[Federal Register Volume 68, Number 247 (Wednesday, December 24, 2003)]
[Notices]
[Pages 74678-74689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31641]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-48946; File No. SR-NYSE-2003-34]


Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to the Amendment and 
Restatement of the Constitution of the Exchange To Reform the 
Governance and Management Architecture of the Exchange

December 17, 2003.

I. Introduction

    On November 7, 2003, the New York Stock Exchange, Inc. (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC''), 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 and restate the 
Exchange's Constitution to reform the governance and management 
architecture of the Exchange. The proposed rule change was published 
for public comment in the Federal Register on November 13, 2003.\3\ In 
addition to the proposed amendments to the NYSE Constitution, which are 
the subject of this Order, the Notice of the proposed rule change 
included as exhibits the texts of the Proxy Statement sent to NYSE 
members detailing the proposed changes to the Constitution and a 
letter, dated November 4, 2003, from the Exchange's Interim Chairman 
and CEO to NYSE members supplementing the Proxy Statement (the 
``Supplemental Letter'').\4\ On November 19, 2003, the Exchange filed 
Amendment No. 1 to the proposed rule change.\5\ The Commission received 
18 comment letters regarding the proposed rule change.\6\ This Order 
approves the Exchange's rule change as proposed.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 48764 (November 7, 
2003), 68 FR 64380 (``Notice'').
    \4\ In the Supplemental Letter, the NYSE's Interim Chairman and 
CEO indicated, among other things, his intention to bring before the 
NYSE Board several further amendments to the Constitution to further 
clarify and underscore the separation and independence of the 
regulatory function from the Exchange's marketplace function and 
from inappropriate influence by members and member organizations. 
The Commission notes that on November 24, 2003, the reconstituted 
Board voted to approve these amendments, as well as several others, 
to the NYSE Constitution. See Special Membership Bulletin regarding 
Additional Amendments to the Constitution, dated November 26, 2003. 
See also Letter from Darla C. Stuckey, Corporate Secretary, NYSE, to 
Annette L. Nazareth, Director, Division of Market Regulation 
(``Division''), Commission, dated December 4, 2003 (``Additional 
Amendments Letter''). The NYSE intends to file a proposed rule 
change with the Commission pursuant to section 19(b)(1) of the Act 
to incorporate these additional Constitutional changes. See infra 
notes 14, 22, 23, 35, 36, 39, 40, and 88.
    \5\ See Letter from Darla C. Stuckey, Corporate Secretary, NYSE, 
to Nancy J. Sanow, Assistant Director, Division, Commission, dated 
November 19, 2003. In Amendment No.1, the Exchange advised that the 
proposed rule change was approved by unanimous written consent of 
the Exchange's Board of Directors effective November 13, 2003, and 
by vote of the members of the Exchange on November 18, 2003. The 
Exchange noted that, as a result, its internal procedures with 
respect to the proposed rule change were complete. Amendment No. 1 
is simply a technical amendment and thus it is not necessary for the 
Commission to seek public comment on it.
    \6\ A list of commenters on the rule proposal, whose comments 
were received as of December 12, 2003, is attached as Exhibit A to 
this Order. The public file for the NYSE's proposal, which includes 
all comment letters received on the proposal, is located at the 
Commission's Public Reference Room, 450 Fifth Street, NW., 
Washington, DC 20549-0102.
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The NYSE proposes to amend and restate its Constitution to 
significantly change and enhance its governance

[[Page 74679]]

structure. In short, the Exchange proposes to restructure its 
governance architecture so that it will have a Board of Directors 
(``Board'') that is independent of members, member organizations, and 
listed issuers, and whose membership includes only one officer of the 
Exchange. The Exchange also proposes to create a Board of Executives 
that is representative of securities firms, listed issuers, and 
institutional investors. In addition, the NYSE proposes that its 
regulatory unit report directly to a fully independent committee of the 
Board, and not to NYSE management. The Exchange represents that the 
proposed rule change would guarantee the independence of its regulatory 
function both from members and member organizations and from 
inappropriate linkage with its marketplace function, yet would retain 
sufficient proximity to the marketplace to assure the market 
sensitivity that, in the Exchange's view, is fundamental to effective 
regulation.
    A description of the most significant changes to the NYSE 
Constitution follows.

