45904 Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Notices

9See supra note 3.

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

1 15 U.S.C. § 78s(b)(1).

2 17 CFR 240.19b–4.

3Securities and Exchange Act Release No. 38809

(July 1, 1997), 62 FR 37109.

4 In accordance with Phlx By-Law Article XXII,

Section 22–2, the membership was notified of the

proposed amendment by a memorandum dated

June 4, 1997, and no written request for a special

meeting of the Exchange membership was filed

within the 10 day period allowed by the By-Law.

Thereafter, on June 18, 1997, a membership petition

was received by the Board pursuant to Phlx By-Law

Article XXII, Section 22–1, which offered, in

writing, certain proposed amendments to the ByLaws. On August 1, 1997, the petition was

submitted to the membership for vote. The petition

failed for lack of the required quorum.

5See By-Law Article I, Section 1–1 (defining

‘‘industry,’’ ‘‘non-industry,’’ and ‘‘public’’).

6See By-Law Article IV, Section 4–1 and By-Law

Article V, Section 5–1. Various other amendments

to the By-Laws have been made in connection with

these changes. For instance, references to

‘‘President’’ have been changed to refer to the

‘‘Chief Executive Officer’’ or ‘‘Chairman of the

Board’’ and revisions to the number of Board

members necessary to effect certain Board actions

have been made, e.g., in most cases where the

affirmative vote of 15 of the current 30 Governors

was required, the By-Law is changed to state that

a majority vote is required.

7See By-Law Article IV, Section 4–1.

8See By-Law Article IV, Section 4–3.

require, is reasonable.9 The proposal

sets forth an absolute time frame within

which information must be provided to

the Exchange, while allowing the

Exchange a certain level of flexibility in

acquiring information in certain

instances. The Commission believes

such flexibility is necessary for adequate

oversight of Member financial

arrangements and will allow the

Exchange to obtain information

immediately, if necessary. The

Commission further believes that it is

reasonable for the Exchange to have the

authority to subject Members to

disciplinary action where they have

failed to disclose the terms of financial

arrangements to the Exchange. The

Commission believes that such

disclosure is necessary for appropriate

monitoring of Market Maker activity.

The Commission believes that the

proposal will promote investor

protection, as failure to disclose such

arrangements could result in reliance on

inaccurate information to the detriment

of the Exchange and its Members.

The Commission finds good cause to

approve Amendment No. 1 to the filing

prior to the 30th day after the

publication of the notice of filing

because the Amendment does not affect

the substantive rights of Members and

accelerated approval will facilitate the

uninterrupted implementation of the

proposed rule change.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning Amendment No.

1. Persons making written submission

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 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 changes 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 at

the Commission’s Public Reference

Room. Copies of the filing will also be

available at the principal office of the

Exchange. All submissions should refer

to File No. SR–PCX–97–12 and should

be submitted by September 19, 1997.

V. Conclusion

For the foregoing reasons, the

Commission finds that the proposed

rule change and Amendment No. 1 are

consistent with the Act and the rules

and regulations thereunder applicable to

the PCX, and in particular Section

6(b)(5).

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,10 that the

proposed rule change (File No. SR–

PCX–97–12) be and hereby is approved,

and that Amendment No. 1 filed thereto

be and hereby is approved on an

accelerated basis.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23048 Filed 8–28–97; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–38960; File No. SR–PHLX–

97–31]

Self-Regulatory Organizations;

Philadelphia Stock Exchange, Inc.;

Order Granting Approval to Proposed

Rule Change Relating to Amendments

to Certificate of Incorporation and ByLaws

August 22, 1997.

I. Introduction

On June 25, 1997, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

Exchange’’), pursuant to Section 19(b)(1)

of the Securities Exchange Act of 1934

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

a proposed rule change to amend its

Certificate of Incorporate and By-Laws.

The proposed rule change was

published for comment in the Federal

Register on July 10, 1997.3 No

comments were received on the

proposal. This order approves the

proposed rule change.

