[Federal Register Volume 59, Number 181 (Tuesday, September 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23228]
[[Page Unknown]]
[Federal Register: September 20, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34664; File No. SR-NYSE-94-01]
Self-Regulatory Organizations; NYSE Stock Exchange, Inc.; Order
Approving Proposed Rule Change Relating to New Organizational
Structures for Members
September 13, 1994.
I. Introduction
On February 22, 1994, the New York Stock Exchange, Inc. (``NYSE''
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. 34390 (July 15, 1994), 59 FR 37278 (July 21,
1994). No comments were received on the proposal. This order approves
the proposed rule change.
II. Description of the Proposal
The NYSE is amending NYSE Rule 311(f) to permit entities with new
organizational structures to qualify for admission to Exchange
membership. Specifically, the NYSE is amending its 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 amendment permits the Exchange, it 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, as 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,
but, if properly formed and managed, an LLC is treated as a
partnership for tax purposes.
\5\See Article I, Section 3 (i) and (j) of the NYSE's
Constitution.
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The Exchange believes that the rule change is consistent with
Section 6(b)(2) of the Act\6\ in that it permits registered brokers or
dealers to become member organizations of the Exchange. The Exchange
also believes that the rule change also is consistent with Section
6(b)(5) of the Act,\7\ in that it broadens the types of entities which
the Exchange may approve as a member organization and therefore avoids
possible unfair discrimination, and with Section 6(b)(8) of the Act,\8\
in that it serves to remove possible burdens on competition resulting
from organizational structure not necessary or appropriate in
furtherance of the purposes of the Act.
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\6\15 U.S.C. Sec. 78f(b)(2) (1988).
\7\15 U.S.C. Sec. 78f(b)(5) (1988).
\8\15 U.S.C. Sec. 78f(b)(8) (1988).
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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).\9\ Specifically, the
Commission believes the amendment is consistent with Section
6(b)(2)\10\ of the Act, which requires the rules of an exchange,
subject to the provisions of Section 6(c) of the Act,\11\ to 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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\9\15 U.S.C. Sec. 78f(1988).
\10\15 U.S.C. Sec. 78f(b)(2) (1988).
\11\15 U.S.C. Sec. 78f(c) (1988).
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The NYSE currently allows individuals, partnerships, and
corporations to become members of the Exchange.\12\ The amendment would
enable entities with new organizational structures similar to
corporations and partnerships to become Exchange members and be
included in the Exchange's definition of a member organization. As in
the case of a partnership or corporation applying for membership, the
new entity will be subject to all other requirements for membership
approval.
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\12\Article I, Section 3 of the NYSE's Constitution and NYSE
Rule 2 state that the term ``member organization'' includes ``member
firms'' and ``member corporations.'' The term ``member firm'' is
defined as a partnership. The NYSE Board of Directors has
interpreted the use of the word ``includes'' in this Constitutional
provision and Exchange rule as illustrative, and not restrictive.
Therefore, the NYSE does not believe it necessary to amend Article
I, Section 3 of its Constitution, nor NYSE Rule 2 to allow
additional entities to be included in the term ``member
organization.'' See letter from Bruno Lederer, Associate General
Counsel, NYSE, to Sandra Sciole, Senior Counsel, Division, dated
August 22, 1994.
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The Commission believes that the amendment to NYSE Rule 311(f)
reasonably balances 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 NYSE 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 satisfied 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.
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-NYSE-94-01) is hereby
approved.
\13\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.\14\
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\14\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-23228 Filed 9-19-94; 8:45 am]
BILLING CODE 8010-01-M