A. Board of Directors

    The NYSE proposes to reduce the size of its Board, which previously 
had 24 members plus as many as three members of NYSE management, to 
between 6 and 12 members, plus the Chairman of the Board and the Chief 
Executive Officer (if different than the Chairman). The Board would be 
required to meet not less than four times per year, and directors would 
serve one-year terms.\7\
---------------------------------------------------------------------------

    \7\ NYSE Constitution, Article IV, Section 2.
---------------------------------------------------------------------------

    Board members (excluding the Chief Executive Officer) would be 
required to be independent of the management of the Exchange, the 
membership of the Exchange, and issuers of securities listed on the 
Exchange. Among other things, no director (other than the Chief 
Executive Officer) could be a member of the NYSE; an officer or 
employee of the NYSE; a person employed by or affiliated, directly or 
indirectly, with a member organization of the NYSE or with a broker or 
dealer that engages in a business involving substantial direct contact 
with securities customers; or an executive officer of a listed issuer. 
In addition, no director (excluding the Chief Executive Officer) would 
qualify as independent unless the Board affirmatively determined that 
the director had no material relationship with the Exchange. The Board 
would be required to adopt specific standards relating to such 
determination, comparable to standards required of issuers listed on 
the Exchange.\8\
---------------------------------------------------------------------------

    \8\ The Board would be required to adopt these standards by 
effecting a rule change within the meaning of section 19(b)(1) of 
the Act. The Commission recently approved revisions to the 
Exchange's corporate governance standards for its listed issuers 
that, among other things, set forth criteria for determining whether 
a director is ``independent.'' See Securities Exchange Act Release 
No. 48745 (November 4, 2003), 68 FR 64154 (November 12, 2003) 
(``NYSE/Nasdaq Corporate Governance Listing Standards Approval 
Order'').
---------------------------------------------------------------------------

    The selection process for Board members would be designed to enable 
the Exchange to comply with the ``fair representation'' requirements of 
section 6(b)(3) of the Act.\9\ Under the proposed amendments to the 
Constitution, the Nominating & Governance Committee (which, under the 
proposal, would be composed solely of independent directors) ultimately 
would be responsible for recommending to the Board candidates for Board 
membership. The amendments further would require, however, that the 
``Industry Members'' of the Board of Executives, described below, 
recommend candidates constituting twenty percent of the number of 
directors to be elected by members of the Exchange, but in no event 
fewer than two directors.\10\
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b)(3). Section 6(b)(3) of the Act requires the 
rules of a national securities exchange to provide for the fair 
representation of its members in the selection of directors and the 
administration of its affairs, and provide that one or more 
directors be representative of issuers and investors and not be 
associated with a member of the exchange, broker or dealer. See 
infra notes 15-21 and accompanying text for a discussion of fair 
representation.
    \10\ See infra note 17 and accompanying text.
---------------------------------------------------------------------------

    If a single individual serves as both the Chairman and Chief 
Executive Officer (``CEO''), the Board would be required to designate a 
director as a ``lead director'' to preside over executive sessions of 
the Board. The CEO would not be permitted to participate in executive 
sessions. The Board would be required to publicly disclose the lead 
director's name and the means by which interested parties could 
communicate with the lead director.\11\
---------------------------------------------------------------------------

    \11\ NYSE Constitution, Article IV, Section 2.
---------------------------------------------------------------------------

    The Board would be required to compile and distribute an annual 
nominating report listing the nominees for positions to be elected by 
the members. The Board would also be required to appoint the members of 
the Board of Executives.\12\
---------------------------------------------------------------------------

    \12\ NYSE Constitution, Article IV, Section 1.
---------------------------------------------------------------------------

B. Board of Executives

    Pursuant to the proposed Constitutional amendments, the Board would 
be required to establish a Board of Executives which, subject to the 
Board's ultimate authority, review, and oversight (and except with 
respect to the responsibilities delegated to the Standing Committees, 
discussed below), would advise the CEO in his or her management of the 
operations of the Exchange.\13\ The Board of Executives would consist 
of the Chairman of Board, who would be the Chairman of the Board of 
Executives; the CEO (if different than the Chairman); and at least 20 
but no more than 25 additional members, who would serve for one-year 
terms. The Board of Executives would be required to meet not less than 
six times per year.
---------------------------------------------------------------------------

