[Federal Register Volume 61, Number 123 (Tuesday, June 25, 1996)]
[Notices]
[Pages 32872-32873]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-16167]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-37324 File No. SR-CHX-96-11]


Self-Regulatory Organizations; Notice of Filing of Amendment No. 
3 to Proposed Rule Change by the Chicago Stock Exchange, Inc. Relating 
to Examinations

June 18, 1996.
    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 March 6, 
1996, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``Commission'' or ``SEC'') 
the proposed rule change, on March 18, 1996, filed Amendment No. 1 to 
the proposed rule change,\1\ and on April 4, 1996, filed Amendment No. 
2 to the proposed rule change.\2\ The original filing, as amended by 
Amendment No. 1 and Amendment No. 2, was published for comment in 
Securities Exchange Act Release No. 37067 (April 4, 1996), 61 FR 16274 
(April 12, 1996). On June 3, 1996, the Exchange submitted to the 
Commission Amendment No. 3 to the proposed rule change.\3\ The proposed 
rule change, as amended, is 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, as amended, from interested persons.
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    \1\ See Letter from David T. Rusoff, Foley & Lardner, to Elisa 
Metzger, SEC dated March 14, 1996 (``Amendment No. 1'').
    \2\ See Letter from Charles R. Haywood, Foley & Lardner, to 
Elisa Metzger, SEC dated April 4, 1996 (''Amendment No. 2'').
    \3\ See Letter from David Rusoff, Foley & Lardner, to Elisa 
Mezger, SEC dated May 31, 1996 (``Amendment No. 3'').
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    In the original filing as amended by Amendments Nos. 1 and 2, the 
Exchange proposed to amend Rules 2 and 3 of Article VI (and the 
interpretations and policies thereunder) to clarify existing rules, 
adopt a new Floor Membership Exam, adopt a new Market Maker Exam, adopt 
a new Co-Specialist Exam, and adopt examinations applicable to persons 
conducting a customer business from the CHX trading floor. The Exchange 
also proposed to adopt the Content Outline for the Examination Module 
for Floor Members Engaged in a Public Business with Professional 
Customers and the Content Outline for the Examination Module for Floor 
Clerks of Members engaged in a Public Business with Professional 
Customers (collectively, the ``Content Outline'').\4\ Finally, the 
Exchange proposed technical changes to Rule 2 of Article VI, 
Registration and Approval of Member and Member Organization Personnel, 
including a definition of ``control person.'' Amendment No. 3 clarifies 
the proposed amendments to Rule 2 of Article VI.
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    \4\ The Exchange will use the Series 7A Examination that was 
approved in Securities Exchange Act Release No. 32698 (July 29, 
1993), 58 FR 41539 (File No. SR-NYSE-93-10). The Exchange will use 
the Series 7B Examination that was approved in Securities Exchange 
Act Release No. 34334 (July 8, 1994) 59 FR 35964 (File No. SR-NYSE-
94-13). The Series 7A and 7B Examinations for CHX members will be 
administered by the National Association of Securities Dealers, Inc. 
(``NASD'').
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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
    As amended, the proposed rule change clarifies current Exchange 
requirements for registering personnel and makes technical changes to 
the registration procedure. The proposed rule change adds a definition 
of ``control person'' to Article VI, Rule 2 and specifies that all such 
persons at members and member organizations must be acceptable to the 
Exchange. A ``control person'' is defined as:

    [A] person with the power, directly or indirectly, to direct the 
management or policies of a company whether through ownership of 
securities, by contract or otherwise, and at a minimum, means all 
directors, general partners or officers exercising executive 
responsibility (or having similar status or functions), all persons 
directly or indirectly having the right to having the power to sell 
or direct the sale of 5% or more of a class of voting securities, or 
in the case of a partnership, having the right to received upon 
dissolution, as having contributed, 5% or more of the capital.

In the original filing, the proposed amendment required that all 
control persons and certain shareholders be acceptable to the Exchange. 
Amendment No. 3 deleted the reference to ``certain shareholders'' and 
amended the definition of ``control person'' to include those persons 
who directly or indirectly have the right to vote or sell 5% or more of 
a class of voting security, as opposed to 10% or more of a class of 
voting security. Amendment No. 3 also clarified that in the case of a 
partnership, a ``control person'' would include those persons who have 
the right to receive upon dissolution, as having contributed 5%, as 
opposed to 10%, or more of the capital.
    Rule 2 of Article VI States that ``[e]very other employee of a 
member or member organization must also be

[[Page 32873]]

acceptable to the Exchange.'' Amendment No. 3 explains the application 
of the standard ``acceptable to the Exchange'' to control persons. In 
the proposed rule change, the Exchange will apply the ``acceptable to 
the Exchange'' standard to control persons in the same manner as it has 
applied that standard to employees of members or member organizations 
in the past since the rule was first adopted. While the Exchange has 
not had to exercise this standard in recent years, the Exchange might 
apply it if, for example, a prospective employee or control person is 
subject to a statutory disqualification or if the person, while not 
subject to a statutory disqualification, is barred from the banking 
industry because he or she stole from customers.
    In the original filing, the proposed amendments to Rule 2 of 
Article VI stated that upon notice to a member or member organization 
that the President of the Exchange has withheld or withdrawn approval 
of the employment of any other person, the relationship between the 
member or member organization and such person shall be terminated. 
Amendment No. 3 deletes the reference to ``the employment of'' any such 
other person.
    Rule 2 of Article VI requires members or member organizations that 
know or in the exercise of reasonable care should know that any 
prospective employee is subject to one or more statutory 
disqualifications to submit details on such prospective employee to the 
Exchange and receive Exchange approval before such person becomes 
associated with the member or member organization. Rule 2 also requires 
that each member or member organization take reasonable care to 
determine the existence of a statutory disqualification prior to 
employing any prospective employee. Further, if any person already 
employed by a member or member organization thereafter becomes subject 
to a statutory disqualification, notice must be sent to the Exchange 
promptly. Amendment No. 3 clarifies that these provisions are 
applicable to control persons as well as employees of members or member 
organizations.
2. Statutory Basis
    The proposed rule change is consistent with section 6 of the Act in 
general, and in particular, with Section 6(b)(5), in that it is 
designed to promote just a equitable principles of trade, remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, as well as to protect investors and the 
public interest.
    The proposed rule change is also consistent with Section 6(c)(3)(B) 
of the Act, which provides that a national securities exchange may 
examine and verify the qualifications of an applicant to become a 
person associated with a member in accordance with procedures 
established by the rules of the exchange, and require any person 
associated with a member, or any class of such persons, to be 
registered with the exchange in accordance with procedures so 
established.

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 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 understands that the Commission has received comments 
on SR-CHX-96-11 and Amendments Nos. 1 and 2 thereto.\5\ The Exchange 
believes that issues raised by the commenter are addressed herein, and 
in Amendment No. 3.\6\
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    \5\ See Letters from C. Philip Curley, Attorney, Robinson Curley 
& Clayton, P.C., to Jonathan G. Katz, Secretary, SEC, dated May 2, 
1996 (``Comment Letters'').
    \6\ The SEC notes that Amendment No. 3 was submitted in response 
to the Comment Letter. The comment letter received by the SEC 
regarding the CHX's proposal and Amendment No. 3 are available in 
the SEC's public reference room in File No. SR-CHX-96-11.
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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 CHX. All 
submissions should refer to File No. SR-CHX-96-11 and should be 
submitted by July 16, 1996.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 96-16167 Filed 6-24-96; 8:45 am]
BILLING CODE 8010-01-M