[Federal Register Volume 61, Number 73 (Monday, April 15, 1996)]
[Notices]
[Pages 16515-16516]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9185]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37083; File No. SR-PSE-96-08]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Pacific Stock Exchange, Inc. Relating to Amendments to 
Exchange Constitution Article III, Section 2(c)

April 8, 1996.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on March 28, 1996, the 
Pacific Stock Exchange, Inc. (``PSE'' 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. Sec. 78s(b)(1).
---------------------------------------------------------------------------

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

    The proposed rule change consists of amendments to Article III, 
Section 2(c) of the PSE Constitution. The proposed amendments to 
Article III, Section 2(c) are as follows [New text is italicized; 
deleted text is bracketed]:
    Sec. 2(c). [No two or more Governors for a common or overlapping 
term may be associated either as partners, officers, directors, 
stockholders or otherwise in the same member firm or in a partnership 
or corporation which is affiliated with the same member firm. A 
Governor or nominee for Governor shall be considered to be associated 
with another member of the Board of Governors as a stockholder in the 
same member firm or in a partnership or corporation which is affiliated 
with the same member firm if:]
    [(i) He or any member, allied member or associated person in his 
member firm or its subsidiaries or affiliates is an officer or director 
(or person occupying a similar status or performing similar functions) 
in a member firm or its subsidiaries or affiliates with which another 
member of the Board of Governors is associated; or]
    [(ii) He or his member firm, its subsidiaries or affiliates or any 
member, allied member or associated person therein owns, directly or 
indirectly, more than 1% of the outstanding publicly traded stock of a 
member firm, its subsidiaries or affiliates with which another member 
of the Board of Governors is associated.]
    Care shall be taken to have the various interests of the membership 
represented on the Board of Governors. If the Board determines that an 
affiliation or association between Governors of the Board creates a 
conflict of interests, one Governor shall resign from the Board, or be 
removed by the Board if no resignation is received.
    No person, other than one elected to the Board as a representative 
of the public, may serve as Governor for more than two successive 
three-year terms.

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 Section 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
    Prior to 1973, the Exchange had no rule in place regarding 
conflicts of interests. That year, a much simplified version of the 
current rule was added to the Constitution, which read as follows:
    ``No two or more Governors for a common or overlapping term may be 
associated either as partners, stockholders or otherwise in the same 
member firm or in a partnership or corporation which is affiliated with 
the same member firm.''
    In 1983, the rule expanded the definition of associates to include 
officers and directors,\2\ and attempted to define more clearly an 
``indirect association'' between Governors, by using two specific 
tests.\3\ Those tests are described in the current rule.\4\ However, 
the experience of PSE management and the PSE Board of Governors in 
interpreting and applying the current rule has been that the language 
is too cumbersome and specific to achieve the intended purpose of 
eliminating conflicts. Being restricted by the specific language of the 
current rule leaves the

[[Page 16516]]

Board with little flexibility with respect to conflicts outside the 
rule's language.
---------------------------------------------------------------------------

    \2\ See Securities Exchange Act Release No. 19406 (Feb. 17, 
1983), 48 FR 8385 (Feb. 28, 1996) (order approving File No. SR-PSE-
82-16).
    \3\ See PSE Const., Art. III, Sec. 2(c).
    \4\Id.
---------------------------------------------------------------------------

    A task force was created to help review the current rule, and to 
examine alternatives that might work better to avoid conflicts on both 
the Board of Governors and the Exchange committees. The task force 
consisted of nine members as follows: four governors (including a 
public governor, a specialist, an options floor broker and an allied 
member), two options clearing firm officials, the chairman of the 
Options Floor Trading Committee, the chairman of the Equity Floor 
Trading Committee, and the chairman of the Ethics and Business Conduct 
Committee. The task force concluded that the current language was 
unnecessarily specific, and therefore was too restrictive on the 
Board's power to determine whether a conflict existed. After review, 
the task force noted that most of the other exchanges used broad and 
general language, or no language at all, with the understanding that 
the boards of each exchange follow the spirit of a general policy of 
avoiding conflicts of interest. The task force approved the proposed 
rule, which is intended to provide more flexibility to the PSE Board to 
determine when a conflict exists, and to take the appropriate action.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act in that it is designed to assure a fair representation of its 
members in the selection of its Governors and administration of its 
affairs, and further it is designed to prevent fraudulent and 
manipulative acts and practices, to foster cooperation and coordination 
with persons engaged in regulating and processing information with 
respect to, and facilitating transactions in securities and 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 inappropriate burden on competition that is not necessary or 
appropriate in furtherance of the Act.

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

    No written comments were either solicited or received. A nine 
person task force consisting of Governors and Exchange members was 
created to review the current rule and to examine alternatives. The 
task force met on two occasions and recommended the proposed rule for 
approval by the Board of Governors. Subsequent to approval by the Board 
of Governors, voting members approved the proposed constitutional 
amendment at the January 25, 1996 Annual Meeting of the Exchange.

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 longer 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, 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 Exchange. All 
submissions should refer to File No. SR-PSE-96-08 and should be 
submitted by May 6, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-9185 Filed 4-12-96; 8:45 am]
BILLING CODE 8010-01-M