[Federal Register Volume 61, Number 242 (Monday, December 16, 1996)]
[Notices]
[Pages 66065-66067]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31785]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38034; File No. SR-CHX-96-29]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Chicago Stock Exchange, Incorporated Relating to Approval
of Applicants to Membership
December 10, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. Sec. 78s(b)(1), notice is hereby given that on
December 6, 1996, the Chicago Stock Exchange, Incorporated (``CHX'' 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 self-regulatory
organization.\1\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ The proposal was originally filed with the Commission on
November 6, 1996. The CHX subsequently submitted Amendment No. 1 to
the filing. Amendment No. 1 amends Rule 6 of Article I to change the
vote required by the Executive Committee to approve an applicant to
membership. Currently, CHX rules require the affirmative vote of not
less than two-thirds of the members of the Executive Committee
present at the time of the vote. Amendment No. 1 changes the
requirement to an affirmative vote of a majority of the Executive
Committee present at the time of the vote. Letter from David T.
Rusoff, Foley & Lardner to Karl J. Varner, Division of Market
Regulation, SEC, dated December 6, 1996.
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I. Self-Regulatory Organizations Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend Article I, Rule 5 and Rule 6 of its
rules relating to approval procedures for applicants to membership. The
specific criteria are set forth below.
Chicago Stock Exchange, Incorporated Rules
Additions are italicized; deletions [bracketed]
Article I
Procedure of Application
Application
RULE 5. (a) Each application for membership shall be made in
writing and be filed with the Secretary together with the names of two
sponsors who shall be responsible individuals who have known the
applicant sufficiently
[[Page 66066]]
well and over a long enough period of time that they can unqualifiedly
endorse the character and integrity of the applicant from their
personal knowledge of him and of his business connections. All
applicants shall be investigated by the staff to determine if the
applicant meets the requirements for membership [before submission to
the Executive Committee for consideration].
Staff [Recommendation] Determination
(b) If the staff [recommends] determines that the applicant is not
[be elected] qualified for election to membership, the applicant shall
be sent a statement of reasons therefor and may, within 15 days of the
receipt thereof, file a request with the Executive Committee that it
consider his or her application together with a written statement
indicating why in his or her opinion the staff [recommendation]
determination is in error or insufficient to preclude his or its
election to membership.
Notice and Posting
(c) If the staff [recommends] preliminary determines that the
applicant is qualified for [be elected to] membership or if the
applicant files a request with the Executive Committee pursuant to
paragraph (b), the name of the applicant, the sponsors' names and the
name of the member or member organization from which the membership is
to be transferred shall be posted upon the bulletin board on the Floor
of the Exchange for ten business days and notice thereof mailed to all
the members.
Posting and Voting on Membership
Rule 6. During the posting period for a membership application
pursuant to Rule 5 of this Article, any member may file an objection to
the election of the applicant to membership with the Chairman of the
Executive Committee. The applicant shall be sent a statement of reasons
for such objection and may, within 10 business days of the receipt
thereof, file a written response thereto with the Executive Committee.
If the staff made a preliminary determination that the applicant is
qualified for membership, if no objections were filed during the
posting period, and if no material information that adversely reflects
upon the applicant comes to the attention of the staff before the
expiration of the posting period, the membership transfer shall
automatically become effective at the opening of business on the first
business day after the expiration of the posting period. If all three
of these conditions are not present for a particular applicant, [A] at
the expiration of the posting period[,] staff shall so notify the
applicant of such fact fact and the Executive Committee shall consider
the posted application and vote upon the applicant for membership. The
affirmative votes for [not less than two-thirds] a majority of the
members of the Executive Committee present at the time of voting shall
be required to elect. These [T] transfers shall become effective upon
election to membership.
In the event the applicant does not receive such [two-thirds]
majority vote, he, she or it shall have the right to a hearing before
the Executive Committee, conducted in accordance with procedures set
forth in a notice of such hearing to be given to the applicant.
Following the hearing, the Executive Committee shall again vote upon
the applicant, a [two-thirds] majority vote of the members of the
Executive Committee present at the time of voting being required to
elect. [The applicant may petition the Board of Governors for review of
any adverse determination made by the Executive Committee following a
hearing, a two-thirds vote of the members of the Board present at the
time of voting being required to elect.] The decision of the Executive
Committee shall be final.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of and basis for the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of these statements may be examined at
the places specified in Item IV below. The self-regulatory organization
has prepared summaries, set forth in sections (A), (B) and (C) below,
of the most significant aspects of such statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Rules 5 and 6 of Article I of the Exchange's rules govern the
application and approval process for applicants to Exchange membership.
Once an application for membership has been submitted in writing to the
Exchange, the rules require the staff to investigate the applicant's
qualifications to determine if such applicant meets the requirements
for membership. If the staff recommends that the applicant not be
admitted to membership, the applicant may appeal such staff
recommendation to the Executive Committee. If the staff recommends that
an applicant be elected to membership, the applicant then must go
through a 10 business day posting period before membership may be
transferred. The purpose of the 10 business day posting period is to
allow any member to file an objection to the election of the applicant
to membership. At the expiration of the posting period, the Executive
Committee then must consider the applicant and vote upon the applicant
for membership. These transfers become effective upon election to
membership.
Because the Securities Exchange Act of 1934 requires the CHX to
approve an applicant to become a member of the Exchange if such
applicant meets the requirements of the Act and the Exchange's rules
for becoming a member, the Executive Committee has limited discretion
in approving a qualified applicant to become a member.
As a result, the purpose of the proposed rule change is to limit
the role of the Executive Committee during the approval process to
situations where an objection is raised, or material adverse
information is received, during the posting period, or where the staff
does not recommend an applicant for membership and the applicant
decides to appeal. Under Rules 5 and 6 of Article I, as proposed to be
amended, if the staff recommends an applicant for membership and if no
objections are received, or material adverse information is received,
during the subsequent posting period, the membership transfer would
become effective at the beginning of the next business day following
completion of the posting without any action taken by the Executive
Committee. If the staff did not recommend an applicant for membership,
or an objection was raised or material adverse information is received
during the posting period, the existing procedure would come into play
where the Executive Committee would hear an appeal, in the former
situation, or would make a determination relating to the objection and
either approve or disapprove the applicant in the latter situation.
This new procedure would eliminate the requirement that the
Executive Committee perform the pro forma role of approving each
membership transfer. At the same time, it would allow the Executive
Committee to make a determination if there is some information brought
to the Exchange's attention during the posting period
[[Page 66067]]
which was not known to the staff at the time of its investigation.
2. Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Act in that it is designed to promote just and equitable principles of
trade, to remove impediments and to perfect the mechanism of a free and
open market and a national market system, and, in general, to protect
investors and the public interest.
(B) Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose a burden on competition.
(C) Self-Regulatory Organization's Statement of Comments on the
Proposed Rule Change Received From Members, Participants or Others
No written comments were solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) by order approve such proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange commission, 450 Fifth Street, N.W., Washington D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying at the
Commission's Public Reference room. Copies are also available for
inspection and copying at principal office of the Chicago Stock
Exchange. All submissions should refer to file number SR-CHX-96-29 and
should be submitted by January 6, 1997.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-31785 Filed 12-13-96; 8:45 am]
BILLING CODE 8010-01-M
