines that:
    (1) The Market Maker has not met any of its obligations as set
forth in these Rules; or
    (2) The Market Maker has failed to maintain fair and orderly
markets.
    A Market Maker whose registration is suspended or terminated
pursuant to this Rule 11.7(c) may seek review under Chapter X of
Exchange Rules governing adverse action.
    (d) Nothing in this Rule will limit any other power of the Exchange
under the By-Laws, Rules, or procedures of the

Exchange with respect to the registration of a Market Maker or in
respect of any violation by a Market Maker of the provisions of this
Rule.
Rule 11.8. [Qualified Dealer Trading] Obligations of Market Makers
    [(a) The Securities Committee may approve one or more Proprietary
Members of the Exchange to be a ``qualified dealer'' for each
designated issue (as defined in Rule 11.9 of this Chapter). Such
qualified dealers shall perform the following functions:
    (1) guarantee settlement for transactions occurring through the
Exchange in issues for which the Proprietary Member is the qualified
dealer and executes the transaction;
    (2) act as a clearing contra-party for transactions occurring
through the Exchange in issues for which the Proprietary member is a
qualified dealer and executes the transaction;
    (3) provide to all members during Exchange trading hours a
continuous two-sided market in odd-lots of issues for which the
Proprietary Member is designated a qualified dealer; and
    (4) give precedence in trading to all public agency orders shown to
the qualified dealer at prices equal to or better than the qualified
dealer's own bid or offer.
    (b) For purposes of Rule 11.8., a public agency order shall mean
any order for the account of a person other than a member, which order
is represented, as agent, by a member.
    (c) Qualified dealer designation shall be used in those designated
issues where there exists (i) an insufficient number of dealers to
permit use of multiple dealer trading; (ii) insufficient computer
capacity to permit use of multiple dealer trading; (iii) insufficient
order flow to warrant use of multiple dealer trading; or (iv) other
factors which would, in the judgment of the Securities Committee, make
multiple dealer trading impracticable.
    (d) Any person aggrieved by any determination under this Rule may
seek review under the provisions of Exchange Rules for adverse action.]
    (a) General. ETP Holders who are registered as Market Makers in one
or more securities traded on the Exchange must engage in a course of
dealings for their own account to assist in the maintenance, insofar as
reasonably practicable, of fair and orderly markets on the Exchange in
accordance with these Rules. The responsibilities and duties of a
Market Maker specifically include, but are not limited to, the
following:
    (1) Maintain continuous limit orders to buy and to sell for round
lots in those securities in which the Market Maker is registered to
trade;
    (2) Remain in good standing with the Exchange and in compliance
with all Exchange Rules applicable to it;
    (3) Inform the Exchange of any material change in financial or
operational condition or in personnel;
    (4) Maintain a current list of MMATs who are permitted to enter
orders on behalf of the Market Maker and provide an updated version of
this list to the Exchange upon any change in MMATs; and
    (5) Clear and settle transactions through the facilities of a
registered clearing agency. This requirement may be satisfied by direct
participation, use of direct clearing services, or by entry into a
correspondent clearing arrangement with another ETP Holder that clears
trades through such agency.
    (b) A Market Maker must satisfy the responsibilities and duties as
set forth in paragraph (a) of this Rule during trading hours on all
days in which the Exchange is open for business.
    (c) A Market Maker shall be responsible for the acts and omissions
of its MMATs.
    (d) If the Exchange finds any substantial or continued failure by a
Market Maker to engage in a course of dealings as specified in
paragraph (a) of this Rule, such Market Maker will be subject to
disciplinary action or suspension or revocation of the registration by
the Exchange in one or more of the securities in which the Market Maker
is registered. Nothing in this Rule will limit any other power of the
Exchange under the By-Laws, Rules, or procedures of the Exchange with
respect to the registration of a Market Maker or in respect of any
violation by a Market Maker of the provisions of this Rule. Any ETP
Holder aggrieved by any determination under this Rule may seek review
under Chapter X of the Exchange Rules governing adverse action.
    (e) Temporary Withdrawal. A Market Maker may apply to the Exchange
to withdraw temporarily from its Market Maker status in the securities
in which it is registered. The Market Maker must base its request on
demonstrated legal or regulatory requirements that necessitate its
temporary withdrawal, or provide the Exchange an opinion of counsel
certifying that such legal or regulatory basis exists. The Exchange
will act promptly on such request and, if the request is granted, the
Exchange may temporarily reassign the securities to another Market
Maker.
Rule 11.9. [National Securities Trading System] Access
    [(a) When used in Rule 11.9, unless the context otherwise
requires--
    (1) The term ``System'' means the National Securities Trading
System, an electronic securities communication and execution facility
designated by the Exchange's Board through which bids and offers of
competing dealers, as well as public orders, are consolidated for
review and execution by Users. The System combines the display of both
the limit order file and current quotation/last sale information to
Users with the matching and execution of like-priced orders, bids and
offers according to programmed price/time and agency/principal
priorities in order to give Users the ability to perform the brokerage
and market-making functions performed on other exchanges. In addition,
the System provides for the automatic execution of orders under
predetermined conditions.
    (2) The term ``Nasdaq/NNM Security'' shall mean any authorized
security in the Nasdaq National Market which (1) satisfies all
applicable requirements of the Rule 4300 Series of the NASD Rules and
substantially meets the criteria set forth in the Rule 4300 Series of
the NASD Rules; (2) is subject therefore to a transaction reporting
plan approved by the Commission; (3) has been designated therefore as a
national market system security pursuant to SEC Rule 11Aa2-1 and (4) as
to which unlisted trading privileges have been granted pursuant to
Section 12(f) of the Act.
    (3) The term ``Nasdaq System'' means the NASD's automated Quotation
System.
    (4) The term ``Approved Dealer'' means a Designated Dealer, a
Contributing Dealer, or a specialist or market maker registered as such
with another exchange or Nasdaq with respect to any Designated Issue.
    (5) The term ``Designated Dealer'' means a Proprietary Member who
maintains a minimum net capital of at least the greater of $500,000 or
the amount required under Rule 15c3-1 of the Securities Exchange Act of
1934, as amended, and who has been approved by the Securities Committee
to perform market functions by entering bids and offers for Designated
Issues into the System.
    (6) The term ``Contributing Dealer'' means a Proprietary Member who
(i) maintains a minimum net capital of at least the greater of $50,000
or the amount required under Rule 15c3-1 of the Securities Exchange
Act, as amended; (ii) is registered with the

Exchange with respect to one or more Designated Issues; and (iii)
provides to all Users through the System, during Exchange trading
hours, regular bids and offers for round lots of Designated Issues for
which he is registered.
    (7) The term ``User'' means a Member of the Exchange or an Approved
Dealer. Access Participant Members are considered to be Users in their
limited capacity of executing transactions through the facilities of a
Proprietary Member.
    (8) The term ``Designated Issue'' means a security designated by
the Securities Committee to be traded in the System.
    (9) The term ``public agency order'' means any order for the
account of a person other than a member, an Approved Dealer or a person
who could become an Approved Dealer by complying with this Rule with
respect to his use of the System, which order is represented, as agent,
by a User.
    (10) The term ``professional agency order'' means an order entered
by a User as agent for the account of a broker-dealer, a futures
commission merchant, or a member of a contract market.
    (11) The term ``Floor'' means the electronically integrated System
marketplace consisting of the premises on which System terminals are
located and the System supervisory center.
    (12) The term ``limit order guarantee'' means a guarantee to
execute an order as principal upon the occurrence of a transaction in
another market at the price of such order.
    (13) The term ``ITS BBO'' means the best bid/ask quote among the
Intermarket Trading System (``ITS'') participants in those issues that
are traded on ITS.
    (14) The term ``Nasdaq System BBO'' means the best bid/ask quote
generated by the Nasdaq System participants in those issues that are
traded on the Nasdaq System.
    (b) Any class of securities listed or admitted to unlisted trading
privileges on the Exchange shall be eligible to become a Designated
Issue. All Designated Issues are eligible for odd-lot, round-lot and
partial round-lot executions.
    (c) The Securities Committee shall approve one or more applicant
Proprietary Members of the Exchange as a Designated Dealer for one or
more Designated Issues. A Designated Dealer shall perform the following
functions:
    (i) Upon request of any User guarantee settlement, at such
Designated Dealer's customary charge, for transactions, executed
through the System in Designated Issues for which he is a Designated
Dealer.
    (ii) Upon request of any User, at such Designated Dealer's
customary charge, act as clearing contra-party for transactions
executed through the System in Designated Issues for which he is
Designated Dealer.
    (iii) Provide to all Users through the System, during the Exchange
trading hours, continuous bids and offers for round lots of Designated
Issues for which he is a Designated Dealer.
    (iv) Guarantee the execution of public agency market orders in
Designated Issues for which he is Designated Dealer in accordance with
subparagraph (n) of this Rule 11.9. If there exist two or more
Designated Dealers in a Designated Issue, then unless the Securities
Committee has approved one member as the primary Designated Dealer in
that issue, the guarantee obligation shall rotate among such Designated
Dealers on a daily basis. For the purposes of this subsection, market
order shall include marketable limit order, which is a limit order that
is immediately executable because the ITS BBO or Nasdaq System BBO at
the time the order is entered is equal to or better than the limit
price on the order.
    (v) Guarantee the execution in Designated Issues that are other
than Nasdaq/NNM securities up to 1099 shares at the opening price of
opening public agency market orders and limit orders which are priced
better than such opening price (``marketable limit orders''). Guarantee
the execution of market orders and marketable limit orders in
Designated Issues that are Nasdaq/NNM securities up to 1099 shares at
an opening price that is on or between the first unlocked/uncrossed
Nasdaq System BBO. If there exist two or more Designated Dealers in a
Designated Issue, then, unless the Securities Committee has approved
one member as the primary Designated Dealer in that issue, the
guarantee obligation shall rotate among such Designated Dealers on a
daily basis.
    (d) A Proprietary Member registered with the Exchange as a
Contributing Dealer shall forfeit his right to continue as a
Contributing Dealer if he fails to provide to all Users through the
System, during Exchange trading hours, regular bids and offers for
round lots of Designated Issues for which he is registered as a
Contributing Dealer.
    (e) Any specialist or market maker registered as such with another
exchange or Nasdaq with respect to any Designated Issue may provide
bids and offers with respect to that Designated Issue through the
System to all Users so long as such specialist or market maker complies
with the provisions of this Rule with respect to his use of the System.
    (f) Proprietary Members of the Exchange may provide bids and offers
for their own accounts in any Designated Issue to all Users through the
System so long as, in effecting transactions on the Exchange through
the System, they comply with Section 11(a) of the Act and the rules and
regulations thereunder.
    (g) It shall be the responsibility of all Users when trading on the
Exchange for the account of another person to effect such transactions
through the System. Users may enter agency orders to buy and sell in
Designated Issues through System terminals, which may have computer
interfaces that have communications capability with the System and are
directly linked to the System.
    (h) The System shall display all current principal interest and
agency orders of Users in Designated Issues, as well as the best bid/
ask quotations of each ITS participant and Nasdaq System BBO quotations
generated by the Nasdaq System participants in, and the last sale price
for, Designated Issues, to each User for purposes of trading.
    (1) Designated Dealers shall permit each Nasdaq System market
maker, acting in its capacity as market maker, direct telephone access
(or other such access as may be established between the Exchange and
Nasdaq System) to the Designated Dealer in each Nasdaq/NNM Security in
which such market maker is registered as a market maker. Such access
shall include appropriate procedures to assure the timely response to
communications received through telephone access. Nasdaq System market
makers may use such telephone access (or other such access as may be
established between the Exchange and Nasdaq System) to transmit orders
for execution on the Exchange. Executions of Nasdaq System market maker
orders shall be deemed to be transactions effected through the System
and must be reported to the Exchange as promptly as possible and in any
event within one minute of execution; and
    (2) Designated Dealers may send orders from the Exchange via
telephone (or other access as may be established between the Exchange
and Nasdaq System) to any Nasdaq System market maker in each Nasdaq/NNM
Security in which it displays quotations.
    (i) The System offers two modes of order interaction selected by
members:
    (1) If automatic execution is selected, the System shall match and
execute like-priced orders, bids and offers on an order by order basis
only at the specific

