[Federal Register Volume 65, Number 230 (Wednesday, November 29, 2000)]
[Notices]
[Pages 71185-71187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-30385]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-43576; File No. SR-PCX-00-09]


Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to the Composition of the PCX Nominating 
Committee

November 16, 2000.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 20, 2000, the Pacific Exchange, Inc. (``PCX'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'' or 
``SEC'') the proposed rule change as described in Items I and II below, 
which Items have been prepared by the Exchange. On October 17, 2000, 
the Exchange filed Amendment No. 1 to the proposal.\3\ The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons, and to grant accelerated approval to 
the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Cindy L. Sink, Senior Attorney, PCX to Nancy 
J. Sanow, Division of Market Regulation, Commission, dated October 
16, 2000 (``Amendment No. 1''). In Amendment No. 1, the Exchange 
confirmed that the proposed change to the Constitution was approved 
by the PCX membership on January 27, 2000. Also, the Exchange 
revised the Purpose section of the filing to clarify that the 
proposed rule change is designed to assure a fair representation of 
its members in the selection of Governors. The Exchange also 
explained that the propose for eliminating the requirement of a 
minimum number of floor members on the Nominating Committee was to 
provide flexibility in the nominating process. Further, in Amendment 
No. 1, the Exchange made clear that, pursuant to the proposed rule 
change, only public Governors will be permitted on the Nominating 
Committee. In this regard, the Exchange represented that it will 
submit a revision to Art. III, Section 4(a) of the Constitution for 
membership vote by March 30, 2001 clarifying this point. The 
Exchange also made technical corrections to the proposal. Finally, 
in Amendment No. 1, the Exchange requested accelerated approval of 
the filing.
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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 its Constitution to change the 
composition of the Nominating Committee to include public Governors and 
Equity Trading Permit (``ETP'') Holders, Equity ASAP Holders, or Allied 
Persons of an ETP firm or an Equity ASAP Holder. The text of the 
proposed rule change follows. Additions are in italics; deletions are 
in [brackets].

ARTICLE III

* * * * *
1206  Election of Nominating Committee
    SEC. 4(a) At each annual meeting there shall be elected by the 
membership, by ballot, for a term of one year, a Nominating Committee 
of nine persons, one of whom shall be nominated as Chair[man] and one 
of whom shall be nominated as Vice Chair[man] who are eligible for 
election in accordance with Sec. 4(b) of this Article III, none of whom 
shall be [a Governor or] an officer of the Exchange. The Nominating 
Committee shall assume duties as provided in Sec. 4(d) of this Article 
III.
1211  Eligibility of Members of Nominating Committee
    SEC. 4(b). The nine members of the Nominating Committee eligible to 
be elected at each annual meeting shall be as follows:
    At least one [Not less than two] Committee member[s] shall be 
[floor members and] a representative of the public. At least seven 
Committee members shall be members or office members or office allied 
members [of the Exchange.], Equity Trading Permit Holders, Equity ASAP 
Holders or Allied Persons of an ETP firm or an Equity ASAP Holder.

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed comments it received on the proposed rule change. The text of 
these statements may be examined at the places specified in Item III 
below. The Exchange 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
    Currently, Article III, Section 4(a) of the PCX Constitution states 
that at each annual meeting a Nominating Committee of nine persons 
shall be elected. No person elected to the Nominating Committee may be 
a Governor or an officer of the Exchange. The Exchange proposes to 
amend Section 4(a) to make Governors eligible for election to the 
Nominating

[[Page 71186]]

