[Federal Register Volume 62, Number 19 (Wednesday, January 29, 1997)]
[Notices]
[Pages 4367-4368]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2100]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38187; File No. SR-CHX-96-29]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Chicago Stock Exchange, Incorporated Relating to Approval 
of Applicants to Membership

January 21, 1997.
    On December 6, 1996,\1\ the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \2\ 
and Rule 19b-4 thereunder.\3\ The proposed rule change would amend 
Article I, Rule 5 and Rule 6 of its rules relating to approval 
procedures for applicants to membership.
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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.
    \2\ 15 U.S.C. Sec. 78s(b)(1) (1988).
    \3\ 17 CFR 240.19b-4 (1993).
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    Notice of the proposed rule change as amended, together with the 
substance of the proposal, was published in the Federal Register.\4\ No 
comment letters were received. This order approves the proposed rule 
change.
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    \4\ Securities Exchange Act Release No. 38034 (December 6, 
1996), 61 FR 66065 (December 16, 1996).
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I. Background

    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. Transfers of memberships become effective upon election 
to membership.
    Because the Act 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.

II. The Terms of Substance of the Proposed Rule Change

    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, and no 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. As with the existing procedure, the Executive Committee 
would hear an appeal if the staff does not recommend an applicant for 
membership. Similarly, the Executive Committee would either approve or 
disapprove the applicant if an objection or material adverse 
information is received during the posting period.
    Finally, the proposed rule change reduces the affirmative vote 
required to elect an applicant to membership from the current 
requirement of not less than two-thirds affirmative votes of the 
members of the Executive Committee present at the time of voting to a 
majority of the affirmative votes of the members.

III. Discussion

    The proposed rule change is consistent with Section 6(b)(7) of the 
Act in that the rules of the exchange, in general, provide a fair 
procedure for the denial of membership to any person seeking membership 
therein, the barring of any person from becoming associated with a 
member thereof, and the prohibition or limitation by the exchange of 
any person with respect to access to services offered by the exchange 
or a member thereof. The proposed rule change reduces a possible 
obstacle to the election of an applicant to membership by reducing the 
affirmative votes of the members of the Executive Committee present at 
the time of voting required to elect an applicant to membership from 
the current not less than two-thirds to a majority of the affirmative 
votes of the members.
    Furthermore, the proposed rule change is consistent with Section 3 
of the Act in that the proposed rule change will promote efficiency, 
competition, and capital formation. The 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 which was not known to the staff at the time of its 
investigation.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change, SR-CHX-96-29 be, and hereby is, 
approved.


[[Page 4368]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\5\
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    \5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-2100 Filed 1-28-97; 8:45 am]
BILLING CODE 8010-01-M