Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Notices 29777

6 15 U.S.C. § 78f(b).

7 15 U.S.C. § 78f(b)(3). Section 6(b)(3) of the Act

also provides that one or more directors be

representative of issuers and investors and not

associated with a member of the exchange or a

broker-dealer. Article II, Section 1(a)(2) of the Amex

Constitution provides that at least 12 Board

members must be representatives of the public. This

rule proposal does not change this requirement in

the Exchange Constitution.

8 15 U.S.C. § 78f(b)(5).

9 15 U.S.C. § 78s(b)(2).

10 17 CFR 200.30–3(a)(12).

1On June 5, 1996, the NASD filed Amendment

No. 1 to the proposed rule change. Amendment No.

1 amends Article VI, Section 5 to clarify that, in a

contested election, the term of office of a candidate

certified by the National Nominating Committee for

inclusion on the ballet for the election of Governors

pursuant to Article VI, Section 7(c) would be

identical to the term of office of a candidate

nominated by the National Nominating Committee

pursuant to Article VI, Section 7(c). Amendment No

1 also amends Article VI, Section 7(a) to clarify that

any person elected to the Board of Governors must

be nominated or certified by the National

Nominating Committee. See Letter from Suzanne E.

Rothwell, Associate General Counsel, NASD to

Katherine A. England, Assistant Director, Division

of Market Regulation, Commission (dated June 4,

1996).

III. Discussion

The Commission finds that the

proposed rule changes are consistent

with the requirements of the Act and the

rules and regulations thereunder

applicable to a national securities

exchange and, specifically, with the

requirements of Section 6(b).6 In

particular, the Commission believes that

the proposal is consistent with Sections

6(b)(3) and 6(b)(5) of the Act,

respectively, in that is assures fair

representation of exchange members in

the selection of its directors and

administration of its affairs,7 and is

consistent with the protection of

investors and the public and with the

maintenance of fair and orderly

markets.8

More specifically, the Commission

finds that the Amex’s proposal to permit

the appointment of two member ViceChairmen, one from the trading floor

and one from the upstairs community,

serves to codify the Exchange’s custom

of equal representation between upstairs

members and floor members and is,

therefore, consistent with the fair

representation requirement of Section

6(b)(3).

Regarding the creation of the

Executive Vice-Chairman position, the

Commission believes that this should

permit the Exchange to improve the

administration of its affairs, and is thus

consistent with Section 6(b)(3).

With respect to increasing from two to

three the maximum number of third

term Governors who can be

representatives of the public, the

Commission believes that the proposal

appropriately balances the Exchange’s

competing interests of needing to retain

certain governors with special levels of

expertise on its Board, while at the same

time continuing to promote diversity of

Board representation among the

different categories of member firms

and, more importantly, the public. The

Commission notes that the Exchange

will continue to have a prohibition

against more than four governors

serving a third term and that this should

ensure continued diversity of

viewpoints on the Exchange’s Board,

while giving the Exchange the flexibility

to extend the number of terms of its

public Board members for sound

business reasons.

Finally, the Commission believes that

the changes to the Emergency

Committee and the Executive

Committee are appropriate in light of

the creation of the Executive ViceChairman and additional Vice-Chairman

positions. In this regard, the

Commission believes that these changes

do not substantially alter the

composition of these Committees.

Accordingly, the Commission believes

that the proposal is consistent with the

requirements of Sections 6(b)(3) and

6(b)(5) of the Act.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,9 that the

proposed rule change (SR–Amex–96–

14) is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–14906 Filed 6–11–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37282; File No. SR–NASD–

96–20]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

National Association of Securities

Dealers, Inc. Relating to Changes in

the Structure of the NASD Board of

Governors

June 6, 1996.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on May 28, 1996,1 the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

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 NASD. 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 NASD is proposing to amend the

NASD’s By-Laws. The text of the

proposed rule change is available at the

Office of the Secretary, NASD and at the

Commission.

