Document ID: SEC-2006-0867-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: Chicago Stock Exchange, Inc.
Posted Date: 2006-07-10T04:00Z

[Federal Register: July 10, 2006 (Volume 71, Number 131)]
[Notices]               
[Page 38915-38917]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10jy06-91]                         

[[Page 38915]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54090; File No. SR-CHX-2006-22]

 
Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto To 
Amend the CHX Holdings, Inc. Certificate of Incorporation

June 30, 2006.
    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 June 22, 2006, the Chicago Stock Exchange, Inc. (``CHX'' 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 CHX. On June 30, 
2006, the Exchange filed Amendment No. 1 to the proposed rule 
change.\3\ The Commission is publishing this notice to solicit comments 
on the proposed rule change, as amended, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange made technical changes to 
correct the marking of the proposed rule text.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CHX is proposing, on behalf of its parent company, CHX 
Holdings, Inc. (``CHX Holdings''), to amend the CHX Holdings 
Certificate of Incorporation (the ``charter'') to: (1) Make a minor 
change in the ownership limitations applicable to both CHX participants 
and other persons or entities; and (2) increase the number of shares of 
common stock which CHX Holdings is authorized to issue. The text of the 
proposed rule change appears below. Additions are italicized; deletions 
are [bracketed].
* * * * *

CERTIFICATE OF INCORPORATION OF CHX HOLDINGS, INC.

* * * * *

Authorized Stock

    FOURTH: The total number of shares of stock which the Corporation 
shall have authority to issue is 900,000[750,000] shares of common 
stock having a par value of $.01 per share and 25,000 shares of 
preferred stock having a par value of $.01 per share. The Board of 
Directors is expressly authorized to fix by resolution any of the 
designations and the powers, preferences and rights and the 
qualifications, limitations or restrictions which are permitted by 
Section 151 of the General Corporation Law of Delaware in respect of 
any such class or classes of preferred stock or any series of any class 
or classes of preferred stock of the Corporation.

Limitations on Transfer, Ownership and Voting

    FIFTH:
    (a) No change to text.
    (b) Limitations.
    (i) No change to text.
    (ii) For so long as the Corporation shall control, directly or 
indirectly, the Chicago Stock Exchange, Inc., except as provided in 
clause (iii) below:
    (A) no Person (as defined above), either alone or together with its 
Related Persons (as defined above), may own, directly or indirectly, of 
record or beneficially shares of stock of the Corporation representing 
in the aggregate [constituting] more than forty percent (40%) of [any 
class of capital stock (whether common stock or preferred stock) of the 
Corporation] the then outstanding votes entitled to be cast on any 
matter;
    (B) no Person, either alone or together with its Related Persons, 
who holds a trading permit of the Chicago Stock Exchange, Inc., may 
own, directly or indirectly, of record or beneficially shares of stock 
of the Corporation representing in the aggregate [constituting] more 
than twenty percent (20%) of [any class of capital stock of the 
Corporation] the then outstanding votes entitled to be cast on any 
matter; and
    (C) No change to text.
    (iii) No change to text.
    (A) No change to text.
    (B) No change to text.
    (iv) No change to text.
    (v) Notwithstanding clauses (iii)(A) and (iii)(B) above, any Person 
(and its Related Persons owning any capital stock of the Corporation) 
which proposes to own, directly or indirectly, of record or 
beneficially shares of [the capital] stock [(whether common stock or 
preferred stock)] of the Corporation representing in the aggregate 
[constituting] more than forty percent (40%) of [the outstanding shares 
of any class of capital stock of the Corporation] the then outstanding 
votes entitled to be cast on any matter, or to exercise voting rights, 
or grant any proxies or consents with respect to shares of [the 
capital] stock [(whether common stock or preferred stock)] of the 
Corporation representing in the aggregate [constituting] more than 
twenty percent (20%) of [the outstanding shares of any class of capital 
stock of the Corporation] the then outstanding votes entitled to be 
cast on any matter, shall have delivered to the Board of Directors of 
the Corporation a notice in writing, not less than forty-five (45) days 
(or any shorter period to which said Board shall expressly consent) 
before the proposed ownership of such shares, or the proposed exercise 
of said voting rights or the granting of said proxies or consents, of 
its intention to do so.
    (c) Required Notices.
    (i) Any Person that, either alone or together with its Related 
Persons, owns, directly or indirectly (whether by acquisition or by a 
change in the number of shares outstanding), of record or beneficially 
shares of stock of the Corporation that represent five percent (5%) or 
more of the then outstanding votes entitled to be cast on any matter 
[outstanding shares of capital stock of the Corporation] (excluding 
shares of any class of preferred stock that does not have the right by 
its terms to vote generally in the election of members of the Board of 
Directors of the Corporation) shall, immediately upon [owning] becoming 
the owner of such amount of stock [five percent (5%) or more of the 
then outstanding shares of such stock], give the Board of Directors 
written notice of such ownership, which notice shall state: (A) Such 
Person's full legal name; (B) such Person's title or status and the 
date on which such title or status was acquired; (C) such Person's 
approximate ownership interest of the Corporation; and (D) whether such 
Person has the power, directly or indirectly, to direct the management 
or policies of the Corporation, whether through ownership of 
securities, by contract or otherwise.
    (ii) Each Person required to provide written notice pursuant to 
subparagraph (c)(i) of this Article Fifth shall update such notice 
promptly after any change in the contents of that notice; provided that 
no such updated notice shall be required to be provided to the Board of 
Directors in the event of an increase or decrease in the ownership 
percentage so reported of shares of stock of the Corporation that 
represent less than one percent (1%) of the then outstanding votes 
entitled to be cast on any matter [then outstanding shares of any class 
of capital stock] (such increase or decrease to be measured 
cumulatively from the amount shown on the last such report), unless any 
increase or decrease of less than one percent (1%) results in such 
Person owning shares of stock of the Corporation that represent more 
than twenty percent (20%) or more than forty

