[Federal Register Volume 59, Number 169 (Thursday, September 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21670]
[[Page Unknown]]
[Federal Register: September 1, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34604; File No. SR-CHX-94-17]
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Order Approving Proposed Rule Change Relating to New Organizational
Structures for Members
August 26, 1994.
I. Introduction
On July 7, 1994, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``Commission'' or ``SEC''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to amend the Exchange's
Constitution and rules to allow the admission of entities with new
organizational structures as members.
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\1\15 U.S.C. 78s(b)(1) (1988).
\2\17 CFR 240.19b-4 (1994).
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The proposed rule change was noticed for comment in Securities
Exchange Act Release No. 34353 (July 12, 1994), 59 FR 36456 (July 18,
1994). No comments were received on the proposal. This order approves
the proposed rule change.
II. Description of the Proposal
The CHX is amending Article II of its Constitution and Article I,
Rule 1 of its rules to permit entities with new organizational
structures to qualify for admission to Exchange membership.
Specifically, the CHX is amending its Constitution and rules to permit
the Exchange to approve as a member organization, entities that have
characteristics essentially similar to corporations, partnerships or
both. For example, the amendments permit the Exchange, in its
discretion, and on such terms and conditions as the Exchange may
prescribe, to approve business trusts,\3\ limited liability
companies\4\ or other organizational structures as member organizations
so long as the characteristics of the entity in question are
essentially similar to those of corporations or partnerships.
Currently, memberships on the Exchange can be owned by individuals,
partnerships and corporations. The noncorporate or partnership entities
would have to be structured in such a format that would qualify as a
broker or dealer registered with the SEC pursuant to the Act, since
this is a prerequisite to becoming an Exchange member organization.\5\
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\3\The term ``business trust'' is generally used to describe a
trust in which the managers are principals, and the shareholders are
cestuis que trust. The essential attribute is that property is
placed in the hands of trustees who manage and deal with it for use
and benefit of beneficiaries. Black's Law Dictionary 180 (5th ed.
1979).
\4\A limited liability company (``LLC'') has characteristics
similar to both corporations and partnerships. For example, the
liability of LLC members is limited to their capital contributions,
however, if properly formed and managed, an LLC is treated as a
partnership for tax purposes.
\5\Telephone conversation between David Rusoff, Attorney, Foley
& Lardner, and Louis A. Randazzo, Attorney, SEC, on July 11, 1994.
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The Exchange believes that the 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.
III. Discussion
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Section 6(b).\6\ Specifically, the
Commission believes the amendment is consistent with Section 6(b)(2)\7\
of the Act, which requires the rules of an exchange, subject to the
provisions of Section 6(c) of the Act, ensure that any registered
broker or dealer or natural person associated with a registered broker
or dealer may become a member of the exchange and any person may become
associated with a member thereof.
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\6\15 U.S.C. 78f (1988).
\7\15 U.S.C. 78f(b)(2) (1988).
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The Commission believes that amending the CHX's rules and
Constitution to enable entities that have characteristics essentially
similar to corporations, partnerships or both to become members of the
Exchange is consistent with the Act and Exchange rules. CHX Article I,
Rule 1 currently allows individuals, partnerships and corporations to
become members of the Exchange. The amendment would enable entities
with new organizational structures similar to corporations and
partnerships to become Exchange members. As in the case of an
individual, partnership, or corporation applying for membership, the
new entity will also be subject to all other requirements for
membership approval.
The Commission also believes that the amendments to Article II of
the CHX Constitution and Article I, Rule 1 of the CHX rules reasonably
balance the Exchange's interest in having the flexibility to approve
entities with new organizational structures for Exchange membership,
with the regulatory interests in protecting the financial and
structural integrity of a member organization. For example, although
the amendment permits the Exchange to approve business trusts, limited
liability companies or other organizational structures with
characteristics of corporations or partnerships as member
organizations, the CHX will review each Exchange member organization
application on a case-by-case basis, and prior to approving any such
organization for membership, the Exchange must be satisifed that: (1)
the Exchange would legally have appropriate jurisdiction over such an
entity; and (2) the permanency of the entity's capital is consistent
with that required of other member organizations.\8\
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\8\Telephone conversation between David Rusoff, Attorney, Foley
& Lardner, and Louis A. Randazzo, Attorney, SEC, on July 11, 1994.
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It is therefore ordered, Pursuant to Section 19(b)(2) of the
Act,\9\ that the proposed rule change (SR-CHX-94-17) is hereby
approved.
\9\15 U.S.C. 78s(b)(2) (1988).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\10\
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\10\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21670 Filed 8-31-94; 8:45 am]
BILLING CODE 8010-01-M
