[Federal Register Volume 59, Number 214 (Monday, November 7, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-27440]


[[Page Unknown]]

[Federal Register: November 7, 1994]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34917; File No. SR-Amex-94-43]

 

Self-Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by American Stock 
Exchange, Inc., Relating to New Organizational Structures for Member 
Organizations.

October 31, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on October 14, 1994, the American Stock Exchange, Inc. (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the self-
regulatory organization. On October 31, 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.\3\ The Amex has requested 
accelerated approval of the proposal. 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) (1988).
    \2\17 CFR 240.19b-4 (1991).
    \3\See letter from Claudia Crowley, Special Counsel, Legal & 
Regulatory Policy Division, Amex, to Glen Barrentine, Senior 
Counsel, Division of Market Regulation, SEC, dated October 31, 1994 
(``Amendment No. 1''). The portions of this filing that were 
withdrawn in Amendment No. 1 have been submitted to the Commission 
as part of File No. SR-Amex-94-23.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to expand the categories of organizations 
which are eligible to become member organizations to include entities 
with new organizational structures. The text of the proposed rule 
change is available at the Office of the Secretary, Amex, and 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 III 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 Exchange is proposing to amend its Rules relating to the 
admission of entities with new organizational structures as member 
organizations. Specifically, the proposed amendment would permit the 
Exchange, in its discretion, and on such terms and conditions as the 
Exchange may prescribe, to approve limited liability companies 
(``LLCs''), business trusts 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.
    An LLC is a hybrid business entity, combining the limited liability 
characteristics of a corporation with the pass-through taxation 
attributes of a partnership. Currently, approximately 45 States and the 
District of Columbia have adopted LLC statutes. New York State recently 
adopted legislation, effective October 24, 1994, authorizing LLCs. The 
Exchange has been advised that a number of existing member 
organizations are considering altering their business structure to that 
of an LLC. Both the Chicago Board Options Exchange (``CBOE'') and the 
Chicago Stock Exchange (``CHX'') already permit membership by an LLC, 
and the New York Stock Exchange (``NYSE'') recently received SEC 
approval to amend its rules to do so.\4\
---------------------------------------------------------------------------

    \4\See Securities Exchange Act Release Nos. 33124 (November 1, 
1993), 58 FR 59282 (November 8, 1993) (File No. SR-CBOE-93-40); 
34604 (August 26, 1994), 59 FR 45316 (September 1, 1994) (File No. 
SR-CHX-94-17) (``CHX Approval Order''); and 34664 (September 13, 
1994), 59 FR 48346 (September 20, 1994) (File No. SR-NYSE-94-01) 
(``NYSE Approval Order'').
---------------------------------------------------------------------------

    The term ``business trust'' is generally used to describe a trust 
in which the managers are principals, and the shareholders are cestuis 
que trust. As stated in Black's Law Dictionary, ``[t]he essential 
attribute [of a business trust] is that property is placed in the hands 
of trustees who manage and deal with it for use and benefit of 
beneficiaries.''\5\
---------------------------------------------------------------------------

    \5\Black's Law Dictionary 180 (5th ed. 1979).
---------------------------------------------------------------------------

    Accordingly, the Exchange proposes to adopt new Commentary .01 to 
Definition 2 of the Exchange Rules to provide that entities may be 
accepted as member organizations by the Exchange if they have 
characteristics essentially similar to partnerships, corporations or 
both. At the present time, the Exchange intends to consider both LLCs 
and business trusts as eligible to become member organizations. These 
entities would be subject to all rules applicable to member 
organizations, and existing references to member firm or member 
corporation, as appropriate, and member organization would be deemed to 
include any such entity which is approved as a member organization. Of 
course, in order to be a member organization, an entity must be able to 
qualify as a broker or dealer registered with the SEC pursuant to the 
Act. In addition, the Exchange staff would review applications on a 
case-by-case basis as it does with all member organization applicants. 
Prior to approving any such organization for membership, the staff 
would have to be satisfied 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.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
in general and furthers the objectives of Section 6(b)(2) in particular 
in that it is designed to ensure that the rules of the Exchange provide 
that any broker or dealer or natural person associated with a 
registered broker or dealer may become a member of the Exchange.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change will impose no 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 were solicited or received with respect to the 
proposed rule change.

III. 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 those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. Sec. 552, will be available for inspection and copying at 
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 the Amex. All 
submissions should refer to File No. SR-Amex-94-43 and should be 
submitted by [insert date 21 days from date of publication].

IV. Commission's Findings and Order Granting Accelerated Approval of 
Proposed Rule Change

    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 Amex proposal is consistent with Section 
6(b)(2) of the Act,\7\ which requires that the rules of an exchange, 
subject to the provisions of Section 6(c) of the Act,\8\ 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.
---------------------------------------------------------------------------

    \6\15 U.S.C. Sec. 78f (1988).
    \7\15 U.S.C. Sec. 78f(b)(2) (1988).
    \8\15 U.S.C. Sec. 78f(c) (1988).
---------------------------------------------------------------------------

    The Amex currently allows individuals, partnerships, and 
corporations to become members of the Exchange.\9\ The proposed rule 
change will enable entities with new organizational structures similar 
to corporations and partnerships to become Exchange members and be 
included in the Exchange's definition of a member organization. As in 
the case of a partnership or corporation applying for membership, the 
new entity will be subject to all other requirements for membership 
approval.
---------------------------------------------------------------------------

    \9\Article I, Section 3(f) of the Amex Constitution currently 
states that the term ``member organization'' includes ``member 
firms'' and ``member corporations.'' The term ``member firm'' 
typically is used to refer to a partnership. See, e.g., Article IV, 
Section 2 of the Amex Constitution. In File No. SR-Amex-94-23, the 
Amex has proposed to amend Article I, Section 3(f) to specify that 
the term ``member organization'' means a partnership, corporation, 
trust or such other entity as the Exchange may, by Rule, permit to 
become a member organization and which meets certain qualifications. 
The Amex also has proposed to delete all references in its 
Constitution and Rules to the terms ``member firm'' and ``member 
corporation'' and to make revisions thereto that reflect more 
comprehensively the admission of these new entities. If File No. SR-
Amex-94-23 is not approved, the Commission would expect the Amex to 
submit a proposed rule change specifically addressing the definition 
of the term ``member organization'' and other issues related to the 
admission of new entities.
---------------------------------------------------------------------------

    The Commission believes that the amendment to the Amex Rules 
reasonably balances 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 proposal will permit the Exchange to approve business 
trusts, LLCs, or other organizational structures with characteristics 
of corporations or partnerships as member organizations, the Amex staff 
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 satisfied that: (1) the Exchange 
legally would 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.
    The Commission finds good cause for approving the proposed rule 
change prior to the thirtieth day after the date of publication of 
notice of filing thereof. This will permit the benefits of the proposed 
rule change to be realized as soon as possible. In addition, the 
Exchange's proposal is substantially identical to CHX and NYSE 
proposals that were published in the Federal Register for the full 
comment period and were approved by the Commission.\10\
---------------------------------------------------------------------------

    \10\No comments were received in connection with the proposed 
rule changes that amended the comparable CHX and NYSE rules. See CHX 
and NYSE Approval Orders, supra, note 4.
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to Section 19(b)(2)\11\ that the 
proposed rule change (SR-Amex-94-43) is hereby approved.

    \11\15 U.S.C. Sec. 78s(b)(2) (1988).
---------------------------------------------------------------------------

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\
---------------------------------------------------------------------------

    \12\17 CFR 200.30-3(a)(12) (1991).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-27440 Filed 11-4-94; 8:45 am]
BILLING CODE 8010-01-M