[Federal Register Volume 62, Number 95 (Friday, May 16, 1997)] [Notices] [Pages 27100-27102] From the Federal Register Online via the Government Publishing Office [www.gpo.gov] [FR Doc No: 97-12892] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-38615; International Series Release No. 1079; File No. SR-ISCC-96-05] Self-Regulatory Organizations; International Securities Clearing Corporation; Notice of Filing of a Proposed Rule Change Relating to Election of Directors May 12, 1997. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act''), \1\ notice is hereby given that on October 11, 1996, the International Securities Clearing Corporation (``ISCC'') filed with the Securities and Exchange Commission (``Commission'') and on October 17, 1996, December 11, 1996, March 21, 1997, and May 8, 1997, filed amendments to the proposed rule change (File No. SR-ISCC-96-05) as described in Items I, II, and III below, which items have been prepared primarily by ISCC. The Commission is publishing this notice to solicit [[Page 27101]] 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 ISCC is filing the proposed rule change to amend its procedures for election of directors. II. Self-Regulatory Organization's Statement of the Purpose of and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, ISCC 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. ISCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of such statements.\2\ --------------------------------------------------------------------------- \2\ The Commission has modified these summaries. --------------------------------------------------------------------------- (A) Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change The purpose of the proposed rule is to modify ISCC's by-laws and to adopt an Amended and Restated Shareholders Agreement between ISCC and the National Securities Clearing Corporation (``NSCC''), ISCC's sole shareholder. ISCC's current by-laws and shareholders agreement set forth provisions establishing the number and composition of ISCC's board as well as the procedures for the election of directors. Such provisions provide for a staggered board of twenty-two directors composed of management, shareholder, and participant directors divided into four classes. Each director is nominated by a nominating committee consisting of seven members. ISCC participants have the opportunity to nominate additional candidates for directors and the right to vote in the event that additional nominees are submitted by participants. In connection with its original application for registration as a clearing agency, ISCC obtained and continues to have a temporary exemption from Section 17A(b)(3)(C) of the Act,\3\ which exemption permits NSCC to retain control over the composition of ISCC's board.\4\ Since that time, NSCC has continued to appoint ISCC's entire board. --------------------------------------------------------------------------- \3\ 15 U.S.C. 78q-1 (b)(3)(C). \4\ At the time of its initial temporary registration, ISCC argued that it did not have a meaningful participant base which required the protections for fair representation. (ISCC had twelve participants.) ISCC believed that if only a small number of participants were able to use the provisions for the nomination of the board and nominating committee members, each participant would have had inordinate control of the nominations and voting. Moreover, NSCC was interested in controlling ISCC's board because it believed the financial risk it had assumed on ISCC's behalf due to its guarantee of certain ISCC obligations was substantial. Securities Exchange Act Release No. 26812 (May 12, 1989), 54 FR 21691 (order granting temporary approval of ISCC's registration as a clearing agency). --------------------------------------------------------------------------- The proposed rule change retains the process of the selection of directors by the nominating committee, but the nominating committee will be reduced from seven persons to three persons divided into two classes whose terms would expire on a staggered basis every two years. Beginning in 1998, at least fifteen business days prior to the regularly scheduled board meeting, which is (i) closest in time to the upcoming annual meeting of shareholders and (ii) at least ninety days before such annual meeting, the nominating committee will submit by overnight mail or by telefax its list of nominees to fill the nominating committee positions whose terms are expiring immediately following such annual meeting (i.e., for the nominating committee that will serve for the next year's election).\5\ The Secretary will include such list in the materials sent to the directors in connection with such board meeting. --------------------------------------------------------------------------- \5\ The nominating committee that will select candidates for the 1998 annual meeting of shareholders will be appointed by the board of directors. --------------------------------------------------------------------------- At the board meeting, the board may nominate individuals for one or more vacancies on the nominating committee. The board must notify the Secretary of any nominations within two business days of the meeting by overnight mail, telefax, or telephone. Within three days of receipt of nominees from the board, the Secretary must mail a list of all nominees to each participant. Participants have the right to nominate candidates for the nominating committee and for the board of directors by filing with the Secretary, not less than sixty days prior to the date of the annual meeting, a petition signed by the lesser of 5% of all participants or fifteen participants. If a participant petition is filed or the board nominates additional candidates to the nominating committee, the Secretary will mail, at least forty-five days prior to the date of the annual meeting, to each participant a ballot setting forth all of the nominees. Each participant is entitled to one vote for each ten dollars of its average monthly fee payable or paid by the participant to ISCC during the previous twelve month period. Participants must return their ballots to the Secretary at least fifteen days prior to the annual meeting. NSCC will then vote its shares in favor of the nominees selected by the participants. The board of directors will also be reduced from twenty-two to seven directors of which two will be selected by NSCC. The NSCC directors will serve one year terms. The other five directors will be divided into three classes and their terms will expire on a staggered basis. ISCC believes that the reduced size of its board of directors and nominating committee is more suitable given ISCC's relatively small number of participants (forth-four as of September 30, 1996). Furthermore, ISCC believes that because its board will no longer be selected by NSCC upon approval of the changes proposed herein, there will no longer be a need for ISCC to receive an exemption from the fair representation requirement. The proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder. In particular, the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act \6\ because it enables ISCC to comply with Section 17A(b)(3)(C) of the Act \7\ thereby eliminating the need for ISCC to obtain an exemption from complying with such requirement. --------------------------------------------------------------------------- \6\ 15 U.S.C. 78q-1(b)(3)(F). \7\ 15 U.S.C. 78q-1(b)(3)(C). --------------------------------------------------------------------------- (B) Self-Regulatory Organization's Statement on Burden on Competition ISCC does not believe that the proposed rule change will have an impact on or impose a 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 relating to the proposed rule change have been solicited or received. ISCC will notify the Commission of any written comments received by ISCC. 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 ISCC consents, the Commission will: [[Page 27102]] (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. 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 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 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 for inspection and copying at the principal office of ISCC. All submissions should refer to the file number (ISCC-96-05) and should be submitted by June 6, 1997. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\8\ --------------------------------------------------------------------------- \8\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 97-12892 Filed 5-15-97; 8:45 am] BILLING CODE 8010-01-M