instruction of Users, including Designated Dealers.
    (2) If order delivery and automated response is selected, the
System will deliver contra-side orders against displayed orders and
quotations on an order by order basis only at the specific instruction
of Users, including Designated Dealers. To be eligible for order
delivery service, Users must demonstrate to Exchange examiners that the
User's system can automatically process the inbound order and respond
appropriately within 1 second.
    (j) Limit orders to buy (sell) at a price inferior to the ITS or
Nasdaq System BBO will be executed other than at the opening only after
a regular way transaction in the Designated Issue is executed in
another ITS participant market or Nasdaq System at a price which is
equal to or less than (greater than) the limit price of the order.
    (k) Public agency orders entered in the System which have not been
executed may be removed from the System only by the User who entered
the order for the purpose of canceling the order, transferring the
order to another national market or, in the case of withdrawal by an
Approved Dealer or Proprietary Member, executing such order immediately
as principal pursuant to a limit order guarantee. Executions of public
agency orders as principal pursuant to a limit order guarantee shall be
deemed to be transactions effected on the Exchange in the same manner
as if such transactions were executed through the System and must be
reported to the Exchange as promptly as possible and in any event
within one minute of execution.
    (l) Public agency orders to buy or sell at a particular price
shall, in all cases except execution of such an order pursuant to a
limit order guarantee, have priority over all other bids and offers on
the System at the same price. Subject to the following condition,
    (1) All bids entered in the System shall be queued for execution so
that the highest price bid shall be the first to be executed and so
that, in the case of bids at the same price, except in the case of
Approved Dealer bids entered pursuant to subparagraph (u), the bid
entered earliest in time shall be the first to be executed; and
    (2) All offers entered in the System shall be queued for execution
so that the lowest price offered shall be the first to be executed and
so that, in the case of offers at the same price, except in the case of
Approved Dealer offers entered pursuant to subparagraph (u), the offer
entered earliest in time shall be the first to be executed.
    (m) It shall be the responsibility of each Approved Dealer or other
Proprietary Member when trading on the Exchange for his own account or
as agent for professional agency orders in round lots of Designated
Issues to effect such transactions through the System and, in so doing,
to yield priority to
    (1) All public agency orders in the System at prices equal to, or
better than, his order, bid or offer; and
    (2) All orders, bids and offers of Approved Dealers and other
Proprietary Members for their own accounts and as agents for
professional agency orders in the System at prices better than his
order, bid or offer or at the same price in the event any such orders,
bids or offers were entered in the System (i) at an earlier time than
his order, bid or offer, or (ii) in the case of Approved Dealers, for
the purpose of trading for their own account against public agency
orders which such Approved Dealers are representing as agent pursuant
to subparagraph (u).
    (n) Public Agency Guarantee.
    (1) Public agency opening market orders and limit orders better
than the opening price in securities that are other than Nasdaq/NNM
securities which are entered prior to the opening up to 1099 shares
shall be executed at the opening price. Market orders and marketable
limit orders in Nasdaq/NNM securities up to 1099 shares shall be
executed at an opening price on or between the first unlocked/uncrossed
Nasdaq System BBO.
    (2) Public agency market and marketable limit orders in all
Designated Issues which are entered after the opening are guaranteed
execution pursuant to the following requirements and limitations.
    (3) The Designated Dealer of the day must accept and guarantee
execution on all public agency market and marketable limit orders in
accordance with this subparagraph (n).
    (4) Subject to the requirements of the short sale rule, orders must
be filed on the basis of the ITS or Nasdaq System BBO bid on a sell
order or the ITS or Nasdaq System BBO offer on a buy order. Sell orders
will be satisfied up to the size of the lesser of the ITS or Nasdaq
System BBO bid or 1099 shares; buy orders up to the lesser of the ITS
or Nasdaq System BBO offer or 1099 shares. No portion of an order
larger than 1099 shares is subject to the public agency guarantee.
    (5) The number of shares which the Designated Dealer of the day is
obligated to execute is reduced by the number of shares executed in the
System against any agency or principal interest, including interest of
the Designated Dealer of the Day, priced at the ITS or Nasdaq System
BBO when the order enters the System.
    (6) In unusual trading situations, a Designated Dealer may seek
relief from the requirements of 2 through 5 above from an Exchange
Floor Official or a member of the Exchange staff who would have
authority to set execution prices. All execution guarantees and the
requirements of Exchange Rule 12.6, Customer Priority, apply only
during the hours of trading on the Exchange (8:30 a.m. to 3:05 p.m.
local Chicago time).
    (o) Prior to formatting any order, bid or offer into an ITS
commitment to trade and issuing such a commitment to another ITS
participant market, the System shall process such order, bid or offer
as follows:
    (1) If a principal bid or offer, the System shall first exhaust all
interest at or better than such bid or offer which is resident in the
System;
    (2) If a public agency market or marketable limit order, the System
shall first process the order pursuant to Exchange Rule 11.9(i) and (n)
and then expose for fifteen seconds any remaining balance to all
Approved Dealers, whether or not registered in the Designated Issue
involved;
    (3) If a professional agency order, the System shall exhaust all
interest at or better than such order which is resident in the System
and then, if the Board has authorized the System generation of ITS
commitments to trade, and such a procedure is in effect, shall expose
the order for fifteen seconds to all Approved Dealers, whether or not
registered in the Designated Issue involved.
    (p) Nothing in paragraphs (j) through (l) shall preclude an
Approved Dealer or Proprietary Member from effecting an execution of a
public agency order in a Designated Issue on the Exchange pursuant to a
limit order guarantee.
    (q) Confirmations. The System shall provide hard-copy confirmations
of each transaction effected through the System promptly to each User
(or his agent) who is a party to that transaction, supplying the
following information: size, price, security, whether the User was a
buyer or a seller and the transaction identification number.
    (r) Access. Any User may obtain from the Exchange (or its designee)
electronic means of direct access to the System upon the payment of
such reasonable fees as the Board may specify from time to time in an
effective rule filed with the Securities and Exchange Commission
pursuant to Section 19(b)(2) or 19(b)(3) of the Act.
    (s) The Board shall be responsible for the supervision of the
National

