[Federal Register Volume 66, Number 180 (Monday, September 17, 2001)]
[Notices]
[Pages 48072-48074]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23154]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-44777; File No. SR-CHX-2001-19]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Incorporated relating to Governance Structure

September 7, 2001.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice hereby is given 
that on September 4, 2001, the Chicago Stock Exchange, Incorporated 
(``CHX'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
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 from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    The Exchange is proposing amendments to its Certificate of 
Incorporation, Constitution and Rules, which would modify the 
Exchange's executive governance structure. Among other changes, the 
proposed amendments would permit the creation of a combined Chairman 
and Chief Executive Officer (``CEO'') position and permit the CEO to 
name a President, who could also serve on the CHX Board of Governors.
    The text of the proposed rule change is available from the Office 
of the Secretary of the CHX or at the Commission.

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 Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received regarding 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 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 proposed amendments, which have the support of the Exchange's 
Governance Committee and current Chairman, are intended, among other 
things, to permit the creation of a combined Chairman and CEO position. 
By giving the Board the flexibility to appoint a person to fulfill this 
combined role, these changes will give the Exchange another tool to 
meet the challenges facing self-regulatory organizations in the always-
changing securities industry. Although the proposed changes can be seen 
in many of the Exchange's rules and constitutional provisions, they 
primarily would have the following impact on the Exchange's governance.
    First the CEO would replace the President as the principal 
executive of

[[Page 48073]]

the Exchange. In the revised rules and constitutional provisions, all 
of the powers currently held by the President are transferred to the 
CEO. For example, where the Constitution now allows the President to 
serve on the Board, to appoint Exchange officers or to sell memberships 
and distribute proceeds from those sales, the power to engage in these 
activities would be held by the CEO.\3\
---------------------------------------------------------------------------

    \3\ See, e.g., CHX Constitution Article II, Section 5 (sales of 
memberships); Article III, Section 2 (serving on the Board); and 
Article VI, Section 4 (appointment of officers).
---------------------------------------------------------------------------

    Second, the CEO would have the ability to name a President (who 
might also serve as Chief Operating Officer) as the next most senior 
executive. Many other corporations, including other national securities 
exchanges, have a similar structure. For example, the CEOs of both the 
New York Stock Exchange (``NYSE'') and Chicago Board Options Exchange 
(``CBOE'') can appoint a President to serve as a senior executive.\4\
---------------------------------------------------------------------------

    \4\ See NYSE Constitution Article VI, Sections 1 and 2; and CBOE 
Constitution Article VIII, Sections 8.1 and 8.2.
---------------------------------------------------------------------------

    Third, under the proposed changes, the Board would have the option 
to choose as Chairman either the CEO or any Governor who now is 
eligible to serve as Chairman. Under the current structure, the Board 
chooses its Chairman from among those Board members who are either 
serving as ``non-industry'' governors or as ``off-floor'' member 
governors.\5\ The proposed changes would provide the Board another 
option--the CEO. By building this flexibility into the Constitution, 
the Board could decide that, given the challenges facing national 
securities exchanges today, that it should appoint a single person to 
act as a full-time Chairman and CEO and, in later years, still could 
choose to return to the existing part-time Chairman structure.\6\
---------------------------------------------------------------------------

    \5\ An ``off-floor'' member governor is a member who is not 
primarily engaged in business on the Exchange's trading floor or a 
general partner or an officer of a member organization that is not 
primarily engaged in business on the trading floor. See CHX 
Constitution, Article III, Section 10(3)-(5). ``Non-industry'' 
governors include, among others, public governors (who must have no 
material business relationship with a broker or dealer) and officers 
or employees of an issuer of securities listed exclusively on the 
Exchange. See CHX Constitution, Article III, Sections 10(1)-(4).
    \6\ Under the current structure, the Board can and has selected 
well-qualified and dedicated chairmen who are engaged in other 
activities, including working in senior jobs at other organizations.
---------------------------------------------------------------------------

    The Board would increase in size by one person to allow the 
President, if any, to serve on the Board. The Exchange's Board 
currently is composed of the Vice Chairman of the Board, the President 
and 22 governors (10 member governors and 12 non-industry 
governors).\7\ Under the proposed change, the Board would consist of 
the Vice Chairman, the CEO, the President, if any, and 22 governors 
(divided among member and non-industry governors as they are today). In 
other words, if the CEO appointed a President, the President would 
serve on the Board and increase the number of persons on the Board from 
24 to 25.
---------------------------------------------------------------------------

    \7\ The Vice Chairman of the Board is a member who is primarily 
engaged in business on the Exchange's trading floor or a general 
partner or officer in a member organization that is primarily 
engaged in business on the floor. See CHX Constitution, Article III, 
Sections 2 and 10(3).
---------------------------------------------------------------------------

    Additional changes in this proposal would: (1) Allow the Vice 
Chairman, in addition to the Chairman and the Chief Executive Officer, 
to be able to call meetings of the Board or the members; \8\ (2) permit 
the Chairman to become a voting member of all Committees on which he 
serves; \9\ and (3) correct small inaccuracies and delete unnecessary 
provisions.\10\
---------------------------------------------------------------------------

    \8\ Permitting the Vice Chairman to call meetings is appropriate 
because, if the changes described above are approved without this 
change and the Board names the CEO as Chairman, there would be only 
one person (the Chairman/CEO) who would have power to call these 
meetings.
    \9\ Allowing the Chairman to vote on the committees on which he 
serves is appropriate to ensure that he is a fully functioning 
member of the committees on which he serves.
    \10\ For example, the Exchange's Certificate of Incorporation 
lists an outdated address for its Delaware registered office and its 
Rules refer to a Committee on Market Structure that has fulfilled 
its purpose of working to develop appropriate plans to integrate the 
Exchange into ``the emerging National Market System.'' See CHX 
Certificate of Incorporation, First Provision; CHX Rules, Article 
IV, Rule 6.
---------------------------------------------------------------------------

    The Exchange believes that the proposed changes to its Certificate 
of Incorporation, Constitution and Rules will afford the Exchange's 
Board of Governors the flexibility to make optimal use of strong 
executive talent, without limiting in any respect the governing 
authority of the Board of Governors or disturbing the balance between 
member and non-industry Board representation. Further, the Exchange 
submits that the proposed changes are consistent with governance 
structures customary in many other corporations, including other 
exchanges.
2. Statutory Basis
    The proposed rule is consistent with the requirements of the Act 
and the rules and regulations thereunder that are applicable to a 
national securities exchange, and, in particular, with the requirements 
of section 6(b).\11\ In particular, the proposed rule is consistent 
with section 6(b)(5) of the Act \12\ in that it is designed to promote 
just and equitable principles of trade, to remove impediments to and to 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

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

    Written comments were neither solicited nor received.

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

    The foregoing rule change is concerned solely with the 
administration of the Exchange and has become effective pursuant to 
section 19(b)(3)(A)(iii) of the Act \13\ and subparagraph (f)(3) of 
Rule 19b-4.\14\
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \14\ 17 CFR 240.19b-4(f)(3).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission may summarily abrogate such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

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

[[Page 48074]]

the Commission's Public Reference Room in Washington, DC. 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-CHX-2001-19 and should be submitted by October 9, 2001.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
---------------------------------------------------------------------------

    \15\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 01-23154 Filed 9-14-01; 8:45 am]
BILLING CODE 8010-01-M