Federal Register / Vol. 66, No. 85 / Wednesday, May 2, 2001 / Notices 22059

7 15 U.S.C. 78s(b)(2).

8 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

3See Securities Exchange Act Release No. 43987

(February 20, 2001), 66 FR 12582 (February 27,

2001) (approving adoption of Article Nineteenth,

SR–Phlx–99–50.

4See also 8 Del. C. § 121(a) (providing that in

addition to powers expressly granted by law or the

Certificate of Incorporation, the corporation and its

directors may exercise ‘‘any powers incidental

thereto, so far as such powers and privileges are

necessary or convenient to the conduct, promotion

or attainment of the business or purposes set forth

in its certificate of incorporation’’); Certificate of

Incorporation, Article Third (stating, in part, that

the Exchange may operate in any lawful act or

activity for which corporations may be organized

under the DGCL).

5See, e.g., By-Law Art, XV, § 15–1(a) (providing

that a membership may be leased in accordance

with such rules as the Board may adopt); By-Law

Art. XII, § 12–8 (authorizing lessor application fee

as fixed from time to time by the Board, lessor

initiation fee and fee upon transfer of equitable title

to a membership); Rule 930 (setting forth required

terms of lease agreement and providing, among

other things, that the Exchange may dispose of a

membership subject to a lease agreement); Rule

960.1 (providing that all members, member

organizations and any persons associated with any

member are subject to expulsion, suspension,

termination as to activities at the Exchange or any

other fitting sanction for violation of the Rules of

the Exchange); see also Certificate of Incorporation,

Article Twentieth (giving Board plenary authority

to assess fees, dues and other charges and to impose

penalties, including cancellation of a membership

and forfeiture of all rights as a lessor or lessee, for

nonpayment.)

6See Exchange By-Law Art. XII, § 12–9. As a

condition of the right to lease their seats, lessors

agree ‘‘to abide by the [Exchange’s] By-laws as they

have or shall be from time to time amended, and

by all rules and regulations adopted pursuant to the

By-Laws.’’ Lessees, as members, likewise make the

same commitment.

the hours of Phlx’s Primary Trading

Session will automatically change

whenever the hours of a primary market

change, thereby alleviating the need for

additional rule changes. Accordingly,

the Commission concludes that Phlx’s

proposal is reasonable and consistent

with the Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,7 that the

proposed rule change (SR–Phlx–01–21)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.8

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–10886 Filed 5–1–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–44220; File No. SR–Phlx–

2001–45]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange, Inc.

Amending Rule 930

April 25, 2001.

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 April 20, 2001, the Philadelphia

Stock Exchange, Inc. (‘‘Phlx’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’) the proposed rule

change as described in items I, II, and

III, below which Items have been

prepared by the Phlx. 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

The Phlx, pursuant to Rule 19b–4 of

the Act, proposes to amend Exchange

Rule 930, Lease Agreement, to add new

paragraph (k). Proposed Rule 930(k)

relates to the Exchange’s ability to allow

a member who leases a membership

(‘‘leasee’’) to pay past-due fees owed to

the Exchange by the lessor under a lease

agreement, on behalf of the lessor. The

Exchange also proposes to amend Rule

930 to make certain minor technical

amendments to the text of the rule in

order to make the various paragraphs

contained in the rule more consistent.

Proposed Rule 930(k) states that the

Exchange is a third party beneficiary of

the lease agreement, and shall have the

right to permit payment by a lessee of

past-due fees owed to the Exchange by

the lessor. The proposed rule further

states that should the lessee pay such

past due amounts, the lessee shall

provide written notice to the lessor and

the Exchange. Once the lessee has

elected to make such payments, the

lessee may continue to make such

payments for a period of up to three

months and set off such amounts, with

notice to the Exchange and lessor

against amounts due the lessor by the

lessee. Furthermore, proposed Rule

930(k) states that notwithstanding the

terms of the lease agreement, a lessee

will not be considered in default of the

lease agreement solely by virtue of

having elected to make such payments.

In addition, certain minor technical

amendments will be made to Rule 930

in order to make the text more

consistent. For example, the word

‘‘agreement’’ will be added after the

word ‘‘lease’’ in order to make it

consistent with other references to

‘‘lease agreements.’’ Also, the words

‘‘Certificate of Incorporation’’ are added

to make the text more consistent and to

clarify that various terms of a lease

agreement must be in accordance with

the Exchange’s Certificate of

Incorporation, as well as its by-laws and

rules.