Securities Trading System including the following:
    (1) Affording to any person adversely affected by any prohibition
or limitation with respect to access to services offered by the
Exchange or any member in connection with the System the procedural
rights available under Exchange Rules for adverse action.
    (2) Requiring all persons participating in the System to maintain
such additional records and to provide such access to those records as
the Exchange shall determine are in the public interest or appropriate
for the protection of investors and the maintenance of fair and orderly
markets.
    (3) Requiring all Users participating in the System to comply with
all Exchange Rules. Approved Dealers and Proprietary Members shall
apprise customers promptly when they have acted as principal in
effecting transactions with customers, unless earlier notification and
consent is required by law.
    (t) Neither the Exchange nor its agents, employees or contractors
shall be liable to its members, member organizations, successors,
representatives or customers thereof, or any persons associated
therewith, for any claims arising out of the use or enjoyment by such
member, member organization, successor, representative, customer, or
associated person, of the facilities afforded by the Exchange,
including, without limitation, the National Securities Trading System
and the Automated Extension Processing System.
    (u) Public agency market and marketable limit orders which an
Approved Dealer represents as agent may be preferenced to such Approved
Dealer in accordance with the price-time and agency/principal
priorities set forth in Rule 11.9(l) and (m). Notwithstanding
subparagraphs (c) and (n), an Approved Dealer shall be Dealer of the
day with respect to orders preferenced under this subparagraph (u).
    Additionally, Designated Dealers shall be allowed to preference
their customer order flow that is related to index arbitrage only on
plus or zero plus ticks when the Dow Jones Industrial Average
(``DJIA'') declines by 50 points or more from the previous day's
closing value.
Interpretations and Policies
.01 Limit Order Protection
    Public agency limit orders in securities other than Nasdaq/NNM
Securities shall be filled if one of the following conditions occur:
    (a) The bid or offering at the limit price has been exhausted in
the primary market (NOTE: Orders will be executed in whole or in part,
based on the rules of priority and precedence, on a share for share
basis with trades executed at the limit price in the primary market);
    (b) There has been a price penetration of the limit in the primary
market; or
    (c) The issue is trading at the limit price on the primary market,
unless it can be demonstrated that such order would not have been
executed if it had been transmitted to the primary market or the
customer and the Designated Dealer agree to a specific volume related
or other criteria for requiring a fill.
    (d) With respect to paragraph (c) above, if the issue has traded in
a primary market's after-hours closing price trading session, the
Designated Dealer shall fill limit orders designated as eligible for
limit order protection based on volume that prints in a primary
market's after-hours closing price trading session (a ``GTX'' order) at
such limit price. In unusual trading situations, a Designated Dealer
may seek relief from the above requirements from two Trading Practices
Committee members or a designated member of the Exchange staff who
would have the authority to set execution prices.
    (v)(1) Applicability. This rule is applicable only to Portfolio
Depositary Receipts. Except to the extent inconsistent with this rule,
or unless the context otherwise requires, the provisions of the
Constitution and all other rules and policies of the Board shall be
applicable to the trading on the Exchange of such securities. Portfolio
Depositary Receipts are included within the definition of ``security''
or ``securities'' as such terms are used in the Constitution and Rules
of the Exchange.
    (2) Definitions. The following terms as used in the Rules shall,
unless the context otherwise requires, have the meanings herein
specified:
    (a) Portfolio Depositary Receipt. The term ``Portfolio Depositary
Receipt'' means a security (i) that is based on a unit investment trust
(``Trust'') which holds the securities which comprise an index or
portfolio underlying a series of Portfolio Depositary Receipts; (ii)
that is issued by the Trust in a specified aggregate minimum number in
return for a ``Portfolio Deposit'' consisting of specified numbers of
shares of stock plus a cash amount; (iii) that, when aggregated in the
same specified minimum number, may be redeemed from the Trust which
will pay to the redeeming holder the stock and cash then comprising the
``Portfolio Deposit''; and (iv) that pays holders a periodic cash
payment corresponding to the regular cash dividends or distributions
declared with respect to the component securities of the stock index or
portfolio of securities underlying the Portfolio Depository Receipts,
less certain expenses and other charges as set forth in the Trust
prospectus.
    (b) Reporting Authority. The term ``Reporting Authority'' in
respect of a particular series of Portfolio Depositary Receipts means
the Exchange, an institution (including the Trustee for a series of
Portfolio Depositary Receipts), or a reporting service designated by
the Exchange, or by the exchange that lists a particular series of
Portfolio Depository Receipts (if the Exchange is trading such series
pursuant to unlisted trading privileges) as the official source for
calculating and reporting information relating to such series,
including, but not limited to, any current index or portfolio value;
the current value of the portfolio of securities required to be
deposited to the Trust in connection with issuance of Portfolio
Depositary Receipts; the amount of any dividend equivalent payment or
cash distribution to holders of Portfolio Depositary Receipts, net
asset value, or other information relating to the creation, redemption
or trading of Portfolio Depositary receipts.
    (3) Members and member organizations shall provide to all
purchasers of a series of Portfolio Depositary Receipts a written
description of the terms and characteristics of such securities, in a
form approved by the Exchange, not later than the time a confirmation
of the first transaction in such a series is delivered to such
purchaser. In addition, members and member organizations shall include
such a written description with any sales material relating to a series
of Portfolio Depositary Receipts that is provided to customers or the
public. Any other written materials provided by a member or member
organization to customers or to the public making specific reference to
a series of Portfolio Depositary Receipts as an investment vehicle must
include a statement in substantially the following form: ``A circular
describing the terms and characteristics of [the series of Portfolio
Depositary Receipts] is available from your broker. It is recommended
that you obtain and review such circular before purchasing [the series
of Portfolio Depositary Receipts]. In addition, upon request you may
obtain from your broker a prospectus for [the series of Portfolio
Depositary Receipts].''
    A member or member organization carrying omnibus account for a non-
member broker-dealer is required to inform such non-member that
execution

of an order to purchase a series of Portfolio Depositary Receipts for
such omnibus account will be deemed to constitute agreement by the non-
member to make such written description available to its customers on
the same terms as are directly applicable to members and member
organizations under this rule.
    Upon request of a customer, a member or member organization shall
also provide a prospectus for the particular series of Portfolio
Depositary Receipts.
    (4) Designation of an Index or Portfolio. The trading of Portfolio
Depositary Receipts based on one or more stock indices or securities
portfolios, whether by listing or pursuant to unlisted trading
privileges, shall be considered on a case by case basis. The Portfolio
Depositary Receipts based on each particular stock index or portfolio
shall be designated as a separate series and shall be identified by a
unique symbol. The stocks that are included in an index or portfolio on
which Portfolio Depositary Receipts are based shall be selected by the
Exchange or by such other person as shall have a proprietary interest
in and authorized use of such index or portfolio, and may be revised
from time to time as may be deemed necessary or appropriate to maintain
the quality and character of the index or portfolio.
    (5) Initial and Continued Listing and/or Trading. A Trust upon
which a series of Portfolio Depositary Receipts is based will be traded
on the Exchange, whether by listing or pursuant to unlisted trading
privileges, subject to application of the following criteria:
    (a) Commencement of Trading--For each Trust, the Exchange will
establish a minimum number of Portfolio Depositary Receipts required to
be outstanding at the time of commencement of trading on the Exchange.
    (b) Continued Trading--Following the initial twelve month period
following formation of a Trust and commencement of trading on the
Exchange, the Exchange will consider the suspension of trading in,
removal from listing of, or termination of unlisted trading privileges
for a Trust upon which a series of Portfolio Depositary Receipts is
based under any of the following circumstances: (i) If the Trust has
more than 60 days remaining until termination and there are fewer than
50 record and/or beneficial holders of Portfolio Depositary Receipts
for 30 or more consecutive trading days; or (ii) if the value of the
index or portfolio of securities on which the Trust is based is no
longer calculated or available; or (iii) if such other event shall
occur or condition exists which in the opinion of the Exchange, makes
future dealings on the Exchange inadvisable.
    Upon termination of a Trust, the Exchange requires that Portfolio
Depositary Receipts issued in connection with such Trust be removed
from Exchange listing or have their unlisted trading privileges
terminated. A Trust may terminate in accordance with the provisions of
the Trust prospectus, which may provide for termination if the value of
securities in the Trust falls below a specified amount.
    (c) Term--The stated term of the Trust shall be stated in the Trust
Prospectus. However, a Trust may be terminated under such earlier
circumstances as may be specified in the Trust prospectus.
    (d) Trustee--The trustee must be a trust company or banking
institution having substantial capital and surplus and the experience
and facilities for handling corporate trust business. In cases where,
for any reason, an individual has been appointed as trustee, a
qualified trust company or banking institution must be appointed as co-
trustee.
    (e) Voting--Voting rights shall be as set forth in the Trust
prospectus. The Trustee of a Trust may have the right to vote all of
the voting securities of such Trust.
    (6) Limitation of Exchange Liability. Neither the Exchange, the
Reporting Authority nor any agent of the Exchange shall have any
liability for damages, claims, losses or expenses caused by any errors,
omissions, or delays in calculating or disseminating any current index
or portfolio value, the current value of the portfolio of securities
required to be deposited to the Trust; the amount of any dividend
equivalent payment or cash distribution to holders of Portfolio
Depositary Receipts; net asset value; or other information relating to
the creation redemption or trading of Portfolio Depositary Receipts,
resulting from any negligent act or omission by the Exchange, or the
Reporting Authority, or any agent of the Exchange or any act, condition
or cause beyond the reasonable control of the Exchange or its agent, or
the Reporting Authority, including, but not limited to, an act of God;
fire; flood; extraordinary weather conditions; war; insurrection; riot;
strike; accident; action of government; communications or power
failure; equipment or software malfunction; or any error, omission or
delay in the reports of transactions in one or more of the underlying
securities. The Exchange makes no warranty, express or implied, as to
the results to be obtained by any person or entity from the use of
Portfolio Depositary Receipts or any underlying index or data included
therein and the Exchange makes no express or implied warranties, and
disclaims all warranties or merchantability or fitness for a particular
purpose with respect to Portfolio Depositary Receipts or any underlying
index or data included therein. This limitation of liability shall be
in addition to any other limitation contained in the Exchange's
Articles of Incorporation, By-Laws or Rules.
Interpretations and Policies
    .01 The Exchange will trade pursuant to unlisted trading
privileges, Portfolio Depositary Receipts based on the Standard and
Poor's Corporation's S&P 500 Index, known as SPDRs.
    .02 The Exchange will trade, pursuant to unlisted trading
privileges, Portfolio Depositary Receipts based on the Standard and
Poor's Corporation's S&P MidCap 400 Index, known as MidCap SPDRs.
    ``Standard & Poor's'', ``S&P'', ``S&P 500'', ``Standard & Poor's
500'', and ``500'' are trademarks of the McGraw-Hill Companies, Inc.
and have been licensed for use by the Exchange.
    (w)(1) Applicability. This rule is applicable only to Trust Issued
Receipts. Except to the extent inconsistent with this rule, or unless
the context otherwise requires, the provisions of the Constitution and
all the rules and policies of the Board shall be applicable to the
trading on the Exchange of such securities. Trust Issued Receipts are
included within the definition of ``security'' or ``securities'' as
such terms are used in the Constitution and Rules of the Exchange. The
Exchange will consider for trading, whether by listing or pursuant to
unlisted trading privileges, Trust Issued Receipts that meet the
criteria of this Rule.
    (2) Definitions. The following terms as used in the Rules shall,
unless the context otherwise requires, have the following meanings
herein specified:
    (a) Trust Issued Receipt. A Trust Issued Receipt is a security (a)
that is issued by a trust (``Trust'') which holds specific securities
deposited with the Trust; (b) that when aggregated in some specified
minimum number, may be surrendered to the Trust by the beneficial owner
to receive the securities; and (c) that pays beneficial owners
dividends and other distributions on the deposited securities, if any
are declared and paid to the trustee by an issuer of the deposited
securities.
    (3) Designation. The Exchange may trade, whether by listing or
pursuant to unlisted trading privileges, Trust Issued