II. Description of the Proposal

On May 21, 1997, the Phlx Board of

Governors approved draft amendments

to the Phlx Certificate of Incorporation

and By-Laws that are designed to

promote an enhanced governance

structure for the Exchange. Thereafter,

with the Phlx Board’s endorsement, the

amendments were announced to the

membership in accordance with

Exchange By-Law Article XXII, Section

22–2.4

As no written request was made

requesting a special meeting of the

Exchange membership to consider the

amendments, the Phlx Board on June

18, 1997 unanimously approved the

proposed amendments for filing with

the Commission.

Two of the most significant proposed

changes to the By-Laws are reducing the

size of the Board from 30 to 22

Governors and changing the

composition of the Board to: 11 nonindustry Governors, of whom at least 5

must be public Governors; 10 industry

Governors; 5 and a Chairman of the

Board who will be the full time, paid

Chief Executive Officer of the

Exchange.6

The proposed By-Law amendments

specify the composition of the 10

industry Governors as follows: 2 Equity

Floor Industry Governors, 1 Equity

Options Floor Specialist Governor and 1

Equity Options Floor Registered Options

Trader Governor (all of whom must

work on the Exchange Floor or be a

general partner, executive officer or

member associated with a member

organization primarily engaged in

business on the Exchange Floor); 1

Equity Options Floor Broker Governor

(who must work on the Equity Options

Floor); and 5 Off-Floor Governors.7

Except for the Chairman of the Board,

all Governors are subject to term limits

of two consecutive three year terms.8

The manner in which the ViceChairmen of the Board are selected also

has been changed. Instead of the Vice-
Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Notices 45905

9See By-Law Article IV, Section 4–2.

10See By-Law Article III, Section 3–5.

11See By-Law Article III, Section 3–7.

12See By-Law Article X, Section 10–14.

13See By-Law Article X, Section 10–8

14See By-Law Article X, Section 10–9.

15See By-Law Article X, Section 10–11.

16See By-Law Article XI, Section 11–3.

17See By-Law Article XI, Sections 11–1 and 11–

2.

18 15 U.S.C. § 78f(b)(5).

19 In approving the proposal, the Commission has

considered the proposal’s impact on efficiency,

competition, and capital formation. 15 U.S.C.

§ 78c(f).

20 15 U.S.C. § 78f(b)(3).

21See Phlx Appoints Special Committee to

Investigate Casella-Ashton Ties, Securities Week,

September 23, 1996, at 1; Phlx Chairman’s

Resignation May Have Raised More Questions than

Continued

Chairmen being elected by the

membership, the Board will now

appoint the Off-Floor Vice-Chairman

from among the Off-Floor Governors,

and the On-Floor Vice-Chairman from

among the On-Floor Governors. If there

is a contest for On-Floor Vice-Chairman,

a membership election will be held

solely for the On-Floor Vice-Chairman.9

The proposed By-Law amendments

make significant changes to the

Nominating Committee’s charter. The

amendments specify that a majority of

the Committee be non-industry

Governors and authorize the Committee

to select non-industry and public

Governors, nominees for the industry

Governor, committee chairs, and the

Nominating Committee’s successors,

and to fill vacancies on the Board, all

subject to Board approval.10

The number of members required to

file independent Governor nominations

will be increased from 10 to 50 members

for an individual nomination, and 30 to

75 members for nominating an entire

slate or portion thereof.11

Substantial amendments relating to

the Exchange’s standing committees are

proposed, including adding new

standing committees of Automation,

Compensation and Quality of Markets;

reducing the size of standing

committees to no more than 9 members

except for floor committees, which may

have no more than 12 members;