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

NASD 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

may be examined at the places specified

in Item IV below. The NASD 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

Background

In 1995, the NASD Board of

Governors (‘‘Board’’) appointed The

Select Command on Structure and

Governance (‘‘Select Committee’’) to

examine the corporate structure,

governance, and functions of the NASD

and to recommend changes and

improvements to enable the NASD to

meet its regulatory and business

obligations. The Select Committee

reported to the Board at its September

1995 meeting and recommended, among

other things, the establishment of two

distinct subsidiaries; one to perform the

regulatory functions of the NASD and

the other to run The Nasdaq Stock

Market (‘‘Nasdaq’’). The Select

Committee recommended that each

subsidiary have an independent Board

of Directors and that the NASD remain

as parent corporation overseeing the

operations of both subsidiaries.

In January 1996, the NASD created a

new subsidiary, NASD Regulation, Inc.

(‘‘NASD Regulation’’) to provide

regulation and member and constituent

services, with the NASD retaining

responsibility for general oversight over

the effectiveness of the self-regulatory

and business operations of the NASD

and its major subsidiaries, Nasdaq and

NASD Regulations, and final

policymaking authority for the

association as a whole. The NASD also
29778 Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Notices

2Securities Exchange Act Release No. 37106

(April 11, 1996), 61 FR 16944 (April 18, 1996)

(‘‘Release 34–37106’’); Securities Exchange Act

Release No. 37107 (April 11, 1996), 61 FR 16948

(April 18, 1996) (‘‘Release 34–37107’’).

3The rule language published for member vote in

Special Notice to Members 96–35 treated as if

adopted the rule changes published for member

vote in Notice to Members 95–101 and 96–01

(January 1996). The latter Notice proposed to adopt

amendments to the By-Laws to require members to

file required documents electronically. These

amendments will be filed shortly.

4Certain minor, non-substantive changes from the

rule language published for member vote in Special

Notice to Members 96–35 have been made to the

rule language proposed herein to correct

inadvertent errors and, in particular, to ensure that

the language of the proposed rule change is

consistent with the reorganization of the NASD

Manual.

5 In recognition of this assignment of

responsibility, the Board of Directors of NASD

Regulation adopted a resolution at its May 13, 1996,

meeting to appoint the Districts and District

Committees as Districts and District Committees of

NASD Regulation.

6The new version of the NASD Manual is divided

into four sections (Administrative, Corporate

Organization, Rules of the Association, and SEC

Rules and Regulation T) and includes an expanded

key work index. See Notice to Members 96–25

(April 1996).

7The definition published for member vote in

Special Notice to Members 96–35, attached as

Exhibit 2 to the proposed rule change, has been

modified to eliminate certain rule language that

would not have been consistent with the

reorganized NASD Manual.

adopted Select Committee proposals to

restructure and reduce the size of the

NASD Board and to implement policies

to ensure a balance of non-industry and

industry representation on the Nasdaq

and NASD Regulation Boards. In Notice

to Members 95–101 (December 11,

1995), members were asked to vote on

By-Law changes to implement these

policies. The amendments proposed in

the Notice to Members would have: (1)

deleted Article V of the NASD By-Laws

related to Affiliated Registered

Securities Associations; (2) amended

Article VII of the NASD By-Laws to

create a national nominating committee

to nominate persons to serve on the

Board of Governors and reconstitute the

Board as a majority non-industry Board;

and (3) amend Article X to identify the

Chief Executive Officers as the most

senior executive of the NASD.

Following member approval of the

proposed By-Law changes, the SEC, on

April 11, 1996, granted temporary

approval for a period of 90 days to the

amendments to Article VII Sections 4

and 6 that restructure the Board and to

a new NASD rule providing for the

delegation of the authority to act on

behalf of the NASD to NASD Regulation

and Nasdaq pursuant to the ‘‘Plan of

Allocation and Delegation of Functions

by NASD to Subsidiaries’’ (‘‘Delegation

Plan’’).2 The Delegation Plan sets forth

the purposes, functions and governance

procedures of the three corporations

working together.

In order to complete the

reorganization and restructuring

contemplated by Notice to Members 95–

101 and by the Delegation Plan, the

NASD published for member vote

further amendments to the NASD ByLaws in Special Notice to Members 96–

35.3 The last date for member vote is

June 22, 1996. The proposed rule

change filed herein, therefore,

incorporates amendments approved by

the membership in Notice to Members

95–101 and Special Notice to Members

96–35, that were not previously

approved by the Commission in Release

34–37106.