Committee. The Exchange interprets this proposed revision to mean that 
only public Governors will be permitted to be elected to sit on the 
Nominating Committee.\4\
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    \4\ The Exchange has represented that it intends to submit a 
revision to the Constitution for a membership vote that clarifies 
that the only Governors that may serve on the Nominating Committee 
are public Governors. See Amendment No. 1, supra note 3.
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    The Exchange believes that by allowing public Governors to serve on 
the Nominating Committee, the requirement that at least one public 
representative serve on the Committee could be a met by electing a 
public Governor. The Exchange proposes this change in an effort to 
potentially provide public representatives greater influence in the 
Board of Governors nomination process.
    In addition, the Exchange proposes to change references in Article 
III, Section 4(a) to ``Chairman'' and ``Vice Chairman'' to ``Chair'' 
and ``Vice Chair.'' The Exchange proposes this change to make the 
provisions gender-neutral.
    Finally, the Exchange proposes to amend PCX Constitution, Article 
III, Section 4(b), entitled ``Eligibility of members of Nominating 
Committee.'' Currently, this section states, ``[t]he nine members of 
the Nominating Committee eligible to be elected at each annual meeting 
shall be as follows: Not less than two Committee members shall be floor 
members and seven Committee members shall be members or office members 
of office allied members of the Exchange.'' The Exchange is proposing 
to modify Section 4(b) in two respects.
    First, with regard to the provision that not less than two 
Nominating Committee members shall be floor members, the Exchange is 
proposing to replace it with a new requirement that at least one 
Nominating Committee members shall be a representative of the public. 
Accordingly, under the proposal, there may be up to two public 
representatives on the Nominating Committee at a time, although there 
must always be at least one. The balance of seats on the Nominating 
Committee, which will be either seven or eight depending on the number 
of public representatives nominated at the time, shall be members, 
office members, office allied members, ETP Holders, Equity ASAP 
Holders, or allied persons of an ETP Firm or Equity ASAP Holder. The 
rule change eliminates the requirement that at least two floor members 
be represented on the Nominating Committee so that the Exchange will 
have the flexibility to meet its obligation to have a fair 
representation of Exchange members.\5\
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    \5\ The Exchange notes that, for purposes of the Act, ETP 
Holders and Equity ASAP Holders are ``members'' of the PCX. See note 
6, infra.
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    Second, as noted above, the Exchange is proposing to expand the 
list of members who may serve on the Nominating Committee to include 
ETP Holders, Equity ASAP Holders, or Allied Persons of an ETP Firm or 
Equity ASAP Holder. These changes are intended to expand the list of 
eligible committee members to include new types of members of PCX 
Equities, Inc.\6\
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    \6\ See Securities Exchange Act Release No. 42759 (May 5, 2000), 
65 FR 30654 (May 12, 2000) (order approving PCX proposal to create 
PCX Equities, Inc.).
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) \7\ of the Act, in general, and further the 
objectives of Section 6(b)(5),\8\ in particular, because they are 
designed to promote just and equitable principles of trade, and to 
protect investors and the public interest. The Exchange further 
believes that the proposed rule change will further the objectives of 
Section 6(b)(3) \9\ of the Act, because it is designed to assure a fair 
representation of Exchange members in the selection of the Exchange's 
Governors.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ 15 U.S.C. 78f(b)(3).
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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 
impose 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

    Written comments on the proposed rule change were neither solicited 
nor received.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposal 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 such filing will also be available for 
inspection and copying at the principal office of the PCX. All 
submissions should refer to File No. SR-PCX-00-09 and should be 
submitted by December 20, 2000.

