Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10547

7See Amendment No. 1 supra note 3.

8 In approving the proposal, the Commission has

considered its impact on efficiency, competition,

and capital formation, 15 U.S.C. 78c(f).

9 15 U.S.C. 78f(b)(5). Section 6(b)(5) requires the

rules of an exchange to be designed to prevent

fraudulent and manipulative acts and practices, to

promote just and equitable principles of trade, to

foster cooperation and coordination with persons

engaged in facilitating transactions in securities, to

remove impediments to and perfect the mechanism

of a free and open market and a national market

system, and, in general, to protect investors and the

public interest.

10 15 U.S.C. 78s(b)(2).

11 17 CFR 200.30–3(a)(12).

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

2 17 CFR 240.19b–4.

a third qualified member in place

within twelve months of listing.

Finally, PCXE proposes to implement

a transition period in order to provide

its issuers with sufficient time to come

into compliance with the proposed rule

change.7 Specifically, PCXE proposes:

(i) to ‘‘grandfather’’ all public company

audit committee members qualified

under current PCX rules until they are

re-elected or replaced; and (ii) give

companies eighteen months from the

date of Commission approval of this

rule filing to recruit the requisite

members for their audit committees.

Issuers listed on PCXE as of the effective

date of the proposed rule change will

have six months to adopt a formal

written audit committee charter.

III. Discussion

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.8 In particular, the

Commission finds that the proposed

rule change furthers the objectives of

Section 6(b)(5) of the Act,9 in that it is

designed to promote just and equitable

principles of trade, to remove

impediments to and perfect the

mechanism of a free and open market

and a national market system and, in

general, to protect investors and the

public interest.

The Commission believes that the

proposed rule change will protect

investors by improving the effectiveness

of audit committee of companeis listed

on PCXE. The Commission also believes

that the new requirements will enhance

the quality and reliability of financial

statements of companies listed on PCXE

by making it more difficult for

companies to inappropriately distort

their true financial performance. These

new provisions should help to assure

that investors have quality and reliable

financial information regarding PCXE

listed issuers, including for investors

who decide to buy or sell the securities

of these issuers in secondary market

transactions.

Specifically, the Commission believes

that the proposed definition of

independence will promote the

objectivity and reliability of a

company’s financial statements. The

Commission believes that directors

without financial, familial, or other

material personal ties to management

will be more likely to objectively

evaluate the propriety of management’s

accounting, internal control, and

financial reporting practices. In

addition, the Commission considers that

the proposed provision permitting a

company to appoint one nonindependent director to its audit

committee, if the board determines that

membership on the committee by the

individual is required by the best

interests of the corporation and its

shareholders, adequately balances the

need for objective, independent

directors with the company’s need for

flexibility in exceptional and unusual

circumstances. The Commission

believes that the proposal’s requirement

that the company disclose in its next

annual proxy statement the nature of the

relationship and the board’s reasons for

determining that the appointment was

in the best interests of the corporation

will adequately guard against abuse of

the proposed exception to the

independence requirement.

In addition, the Commission believes

that requiring boards of directors of

listed companies to adopt formal

written charters specifying the audit

committee’s responsibilities, and how it

carries out those responsibilities, will

help the audit committee, management,

investors, and the company’s auditors

recognize, and understand the function

of the audit committee and the

relationship among the parties.

Moreover, the Commission believes that

the proposal’s requirement that

companies provide yearly written

confirmation regarding the

independence, financial literacy, and

financial expertise of directors, as well

as the adequacy of the audit committee

charter, will help the Exchange to

ensure that listed companies are

complying with the proposed rule

change.