Receipts based on one or more securities. The Trust Issued Receipts
based on particular securities shall be designated as a separate series
and shall be identified by a unique symbol. The securities that are
included in a series of Trust Issued Receipts shall be selected by the
Exchange or by such other person as shall have a proprietary interest
in such Trust Issued Receipts.
    (4) Initial and Continued Listing. Trust Issued Receipts will be
traded on the Exchange subject to application of the following
criteria:
    (a) Initial Listing--For each Trust, the Exchange will establish a
minimum number of Trust Issued Receipts required to be outstanding at
the time of commencement of trading on the Exchange.
    (b) Continued Listing--Following the initial twelve month period
following formation of a Trust and commencement of trading on the
Exchange, the Exchange will consider the suspension of trading in or
removal from listing of a Trust upon which a series of Trust Issued
Receipts is based under any of the following circumstances: (i) If the
Trust has more than 60 days remaining until termination and there are
fewer than 50 record and/or beneficial holders of Trust Issued Receipts
for 30 or more consecutive trading days; (ii) if the Trust has more
than 50,000 receipts issued and outstanding; (iii) if the market value
of all receipts issued and outstanding is less than $1,000,000; or (iv)
if any other event shall occur or condition exists which, in the
opinion of the Exchange, makes further dealings on the Exchange
inadvisable.
    Upon termination of a Trust, the Exchange requires that the Trust
Issued Receipts issued in connection with such Trust be removed from
Exchange listing. A Trust may terminate in accordance with the
provisions of the Trust prospectus, which may provide for termination
if the value of securities in the Trust falls below a specified amount.
    (c) Term--The stated term of the Trust shall be as stated in the
Trust prospectus; however, a Trust may be terminated under such earlier
circumstances as may be specified in the Trust prospectus.
    (d) Trustee--The Trustee must be a trust company or banking
institution having substantial capital and surplus and the experience
and facilities for handling corporate trust business. In cases where,
for any reason, an individual has been appointed as trustee, a
qualified trust company or banking institution must be appointed co-
trustee.
    (e) Voting--Voting rights shall be set forth in the Trust
prospectus.
    (5) Member Obligations. Members and member organizations shall
provide to all purchasers of newly issued Trust Issued Receipts a
prospectus for the series of Trust Issued Receipts.
    (6) Trading Issues. Trust Issued Receipts may be acquired, held, or
transferred only in round-lot amounts (or round-lot multiples) of 100
receipts. Orders for less than a round-lot multiple, will be executed
to the extent of the largest round-lot multiple.
Interpretations and Policies
    .01 The Exchange may approve a series of Trust Issued Receipts for
trading, whether by listing or pursuant to unlisted trading privileges,
pursuant to Rule 19b-4(e) under the Securities Act of 1934, provided
that the following criteria are satisfied:
    (a) Each security underlying the Trust Issued Receipt must be
registered under Section 12 of the Exchange Act;
    (b) Each company whose securities are underlying securities for the
Trust Issued Receipt must have a minimum public float of at least $150
million;
    (c) Each security underlying the Trust Issued Receipt must be
listed on a national securities exchange or traded through the
facilities of NASDAQ as a reported national market system security;
    (d) Each company whose securities are underlying securities for the
Trust Issued Receipt must have an average daily trading volume of at
least 100,000 shares during the preceding sixty-day trading period;
    (e) Each company whose securities are underlying securities for the
Trust Issued Receipt must have an average daily dollar value of shares
traded during the preceding sixty-day trading period of at least $1
million; and
    (f) The most heavily weighted security in the Trust Issued Receipt
cannot initially represent more than 20% of the overall value of the
Trust Issued Receipt.
    (x) Index Fund Shares
    (1) Applicability. This Chapter is applicable only to Index Fund
Shares. Except to the extent inconsistent with this Chapter, or unless
the context otherwise requires, the provisions of the Constitution and
all other rules and policies of the Exchange shall be applicable to the
trading on the Exchange of Index Fund Shares. Index Fund Shares are
included within the definition of ``security'' or ``securities'' as
such terms are used in the Constitution and Rules of the Exchange.
    (2) Definitions. The following terms as used in the Rules shall,
unless the context otherwise requires, have the meanings herein
specified:
    (a) Index Fund Shares means a security (a) that is issued by an
open-end management investment company based on a portfolio of stocks
that seeks to provide investment results that correspond generally to
the price and yield performance of a specified foreign or domestic
stock index; (b) that is issued by such an open-end management
investment company in a specified aggregate minimum number in return
for a deposit of specified numbers of shares of stock and/or a cash
amount with a value equal to the next determined net asset value; and
(c) that, when aggregated in the same specified minimum number, may be
redeemed at a holders request by such open-end investment company which
will pay to the redeeming holder the stock and/or cash with a value
equal to the next determined net asset value.
    (b) Reporting Authority. The term ``Reporting Authority'' in
respect of a particular series of Index Fund Shares means the Exchange,
a subsidiary of the Exchange, or an institution or reporting service
designated by the Exchange or its subsidiary as the official source for
calculating and reporting information to such series, including, but
not limited to, any current index or portfolio value; the current value
of the portfolio of any securities required to be deposited in
connection with issuance of Index Fund Shares; the amount of any
dividend equivalent payment or cash distribution to holders of Index
Fund Shares, net asset value, or other information relating to the
issuance, redemption or trading of Index Fund Shares.
    Nothing in this section shall imply that an institution or
reporting service that is the source for calculating and reporting
information relating to Index Fund Shares must be designated by the
Exchange, the term ``Reporting Authority'' shall not refer to an
institution or reporting service not so designated.
    (3) Disclosure. Upon request of a customer, members and member
organizations shall provide to all purchasers of Index Fund Shares a
prospectus for the series of Index Fund Shares.
    (4) Designation. The trading of Index Fund Shares based on one or
more securities, whether by listing or pursuant to unlisted trading
privileges, shall be considered on a case-by-case basis. Each issue of
Index Fund Shares shall be based on each particular stock index or
portfolio and shall be a designated as a separate series and shall be
identified by a unique symbol. The securities that are included in a
series

of Index Fund Shares shall be selected by the Exchange or its agent, a
wholly-owned subsidiary of the Exchange, or by such other person
thereof, as shall have authorized use of such index. Such index or
portfolio may be revised from time to time as may be deemed necessary
or appropriate to maintain the quality and character of the index or
portfolio.
    (5) Initial and Continued Listing and/or Trading. Each series of
Index Fund Shares will be traded on the Exchange, whether by listing or
pursuant to unlisted trading privileges, subject to application of the
following criteria:
    (a) Commencement of Trading--For each Series, the Exchange will
establish a minimum number of Index Fund Shares required to be
outstanding at the time of commencement of trading on the Exchange.
    (b) Continued Trading--Following the initial twelve month period
following commencement of trading on the Exchange of a series of Index
Fund Shares, the Exchange will consider the suspension of trading, the
removal from listing, or termination of unlisted trading privileges for
such series under any of the following circumstances: (i) If there are
fewer than 50 beneficial holders of the series of Index Fund Shares for
30 or more consecutive trading days; (ii) if the value of the index or
portfolio of securities on which the series of Index Fund Shares is
based is no longer calculated or available; or (iii) if such other
event shall occur or condition exist which, in the opinion of the
Exchange, makes further dealings on the Exchange inadvisable. Upon
termination of an open-ended management investment company, the
Exchange requires that Index Fund Shares issued in connection with such
entity be removed from Exchange listing.
    (c) Voting. Voting rights shall be as set forth in the applicable
open-end management investment company prospectus.
Interpretations and Policies
    .01 The Exchange may approve a series of Index Fund Shares for
listing pursuant to Rule 19b-4(e) under the Securities Exchange Act of
1934 provided each of the following criteria is satisfied:
    (a) Eligibility Criteria for Index Components. Upon the initial
listing of a series of Index Fund Shares each component of an index or
portfolio underlying a series of Index Fund Shares shall meet the
following criteria as of the date of the initial deposit of securities
to the fund in connection with the initial issuance of shares of such
fund: (i) Component stocks that in the aggregate account for at least
90% of the weight of the index or portfolio shall have a minimum market
value of at least $75 million; (ii) The component stocks shall have a
minimum monthly trading volume during each of the last six months of at
least 250,000 shares for stocks representing at least 90% of the weight
of the index or portfolio; (iii) The most heavily weighted component
stock cannot exceed 25% of the weight of the index or portfolio, and
the five most heavily weighted component stocks cannot exceed 65% of
the weight of the index or portfolio; (iv) The underlying index or
portfolio must include a minimum of 13 stocks; and (v) All securities
in an underlying index or portfolio must be listed on a national
securities exchange or The Nasdaq Stock Market (including the Nasdaq
SmallCap Market).
    (b) Index Methodology and Calculation. (i) The index underlying a
series of Index Fund Shares will be calculated based on either the
market capitalization, modified market capitalization, price, equal-
dollar or modified equal-dollar weighting methodology; (ii) If the
index is maintained by a broker-dealer, the broker-dealer shall erect a
``fire-wall'' around the personnel who have access to information
concerning changes and adjustments to the index and the index shall be
calculated by a third party who is not a broker-dealer; and (iii) The
current index value will be disseminated every 15 seconds over the
Consolidated Tape Association's Network B.
    (c) Disseminated Information. The Reporting Authority will
disseminate for each series of Index Fund Shares an estimate, updated
every 15 seconds, of the value of a share of each series. This may be
based, for example, upon current information regarding the required
deposit of securities and cash amount to permit creation of new shares
of the series or upon the index value.
    (d) Initial Shares Outstanding. A minimum of 100,000 shares of a
series of Index Fund Shares is required to be outstanding at
commencement of trading.
    (e) Minimal Fractional Trading Variation. The minimum fractional
trading variation may vary among different series of Index Fund Shares
but will be set at \1/16\th, \1/32\nd, or \1/64\th of $1.00.
    (f) Hours of Trading. Trading will occur between 9:30 a.m. and
either 4 p.m. or 4:15 p.m. for each series of Index Fund Shares, as
specified by the Exchange.
    (g) Surveillance Procedures. The Exchange will utilize existing
surveillance procedures for Index Fund Shares.
    (h) Applicability of Other Rules. The provisions of the Exchange
Rules and By-Laws will apply to all series of Index Fund Shares.
    .02 The following paragraphs only apply to series of Index Fund
Shares that are the subject of an order by the Securities and Exchange
Commission exempting such series from certain prospectus delivery
requirements under Section 24(d) of the Investment Company Act of 1940.
The Exchange will inform members and member organizations regarding
application of these provisions to a particular series of Index Fund
Shares by means of an Information Circular prior to commencement of
trading in such series. The Exchange requires that members and member
organizations provide to all purchasers of a series of Index Fund
Shares a written description of the terms and characteristics of such
securities, in a form prepared by the open-end management investment
company issuing such securities, not later than the time a confirmation
of the first transaction in such series is delivered to such purchaser.
In addition, members and member organizations shall include such a
written description with any sales material relating to a series of
Index Fund Shares that is provided to customers or the public. Any
other written materials provided by a member or member organization to
customers or the public making specific reference to a series of Index
Fund Shares as an investment vehicle must include a statement in
substantially the following form: ``A circular describing the terms and
characteristics of [the series of Index Fund Shares] has been prepared
by the [open-end management investment company name] and is available
from your broker or the Exchange. It is recommended that you obtain and
review such circular before purchasing [the series of Index Fund
Shares].''
    A member or member organization carrying an omnibus account for a
non-member broker-dealer is required to inform such non-member that
execution of an order to purchase a series of Index Fund Shares for
such omnibus account will be deemed to constitute agreement by the non-
member to make such written description available to its customers on
the same terms as are directly applicable to members and member
organizations under this rule.
    Upon request of a customer, member or member organization shall
also