A. Discussion

1. Authority Under Delaware Law

The Exchange represents that, as a

non-stock corporation organized under

the Delaware General Corporation law

(‘‘DGCL’’), it has the authority to adopt

proposed Rule 930(k). Article

Nineteenth of the Exchange’s Certificate

of incorporation expressly empowers

the Board of Governors (‘‘Board’’) of the

Exchange:

to determine whether, and under what terms

and conditions, memberships may be leased,

and to adopt by resolution or to set forth in

the Rules of the Board of Governors such

rules with respect to lease agreements,

lessors and lesses as the board may from time

to time determine to be advisable, including,

without limitation, rules regulating and

setting forth the rights and obligations of

lessors and lessees, the required terms of

lease agreements, and the fees, dues and

other charges required to be paid by lessors

and lessees (or either of them) to the

Corporation in connection with and for the

privilege of leasing memberships.3

Thus, the Exchange represents that Rule

930(k) clearly falls within Article

Nineteenth’s grant of authority.

In addition, Section 141(j) of the

DGCL empowers the Board to direct the

business and affairs of the Exchange,

and the Exchange’s by-laws give the

Board broad power to adopt rules of the

Exchange. 8 Del. C.§ 141(j); 4 By-Law

Art. IV, § 4–4.

The Exchange represents that

numerous provisions of its by-laws and

rules already address matters similar to

those addressed by proposed Rule

930(k).5 Moreover, the Exchange’s bylaws require lessors and lessees (as

members) to pledge to abide by the rules

as they may be amended from time

time.6

Accordingly, the Exchange states that

the Board has the authority to adopt

Rule 930(k) under the DGCL and the

Exchange’s Certificate of Incorporation,

by-laws and rules.

2. Permissibility Under Pennsylvania

Contract Law

The Exchange believes that proposed

Rule 930(k) is also permissible as a

matter of Pennsylvania contract law.

The terms of the Exchange’s contractual

relationships with both lessors and

lessees permit adoption of the rule, and,

in any event, the Exchange is already a

22060 Federal Register / Vol. 66, No. 85 / Wednesday, May 2, 2001 / Notices

7See By-Law Art. XII, § 12–9(b).

8See id. at 12–9(a).

9See By-Law Art. XII, § 21–1 (a member conducts

business on the Exchange).

10See Rule 930(a), (d) and (e).

11 Indeed, the Exchange may well be a

constructive party to the lease agreement. While

Pennsylvania courts have not had the opportunity

to address the issue of constructive parties, there

exists persuasive caselaw elsewhere that when the

contracting parties, and a third party have a

sufficiently intertwined business relationship, the

third party is deemed to be constructive party to the

contract. Here, for the various reasons outlined in

the text, the Exchange, lessors, and lessees, possess

such an extraordinarily intertwined business

relationship that the Exchange could be considered

a constructive party to lease agreements. This

would provide yet another alternate basis for the

legal adequacy of the Exchange’s proposed Rule

930(k)

third party beneficiary to the lease

agreements as a matter of law. Each of

these reasons separately provides a

sufficient legal basis under

Pennsylvania contract law for the

adoption of Rule 930(k). (Future lease

agreements would of course by deemed

to incorporate the terms of Rule 930(k)

within them, and thus obviate any

contract law question).

a. Lease Terms Incorporate Relevant

Terms of the Exchange’s Certificate of

Incorporation, By-Laws and Rules

Under the terms and conditions

pursuant to which the Exchange awards

the privileges of membership and

approves the right to lease a seat, the

Exchange reserves the right to adopt

authorized by-laws, rules, or regulations

that affect those lessors and lessees;

accordingly, the Exchange represents

that any potential impact on lease

agreements of Rule 930(k) would be

contractually permissible. Both lessors

and lessees (as members) agree

respectively as a condition of approval

of the right to lease seats and as a

condition of approval for membership

that the Exchange may effectuate

changes to their lease agreements. As a

condition of the right to lease their

seats, lessors agree ‘‘to abide by the

[Exchange’s] By-Laws as they have or

shall be from time-to-time amended,

and by all rules and regulations adopted

pursuant to the By-Laws.’’ 7 Lessees (as

members) likewise make the same

commitment.8 By agreeing to abide by

future by-laws, rules, and regulations,

lessors and lessors and lessees

necessarily grant permission to the

Exchange to adopt rules pursuant to

which their lease agreements may be

affected.

