[Federal Register Volume 68, Number 235 (Monday, December 8, 2003)]
[Notices]
[Pages 68440-68442]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30353]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48861; File No. SR-PCX-2003-35]


Self-Regulatory Organizations; Order Granting Partial Approval of 
a Proposed Rule Change and Notice of Filing and Order Granting 
Accelerated Approval of Amendment No. 2 Thereto by the Pacific 
Exchange, Inc., To Amend Its Corporate Governance and Disclosure 
Policies

December 1, 2003.

I. Introduction

    On July 14, 2003, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), through its wholly owned subsidiary, PCX Equities, Inc. 
(``PCXE''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to section 19(b)(1) of the Securities

[[Page 68441]]

Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend its Corporate Governance and Disclosure 
Policies. The proposed rule change, among other things, would require 
each issuer listed on the PCX to establish an independent audit 
committee and to comply with the standards for audit committees 
mandated by section 10A(m) of the Act \3\ and Rule 10A-3 thereunder.\4\ 
The proposed rule change also includes provisions relating to board 
independence and independent committees, codes of conduct, and other 
corporate governance issues. On October 14, 2003, the Exchange filed 
Amendment No. 1 to the proposal.\5\ On October 31, 2003, the proposed 
rule change, as modified by Amendment No. 1, was published for comment 
in the Federal Register.\6\ The Commission received no comments on the 
proposal. On November 18, 2003, the Exchange filed Amendment No. 2 to 
the proposal.\7\
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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.
    \5\ See letter from Steven B. Matlin, Senior Counsel, PCX, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated October 8, 2003 (``Amendment No. 1''). In 
Amendment No. 1, the Exchange made changes to proposed rule text in 
PCX Rule 5.3(k)(5)(B)(ii)(a).
    \6\ See Securities Exchange Act Release No. 48700 (October 24, 
2003), 68 FR 62146 (October 31, 2003).
    \7\ See letter from Steven B. Matlin, Senior Counsel, PCX, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated November 17, 2003 (``Amendment No. 2''). In 
Amendment No. 2, the Exchange proposed an additional section of rule 
text, PCX Rule 5.3(k)(5)(A)(v), to expand, with respect to 
investment companies, the scope of the requirement that audit 
committees establish procedures for the confidential, anonymous 
submission of concerns regarding questionable accounting or auditing 
matters.
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    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.\8\ This 
Order approves the proposed rule change in part as further discussed 
below, so that the PCX can comply with this deadline. This Order also 
provides notice of Amendment No. 2 and approves Amendment No. 2 on an 
accelerated basis. The Commission notes that the PCX is considering 
revisions to the portions of the proposed rule change that pertain to 
corporate governance listing standards other than the revisions to 
comply with Rule 10A-3, particularly in light of rule changes by the 
New York Stock Exchange, Inc. and the National Association of 
Securities Dealers, Inc. that were recently approved by the 
Commission.\9\ This Order does not relate to those other proposed 
provisions.
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    \8\ 17 CFR 240.10A-3.
    \9\ 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) (``NYSE/
NASD Corporate Governance Release''). Telephone conference call 
between Steven Matlin, Senior Counsel, PCX and Nancy Sanow, 
Assistant Director, Division of Market Regulation, Commission, and 
other Commission staff, on November 17, 2003.
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II. Description of Approved Changes

    The Commission is approving in this Order the following provisions 
of the proposed rule change, which implement the requirements of Rule 
10A-3:
    (1) The third proposed additional sentence to PCX Rule 5.3, 
``Corporate Governance and Disclosure Policies,'' which, as approved 
states: ``Issuers of any security that is listed pursuant to the Rules 
of the Corporation must comply with the provisions of Rule 
5.3(k)(5).'';
    (2) Proposed PCX Rule 5.3(k)(5)(A) in its entirety, as well as the 
heading, ``Audit Committee,'' for proposed PCX Rule 5.3(k)(5);
    (3) The heading and second sentence of proposed PCX Rule 5.3(n), 
``Listed Foreign Private Issuers.'' The rule, as approved, states: 
``Listed foreign private issuers must comply with the provisions of 
Rule 5.3(k)(5)'';
    (4) The proposed change to existing PCX Rule 5.5(a), ``Maintenance 
Requirements and Delisting Procedures,'' which would add language to 
conform the rule to Rule 10A-3; and
    (5) All the proposed changes to existing PCX Rule 5.5(m), 
``Delisting Procedures,'' which consist of adding a cross-reference to 
Rule 5.3 and referring to violations of Rule 5.3(k)(5), in which case 
the corporation shall initiate delisting procedures.
    In addition, the Commission is approving Amendment No. 2 to the 
proposed rule change on an accelerated basis. In Amendment No. 2, the 
PCX proposes to expand, with respect to investment companies, the scope 
of its 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.'' \10\ 
The amended PCX 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.
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    \10\ 17 CFR 240.10A-3(b)(3)(ii).
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III. Discussion

    After careful review, the Commission finds that the provisions of 
the proposed rule change specified above that implement the 
requirements of Rule 10A-3 are consistent with the requirements of the 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\11\
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    \11\ 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).
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    Specifically, the Commission finds that these changes are 
consistent with section 6(b)(5) of the Act,\12\ which requires, among 
other things, that the PCX'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.
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    \12\ 15 U.S.C. 78f(b)(5).
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    Furthermore, the Commission finds good cause, consistent with 
section 19(b)(2) of the Act,\13\ to approve Amendment No. 2 to the 
proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register. This 
expansion of complaint procedures of audit committees at investment 
companies proposed in Amendment No. 2 responds to a recommendation by 
the Commission that self-regulatory organizations take into account, in 
adopting their rules, 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\ The Commission believes that it is appropriate to 
accelerate approval of this amendment because it conforms to similar 
provisions approved by the Commission for other self-

[[Page 68442]]

regulatory organizations \15\ and raises no new issues.
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    \13\ 15 U.S.C. 78s(b)(2).
    \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 NYSE/NASD Corporate Governance Release, supra n. 9.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2, including whether Amendment No. 2 
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-PCX-2003-35 and should be 
submitted by December 29, 2003.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\16\ that the portions of the proposed rule change (File No. SR-
PCX-2003-35) set forth above relating to compliance with Rule 10A-3 
under the Act be, and hereby are, approved, and that Amendment No. 2 
relating to complaint procedures of audit committees of investment 
companies be granted accelerated approval.
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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).

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-30353 Filed 12-5-03; 8:45 am]
BILLING CODE 8010-01-P