[Federal Register Volume 65, Number 111 (Thursday, June 8, 2000)]
[Notices]
[Pages 36495-36496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-14409]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-42883; File No. SR-Phlx-00-40]


Self Regulatory Organizations; Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by the 
Philadelphia Stock Exchange, Inc., Proposing To Amend Phlx By-Law 
Article IV, Section 4-18

June 1, 2000.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on April 21, 2000, the Philadelphia Stock Exchange, Inc. (``Phlx'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items I and II below, which Items have been 
prepared by the Exchange. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons 
and to approve the proposal on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange proposes to amend Phlx By-Law Article IV, sections 4-
18(a) and (e) by expanding its indemnification and insurance coverage 
to directors and committee members of the Exchange. Below is the text 
of the proposed rule change. New language is italicized.

By-Law Article IV

Indemnification

    Sec. 4-18.(a) Right to Indemnification. Each person who was or 
is made a party or is threatened to be made a party to or is 
otherwise involved in any action, suit or proceeding, whether civil, 
criminal, administrative or investigative (hereinafter a 
``proceeding''), by reason of the fact that he or she is or was 
Governor, officer, or committee member of the Exchange or is or was 
serving at the request of the Exchange as an officer, director, 
employee or agent of another corporation or of a partnership, joint 
venture, trust or other enterprise, including service with respect 
to an employee benefit plan (hereinafter an ``indemnitee''), whether 
the basis of such proceeding is alleged action in an official 
capacity as a Governor, officer, committee member, director, 
employee or agent or in any other capacity while serving as a 
Governor, officer, committee member, director, employee or agent, 
shall be indemnified and held harmless by the Exchange to the 
fullest extent authorized by the Delaware General Corporation Law, 
as the same exists or may hereafter be amended (but, in the case of 
any such amendment, only to the extent that such amendment permits 
the Exchange to provide broader indemnification rights than 
permitted prior thereto), against all expense, liability and loss 
(including attorney's fees, judgments, fines, ERISA excise taxes or 
penalties and amounts paid in settlement) reasonably incurred or 
suffered by such indemnitee who has ceased to be a Governor, 
officer, committee member, director, employee or agent and shall 
inure to the benefit of the indemnitee's heirs, executors and 
administrators; provided, however, that, except as provided in 
paragraph (c) hereof with respect to proceedings to enforce rights 
to indemnification, the Exchange shall indemnify any such indemnitee 
in connection with a proceeding (or part thereof) initiated by such 
indemnitee only if such proceeding (or part thereof) was authorized 
by the Board of Governors of the Exchange.
    Section 4-18(b) through (d). No change.
    Sec. 4-18.(e) Insurance. The Exchange may maintain insurance, at 
its expense, to protect itself and any Governor, officer, committee 
member, director, employee or agent of the Exchange or another 
corporation, partnership, joint venture, trust or other enterprise 
against any expense, liability or loss, whether or not the Exchange 
would have the power to indemnify such person against such expense, 
liability or loss under the Delaware General Corporation Law.

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 Phlx 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 Exchange has prepared summaries, set forth in 
Sections 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
    The Phlx represents that the purpose of the proposed rule change is 
to clarify the original intent of the Exchange, by expanding the 
Exchange's indemnification and insurance coverage to include persons 
serving at the request of the Exchange as a Governor, officer, 
committee member, director, employee, or agent of another corporation 
or of a partnership, joint venture, trust or other enterprise, 
including service with respect to an employee benefit plan. Although 
Governors, officers,

[[Page 36496]]