Accordingly, the Exchange represents

that Rule 930(k), which would provide

in express form the authorization for the

modification of lease agreements, would

simply authorize that which is

countenanced by the terms of the

Exchange’s existing relationships with

lessors and lessees. It is thereby

permissible as a matter of Pennsylvania

contract law.

b. The Exchange Is a Third-Party

Beneficiary of All Lease Agreements

The Exchange is already, as a matter

of Pennsylvania law, a third party

beneficiary of lease agreements and

would as such be entitled to collect

Exchange fees from a lessee upon the

default of a lessor, and to permit set-off

by the lessee. Pennsylvania law

provides that as a third-party

beneficiary the Exchange is entitled to

enforce, in its own name, as a real party

in interest, the rights that accrue to it

under the lease agreement. Generally, a

non-party to a contract is a third party

beneficiary either (i) when the parties to

a contract express an intention in the

contract itself to benefit the third party,

or (ii) if the surrounding circumstances

are sufficiently compelling that

recognition of the beneficiary’s right is

appropriate to effectuate the intention of

the parties, and the performance

satisfies an obligation of the parties to

pay money to the beneficiary or the

circumstances indicate that the parties

intend to give the beneficiary the benefit

of the promised performance.

Here, the Exchange represents that it

is a third party beneficiary of lease

agreements in accordance with the

intention expressed in the lease

agreements themselves even in the

absence of Rule 930(k). Rule 930(c)

provides that the lease agreement ‘‘shall

require a lessee to pay the Corporation

[the Exchange] * * * all applicable

dues, fees, charges, and other debts

arising from the use of membership.’’ As

the purpose of the lease agreement is to

permit the lessee the ‘‘use of

membership,’’ proposed Rule 930(k)

specifies the circumstances in which the

Exchange, rather than requiring

payment by the lessee of one such fee,

is simply allowing payment by a lessee.

In addition, the Exchange believes

that many of the other terms of the lease

agreements also manifest the parties’

clear intent to make the Exchange a

beneficiary. See for example, Rule

930(a) (the Exchange must approve the

transfer of membership); 930(d) (the

lessee may not encumber legal title to

the membership during the lease

agreement); 930(e) (legal title to the

membership must be transferred to the

lessor in accordance with the

Exchange’s by-laws upon the expiration

of the lease agreement or other such

event); and 930(j) (the Exchange may

dispose of a membership subject to a

lease agreement in accordance with its

by-laws and rules).

Moreover, in addition to the intent

manifested in the lease agreements,

which is itself sufficient to render the

Exchange a third party beneficiary, the

Exchange represents and the

circumstances surrounding the lease

agreements independently compel the

same conclusion. As noted, the lease

agreements are required to contain

mandatory provisions that make

reference to the Exchange, see Rule 930.

Reference to a third party in the contract

itself is a strong indication that the party

is a third party beneficiary. The

Exchange also exercises numerous

rights related to the lease agreements. It

approves lessors, as well as lessers, Rule

931 (approval of lessors); By-Law Art,

XV, § 51–1 (approval of lessees), and

requires lessors and lessees to abide by

the Exchange’s by-laws, By-Law Art.

XII, § 12–9(a), (b); Rule 930(j). Indeed,

the purpose of the lease agreement is to

permit trade on the Exchange.9 The

Exchange also reserves the right to

approve all transfers of membership

pursuant to a lease agreement.10 Finally,

as noted, Rule 930 already requires that

lessees be responsible for payment to

the Exchange of all applicable dues,

fees, charges and other debts, and

proposed Rule 930(k) identifies under

what circumstances the lessee may, at

his or her option, remit one such fee to

the Exchange.11

Accordingly, the Exchange represents

that it is a third party beneficiary to the

lease agreements with the right to

enforce the provisions of Rule 930(k).

In sum, the Exchange states that

adoption by the Exchange of proposed

Rule 930(k) would be consistent with

applicable corporate governance and

contract law.

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

Phlx included statements concerning

the purpose of, and basis for, the

proposed rule change and discussed any

comments it received on the proposed

rule change. The text of these statements

maybe examined at the places specified

in Item IV below. The Phlx has prepared

summaries, set forth in Sections A, B,

and C below, of the most significant

aspects of such statements.

Federal Register / Vol. 66, No. 85 / Wednesday, May 2, 2001 / Notices 22061

12The principal fee that the Phlx currently

charges to lessors and other owners of memberships

in the ‘‘capital funding fee.’’ See Securities

Exchange Act Release No. 42993 (June 29, 2000), 65

FR 42415 (July 10, 2000) (approving adoption of

capital funding fee, SR–Phlx–99–51). See footnote

14 below for a further discussion of the capital

funding fee.