Description of Proposed Rule Change 4

The proposed rule change would

permit the NASD to continue the

restructuring necessary to implement

the principles articulated in the report

of the Select Committee. The NASD is

proposing to amend its By-Laws to

complete the reorganization proposed in

Notice to Members 95–101 and to make

the By-Laws consistent with the

Delegation Plan approved by the

Commission in Release 34–37107 by

providing for the creation of a national

nominating committee to identify and

nominate for election industry and nonindustry persons to serve on the Board

and by deleting sections and language

now unnecessary or inappropriate as a

result of the Delegation Plan. Included

in the proposed rule change is the

deletion of nearly all references to the

Districts and local administration,

because responsibility for the local

administration of regulatory affairs

under the Delegation Plan has been

assigned to NASD Regulation.5 The

NASD is also proposing to amend its

By-Laws to conform terms and rule

citations to those used in the

reorganized NASD Manual, including,

for example, replacing the term ‘‘Code

of Procedure’’ with ‘‘Procedural

Rules,’’ 6 and to make various

miscellaneous clarifying corrections to

the By-Laws. Changes to punctuation

and other minor, non-substantive

changes to the rule language will not be

described below. Finally, all references

to the NASD ‘‘Certificate of

Incorporation’’ are being changed to the

‘‘Restated Certificate of Incorporation’’

to reflect that the Certificate of

Incorporation has been amended to be

consistent with the changes previously

adopted and proposed herein to the ByLaws.7

Article I. Definitions

The NASD is proposing three new

definitions. ‘‘Delegation Plan’’ is the

term by which the ‘‘Plan of Allocation

and Delegation of Functions by NASD to

Subsidies’’ will be known.

‘‘Corporations’’ and ‘‘Boards’’ are the

terms that will refer to the NASD, its

subsidiaries and their boards of

directors.

In addition, the definition of ‘‘Act’’ is

proposed to be revised to match the

definition in the Delegation Plan, and

the definition of ‘‘rules of the

Corporation’’ to be consistent with the

various references to rule in the

reorganized NASD Manual.7

Finally, the definition of ‘‘bank’’ is

proposed to be revised to expand the

reference to national banks to include

the citation that such banks are

included in the definition that are

‘‘under the authority of the Comptroller

of the Currency pursuant to the first

section of Public Law 87–722 (12 U.S.C.

92a). * * *.’’

Article II. Qualifications of Members

and Associated Persons

Sec. 1. Persons Eligible To Become

Members and Associated Persons of

Members

No change.

Sec. 2. Authority of Board To Adopt

Qualification Requirements

The NASD is proposing to delete the

second sentence of Subsection (c),

which authorizes the Board to amend its

rules related to qualification

requirements without recourse to the

membership for vote, because the

provision is redundant to Sec. 1(a)(2) of

Article VI (formerly Article VII).

Sec. 3. Ineligibility of Certain Persons

for Membership or Association

The NASD is proposing to replace

‘‘Code of Procedure’’ in Subsection (d)

with the more general term ‘‘Procedural

Rules,’’ as used in the reorganized

NASD Manual.

Sec. 4. Definition of Disqualification

No change.

Article III. Membership

Sec. 1. Application for Membership

In a change made necessary by the

Delegation Plan, the NASD is proposing

to amend Subsection (a)(3) of this

provision to extend to the Nasdaq and

NASD Regulation Boards, committee

members, officers, and employees

protection from liability for action taken

within the scope of authority, except for
Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Notices 29779

willful malfeasance. See also Article IV,

Sec. 2(a)(2) of the By-Laws. The NASD

is further proposing to replace ‘‘Board of

Governors’’ with ‘‘Corporation’’ in

Subsection (a)(4) because it is the

corporate staff that requests information

and processes applications for

membership.

Consistent with the reorganized

NASD Manual, which moved

membership application procedures to

the Procedural Rules, the NASD is

proposing to delete rule language in

Subsection (b) providing a procedure for

the processing of membership

applications and to add language

requiring that applications be processed

in the manner set forth in the

Procedural Rules.

The NASD is also proposing to delete

Subsection (c), as part of the general

deletion references to Districts.

