[Federal Register Volume 59, Number 136 (Monday, July 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17316]
[[Page Unknown]]
[Federal Register: July 18, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34337; File No. SR-MBSCC-94-3]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by MBS Clearing Corporation Relating to Corporate Governance
Changes
July 8, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchanges Act of
1934 (``Act''),\1\ notice is hereby given that on June 21, 1994, MBS
Clearing Corporation (``MBSCC'') 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 MBSCC.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\15 U.S.C. 78s(b)(1).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
MBSCC proposes to amend Article FOURTH of MBSCC's Certificate of
Incorporation; Sections 2.2, 2.3, 2.4, 2.10, 3.1, 3.2, 3.9, 4A.1, 4A.2,
5.2, and 10.4 of MBSCC's By-Laws; and Article V, Rule 6, Section 3 of
MBSCC's Rules. MBSCC also proposes to enter into a shareholders
agreement.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, MBSCC included statements
concerning the purpose of the 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. MBSCC 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 the
Statutory Basis for, the Proposed Rule Change
Background
MBSCC is currently a wholly owned subsidiary of the Chicago Stock
Exchange, Incorporated (``CHX''). On March 31, 1994, certain
participants of MBSCC entered into a letter of intent with the CHX
pursuant to which the CHX will sell all of the issued and outstanding
capital stock of MBSCC to Acquiror. Acquiror is a corporation that will
be formed for the sole purpose of acquiring MBSCC stock. All current
participants of MBSCC will be eligible to purchase stock of Acquiror if
they agree to sign the shareholders agreement, as discussed more fully
below. New participants will be eligible to purchase one share upon
admission as a participant. In addition, the National Securities
Clearing Corporation (``NSCC''), which also will be a signatory to the
shareholders agreement, will purchase approximately 10% of the stock of
Acquiror. Immediately after Acquiror's acquisition of the stock of
MBSCC, Acquiror will be merged into MBSCC with MBSCC as the surviving
corporation. Pursuant to the merger, participant shareholders of
Acquiror will own 100% of the Class A common shares of MBSCC and NSCC
will own 100% of the Class B common shares of MBSCC, as discussed
below.
Description of Amendments
The purpose of the proposed rule change is to adopt appropriate
corporate governance changes for MBSCC in light of the proposed
acquisition discussed above. It is anticipated that the proposed rule
change will become effective concurrent with the closing of the CHX's
sale of MBSCC's stock to Acquiror. In furtherance of this objective,
MBSCC proposes to amend Article FOURTH of its Certificate of
Incorporation, to amend various provisions of its By-Laws and Rules,
and to enter into a shareholders agreement.
With respect to its Certificate of Incorporation, MBSCC proposes to
amend Article FOURTH both to increase the number of shares of stock
that MBSCC is authorized to issue and to divide the common stock into
Class A and Class B shares. The increased number of authorized shares
will permit MBSCC to sell shares to its participants in proportion to
their usage of MBSCC without creating fractional shares. The division
of the common stock into Class A and Class B shares will provide a
mechanism whereby NSCC, the purchaser of 100% of Class B shares, will
be assured one seat on the board of directors of MBSCC.
The proposed amendments to the By-Laws and the proposed
shareholders agreement set forth, among other things, the number of
directors, their eligibility, and the manner in which directors will be
elected. Specifically, the proposed changes to Article 3, Section 3.1
of the By-Laws will increase the size of the MBSCC board to thirteen
from its present size of eleven directors and will establish
eligibility requirements for directors. Pursuant to the proposed
changes to Article 3, Section 3.2 of the By-Laws and pursuant to the
proposed shareholders agreement, one of the newly created slots on the
MBSCC board will be for NSCC's delegate to the board, and one slot will
be for an additional representative of participants. In addition,
Article 3, Section 3.1 of the By-Laws and Section 2 of the shareholders
agreement will require that all directors, other than the NSCC director
and one director that represents the management of MBSCC as designated
by the board, be officers or general partners or hold similar
management positions of participants of MBSCC (``Participant
Directors'').
The proposed rule change also will amend provisions of the By-Laws
to lower the number of votes required to call a special meeting
(Article 2, Section 2.3), to provide for waiver of notice of a
stockholders' meeting (Article 2, Section 2.4), and to authorize the
board of directors to establish the salaries of MBSCC's officers
(Article 5, Section 5.2).
Section 2 of the shareholders agreement specifies how Participant
Directors and members of the nominating committee are to be elected. As
is currently the practice, the nominating committee will nominate
candidates for Participant Directors and members of the following
year's nominating committee. Section 2(A)(ii) of the shareholders
agreement establishes the eligibility requirements for members of the
nominating committee. Participants will be given the opportunity to
petition for additional candidates. If no petitions are filed, the
participant shareholders must elect the candidates nominated by the
nominating committee. If there are competing candidates due to a
petition or petitions being filed, a ballot will be mailed to all
participants. Pursuant to Section 2(A)(iii) of the shareholders
agreement, each participant of MBSCC will be entitled to the number of
votes for each class of nominees determined as follows: the number of
persons to be elected in each class multiplied by one vote for each
$1,000 of average monthly volume-related fees (rounded down to the
nearest one thousand dollars) payable or paid by the participant to
MBSCC during the preceding year (such amount known as ``Voting
Entitlement''). Every participant shall have at least one vote. Each
participant may cast all of its votes for a single nominee or
distribute its votes among several nominees. Participants that own
Class A stock must vote their shares as determined by the vote of all
of the participants, whether or not they are shareholders. In the event
of a tie vote, the nominating committee will select the person who is
to be elected director.
The shareholders agreement also contains provisions relating to
shareholder votes for other than the election of directors which direct
shareholders to vote in a certain manner. For example, Section 2(C)
limits removal of directors, Section 7(A) establishes a \2/3\ majority
voting requirements, and Section 7(B) limits and restricts certain
shareholders votes to the manner directed by board resolution.
In addition, the shareholders agreement contains provisions
relating to required transfers of MBSCC's stock (e.g. upon insolvency
or the termination of the shareholders agreement) (Section 8),
permitted transfers of MBSCC's Class A and Class B stock (Sections 9
and 10), and MBSCC's option to repurchase the shares (Section 11). The
shareholders agreement also provides that the provisions governing the
voting of shares shall continue in force for ten years and shall be
automatically renewed for a subsequent ten year period. Finally, MBSCC
has proposed to amend Article V, Rule 6, Section 3 of its Rules to
delete references to the CHX.
The proposed rule change is consistent with Section 17A of the Act
in that it promotes the prompt and accurate clearance and settlement of
securities transactions and helps assure a fair representation of
shareholders and participants in the selection of directors and
administration of MBSCC's affairs.
B. Self-Regulatory Organization's Statement on Burden on Competition
The MBSCC does not believe that the proposed rule change imposes
any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
MBSCC has received no written comments. MBSCC will notify the
Commission of any written comments it receives.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five 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 ninety 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 the 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, NW., Washington, DC 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 Section, 450 Fifth Street, NW.,
Washington, DC 20549. Copies of such filing also will be available for
inspection and copying at the principal office of the above-mentioned
self-regulatory organization.
All submissions should refer to File No. SR-MBSCC-94-3 and should
be submitted by August 8, 1994.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-17316 Filed 7-15-94; 8:45 am]
BILLING CODE 8010-01-M