NASD Notice to Members 07-03 - January 2007

NASD Announces SEC Approval of Amendments to Rule 2860 and Issues Guidance Concerning Large Options Position Reports and Aggregation of Certain Positions; Effective Date of Amendments February 12, 2007

Executive Summary

On November 15, 2006, the Securities and Exchange Commission (SEC) approved a rule change to Rule 2860 that: (1) amends the definition of "underlying index" to include all indexes underlying standardized index options and other indexes that meet certain specified criteria; (2) amends the reporting requirement for certain conventional index options; and (3) allows members to calculate the position limits, in accordance with volume and float criteria specified by NASD, for conventional equity options overlying securities that are part of a designated index (currently the FTSE All-World Index Series).1 Rule 2860, as amended, is set forth in Attachment A to this Notice. The amendments to Rule 2860 become effective on February 12, 2007.

In addition, NASD is issuing this Notice to clarify and remind members of their responsibility under Rule 2860 to report certain options positions to NASD. NASD also is providing guidance regarding when it is appropriate to aggregate certain positions, and the process for requesting interpretations.

1 See Exchange Act Release No. 54755 (November 15, 2006) 71 FR 67675 (November 22, 2006) (File No. SR-NASD-2006-007) (SEC Approval Order).