[Federal Register Volume 63, Number 40 (Monday, March 2, 1998)]
[Notices]
[Pages 10251-10253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5254]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-39694; File No. SR-EMCC-98-01]


Self-Regulatory Organizations; Emerging Markets Clearing 
Corporation; Notice of Filing and Order Granting Accelerated Approval 
of a Proposed Rule Change Relating to the Offering of Shares of Common 
Stock

February 24, 1998.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'').\1\ notice is hereby give that on February 18, 1998, the 
Emerging Markets Clearing Corporation (``EMCC'') filed with the 
Securities and Exchange Commission (``Commission'') the proposed rule 
change (File No. SR-EMCC-98-01) as described in Items I and II below, 
which items have been prepared primarily by EMCC. The commission is 
publishing this notice and order to solicit comments on the proposed 
rule change from interested persons and to grant accelerated approval 
of the proposal.
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    \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 proposed rule change relates to the sale of common stock of 
EMCC.

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

    In its filing with the Commission, EMCC included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments that it received on the proposed rule change. 
The text of these statements may be examined at the

[[Page 10252]]

places specified in Item IV below. EMCC has prepared summaries, set 
forth in sections (A), (B), and (C) below, of the most significant 
aspects of such statements.\2\
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    \2\ The Commission has modified the text of the summaries 
submitted by EMCC.
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(A) Self-Regulatory Organizations's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    On May 30, 1997, EMCC filed with the Commission an application on 
Form CA-1 for registration as a clearing agency. On February 13, 1998, 
the Commission approved EMCC's application for registration 
(``registration order'').\3\ As described in the registration order, 
EMCC is owned by the International Securities Markets Association 
(``ISMA''), the National Securities Clearing Corporation (``NSCC''), 
and the Emerging Markets Traders Association (``EMTA''). The 
registration order noted EMCC's intention to issue shares to those 
entities that have participated in an contributed to EMCC's development 
fund to finance EMCC's initial operations (``general shareholders'') 
EMCC has determined to issue these shares at the present time so that 
funds will be available to pay expenses related to its development. The 
purpose of this proposed rule change is to obtain authorization for the 
share issuance.\4\ After the issuance and sale of these EMCC shares, no 
entity will be qualified to become EMCC member unless, in addition to 
satisfying the other criteria for membership set forth in the rules, 
such applicant becomes a shareholder of EMCC (participant 
shareholder'') or an affiliate of a shareholder of EMCC.
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    \3\ Securities Exchange Act Release No. 39661 (February 13, 
1998), 62 FR 8711 (order granting temporary registration as a 
clearing agency).
    \4\ The thirty entities that will receive shares in this 
issuance are listed on Exhibit A, Annex 1 to EMCC's rule filing. All 
of these entities are either U.S. broker-dealers, U.K. broker-
dealers, U.S. banks, or non-U.S. banks.
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    Each shareholder, both general and participant, will be required to 
sign the shareholder agreement, which sets forth provisions regarding 
the election of directors, restrictions on issuance and transfer of 
shares, and voting requirements.\5\ The shareholder agreement provides 
that no dividends will be paid on the shares. Pursuant to the 
shareholder agreement, shareholders may sell or may transfer their 
shares only in compliance with the shareholder agreement. There is a 
fixed price of $5,000 per share for the issuance, sale, or transfer of 
EMCC shares by a participant shareholderS although no assurance is 
given that a transferee will be available to purchase EMCC shares at 
the time of any proposed transfer. Any sale or transfer by a 
participant shareholder may only be to entities that are already 
general or participant shareholder of EMCC and that agree to execute 
the shareholder agreement. In addition, any such sale may only occur if 
prior to such sale or transfer EMCC receives a legal opinion, in a form 
acceptable to it, to the effect that such sale or transfer is exempt 
under the Securities Act of 1933.\6\
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    \5\ A vote of eighty percent of the outstanding shares is 
required to terminate the shareholder agreement.
    \6\ 15 U.S.C. 77a.
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    As described in the registration order, EMCC's board of directors 
is classified into four classes. The first three classes are each 
composed of five participant directors. Only officers or partners of a 
participant shareholder or of an affiliate or subsidiary of a 
participant shareholder are eligible to serve as a participant 
director. Shareholders are obligated to vote their shares for 
participant directors selected by the nominating committee if no 
participant nominees are submitted or for the participant directors 
selected by a vote of the participants if there is a contested 
election. The fourth class of directors (``Class IV'') consists of one 
EMTA director, one ISMA director, two NSCC directors, and two directors 
selected by the EMCC board. Shareholders are required to vote their 
shares to elect the directors selected by ISMA, EMTA, NSCC, and EMCC's 
board.
    Except upon written agreement of the holders of two-thirds of the 
outstanding EMCC shares, shareholders may not vote (1) to amend or 
change the EMCC certificate of incorporation, the by-laws of EMCC, or 
the shareholder agreement or (2) to repurchase or to issue any EMCC 
shares. However, if directed by a board resolution, shareholders must 
vote (1) to amend or change the certificate of incorporation relating 
to the establishment of a greater than majority requirement of quorum 
and voting at meetings of the board of directors, the establishment of 
a cumulative voting system for the election of directors, the 
classification of directors, shareholder rights to fix consideration 
for no par shares, shareholder rights to fix compensation of directors, 
and shareholder rights to elect and to remove officers and (2) to 
adopt, to amend, or to repeal any by-law except those which the board 
is prohibited from adopting, amending, or repealing pursuant to the by-
laws. Shareholders may not vote to change the manner in which a Class 
IV director is elected or to reduce the number of Class IV directors 
except with the unanimous consent of ISMA, EMTA, and NSCC.
    In conjunction with this issuance of shares, EMCC is amending its 
articles of incorporation in order to permit certain actions to be 
taken upon a two-thirds vote of the shareholders rather than upon 
unanimous vote. A two-thirds vote will be required for: (1) any 
amendment or change of the certificate of incorporation; (2) any 
adoption, amendment, or repeal by the shareholders of by-laws of EMCC; 
(3) any repurchase of any securities issued by EMCC; and (4) any 
issuance of any securities by EMCC.
    EMCC believes that the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder and 
specifically with the fair representation requirement of Section 
17A(b)(3)(C).

