Order Granting Application for Exemptions Pursuant to Section 36(a) of the Exchange Act by the American Stock Exchange LLC, the International Securities Exchange, Inc., the Municipal Securities Rulemaking Board, the Pacific Exchange, Inc., the Philadelphia Stock Exchange, Inc., and the Boston Stock Exchange, Inc.

I. Introduction

The American Stock Exchange LLC (“Amex”), the International Securities Exchange, Inc. (“ISE”), the Municipal Securities Rulemaking Board (“MSRB”), the Pacific Exchange, Inc. (“PCX”), the Philadelphia Stock Exchange, Inc. (“Phlx”), and the Boston Stock Exchange, Inc. (“BSE”), each have filed with the Securities and Exchange Commission (“Commission”), pursuant to Rule 0-12 under the Securities Exchange Act of 1934 (“Exchange Act”), an application for an exemption under section 36(a)(1) of the Exchange Act from the rule filing requirements of section 19(b) of the Exchange Act with respect to certain rules of another self-regulatory organization (“SRO”) that each of the these SROs has either proposed to incorporate by reference or currently incorporates by reference.

II. Applications for Section 36 Exemption From Section 19(b) Rule Filing Requirements for SRO Rules Incorporated by Reference

Several SROs currently incorporate by reference certain rules of other SROs. Specifically, the Amex, ISE, MSRB, and Phlx incorporate the NASD Code of Arbitration Procedure, while the ISE and PCX incorporate by reference the margin rules of the New York Stock Exchange, Inc. (“NYSE”) and Chicago Board Options Exchange, Inc. (“CBOE”). The BSE recently filed a prospective request for incorporation by reference. In connection with the proposal by the BSE to establish the Boston Options Exchange (“BOX”) as a new exchange facility, BSE proposes to permit BOX members to choose to comply with the margin requirements of either the CBOE or the NYSE.

All of these SROs have asked the Commission for exemptive relief, subject to certain conditions, from the requirements to file proposed rule changes under Section 19(b) of the Exchange Act whenever the SRO whose rules are incorporated by reference changes those rules.

A. Amex

In connection with the 1998 merger between NASD and Amex, Amex amended its Constitution to provide that any arbitration filed following the closing of the merger transaction would be conducted pursuant to the NASD Code of Arbitration Procedure using the arbitration facilities of NASD Regulation, Inc. (“NASDR”).

On May 2, 2002, Amex submitted a formal request, pursuant to Rule 0-12 under the Exchange Act, seeking an exemption under Section 36 of the Exchange Act from the rule filing procedures of Section 19(b) of the Exchange Act with respect to changes to the incorporated NASD rules.

B. ISE

On November 20, 2000, the ISE filed with the Commission a proposed rule change incorporating by reference the NASD Code of Arbitration Procedure. Specifically, the ISE proposed to repeal its Rules 1800 through 1835 and create new Rule 1800, which would state: (1) that the NASD Code of Arbitration, as the same may be in effect from time to time, shall govern ISE arbitrations; and (2) that the ISE shall retain jurisdiction over its members for failure to honor arbitration awards and any right, action, or determination by the Exchange that it would otherwise be authorized to adopt, administer or enforce is in no way limited or precluded by incorporation of the NASD Code of Arbitration. The proposed rule change was published for comment in the Federal Register on July 26, 2001, and approved by the Commission on November 21, 2001.

According to the ISE, the purpose of this incorporation by reference was to reflect the contractual relationship between ISE and NASDR whereby NASDR is obligated to perform arbitrations under ISE's rules for ISE members. On October 30, 2001, the ISE submitted a formal request, pursuant to Rule 0-12 under the Exchange Act, seeking an exemption under Section 36 of the Exchange Act from the rule filing procedures of section 19(b) of the Exchange Act with respect to changes to the incorporated NASD rules. In its approval order, the Commission noted that the ISE had submitted to the Commission such an exemption request.

In the same letter, the ISE also requested a Section 36 exemption from section 19(b) of the Exchange Act with respect to changes to the margin rules of the CBOE and NYSE, both of which are incorporated by reference in ISE Rule 1202.

C. MSRB

In December 1997, the Commission approved amendments to Rule G-35 of the MSRB in which the MSRB effectively incorporated by reference the NASD Code of Arbitration Procedure as of January 1, 1998. The amendments provided that any new arbitration claims filed on or after that date shall be submitted to and administered by the NASD. The amendments provided that, as of January 1, 1998, every bank dealer (as defined in MSRB Rule D-8) shall be subject to the NASD's Code of Arbitration for every claim, dispute, or controversy arising out of or in connection with the municipal securities activities of the bank dealer acting in its capacity as such. The enforcement mechanism for bank dealers was not altered by the amendments; the bank regulatory agencies continue to be responsible for the inspection and enforcement of bank dealers' municipal securities activities, including arbitration.

On April 12, 2002, the MSRB submitted a formal request, pursuant to Rule 0-12 under the Exchange Act, seeking an exemption under section 36 of the Exchange Act from the rule filing procedures of section 19(b) of the Exchange Act with respect to changes to the incorporated NASD Code of Arbitration Procedure.

