Document ID: SEC-2005-0355-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: New York Stock Exchange, Inc.
Posted Date: 2005-12-12T05:00Z

[Federal Register: December 12, 2005 (Volume 70, Number 237)]
[Notices]               
[Page 73503-73506]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12de05-103]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52891; File No. SR-NYSE-2005-83]

 
Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change 
and Amendment Nos. 1 and 2 Thereto Relating to Amendments to the 
Exchange's Certificate of Incorporation, Constitution and Rules to 
Allow Limited Liability Companies to Become Members and Related Changes 
to the Exchange's 2005 Price List

December 5, 2005.
    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 November 28, 2005, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. On December 
1, 2005, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ On December 5, 2005, the Exchange filed Amendment No. 2 to 
the proposed rule change.\4\ The Exchange has designated this proposal 
as ``non-controversial'' pursuant to section 19(b)(3)(A) of the Act,\5\ 
and Rule 19b-4(f)(6) thereunder,\6\ which renders the proposed rule 
change effective upon filing with the Commission. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as amended, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Form 19b-4 dated December 1, 2005 (``Amendment No. 1''). 
In Amendment No. 1, the Exchange (i) modified the Purpose section to 
match the proposed rule text; (ii) amended the proposed changes to 
the Exchange Certificate of Incorporation and included a description 
of such proposed changes in the Purpose section; and (iii) made 
technical changes.
    \4\ See Partial Amendment dated December 5, 2005 (``Amendment 
No. 2''). In Amendment No. 2, the Exchange (i) clarified the purpose 
section to match the proposed rule text; (ii) made changes to the 
Exchange's 2005 Price List; (iii) deleted a paragraph in Section III 
of Exhibit 1; and (iv) made technical changes.
    \5\ 15 U.S.C. 78s(b)(3)(A).
    \6\ 17 CFR 240.19b-4(1)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes (i) to amend the Exchange's Constitution to 
allow limited liability companies (``LLCs'') to become members of the 
Exchange, (ii) a related amendment to the Exchange's Certificate of 
Incorporation, (iii) an amendment to Exchange Rule 301 to implement the 
admission to membership of LLCs under certain limited circumstances in 
order to facilitate estate planning by individual members, and (iv) an 
amendment to the Exchange's 2005 Price List to reflect an application 
fee to be charged to new LLC members and to waive the Exchange's 
transfer fee payable in connection with the transfer of a leased seat, 
if the new lease is entered into solely as a result of a transfer to an 
LLC pursuant to proposed Exchange Rule 301(e). Under the proposed rule 
change, transfers of LLC membership interests would be prohibited other 
than transfers (i) to Family Members,\7\ (ii) to grantor retained 
annuity trusts (``GRATs'') established for estate and tax planning 
purposes, (iii) by distribution of such interest by the trustee of each 
such a trust to any one or more of its beneficiaries (including a trust 
for the benefit of any one or more of them), or (iv) by gift or 
bequest, outright or in trust, by any such beneficiary, the donees and 
legatees of any such beneficiary or their donees and legatees, in each 
case subject to certain additional limitations.
---------------------------------------------------------------------------

    \7\ For purposes of proposed Exchange Rule 301(e), the term 
``Family Member'' means, with respect to any person, such person's 
spouse, domestic partner, children, stepchildren, grandchildren, 
parents, parents-in-law, grandparents, brothers, sisters, uncles, 
aunts, cousins, nephews and nieces.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on the Exchange's 
Web site (http://www.nyse.com), at the Exchange's Office of the 

Secretary, and at the Commission's Public Reference Room.

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 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 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

Amendment to Exchange Constitution and Certificate of Incorporation

    At the Exchange's annual membership meeting on April 7, 2005, the 
members voted to amend the Exchange's Constitution to allow LLCs to be 
members of the Exchange in order to facilitate estate planning by 
individual members. The Exchange's Constitution currently restricts 
membership to natural persons. This restriction has had the effect of 
limiting members from being able to include memberships in estate 
planning.
    The proposed amendment would allow members to place their seats 
into LLCs, allowing them to advance estate-planning objectives. The 
proposed amendment is also intended to prevent aggregation of control 
through LLCs, to maximize accountability, and to facilitate regulation 
and administration to the greatest extent possible.

