[Federal Register Volume 66, Number 122 (Monday, June 25, 2001)]
[Notices]
[Page 33733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15799]


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SECURITIES AND EXCHANGE COMMISSION

[Release No 34-44442; File No. SR-PCX-01-03]


Self-Regulatory Organizations, Pacific Exchange, Inc.; Order 
Granting Approval To Proposed Rule Change To Permit an Officer or 
Director of a Facility of PCX Equities To Serve on the PCX Equities 
Board of Directors

June 18, 2001.

I. Introduction

    On January 9, 2001, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), pursuant to section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to amend the bylaws of its 
wholly-owned subsidiary, PCX Equities, Inc. (``PCXE'' or 
``Corporation'') to permit an officer or director of a facility to PCXE 
to serve on its Board of Director (``Board''). On February 20, 2001, 
PCX filed Amendment No. 1 to the proposal.\3\ The proposed rule change 
and Amendment No. 1 was published for comment in the Federal Register 
on March 7, 2001.\4\ The Commission received no comments on the 
proposal. This order approves the proposed rule change, as amended.
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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, Regulatory 
Policy, PCX, to Marc F. McKayle, Special Counsel, Division of Market 
Regulation, Commission, dated February 16, 2001 (``Amendment No. 
1'').
    \4\ See Securities Exchange Act Release No. 34-44026 (Feb. 28, 
2001), 66 FR 13822.
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II. Description of the Proposal

    In a related filing, PCX has proposed to create a new electronic 
trading facility of the PCXE called Archipelago Exchange.\5\ Under that 
proposal, Archipelago Exchange, L.L.C. (``Arca''), a subsidiary of 
Archipelago Holdings. L.L.C. (``Archipelago''), would operate as a 
facility of the PCXE pursuant to Commission approval and various 
agreements between PCX, PCXE and Archipelago. In this proposal, the PCX 
proposes to amend the PCXE Bylaws to permit an officer or director of a 
facility of PCXE to serve on its Board. The proposed rule change would 
permit an Archipelago officer or director to serve on the PCXE Board.
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    \5\ See Securities Exchange Act Release No. 34-43608 (Nov. 21, 
2000), 65 FR 78822 (Dec. 15, 2000) (Notice of File No. SR-PCX-00-25 
proposing to create a new electronic trading facility of the PCXE 
called Archipelago Exchange).
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    Specifically, the proposed amendment to the bylaw states that 
``(a)n officer or director of a facility of the Corporation may serve 
on the Board of Directors.'' Although the proposal would permit an 
officer or director of a PCXE facility to serve on the PCXE Board, the 
proposal will not alter any of the PCXE Board composition or nomination 
requirements.\6\ The PCXE Board will continue to be comprised of fifty 
percent public directors (i.e., not a broker or dealer in securities or 
affiliate thereof) and at least twenty percent of the directors (but no 
fewer than two directors) will be nominees of the ETP/Equity ASAP 
Nomination Committee. In addition, the PCXE Board will continue to 
consist of not less then ten or more than twelve directors.
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    \6\ See Amendment No. 1 supra note 3.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange. 
The Commission finds that the proposed rule change is consistent with 
section 6(b) of the Act,\7\ in general, and furthers the objectives of 
section 6(b)(3),\8\ in particular, in that it is consistent with the 
fair representation principles set forth in the Act. Under section 
6(b)(3) of the Act,\9\ the rules of an exchange must assure that its 
members are fairly represented in the selection of its directors and in 
the administration of its affairs.\10\ The fair representation 
requirement of section 6(b)(3) \11\ allows statutory members to have a 
voice in an exchange's use of its self-regulatory authority. Moreover, 
this statutory requirement helps to ensure that members are protected 
from unfair, unfettered actions by an exchange pursuant to its rule, 
and that, in general, an exchange is administered in a way that is 
equitable to all those who trade on its market or through its 
facilities.
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    \7\ 15 U.S.C. 78f(b).
    \8\ 15 U.S.C. 78f(b)(3).
    \9\ 15 U.S.C. 78f(b)(3).
    \10\ In approving this rule, the Commission has considered the 
proposed rule's impact on efficiency, competition, and capital 
formation, 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(3).
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    The proposed rule change will allow an officer or a director of a 
facility of the Corporation to be on the PCXE Board, but will not alter 
the composition or nomination requirements for the PCXE Board that the 
Commission approved and found to be consistent with the Act in the 
order establishing the PCXE.\12\ Under the proposal, the PCXE Board 
will continue to consist of fifty percent public directors \13\ and at 
least twenty percent of the directors (but no fewer than two directors) 
will be nominees of the ETP/Equity ASAP Nomination Committee. In 
addition, the PCXE Board will continue to consist of not less than ten 
or more than twelve directors. Presently, the PCXE Board consists of 
ten directors, however, the Exchange has represented that requirements 
set forth by the bylaws, rules and statues will continue to be met 
whether the Board's size continues to be ten directors or is expanded 
to twelve directors. Thus, the PCXE Board will be structured in a 
manner that satisfies both the fair representation and public 
participation requirements of section 6(b)(3) of the Act.\14\
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    \12\ Securities Exchange Act Release No. 34-42759 (May 5, 2000), 
65 FR 30654 (May 12, 2000) (``PCXE Order'').
    \13\ The Commission has previously stated its belief that the 
inclusion of public, non-industry representatives on exchange 
oversight bodies is critical to make certain that an exchange 
activity works to protect the public interest in the exchange 
governance process. The Commission believes that public directors 
can provide unique, unbiased perspectives, which should enhance the 
ability of the PCXE Board to address issues in a nondiscriminatory 
fashion and foster the integrity of PCXE. See PCXE Order, supra note 
12.
    \14\ 15 U.S.C. 78f(b)(3).
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IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\15\ that the proposed rule change (SR-PCX-91-03) is approved. For 
the Commission, by the Division of Market Regulation, pursuant to 
delegated authority.\16\
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-15799 Filed 6-22-01; 8:45 am]
BILLING CODE 8010-01-M