Sec. 2. Similarity of Membership Names

No change.

Sec. 3. Executive Representative

No change.

Sec. 4. Membership Roll

No change.

Sec. 5. Resignation of Members

The NASD is proposing to replace

‘‘Code of Procedure’’ with ‘‘Procedural

Rules.’’

Sec. 6. Retention of Jurisdiction

The NASD is proposing to replace

‘‘Code of Procedure’’ with ‘‘Procedural

Rules.’’

Sec. 7. Transfer and Termination of

Membership

The NASD is proposing to replace

‘‘Rules of Fair Practice’’ with ‘‘rules of

the Corporation’’ in Subsection (a).

Sec. 8. Registration of Branch Offices

The NASD is proposing to amend

Subsection (a) to change the crossreference from Article VI to Article V, as

current Aritcle V is proposed to be

deleted.

Sec. 9. Vote of Branch Offices

The NASD is proposing to delete this

section, as part of general deletion of

references to Districts.

Sec. 10. District Committees’ Right to

Classify Branches

The NASD is proposing to delete this

section, as part of the general deletion

of references to districts.

Article IV. Registered Representatives

and Associated Persons

Sec. 1. Qualification Requirements

No change.

Sec. 2. Application for Registration

The NASD is proposing to amend

Subsection (a)(1) to make a nonsubstantiative correction to replace the

word ‘‘including’’ with ‘‘and.’’ As in

Article III, Sec. 1(a)(3), in a change made

necessary by the Delegation Plan, the

NASD is proposing to amend

Subsection (a)(2) to extend to the

Nasdaq and NASD Regulation Boards,

committee members, officers, and

employees protection from liability for

action taken within the scope of

authority, except for willful

malfeasance. See also Article IV, Sec.

2(a)(2) of the By-Laws. Moreover, all

references to the ‘‘Board of Governors’’

are proposed to be changed to

‘‘Corporation.’’

Sec. 3. Notification by Member to

Corporation and Associated Person of

Termination; Amendments to

Notification

The NASD is proposing to amend

Subsection (a) to replace ‘‘Code of

Procedure’’ with ‘‘rules of the

Corporation,’’ ‘‘Board of Governors’’

with ‘‘Corporation,’’ and ‘‘Association’’

with ‘‘Corporation.’’

Sec. 4. Retention of Jurisdiction

The NASD is proposing to amend the

introduction to replace ‘‘Code of

Procedure’’ with ‘‘rules of the

Corporation’’ and to amend the

introduction and Subsection (b) to

clarify that the reference to Rule 8210 is

to an NASD rule

Article V. Affiliates

The NASD is proposing to delete

Article V to remove an unnecessary

reference to the affiliation of other

Registered Securities Associations with

the NASD. Such affiliations remain

authorized by Section 15A of the Act.

Article VI. Dues, Assessments and

Other Charges

This Article is proposed to be

redesignated as Article V.

Sec. 1. Power of Board To Fix and Levy

Assessments

The NASD is proposing to replace

references to the ‘‘Board of Governors’’

with ‘‘Corporation’’ in the section

heading and text, and to delete language

that is redundant to Sec. 1(a)(2) of

Article VI (formerly Article VII) that

authorizes the Board to adopt changes to

any fee, due, or assessment without

recourse to the membership for vote.

Sec. 2. Reports of Members

No change.

Sec. 3. Suspension or Cancellation of

Membership or Registration

No change.

Sec. 4. Reinstatement of Membership or

Registration

No change.

Article VII. Board of Governors

This Article is proposed to be

redesignated as Article VI.

Sec. 1. Powers and Authority of Board

of Governors

The NASD is proposing to replace

‘‘Rules,’’ with the more general

reference to the defined term ‘‘rules of

the Corporation’’ in Subsections (a)(2)

and (3).

In conjunction with the

implementation of the Delegation Plan,

the NASD is proposing to add a new

Subsection (c) that sets forth the

authority of the Corporation to delegate

functions, provided that such

delegations are not inconsistent with the

Delegation Plan.

Sec. 2. Authority To Suspend for Failure

to Submit Required Information

The NASD is proposing to change

numerous references to the ‘‘President’’

in this Subsection (b) and in other ByLaw sections to ‘‘Chief Executive

Officer’’ to make clear that the person

referenced is the most senior executive

of the Association.

