76688 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Notices

3 15 U.S.C. 78f(b).

4 15 U.S.C. 78f(b)(4).

5 15 U.S.C. 78s(b)(3)(A).

6 17 CFR 240.19b–4(f)(2).

7 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 78s(b)(1).

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 proposes to increase

from $200 to $500 the fee that it charges

applicants seeking membership as a

Market-Maker or Floor Broker for the

three-day Orientation Program provided

to applicants by the Exchange. The

Exchange states that the purpose of this

proposed fee increase is to cover the

costs of the Orientation Program, which

are no longer adequately covered by the

current $200 fee. The change to the New

Member Orientation Fee is proposed to

take effect on January 1, 2001.

The Exchange further proposes to

amend its Membership Fee Circular to

clarify the application of the

Corporation/Partnership/LLC fee. This

fee is imposed by the Exchange on each

new firm applicant for membership on

the Exchange. It is also applicable to a

member organization that changes its

legal structure (e.g., from partnership to

corporation or the reverse, from

partnership to LLC or the reverse, or

from corporation to LLC or the reverse).

The clarification concerns the

applicability, when a member

organization changes its legal structure,

of certain other membership and

membership application fees generally

imposed by the Exchange. These

include a General Partner fee, and

Executive Officer fee, an LLC Manager

fee, a Principal Shareholder fee, a

Limited Partner fee, and an LLC

Member fee.

The Exchange proposes to amend the

Membership Fee Circular to clarify that

if a member organization changes its

legal structure or in the event of a

merger between current CBOE member

organizations, General Partners,

Executive Officers, LLC Managers,

Principal Shareholders, Limited

Partners and LLC Members listed on the

Uniform Application for Broker-Dealer

Registration Form (‘‘Form BD’’) of the

member organization(s) prior to the

change will not be assessed any fees in

connection with the change. This

proposed revision to the Membership

Fee Circular codifies the current

practice of the Exchange in addressing

this situation.

2. Statutory Basis

The Exchange believes that the

proposed rule change is consistent with

Section 6(b) 3 of the Act, in general, and

furthers the objectives of Section

6(b)(4) 4 of the Act in particular, in that

it is designed to provide for the

equitable allocation of reasonable dues,

fees, and other changes among CBOE

members.

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 not

necessary or appropriate in furtherance

of the purpose of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants, or Others

No written comments were solicited

or received with respect to the proposed

rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change, which

establishes or changes a due, fee, or

other charge applicable to members of

the Exchange, has become effective

pursuant to Section 19(b)(3)(A) 5 of the

Act and subparagraph (f)(2) of Rule 19b–

4 thereunder.6 At any time within 60

days of the filing of the rule change, the

Commission may summarily abrogate

such rule change if it appears to the

Commission that such action is

necessary or appropriate in the public

interest, for the protection of investors,

or otherwise in furtherance of the

purposes of the Act.

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 such filing will also be

available for inspection and copying at

the principal office of the CBOE. All

submissions should refer to File No.

SR–CBOE–00–54, and should be

submitted by December 28, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.7

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–31137 Filed 12–6–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43640; File No. SR–DTC–

00–19]

Self Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of a Proposed Rule Change by the

Depository Trust Company Relating to

a New Tax Service Called DALI

November 29, 2000.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934,1 notice

is hereby given that on November 20,

2000, The Depository Trust Company

(‘‘DTC’’) 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 DTC. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

DTC has filed a proposed rule change

to implement a new tax service called

‘‘DALI’’ (an acronym for data link for

intermediaries). DALI is a

communications hub to be used by U.S.

payors such as banks, broker-dealers

and foreign customers to exchange data

in order to determine the proper

withholding amount and to report U.S.

withholding tax on payments such as

dividends and interest made to a foreign

payee.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

DTC included statements concerning

the purpose of and basis for the

Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Notices 76689

2The Commission has modified the text of the

summaries prepared by DTC.

3Sections 1441, et seq., of the Internal Revenue

Code and regulations promulgated thereunder.

4The proposed fee schedule for users of the DALI

service is being developed and will be filed with

the Commission shortly.

5 15 U.S.C. 78q–1(b)(3).

6 15 U.S.C. 78s(B)(3)(A)(iii).

7 17 CFR 19b–4(f)(4).

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. DTC has prepared

summaries, set forth in sections A, B,

and C below, of the most significant

aspects of such statements. 2

A. Self-Regulatory Organization’s

Statement of the Purpose of, and the

Statutory Basis for, the Proposed Rule

Change

The proposed rule change consists of

the addition of DALI to DTC’s tax

services. DALI is a communications hub

that will allow financial institutions

(typically, a U.S. paying institution and

its foreign customer payee) to exchange

the data necessary to determine correct

withholding and reporting of U.S. tax on

payments such as dividends and

interest to a foreign payee. DALI will

also provide a storage facility for

payment allocation information

necessary for tax reporting. At a later

stage, DALI will be expanded to also

serve as a document repository for

payee tax documentation and a storage

facility for payment allocation

information necessary for tax reporting

at a beneficial owner level.