(B) Self-Regulatory Organization's Statement on Burden on Competition

    EMCC does not believe that the proposed rule change will have an 
impact on or impose a burden on competition.

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

    No written comments relating to the proposed rule change have been 
solicited or received. EMCC will notify the Commission of any written 
comments received by EMCC.

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

    Section 17A(b)(3)(C) of the Act requires that the rules of a 
clearing agency assure the fair representation of its shareholders or 
members and participants in the selection of its directors.\7\ The 
Commission believes that EMCC's proposal is consistent with its 
obligations under the Act. EMCC's procedures for the election of 
directors, which the Commission approved in the registration order, 
provides that other than Class IV directors only participant 
shareholders may serve on the board of directors. The rule change 
allows for participants to become shareholders and thus enhance their 
ability to participate in the governance of EMCC. Therefore, the 
Commission believes that EMCC's proposal is consistent with its 
obligations to assure the fair representation of participants.
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    \7\ 15 U.S.C. 78q-1(b)(3)(C).
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    EMCC has requested that the Commission find good cause for

[[Page 10253]]

approving the proposed rule change prior to the thirtieth day after the 
date of publication of notice of the filing. The Commission finds good 
cause for approving the proposed rule change prior to the thirtieth day 
after publication of notice because it will permit EMCC to proceed with 
its issuance of shares to general shareholders scheduled for February 
24, 1998.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 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. 552, will be available for inspection and copying in the 
Commission's Public Reference Room, 450 Fifth Street, NW., Washington, 
DC 20549. Copies of such filing will also be available for inspection 
and copying at the principal office of EMCC. All submissions should 
refer to the file number SR-EMCC-98-01 and should be submitted by March 
23, 1998.
    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (File No. SR-EMCC-98-01) 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,
Deputy Secretary.
[FR Doc. 98-5254 Filed 2-27-98; 8:45 am]
BILLING CODE 8010-01-M