    \13\ NYSE Constitution, Article V, Section 1.
---------------------------------------------------------------------------

    The members of the Board of Executives would be required to include 
at least six individuals who are either the chief executive or a 
principal executive officer of a member organization that engages in a 
business with direct contact with securities customers; at least two 
individuals who are either the chief executive or a principal executive 
officer of a specialist member organization; and at least two floor 
representatives other than specialists. The members of the Board of 
Executives from these categories would be known collectively as the 
``Industry Members'' of the Board of Executives. The Board of 
Executives also would be required to include at least two lessor 
members who are not affiliated with a broker or dealer in securities; 
at least four individuals who are either the chief executive or a 
principal executive officer of an institution that is a significant 
investor in equity securities, at least one of whom is a fiduciary of a 
public pension fund; and at least four individuals who are either the 
chief executive or principal executive officer of a listed company.\14\
    If the Board were to increase the size of the Board of Executives, 
it must strive to maintain approximately the same balance between 
Industry Members and other members of the Board of Executives as set 
forth above. If the Board were to increase the size of the Board of 
Executives, it would also be free to add members to the Board of

[[Page 74680]]

Executives who represent other elements of the Exchange community.
---------------------------------------------------------------------------

    \14\ Id. The Commission notes that the reconstituted NYSE Board 
recently voted to further amend the provisions of the NYSE 
Constitution relating to the composition of the Board of Executives 
to: (1) Add a representative of individual investors who are retail 
clients of member organizations; and (2) remove the requirement that 
specialist representatives be chief executive or principal executive 
officers of specialist firms, but require that each such 
representative be registered as a specialist and spend substantial 
time on the floor of the Exchange. See Additional Amendments Letter, 
supra note 4.
---------------------------------------------------------------------------

C. Fair Representation Requirements

    As a registered national securities exchange, the NYSE must adhere 
to section 6(b)(3) of the Act,\15\ which requires the NYSE to assure a 
fair representation of its members in the selection of its directors 
and the administration of its affairs, and provide that one or more 
directors be representative of issuers and investors.\16\ In order to 
satisfy this fair representation obligation, the NYSE proposes to 
provide in its amended Constitution that the Industry Members of the 
Board of Executives would recommend to the Board candidates 
constituting 20% of the directors to be elected by the members of the 
Exchange, but in no event fewer than two directors.\17\ The 
Constitution would state that the Industry Members are required to 
propose persons who, in their opinion, are committed to serving the 
interests of the public and strengthening the Exchange as a public 
market, and will allow the Exchange to meet the fair representation 
requirements set forth in the Act.\18\
---------------------------------------------------------------------------

    \15\ 15 U.S.C. 78f(b)(3).
    \16\ See supra note 9.
    \17\ NYSE Constitution, Article IV, Section 2. The Exchange has 
confirmed that the slate of candidates approved by the Board would 
constitute a full slate of candidates and 20% of that slate (but in 
no event fewer than two candidates) would be candidates proposed by 
the Industry Members. Telephone conversation between James F. Duffy, 
Senior Vice President and Associate General Counsel, NYSE, and Nancy 
J. Sanow, Assistant Director, Division, Commission, on December 10, 
2003.
    \18\ NYSE Constitution, Article V, Section 1.
---------------------------------------------------------------------------

    The Constitution would provide that the directors elected by 
Exchange members must include directors who will enable the Exchange to 
comply with the requirements of section 6(b)(3) of the Act.\19\ To this 
end, the proposed amendments also would require the Nominating & 
Governance Committee, in meeting its responsibilities to recommend 
candidates for Board membership, to propose candidates who are, in its 
opinion, committed to serving the interests of the public and 
strengthening the NYSE as a public securities market, at least one of 
whom is intended to allow the Exchange to meet the requirements of 
section 6(b)(3) of the Act concerning issuers and at least one of whom 
is intended to allow the Exchange to meet the requirements of section 
6(b)(3) of the Act concerning investors.\20\
---------------------------------------------------------------------------

    \19\ NYSE Constitution, Article IV, Section 2.
    \20\ NYSE Constitution, Article IV, Section 12. The Nominating & 
Governance Committee also would be required to establish procedures 
to solicit the input of investors in equity securities and members 
of the Exchange regarding Board candidates. See infra at note 24 and 
accompanying text.
---------------------------------------------------------------------------