provide a prospectus for the particular series of Index Fund Shares.]
    (a) General. The System shall be available for entry and execution
of orders by Users with authorized access. To obtain authorized access
to the System, each User must enter into a User Agreement with the
Exchange in such form as the Exchange may provide (``User Agreement'').
    (b) Sponsored Participants. A Sponsored Participant may obtain
authorized access to the System only if such Sponsored Participant is a
registered broker or dealer and a self-clearing member of a Qualified
Clearing Agency, and only if such access is authorized in advance by
one or more Sponsoring ETP Holders as follows:
    (1) Sponsored Participants must enter into and maintain customer
agreements with one or more Sponsoring ETP Holders establishing proper
relationship(s) and account(s) through which the Sponsored Participant
may trade on the System. Such customer agreement(s) must incorporate
the Sponsorship Provisions set forth in paragraph (2) below.
    (2) For a Sponsored Participant to obtain and maintain authorized
access to the System, a Sponsored Participant and its Sponsoring ETP
Holder must agree in writing to the following Sponsorship Provisions:
    (A) Sponsored Participant and its Sponsoring ETP Holder must have
entered into and maintained a User Agreement with the Exchange. The
Sponsoring ETP Holder must designate the Sponsored Participant by name
in its User Agreement as such.
    (B) Sponsoring ETP Holder acknowledges and agrees that
    (i) All orders entered by the Sponsored Participants and any person
acting on behalf of or in the name of such Sponsored Participant and
any executions occurring as a result of such orders are binding in all
respects on the Sponsoring ETP Holder,
    (ii) Sponsoring ETP Holder is responsible for any and all actions
taken by such Sponsored Participant and any person acting on behalf of
or in the name of such Sponsored Participant, and
    (iii) Sponsoring ETP Holder shall pay when due all amounts, if any,
payable to the Exchange or any other third parties that arise from the
Sponsored Participants access to and use of the System. Such amounts
include, but are not limited to applicable exchange and regulatory
fees.
    (C) Sponsoring ETP Holder shall comply with the Exchange's Articles
of Incorporation, By-Laws, Rules and procedures, and Sponsored
Participant shall comply with the Exchange's Articles of Incorporation,
By-Laws, Rules and procedures, as if Sponsored Participant were an ETP
Holder.
    (D) Sponsored Participant shall maintain, keep current and provide
upon request to the Sponsoring ETP Holder and the Exchange a list of
Authorized Traders who may obtain access to the System on behalf of the
Sponsored Participant. Sponsored Participant shall be subject to the
obligations of Rule 11.10 with respect to such Authorized Traders.
    (E) Sponsored Participant shall familiarize its Authorized Traders
with all of the Sponsored Participant's obligations under this Rule and
will assure that they receive appropriate training prior to any use or
access to the System.
    (F) Sponsored Participant may not permit anyone other than
Authorized Traders to use or obtain access to the System.
    (G) Sponsored Participant shall take reasonable security
precautions to prevent unauthorized use or access to the System,
including unauthorized entry of information into the System, or the
information and data made available therein. Sponsored Participant
understands and agrees that Sponsored Participant is responsible for
any and all orders, trades and other messages and instructions entered,
transmitted or received under identifiers, passwords and security codes
of Authorized Traders, and for the trading and other consequences
thereof.
    (H) Sponsored Participant acknowledges its responsibility to
establish adequate procedures and controls that permit it to
effectively monitor its employees, agents and customers' use and access
to the System for compliance with the terms of this agreement.
    (3) The Sponsoring ETP Holder must provide the Exchange with a
written statement in form and substance acceptable to the Exchange
acknowledging its responsibility for the orders, executions and actions
of its Sponsored Participant at issue, including without limitation
responsibility to clear and settle the Sponsored Participant's trades
in the event that the Sponsored Participant or its Qualified Clearing
Agency does not accept any such trades.

Rule 11.10. [National Securities Trading System Fees] Authorized
Traders

[A. Trading Fees
    (a) Agency Transactions. As in the case for Preferenced
transactions, members acting as an agent will be charged the per share
incremental rates as noted below for public agency transactions:

------------------------------------------------------------------------
                                                              Charge per
                  Avg. daily share * volume                      share
------------------------------------------------------------------------
1 to 250,000................................................     $0.0015
250,001 to 500,000..........................................      0.0013
500,001 to 750,000..........................................      0.0009
750,001 to 1,250,000........................................      0.0007
1,250,001 and higher........................................      0.0005
------------------------------------------------------------------------
* Odd-Lot Shares Excluded.

    (b) Odd-Lot Transactions. Members will be charged $0.50 per odd-lot
transaction when acting as agent or principal, except that members will
earn a credit of $0.50 for every four round-lot transactions executed
(agency, professional agency or principal) on the Exchange and printed
on the Consolidated Tape by the Exchange. Notwithstanding the forgoing
credit, there will be a minimum charge of $0.10 per odd-lot
transaction.
    (c) Agency Order Mix Fee. Agency limit orders shall be charged
based on the percentage of public agency market order shares executed
on the Exchange during the trading month, according to the following
schedule:

------------------------------------------------------------------------
    Percent of market order shares
               executed                    Agency limit order mix fee
------------------------------------------------------------------------
25 and higher.........................  No Charge.
20 to 24.99...........................  $0.005 per share.
15 to 19.99...........................  $0.010 per share.
10 to 14.99...........................  $0.015 per share.
Less than 10..........................  $0.020 per share.
------------------------------------------------------------------------

    (d) Professional Agency Transactions. Members will be charged
$0.0025 per share ($0.25/100 shares) for professional agency (Rule
11.9(a)(8)) transactions.
    (e) Crosses and Meets
    (1) Users executing crosses and meets in Tape A securities shall be
charged $0.0005 per share per side for average daily volume up to 5
million shares per day and $0.000025 per share per side for average
daily volume up above 5 million shares, with a maximum charge of $37.50
per firm per side of transaction.
    (2) Users, who are not registered as Qualified or Designated
Dealers in the securities in which they are executing crosses and meets
in Tape C securities (Nasdaq NM and SmallCap securities), shall pay no
transaction fees.
    (3) Dealers executing crosses in Tape C securities (Tape ``C''
Transactions are defined as transactions conducted in Nasdaq securities
pursuant to unlisted trading privileges) in which they are registered
shall be charged a per share fee as noted below:

------------------------------------------------------------------------
                                                                Fee per
               Average daily number of shares                    share
------------------------------------------------------------------------
Up to 5 million shares......................................      $0.001
5 million shares and above..................................    0.000025
------------------------------------------------------------------------

    (4) Users executing crosses and meets in Tape A, B or C securities
through the Exchange's System Supervisory Center shall be charged $15
per contra-party, up to a maximum of $75 per side of transaction. This
transaction fee shall be in lieu of any transaction fee otherwise
applicable under Paragraphs (A)(e)(1) through (A)(e)(3) above.
    (f) ITS Transactions. All ITS transactions, whether inbound or
outbound, will be charged $0.001 per share.
    (g) Proprietary (Principal) Transactions.
    (1)(A) All Designated Dealers in securities other than Nasdaq
securities, except those acting as Preferencing Dealers or Contributing
Dealers, will be charged $0.001 per share ($0.10/100 shares) for
principal transactions.
    (B) For a pilot period commencing October 1, 2002 and lasting
through June 30, 2006, members that execute orders in Nasdaq securities
against previously displayed quotes/orders of other members shall pay
$0.004 per share for such execution. The Exchange shall pass on to the
member displaying the quote/order executed against $0.003 per share and
the Exchange shall retain $0.001 per share.
    (2) Designated Dealers acting as ``Dealer of the Day'' will be
charged $0.0025 per share ($0.25/100 shares) for principal
transactions.
    (3) Contributing Dealers will be charged $0.02 per share ($2.00/100
shares) for principal transactions.
    (4) Members executing principal transactions in securities for
which they are not registered as a Designated or Contributing Dealer
will be charged $0.02 per share ($2.00/100 shares).
    (h)(1) Preferenced Transactions. Designated Dealers that are
preferencing transactions in Tape A securities are charged for one side
of their preferenced transactions and are subject to the incremental
rates as noted below:

------------------------------------------------------------------------
                                                              Charge per
             Avg. daily principal share*  volume                 share
------------------------------------------------------------------------
1 to 250,000................................................     $0.0015
250,001 to 500,000..........................................      0.0013
500,001 to 750,000..........................................      0.0009
750,001 to 1,250,000........................................      0.0007
1,250,001 and higher........................................     0.0005
------------------------------------------------------------------------
* Odd-lot shares excluded.

    (2) Dealers executing preferencing transactions in Tape C
securities are charged for one side of their preferenced transactions
and are subject to the following incremental rates:

------------------------------------------------------------------------
                                                              Charge per
            Avg. daily principal share**  volume                 share
------------------------------------------------------------------------
Up to 5 million shares......................................      $0.001
5 million shares and above..................................   0.000025
------------------------------------------------------------------------
** Odd-lot shares excluded.

