[Federal Register Volume 59, Number 138 (Wednesday, July 20, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17657]


[[Page Unknown]]

[Federal Register: July 20, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34379; File No. SR-CHX-94-15]

 

Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by Chicago Stock Exchange, Inc., Relating to Corporate 
Governance Issues

July 14, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on June 23, 
1994, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
the proposed rule change as described in Items I, II and III below, 
which Items have been prepared by the self-regulatory organization. On 
June 30, 1994, the Exchange submitted to the Commission Amendment No. 1 
to the proposed rule change in order to narrow the scope of the 
original filing.\1\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\See letter from David T. Rusoff, Attorney, Foley & Lardner, 
to Sandra Sciole, Special Counsel, Division of Market Regulation, 
SEC, dated June 29, 1994 (``Amendment No. 1''). The portions of this 
filing that were withdrawn in Amendment No. 1 have been resubmitted 
to the Commission as File No. SR-CHX-94-17.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The CHX proposes to submit the following rule proposal to amend 
Article III, Sec. 2 and Article IV, Secs. 4, 5 and 7 of the Exchange's 
Constitution relating to corporate governance issues. The text of the 
proposed rule change is available at the Commission.

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 self-regulatory organization 
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 self-regulatory organization 
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
    The purpose of the proposed change is to amend the Exchange's 
Constitution relating to corporate governance issues. Specifically, the 
changes concern (i) the creation of a new category of Governor and the 
addition of one additional non-member Governor and (ii) providing more 
flexibility by permitting re-categorizations of Governors.
    The primary purpose of these proposed amendments, along with 
corresponding and conforming amendments to the By-Laws of the Midwest 
Clearing Corporation (``MCC'') and the Midwest Securities Trust Company 
(``MSTC''),\2\ is to achieve a governance structure pursuant to which 
the Exchange and two of its wholly owned subsidiaries, MCC and MSTC, 
will be able to operate more as a single, coherently run business. Once 
all the proposed changes are adopted, approved and implemented, the 
Board of Governors of the Exchange, the Board of Directors of the MCC 
and the Board of Directors of MSTC would all consist of the same 31 
individuals. This would be achieved by, among other things, having the 
Nominating Committees of MCC and MSTC be the same as the Exchange's 
Nominating Committee. At the same time, in order to insure fair and 
meaningful representation of Participants in the governance process of 
MCC and MSTC, the size of the Board would be increased by four slots to 
accommodate a new category of Governor that would provide the Board 
with more expertise on issues affecting MCC and MSTC, as more fully 
described below.
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    \2\See File Nos. SR-MCC-94-07 and SR-MSTC-94-09 respectively.
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New Category of Governor/Increased Board Size
    The proposed amendment would create a new category of Governor, a 
Participant Governor. In order to be qualified to be a Participant 
Governor, a person must be a general partner or officer of a 
Participant in the MCC or MSTC and must have securities clearance and/
or settlement expertise, background or responsibilities. The proposal 
would call for the addition of four Participant Governors, one each in 
Class I and Class II and two in Class III. The Exchange does not 
contemplate that the vacancies in the Participant Governor category 
would be filled by floor members of the Exchange.\3\ The proposed 
amendment also would add an additional non-member Governor slot, 
increasing the slots available for non-member Governors from eight to 
nine. This slot has been added to Class II. This change would maintain 
the existing balance between the non-member, or ``public,'' Governors 
and the industry Governors on the Board. In order to accomplish these 
changes, the amendment would increase the size of the Board of 
Governors to 31 from its present size of 26. Pursuant to existing 
Exchange rules, the vacancies created by this amendment (one vacancy in 
Class I, two vacancies in Class II and two vacancies in Class III) 
could be filled by the Board, on an interim basis, until the April 1995 
annual election. The slots created are as follows:
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    \3\The CHX has stated that, in order to ensure that floor 
members are not over-represented on the Board, management of the 
Exchange will use its best efforts to ensure that the newly created 
Participant Governor positions will not initially or thereafter be 
filled by floor members of the Exchange. The CHX also has agreed to 
notify the Commission if a floor member is elected to fill a 
Participant Governor position, and to revisit this issue if its best 
efforts do not succeed. See letter from David T. Rusoff, Attorney, 
Foley & Lardner, to Sharon Lawson, Assistant Director, Division of 
Market Regulation, SEC, dated July 8, 1994.

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                          Participant governors    Non-member governors 
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Class I\4\.............  One slot created.......  N/A.                  
Class II...............  One slot created.......  One slot created.     
Class III..............  Two slots created......  N/A.                  
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\4\Class I expires in April 1995; Class II in April 1996; and Class III 
  in April 1997.                                                        

Re-Categorization of Governors
    In order to provide increased flexibility in the composition of the 
new, expanded Board, the proposed amendment also would permit a 
Participant Governor to be re-categorized (within his or her class) as 
a Member Governor and permit a Member Governor to be re-categorized as 
a Participant Governor, if the Governor to be re-categorized otherwise 
meets the qualifications of his or her new position.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act in that it is designed to promote just and equitable principles of 
trade, to remove impediments 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.

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

    The proposed rule change has been approved by the Exchange's 
membership.

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

    Within 35 days of the publication of this notice in the Federal 
Register or within such other 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 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 at the 
Commission's Public Reference Section, 450 Fifth Street, NW., 
Washington, DC 20549. Copies of such filing will also be available for 
inspection and copying at the principal office of the CHX. All 
submissions should refer to File No. SR-CHX-94-15 and should be 
submitted by August 9, 1994.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-17657 Filed 7-19-94; 8:45 am]
BILLING CODE 8010-01-M