[Federal Register Volume 61, Number 73 (Monday, April 15, 1996)]
[Notices]
[Pages 16515-16516]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9185]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37083; File No. SR-PSE-96-08]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the Pacific Stock Exchange, Inc. Relating to Amendments to
Exchange Constitution Article III, Section 2(c)
April 8, 1996.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on March 28, 1996, the
Pacific Stock Exchange, Inc. (``PSE'' 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. The Commission is
publishing this notice to solicit comments on the proposed rule change
from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. Sec. 78s(b)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The proposed rule change consists of amendments to Article III,
Section 2(c) of the PSE Constitution. The proposed amendments to
Article III, Section 2(c) are as follows [New text is italicized;
deleted text is bracketed]:
Sec. 2(c). [No two or more Governors for a common or overlapping
term may be associated either as partners, officers, directors,
stockholders or otherwise in the same member firm or in a partnership
or corporation which is affiliated with the same member firm. A
Governor or nominee for Governor shall be considered to be associated
with another member of the Board of Governors as a stockholder in the
same member firm or in a partnership or corporation which is affiliated
with the same member firm if:]
[(i) He or any member, allied member or associated person in his
member firm or its subsidiaries or affiliates is an officer or director
(or person occupying a similar status or performing similar functions)
in a member firm or its subsidiaries or affiliates with which another
member of the Board of Governors is associated; or]
[(ii) He or his member firm, its subsidiaries or affiliates or any
member, allied member or associated person therein owns, directly or
indirectly, more than 1% of the outstanding publicly traded stock of a
member firm, its subsidiaries or affiliates with which another member
of the Board of Governors is associated.]
Care shall be taken to have the various interests of the membership
represented on the Board of Governors. If the Board determines that an
affiliation or association between Governors of the Board creates a
conflict of interests, one Governor shall resign from the Board, or be
removed by the Board if no resignation is received.
No person, other than one elected to the Board as a representative
of the public, may serve as Governor for more than two successive
three-year terms.
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 Section 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
Prior to 1973, the Exchange had no rule in place regarding
conflicts of interests. That year, a much simplified version of the
current rule was added to the Constitution, which read as follows:
``No two or more Governors for a common or overlapping term may be
associated either as partners, stockholders or otherwise in the same
member firm or in a partnership or corporation which is affiliated with
the same member firm.''
In 1983, the rule expanded the definition of associates to include
officers and directors,\2\ and attempted to define more clearly an
``indirect association'' between Governors, by using two specific
tests.\3\ Those tests are described in the current rule.\4\ However,
the experience of PSE management and the PSE Board of Governors in
interpreting and applying the current rule has been that the language
is too cumbersome and specific to achieve the intended purpose of
eliminating conflicts. Being restricted by the specific language of the
current rule leaves the
[[Page 16516]]
Board with little flexibility with respect to conflicts outside the
rule's language.
---------------------------------------------------------------------------
\2\ See Securities Exchange Act Release No. 19406 (Feb. 17,
1983), 48 FR 8385 (Feb. 28, 1996) (order approving File No. SR-PSE-
82-16).
\3\ See PSE Const., Art. III, Sec. 2(c).
\4\Id.
---------------------------------------------------------------------------
A task force was created to help review the current rule, and to
examine alternatives that might work better to avoid conflicts on both
the Board of Governors and the Exchange committees. The task force
consisted of nine members as follows: four governors (including a
public governor, a specialist, an options floor broker and an allied
member), two options clearing firm officials, the chairman of the
Options Floor Trading Committee, the chairman of the Equity Floor
Trading Committee, and the chairman of the Ethics and Business Conduct
Committee. The task force concluded that the current language was
unnecessarily specific, and therefore was too restrictive on the
Board's power to determine whether a conflict existed. After review,
the task force noted that most of the other exchanges used broad and
general language, or no language at all, with the understanding that
the boards of each exchange follow the spirit of a general policy of
avoiding conflicts of interest. The task force approved the proposed
rule, which is intended to provide more flexibility to the PSE Board to
determine when a conflict exists, and to take the appropriate action.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b)(5) of the
Act in that it is designed to assure a fair representation of its
members in the selection of its Governors and administration of its
affairs, and further it is designed to prevent fraudulent and
manipulative acts and practices, to foster cooperation and coordination
with persons engaged in regulating and processing information with
respect to, and facilitating transactions in securities and 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 any inappropriate burden on competition that is not necessary or
appropriate in furtherance of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received. A nine
person task force consisting of Governors and Exchange members was
created to review the current rule and to examine alternatives. The
task force met on two occasions and recommended the proposed rule for
approval by the Board of Governors. Subsequent to approval by the Board
of Governors, voting members approved the proposed constitutional
amendment at the January 25, 1996 Annual Meeting of the Exchange.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the 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 the 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. Sec. 552, will be available for inspection and copying at
the Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing will also be available
for inspection and copying at the principal office of the Exchange. All
submissions should refer to File No. SR-PSE-96-08 and should be
submitted by May 6, 1996.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-9185 Filed 4-12-96; 8:45 am]
BILLING CODE 8010-01-M
