[Federal Register Volume 61, Number 71 (Thursday, April 11, 1996)]
[Notices]
[Pages 16150-16152]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9022]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37068; File No. SR-Amex-96-04]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Granting Approval to Proposed Rule Change and Notice of Filing
and Order Granting Accelerated Approval of Amendment No. 1 Relating to
Changes to Its Membership Admission Procedures
April 4, 1996.
I. Introduction
On January 30, 1996, the American Stock Exchange, Inc. (``Amex'' or
``Exchange'') submitted to the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to make several clarifying and
``housekeeping'' changes to the Admission of Members and Member
Organizations section of the Amex rules, including changes with respect
to the designation of nominees, and revisions to the requirements
applicable to pension plans seeking to own memberships.
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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The proposed rule change was published for comment in Securities
Exchange Act Release No. 36834 (February 13, 1996), 61 FR 6665
(February 21, 1996). One comment letter was received on the
proposal.\3\ On April 2, 1996, the Amex submitted to the Commission
Amendment No. 1 to the proposed rule change.\4\
\3\ See Letter from Jonathan E. Feins, to Jonathan G. Katz,
Secretary, SEC, dated March 13, 1996 (``Comment Letter'').
\4\ See Letter from Linda Tarr, Senior Counsel, Amex, to Glen
Barrentine, SEC, dated April 2, 1996 (``Amendment No. 1''). See note
10 and accompanying text for a description of Amendment No. 1.
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II. Description
The proposed rule change makes a number of changes to the Admission
of Members and Member Organizations section of the Exchange rules and
Rule 342. These include changing outdated references to the Exchange's
Membership Admission Department to Membership Services, removing an
inaccurate reference to a provision in the Amex Constitution from Rule
342, and amending the language of the Designation of Nominee subsection
of Para. 9176 to conform it to current Exchange practice and a
corresponding provision in the Amex Constitution.\5\ Additionally, this
subsection is being amended to clarify that all of a nominee's
obligations to the Exchange and to other Exchange members or member
organizations resulting from Exchange transactions or transactions in
other securities made in the name of the nominee as member, are the
obligations of the owner of the regular or options principal
membership\6\ and such owner is responsible for all such obligations.
\5\ Specifically, the proposal changes references to the party
who is eligible to appoint nominees in this section from ``member or
member organization'' to ``owner of a regular or options principal
membership.'' Under the Amex Constitution, only such owners are
eligible to designate nominees. See Amex Const., Art. IV, Sec.
4(b)(2).
\6\ Under the Amex Constitution and rules, individuals or
organizations may own one or more Exchange memberships (i.e., seats
on the Exchange), and instead of ``operating'' the seats, can either
lease their seats or designate nominees to operate the seats as
their employees.
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Furthermore, the proposed rule change revises Para. 9179 as it
relates to the provisions relative to membership ownership by pension
plans to more accurately and completely represent the procedures to be
followed in this regard. In particular, the proposed rule change
clarifies that: (i) Sponsors and trustees of such pension plans are
responsible for evaluating the inherent risks of owning a membership
and must determine the advisability of such without relying on advice
from the Amex or any of its officers or employees; (ii) the Amex will
have no liability to either the participants in such pension plans or
their beneficiaries in the event the purchase, operation or disposition
of the membership results in loss to the pension plan and related
trust; and, (iii) the plan sponsor and trustee must agree that they
shall indemnify and hold the Exchange harmless from all claims, losses,
expenses (including all attorney's fees) and taxes arising out of the
purchase, operating and disposition of the membership. Additionally,
the proposed rule change makes corrections to certain terminology
currently used to describe the components of such pension plans.\7\
\7\ For example, Para. 9179 of the Amex rules, inaccurately
refers to participants belonging to pension plans eligible to own
Exchange memberships as ``beneficiaries'' of such plans.
