[Federal Register Volume 62, Number 19 (Wednesday, January 29, 1997)]
[Notices]
[Pages 4367-4368]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2100]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38187; File No. SR-CHX-96-29]
Self-Regulatory Organizations; Order Approving Proposed Rule
Change by the Chicago Stock Exchange, Incorporated Relating to Approval
of Applicants to Membership
January 21, 1997.
On December 6, 1996,\1\ the Chicago Stock Exchange, Incorporated
(``CHX'' or ``Exchange'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \2\
and Rule 19b-4 thereunder.\3\ The proposed rule change would amend
Article I, Rule 5 and Rule 6 of its rules relating to approval
procedures for applicants to membership.
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\1\ The proposal was originally filed with the Commission on
November 6, 1996. The CHX subsequently submitted Amendment No. 1 to
the filing. Amendment No. 1 amends Rule 6 of Article I to change the
vote required by the Executive Committee to approve an applicant to
membership. Currently, CHX rules require the affirmative vote of not
less than two-thirds of the members of the Executive Committee
present at the time of the vote. Amendment No. 1 changes the
requirement to an affirmative vote of a majority of the Executive
Committee present at the time of the vote. Letter from David T.
Rusoff, Foley & Lardner to Karl J. Varner, Division of Market
Regulation, SEC, dated December 6, 1996.
\2\ 15 U.S.C. Sec. 78s(b)(1) (1988).
\3\ 17 CFR 240.19b-4 (1993).
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Notice of the proposed rule change as amended, together with the
substance of the proposal, was published in the Federal Register.\4\ No
comment letters were received. This order approves the proposed rule
change.
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\4\ Securities Exchange Act Release No. 38034 (December 6,
1996), 61 FR 66065 (December 16, 1996).
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I. Background
Rules 5 and 6 of Article I of the Exchange's rules govern the
application and approval process for applicants to Exchange membership.
Once an application for membership has been submitted in writing to the
Exchange, the rules require the staff to investigate the applicant's
qualifications to determine if such applicant meets the requirements
for membership. If the staff recommends that the applicant not be
admitted to membership, the applicant may appeal such staff
recommendation to the Executive Committee. If the staff recommends that
an applicant be elected to membership, the applicant then must go
through a 10 business day posting period before membership may be
transferred. The purpose of the 10 business day posting period is to
allow any member to file an objection to the election of the applicant
to membership. At the expiration of the posting period, the Executive
Committee then must consider the applicant and vote upon the applicant
for membership. Transfers of memberships become effective upon election
to membership.
Because the Act requires the CHX to approve an applicant to become
a member of the Exchange if such applicant meets the requirements of
the Act and the Exchange's rules for becoming a member, the Executive
Committee has limited discretion in approving a qualified applicant to
become a member. As a result, the purpose of the proposed rule change
is to limit the role of the Executive Committee during the approval
process to situations where an objection is raised, or material adverse
information is received, during the posting period, or where the staff
does not recommend an applicant for membership and the applicant
decides to appeal.
II. The Terms of Substance of the Proposed Rule Change
Under Rules 5 and 6 of Article I, as proposed to be amended, if the
staff recommends an applicant for membership and if no objections are
received, and no material adverse information is received, during the
subsequent posting period, the membership transfer would become
effective at the beginning of the next business day following
completion of the posting without any action taken by the Executive
Committee. As with the existing procedure, the Executive Committee
would hear an appeal if the staff does not recommend an applicant for
membership. Similarly, the Executive Committee would either approve or
disapprove the applicant if an objection or material adverse
information is received during the posting period.
Finally, the proposed rule change reduces the affirmative vote
required to elect an applicant to membership from the current
requirement of not less than two-thirds affirmative votes of the
members of the Executive Committee present at the time of voting to a
majority of the affirmative votes of the members.
III. Discussion
The proposed rule change is consistent with Section 6(b)(7) of the
Act in that the rules of the exchange, in general, provide a fair
procedure for the denial of membership to any person seeking membership
therein, the barring of any person from becoming associated with a
member thereof, and the prohibition or limitation by the exchange of
any person with respect to access to services offered by the exchange
or a member thereof. The proposed rule change reduces a possible
obstacle to the election of an applicant to membership by reducing the
affirmative votes of the members of the Executive Committee present at
the time of voting required to elect an applicant to membership from
the current not less than two-thirds to a majority of the affirmative
votes of the members.
Furthermore, the proposed rule change is consistent with Section 3
of the Act in that the proposed rule change will promote efficiency,
competition, and capital formation. The new procedure would eliminate
the requirement that the Executive Committee perform the pro forma role
of approving each membership transfer. At the same time, it would allow
the Executive Committee to make a determination if there is some
information brought to the Exchange's attention during the posting
period which was not known to the staff at the time of its
investigation.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change, SR-CHX-96-29 be, and hereby is,
approved.
[[Page 4368]]
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-2100 Filed 1-28-97; 8:45 am]
BILLING CODE 8010-01-M