13On December 6, 1999, the Exchange submitted

a proposed rule change relating to the adotion of

new Rule 51, Enforcement, which relates to the

ability of the Exchange’s Board to take certain

specified measures if any owner of a membership

fails to pay (or have paid on its behalf) any capital

funding fee when due. The roposal is ending (SR–

Phlx–99–52).

14On January 5, 2000, the Commission approved

as a three-month pilot program, a capital funding

fee applicable to owners of memberships. See

Securities Exchange Act Release No. 42318 (January

5, 2000), 65 FR 2216 (January 13, 2000) (SR–Phlx–

99–49). On April 24, 2000, the Commission

approved the extension of the three-month pilot

program until July 6, 2000. See Securities Exchange

Act Release No. 42714 (April 24, 2000), 65 FR

25782 (May 3, 2000) (SR–Phlx-00–29). Permanent

approval of the capital funding fee was received on

June 29, 2000. See Securities Exchange Act Release

No. 42993 (June 29, 2000), 65 FR 42415 (July 10,

2000)(SR–Phlx–99–51).

15Under proposed Rule 51, supra note 13, the

Exchange may issue temporary trading rights to

members whose leases are suspended due to

nonpayment of the capital funding fee by the lessor.

16See Certificate of Incorporation Article Third,

proposed Article Nineteenth and Article Twentieth,

By-Law Art. XII, § 12–9, and proposed Rule 51.

17See 8 Del. C. § 102 and 109(b)

18 15 U.S.C. 78f(b).

19 15 U.S.C. 78f(b)(5). 1 17 CFR 200.30–3(a)(12).

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the proposed rule

change is to amend Exchange Rule 930

to add paragraph (k), which allows the

lessee of membership to pay fees owed

to the Exchange by the lessor that are

past due and to set off such amounts

from amounts due the lessor by the

lessee.12 This provision, which the Phlx

represents is in accordance with

proposed Exchange Rule 51,13 allows a

lessee to pay, on behalf of the lessor,

any fees, including the capital funding

fee,14 owed to the Exchange by the

lessor. Proposed Rule 930(k) helps to

protect innocent lessees from being

unexpectedly dispossessed from their

membership and trading rights in the

event of nonpayment by their lessors.

Pursuant to proposed Rule 930(k), the

lessee should be able to continue

trading under his/her current lease

provisions, for a period of up to three

months. Therefore, the lessee’s trading

privileges should not be interrupted if

the lessor does not pay its fees,

including the capital funding fee

referred to in footnotes 12, 13 and 14.

In addition, the provisions of proposed

Rule 930(k) should give the lessee

sufficient time to execute a new lease

agreement, if necessary.15 The Exchange

believes that provisions (contained in its

Certificate of Incorporation and by-laws)

give the Exchange the authority to

modify lease agreements in the manner

described above.16

The Phlx further represents that the

purpose of the minor technical

amendments to Rule 930 is to make the

language in the paragraphs of the

existing rule more consistent with each

other. References to the Certificate of

Incorporation are being added

throughout Rule 930. For example,

paragraph (a) of Rule 930 would state

that a lease agreement shall not be

effective unless the transfer of

membership was approved under the

Exchange’s Certificate of Incorporation,

by-laws or rules. The Exchange

represents that, as a matter of Delaware

corporation law, a certificate of

incorporation is preeminent and

accordingly, by-laws and any rules

adopted thereto cannot conflict with the

certificate of incorporation.17 Further,

the Exchange is amending Rule 930 to

consistently refer to the lease as a ‘‘lease

agreement.’’

2. Statutory Basis

For these reasons, the Exchange

believes that the proposed rule change

is consistent with Section 6 of the Act,18

in general, and with Section 6(b)(5),19 in

particular, in that it is designed to

promote just and equitable principles of

trade and protects investors and the

public interest by enabling lessees to

continue trading, even with their

respective lessors fail to pay fees owed

the Exchange when due.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any inappropriate burden on

competition.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

Written comments were neither

solicited nor received 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

(ii) as to which Phlx 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 in 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 Phlx. All

submissions should refer to File No.

SR–Phlx–2001–45 and should be

submitted by May 23, 2001.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.20

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–10887 Filed 5–1–01; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

Office of Defense Trade Controls

[Public Notice 3650]

Notifications to the Congress of

Proposed Commercial Export Licenses

AGENCY: Department of State.

ACTION: Notice.

SUMMARY: Notice is hereby given that

the Department of State has forwarded

the attached Notifications of Proposed

Export Licenses to the Congress on the

dates shown on the attachments

pursuant to section 36(c) and 36(d) and

in compliance with section 36(e) of the