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Finally, the proposed rule change, as originally proposed,
mistakenly removed language from Para. 9174 that provided an exception
from the Exchange's physical examination requirement for prospective
members who desire only to own a regular or options principal
membership and who choose not to become Participants in the Exchange's
Gratuity Fund.\8\ The removal
[[Page 16151]]
of this exception would have subjected applicants who desire only to
become owners of Amex memberships (whether or not they chose to
participate in the Gratuity Fund) to the Exchange's physical
examination requirement.\9\
\8\ An Exchange member is not required to pass any physical
examination in order to become a Participant in the Amex's Gratuity
Fund. In Securities Exchange Act Release No. 34968 (November 10,
1994), 59 FR 59804 (November 18, 1994) (File No. SR-Amex-94-23), the
Commission published for comment a proposed rule change by the Amex
which included amendments to the provisions applicable to the
Exchange's Gratuity Fund. Among other things, the Amex proposed to
amend the Amex Constitution to require prospective Participants in
the Gratuity Fund to pass a physical examination and add a reference
to this requirement to Para. 9176. The filing was subsequently
withdrawn. In Securities Exchange Act Release No. 35723 (May 16,
1995), 60 FR 37523 (May 23, 1995) (File No. SR-Amex-95-08), the
Commission approved changes to the Amex's membership structure and
requirements, including revisions to the requirements for
participation in the Gratuity Fund, while these requirements did not
include a physical examination requirement, Para. 9176, as amended
by Amex 95-08, mistakenly included language from Amex 94-23 that
referenced such a requirement. For a list of the requirements
applicable to becoming a Participant in the Gratuity Fund, see Amex
Const., Art. IX, Sec. 1.
\9\ Para. 9174 subjects applicants who desire only to own a
membership to the same requirements and procedures specified in the
remainder of the Admission of Members and Member Organizations
section of the Amex rules. Para. 9176 of this section requires that
each applicant for membership must pass a physical examination.
Therefore, the original proposal, by removing the inoperative
language of Para. 9174 that limited the application of the physical
examination requirement to those prospective owners of Amex
memberships who choose to become Participants of the Gratuity Fund,
made all prospective owners of Amex memberships subject to the
physical examination requirement of Para. 9176.
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The Exchange, however, did not intend this result. To the contrary,
the Exchange intended to remove the provision in Para. 9176 requiring
Participants in the Gratuity Fund to pass a physical examination and
thereby to do away with the physical examination requirement altogether
as it applies to members who will not be active on the Floor of the
Exchange. In order to achieve this end, the Exchange submitted
Amendment No. 1 to the proposed rule change, which revises Para. 9174
to exempt applicants who desire only to own a regular or options
principal membership from the Exchange's physical examination
requirement.\10\
\10\ See Amendment No. 1, supra note 4. In Amendment No. 1 the
Amex represented that the purpose of this amendment was to clarify
that the physical examination requirement is only applicable to
individuals who will be active on the Floor of the Exchange. The
Amex further represented that this requirement is a long-standing
one, which has been applied to Floor members routinely and without
controversy for many years.
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III. Summary of Comments
The Commission received one comment letter from Jonathan E. Feins
(the ``Comment Letter'').\11\ The Comment Letter objected to the fact
that the effect of the original proposal would have been to make all
prospective members subject to the Exchange's physical examination
requirement. The commenter stated that such a requirement was
particularly unnecessary in the case of applicants who desired to own
memberships solely for investment purposes. In addition, the commenter
raised the possibility of a potential for abuse in the application of
this requirement, given the lack of criteria in the Amex rules for
``passing'' or ``failing'' the physical examination.
\11\ See Comment Letter, supra note 3.
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In response, the Amex submitted Amendment No. 1 to the proposed
rule change, which specifically exempts applicants who desire only to
own regular or options principal memberships from the Exchange's
physical examination requirement.\12\
\12\ See supra note 10 and accompanying text.
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IV. 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, and, in
particular, with the requirements of Section 6(b).\13\ Section 6(b)(5)
requires that the rules of an exchange be designed to promote just and
equitable principles of trade, to prevent fraudulent and manipulative
acts, and, in general, to protect investors and the public.
\13\ 15 U.S.C. 78f(b).
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The Commission finds that the proposed rule change to the
requirements applicable to the designation of a nominee and the owner's
responsibility for his or its nominee's obligations add clarity to
these provisions without altering their substantive content. The
proposed rule change states that only an owner of a regular or options
principal membership can authorize an individual to act as his or its
nominee, which conforms the language of this section both to the
Exchange's current practice and the nominee designation provision of
the Amex Constitution.