The Commission believes that the

proposed rule change’s requirement that

each issuer have an audit committee

composed on three independent

directors who are able to read and

understand fundamental financial

statements, will enhance the

effectiveness of the audit committee and

help to ensure that audit committee

members are able to adequately fulfill

their responsibilities. The Commission

believes that requiring each audit

committee member to satisfy this

standard will help to ensure that the

committee as a whole is financially

literate. Moreover, the Commission

believes that requiring one member of

the audit committee to have accounting

or related financial management

expertise will further enhance the

effectiveness of the audit committee in

carrying out its financial oversight

responsibilities.

Finally, the Commission believes that

the proposed transition period will

enable issuers to determine when they

must comply with the new requirements

and will enable investors to determine

when the protections afforded by the

proposed rule change will be

operational.

IV. Conclusion

For the foregoing reasons, the

Commission finds that the proposal to

amend PCXE’s audit committee

requirements is consistent with the

requirements of the Act and the rules

and regulations thereunder.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,10that the

proposed rule change (SR–PC–00–40) is

approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–3803 Filed 2–14–01; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–43939; File No. SR–Phlx–

01–05]

Self-Regulatory Organizations; Notice

of Filing and Immediate Effectiveness

of Proposed Rule Change by the

Philadelphia Stock Exchange, Inc.

Relating to the Prohibition Against OffFloor Members Functioning as Market

Makers.

February 7, 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 January

17, 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 Exchange.

10548 Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices

3 17 CFR 240.19b(f)(6).

4AUTOM is the Exchange’s electronic order

delivery and reporting system, which provides for

the automatic entry and routing of equity option

and index option orders to the Exchange trading

floor. Orders delivered through AUTOM may be

executed manually, or automatically if they are

eligible for AUTOM’s automatic execution feature,

AUTO–X. Equity option and index option

specialists are required by the Exchange to

participate in AUTOM and its features and

enhancements. Option orders entered by Exchange

members into AUTOM are routed to the appropriate

specialist unit on the Exchange trading floor.

5Telephone call between Rick Rudolph, Counsel,

Phlx, and Jennifer Colihan, Special Counsel,

Division of Market Regulation, Commission, on

January 24, 2001.

6For example, Exchange Rule 1014, Obligations

And Restrictions Applicable To Specialists and

Registered Options Traders, sets forth numerous

obligations and restrictions applicable to ROTs on

the floor on the Exchange, including the obligation

of a ROT to engage in dealings reasonably

calculated to contribute to the maintenance of a fair

and orderly market; limitations on quote spread

parameters; limitations on price change parameters;

the requirement to yield priority to customer orders;

and in-person, on-floor quarterly trading

requirements. Off-floor traders that enter orders

through AUTOM and effectively function as market

makers are not currently subject to such affirmative

requirements and limitations.

7 15 U.S.C. 78f(b).

8 15 U.S.C. 78f(b)(5).

9 15 U.S.C. 78s(b)(3)(A).

10 17 CFR 240.19b–4(f)(6).

The Exchange has designated the

proposed rule change as constituting a

‘‘non-controversial’’ rule change under

paragraph (f)(6) of Rule 19b–4 under the

Act,3 which renders the proposal

effective upon receipt of this filing by

the Commission. 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 proposes to amend

Phlx Rule 1080 relating to the

Exchange’s Automated Options Market

(AUTOM) and Automatic Execution

system (AUTO–X),4 by adopting Rule

1080(j). This proposed rule would

prohibit members from entering, or

facilitating the entry of, limit orders in

the same options series, for the account

or accounts of the same or related

beneficial owners, in such a manner that

the member or the beneficial owner(s)

effectively is operating as a market

maker by holding itself out as willing to

buy and sell such options contract on a

regular or continuous basis.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission, the

Exchange included statements

concerning the purpose of and basis for

the proposed rule change. The text of

these statements may be examined at

the places specified in Item IV below.

The Exchange has prepared summaries,

set forth in sections A, B, and C below,

of the most significant aspects of such

statements.

A. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

1. Purpose

The purpose of the proposed rule

change is to prevent persons from

functioning as market makers through

Phlx member firms without those

persons being held to the affirmative

obligations and restrictions imposed on

on-floor market makers (Registered

Options Traders, or ‘‘ROTs’’).5 Phlx

Rule 1014(b) defines a ROT as a regular

member or a foreign currency options

participant of the Exchange located on

the trading floor who has received

permission from the Exchange to trade

in options for his own account. ROTs

are subject to numerous affirmative

trading, margin and capitalization

requirements and prohibitions pursuant

to the Act and the regulations

thereunder, and to Exchange rules.6

Phlx states that recently certain offfloor traders have demonstrated their

ability to engage in simultaneous or

near-simultaneous entry of limit orders,

to buy and sell the same options

contract. In Phlx’s view, persons

engaged in such practices are effectively

functioning as market makers from off

the floor of the Exchange.

The proposed rule would prohibit

members from entering, or facilitating

the entry of, limit orders in the same

options series from off the floor of the

Exchange, for the account or accounts of

the same or related beneficial owners, in

such a manner that the off floor member

or the beneficial owner(s) effectively is

operating as a market maker by holding

itself out as willing to buy and sell such

options contract on a regular or

continuous basis. The Exchange

proposes this change to prohibit users

from acting as market makers through

AUTOM and AUTO–X.

In determining whether an off-floor

member or beneficial owner effectively

is operating as a market maker, the

Exchange will consider, among other

things: the simultaneous or nearsimultaneous entry of limit orders to

buy and sell the same options contract;

the multiple acquisition and liquidation

of positions in the same options series

during the same day; and the entry of

multiple limit orders at different prices

in the same options series.

2. Statutory Basis

The Exchange represents that the

proposed rule change is consistent with

Section 6(b) 7 of the Act in general, and

with Section 6(b)(5) 8 of the Act in

particular, in that it is designed to

perfect the mechanisms of a free and

open market and the national market

system, protect investors and the public

interest and promote just and equitable

principles of trade by prohibiting

AUTOM users from functioning as

market makers from off the floor of the

Exchange.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

The Exchange does not believe that

the proposed rule change will impose

any burden on competition that is not

necessary or appropriate in furtherance

of the purposes of the Act.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members, Participants or Others

The Exchange has neither 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 proposed rule change has been

filed by the Exchange as a ‘‘noncontroversial’’ rule change pursuant to

Section 19(b)(3)(A) of the Act 9 and

subparagraph (f)(6) of Rule 19b–4

thereunder.10 Consequently, because the

foregoing proposed rule change: (1) does

not significantly affect the protection of

investors or the public interest; (2) does

not impose any significant burden on

competition; and (3) does not become

operative for 30 days from the date on

which it was filed, and the Exchange

provided the Commission with written

notice of its intent to file the proposed

rule change at least five days prior to the

filing date, it has become effective

pursuant to section 19(b)(3)(A) of the

Act and Rule 19b–4(f)(6) thereunder.

At any time within 60 days of the

filing of the proposed 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

proposes of the Act.

Federal Register / Vol. 66, No. 32 / Thursday, February 15, 2001 / Notices 10549

11 17 CFR 200.30–3(a)(12).

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing,

including whether the proposed rule 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 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

Section. 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–01–05 and should be submitted by

March 8, 2001.

For the Commission, by the Division of

Market Regulations, pursuant to delegated

authority.11

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 01–3801 Filed 2–14–01; 8:45 am]

BILLING CODE 8010–01–M

DEPARTMENT OF STATE

[Public Notice 3576]

Bureau of Educational and Cultural

Affairs Project To Develop a Master’s

Degree Program in Business

Administration for Croatia; Request for

Grant Proposals

SUMMARY: The Office of Global

Educational Programs of the Bureau of

Educational and Cultural Affairs in the

Department of State announces an open

competition for an assistance award to

support the Consortium of Faculties of

Economics in Croatia as the Consortium

develops a full-time Master’s Degree

program in Business Administration to

be based in the city of Zadar. Core

program instruction for the MBA

program will take place in Zadar during

the second year of the program, once a

curriculum is developed in

collaboration with the Consortium of

Faculties of Economics. Accredited

post-secondary educational institutions

and other organizations meeting the

provisions described in IRS regulation

26 CFR 1.501(c) may submit proposals

that address these objectives. The means

for achieving these objectives may

include curriculum development,

faculty training, case study

development, consultation, research,

distance education, internship training

and professional outreach to public and

private sector managers and

entrepreneurs.