employees, and agents are expressly covered by the relevant provisions, 
the words ``director'' and ``committee member'' were inadvertently 
omitted from Phlx By-Law Article IV, section 4-18(a) when it was last 
amended on August 22, 1997.\3\ The word ``director'' was also 
inadvertently omitted from Phlx By-Law Article IV, section 4-18(e).\4\
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    \3\ See Securities Exchange Act Release No. 38960 (August 22, 
1997), 62 FR 45904 (August 29, 1997).
    \4\ Telephone conversation between Murray Ross, Vice President 
and Secretary, Phlx, and Susie Cho, Attorney, Division of Market 
Regulation (``Division''), Commission (May 8, 2000).
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    The Exchange believes that the proposed amendments to its By-Law 
Article IV, sections 4-18(a) and (e) will remove any uncertainty as to 
whether a person serving as a director or committee member of another 
entity, at the request of the Exchange, is entitled to mandatory 
indemnification to the fullest extent provided in the Exchange's By-
Laws.\5\ The Phlx claims that such persons arguably are already covered 
as ``agents'' in sections 4-18(a) and (e). The Phlx, however, proposes 
to amend By-Law Article IV, sections 4-18(a) and (e) to make this 
coverage more explicit. The Phlx believes that clarifying the extent of 
its indemnification and insurance coverage is important in the 
recruitment of qualified persons to serve as Governors, directors, 
committee members and or agents for the Exchange, to actively 
participate in Exchange Governance, and to represent the Exchange on 
the boards of other committees and entities.
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    \5\ Id.
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2. Statutory Basis
    The Phlx represents that the proposed rule change would afford 
persons such as Governors, employees, agents, committee members, and 
directors for the Exchange, mandatory indemnification and insurance 
coverage to the fullest extent provided in the Exchange's By-Laws. For 
this reason, the Exchange believes that the proposed rule change is 
consistent with section 6 of the Act \6\ in general, and in particular, 
with section 6(b)(5),\7\ in that it is designed to promote just and 
equitable principles of trade, as well as to protect investors and the 
public interest.
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    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(5).
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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 did not receive any written comments on the proposed 
rule change.

III. Commission's Findings and Order Granting Accelerated Approval 
of the Proposed Rule Change

    The Commission has reviewed the Phlx's proposed rule change and 
finds, for the reasons set forth below, that the proposal is consistent 
with the requirements of section 6 of the Act \8\ and the rules and 
regulations thereunder applicable to a national securities exchange. 
Specifically, the Commission believes the proposal is consistent with 
section 6(b)(5) of the Act,\9\ because it promotes just an equitable 
principles of trade, removes impediments to and perfects the mechanism 
of a free and open market and a national market system, and protects 
investors and the public interest, by permitting persons serving as 
committee members and directors for the Exchange to receive mandatory 
indemnification and insurance coverage as provided in the Exchange's 
By-Laws.\10\
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ In approving the proposal, the Commission has considered 
the rule's impact on efficiency, competition, and capital formation. 
15 U.S.C. 78c(f).
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    The Commission finds that the Phlx's proposed rule change will 
correct the Phlx's inadvertent omission of persons serving as directors 
and committee members for the Exchange from its indemnification and 
insurance provisions, thus clarifying the Exchange's original 
intentions. The Commission also supports the Phlx's goal of attracting 
qualified candidates to serve as Governors, directors, committee 
members and/or agents for the Exchange, to participate in Exchange 
Governance, and to represent the exchange on the boards or other 
committees and entities.
    The Commission finds good cause for approving the proposed rule 
change (SR-Phlx-00-40) prior to the thirtieth day after the date of 
publication of notice thereof in the Federal Register. Specifically, 
the Commission notes that other exchanges, the National Association of 
Securities Dealers Regulation, Inc. (``NASD Regulation'') and the 
Nasdaq Stock Market, Inc. (``Nasdaq'') have similar indemnification and 
insurance provisions.\11\ The Commission also notes that the proposed 
rule change concerns issues that previously have been the subject of a 
full comment period pursuant to section 19(b) of the Act.\12\ 
Accordingly, the Commission believes that there is good cause, 
consistent with section 6(b)(5) and 19(b) of the Act,\13\ to approve 
the proposal on an accelerated basis.
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    \11\ See Chicago Board Options Exchange, Inc., Constitution 
Article IX, Section 9.1; New York Stock Exchange, Inc., Constitution 
Article XII, Section 1; NASD Regulation, By-Law Article X, Sections 
10.1 and 10.2; and Nasdaq By-law Article VII, sections 8.1 and 8.2.
    \12\ 15 U.S.C. 78s(b). See Securities Exchange Act Release No. 
39175 (September 30, 1997), 62 FR 62385 (October 10, 1997); 
Securities Exchange Act Release No. 39326 (November 14, 1997), 62 FR 
62385 (November 21, 1997).
    \13\ 15 U.S.C. 78f(b)(5) and 78s(b).
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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 20549-0609. 
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 at the 
Commission's Public Reference Room. 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-Phlx-00-40 and 
should be submitted by June 29, 2000.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\14\ that the proposed rule change is hereby approved on an 
accelerated basis.
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    \14\ 15 U.S.C. 78s(b)(2).
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    For the Commission, by the Division of Market Regulation, pursuant 
to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 00-14409 Filed 6-7-00; 8:45 am]
BILLING CODE 8010-01-M