Background

Changes in U.S. tax regulations

concerning U.S. withholding tax and

reporting on payments of U.s. source

income made to foreign payees will

become effective on January 1, 2001.3

The new withholding regulations

require U.S. withholding agents, such as

banks and broker-dealers that pay

dividends and interest to foreign

customers, to determine the appropriate

withholding tax rates for such payments

based upon the tax status of the

beneficial owner of the payment and to

allocate the payments among each

beneficial owner or classes of owners for

annual reporting to the Internal Revenue

Service. As a consequence, when the

U.S. financial institution’s foreign

customer is not the beneficial owner (for

example, a foreign intermediary holding

securities on behalf of its customers),

the U.S. financial institution, in its

capacity as U.S. withholding agent,

must obtain payment allocation

information from its direct foreign

intermediary customer, based upon the

identity of tax status of the ultimate

beneficial owners of each payment

made by the U.S. financial institution to

its foreign customer.

Development of DALI

DTC was asked to provide the DALI

service by several of its participants

(referred to here as the ‘‘Consortium’’)

that sought a common solution to enable

them to comply with the new

withholding tax regulations. The

Consortium also consulted with Price

WaterhouseCoopers (‘‘PWC’’)

concerning the feasibility of developing

a centralized and standardized software

system that could be shared among the

Consortium. At the request of the

Consortium and industry groups, DTC

agreed to act as a project manager for the

development of the DALI software

system and to operate and maintain the

completed system as a DTC service.

DTC and the Consortium retained PWC

to develop the core DALI software. The

Consortium agreed to pay PWC’s

software development costs and DTC’s

out-of-pocket product development

costs such as hardware and operating

software. The Consortium expects to

recoup these costs over time from the

proceeds of excess user service fees.4

Description of DALI System

DALI is a communications hub that

withholding agents and foreign payees

can use to transmit and receive the

information necessary for tax

withholding and reporting under the

new tax regulations. DALI will be

available to participants and nonparticipant customers for use with

respect to withholding on varying types

of payments and not restricted to

position in securities held at DTC. DALI

may be accessed by File Transfer

Protocol and through the Internet at

DTC’s website.

In its simplest form, a typical message

flow through DALI would proceed as

follows:

(1) A U.S. financial institution notifies

its foreign customer of a forthcoming

payment and requests payment

allocation information on the payment.

(2) The foreign intermediary responds

with allocation information based upon

the characteristics of the beneficial

owners of the payment; and

(3) The U.S. financial institution

confirms allocation instructions.

DALI will later be used to also

validate, track, and retain required

payee tax documentation such as IRS

Forms W–8 and W–9 and to aggregate

information for recordkeeping and tax

reporting.

DTC believes that the proposed rule

change is consistent with the

requirements of Section 17A(b)(3) of the

Act 5 and the rules and regulations

thereunder because it will promote

foreign investments in U.S. securities by

facilitating the exchange of information

necessary for payors of U.S. income to

determine the correct withholding tax

treatment of payments made to foreign

payees. DTC also believes that the

proposed rule change will be

implemented consistently with the

safeguarding of securities and funds in

its custody or control or for which it is

responsible.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

DTC 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

Representatives of several of DTC’s

participants that comprise DTC’s

Foreign Taxes Legal Working Group

requested at a meeting held on January

24, 2000, that DTC provide a service to

facilitate compliance with the new U.S.

tax withholding regulations effective

January 1, 2001. This request was made

in writing by memorandum to DTC

dated February 1, 2000, from the group

of financial institutions then comprising

the DALI Consortium (Morgan Stanley,

Dean Witter, Goldman Sachs, Merrill

Lynch, Prudential Securities, Salomon

Smith Barney/Citibank, Pershing/DLJ,

Chase Manhattan Bank, Brown Brothers

Harriman, and Bear Stearns). Except as

set forth above, DTC has not solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

The foregoing rule change has become

effective pursuant to Section

19(b)(3)(A)(iii) of the Act 6 and Rule

19b–4(f)(4) 7 thereunder because the rule

change (1) effects a change in an

existing service of EMCC that does not

adversely affect the safeguarding of

securities or funds in the DTC’s custody

or control or for which it is responsible

and (2) does not significantly affect

DTC’s respective rights or obligations or

persons using the service. At any time

within sixty days of the filing of such

proposed rule change, the Commission

may summarily abrogate such rule

76690 Federal Register / Vol. 65, No. 236 / Thursday, December 7, 2000 / Notices

8 17 CFR 200.30–3(a)(12).

1 15 U.S.C. 7s(b)(1).

2 17 CFR 240.19b–4.

3Letter dated November 20, 2000 from Cindy L.

Sink, Senior Attorney, PCX, to Nancy Sanow,

Assistant Director, Division of Market Regulation,

Commission (‘‘Amendment No. 1’’). Amendment

No. 1 specifies an implementation plan for the

proposed rule change.

change if it appears to the Commission

that such action is necessary or

appropriate in the public interest, for

the protection of investors, or otherwise

in furtherance of the purposes of the

Act.