    The NYSE also proposes an amendment to permit members of the 
Exchange to propose, by petition, nominees for positions that are to be 
filled at the elections prescribed in the Exchange's Constitution.\21\ 
Specifically, any such nominee would be required to be endorsed by not 
less than forty members. No member would be permitted to endorse more 
than one nominee. However, not less than one hundred members would be 
permitted to propose, by petition, an entire ticket or any portion of a 
ticket. If the Board finds that an individual proposed by petition is 
eligible for election, then the individual would be deemed a nominee 
for the relevant office or position.
---------------------------------------------------------------------------

    \21\ NYSE Constitution, Article III, Section 1.
---------------------------------------------------------------------------

D. Committees

1. Committees Consisting Solely of Directors
    The proposed amendments to the NYSE Constitution would provide for 
the appointment of two types of Standing Committees of the Exchange: 
(a) Standing Committees composed entirely of directors other than the 
CEO; and (b) Standing Committees that are joint committees composed of 
both directors other than the CEO and members of the Board of 
Executives. The Board would appoint the Standing Committees and their 
respective chairpersons at its annual organizational meeting, and the 
Board would be required to adopt a charter for each Standing Committee 
consistent with the duties of that committee as prescribed in the NYSE 
Constitution.\22\
---------------------------------------------------------------------------

    \22\ NYSE Constitution, Article IV, Section 12. The Commission 
notes that the reconstituted NYSE Board recently voted to further 
amend the Constitution to grant Standing Committees the authority to 
engage independent legal counsel and other advisors, but the 
committees may not use counsel or advisors who advise Exchange 
officers or employees. See Additional Amendments Letter, supra note 
. The Exchange confirms that the reconstituted Board also has the 
authority to engage independent legal counsel and other advisors. 
Telephone conversation between Darla C. Stuckey, Corporate 
Secretary, NYSE, and Nancy J. Sanow, Assistant Director, Division, 
Commission, on December 15, 2003.
---------------------------------------------------------------------------

    The amendments would provide for the appointment of four Standing 
Committees that would consist solely of directors other than the CEO 
and would report to the Board: (a) The Nominating & Governance 
Committee; (b) the Human Resources & Compensation Committee; (c) the 
Audit Committee; and (d) the Regulatory Oversight & Regulatory Budget 
Committee. Each of these Standing Committees could be combined with any 
other Standing Committee in this group, or be subdivided into one or 
more Standing Committees.\23\
---------------------------------------------------------------------------

    \23\ The Board could also constitute itself as a committee of 
the whole in respect of a Standing Committee consisting solely of 
directors. However, if the Board does so with respect to the 
activities of the four Standing Committees enumerated above, the CEO 
would be recused from such Board deliberations. The Commission notes 
that the reconstituted NYSE Board recently voted to further amend 
the Constitution to provide that the CEO would be recused from 
deliberations of the Board with respect to the four Standing 
Committees whether it is acting as the Board or as a committee of 
the whole. See Additional Amendments Letter, supra note 4.
---------------------------------------------------------------------------

    The Nominating & Governance Committee would be responsible for: (a) 
Recommending to the Board candidates for Board membership; (b) 
recommending to the Board candidates for membership on the Board of 
Executives; (c) conducting the Board's annual governance review; (d) 
reviewing and recommending the Exchange's corporate governance 
guidelines; (e) establishing an appropriate process for, and overseeing 
the implementation of, the Board's self-assessments (including Board 
self-assessment, committee self-assessments and director assessments) 
and the Board of Executives' self-assessments; (f) recommending 
director compensation; and (g) succession planning for the Chairman and 
the CEO.
    In addition to the criteria that the Nominating & Governance 
Committee would be required to follow in recommending candidates for 
the Board, discussed above,\24\ the Committee also would be required to 
establish procedures to solicit the input of investors in equity 
securities and members of the Exchange regarding Board candidates.
---------------------------------------------------------------------------

    \24\ See supra note and accompanying text.
---------------------------------------------------------------------------

