Notice to Members 05-31

Pilot Program to Increase Position and Exercise Limits for Equity Options and New Reverse Collar Strategy Added to Equity Option Hedge Exemptions

On March 30, 2005, NASD filed for immediate effectiveness with the Securities and Exchange Commission (SEC) amendments to Rule2860 increasing, for a pilot period, certain stock options position and exercise limits and adding permanently reverse collars to the enumerated strategies set forth in the equity option hedge exemptions.

The rules, as amended, are set forth in Attachment A. The amendments became effective March 30, 2005.

Questions concerning this Notice may be directed to Gary L. Goldsholle, Associate Vice President and Associate General Counsel, Office of General Counsel (OGC), Regulatory Policy and Oversight (RPO), at (202) 728-8104; or James L. Eastman, Assistant General Counsel, OGC, RPO, at (202) 728-6961.