IV. Commission's Findings and Order Granting Accelerated Approval 
of Proposed Rule Change

    The Commission has reviewed the Exchange's proposed rule change and 
finds, for the reasons set forth below, that the proposal, as amended, 
is consistent with the requirements of Section 6(b) of the Act \10\ and 
the rules and regulations thereunder applicable to a national 
securities exchange.\11\ Specifically, the Commission believes the 
proposal is consistent with Section 6(b)(3) \12\ because it ensures 
that all member constituencies of the Exchange, including ETP Holders, 
Equity ASAP Holders, or Allied Persons of an ETP Firm of Equity ASAP 
Holder, will have the opportunity to be represented on the Nominating 
Committee. Section 6(b)(3) of the Act requires that the rules of an 
exchange ensure a fair representation of its members in the selection 
of its directors. The PCX Nominating Committee is responsible for 
selecting the slate of appropriate candidates to be presented to the 
PCX's members for election to the PCX Board of Governors and the PCX 
Nominating Committee. Thus, by ensuring that all member constituencies 
are permitted to be represented on the Nominating Committee, the 
Exchange's proposal should assure that its members are fairly 
represented when selecting directors.
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    \10\ 15 U.S.C. 78f(b).
    \11\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(3).
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    In addition, the Exchange has proposed to permit public 
representatives to serve on the Nominating Committee. The Commission 
believes that allowing public representatives to serve on the 
Nominating Committee will help to ensure that qualified governors are 
nominated for positions on the PCX Board, as well as the PCX Nominating 
Committee. As the Commission has noted in the past, public 
representatives should provide unique unbiased

[[Page 71187]]

perspectives to the governance of an exchange, and should enhance the 
ability of an exchange to address issues in a non-discriminatory 
fashion.\13\ Therefore, the Commission believes that adding public 
representatives to the Nominating Committee should enhance the 
integrity of the nominating process.
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    \13\ See Securities Exchange Act Release Nos. 42235 (December 
14, 1999), 64 FR 71839 (December 22, 1999); and 40760 (December 8, 
1998), 63 FR 70884 (December 22, 1998).
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    The Exchange has also proposed to permit PCX public Governors to 
serve as the public representatives on the Nominating Committee. The 
Commission notes that as currently drafted, the PCX Constitution seems 
to permit any governor to serve on the Nominating Committee. However, 
in Amendment No. 1,\14\ the Exchange clarified that only public 
Governors will be permitted to serve on the Nominating Committee, and 
committed to submit a change to the PCX Constitution to reflect this 
limitation to its members.\15\ The Commission notes that any such 
clarification must be submitted to the Commission as a proposed rule 
change and expects such proposed rule change to be submitted as soon as 
practicable after the requisite member vote. Further, the Commission 
notes that any change to the PCX's interpretation that this proposal 
only permits public Governors to be eligible for positions on the PCX 
Nominating Committee would require a rule change to be submitted to the 
Commission. For purposes of this filing, however, the Commission 
believes that it is acceptable to permit public governors to serve as 
public members of the Nominating Committee.
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    \14\ See note 6, supra.
    \15\ See Amendment No. 1, supra note 3.
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    To accommodate the public positions, the Exchange has eliminated 
the requirement that at least two floor members be represented on the 
Nominating Committee. Because the Commission believes that public 
representation on the Nominating Committee enhances the ability of the 
Committee to select eligible candidates for the PCX Board and PCX 
Nominating Committee, the Commission believes that this change is 
consistent with the Act. Further, the Commission notes that the 
composition of the Nominating Committee continues to contemplate all 
types of PCX members. Thus, floor members may continue to be 
represented on the Nominating Committee, if members are elected.
    The Commission finds good cause for approving the proposed rule 
change, as amended, prior to the thirteenth day after publication of 
notice thereof in the Federal Register. The Commission understands that 
the PCX's Nominating Committee is currently considering candidates for 
election to the Nominating Committee in January 2001. Approval of this 
proposal on an accelerated basis will enable the PCX Nominating 
Committee to consider public Governors for the public representative 
positions on the January 2001 Nominating Committee, which as described 
above, the Commission believes will enhance the nominating process. The 
Commission believes that good cause exists consistent with Sections 
6(b)(3) \16\ and 19(b) \17\ of the Act to approve the proposed rule 
change, as amended on an accelerated basis.
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    \16\ 15 U.S.C. 78f(b)(3).
    \17\ 15 U.S.C. 78s(b).
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V. Conclusion

    It is Therefore Ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-PCX-00-09), as amended, is approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-30385 Filed 11-28-00; 8:45 am]
BILLING CODE 8010-01-M