Sec. 3. Authority To Take Action Under

Emergency or Extraordinary Market

Conditions

The NASD is proposing to eliminate

the special committee established by

Section 3 that has authority to take

action in case of emergencies or

extraordinary market conditions when

the full Board is not available. Instead,

the NASD is proposing that either the

full Board, or any person or persons

designated by the Board, have authority

to take action under emergency

conditions.

Sec. 4. Composition and Qualifications

of the Board

The amendments approved by the

Commission in Release No. 34–37106

reorganized Section 4 to Article VII into

one provision that reconstituted the

NASD Board of Governors as a smaller,

majority Non-industry Board,

comprising the Chief Executive Officer,

one or more Non-Industry Governors

representative of issuers and investors

and not associated with an NASD

member, and one or more Industry

Governors. This change reduced the

minimum size of the Board from 25 to

5. The rule change also adopted
29780 Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Notices

8See also Section I.C. of the Delegation Plan,

which contains provisions applicable to the

composition, nomination, and election of

Governors. Release 34–37107.

9See Release 34–37107. The Delegation Plan

provides that the National Nominating Committee

shall be composed of at least 6 and not more than

9 members, equally balanced between Industry and

Non-industry Committee Members (including at

least 2 Public Committee Members), with 2

members of the National Nominating Committee

selected by NASD, NASD Regulation, and Nasdaq,

respectively. The National Nominating Committee

shall propose to the NASD Board one or more

nominees for each vacant or new Governor position,

and for each Director position on the Boards of

Directors of the Subsidiaries.

10 In Notice to Members 95–101, this provision

was proposed to be deleted and replaced by new

Section 9 that would provide authority to the Board

for action by written consent. In Special Notice to

Members 96–35, the new provision was proposed

to be deleted since this authority is already

provided by operation of Delaware General

Corporation Law.

definitions of Industry and NonIndustry Governors.

The NASD is proposing to reorganize

this section into two subsections. The

amendments retain in Subsection (a) the

new organization of the Board as a

majority Non-Industry Board but delete

the definitions of Industry and NonIndustry Governor, because those terms,

and a definition of Public Governor, are

now contained at Section I.A. of the

Delegation Plan, which definitions also

apply to the Directors of Nasdaq and

NASD Regulation.8 As revised, this

section requires that the Board of

Governors be composed in a manner

consistent with the Delegation Plan and

Section 15A(b)(4) of the Securities

Exchange Act of 1934. This will ensure

that the Board will at all times include

full representation of issuers, investors,

and the securities industry, with a NonIndustry majority. In addition, new

Subsection (b) incorporates from Article

X (to be redesignated Article VII),

Section 1 rule language providing for

the election by the Board of Governors

of a Chairman and such other persons

having titles as the Board may choose.

Sec. 5. Term of Office of Governors

The NASD is proposing to amend this

provision to provide that, except for the

Chief Executive Officer, no Governor

may serve more than two consecutive

three-year terms; with the limited

exception that a Governor appointed to

fill a term of less than one year may

serve up to two consecutive terms

following the expiration of that

Governor’s current term.

Sec. 6. Filling of Vacancies

The NASD is proposing to amend this

provision to clarify that the filling of

vacancies cannot be inconsistent with

the Delegation Plan.

Sec. 7. Election of Board Members

Consistent with Section I.C. of the

Delegation Plan, which describes the

procedures for the nomination and

election of NASD Governors, the NASD

is proposing to amend this Section to

replace all current language with new

Subsections (a), (b) and (c) that provide

that the members of the NASD Board of

Governors shall be elected by a plurality

of the votes of the members of the NASD

that are present in person or represented

by proxy at the annual meeting of the

NASD and entitled to vote. The

provision further authorizes the Board

of Governors to establish a National

Nominating Committee, which will

consist of six or more persons meeting

qualifications to be established by the

NASD Board in conformance with the

Delegation Plan,9 to nominate or certify

one or more persons for each

governorship up for election. Any

person nominated or certified for

election to the Board is required to have

demonstrated to the National

Nominating Committee that that person

meets the applicable qualifications for

the position.