    (i) Transaction Fee Cap. The monthly transaction fees charged to
each member shall be equal to the lesser of (1) the amounts assessed
pursuant to Paragraphs (A)(a) through (A)(h) of this Rule 11.10 or (2)
$50,000.
    (j) Revenue Sharing Program. After the Exchange earns total
operating revenue sufficient to offset actual expenses and working
capital needs, a percentage of all Specialist Operating Revenue
(``SOR'') shall be eligible for sharing with Designated Dealers. SOR is
defined as operating revenue that is generated by specialist firms. SOR
consists of transaction fees, book fees, technology fees, and market
data revenue that is attributable to specialist firm activity. SOR
shall not include any investment income or regulatory monies. The
sharing of SOR shall be based on each Designated Dealer's pro rata
contribution to SOR in excess of $75,000 per quarter. In no event shall
the amount of revenue shared with Designated Dealers exceed SOR. To the
extent market data revenue is subject to any adjustment, SOR revenue
may be adjusted accordingly.
    (k) Tape ``B'' Transactions. Except as provided in Paragraph
(A)(e)(4) above, the Exchange will not impose a transaction fee on
Consolidated Tape ``B'' securities. In addition, Members will receive a
50 percent pro rata transaction credit of gross Tape ``B'' revenue;
provided that, however, calculation of the transaction credit will be
based on net Tape ``B'' revenues in those fiscal quarters where the
overall revenue retained by the Exchange does not offset actual
expenses and working capital needs. To the extent market data revenue
from Tape ``B'' transactions is subject to any adjustment, credits
provided under this program may be adjusted accordingly.
    (l) Reserved.
    (m) DD Issue/Book Fees. Designated Dealers will be charged a
monthly book fee based on the following incremental schedule:

------------------------------------------------------------------------
                                                                Fee per
                      Number of issues                           issue
------------------------------------------------------------------------
0 to 150....................................................      $30.00
151 to 300..................................................       20.00
301 to 500..................................................       15.00
501 and higher..............................................        2.00
------------------------------------------------------------------------

    (n) NSTS Internal Customer Port Charge. For purposes of this
charge, a ``Port'' shall be defined as a TCP/IP address. For each port
utilized on the Exchange mainframe a $350.00 per month charge will be
assessed to the member.
    (o) Technology Fee. Every Member of the Exchange shall be assessed
a fee of $1,250.00 per month to help offset technology expenses
incurred by the Exchange.
    (p) Clearing Related Fee Passed Through to Member. The Exchange
will pass onto members the entire amount of the clearing related fees
allocated to the Exchange by the clearing agent for transactions which
the Exchange submits to clearing on behalf of members.
    (q) Regulatory Transaction Fee. Under Section 31 of the Act, the
Exchange must pay certain fees to the Commission. To help fund the
Exchange's obligations to the Commission under Section 31, this
Regulatory Transaction Fee is assessed to members. To the extent there
may be any excess monies collected under this Rule, the Exchange may
retain those monies to help fund its general operating expense. Each
member engaged in executing transactions on the Exchange shall pay, in
such manner and at such times as the Exchange shall direct, a
Regulatory Transaction Fee equal to (i) the rate determined by the
Commission to be applicable to covered sales occurring on the Exchange
in accordance with Section 31 of the Act multiplied by (ii) the
member's aggregate dollar amount of covered sales occurring on the
Exchange during any computational period.
    (r) Workstation Fee. Every member using the Exchange Workstation
shall be charged $1,000.00 per device per month.
    B. Membership Fees.

------------------------------------------------------------------------
                            Item                                  Fee
------------------------------------------------------------------------
Yearly Membership Dues (Quarterly Charge $625)..............      $2,500
New Member Application Fee..................................       1,000
Transfers...................................................         350
Responsible Party Change
Firm Registration/Name Change
------------------------------------------------------------------------

    C. Transaction Credit De Minimis. For all rebates applicable to
Tape A and Tape B Transactions, no member shall be eligible for a
rebate for any quarter unless the total rebate calculation for that
quarter exceeds $500.00.]
    (a) An ETP Holder shall maintain a list of ATs who may obtain
access to the System on behalf of the ETP Holder or the ETP Holder's
Sponsored Participants. The ETP Holder shall

update the list of ATs as necessary. ETP Holders must provide the list
of ATs to the Exchange upon request.
    (b) An ETP Holder must have reasonable procedures to ensure that
all ATs comply with all Exchange Rules and all other procedures related
to the System.
    (c) An ETP Holder must suspend or withdraw a person's status as an
AT if the Exchange has determined that the person has caused the ETP
Holder to fail to comply with the Rules of the Exchange and the
Exchange has directed the ETP Holder to suspend or withdraw the
person's status as an AT.
    (d) An ETP Holder must have reasonable procedures to ensure that
the ATs maintain the physical security of the equipment for accessing
the facilities of the Exchange to prevent the improper use or access to
the systems, including unauthorized entry of information into the
systems.

Rule 11.11. Orders and Modifiers

    Users may enter into the System the types of orders listed in this
Rule 11.11, subject to the limitations set forth in this Rule or
elsewhere in these Rules.
    (a) General Order Types.
    (1) Market Order. An order to buy or sell a stated amount of a
security that is to be executed at the best price obtainable when the
order reaches the Exchange. A market order that is designated as ``NSX
Only'' will be cancelled if when reaching the Exchange, it cannot be
executed in accordance with Rule 11.15(a)(i) on the System. Market
orders that are not designated as ``NSX Only'' and that cannot be
executed in accordance with Rule 11.15(a)(i) on the System when
reaching the Exchange will be eligible for routing away pursuant to
Rule 11.15.
    (2) Limit Order. An order to buy or sell a stated amount of a
security at a specified price or better. A ``marketable'' limit order
is a limit order to buy (sell) at or above (below) the Protected NBBO
offer (bid) for the security.
    (b) Time-in-Force. Limit orders must have one of the following
time-in-force terms.
    (1) Immediate-or-Cancel (``IOC'') Order. A limit order that is to
be executed in whole or in part as soon as such order is received, and
the portion not so executed is to be treated as cancelled. An order
designated as IOC is not eligible for routing away pursuant to Rule
11.15.
    (2) Day Order. A limit order to buy or sell which, if not executed,
expires at the closing of the regular trading session for such security
on its Listing Exchange. Any Day Order entered into the System before
the opening of business on the Exchange as determined pursuant to Rule
11.1, or after the closing of the regular trading session for such
security on its Listing Exchange, will be rejected.
    (3) Day + Order. A limit order to buy or sell which, if not
executed, expires at the closing of business on the Exchange (as
determined pursuant to Rule 11.1) on the day on which it was entered.
Any Day + Order entered into the System before the opening of business
or after the closing of business on the Exchange as determined pursuant
to Rule 11.1 will be rejected.
    (4) Any limit orders entered with a ``Good 'til Cancel'' (GTC) or
similar time-in-force term will be automatically converted into Day
Orders.
    (5) Any limit orders entered with a ``Good 'til Extended Hours''
(GTX) or similar time-in-force term will be automatically converted
into Day + Orders.
    (c) Other Types of Orders and Order Modifiers.
    (1) ITS Order. An order entered into the System via the Intermarket
Trading System (``ITS'') as described in Chapter XIV of these Rules.
ITS Orders are executable in round lots only. All ITS Orders shall be
treated as Immediate-or-Cancel (IOC).
    (2) Reserve Order. A limit order with a portion of the quantity
displayed (``display quantity'') and with a reserve portion of the
quantity (``reserve quantity'') that is not displayed.
    (3) Odd Lot Order. An order to buy or sell an odd lot. Odd Lot
Orders are only eligible to be protected quotations if aggregated to
form a round lot.
    (4) Mixed Lot Order. An order to buy or sell a mixed lot. Odd lot
portions of Mixed Lot Orders are only eligible to be protected
quotations if aggregated to form a round lot.
    (5) Post Only Order. A limit order that is to be posted on the
Exchange and not routed away to another trading center. A Post Only
Order will be rejected without execution if it is immediately
marketable when entered.
    (6) NSX Only Order. An order that is to be executed on the Exchange
pursuant to Rule 11.15(a) or cancelled, without routing away to another
trading center.
    (7) Sweep Order. A limit order that instructs the System to
``sweep'' the market.
    (i) Sweep Orders may be designated as ``Protected Sweep,'' ``Full
Sweep,'' or ``Destination Sweep.'' Sweep Orders not carrying any such
designation shall be treated as Protected Sweep Orders.
    (A) A Protected Sweep Order will be converted into one or more
limit orders with sizes equal to the sizes of protected quotations in
the NSX Book and at away trading centers to be executed in accordance
with Rule 11.15(b).
    (B) A Full Sweep Order will be converted into one or more limit
orders with sizes equal to the sizes of the best available quotations
(including manual quotations) in the NSX Book and at away trading
centers in accordance with Rule 11.15(b).
    (C) A Destination Sweep Order will be routed to an away trading
center specified by the User, after the order is exposed to the NSX
Book.
    (ii) When entering a Protected Sweep Order or Full Sweep Order,
Users shall designate the Sweep Order as ``Sweep and Post,'' ``Sweep
and Cancel,'' or a combination thereof.
    (A) Any unfilled portion of a Sweep Order designated ``Sweep and
Post'' following the market sweep described in subsection (i) above
will be converted into a Post Only Order.
    (B) Any unfilled portion of a Sweep Order designated ``Sweep and
Cancel'' after the completion of the market sweep described in
subsection (i) above will be cancelled.
    (iii) A Sweep Order entered as part of a ``Cross/Sweep'' message
pursuant to Rule 11.12 shall be treated identically to a Sweep Order
designated ``Sweep and Cancel'' except as otherwise provided in Rule
11.12.
    (iv) Any order converted from a Protected Sweep Order or Full Sweep
Order for routing to other trading centers or for execution against the
NSX Book shall be marked as an intermarket sweep order or ``ISO''.
    (8) Incoming Intermarket Sweep Order. The System will accept
incoming intermarket sweep orders (as such term is defined in
Regulation NMS) from other trading centers. Such orders must be marked
``ISO'' in order to be eligible for treatment as an intermarket sweep
order. Such orders, if appropriately marked, will be considered
immediate-or-cancel (IOC) and will be executed without regard to
protected quotations at away markets consistent with Regulation NMS.
    (9) Destination Specific Order. A market or limit order that
instructs the System to route the order to a specified away trading
center, after exposing the order to the NSX Book. Users can access
markets offering bids and offers other than protected quotations (i.e.,
manual quotations) by entering a Destination Specific Order. A
Destination Specific Order must have an order type and a time-in-force
term permitted by this Rule 11.11.
    (d) Cancel/Replace Messages. A User may, by appropriate entry in
the System, cancel or replace an existing

order entered by the User, subject to the following limitations.
    (i) Orders may only be cancelled or replaced if the order has a
time-in-force term other than IOC and if the order has not yet been
executed.
    (ii) If an order has been routed to another trading center, the
order will be placed in a ``Cancel Pending'' state until the routing
process is completed. Executions that are completed when the order is
in the ``Cancel Pending'' state will be processed normally.
    (iii) Only the price and quantity terms of the order may be changed
by a Replace Message. If a User desires to change any other terms of an
existing order the existing order must be cancelled and a new order
must be entered.
    (iv) Notwithstanding anything to the contrary in these Exchange
Rules, no cancellation or replacement of an order will be effective
until the User has received written confirmation of the cancellation or
replacement from the Exchange.