    The Nominating & Governance Committee also would be required to 
solicit input from the various Exchange communities regarding 
candidates for appointment by the Board to the Board of Executives. 
Consensus recommendations for candidates for the Board of Executives 
representing specialists, floor representatives, and lessor members 
\25\ that are put forward by the respective representatives of these 
groups would be required to be forwarded to the Board as the 
recommendations of the Nominating & Governance Committee, unless and to 
the extent the committee determines that a candidate does not qualify 
for the position.
---------------------------------------------------------------------------

    \25\ See supra Section II.B.
---------------------------------------------------------------------------

    The Human Resources & Compensation Committee would be responsible 
for: (a) Reviewing and approving corporate goals and objectives 
relevant to the compensation

[[Page 74681]]

of the CEO, evaluating the CEO's performance in light of these goals 
and objectives, and, together with the other directors elected by the 
members, determining and approving such compensation; (b) reviewing and 
approving recommendations regarding compensation and personnel actions 
involving senior Exchange personnel, including recommendations received 
from the Regulatory Oversight & Regulatory Budget Committee regarding 
senior regulatory personnel; and (c) reporting annually to the members 
of the Exchange and the public on the compensation of the five most 
highly compensated officers of the Exchange, as well as director 
compensation, and on the compensation philosophy and methodology used 
to award the compensation, including information relating to 
appropriate comparisons, benchmarks, performance measures and 
evaluation processes consistent with the mission of the Exchange.
    The Audit Committee would be responsible for assisting the Board in 
its oversight of the integrity of the Exchange's financial statements, 
the Exchange's compliance with legal and regulatory requirements, and 
the independent auditor's qualifications and independence. The Audit 
Committee would have direct responsibility for: (a) The hiring, firing 
and compensation of the independent auditor; (b) overseeing the 
independent auditor's engagement; (c) meeting regularly in executive 
session with the auditor; (d) reviewing the auditor's reports with 
respect to the Exchange's internal controls; (e) pre-approving all 
audit and non-audit services performed by the auditor; and (f) 
determining the budget and staffing for the Internal Audit Unit. The 
amended Constitution would state that the Audit Committee charter must 
contain additional duties and responsibilities comparable to those 
required of issuers listed on the Exchange.\26\
---------------------------------------------------------------------------

    \26\ NYSE Constitution, Article IV, Section 12.
---------------------------------------------------------------------------

    The Regulatory Oversight & Regulatory Budget Committee would be 
responsible for: (a) Assuring the effectiveness, vigor and 
professionalism of the Exchange's regulatory program; (b) determining 
the budget for the Exchange's Regulatory Group, Listings and Compliance 
Unit, Hearing Board, Arbitration Unit, and Regulatory Quality Review 
Unit; and (c) oversight of the Exchange's Regulation, Enforcement & 
Listing Standards Committee and Regulatory Quality Review Unit. The 
Regulatory Oversight & Regulatory Budget Committee also would determine 
annually the Exchange's regulatory plan, budget, and staffing 
proposals, and would be responsible for assessing the Exchange's 
regulatory performance and recommending compensation and personnel 
actions involving senior regulatory personnel to the Board's Human 
Resources & Compensation Committee for action.
2. Joint Committees
    The amended Constitution would provide for a Regulation, 
Enforcement & Listing Standards Committee, which would be a Joint 
Committee composed of both directors (other than the CEO) and members 
of the Board of Executives, including at least one Industry Member, as 
selected by the Board. A majority of the members of the committee 
voting on a matter subject to its vote, however, would be required to 
be Board directors.\27\
---------------------------------------------------------------------------

    \27\ NYSE Constitution, Article IV, section 12(b)(1).
---------------------------------------------------------------------------

    The Regulation, Enforcement & Listing Standards Committee would 
report to the Regulatory Oversight & Regulatory Budget Committee, and 
would: (a) review and provide general advice with respect to the 
Exchange's programs for market surveillance, member and member 
organization regulation and enforcement, and the listing and de-listing 
of securities; and (b) hear appeals of disciplinary determinations and 
determinations to de-list a listed company.\28\
---------------------------------------------------------------------------

    \28\ Id.
---------------------------------------------------------------------------

    Under the proposed changes to the Constitution, the Board could 
appoint additional Joint Committees from time to time, provided that 
each Joint Committee would consist of at least one director other than 
the CEO.\29\
---------------------------------------------------------------------------

    \29\ NYSE Constitution, Article IV, section 12(b)(2).
---------------------------------------------------------------------------