D. PCX

On August 15, 2003, PCX filed with the Commission a proposed rule change to amend PCX Rule 6.47 (Crossing Orders and Stock/Option, SSF/Option Orders) that governs the execution of complex orders involving options and single stock futures. The proposed rule change, which was effective upon filing pursuant to Section 19(b)(3)(A) of the Exchange Act, allows a PCX member to elect to be bound by the initial and maintenance margin requirements of either the CBOE or NYSE.

On December 2, 2003, the ISE submitted a formal request, pursuant to Rule 0-12 under the Exchange Act, seeking an exemption under Section 36 of the Exchange Act from the rule filing procedures of Section 19(b) of the Exchange Act with respect to changes to the incorporated CBOE and NYSE rules.

E. Phlx

On October 1, 1998, the Commission granted accelerated approval to a proposal by the Phlx to amend its arbitration rules to incorporate by reference the NASD Code of Arbitration Procedure. Specifically, Phlx amended Phlx Rule 950 to state, in relevant part, that “[e]very member, member organization, member corporation, participant and participant organization . . . shall be subject to the Code for every claim, dispute, or controversy arising out of or in connection with the securities business of any such member of the Exchange. . . . For purposes of Rule 950, each member will be subject to and required to abide by the Code as if such member were a “member” of the NASD.”

On December 15, 2003, Phlx submitted a formal request, pursuant to Rule 0-12 under the Exchange Act, seeking an exemption under Section 36 of the Exchange Act from the rule filing procedures of Section 19(b) of the Exchange Act with respect to changes to the incorporated NASD Code of Arbitration Procedure.

F. BSE

On January 13, 2004, the Commission approved BSE's proposal to establish BOX as a new exchange facility. BSE proposed, among other things, rules to govern members of BOX, including BOX Rule Chapter 13, Section 3, which permits BOX members to elect to be bound by the margin rules of either the CBOE or NYSE.

On December 10, 2003, BSE submitted a formal request, pursuant to Rule 0-12 under the Exchange Act, seeking an exemption under Section 36 of the Exchange Act from the rule filing procedures of Section 19(b) of the Exchange Act with respect to changes to the incorporated CBOE and NYSE rules.

III. Order Granting Section 36 Exemption

Section 36 of the Exchange Act authorizes the Commission to conditionally or unconditionally exempt any person, security, or transaction, or any class thereof, from any provision of the Exchange Act or rule thereunder, if necessary or appropriate in the public interest and consistent with the protection of investors. The Commission believes that it is appropriate to issue exemptions, subject to the conditions described below, to allow SROs to incorporate by reference the rules of other SROs without being subject to the rule filing requirements of Section 19(b) of the Exchange Act whenever the SROs' rules that are incorporated by reference change. Such exemptions will promote more efficient use of Commission and SRO resources by avoiding duplicative rule filings based on simultaneous changes to identical rule text sought by more than one SRO. Where such an exemption is granted, an SRO that incorporates by reference another SRO's rules would agree to be governed by the incorporated rules, as amended from time to time, but not be required to file a separate proposed rule change with the Commission each time the SRO whose rules are incorporated by reference seeks to modify its rules.

Any such exemption would be subject to certain conditions. Specifically, the SRO requesting the exemption would be required to incorporate by reference only regulatory rules (i.e., margin, suitability, arbitration), not trading rules, and to incorporate by reference whole categories of rules (rather than “cherry-pick” certain individual rules within a category). The SRO could, however, impose specific additional rules within the incorporated categories, if approved by the Commission pursuant to Section 19(b)(2) of the Exchange Act. In addition, the SRO seeking to incorporate another SRO's rules would be required to have reasonable procedures in place to provide written notice to its members each time a change is proposed to the incorporated rules of another SRO in order to provide its members with notice of a proposed rule change that affects their interests, so that they would have an opportunity to comment on it.

Therefore, the Commission is granting the requests for exemption, pursuant to Section 36 of the Exchange Act, from the rule filing requirements imposed by Section 19(b) of the Exchange Act as set forth above by Amex, ISE, MSRB, PCX, Phlx and BSE, and will consider similar future exemption requests from other SROs, provided that:

(1) An SRO wishing to incorporate rules of another SRO by reference has submitted a written request for an order exempting it from the requirement in section 19(b) of the Exchange Act to file proposed rule changes relating to the rules incorporated by reference, has identified the applicable originating SRO(s), together with the rules it wants to incorporate by reference, and otherwise has complied with the procedural requirements set forth in the Commission's release governing procedures for requesting exemptive orders pursuant to Rule 0-12 under the Exchange Act;

(2) An incorporating SRO has requested incorporation of categories of rules (rather than individual rules within a category) that are not trading rules (e.g., the SRO has requested incorporation of rules such as margin, suitability, arbitration); and

(3) The incorporating SRO has reasonable procedures in place to provide written notice to its members each time a change is proposed to the incorporated rules of another SRO.

Accordingly, it is ordered, pursuant to section 36 of the Exchange Act, that the Amex, ISE, MSRB, PCX, Phlx, and BSE, with respect to incorporation by reference of other SROs' rules as specified above, and subject to the conditions described above, shall be exempt from rule filing requirements specified by section 19(b) of the Exchange Act to the extent that this section would otherwise require submission of a filing with the Commission regarding proposed rule changes.