Rule 11.12. Cross Message

    (a) Subject to the restrictions of this Rule, Users may enter a
cross message (a ``Cross'') instructing the System to match for
execution the identified buy-side of the Cross with the identified
sell-side of the Cross at a specified price (the ``cross price'').
    (b) Except as provided in paragraphs (c), (d) or (f) below, no
Cross will be executed by the System, unless:
    (1) The buy-side of the Cross is at a price less (by at least $0.01
per share) than the lowest displayed order to sell in the NSX Book, and
(following the compliance date for Rule 611 of Regulation NMS) is at a
price equal to or less than the Protected NBBO offer; and
    (2) The sell-side of the Cross is at a price greater (by at least
$0.01 per share) than the highest displayed order to buy in the NSX
Book, and (following the compliance date for Rule 611 of Regulation
NMS) is at a price equal to or greater than the Protected NBBO bid.
    (c) Midpoint Cross. A Cross that is priced at the midpoint of the
Protected NBBO (or, prior to the compliance date for Rule 611 of
Regulation NMS, at the midpoint of the best bid and offer on the
Exchange) (a ``Midpoint Cross'') may be executed on the System if it
improves each side of the Top of Book by at least half the minimum
increment permitted by Rule 11.3(a).
    (d) Clean Cross. A Cross meeting the following requirements (a
``Clean Cross'') may be executed on the System at a price equal to or
better than each side of the Top of Book:
    (1) The Cross is for at least 5,000 shares and has an aggregate
value of at least $100,000;
    (2) Neither side of the Cross is for the account of the User
entering the Cross; and
    (3) The size of the Cross is greater than the size of the interest
at each side of the Top of Book;
    (4) Following the compliance date for Rule 611 of Regulation NMS,
the price of the Cross is equal to or better than the Protected NBBO.
    (e) If either side of a Cross is for the account of the User
entering the Cross (a ``Proprietary Cross''), the User must comply with
Exchange Rule 12.6 (the Customer Priority Rule). Without limiting the
foregoing, no User shall enter a Proprietary Cross if the User is
holding a customer order in the security unless the price of the
Proprietary Cross improves the price that could have been received by
the customer order by at least $0.01.
    (f) Cross/Sweep. Users may enter a ``Cross/Sweep'' message into the
System involving both a Sweep Order and a Cross.
    (1) Upon receipt of a Cross/Sweep message, the System will enter a
Protected Sweep Order for the User's account in an amount necessary to
execute against all protected quotations that, if not swept, would
prohibit the Cross from being executed by the System pursuant to
paragraph (b) above. The Cross will be executed on the System
simultaneously with the Sweep Order, unless the Protected Sweep Order
would be for an amount of shares in excess of the size of the Cross, in
which case both the Protected Sweep Order and the Cross shall be
cancelled without execution.
    (2) No User shall enter a Cross/Sweep if either side of the Cross
is for the account of a customer, unless the User fully discloses to
such customer all of the material facts relating to the Sweep Order,
including price(s) of the Sweep Order and the fact that the Sweep Order
is for the account of the User.

Rule 11.13. Proprietary and Agency Orders; Modes of Order Interaction

    (a) Except as otherwise provided in these Rules, Users may enter
proprietary orders and agency orders for the account of a customer.
Proprietary orders accepted by the System from Users are subject to the
same ranking and execution processes as agency orders. A User that
enters a proprietary order into the System shall mark the order with
the appropriate designator to identify the order as proprietary. All
agency orders shall be designated as such and with each agency order,
the User shall include a unique account number or other identifier that
enables the User to identify the User's customer on whose behalf the
order is being entered.
    (b) The System offers two modes of order interaction selected by
Users:
    (1) If automatic execution is selected, the System shall match and
execute like-priced orders on an order by order basis only at the
specific instruction of Users.
    (2) If order delivery and automated response is selected, the
System will deliver contra-side orders against displayed orders on an
order by order basis only at the specific instruction of Users. To be
eligible for order delivery service, Users must demonstrate to Exchange
examiners that the User's system can automatically process the inbound
order and respond appropriately within \1/2\ of a second. If no
response to an inbound order is received within \1/2\ of a second, the
User's displayed order will be cancelled.

Rule 11.14. Priority of Orders

    (a) Ranking. Orders of Users shall be ranked and maintained in the
NSX Book based on the following priority:
    (1) The highest-priced order to buy (or lowest-priced order to
sell) shall have priority over all other orders to buy (or orders to
sell) in all cases.
    (2) Where orders to buy (or sell) are made at the same price, the
order clearly established as the first entered into the System at such
particular price shall have precedence at that price, up to the number
of shares of stock specified in the order.
    (3) In the event that less than the full size of an order is
executed, the unexecuted size of the order shall retain priority at the
same limit price in accordance with paragraphs (1) and (2) above.
    (4) The displayed quantity of a Reserve Order shall have time
priority as of the time of display. If the displayed quantity of the
Reserve Order is decremented such that 99 shares or fewer would be
displayed, the displayed portion of the Reserve Order shall be
refreshed for (i) the original displayed quantity, or (ii) the entire
reserve quantity, if the remaining reserve quantity is smaller than the
original displayed quantity. After the refresh, the displayed portion
of the Reserve Order shall have time priority as of the time of the
refresh. The reserve quantity of a Reserve Order shall have no time
priority until displayed. If all displayed orders and displayed
portions of Reserve Orders at a given price are executed, and following
such execution any marketable contra-side orders

remain outstanding, then such contra-side orders shall be executed
against the refreshed displayed portions of Reserve Orders at such
price based on the time priority as determined by this paragraph (4).
    (b) Dissemination. The best-ranked order(s) to buy and the best-
ranked order(s) to sell in the NSX Book and the aggregate displayed
size of such orders associated with such prices shall be collected and
made available to quotation vendors for dissemination pursuant to the
requirements of Rule 602 of Regulation NMS.

Rule 11.15. Order Execution

    Subject to the restrictions on short sales under these Exchange
Rules or the Act and the rules and regulations thereunder, orders shall
be matched for execution by following this Rule. For any execution to
occur during Regular Trading Hours, however, the price must be equal to
or better than the Protected NBBO, unless the order is marked ISO or
unless the execution falls within another exception set forth in Rule
611(b) of Regulation NMS.
    (a) Orders Other than Sweep Orders.
    (i) Execution against NSX Book. An incoming order (other than a
Sweep Order) shall first attempt to be matched for execution against
orders in the NSX Book. An incoming order to buy (other than a Sweep
Order) will be automatically executed to the extent that it is priced
at an amount that equals or exceeds any order to sell in the NSX Book.
Such order to buy shall be executed at the price(s) of the lowest
order(s) to sell having priority in the NSX Book. An incoming order to
sell (other than a Sweep Order) will be automatically executed to the
extent that it is priced at an amount that equals or is less than any
other order to buy in the NSX Book. Such order to sell shall be
executed at the price(s) of the highest order(s) to buy having priority
in the NSX Book.
    (ii) Routing to Away Trading Centers. Unless the terms of the order
direct otherwise, if an order (other than a Sweep Order) has not been
executed in its entirety pursuant to paragraph (a)(i) of this Rule, the
order shall be eligible for routing away as follows:
    (A) The order will be converted into one or more limit orders, as
necessary, to be matched for execution against each protected quotation
at the Protected NBBO available at away trading centers. Each such
converted limit order shall be priced at the price of the protected
quotation that it is to be matched for execution against.
    (B) Each converted limit order will be routed to the applicable
trading center for execution against the applicable protected quotation
at the Protected NBBO. No orders routed away pursuant to this
subsection (ii) shall be marked ISO.
    (iii) Following steps (i) and (ii) above, unless the terms of the
order direct otherwise, any unfilled portion of the order originally
entered into the System shall be ranked in the NSX Book in accordance
with the terms of such order under Rule 11.14 and such order shall be
eligible for execution under this Rule 11.15.
    (b) Sweep Orders.
    (i) Protected Sweep Orders. A Protected Sweep Order will be matched
for execution in the NSX Book in accordance with paragraph (a)(i), and
will simultaneously be converted into one or more additional limit
orders, as necessary, with sizes equal to the size of each protected
quotation that is superior (or in the case of a Protected Sweep Order
designated ``Sweep and Post'', superior or equal) to the limit price of
the Protected Sweep Order. Each converted limit order will be routed to
the applicable trading center for execution.
    (ii) Full Sweep Orders. A Full Sweep Order will be matched for
execution in the NSX Book in accordance with paragraph (a)(i), and will
simultaneously be converted into one or more additional limit orders,
as necessary, with sizes equal to the size of each quotation available
at an away trading center that (A) is the best bid or offer of a
national securities exchange or association, and (B) is superior (or,
in the case of a Full Sweep Order designated ``Sweep and Post'',
superior or equal) to the limit price of the Full Sweep Order. Each
converted limit order will be routed to the applicable trading center
for execution.
    (iii) Destination Sweep Orders. A Destination Sweep Order will be
matched for execution in the NSX Book in accordance with paragraph
(a)(i), and if it cannot be matched for execution in accordance with
paragraph (a)(i), will be routed to the specified away trading center
for execution.
    (iv) Any order converted from a Protected Sweep Order or Full Sweep
Order for routing to other trading centers or for execution against the
NSX Book shall be marked as an intermarket sweep order or ``ISO''.
    (v) Following the steps described above, any unfilled portion of
the Sweep Order will either be cancelled or ranked in the NSX Book in
accordance with the terms of the Sweep Order.
    (c) Special Rules for Orders Routed to Other Trading Centers.
    (i) An order that is routed away may be executed in whole or in
part subject to the applicable trading rules of the relevant trading
center. While an order remains outside the System, it shall have no
time standing, relative to other orders received from Users at the same
price which may be executed against the NSX Book. Requests from Users
to cancel their orders while the order is routed away to another
trading center and remains outside the System shall be processed,
subject to the applicable trading rules of the relevant trading center.
    (ii) Where an order or portion of an order is routed away and is
not executed either in whole or in part at the other trading center
(i.e., all attempts at the fill are declined or timed-out), the order
shall be ranked in the NSX Book in accordance with the terms of such
order under Rule 11.14 and such order shall be eligible for execution
under this Rule 11.15, unless the terms of the order provide otherwise.
    (d) Display of Automated Quotations. The System will be operated as
an ``automated market center'' within the meaning of Regulation NMS,
and in furtherance thereof, will display ``automated quotations''
within the meaning of Regulation NMS at all times except in the event
that a systems malfunction renders the System incapable of displaying
automated quotations. The Exchange shall communicate to ETP Holders its
procedures concerning a change from automated to manual quotations.