[[Page 38916]]

percent (40%) of the then outstanding votes entitled to be cast on any 
matter [shares of any class of capital stock then outstanding] (at a 
time when such Person previously owned less than such percentages) or 
such Person owning shares of stock of the Corporation that represent 
less than twenty percent (20%) or less than forty percent (40%) of the 
then outstanding votes entitled to be cast on any matter [shares of any 
class of capital stock then outstanding] (at a time when such Person 
previously owned more than such percentages).
* * * * *

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 CHX 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 CHX 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
    As a result of its demutualization in February 2005, the Exchange 
became the wholly-owned subsidiary of CHX Holdings, a Delaware 
corporation.\4\ The Exchange's demutualization was driven, in part, by 
a desire to generate opportunities to enter into strategic alliances by 
offering stock to interested entities. On June 21, 2006, CHX Holdings 
announced that it had agreed to the terms of strategic transactions 
with four firms that will result in an investment in CHX Holdings, in 
exchange for minority equity stakes in the company. In connection with 
these transactions, CHX Holdings has agreed to propose amendments to 
its charter to: (1) Make a minor change in the ownership limitations 
applicable to both CHX participants and other persons or entities; and 
(2) increase the number of shares of common stock which CHX Holdings is 
authorized to issue.
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    \4\ See Securities Exchange Act Release No. 51149 (February 8, 
2005), 70 FR 7531 (February 14, 2005) (order approving File No. SR-
CHX-2004-26) (``Demutualization Approval Order'').
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    The CHX Holdings charter currently prohibits any person, either 
alone or together with its related persons, from owning, directly or 
indirectly, shares constituting more than 40% of any class of CHX 
Holdings capital stock.\5\ A related provision bars any person that 
holds a CHX trading permit, either alone or together with its related 
persons, from owning, directly or indirectly, shares constituting more 
than 20% of any class of CHX Holdings capital stock.\6\ Other 
provisions place limitations on the percentage of shares that can be 
voted.\7\ The ownership and voting limitations that apply to holders of 
CHX trading permits were designed to ensure that no participant in the 
Exchange (or its parent company, CHX Holdings) has such a large 
ownership in CHX Holdings that it casts doubt on the Exchange's ability 
to fairly and objectively exercise its self-regulatory 
responsibilities.\8\
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    \5\ See Article Fifth, Section (b)(ii)(A) of the CHX Holdings 
charter. This article defines a ``person'' as ``an individual, 
partnership (general or limited), joint stock company, corporation, 
limited liability company, trust or unincorporated organization or 
any governmental entity or agency or political subdivision 
thereof.'' See Article Fifth, Section (a)(i). A ``related person'' 
is defined as ``(A) with respect to any [p]erson, all `affiliates' 
and `associates' of such [p]erson (as such terms are defined in Rule 
12b-2 under the Securities Exchange Act of 1934, as amended); (B) 
with respect to any [p]erson that holds a permit issued by the 
Chicago Stock Exchange, Inc. to trade securities on the Chicago 
Stock Exchange (a ``Participant''), any broker or dealer with which 
a Participant is associated; and (C) any two or more [p]ersons that 
have any agreement, arrangement or understanding (whether or not in 
writing) to act together for the purpose of acquiring, voting, 
holding or disposing of shares of the capital stock of the 
Corporation.'' See Article Fifth, Section (a)(ii).
    \6\ See Article Fifth, Section (b)(ii)(B).
    \7\ See Article Fifth, Section (b)(ii)(C).
    \8\ The Commission consistently has noted this concern as it 
approved substantially similar ownership and voting restrictions in 
connection with the proposed demutualizations or restructurings of 
national securities exchanges. See Demutualization Approval Order, 
supra note 4, 70 FR at 7538; Securities Exchange Act Release No. 
49718 (May 17, 2004), 69 FR 29611 (May 24, 2004) (order approving 
