Notice to Members 06-51

Amendments to Option Exercise Procedures in Rule 2860

Effective Date: October 12, 2006

On August 10, 2006, NASD filed with the Securities and Exchange Commission (SEC) for immediate effectiveness a rule change to amend Rule 2860(b)(23) (Tendering Procedures for Exercise of Options) to: (1) simplify the manner in which a Contrary Exercise Advice (CEA) is submitted; (2) extend by one hour the cut-off time by which members must submit CEA notices; (3) add procedures for exercising a standardized equity option when a modified close of trading is announced; and (4) consolidate all provisions pertaining to the exercise of standardized options contracts into Rule 2860(b)(23) instead of having additional and overlapping provisions in Rule 11850 (Tendering Procedures for Exercise of Options).1 Rule 2860 and Rule 11850, as amended, are set forth in Attachment A of this Notice. The implementation date of the amendments is October 12, 2006.

Questions regarding this Notice may be directed to Gary L. Goldsholle, Vice President and Associate General Counsel, Office of General Counsel, Regulatory Policy and Oversight (RPO), at (202) 728-8104, or Kathryn M. Moore, Assistant General Counsel, Office of General Counsel, RPO, at (202) 974-2974.

1 See Exchange Act Release No. 54313 (August 14, 2006), 71 FR 47850 (August 18, 2006) (Notice of Filing and Immediate Effectiveness of SR-NASD-2006-099). Under Section 19(b) of the Securities Exchange Act of 1934, the SEC has the authority to summarily abrogate this type of rule change within 60 days of filing.