[Federal Register Volume 68, Number 234 (Friday, December 5, 2003)]
[Notices]
[Pages 68127-68128]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30252]



[[Page 68127]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48855; File No. SR-BSE-2003-07]


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 Boston Stock 
Exchange, Inc. To Amend Its Listed Securities Requirements Relating to 
the Mandatory Establishment of Independent Audit Committees for All 
Listed Issuers

December 1, 2003.

I. Introduction

    On July 16, 2003, the Boston Stock Exchange, Inc. (``BSE'' 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 add new requirements concerning audit 
committees to its Listed Securities Requirements in Section 10 of 
Chapter XXVII of the Rules of the Board of Governors of the BSE (``BSE 
Rules''). The proposed rule change would require each issuer listed on 
the BSE to establish an independent audit committee and to comply with 
other specified standards relating to audit committees, as mandated by 
section 10A(m) of the Act \3\ and Rule 10A-3 thereunder.\4\ The 
proposed rule change also includes certification, enforcement, and 
other compliance requirements, as well as a provision that sets forth 
the operative dates for the new requirements. 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\ 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 28, 2003.\5\ The Commission received no comments on 
the proposal. On November 19, 2003, the BSE submitted an amendment to 
the proposed rule change.\6\ This order approves the proposal, 
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. 48668 (October 21, 
2003), 68 FR 61494 (``Notice'').
    \6\ See letter from John Boese, Vice President, Legal and 
Compliance, BSE, to Nancy Sanow, Assistant Director, Division of 
Market Regulation, Commission, dated November 18, 2003 (``Amendment 
No. 1''). In Amendment No. 1, the BSE 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.
    \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 relating to 
independent audit committees for listed companies is consistent with 
section 6(b)(5) of the Act,\9\ which requires, among other things, that 
the BSE'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 BSE's proposal to 
add the new requirements concerning audit committees is appropriate and 
consonant with section 10A(m) of the Act \10\ and Rule 10A-3 thereunder 
relating to audit committee standards for listed issuers. The 
Commission notes that the BSE intends to file an additional rule 
proposal relating to other corporate governance listing standards.\11\
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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\ 15 U.S.C. 78j-1(m).
    \11\ See Notice at note .
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    Furthermore, the Commission finds good cause, consistent with 
section 19(b)(2) of the Act,\12\ 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 BSE 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.''\13\ The amended BSE 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.\14\ 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,\15\ and the amendment raises no new substantive issues.
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    \12\ 15 U.S.C. 78s(b)(2).
    \13\ 17 CFR 240.10A-3(b)(3)(ii).
    \14\ 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).
    \15\ 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-BSE-2003-07 and should be 
submitted by December 26, 2003.

[[Page 68128]]

IV. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\16\ that Amendment No. 1 is approved on an accelerated basis, and 
that the proposed rule change (File No. SR-BSE-2003-07) be, and it 
hereby is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-30252 Filed 12-4-03; 8:45 am]
BILLING CODE 8010-01-P