Sec. 8. Filling of Vacancies on Board

This provision is proposed to be

deleted consistent with the prior

approval of a new provision as Section

6 that provides a procedure for the

filling of vacancies on the Board of

Governors in Release 34–37106. See

discussion above regarding Section 6.

Sec. 9. Meetings of Board

This section is proposed to be

redesignated as Sec. 8. The title of this

provision is proposed to be changed to

‘‘Meetings of the Board; Quorum;

Required Vote.’’ The NASD is proposing

to clarify that a quorum of the Board

shall consist of a majority of the ‘‘total

number’’ of the Governors, rather than

a majority of the ‘‘members’’ of the

Board. The current rule language

permitting meetings by mail, telephone

or telegraph is proposed to be amended

to permit members of the Board or any

committee of the NASD to participate in

a meeting by communications facilities

that permit the parties to hear and speak

to each other. It is further clarified that

participation in a meeting constitutes

the person’s presence at a meeting. The

current rule language is retained that no

member of the Board shall vote by proxy

at any meeting.

Sec. 10. Offices of Corporation

This section is proposed to be deleted

as unnecessary as it restates what is true

by operation of law; namely, that the

NASD may maintain such offices as the

Board of Governors may deem

necessary.10

Article VIII. District Committees and

Article IX. Nominating Committees

These two articles that address the

creation of District Committees and of

District Nominating Committees,

respectively, are proposed to be deleted,

as part of the general deletion of

references to Districts. As noted above,

the local administration of regulatory

affairs under the Delegation Plan is now

the responsibility of NASD Regulation,

and the NASD Regulation Board has

appointed the Districts and District

Committees as that corporation’s

mechanisms for local administration.

Article X. Officers and Employees

This Article is proposed to be

redesignated as Article VII. The words

‘‘and Employees’’ have been deleted

from the article title, because this article

concerns only officers of the

Corporation, not employees.

Sec. 1. Election of Officers of the Board

This provision has been relocated in

Article VII (redesignated VI), Section

4(b). The current rule language specifies

that the provision applies to the election

by the Board of a ‘‘Chairman, one or

more Vice Chairmen, and such other

officers as it shall deem necessary or

advisable. * * *’’ The proposed rule

change in Section 4(b) would modify

the rule language of the provision to

reference only the Chairman ‘‘and such

other persons having titles as it shall

deem necessary or advisable. * * *’’

Sec. 2. Officers of the Corporation

This Section is proposed to be

redesignated as Sec. 1. The title is

proposed to be deleted as redundant of

the article title. This provision is

proposed to be amended to specify that

the powers and duties assigned to the

Chief Executive Officer of the

Corporation may not be inconsistent

with the requirements of the Delegation

Plan, and therefore deletes the Chief

Executive Officer’s ex-officio

membership in all committees.

Sec. 3. Absence of President

This Section is proposed to be

redesignated as Sec. 2. The title is

proposed to be changed to ‘‘Absence of

Chief Executive Officer.’’

Sec. 4. Employment of Counsel

This Section is proposed to be

redesignated as Sec. 3.

Sec. 5. Administrative Staff

This Section is proposed to be

redesignated as Sec. 4. The NASD is
Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Notices 29781

11 15 U.S.C. § 78o–3.

proposing to amend this provision to

clarify that determinations of the NASD

Board regarding the employment of

administrative staff shall not be

inconsistent with the Delegation Plan.

Sec. 6. Compensation of Board and

Committee Members

This Section is proposed to be

redesignated as Sec. 5. The provision is

proposed to be revised to delete a

reference to District Committees and to

reference, instead, any committee of the

Corporation.

Article XI. Committees

This Article is proposed to be

redesignated as Article VIII.

Sec. 1. National Committees

The NASD is proposing to delete the

section subtitle of ‘‘National

Committees’’ as unnecessary in light of

the deletion of Section 2 and to amend

the provision to clarify that the

determination of the Board with respect

to the establishment of committees shall

not be inconsistent with the Delegation

Plan.

Sec. 2. Committees of the Districts

This provision is proposed to be

deleted, as part of the general deletion

of references to Districts.

Sec. 3. Removal of Committee Member

This section is proposed to be

redesignated as Sec. 2. The NASD is

proposing to amend this provision to

change the reference to Article XI to

Article VIII, and delete references to

District Committees.

