[Federal Register Volume 61, Number 43 (Monday, March 4, 1996)]
[Notices]
[Pages 8319-8321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-4888]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36884; File No. SR-Amex-96-02]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the American Stock Exchange, 
Inc. Relating to a Gratuity Fund Interpretation

February 23, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on January 16, 1996 the 
American Stock Exchange, Inc. (``Amex'' or ``Exchange'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change as described in Items I, II, and III below, which Items have 
been prepared by the self-regulatory organization. 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).
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Board of the American Stock Exchange, Inc. has made an 
interpretation of Article IX of the Exchange Constitution with respect 
to the Gratuity Fund eligibility of individuals who inherited their 
regular memberships.
    The text of the proposed rule change is available at the Office of 
the Secretary, the 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 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.

[[Page 8320]]


A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Effective May 16, 1995, the Commission approved various amendments 
to the Exchange Constitution and Rules relating to the Gratuity 
Fund.\2\ These changes, among other things, include options principal 
members and options principal and regular member lessees in the 
Gratuity Fund, increase the Gratuity Fund benefit to $125,000, subject 
to a ``phase-in'' schedule for new Gratuity Fund Participants 
(``Participants''), and include a two-year ``active'' requirement for 
participation.\3\ The changes also include a grandfathering provision, 
which provides that all individuals who were regular members or regular 
member lessors on June 10, 1993 are grandfathered with respect to the 
``active'' requirement (i.e., they are deemed to have met it, even 
though they were never active for a two-year period).\4\

    \2\ See Securities Exchange Act Release No. 35723 (May 16, 
1995), 60 FR 27353 (May 23, 1995) (Order approving File No. SR-Amex-
95-08).
    \3\ Id.
    \4\ Individuals who owned options principal memberships on May 
16, 1995 were given a one-time opportunity to elect to ``opt-in'' or 
``opt-out'' of the Gratuity Fund, and those who choose to ``opt-in'' 
are grandfathered with respect to the ``active'' requirement as 
well. See Securities Exchange Act Release No. 36585 (Dec. 13, 1995), 
60 FR 65701 (Dec. 20, 1995) (Order approving File No. SR-Amex-95-
49). An election to ``opt-out'' is irrevocable for the rest of the 
person's life, unless he or she subsequently buys a regular 
membership. Id. In addition, those individuals who were either 
regular or options principal member lessees on May 16, 1995 have the 
right to ``opt-out'' of the Gratuity Fund for the duration of their 
lease. Id.
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    Except for those who are grandfathered, inactive owners of 
memberships are not Gratuity Fund Participants, and thus are generally 
not subject to assessments upon the death of a Participant.\5\ The 
Constitution, however, does require that each membership pay at least 
one assessment upon the death of a Gratuity Fund Participant.\6\ 
Accordingly, a non-Participant does have to pay an assessment when 
there is no lessee or nominee on the seat who is a participant.\7\

    \5\ Inactive members are those that do not meet all Exchange 
requirements to be active on the Floor. See Para. 9176 of the Amex 
Guide (``Membership Requirements and Admissions Procedures'').
    \6\ See Amex Constitution, Article IX, Section 4.
    \7\ Id.
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    An ambiguity arose making it appropriate to interpret these 
provisions. Pursuant to Article II, Section 2 of the Exchange 
Constitution, the Exchange's Board of Governors has the authority to 
interpret the Exchange Constitution and Rules.
    It has for many years been the case that an individual who 
inherited a regular seat (after collecting a Gratuity Fund benefit) 
would not be eligible to participate in the Gratuity Fund himself or 
herself unless he or she fulfilled all membership requirements (except 
taking the Floor examinations), including paying the $2,500 transfer 
fee. This was considered analogous to the beneficiary selling the 
inherited seat and purchasing a new one.\8\

    \8\ It is the Exchange's understanding that the New York Stock 
Exchange treats individuals who inherit memberships in the same 
manner.
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    There are currently ten beneficiaries who inherited their 
memberships prior to June 10, 1993, and chose to retain the memberships 
and lease them out. Of the ten, five beneficiaries qualified for 
membership and paid the $2,500 transfer fee, and five did not. The five 
who did not take steps to qualify for membership and pay the $2,500 
transfer fee were still required to pay a Gratuity Fund assessment 
every time that a regular member or regular member lessor died.\9\

    \9\ Note that under the new rules, the ambiguity being dealt 
with here is not likely to arise. Pursuant to Article IX, Section 
23(a), an individual must be a regular member or regular member 
lessor on June 10, 1993 to be grandfathered from the requirement 
that one must have been an ``active'' member to be a Gratuity Fund 
Participant. A previously active exchange member, however, would 
again become a participant in the Gratuity Fund upon becoming a 
lessor so long as no more than five years has elapsed since such 
individual last participated in the fund. Typically, however, it can 
be expected that those who inherit seats upon the death of the owner 
will not have previously been active Exchange members themselves, so 
that if they hold on to the seats as owners they will not be 
eligible to be Participants under the new rules, and thus will not 
be subject to assessments unless there is no lessee or nominee 
Participant on the seat.
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    The question has now arisen whether the beneficiaries who did not 
take steps to qualify for membership must still pay Gratuity Fund 
assessments in light of the Gratuity Fund provisions which were adopted 
in May 1995.\10\ It is arguably inappropriate for the Exchange to 
continue to assess these non-Participants for contributions since other 
non-Participants do not have to pay assessments if there is a 
Participant affiliated with a seat.

    \10\ See Securities Exchange Act Release No. 35723, supra, note 
2.
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    On December 14, 1995 the Exchange's Board of Governors adopted an 
interpretation of Article IX of the Exchange Constitution regarding the 
situation described above. This interpretation provides that the 
Exchange will continue to take the position that each of the five 
individuals is not a Gratuity Fund Participant, but that the Exchange 
should treat them equally with other owners who are non-Participants, 
and not subject them to assessments, so long as the membership is 
leased to (or has a nominee who is) a Participant in the Gratuity Fund. 
This interpretation is retroactive to May 16, 1995, the date that the 
new rules were implemented.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the Act 
\11\ in general and furthers the objectives of Section 6(b)(5) \12\ in 
particular in that it is designed to promote just and equitable 
principles of trade and to protect investors and the public interest.

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The proposed rule change does not impose any burden on competition 
that is not necessary or appropriate in furtherance of the purposes of 
the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    The foregoing rule change constitutes a stated policy, practice, or 
interpretation with respect to the meaning, administration, or 
enforcement of an existing rule and, therefore, has become effective 
pursuant to Section 19(b)(3)(A) of the Act \13\ and subparagraph (e) of 
Rule 19b-4 thereunder.\14\

    \13\15 U.S.C. 78s(b)(3)(A).
    \14\17 CFR 240.19b-4.
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    At any time within sixty days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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., 

[[Page 8321]]
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 also will be available for inspection and copying 
at the principal office of the American Stock Exchange. All submissions 
should refer to File No. SR-Amex-96-02 and should be submitted by March 
25, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\

    \15\17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-4888 Filed 3-1-96; 8:45 am]
BILLING CODE 8010-01-M