IV. 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, 450 Fifth Street, NW.,

Washington, DC. Copies of such filing

will also be available for inspection and

copying at DTC’s principal office. All

submissions should refer to File No.

SR–DTC–00–19 and should be

submitted by December 28, 2000.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–31139 Filed 12–6–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43641; File No. SR–PCX–

00–40]

Self-Regulatory Organizations; Notice

of Filing of a Proposed Rule Change

and Amendment No. 1 Thereto by the

Pacific Exchange, Inc. Relating to

Audit Committee Requirements for

Listed Companies

November 29, 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 October

23, 2000, the Pacific Exchange, Inc.

(‘‘PCX’’ or ‘‘Exchange’’), through its

wholly-owned subsidiary, PCX Equities,

Inc. (‘‘PCXE’’), 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 PCXE. The Exchange filed

Amendment No. 1 to the proposed rule

change on November 22, 2000.3 The

Commission is publishing this notice to

solicit comments on the proposed rule

change, as amended, from interested

persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The PCXE proposes to amend its rules

pertaining to composition of audit

committees of listed companies as

recommended by the Blue Ribbon

Committee on Improving Effectiveness

of Corporate Audit Committees. The text

of the proposed rule change is set forth

below. New text is in italics. Deletions

are in brackets.

Corporate Governance

Rule 5.3(a) Conflicts of interest—No change.

Rule 5.3(b) Independent Directors/Audit

Committee

The Corporation shall require that each

listed domestic issuer have at least two

independent directors on its board of

directors. Such issuer must maintain an audit

committee. [a majority of which] All audit

committee members must be independent

directors that satisfy the audit committee

requirement set forth below.

(1) Audit Committee Charter. The board of

directors must adopt and approve a formal

written charter for the audit committee. The

audit committee must review and reassess

the adequacy of the formal written charter on

an annual basis. The charter must specify the

following:

(i) The scope of the audit committee’s

responsibilities and how it carries out those

responsibilities, including structure,

processes, and membership requirements;

(ii) That the outside auditor is ultimately

accountable to the board of directors and the

audit committee of the company, that the

audit committee and board of directors have

the ultimate authority and responsibility to

select, evaluate, and, where appropriate,

replace the outside auditor (or to nominate

the outside auditor to be proposed for

shareholder approval in any proxy

statement); and

(iii) That the audit committee is

responsible for ensuring that the outside

auditor submits on a periodic basis to the

audit committee a formal written statement

delineating all relationships between the

auditor and the company and that the audit

committee is responsible for actively

engaging in a dialogue with the outside

auditor with respect to any disclosed

relationships or services that may impact the

objectively and independence of the outside

auditor and for recommending that the board

of directors take appropriate action in

response to the outside auditors’ report to

satisfy itself of the outside auditors’

independence.

(2) Composition/Expertise Requirement of

Audit Committee Members.

(i) Each audit committee will consist of at

least three independent directors, all of

whom have no relationship to the company

that may interfere with the exercise of their

independence from management and the

company (‘‘Independent’’);

(i) Each member of the audit committee

must be financially literate, as such

qualification is interpreted by the company’s

board of directors in its business judgment,

or must become financially literate within a

reasonable period of time after his or her

appointment to the audit committee; and

(iii) At least one member of the audit

committee must have accounting or related

financial management expertise, as the

Board of Directors interprets such

qualification in its business judgment.

(3) Independence Requirement of Audit

Committee Members. In addition to the

definition of Independent provided in

5.36(2)(i), the following restrictions shall

apply to every audit committee member:

(i) Employees: A director who is an

employee (including non-employee executive

officers) of the company or any of its

affiliates may not serve on the audit

committee until three years following the

termination of his or her employment. In the

event the employment relationship is with a

former parent or predecessor of the company,

the director could serve on the audit

committee after three years following the

termination of the relationship between the

company and the former parent or

predecessor. ‘‘Affiliate’’ includes a

subsidiary, sibling company, predecessor,

parent company, or former parent company.

(ii) Business Relationship. A director (a)

who is a partner, controlling shareholder, or

executive officer of an organization that has

a business relationship with the company, or

(b) who has a direct business relationship

with the company (e.g., a consultant) may

serve on the audit committee only if the

company’s board of directors determines in

its business judgment that the relationship

does not interfere with the director’s exercise

of independent judgment. In making a

determination regarding the independence of

a direct pursuant to this paragraph, the

board of directors should consider, among

other things, the materiality of the

relationship to the company, to the director,

and, if applicable, to the organization with

which the director is affiliated. ‘‘Business

relationships’’ can include commercial,

industrial, banking consulting, legal,

accounting and other relationships. A

director can have this relationship directly

with the company, or the director can be a

partner, officer or employee of an

organization that has such a relationship.

The director may serve on the audit