Sec. 4. Executive Committee

This provision is proposed to be

deleted, because the authority to create

an Executive Committee exists by

operation of Delaware General

Corporation Law and Section 1 of this

Article.

Article XII. Rules of Fair Practice

This Article is proposed to be

redesignated as Article IX. The NASD is

proposing to delete ‘‘Sec. 1,’’ because

there is only one section.

Article XIII. Disciplinary Proceedings

This Article is proposed to be

redesignated as Article X.

Sec. 1

The NASD is proposing to delete

language that is redundant to Sec.

1(a)(2) of Article VI (formerly Article

VII) that authorizes the Board of

Governors to amend the Procedural

Rules without the need for membership

vote.

Sec. 2

No change.

Article XIV. Powers of Board To

Prescribe Sanctions

This Article is proposed to be

redesignated as Article XI.

Sec. 1

The NASD is proposing in Subsection

(c) to change the word ‘‘Code’’ to

‘‘Arbitration Code’’ to clarify the

reference to this code and in Subsection

(e) to delete references to committees

that are now committees of NASD

Regulation.

Article XV. Uniform Practice Code

This Article is proposed to be

redesignated as Article XII.

Sec. 1. Authority To Adopt Code

The NASD is proposing to delete the

last sentence of the section, which is

redundant to Sec. 1(a)(2) of Article VI

(formerly Article VII).

Sec. 2. Administration of Code

The NASD is proposing to replace the

word ‘‘code’’ with ‘‘Uniform Practice

Code’’ in the last sentence to clarify the

reference.

Sec. 3. Transactions Subject to Code

The NASD is proposing to replace the

word ‘‘code’’ with ‘‘Uniform Practice

Code’’ in the last sentence to clarify the

reference.

Article XVI. Limitation of Powers

This Article is proposed to be

redesignated as Article XIII.

Sec. 1. Prohibitions

No change.

Sec. 2. Use of Name of Corporation by

Members

No change.

Sec. 3. Unauthorized Expenditures

The NASD is proposing to delete the

reference to District Committees and

replace ‘‘President’’ with ‘‘Chief

Executive Officer.’’

Sec. 4. Conflicts of Interest

The NASD is proposing to delete

language which is now redundant of

language of the Procedural Rules in the

reorganized NASD Manual.

Sec. 5. Municipal Securities

No change.

Sec. 6. Government Securities

No change.

Article XVII. Procedure for Adopting

Amendments to By-Laws

This Article is proposed to be

redesignated as Article XIV. The NASD

is proposing to delete ‘‘Sec. 1,’’ because

there is only one section.

Article XVIII. Corporate Seal

This Article is proposed to be

redesignated as Article XV. The NASD

is proposing to delete ‘‘Sec. 1,’’ because

there is only one section.

Article XIX. Checks.

This Article is proposed to be

redesignated as Article XVI. The NASD

is proposing to delete ‘‘Sec. 1,’’ because

there is only one section.

Article XX. Annual Financial Statement

This Article is proposed to be

redesignated as Article XVII. The NASD

is proposing to delete ‘‘Sec. 1,’’ because

there is only one section.

Requested Effective Date

The NASD is requesting that the

proposed rule change be effective no

later than July 11, 1996, as the 90-day

temporary approval granted by the SEC

to the proposed restructuring of the

NASD Board and to the Delegation Plan

expires on July 10, 1996.

The NASD believes that the proposed

rule change is consistent with the

provisions of Sections 15A(b)(2), (4),

and (6) of the Act 11 in that the

restructured organization will: (1)

provide for the organization of the

Association in a manner that will permit

the Association, through its operating

subsidiaries, to carry out the purposes of

the Act, to comply with the Act, and to

enforce compliance by Association

members and persons associated with

members with the Act, the rules and

regulations thereunder, the rules of the

Association and the federal securities

laws; (2) provide for the fair

representation of members, issuers and

investors on the Board of Governors and

in the administration of the NASD’s

affairs; and (3) enhance the NASD’s

ability to protect investors and the

public interest in furtherance of the

purposes of the Act.