In addition, the proposed rule change sets forth, in a more direct
fashion than the existing provision, an owner's responsibility for his
or its nominees' obligations to the Exchange and other members or
member organizations.
The Commission believes that the proposed rule change revising the
procedures under which pension plans can acquire ownership of one or
more memberships reasonably balances the Exchange's interest in having
the flexibility to approve such entities for Exchange membership with
the regulatory interests in protecting the financial and structural
integrity of the Exchange. Most significantly, the proposal clarifies
that a pension plan seeking to become a member must agree that: (i) its
fiduciaries were responsible for deciding to invest in a membership and
that the plan sponsor and trustee evaluated the inherent risks and
advisability of owning a membership without relying on advice from the
Exchange; (ii) that the Exchange will have no liability to either the
plan's participants or their beneficiaries in the event the purchase,
operation or disposition of the membership results in loss to the plan
and related trust; and, (iii) to indemnify the Exchange from all
claims, losses, expenses (including attorney's fees) and taxes arising
out of the member's purchase, operation or disposition.
The Commission also finds that the proposed rule change adds
clarity to the requirements applicable to pension plans seeking to own
exchange memberships by correcting inaccuracies in the terminology
currently used to describe the necessary components of such pension
plans.
Furthermore, the Commission finds that the proposed rule change, as
amended, has no substantive effect on the Exchange's existing practice
with regard to the applicability of its physical examination
requirement to prospective members. The proposed rule change, as
amended, specifically states that those applicants who desire only to
own a membership are not required to pass the physical examination. As
a result, the physical examination requirement found in Para. 9178 only
applies to those prospective members who will be active on the Floor of
the Exchange, which is in accord with current Exchange practice.\14\
\14\ See supra note 10. The Commission notes that the rules of
the New York Stock Exchange (``NYSE'') require prospective members
who will be active on the Floor of the NYSE to take a physical
examination. See NYSE Rule 301.22. In addition, the NYSE rules
require that floor employees of NYSE member organizations must pass
a yearly physical examination in order to exercise the privilege,
granted by his or her floor ticket, to be admitted to the NYSE
Floor. See NYSE Rule 35.
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Moreover, the Commission believes that the proposed rule change, as
amended, adequately addresses the concerns raised in the Comment
Letter. In light of Amendment No. 1, the concern that the physical
examination requirement would apply to those applicants who wish only
to own a membership is eliminated. As for the commenter's concern that
the requirement is subject to potential abuse because of a lack of
stated criteria with regard to ``passing'' or ``failing'' the
examination, the Commission notes that in the event this requirement is
utilized to deny a prospective applicant membership on the Exchange,
the Act provides the applicant with recourse to the Commission for a
review of the Exchange's determination.\15\
\15\ See 15 U.S.C. 78s (d) and (f). These provisions allow for
the initiation of Commission proceedings, either on the motion of
the applicant or the Commission, where an exchange denies membership
to any applicant. In such proceedings, the Commission will review
the exchange's decision and has the authority to set aside the
decision and require the Exchange to admit such applicant to
membership.
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The Commission finds good cause for approving Amendment No. 1 prior
to the thirtieth day after the publication of notice thereof in the
Federal Register. Amendment No. 1 made clarifying, technical changes to
the text of the existing rule, and did not propose new substantive
provisions to the proposed rule change. Accordingly, the Commission
believes that consistent with Section 19(b)(2), good cause exists to
accelerate approval of Amendment No. 1.
V. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning Amendment No. 1 to the proposed rule change.
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 rules
change that are filed with the Commission, and all written
communications relating to Amendment No. 1 between the Commission and
any persons, 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, N.W., Washington, D.C. 20549. Copies of such filing
will also be available at the principal office of the NYSE. All
submissions should refer to File No. SR-Amex-96-04 and should be
submitted by May 2, 1996.
VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-Amex-96-04), as amended, is
approved.
\16\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
\17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-9022 Filed 4-10-96; 8:45 am]
BILLING CODE 8010-01-M