[Federal Register Volume 68, Number 232 (Wednesday, December 3, 2003)]
[Notices]
[Pages 67715-67717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30058]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48835; File No. SR-CSE-2003-06]


Self-Regulatory Organizations; Order Granting Partial Approval of 
Proposed Rule Change and Amendment No. 2 Thereto and Notice of Filing 
and Order Granting Accelerated Approval of Amendment No. 1 Thereto by 
National Stock Exchange Relating to Audit Committee Requirements 
Applicable to Companies Listing Non-Option Securities

November 25, 2003.

I. Introduction

    On September 12, 2003, the Cincinnati Stock Exchange, now known as 
National Stock Exchange (``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 Article IV of its By-
Laws pertaining to its listing standards, including the addition of 
requirements applicable to audit committees of listed companies.\3\ The 
proposed rule change would require each issuer listed on the Exchange 
to have an audit committee that complies with the standards for audit 
committees mandated by Section 10A(m) of the Act \4\ and Rule 10A-3 
thereunder.\5\ The proposed rule change also would specify composition 
and member qualification requirements for

[[Page 67716]]

audit committees of listed issuers; include a requirement that audit 
committees have a written charter; and set forth other standards 
relating to audit committees and the contents of their charters. It 
would also set forth the operative dates for the new requirements. The 
proposed rule change also would make several other changes to Article 
IV of the By-Laws, as more fully described in the Notice.\6\ The 
Exchange also committed to adopt additional listing policies and 
requirements pertaining to issuer corporate governance.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In the proposed rule change, the Exchange also proposed to 
amend Article IV, Section 2 of the Exchange's By-Laws pertaining to 
unlisted trading privileges. The Commission is not approving this 
amendment at this time.
    \4\ 15 U.S.C. 78j-1(m).
    \5\ 17 CFR 240.10A-3.
    \6\ See Securities Exchange Act Release No. 48624 (October 10, 
2003), 68 FR 59957 October 20, 2003 (``Notice'').
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    The proposed rule change was published for comment in the Federal 
Register on October 20, 2003.\7\ The Commission received no comments on 
the proposal. On November 19, 2003, the Exchange submitted an amendment 
to the proposed rule change.\8\ On November 21, 2003, the Exchange 
submitted a second amendment to the proposed rule change.\9\ This order 
approves the proposed rule change and Amendment No. 2, other than the 
proposed amendment to Article IV, Section 2 of the By-Laws relating to 
unlisted trading privileges; publishes notice of Amendment No. 1; and 
approves Amendment No.1 on an accelerated basis.\10\
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    \7\ Id.
    \8\ See letter from Jennifer M. Lamie, Assistant General Counsel 
and Corporate Secretary, Exchange, to Nancy Sanow, Assistant 
Director, Division of Market Regulation (``Division''), Commission, 
dated November 18, 2003 (``Amendment No. 1''). In Amendment No. 1, 
the Exchange made minor, non-substantive changes to the text of the 
proposed rule and, with respect to investment companies, expanded 
the scope of the requirement that audit committees establish 
procedures for the confidential, anonymous submission of concerns 
regarding questionable accounting or auditing matters.
    \9\ See letter from Jennifer M. Lamie, Assistant General Counsel 
and Corporate Secretary, Exchange, to Nancy Sanow, Assistant 
Director, Division, Commission, dated November 20, 2003 (``Amendment 
No. 2''). In Amendment No. 2, the Exchange made minor, non-
substantive changes to the text of the proposed rule by replacing 
references to ``CSE'' with ``Exchange.'' This was a technical 
amendment and is not subject to notice and comment.
    \10\ 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 in part, 
the Exchange can comply with this deadline.
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II. Discussion

    After careful review, the Commission finds that the amended 
proposed rule change, except for the provision of the proposal relating 
to unlisted trading privileges, is consistent with the requirements of 
the Act and the rules and regulations thereunder applicable to a 
national securities exchange.\11\ Specifically, the Commission finds 
that the proposal relating to independent audit committees for listed 
companies and the other proposed revisions to Article IV, Sections 1 
and 3 of the Exchange's By-Laws are consistent with Section 6(b)(5) of 
the Act,\12\ which requires, among other things, that the Exchange's 
rules be designed to prevent fraudulent and manipulative acts and 
practices, and, in general, to protect investors and the public 
interest.\13\ 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 \14\ and Rule 
10A-3 thereunder relating to audit committee standards for listed 
issuers. The Commission notes that the Exchange intends to file an 
additional rule proposal relating to other corporate governance listing 
standards.\15\
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    \11\ In approving these portions of the proposal, the Commission 
has considered the proposed rule's impact on efficiency, 
competition, and capital formation. 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ The Commission notes that it is not approving the proposed 
changes to Article IV, Section 2 of the Exchange's By-Laws 
pertaining to unlisted trading privileges. The Exchange intends to 
revise at a later date its proposal relating to unlisted trading 
privileges. Any such amendment would require an affirmative vote by 
the Exchange's membership. Telephone conversation between Jennifer 
M. Lamie, Assistant General Counsel and Corporate Secretary, 
Exchange, Nancy Sanow, Assistant Director, Division, Commission, and 
Ira L. Brandriss, Special Counsel, Division, Commission, on November 
18, 2003.
    \14\ 15 U.S.C. 78j-1(m).
    \15\ See Notice at note .
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    Furthermore, the Commission finds good cause, consistent with 
Section 19(b)(2) of the Act,\16\ 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 Exchange 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.'' \17\ The amended Exchange 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.\18\ In Amendment No. 1, the Exchange also made several 
technical revisions to the rule text. 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,\19\ and the amendment raises no new 
substantive issues.
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ 17 CFR 240.10A-3(b)(3)(ii).
    \18\ 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).
    \19\ 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 Exchange. All 
submissions should refer to File No. SR-CSE-2003-06 and should be 
submitted by December 24, 2003.

[[Page 67717]]

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act 
\20\, that Amendment No. 1 is approved on an accelerated basis, and 
that the portions of the proposed rule change and Amendment No. 2 (File 
No. SR-CSE-2003-06) relating to Sections 1 and 3 of Article IV of the 
Exchange's By-Laws be, and hereby are, approved. 
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
Margaret H. McFarland,
Deputy Secretary.
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    \21\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 03-30058 Filed 12-2-03; 8:45 am]
BILLING CODE 8010-01-P