requiring the committee chair and at

least one other member to be a

Governor; and revising the charter and

composition of certain existing

committees. Of particular note, the

Executive Committee will be

authorized, with Broad approval, to

appoint committee members other than

committee chairs, and to act on behalf

of the Board when the Broad is not in

session.12

The Arbitration Committee’s

composition will be reduced from 25 to

4 members and member controversies

will be handled in the same fashion as

public customer controversies.13

The Audit Committee will be

composed of 3 public Governors and the

Committee’s charter will be significantly

expanded to authorize the Committee’s

inquiries into all aspects of the

Exchange’s operations and finances,

including regulatory matters.14

Business Conduct Committee (‘‘BCC’’)

appeals will be taken directly to the

Board and the Disciplinary Review

Committee will be eliminated.15 The

Exchange Enforcement staff will be

entitled to petition the Board to appeal

a BCC decision.16

Board Advisory Committees that hear

appeals of standing committee decisions

and are composed of 3 Governors, will

now include at least 1 public

Governor.17

By-Law Article IV, Section 4–8, is

proposed to be amended so that no

person shall participate in the

‘‘determination’’ as opposed to

‘‘adjudication’’ of any matter in which

he is personally interested. This change

is intended to expand the coverage of

this provision, which pertains to

disqualification of Governors from

participation in Board actions. In

addition, the Phlx is proposing to

replace in its entirety Article XIV of the

Certificate of Incorporation with a

current provision of the Delaware

General Corporation Law regarding

contracts and transactions entered into

by the Phlx in which a Governor,

director, or officer has a financial

interest.

Certain provisions of the Phlx

Certificate of Incorporation and By-Laws

are being amended in order to attract

qualified candidates to serve on the

Phlx Board and committees, and to

clarify the responsibilities and

obligations of those who are appointed.

In this regard, new Article XVIII to the

Phlx Certificate of Incorporation will

limit the legal liability of Phlx

Governors, as permitted under the

Delaware General Corporation Law. In

addition, current By-Law Article IV,

Section 4–18, will be replaced entirely

by a provision that provides broad and

comprehensive indemnification

coverage and rights to Governors,

committee members and officers of the

Exchange, and provides discretionary

authority for the Board to indemnify

agents and employees of the Exchange.

A number of other revisions to the ByLaws are proposed for the sake of

organization or accuracy. For instance,

the term ‘‘Corporation’’ has been

changed throughout the By-Laws to

‘‘Exchange,’’ and By-Law Articles VI

and VII regarding Vice-Chairmen of the

Board of Governors and Officers of the

Corporation are being deleted in their

entirety with the relevant sections being

moved into Article V.

III. Discussion

After careful consideration, the

Commission finds that the proposed

rule change is consistent with the

requirements of the Act and the rules

and regulations thereunder applicable to

the Exchange. The Commission is

approving this rule change proposal in

order to enable the Phlx to better fulfill

its responsibilities as a self-regulatory

organization. The proposal institutes or

strengthens existing provisions that

should help the Phlx maintain and

promote the highest ethical standards

among its members and staff. The

Commission finds that the proposed

amendments to Phlx’s By-Laws and

Certificate of Incorporation are designed

to assure fair representation of the

Exchange’s members in the selection of

its directors and the administration of

its affairs, and that the changes will

enable the Exchange to better comply

with the requirements of Section 6 in

particular and the Act in general.

Specifically, the Commission believes

that the proposed rule change is

consistent with Section 6(b)(5) of the

Act 18 in that it is 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.19

The Commission finds consistent

with the Act the Phlx’s reduction in size

of the Board of Governors from 30 to 22

and changing the composition of the

Board to: 11 non-industry governors (at

least 5 of whom must be public

Governors); 10 industry Governors; and

a Chairman of the Board who will be the

paid, full-time Chief Executive Officer

of the Exchange. This change is

consistent with Section 6(b)(3) of the

Act 20 in that the Board will be more

representative of the various

constituencies that comprise the

Exchange or are affected by its activities.