SR-PCX-2004-08); Securities Exchange Act Release No. 49098 (January 
16, 2004), 69 FR 3974 (January 27, 2004) (order approving SR-Phlx-
2003-73).
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    CHX Holdings now seeks to make a minor change in these ownership 
provisions--keeping the same 20% and 40% limitations--but referring to 
shares of stock of CHX Holdings representing in the aggregate more than 
20% or 40% of ``the then outstanding votes entitled to be cast on any 
matter,'' rather than to the shares of each class of stock that a 
person might own. CHX Holdings believes that this revised definition 
would more precisely address the reason for establishing the 
limitations in the first place--to limit the voting power that can be 
wielded by a stockholder that is also an Exchange participant. The 
language proposed by CHX Holdings is identical to text included in the 
recently-approved Amended and Restated Certificate of Incorporation of 
NYSE Group, Inc.\9\
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    \9\ See Article V, Section 2 of the Amended and Restated 
Certificate of Incorporation of NYSE Group, Inc., approved by the 
Commission in Securities Exchange Act Release No. 53382 (February 
27, 2006), 71 FR 11251 (March 6, 2006) (order approving NYSE-2005-
77).
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    In addition to the above-noted proposed wording change to the 
ownership limitations set out in the CHX Holdings charter, CHX Holdings 
also seeks approval to increase the number of shares of common stock 
that can be issued by the company from 750,000 to 900,000. CHX Holdings 
proposes this increase in the number of authorized shares to, among 
other things, permit the company to seek one or more additional 
investors and to have shares available if the company later seeks to 
establish an equity compensation plan for directors, officers or 
employees.
    All of these proposed changes to the CHX Holdings charter must be 
presented to the CHX Holdings stockholders for approval before they are 
effective. CHX Holdings plans to do so at the annual stockholder 
meeting on July 19, 2006.\10\ Stockholders will be provided with proxy 
materials prior to the meeting that will describe these proposals and 
other issues in more detail.\11\
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    \10\ If CHX Holdings stockholders approve the proposed change, 
the Exchange will file with the Commission an amendment to this 
proposal to reflect that approval.
    \11\ CHX Holdings has halted trading in its common stock until 
the third business day following distribution of these materials.
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2. Statutory Basis
    The CHX believes the proposal is consistent with the requirements 
of the Act and the rules and regulations thereunder that are applicable 
to a national securities exchange, and, in particular, with the 
requirements of Section 6(b).\12\ The CHX believes the proposal is 
consistent with Section 6(b)(5) of the Act \13\ in that it is designed 
to promote just and equitable principles of trade, to remove 
impediments, and to perfect the mechanism of, a free and open market 
and a national market system, and, in general, to protect investors and 
the public interest by permitting CHX Holdings to make minor changes to 
the ownership limitations set out in its charter that fully address the 
reasons for establishing those limitations in the first place and that 
are identical to the language used by at least

[[Page 38917]]

one other national securities exchange in doing so.
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    \12\ 15 U.S.C. 78(f)(b).
    \13\ 15 U.S.C. 78f(b)(5).
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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.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were either solicited or received.

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 Exchange consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, 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-CHX-2006-22 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-CHX-2006-22. 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-CHX-2006-22 and should be submitted on or before July 25, 2006.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
Nancy M. Morris,
Secretary.
 [FR Doc. E6-10714 Filed 7-7-06; 8:45 am]

BILLING CODE 8010-01-P