3. Committees With Directors From the Board and the Board of Executives
    The Proxy Statement noted that the Market Structure & Strategy, 
Quality of Markets/Public Policy and Finance Committees would be 
comprised of members of both the Board of Directors and Board of 
Executives, but there must be at least one independent director on such 
committees and all such committees would report to the Board.\30\
---------------------------------------------------------------------------

    \30\ See Proxy Statement.
---------------------------------------------------------------------------

E. Special Committees, Advisory Committees, and Other Bodies

    The amended Constitution would provide for the appointment of 
special committees, subcommittees, advisory committees, boards, or 
councils from time to time in the Board's discretion, and could be 
comprised of individuals who are not Board directors or members of the 
Board of Executives.\31\
---------------------------------------------------------------------------

    \31\ NYSE Constitution, Article IV, section 13.
---------------------------------------------------------------------------

F. Officers

    The officers of the Exchange would include the Chairman of the 
Board; the CEO; the President, if there be one; the Chief Regulatory 
Officer; one or more Vice Presidents; a Secretary; a Treasurer; a 
Controller; and such other officers as the CEO may propose, subject to 
the approval of the Board.\32\ The proposed amendments would permit any 
of these offices to be occupied by more than one individual.
---------------------------------------------------------------------------

    \32\ NYSE Constitution, Article VI, section 1. The amendments 
would remove the positions of Executive Vice Chairman and Vice 
Chairmen and add the positions of CEO and Chief Regulatory Officer 
to the list of the Exchange's officers.
---------------------------------------------------------------------------

    The Board would appoint the Chairman, the CEO, and the Chief 
Regulatory Officer. If the Chairman is neither the CEO nor chosen from 
among the directors elected by the members, he or she must satisfy the 
independence criteria set forth in Article IV, Section 2 of the 
Constitution. The CEO would be authorized to appoint the President and 
the other officers of the Exchange, subject to the approval of the 
Board.\33\
---------------------------------------------------------------------------

    \33\ Id.
---------------------------------------------------------------------------

    No officer of the Exchange would have any authority to recommend 
candidates for the Board or for appointment by the Board to any 
committee. However, the Board or the Nominating & Governance Committee 
would be permitted to solicit the input of any Exchange officer at its 
own initiative and discretion.

G. The Chairman

    The Chairman of the Board would preside at all meetings of the 
Board and the Board of Executives. If the Chairman is also the CEO, 
however, he or she would not participate in executive sessions of the 
Board. The Chairman would also be required to make an Annual Report on 
the Exchange's activities to a Plenary Session.\34\
---------------------------------------------------------------------------

    \34\ NYSE Constitution, Article VI, section 2. The Board and 
Board of Executives must meet jointly in a Plenary Session at least 
twice a year. The Chairman would chair all Plenary Sessions. NYSE 
Constitution Article V, section 11.
---------------------------------------------------------------------------

H. The CEO

    The CEO, subject to the authority of the Board, would be 
responsible for the management and administration of the affairs of the 
Exchange.\35\
---------------------------------------------------------------------------

    \35\ NYSE Constitution, Article VI, section 3. As noted above, 
the CEO would not appoint the Chief Regulatory Officer, and could 
not participate in executive sessions of the Board. In addition, as 
described in the Additional Amendments Letter, the reconstituted 
NYSE Board voted to further amend the Constitution, subject to 
Commission approval, to clarify that the CEO's responsibilities are 
subject to the specific provisions in the Constitution regarding the 
segregation of the regulatory functions of the Exchange. See 
Additional Amendments Letter, supra note 4.

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

[[Page 74682]]

I. The Chief Regulatory Officer

    The Chief Regulatory Officer would be responsible for the 
management and administration of the regulatory functions of the 
Exchange. The Chief Regulatory Officer would be subject to the 
authority of the Board and the Regulatory Oversight & Regulatory Budget 
Committee, and to the administrative standards and policies established 
by the CEO made applicable to the Chief Regulatory Officer by the 
Regulatory Oversight & Regulatory Budget Committee.\36\
---------------------------------------------------------------------------

    \36\ NYSE Constitution, Article VI, section 4(a). As described 
in the Additional Amendments Letter, the reconstituted NYSE Board 
voted to further amend the Constitution to clarify that the 
President could not appoint any regulatory officers. See Additional 
Amendments Letter, supra note 4.
---------------------------------------------------------------------------