(B) Self-Regulatory Organization’s

Statement on Burden on Competition

The NASD does not believe that the

proposed rule change will result in any

burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act, as amended.
29782 Federal Register / Vol. 61, No. 114 / Wednesday, June 12, 1996 / Notices

1See Securities Exchange Act Release No. 34235

(June 17, 1994), 59 FR 32736 (June 24, 1994) (File

No. SR–PHLX–93–31) (order approving proposed

rule change establishing new listing and

maintenance standards).

2 Id.

3See Securities Act Release No. 6810 (Dec. 6,

1988) (publicizing the release of the MOU).

4The MOU between NASAA and the NASD

contained the same drafting error as the drafting

error described herein. The MOU incorrectly

incorporated some of the language from Tier I

public float and public shareholder requirements

into the Tier II requirements. In the MOU between

NASAA and the Exchange on October 12, 1994, the

same error occurred.

(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. However, in

connection with the publication of

certain parts of the proposed rule

change for member vote in Notice to

Members 95–101, attached as Exhibit 2

to rule filing SR–NASD–96–02, the

NASD receive three comments, which

were attached as Exhibit 4 to SR–

NASD–96–02. The NASD’s statement on

the comments received with respect to

Notice to Members 95–101 is set forth

in rule filing SR–NASD–96–02 and was

published by the Commission in Release

34–37106.

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 the self-regulatory

organization 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.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, N.W.,

Washington, D.C. 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 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 NASD. All

submissions should refer to the file

number in the caption above and should

be submitted by July 3, 1996.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority, 17 CFR 200.30–3(a)(12).

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 96–14905 Filed 6–11–96; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–37279; File No. SR–PHLX–

96–16]

Self-Regulatory Organizations; Notice

of Filing of Proposed Rule Change by

the Philadelphia Stock Exchange

Relating to Listing Standards

June 5, 1996.

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

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. § 78s(b)(1), notice is

hereby given that on May 20, 1996, the

Philadelphia Stock Exchange, Inc.

(‘‘PHLX’’ or ‘‘Exchange’’) 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 self-regulatory

organization. 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 Exchange, pursuant to Rule 19b–

4 of the Act, proposes to revise PHLX

Rule 804(2) in order to correct a drafting

error, which occurred when the rule

was originally adopted.1 The text of the

proposed rule change is as follows [new

text is italicized; deleted text is

bracketed]:

Alternative Criteria for Listing-Tier I

PHLX Rule 804 No change.

(1) No change.

(2) At least 1,000,000 shares publicly

held with at least [800 public

shareholders if the issuer has between

500,000 and 1 million shares publicly

held, or at least] 400 public

shareholders [if the issuer has either (i)

over 1 million shares publicly held or

(ii) over 500,000 shares publicly held

and average daily trading volume in

excess of 2,000 shares per day for a six

month period preceding the date of

application].

(3)–(7) No change.

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

self-regulatory organization 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 may be examined at

the places specified in Item IV below.

The self-regulatory organization has

prepared summaries, set forth in Section

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

In June 1994, the Exchange adopted

new listing criteria for equity securities

under a two tier approach.2 Tier I

securities are listed pursuant to Rule

803 or 804. Rule 803 is the main Tier

I listing rule whereas Rule 804 sets forth

alternative criteria geared toward

research and development companies.

Both Rule 803 and Rule 804 are based

substantially upon the Memorandum of

Understanding (‘‘MOU’’) on the uniform

model marketplace exemption that had

been approved by the National

Association of Securities Dealers, Inc.

(‘‘NASD’’) and the North American

Securities Administrative Association,

Inc. (‘‘NASAA’’).3 Rule 804 was

supposed to mirror Alternative 2 of the

MOU listing criteria, however, when it

was drafted, subsection (2), which sets

forth the public float and public

shareholder requirements, incorrectly

incorporated some of the language of the

Alternative 1 public float/shareholder

requirements. To date, the Exchange has

not listed any companies pursuant to

the alternative criteria in Rule 804.

The proposed revision would require

issuers that seek listing pursuant to Rule

804 to show that there are at least

1,000,000 shares publicly held and at

least 400 public shareholders in the

security. This rule once revised would

reflect the original intent of the

Exchange and the MOU.4