[[Page 73504]]

    Under the proposed amendment, only individuals who are already NYSE 
members would be permitted to form an LLC for the purpose of serving as 
a member of the Exchange. The amendment would not allow a non-member to 
form an LLC for the purpose of acquiring a membership.
    When the LLC is admitted as a NYSE member, it must be wholly owned 
either by an individual who is a NYSE member or by the executor of his 
or her estate, and the LLC must own nothing other than a single NYSE 
membership, related membership revenues and, if applicable, contract 
rights with approved lessees. The LLC's trading rights cannot be 
exercised by anyone other than a lessee (who must be a broker-dealer or 
associated with a broker-dealer) who has been approved by the NYSE.
    The death of the individual member who created the LLC would 
entitle the individual's family to receive a payment from the Gratuity 
Fund and will trigger an obligation among the other members to 
contribute to the Gratuity Fund. Only when the LLC's membership is 
again owned by an individual, and that individual passes away, would 
there be a further obligation for the Gratuity Fund to make any 
payments in respect of that membership. However, so long as the LLC 
owns the membership, the LLC would be required to contribute to the 
Gratuity Fund on the same terms as any other NYSE member, except that a 
limited transfer member (as defined below) would not have to make any 
contribution to the Gratuity Fund upon the death of the limited 
transferor (as defined below) from whom the limited transfer member 
received its membership.
    LLCs admitted as NYSE members would be subject to such additional 
limitations as the Exchange's Board of Directors may impose by rule.
    At the Exchange's 2005 annual members' meeting, the membership also 
voted to make conforming amendments to the Exchange's Certificate of 
Incorporation. The proposed amendments to the Exchange's Certificate of 
Incorporation would permit ownership of Exchange memberships by persons 
other than natural persons, provided such persons are permitted to own 
memberships under the Exchange's Constitution and rules. The proposed 
amendments to the Exchange's Certificate of Incorporation are being 
made to enable LLCs to be members of the Exchange and would also permit 
the Exchange in the future to amend its Constitution and Rules to 
create other classes of membership without any further amendment to its 
Certificate of Incorporation. The proposed amendments do not eliminate 
or limit in any way the possible existence of electronic access members 
or annual members having physical access to the floor.

Implementing Rules

    Many Exchange members have asked the Exchange's Board of Directors 
and management to amend the Exchange's Rules in light of the 
Constitutional authority the members granted the Exchange's Board at 
the 2005 annual members' meeting to permit the transfer of seats to 
LLCs. The desire to transfer seats to LLCs for estate and tax planning 
purposes has been greatly enhanced by the Exchange's execution of a 
merger agreement with Archipelago Holdings, Inc., upon consummation of 
which membership interests in the Exchange will be exchanged for shares 
of a new publicly traded holding company, NYSE Group, Inc. Anticipating 
that the value of memberships could increase substantially if and as 
various merger uncertainties are resolved favorably--including the 
votes on December 6, 2005 of the Exchange members and the Archipelago 
shareholders, and approval of the transaction by the Division of Market 
Regulation--members are anxious for the Exchange to make the necessary 
rule changes as quickly as possible, to allow the transfers to be made 
before the full appreciation is reflected in the market price of 
membership interests.
    Proposed Exchange Rule 301(e) would implement the amendment to the 
Constitution with respect to a narrow category of LLCs. Under the 
proposed rule change, transfers of LLC membership interests will be 
prohibited other than transfers (i) to Family Members,\8\ (ii) to GRATs 
established for estate and tax planning purposes, (iii) by distribution 
of such interest by the trustee of each such a trust to any one or more 
of its beneficiaries (including a trust for the benefit of any one or 
more of them), or (iv) by gift or bequest, outright or in trust, by any 
such beneficiary, the donees and legatees of any such beneficiary or 
their donees and legatees, in each case subject to certain additional 
limitations. The proposed rule is designed to provide members with 
increased estate and tax planning options. The Exchange believes that 
it achieves a reasonable balance between the Exchange's interest in 
providing members with the flexibility to plan their estates and the 
Exchange's interest in regulating and protecting its membership. The 
proposed rule would impose certain additional restrictions and 
limitations on the member LLCs and would give the Exchange authority 
with respect to transfer of ownership interests in the member LLCs. The 
provisions of the proposed rule include the following:
---------------------------------------------------------------------------

    \8\ See supra note 7.
---------------------------------------------------------------------------