J. Other Officers

    The President and other officers would have such functions and 
responsibilities as the CEO assigns, subject to the approval of the 
Board, and, in the case of senior regulatory personnel, subject to the 
specific oversight and control of the Regulatory Oversight & Regulatory 
Budget Committee.\37\
---------------------------------------------------------------------------

    \37\ NYSE Constitution, Article VI, section 4(b).
---------------------------------------------------------------------------

K. Delegation Authority

    The amended NYSE Constitution would provide that the Board may 
delegate such of its powers as it may determine to the Board of 
Executives, to such officers of and employees of the Exchange, and to 
such committees, composed either of directors or otherwise, as the 
Board may authorize.\38\ Notwithstanding the foregoing, however, the 
Board would not be permitted to delegate, and no committee would be 
permitted to re-delegate, to the Board of Executives or to any 
committee not consisting solely of directors, authority to adopt rules 
under Section 1 of Article VIII (dealing with rulemaking), or Section 1 
of Article IX (dealing with disciplinary rules). Moreover, the Board 
would not be permitted to delegate, and no committee would be permitted 
to re-delegate, to the Board of Executives or to any committee not 
consisting solely of directors, authority to act on any subject matter 
described in the Constitutional provisions concerning the 
responsibilities of the Nominating & Governance Committee; the Human 
Resources & Compensation Committee; the Audit Committee; the Regulatory 
Oversight & Budget Committee; and the Regulation, Enforcement & Listing 
Standards Committee.\39\ Any exception to these delegation provisions 
would require a rule change filed with the Commission within the 
meaning of section 19(b)(1) of the Act.\40\
---------------------------------------------------------------------------

    \38\ NYSE Constitution, Article IV, section 14. The amended 
Constitution would also provide that any committee of directors to 
which authority is delegated to adopt rules under Article VIII, 
section 1 (dealing with the operation and administration of the 
Exchange) and Article IX, section 1 (dealing with the discipline of 
members, member organizations and others) must include at least one 
director nominated by the Industry Members of the Board of 
Executives.
    \39\ The Commission notes that the reconstituted NYSE Board 
recently voted to amend this proposed provision to allow the Board 
to delegate rulemaking authority on the subjects normally confined 
to the Board or Standing Committees consisting solely of directors 
to an Exchange officer in between Board meetings, as necessary, 
subject to informing the Board at its next meeting and, in the case 
of regulatory matters, subject to the approval of the Chief 
Regulatory Officer. See Additional Amendments Letter, supra note 4.
    \40\ NYSE Constitution, Article IV, section 14. The Commission 
notes that the reconstituted Board recently voted to further amend 
the Constitution to add officers and employees of the Exchange to 
the provision prohibiting the Board to delegate, and a committee to 
redelegate, authority to adopt rules under Article VIII, section 1 
or Article IX, section 1 of the Constitution, or to act on any 
subject matter described in Article IV, section 12(a) or (b)(1), 
except by effecting a proposed rule change within the meaning of 
section 19(b) of the Act. See Additional Amendments Letter, supra 
note 4.
---------------------------------------------------------------------------

    The proposed amendments also would provide that the Board could 
continue to exercise any and all powers that it has delegated 
notwithstanding such delegation, and that the Board could exercise such 
review and oversight over the exercise of (or omission to exercise) any 
delegated authority as it might at any time determine.\41\
---------------------------------------------------------------------------

    \41\ NYSE Constitution, Article IV, section 14(b).
---------------------------------------------------------------------------

L. Amendments to the Constitution

    Under the proposed amendments, the Board would be permitted to 
amend or repeal specified provisions of the Constitution, or adopt new 
provisions, by the affirmative vote of a majority of the entire Board 
in favor of the amendment or repeal, or by the members of the Exchange 
who are entitled to vote thereon.\42\ The specified provisions include 
Articles of the Constitution relating to: the Board of Directors 
(excluding the provision relating to the limitation on the delegation 
of authority); the Board of Executives (excluding that provision which 
requires the Board of Executives to be a reasonably balanced 
representation of Exchange communities); the officers of the Exchange; 
and the indemnification of Exchange directors, officers or employees. 
The remaining provisions of the Constitution may be amended or 
repealed, and new provisions may be adopted, only by the members of the 
Exchange who are entitled to vote thereon.
    However, no Constitutional amendment approved by the majority of 
the entire Board would be permitted to take effect without the vote of 
members until the expiration of two weeks from the date the proposed 
Constitutional amendment was first furnished to members.\43\
---------------------------------------------------------------------------