The substantial revisions to the Phlx

corporate governance structure are a

result, in part, of an inquiry by a special

outside committee charged with

reviewing the organizational and

governance structure of the Phlx. In

addition, events at the Phlx over the

past year have evidenced a need for a

less insular and more diverse

governance and committee structure for

the Exchange to perform adequately its

self-regulatory obligations.21 The above
45906 Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Notices

it Answered, Securities Week, October 21, 1996, at

1. See also Securities Exchange Act Release No.

38918 (August 11, 1997), In the Matter of Stock

Clearing Corporation of Philadelphia and

Philadelphia Depository Trust Company,

Respondents, Order Instituting Proceedings

Pursuant to Sections 19(h) and 21C of the Securities

Exchange Act of 1934, Making Findings and

Imposing Remedial Sanctions (finding that the

Stock Clearing Corporation of Philadelphia

(‘‘SCCP’’) and Philadelphia Depository Trust

Company failed to comply with their respective

rules and procedures, failed to file necessary

proposed rule changes with the Commission, and,

in the case of SCCP, violated Regulation T).

noted changes, along with the increase

in public representation on the Board,

should enhance the Phlx’s ability to

uphold its responsibilities as a selfregulatory organization, and to act in a

manner more consistent with the public

interest. In addition, the amendment to

reduce the size of the Board from 30 to

22 governors will enable the Board to

perform its duties in a more efficient

manner.

The Commission believes that the

amendment to require 50%

representation by public governors on

the Board is particularly important in

addressing the Exchange’s governance

problems, and should ensure better

protection of investors and the public

interest. Public governors are likely to

have little or no stake in internal

Exchange politics, and, if carefully

selected, public governors should bring

diverse experience and increased ethical

sensitivity to the Board, thus enhancing

the confidence of members and of the

public in the Exchange’s ability to

govern its members and discharge its

regulatory obligations appropriately.

The Exchange will continue the

practice of having two Vice-Chairmen.

However, one Vice-Chairman will now

be appointed by the Board from among

the Off-Floor Governors, and the other

will be appointed by the Board from

among the On-Floor Governors.

Previously, these positions were elected

by the membership. This change is a

reasonable method of ensuring that

there is balanced representation of two

groups that can have divergent interests.

The Phlx is increasing the number of

members required to support

independent governor nominations from

10 to 50 for an individual nomination

and from 30 to 75 members for

nomination of a whole or partial slate.

The Commission believes that this

change will benefit the election process

by requiring significant membership

interest prior to a nomination.

The Phlx is changing the manner of

the appointment of members to standing

committees of the Board, designating

the composition of certain committees,

and creating new committees. The

changes to committee structure and

procedures are important components of

addressing the governance problems of

the Exchange. Committees often are

charged with implementing Board

policies and directives, and they

develop recommendations for Board

consideration. An overhaul of the Board

structure, without reform of the

committee structure, would only

partially rectify the governance

problems at the Phlx. The proposed

committee changes, discussed below,

are designed to complement the Board

changes by improving the structure of

committees and selection of committee

members. First, members of standing

committees previously were selected by

the Chairman of the Board with the

approval of the Board of Governors.

Under this proposal, members of

standing committees will be selected by

the Executive Committee, with the

approval of the Board. The Commission

believes that this method will better

ensure the selection of qualified

members of standing committees by

removing selection from the sole control

of the Chairman and vesting it in a more

diverse group.

The charter and composition of the

Nominating Committee has been

changed to reduce its size from nine to

seven members, with four of those

members being non-industry governors,

and at least two of the four being public

governors (including the chair of the

committee). The balance of the

committee will comprise two floor

governors and one off-floor governor.

The Commission believes that the

proposed change in composition and

number of members on this committee

strikes an appropriate balance in

attempting to fairly represent the

various interests of the Phlx

membership and trading community,

including investors.

The size of the Arbitration Committee

has been reduced significantly from

twenty-five members to four. Two of the

committee members will be nonindustry governors, with at least one

being a public governor and one being

the chair of the committee. The two

other members will be an off-floor

member and an on-floor member.