    (a) A requirement that the Exchange approve any member LLC and its 
governing documents, as well as the dissolution of any member LLC and 
any amendments to LLC governing documents;
    (b) A prohibition against any transfer of Exchange membership by 
any member LLC (other than an indirect transfer by reason of the 
transfer of interests in the LLC permitted under (e) below) except with 
the prior written approval of the Exchange;
    (c) A prohibition against any member LLC holding any asset other 
than a single Exchange membership, related revenues and, if applicable, 
contract rights with an approved lessee;
    (d) A prohibition against transfer of interests in any member LLC 
which transfer creates or changes ``control interests'' in the LLC 
except with Exchange approval;
    (e) Prohibition against any transfer of any equity, voting or 
ownership interest in the company other than a transfer (A) by bequest 
or lifetime gift by the Limited Transferor \9\ to any one or more of 
the Limited Transferor's Family Members (provided that no such Family 
Member transferee shall have a veto right with respect to the removal 
or replacement of the manager by the owner of the majority in interest 
of the company or any matters pertaining to any Reorganization \10\), 
(B) by lifetime gift by the Limited Transferor to one or more Qualified 
Trusts,\11\ each of which has not more than one Trustee and is governed 
by a trust instrument that has been certified to the Exchange by 
authorized legal counsel of the Limited Transferor to contain the 
provisions that

[[Page 73505]]

would cause the trust held under the instrument, if the instrument were 
duly executed, to be at the time of initial funding a grantor retained 
annuity trust, or GRAT, in which the Limited Transferor, commonly known 
as the grantor, retains a qualified interest as defined in section 
2702(b) of the Internal Revenue Code of 1986, as amended, (C) by 
distribution of such interest by the Trustee of each such trust to any 
one or more of its beneficiaries (including a trust for the benefit of 
any one or more of them), or (D) by gift or bequest, outright or in 
trust, by any such beneficiary, the donees and legatees of any such 
beneficiary or their donees and legatees;
---------------------------------------------------------------------------

    \9\ For purposes of proposed Exchange Rule 301(e), the term 
``Limited Transferor'' shall mean the individual who was the 
Exchange member who initially contributed his or her membership to 
the company, thereby causing it to become a limited transfer member 
of the Exchange within the meaning of its Constitution.
    \10\ For purposes of proposed Exchange Rule 301(e), the term 
``Reorganization'' shall mean any merger of the Exchange (or any 
successor entity) with, or any sale of all or substantially all of 
the assets of the Exchange (or any successor entity) to, another 
entity, such that any entity other than the Exchange shall either 
directly or indirectly hold a majority of the equity of the Exchange 
or all or substantially all of the assets of the Exchange. For the 
avoidance of doubt, a Reorganization shall include the Exchange's 
merger with Archipelago Holdings, Inc.
    \11\ The term ``Qualified Trust'' shall mean a trust solely for 
the benefit of the Limited Transferor and/or the Limited 
Transferor's Family Members.
---------------------------------------------------------------------------

    (f) A prohibition against any transfer of member LLC interests, if 
such transfer would result in any individual, corporation, partnership, 
company, or trust owning, directly or indirectly, a controlling 
interest (as ``control'' is described under Exchange Rule 2, taking 
into account equity, voting or ownership interests owned by fiduciaries 
only to the extent they are acting as trustee of a trust created by a 
Family Member or the estate fiduciary of an individual who was a family 
member) if (i) the transferee is a member of the Exchange or (ii) 
following such transfer, the transferee would own, directly or 
indirectly, controlling interests in more than three LLCs that are 
limited transfer members of the Exchange;
    (g) A prohibition against any member LLC having more than one 
manager or permitting any person other than the manager to take actions 
on behalf of the LLC;
    (h) Qualifications for member LLC managers;
    (i) No liability of the NYSE in connection with member LLCs and a 
requirement that member LLCs (and persons holding interests in member 
LLCs) indemnify the NYSE with respect to claims; and
    (j) An application to become a limited transfer member shall be 
subject to the posting and payment requirements provided in Exchange 
Rule 301(d) and .26 and .27 of the Supplementary Materials to Exchange 
Rule 301, except that no more than five days need elapse between the 
posting of a notice of a proposed transfer to a proposed limited 
transfer member under proposed Exchange Rule 301(e) and the 
consideration thereof rather than the ten days provided in Exchange 
Rule 301(d) and .26 of the Supplementary Materials to Exchange Rule 
301.
    The restrictions and limitations included in the proposed rule are 
intended to give the Exchange broad controls with respect to members 
that are not individuals while accommodating members' planning 
objectives.

