[Federal Register Volume 65, Number 103 (Friday, May 26, 2000)]
[Notices]
[Pages 34236-34238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-13259]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42803; File No. SR-Amex-00-04]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the American Stock Exchange LLC Adopting a Peer Review 
Requirement for Auditors of Listed Companies

May 22, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

[[Page 34237]]

(``Act'') \1\ and Rule 19b-4 thereunder, \2\ notice is hereby given 
that on February 14, 2000, the American Stock Exchange LLC (``Amex'' 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 Amex. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend the Amex Company Guide to adopt a 
peer review requirement for auditors of listed companies. The text of 
the proposed rule change is as follows (all text is proposed to be 
added):

Sec. 605. Peer Review

    (a) A listed company must be audited by an independent public 
accountant that: (i) Has received an external quality control review by 
an independent public accountant (``peer review'') that determines 
whether the auditors' system of quality control is in place and 
operating effectively and whether established policies and procedures 
and applicable auditing standards are being followed; or
    (ii) Is enrolled in a peer review program and within 18 months 
receives a peer review that meets acceptable guidelines.
    (b) The following guidelines are acceptable for the purposes of 
Sec. 605: (i) The peer review should be comparable to AICPA standards 
included in Standards for Performing on Peer Reviews, codified in the 
AICPA's SEC Practice Section Reference Manual;
    (ii) The peer review program should be subject to oversight by an 
independent body comparable to the organizational structure of the 
Public Oversight Board as codified in the AICPA's SEC Practice Section 
Reference Manual; and
    (iii) The administering entity and the independent oversight body 
of the peer review program must, as part of their rules of procedure, 
require the retention of the peer review working papers for 90 days 
after acceptance of the peer review report and allow the Exchange 
access to those working papers.

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 Amex included statements 
concerning the purpose of, and bais 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 Amex 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
    The Exchange believes that auditors of listed companies should be 
subject to a practice monitoring program under which their auditor's 
quality control system is reviewed by an independent peer auditor on a 
periodic basis. \3\ The Nasdaq Stock Market and certain banking 
agencies such as the Federal Deposit Insurance Corporation (``FDIC'') 
have implemented a peer review requirement. In addition, the Commission 
has generally expressed support for the concept of peer review.\4\ 
Although it withdrew its mandatory peer review proposal, the Commission 
nonetheless confirmed its belief that ``the peer review process 
contributes significantly to improving the quality control systems of 
accounting firms auditing Commission registrants and enhances the 
consistency and quality of practice before the Commission.'' \5\
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    \3\ After the initial peer review required by proposed Section 
605(a), independent auditors of listed companies would be required 
to receive a peer review that meets the guidelines of proposed 
Section 605(b) every three years. Telephone call between Sonia 
Patton, Attorney, Commission, and John Nachmann, Attorney, Office of 
the General Counsel, the Nasdaq-Amex Market Group, on March 28, 
2000.
    \4\ See Securities Act Release No. 6695 (April 1, 1987), 52 FR 
11665 (April 10, 1987).
    \5\ See Securities Act Release No. 6958A (Sept. 24, 1992), 57 FR 
45287 (Oct. 1, 1992), n.24.
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    The proposed rule would require all independent public accountants 
auditing Exchange listed companies to have received, or be enrolled in, 
peer review that meets acceptable guidelines. Acceptable guidelines 
would include comparabiity to standards of the American Institute of 
Certified Public Accountants (``AICPA'') included in the Standards for 
Performing on Peer Reviews codified in the AICPA's SEC Practice Section 
Reference Manuel, and oversight of the peer review program by an 
independent body comparable to the organizational structure of the 
Public Oversight Board as codified in the AICPA's SEC Practice Section 
Reference Manuel. Further, copies of peer review reports, accompanied 
by any letters of comment and letters of response, would be maintained 
by the administering entity of the peer review program and be made 
available to the Exchange upon request.\6\ Similarly, working papers of 
the administrating entity and the independent oversight body would also 
be required to be retained for 90 days after the report is filed, and 
be made available to the Exchange upon request.
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    \6\ The administering entity would be required to maintain the 
reports until the completion of the next peer review report. 
Telephone call between Sonia Patton, Attorney, Commission, and John 
Nacmann, Attorney, Office of the General Counsel, The Nasdaq-Amex 
Market Group, on Mach 28, 2000.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b)(5) \7\ of the Act, which requires, among other 
things, the Exchange's rules to be designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general, to protect investors and the 
public interest. Specifically, the peer review requirement for auditors 
of Exchange listed issuers will provide safeguards for investors by 
ensuring that an auditing firm's quality control systems are subjec to 
an industry-accetped level of review.
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    \7\ 15 U.S.C. 78(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange did not solicit or receive written comments on the 
proposed rule change.

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

[[Page 34238]]

(ii) as to which the Exchange 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, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary. Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
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 in the 
Commission's Public Reference Room. Copies of the filing will also be 
available for inspection and copying at the principal office of the 
Amex. All submissions should refer to the File No. SR-Amex-00-04 and 
should be submitted by June 16, 2000.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority. \8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-13259 Filed 5-25-00; 8:45 am]
BILLING CODE 8010-01-M