Member controversies will be handled

in the same fashion as public customer

controversies. The Commission

considers these changes to the

Arbitration Committee to be an

improvement over the Exchange’s prior

system of member dispute resolution,

which at times resulted in delay in the

resolution of disputes. While the

streamlined committee should provide

an effective forum for the resolution of

member disputes, the Commission

intends to monitor the impact of these

changes on arbitration at the Exchange.

The Commission finds consistent

with the Act the significant expansion

of the charter of the Audit Committee,

authorizing this committee to inquire

into all aspects of the Exchange’s

operations and finances, including

regulatory matters. The committee will

be composed of three public Governors.

The expansion of the audit committee’s

charter will authorize the investigation

and resolution of allegations of

misconduct by governors, committee

members, and Exchange staff. The

Commission believes that it is important

for the Phlx to have a committee with

such broad investigatory powers, and

approves the expansion of the

committee’s charter. A committee that is

small and composed of independent

governors should be better able to reach

quick and unbiased decisions regarding

alleged misconduct, or other matters

pertinent to the Audit Committee’s

mission.

The Business Conduct Committee

monitors compliance with the Act and

the rules and regulations thereunder, as

well as the rules and regulations of the

Exchange. The Commission is

approving the elimination of the

Disciplinary Review Committee, in

order that appeals from the Business

Conduct Committee may be taken

directly to the Board of Governors. In

the Commission’s view, this change

eliminates an unnecessary level of

appeal. The Commission also is

approving an amendment to the ByLaws to include at least one public

governor on the Advisory Committees

that hear appeals of standing committee

decisions because of the importance of

having balanced views on these

committees.

The Commission approves the

creation of three Quality of Markets

Committees representing the equity,

equity and index option, and foreign

currency option trading floors. The

committees will provide advice and

guidance to the Board on the Exchange’s

competitive position in new and

existing markets, and the quality and

depth of markets. The committees also

will provide advice and guidance on

issues relating to the fairness, integrity,

efficiency, and competitiveness of the

information, order handling, and

execution mechanisms of the Exchange

and systems operated by the Exchange.

The Commission believes that the

existence of these committees is an

important improvement in the Phlx’s

review mechanism for assuring sound,

fair markets.

The Exchange has modified the

Certificate of Incorporation to include a
Federal Register / Vol. 62, No. 168 / Friday, August 29, 1997 / Notices 45907

22 15 U.S.C. § 78s(b)(2).

23 17 CFR 200.30–3(a)(12).

provision of the Delaware General

Corporation Law requiring disclosure of

certain information where a governor,

director, or officer has a financial

interest in a contract or transaction

entered into by the Phlx. Pursuant to

this provision, if appropriate disclosure

is made, the contract entered into by the

Phlx is not void or voidable solely by

reason of the financial interest. The

Exchange also has amended its by-laws

to clarify when governors must be

disqualified from participation in Board

actions. Whereas previously governors

were prohibited from participating in

the ‘‘adjudication’’ of any matters in

which they were personally interested,

the applicable by-law now uses the term

‘‘determination.’’ The use of this term is

intended to broaden the universe of

matters from which a governor could

potentially be disqualified. While these

amendments represent a first step in the

clarification of the Exchange’s conflict

of interest rules, the Commission

expects that the Exchange will further

amend its by-laws to add more specific

provisions that contain clear and

detailed recusal, disclosure, and conflict

of interest procedures for Board and

committee members.

The Commission understands that the

Phlx is formulating various orientation

and educational materials, as well as a

code of conduct, in order to brief

persons who serve the Exchange in any

official capacity, including governors,

committee members, officers,

employees, agents, members, member

organizations, and persons affiliated

with a member or member organization.

The code of conduct reiterates the

principles of business conduct which

the Phlx expects to be maintained and

followed, with the core principles being

that the Exchange should conduct every

aspect of its business in a fair and

lawful manner, and that the Exchange

should maintain a climate which

encourages the fair and lawful conduct

of business. These principles include

the conduct of business in accordance

with the federal securities laws and

other applicable rules and regulations,

the proper use of confidential

information, disclosure of information

and recusal from decision making,

where appropriate, and provision of

information to the Exchange where such

information is reasonably requested.