Rule 11.16. Trade Execution and Reporting

    Executions occurring as a result of orders matched against the NSX
Book shall be reported by the Exchange to an appropriate consolidated
transaction reporting system to the extent required by the Act and the
rules and regulations thereunder. Executions occurring as a result of
orders routed away from the System shall be reported to an appropriate
consolidated transaction reporting system by the relevant reporting
trading center. The Exchange shall promptly notify Users of all
executions of their orders as soon as such executions take place.

Rule 11.17. Clearance and Settlement

    (a) Each ETP Holder must either (1) be a member of a Qualified
Clearing Agency, or (2) clear transactions executed on the Exchange
through another ETP Holder that is a member of a Qualified Clearing
Agency. Each Sponsored Participant must be a member of a Qualified
Clearing Agency. If an ETP Holder clears transactions

through another ETP Holder that is a member of a Qualified Clearing
Agency (``clearing member''), such clearing member shall affirm to the
Exchange in writing, through letter of authorization, letter of
guarantee or other agreement acceptable to the Exchange, its agreement
to assume responsibility for clearing and settling any and all trades
executed by the ETP Holder designating it as its clearing firm. The
rules of any such clearing agency shall govern with respect to the
clearance and settlement of any transactions executed by the ETP Holder
on the Exchange.
    (b) Each transaction executed within the System shall be
automatically processed for clearance and settlement on a locked-in
basis.
    (c) Except as required by any Qualified Clearing Agency, the
Exchange will reveal the identity of an ETP Holder or ETP Holder's
clearing firm in the following circumstances:
    (1) for regulatory purposes or to comply with an order of a court
or arbitrator; or
    (2) when a Qualified Clearing Agency ceases to act for an ETP
Holder or the ETP Holder's clearing firm, and determines not to
guarantee the settlement of the ETP Holder's trades.

11.18. LIMITATION OF LIABILITY

    (A) NEITHER THE EXCHANGE NOR ITS AGENTS, EMPLOYEES, CONTRACTORS,
OFFICERS, DIRECTORS, COMMITTEE MEMBERS OR AFFILIATES (``EXCHANGE
RELATED PERSONS'') SHALL BE LIABLE TO ANY USER OR ETP HOLDER, OR
SUCCESSORS, REPRESENTATIVES OR CUSTOMERS THEREOF, OR ANY PERSONS
ASSOCIATED THEREWITH, FOR ANY LOSS, DAMAGES, CLAIM OR EXPENSE:
    (1) GROWING OUT OF THE USE OR ENJOYMENT OF ANY FACILITY OF THE
EXCHANGE, INCLUDING, WITHOUT LIMITATION, THE SYSTEM; OR
    (2) ARISING FROM OR OCCASIONED BY ANY INACCURACY, ERROR OR DELAY
IN, OR OMISSION OF OR FROM THE COLLECTION, CALCULATION, COMPILATION,
MAINTENANCE, REPORTING OR DISSEMINATION OF ANY INFORMATION DERIVED FROM
THE SYSTEM OR ANY OTHER FACILITY OF THE EXCHANGE, RESULTING EITHER FROM
ANY ACT OR OMISSION BY THE EXCHANGE OR ANY EXCHANGE RELATED PERSON, OR
FROM ANY ACT CONDITION OR CAUSE BEYOND THE REASONABLE CONTROL OF THE
EXCHANGE OR ANY EXCHANGE RELATED PERSON, INCLUDING, BUT NOT LIMITED TO,
FLOOD, EXTRAORDINARY WEATHER CONDITIONS, EARTHQUAKE OR OTHER ACTS OF
GOD, FIRE, WAR, TERRORISM, INSURRECTION, RIOT, LABOR DISPUTE, ACCIDENT,
ACTION OF GOVERNMENT, COMMUNICATIONS OR POWER FAILURE, OR EQUIPMENT OR
SOFTWARE MALFUNCTION.
    (B) EACH ETP HOLDER EXPRESSLY AGREES, IN CONSIDERATION OF THE
ISSUANCE OF THE ETP, TO RELEASE AND DISCHARGE THE EXCHANGE AND ALL
EXCHANGE RELATED PERSONS OF AND FROM ALL CLAIMS AND DAMAGES ARISING
FROM THEIR ACCEPTANCE AND USE OF THE FACILITIES OF THE EXCHANGE
(INCLUDING, WITHOUT LIMITATION, THE SYSTEM).
    (C) NEITHER THE EXCHANGE NOR ANY EXCHANGE RELATED PERSON MAKES ANY
EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS TO USERS AS TO RESULTS THAT
ANY PERSON OR PARTY MAY OBTAIN FROM THE SYSTEM FOR TRADING OR FOR ANY
OTHER PURPOSE, AND ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE, TITLE, AND NON-INFRINGEMENT WITH RESPECT TO
THE SYSTEM ARE HEREBY DISCLAIMED.

Rule 11.19. Clearly Erroneous Executions

    (a) Definition. For purposes of this Rule, the terms of a
transaction executed on the Exchange are ``clearly erroneous'' when
there is an obvious error in any term, such as price, number of shares
or other unit of trading, or identification of the security. A
transaction made in clearly erroneous error and cancelled by both
parties may be removed, if the parties do not object, subject to the
approval of the Exchange.
    (b) Request for Exchange Review. An ETP Holder that receives an
execution on an order that was submitted erroneously to the Exchange
for its own or customer account may request that the Exchange review
the transaction under this Rule. Such request for review shall be made
via telephone, facsimile or e-mail and submitted within fifteen (15)
minutes of the trade in question. Upon receipt, the counterparty to the
trade, if any, shall be notified by the Exchange as soon as
practicable. Thereafter, an Officer of the Exchange or such other
designee of the Exchange (``Officer'') shall review the transaction
under dispute and determine whether it is clearly erroneous, with a
view toward maintaining a fair and orderly market and the protection of
investors and the public interest. Each party to the transaction shall
provide, within thirty (30) minutes of the request for review, any
supporting written information as may be reasonably requested by
Officer to aid resolution of the matter. Either party to the disputed
trade may request the supporting written information provided by the
other party on the matter.
    (c) Review Procedures.
    (1) Determination by Officer. Unless both parties (or party, in the
case of a cross) to the disputed transaction agree to withdraw the
initial request for review, the transaction under dispute shall be
reviewed, and a determination shall be rendered by the Officer. If the
Officer determines that the transaction is not clearly erroneous, the
Officer shall decline to take any action in connection with the
completed trade. In the event that the Officer determines that the
transaction in dispute is clearly erroneous, the Officer shall declare
the transaction null and void or modify one or more of the terms of the
transaction to achieve an equitable rectification of the error that
would place the parties in the same position, or as close as possible
to the same position that they would have been in, had the error not
occurred. The parties shall be promptly notified of the determination.
    (2) Appeal to CEE Panel. If a party affected by a determination
made under this Rule so requests within the time permitted below, the
Clearly Erroneous Execution Panel (``CEE Panel'') will review decisions
made by the Officer under this Rule, including whether a clearly
erroneous execution occurred and whether the correct adjustment was
made.
    (A) The CEE Panel will be comprised of the Exchange's Chief
Regulatory Officer (``CRO''), or a designee of the CRO, and
representatives from two (2) ETP Holders.
    (B) The Exchange shall designate the ETP Holder representatives to
be called upon to serve on the CEE Panel as needed. In no case shall a
CEE Panel include a person related to a party to the trade in question.
To the extent reasonably possible, the Exchange shall call upon the
designated representatives to participate on a CEE Panel on an equally
frequent basis.
    (C) A request for review on appeal must be made via facsimile or e-
mail within thirty (30) minutes after the party making the appeal is
given notification of the initial determination being appealed. The CEE
Panel shall review the facts and render a decision within the time
frame prescribed by the Exchange.

    (D) The CEE Panel may overturn or modify an action taken by the
Officer under this Rule. All determinations by the CEE Panel shall
constitute final action by the Exchange on the matter at issue.
    (d) Abuse of Process. An abuse of the process described in
subsections (c) and (d) above may subject the abusing User to
disciplinary action under Chapter VIII.
    (e) System Disruption and Malfunctions. In the event of any
disruption or a malfunction in the use or operation of any electronic
communications and trading facilities of the Exchange, or extraordinary
market conditions or other circumstances in which the nullification or
modification of transactions may be necessary for the maintenance of a
fair and orderly market or the protection of investors and the public
interest exist, the Officer, on his or her own motion, may review such
transactions and declare such transactions arising out of the use or