[Federal Register Volume 59, Number 169 (Thursday, September 1, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-21670]


[[Page Unknown]]

[Federal Register: September 1, 1994]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34604; File No. SR-CHX-94-17]

 

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to New Organizational 
Structures for Members

August 26, 1994.

I. Introduction

    On July 7, 1994, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') submitted to the Securities and Exchange Commission 
(``Commission'' or ``SEC''), 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 amend the Exchange's 
Constitution and rules to allow the admission of entities with new 
organizational structures as members.
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    \1\15 U.S.C. 78s(b)(1) (1988).
    \2\17 CFR 240.19b-4 (1994).
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    The proposed rule change was noticed for comment in Securities 
Exchange Act Release No. 34353 (July 12, 1994), 59 FR 36456 (July 18, 
1994). No comments were received on the proposal. This order approves 
the proposed rule change.

II. Description of the Proposal

    The CHX is amending Article II of its Constitution and Article I, 
Rule 1 of its rules to permit entities with new organizational 
structures to qualify for admission to Exchange membership. 
Specifically, the CHX is amending its Constitution and rules to permit 
the Exchange to approve as a member organization, entities that have 
characteristics essentially similar to corporations, partnerships or 
both. For example, the amendments permit the Exchange, in its 
discretion, and on such terms and conditions as the Exchange may 
prescribe, to approve business trusts,\3\ limited liability 
companies\4\ or other organizational structures as member organizations 
so long as the characteristics of the entity in question are 
essentially similar to those of corporations or partnerships. 
Currently, memberships on the Exchange can be owned by individuals, 
partnerships and corporations. The noncorporate or partnership entities 
would have to be structured in such a format that would qualify as a 
broker or dealer registered with the SEC pursuant to the Act, since 
this is a prerequisite to becoming an Exchange member organization.\5\
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    \3\The term ``business trust'' is generally used to describe a 
trust in which the managers are principals, and the shareholders are 
cestuis que trust. The essential attribute is that property is 
placed in the hands of trustees who manage and deal with it for use 
and benefit of beneficiaries. Black's Law Dictionary 180 (5th ed. 
1979).
    \4\A limited liability company (``LLC'') has characteristics 
similar to both corporations and partnerships. For example, the 
liability of LLC members is limited to their capital contributions, 
however, if properly formed and managed, an LLC is treated as a 
partnership for tax purposes.
    \5\Telephone conversation between David Rusoff, Attorney, Foley 
& Lardner, and Louis A. Randazzo, Attorney, SEC, on July 11, 1994.
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    The Exchange believes that the 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 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.

III. 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).\6\ Specifically, the 
Commission believes the amendment is consistent with Section 6(b)(2)\7\ 
of the Act, which requires the rules of an exchange, subject to the 
provisions of Section 6(c) of the Act, ensure that any registered 
broker or dealer or natural person associated with a registered broker 
or dealer may become a member of the exchange and any person may become 
associated with a member thereof.
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    \6\15 U.S.C. 78f (1988).
    \7\15 U.S.C. 78f(b)(2) (1988).
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    The Commission believes that amending the CHX's rules and 
Constitution to enable entities that have characteristics essentially 
similar to corporations, partnerships or both to become members of the 
Exchange is consistent with the Act and Exchange rules. CHX Article I, 
Rule 1 currently allows individuals, partnerships and corporations to 
become members of the Exchange. The amendment would enable entities 
with new organizational structures similar to corporations and 
partnerships to become Exchange members. As in the case of an 
individual, partnership, or corporation applying for membership, the 
new entity will also be subject to all other requirements for 
membership approval.
    The Commission also believes that the amendments to Article II of 
the CHX Constitution and Article I, Rule 1 of the CHX rules reasonably 
balance the Exchange's interest in having the flexibility to approve 
entities with new organizational structures for Exchange membership, 
with the regulatory interests in protecting the financial and 
structural integrity of a member organization. For example, although 
the amendment permits the Exchange to approve business trusts, limited 
liability companies or other organizational structures with 
characteristics of corporations or partnerships as member 
organizations, the CHX will review each Exchange member organization 
application on a case-by-case basis, and prior to approving any such 
organization for membership, the Exchange must be satisifed that: (1) 
the Exchange would legally have appropriate jurisdiction over such an 
entity; and (2) the permanency of the entity's capital is consistent 
with that required of other member organizations.\8\
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    \8\Telephone conversation between David Rusoff, Attorney, Foley 
& Lardner, and Louis A. Randazzo, Attorney, SEC, on July 11, 1994.
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    It is therefore ordered, Pursuant to Section 19(b)(2) of the 
Act,\9\ that the proposed rule change (SR-CHX-94-17) is hereby 
approved.

    \9\15 U.S.C. 78s(b)(2) (1988).
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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\17 CFR 200.30-3(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-21670 Filed 8-31-94; 8:45 am]
BILLING CODE 8010-01-M