The Commission supports the Phlx’s

strengthening of orientation and

education materials in order that these

persons better understand their mission,

duties, and appropriate standards of

conduct. The Commission understands

that the Phlx is considering amending

its by-laws to include compliance with

the code of conduct, which at this time

is merely an Exchange policy. The

Commission encourages the Phlx to

submit such an amendment in order to

formally reflect the important principles

contained in the code of conduct, and

looks forward to reviewing such an

amendment.

Finally, The Commission approves

the amendment of the by-laws and

Certificate of Incorporation to include

indemnification provisions, and

supports the Exchange’s goal of

attracting qualified candidates for the

Phlx Board of Governors through the

inclusion of such provisions. The

Commission also approves all nonsubstantive by-law changes made for the

sake of organization and accuracy.

IV. Conclusion

It Is Therefore Ordered, pursuant to

Section 19(b)(2) of the Act,22 that the

proposed rule change (SR–PHLX–97–

31) is approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.23

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 97–23009 Filed 8–28–97; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

Bureau of Political-Military Affairs;

Determination Under the Arms Export

Control Act

[Public Notice 2596]

Pursuant to Section 654(c) of the

Foreign Assistance Act of 1961, as

amended, notice is hereby given that the

Secretary of State has made a

determination pursuant to Section 81 of

the Arms Export Control Act and has

concluded that publication of the

determination would be harmful to the

national security of the United States.

Dated: August 20, 1997.

Thomas E. McNamara,

Assistant Secretary of State for PoliticalMilitary Affairs.

[FR Doc. 97–23002 Filed 8–28–97; 8:45 am]

BILLING CODE 4710–25–M

DEPARTMENT OF TRANSPORTATION

Coast Guard

[CGD8–97–030]

Lower Mississippi River Waterway

Safety Advisory Committee

AGENCY: Coast Guard, DOT.

ACTION: Notice of meeting.

SUMMARY: The Lower Mississippi River

Waterway Safety Advisory Committee

will meet to discuss various navigation

safety matters affecting the Lower

Mississippi River area. The meeting will

be open to the public.

DATES: The meeting will be held from 10

a.m. to approximately 12 noon on

Wednesday, September 10, 1997.

ADDRESSES: The meeting will be held in

the basement GSA conference room of

the Hale Boggs Federal Building, 501

Magazine Street, New Orleans,

Louisiana.

FOR FURTHER INFORMATION CONTACT:

Mr. Monty Ledet, USCG, Administrator,

Lower Mississippi River Waterway

Safety Advisory Committee, c/o

Commander, Eighth Coast Guard

District (m), Room 1341, Hale Boggs

Federal Building, 501 Magazine Street,

New Orleans, LA 70130–3396,

telephone (504) 589–4686.

SUPPLEMENTARY INFORMATION: Notice of

this meeting is given pursuant to the

Federal Advisory Committee Act, 5

U.S.C. App. 2 section 1 et seq. The

meeting is open to the public. Members

of the public may present written or oral

statements at the meeting.

The agenda for the meeting consists of

the following items:

(1) Approval of the minutes from the

June 25, 1997 full Committee meeting.

(2) Subcommittee Reports.

(3) Old Business.

(4) New Business.

(5) Adjournment.

INFORMATION ON SERVICES FOR

INDIVIDUALS WITH DISABILITIES: For

information on facilities or services for

individuals with disabilities, or to

request special assistance at the

meeting, contact the Administrator, Mr.

Monty Ledet, Marine Safety Division,

Eighth Coast Guard District as soon as

possible.

Dated: August 8, 1997.

T.W. Josiah, RADM, USCG,

Commander, Eighth Coast Guard District.

[FR Doc. 97–23070 Filed 8–27–96; 8:45 am]

BILLING CODE 4910–14–M