[Federal Register Volume 62, Number 141 (Wednesday, July 23, 1997)]
[Notices]
[Pages 39562-39563]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-19348]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-38846; International Series Release No. 1092; File No.
SR-ISCC-96-05]
Self-Regulatory Organizations; International Securities Clearing
Corporation; Order Approving Proposed Rule Change Relating to Election
of Directors
July 17, 1997.
On October 11, 1996, the International Securities Clearing
Corporation (``ISCC'') filed with the Securities and Exchange
Commission (``Commission'') pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'') \1\ and on October 17, 1996,
December 11, 1996, March 21, 1997, and May 8, 1997, filed amendments to
a proposed rule change (File No. SR-ISCC-96-05). Notice of the proposal
was published in the Federal Register
[[Page 39563]]
on May 16, 1997.\2\ On June 27, 1997, ISCC filed a technical amendment
to the proposed rule change.\3\ No comment letters were received. For
the reasons discussed below, the Commission is approving the proposed
rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ Securities Exchange Act Release No. 38615 (May 12, 1997), 62
FR 27100.
\3\ The amendment was a technical amendment that did not require
republication of notice.
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I. Description
The proposed rule change modifies ISCC's by-laws and adopts an
Amended and Restated Shareholders Agreement between ISCC and the
National Securities Clearing Corporation (``NSCC''), ISCC's sole
shareholder, in order to amend ISCC's current procedures for the
election of directors. Pursuant to ISCC's temporary exemption from the
fair representation requirements of the Act, NSCC currently appoints
ISCC's board.\4\
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\4\ ISCC's current by-laws and shareholders agreement set forth
provisions establishing the number and composition of ISCC's board
as well as the procedures for the election of directors. Such
provisions provide for a staggered board of twenty-two directors
composed of management, shareholder, and participant directors
divided into four classes. Each director is nominated by a
nominating committee consisting of seven members. ISCC participants
have the opportunity to nominate additional candidates for directors
and the right to vote in the event that additional nominees are
submitted by participants. In connection with its original
application for registration as a clearing agency, ISCC obtained and
continues to have a temporary exemption from Section 17A(b)(3)(C) of
the Act (15 U.S.C. 78q-1(b)(3)(C)) pursuant to which the above
described procedures have never been used.
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Under the proposed rule change, the size of the board of directors
is reduced from twenty-two directors to seven directors. Of the seven
directors, NSCC will select two directors. The NSCC directors will
serve one year terms. The other five directors (``participant
directors'') are divided into three classes, and their terms will
expire on a staggered basis. The nominating committee is reduced from
seven persons to three persons and is divided into two classes. The
terms for the two classes will expire on a staggered basis every two
years.
Beginning in 1998, at least fifteen business days prior to the
regularly scheduled board meeting that is (i) closest in time to the
upcoming annual meeting of shareholders and (ii) at least ninety days
before such annual meeting, the nominating committee will submit to the
Secretary by overnight mail or by telefax its list of nominees to fill
the nominating committee positions whose terms are expiring immediately
following the upcoming annual meeting (i.e., for the nominating
committee that will make nominations for the next year's election).\5\
The Secretary will include such list in the materials sent to the
directors in connection with the upcoming board meeting.
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\5\ The nominating committee that will select candidates for the
1998 annual meeting of shareholders will be appointed by the board
of directors.
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At the board meeting, the board may nominate individuals for one or
more vacancies on the nominating committee. The board must notify the
Secretary of any nominations within two business days of the meeting by
overnight mail, telefax, or telephone. Within five business days of the
meeting, the Secretary must mail a list of all nominating committee to
each participant.
At least ninety days before the annual meeting of shareholders, the
nominating committee will submit to the Secretary its list of nominees
for participant directors. Within five days of receipt of the list, the
Secretary will mail a list of all nominees for the positions of
participant director to each participant.
Participants have the right to nominate candidates for the
nominating committee and for participant directors by filing with the
Secretary, not less than sixty days prior to the date of the annual
meeting, a petition signed by the lesser of 5% of all participants or
fifteen participants. If a participant petition is filed or if the
board nominates additional candidates to the nominating committee, the
Secretary will mail to each participant at least forty-five days prior
to the date of the annual meeting a ballot setting forth all of the
nominees. Each participant is entitled to one vote for each ten dollars
of its average monthly fee payable or paid by the participant to ISCC
during the previous twelve month period. Participants must return their
ballots to the Secretary at least fifteen days prior to the annual
meeting. NSCC will then vote its shares in favor of the nominees
selected by the participants.
II. Discussion
Section 17A(b)(3)(C) \6\ of the Act requires that the rules of a
clearing agency assure the fair representation of its shareholders or
member and participants in the selection of its directors. In the
release announcing standards for the registration of clearing agencies
(``Standards Release''), the Division of Market Regulation stated that
rather than prescribing a single method for providing fair
representation, the Division would evaluate each clearing agency's
procedures on a case-by-case basis.\7\ The Standards Release provided
several examples of procedures that could be used to satisfy the fair
representation requirement, including solicitation of board of
directors nominations from all participants and selection of director
candidates by a nominating committee selected by the participants.
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\6\ 15 U.S.C. 78q-1(b)(3)(C).
\7\ Securities Exchange Act Release No. 16900 (June 17, 1980),
45 FR 30086.
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The Commission believes that ISCC's proposal is consistent with its
obligations under the Act because it provides participants with a
meaningful opportunity to participate in ISCC's election process. ISCC
participants will have the opportunity to nominate candidates for both
the board of directors and for the nominating committee. Furthermore,
the board, which should be responsive to participant concerns, will
also have the opportunity to nominate members of the nominating
committee. When there is a contested election for either board or
nominating committee positions, the participants will have the ability
to select the candidates that will serve in such capacities. Thus, the
Commission believes that ISCC's proposal is consistent with its
obligations to assure the fair representation of participants.
III. Conclusion
On the basis of the foregoing, the Commission finds that the
proposal is consistent with the requirements of the Act and in
particular with the requirements of Section 17A of the Act and the
rules and regulations thereunder.
It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (File No. SR-ISCC-96-5) be and hereby is
approved.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\8\
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\8\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Duputy Secretary.
[FR Doc. 97-19348 Filed 7-22-97; 8:45 am]
BILLING CODE 8010-01-M