LLC Application Fees

    Currently, the Exchange charges an application fee in the amount of 
$2,500 to membership applicants who are not associated with members or 
member organizations.\12\ It is proposed that the Exchange's Board of 
Directors establish an application fee in the amount of $5,000 in view 
of the additional costs to the Exchange in connection with memberships 
held by LLCs. The proposed LLC application fee would be in lieu of the 
$2,500 application fee referred to in the first sentence of this 
paragraph. The proposed LLC application fee, like the $2,500 
application fee payable in other cases, is in addition to the 
initiation fee payable by new members.\13\ Fees payable in connection 
with transfers to an LLC are separate from, and in addition to, fees 
payable in connection with the acquisition of a membership by the 
person who transfers his or her membership to the LLC, and fees payable 
in connection with any lease of membership.
---------------------------------------------------------------------------

    \12\ See Exchange 2005 Price List page 9, ``Registration and 
Regulatory Fees,'' for the $2,500 fee charged to non-public 
organizations and individuals.
    \13\ The Exchange 2005 Price List and .27 of the Supplementary 
Material to Exchange Rule 301 set forth a transfer fee for purchased 
and leased seats of 5% of the purchase price or the last contracted 
sale, subject to a minimum of $1,000 and a maximum of $5,000.
---------------------------------------------------------------------------

    The Exchange will waive its transfer fee of up to $5,000 payable in 
connection with the transfer of a leased seat, if the new lease is 
entered into solely as a result of a transfer to an LLC pursuant to 
proposed Exchange Rule 301(e).
2. Statutory Basis
    The proposed changes are consistent with sections 6(b)(4) \14\ and 
6(b)(5) \15\ of the Act, in that they provide for the equitable 
allocation of reasonable dues, fees, and other charges among the 
Exchange's members, and they are 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 and are not 
designed to permit unfair discrimination between customers, issuers, 
brokers, or dealers.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f(b)(4).
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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. The proposed rule change is being made in 
response to requests received from a large number of Exchange members. 
The staff of the Exchange has worked with interested members and their 
legal advisors to draft a proposed rule that will accommodate members 
in pursuing their estate and tax planning objectives.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing 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, or such 
shorter time as the Commission may designate, the proposed rule change 
has become effective pursuant to section 19(b)(3)(A) of the Act \16\ 
and Rule 19b-4(f)(6) thereunder.\17\
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). The Exchange provided the 
Commission with written notice of the Exchange's intent to file the 
proposed rule change at least five business days prior to the filing 
date.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii) permits the Commission to designate a 
shorter time if such action is consistent with the protection of 
investors and the public interest. The Exchange has requested that the 
Commission waive the 30-day operative delay, as specified in Rule 19b-
4(f)(6)(iii), and designate the proposed rule change immediately 
operative.
---------------------------------------------------------------------------

    \18\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\19\ The Commission notes that the proposed rule would impose 
certain restrictions

[[Page 73506]]

and limitations on the LLCs and would give the Exchange authority with 
respect to transfer of ownership interests in the LLCs. For instance, 
the trading rights associated with the membership transferred to the 
LLC cannot be exercised by anyone other than a lessee to whom the LLC 
has leased its membership (such lessee must be approved by the 
Exchange, pursuant to the Exchange's current requirements for 
lessees).\20\ The Commission further notes that other exchanges permit 
entities as well as individuals to own memberships. The Commission 
believes that waiving the 30-day operative delay achieves a reasonable 
balance between the Exchange's interest in providing members with the 
flexibility to establish LLCs as soon as possible for estate and tax 
planning purposes and preserving the Exchange's interest in regulating 
and protecting its membership.
---------------------------------------------------------------------------

    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
    \20\ See proposed Article II, Section 15(b) of the Exchange's 
Constitution.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such 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 purposes of the Act.\21\
---------------------------------------------------------------------------

    \21\ For purposes of calculating the 60-day period within which 
the Commission may summarily abrogate the proposed rule change under 
section 19(b)(3)(C) of the Act, the Commission considers the period 
to commence on December 5, 2005, the date the Exchange filed 
Amendment No. 2 to the proposed rule change. See 15 U.S.C. 
78s(c)(3)(C).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as amended, is consistent with the Act. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml.
); or     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NYSE-2005-83 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303.
    All submissions should refer to File Number SR-NYSE-2005-83. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml
). 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 the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSE-2005-83 and should be submitted on or before 
January 3, 2006.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\22\
---------------------------------------------------------------------------

    \22\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E5-7196 Filed 12-9-05; 8:45 am]

BILLING CODE 8010-01-P