Overview and Project Objectives

The project is designed to support the

development of a Master’s Degree

program in Business Administration

(MBA) in English to be based in Zadar,

while also strengthening business

education throughout Croatia. The

Consortium of Faculties of Economics in

Croatia (which includes the Universities

of Zagreb, Split, Rijeka and Osijek)

intends to develop core subjects and

specializations. The project will focus

on faculty and curriculum development

for faculty at institutions belonging to

the consortium.

Applicants are encouraged to develop

creative strategies to pursue these

objectives and that reflect an

understanding of the status,

achievements, and current needs of

business education in Croatia.

The project should pursue these

objectives through a strategy that

coordinates the participation of junior

and senior level faculty, administrators,

or graduate students for any appropriate

combination of teaching, research,

mentoring, internships, and outreach,

for exchange visits ranging from one

week to an academic year. Visits of one

semester or longer for participants from

Croatia are strongly encouraged and

program activities must be tied to the

goals and objectives of the project.

If the proposed project would occur

within the context of a previous or

ongoing project, the proposal should

explain how the request for Bureau

funding would build upon the preexisting relationship or complement

previous and concurrent projects, which

must be listed and described with

details about the amounts and sources

of external support. Previous projects

should be described in the proposal,

and the results of the evaluation of

previous cooperative efforts should be

summarized.

The project should pursue these

objectives through a strategy that

coordinates the participation of junior

and senior level faculty, administrators,

or graduate students for any appropriate

combination of teaching, research,

mentoring, internships, and outreach,

for exchange visits ranging from one

week to an academic year. Visits of one

semester or longer for participants from

Croatia are strongly encouraged and

program activities must be tied to the

goals and objectives of the project.

If the proposed project would occur

within the context of a previous or

ongoing project, the proposal should

explain how the request for Bureau

funding would build upon the preexisting relationship or complement

previous and concurrent projects, which

must be listed and described with

details about the amounts and sources

of external support. Previous projects

should be described in the proposal,

and the results of the evaluation of

previous cooperative efforts should be

summarized.

U.S. Institution and Participant

Eligibility

In the United States, participation in

the program is open to accredited two

and four-year colleges and universities,

including graduate schools as well as

other organizations meeting the

provisions described in IRS regulation

26 CFR 1.501(c). Applications from

consortia or other combinations of U.S.

colleges and universities are eligible.

The lead U.S. organization in the

consortium or other combination of

cooperating institutions is responsible

for submitting the application. Each

application must document the lead

organization’s authority to represent all

U.S. cooperating partners.

With the exception of outside

consultants reporting on the degree to

which project objectives have been

achieved, participants who are traveling

under the Bureau’s grant funds must be

teachers, advanced graduate students

who are teaching or research assistants,

or administrators from the participating

institution(s). Participants representing

the U.S. institution(s) must be U.S.

citizens. Advanced graduate students

are eligible for Bureau-funded

participation in this program only if

they are working under the direction of

an accompanying faculty participant or

project director on the achievement of

project objectives.

Croatian Institutional and Participant

Eligibility

The Croatian partner is the

Consortium of Faculties of Economics in

Croatia. Secondary foreign partners may

include relevant governmental and nongovernmental organizations, as well as

non-profit service and professional

organizations concerned with the

development of the MBA Program in

Croatia. Foreign participants must be

instructors at a university belonging to