[Federal Register Volume 68, Number 232 (Wednesday, December 3, 2003)]
[Notices]
[Pages 67719-67720]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30055]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48836; File No. SR-Phlx-2003-51]


Self-Regulatory Organizations; Order Granting Approval of 
Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval of Amendment No. 1 Thereto by the Philadelphia 
Stock Exchange, Inc. Relating to Listing Standards Regarding Issuer's 
Audit Committees and Delisting Procedures

November 25, 2003.

I. Introduction

    On July 14, 2003, the Philadelphia Stock Exchange, Inc. (``Phlx'' 
or ``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend Phlx Rule 849, Audit Committee/Conflicts 
of Interest, and Phlx Rule 811, Delisting Policies and Procedures.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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    The provisions in the proposed rule change mostly are intended to 
comply with the requirements mandated by Section 10A(m) of the Act \3\ 
and Rule 10A-3 thereunder.\4\ Additional changes in the proposal relate 
to audit committee charters, audit committee composition requirements, 
audit committee approval of related party transactions, and revisions 
to the Exchange's delisting rule. The Exchange also committed to adopt 
additional listing policies and requirements pertaining to issuer 
corporate governance.
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    \3\ 15 U.S.C. 78j-1(m).
    \4\ 17 CFR 240.10A-3.
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    The proposed rule change was published for comment in the Federal 
Register on October 16, 2003.\5\ The Commission received no comments on 
the proposal. On November 20, 2003, the Phlx submitted an amendment to 
the proposed rule change.\6\ This order approves the proposed rule 
change, publishes notice of Amendment No. 1, and approves Amendment No. 
1 on an accelerated basis.\7\
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    \5\ See Securities Exchange Act Release No. 48601 (October 8, 
2003), 68 FR 59666 (``Notice'').
    \6\ See letter from Carla Behnfeldt, Director, Legal Department 
New Product Development Group, Phlx, to Ira L. Brandriss, Special 
Counsel, Division of Market Regulation, Commission, dated November 
19, 2003 (``Amendment No. 1''). In Amendment No. 1, with respect to 
investment companies, the Phlx expanded the scope of the requirement 
that audit committees establish procedures for the confidential, 
anonymous submission of concerns regarding questionable accounting 
or auditing matters.
    \7\ Rule 10A-3 requires each national securities exchange and 
national securities association to have rules that comply with its 
requirements approved by the Commission no later than December 1, 
2003. By the Commission approving the proposed rule change, the 
Exchange can comply with this deadline.
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II. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\8\ 
Specifically, the Commission finds that the proposal is consistent with 
Section 6(b)(5) of the Act,\9\ which requires, among other things, that 
the Phlx's rules be designed to prevent fraudulent and manipulative 
acts and practices, and, in general, to protect investors and the 
public interest. Moreover, the Commission believes that the Exchange's 
proposal to add the new requirements concerning audit committees is 
appropriate and consonant with Section 10A(m) of the Act and Rule 10A-3 
thereunder relating to audit committee standards for listed issuers. 
The Commission notes that the Phlx intends to file an additional rule 
proposal relating to other corporate governance listing standards.\10\
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    \8\ In approving this proposal, the Commission has considered 
the proposed rule's impact on efficiency, competition, and capital 
formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f(b)(5).
    \10\ See Notice at note .
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    Furthermore, the Commission finds good cause, consistent with 
Section 19(b)(2) of the Act,\11\ to approve Amendment No. 1 to the 
proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. In 
Amendment No. 1, the Phlx expanded, with respect to investment 
companies, the scope of the proposed provision regarding complaint 
procedures. Rule 10A-3 requires audit committees to establish 
procedures for ``the confidential, anonymous submission by employees of 
the listed issuer of concerns regarding questionable accounting or 
auditing matters.''\12\ The amended Phlx proposal would require that 
audit committees of investment companies also establish procedures for 
the confidential, anonymous submission of such concerns by employees of 
the investment adviser, administrator, principal underwriter, or any 
other provider of accounting related services for the investment 
company, as well as employees of the investment company. This revision 
responds to a recommendation by the Commission that self-regulatory 
organizations take into account, in adopting rules to comply with Rule 
10A-3, the fact that most services are rendered to an investment 
company by employees of third parties, such as the investment adviser, 
rather than by employees of the investment company.\13\ The Commission 
believes that it is appropriate to accelerate approval of this 
amendment, because it conforms the rule text to similar rules of the 
New York Stock Exchange, Inc. and the National Association of 
Securities Dealers, Inc. that were approved by the Commission,\14\ and 
the amendment raises no new substantive issues.
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    \11\ 15 U.S.C. 78s(b)(2).
    \12\ 17 CFR 240.10A-3(b)(3)(ii).
    \13\ See Securities Act Release No. 8220, Securities Exchange 
Act Release No. 47654, and Investment Company Act Release No. 26001 
(April 9, 2003), 68 FR 18788 (April 16, 2003) (release adopting Rule 
10A-3).
    \14\ See Securities Exchange Act Release Nos. 48745 (November 4, 
2003), 68 FR 64154 (November 12, 2003) (approval of, among other 
proposals, File Nos. SR-NYSE-2002-33 and SR-NASD-2002-141).
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III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1, including whether Amendment No. 1 
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 in the Commission's 
Public Reference Room. Copies of such filings will also be available 
for inspection and copying at the principal office of the Phlx. All 
submissions should refer to File No. SR-Phlx-2003-51 and should be 
submitted by December 24, 2003.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\15\, that Amendment No. 1 is approved on an accelerated basis, and 
that the proposed rule change (File No. SR-Phlx-2003-51) be, and it 
hereby is, approved.
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    \15\ 15 U.S.C. 78s(b)(2).


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    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-30055 Filed 12-2-03; 8:45 am]
BILLING CODE 8010-01-P