    \42\ NYSE Constitution, Article XIV, section 1. The Commission 
notes that any further changes to the NYSE Constitution would be 
required to be filed with the Commission pursuant to section 19(b) 
of the Act.
    \43\ The NYSE also proposes that the Board may make such changes 
to a proposed amendment approved by the affirmative vote of a 
majority of the entire Board as it may deem necessary or appropriate 
to carry out the intention of such proposed amendment without the 
need for a further waiting period. As noted above, changes to the 
NYSE Constitution would be required to be filed with the Commission 
pursuant to section 19(b) of the Act.
---------------------------------------------------------------------------

M. Transition

    The proposed amendments also would add a new Article XVI to the 
Constitution, to provide for a ``Transition Period'' that commences on 
the date that the amended and restated Constitution is approved by 
members and ending on the date of the next annual meeting of the 
Exchange and that is intended to allow for continuity of the Exchange's 
governance during the interim period.\44\ Upon expiration of the 
Transition Period, Article XVI would have no further force and effect. 
Article XVI further would note that the extraordinary circumstances 
under which the restated and amended Constitution was proposed and the 
initial Board of Directors was constituted caused the Exchange to 
dispense with certain requirements, including: (a) Use of the 
Nominating Committee to nominate directors; (b) the opportunity for 
members to petition to nominate additional director candidates; and (c) 
approval of the proposed amendments by the Board in accordance with the 
prescribed time frames. The amended Constitution would state that all 
such requirements are waived and the actions take in contravention of 
all such requirements are ratified.\45\
---------------------------------------------------------------------------

    \44\ The amended and restated Constitution was approved by NYSE 
members on November 18, 2003. See Amendment No. 1, supra note 5.
    \45\ The Commission notes that the revisions to the NYSE 
Constitution set forth in the proposed rule change are effective 
upon Commission approval of the proposed rule change.
---------------------------------------------------------------------------

N. Other Governance Changes Proposed by the NYSE

    The NYSE has directly implemented other governance changes that are 
in

[[Page 74683]]

addition to the revisions to the NYSE Constitution approved in this 
Order. Those other changes include, among other things, commitments to 
increase the transparency of the Board and Board Committees by 
requiring the disclosure of Committee charters and bases for certain 
Board and Committee action; to provide a means by which members and 
investors may communicate with the NYSE's non-management directors; and 
to provide annual reports regarding certain activities of the Board and 
several key committees, including an annual report detailing the 
charitable activities of or on behalf of the Exchange.

III. Summary of Comments on NYSE Proposal

    The Commission received a total of 18 comment letters on the NYSE 
proposal.\46\ A number of commenters broadly supported the NYSE's 
proposed governance changes, at least to the extent that the changes 
are considered a positive initial step toward reform.\47\ Many of the 
commenters, however, stated that the proposals did not go far enough. 
For example, they expressed concerns about the adequacy and 
effectiveness of the NYSE's revisions to its governance, particularly 
with respect to the composition of the Board of Directors, the 
establishment of the Board of Executives, and the structure of the 
regulatory function.\48\ Several commenters also urged the Commission 
not to approve the proposal until the NYSE had made further changes to 
it, arguing that the proposal did not go far enough to restore investor 
confidence.\49\ The commenters generally addressed issues falling into 
one or more of the categories discussed below.
---------------------------------------------------------------------------

    \46\ Exhibit A to this Order contains a list of comment letters 
received by the Commission on the NYSE proposal as of December 12, 
2003, including the citations to the comment letters referenced in 
this Order. The public file for the proposed rule change includes a 
letter to Chairman Donaldson from NYSE Interim Chairman & CEO John 
S. Reed regarding the NYSE proposal. The Reed Letter stated that the 
SRO model can properly fit within the governance structure of the 
Exchange and pointed to five design elements that support this view. 
For example, the Reed Letter pointed to a pure ``outside'' 
``independent'' Board as a core requirement, and a special Oversight 
Committee of the Board with its specific functions and a charter 
that will be made public, as design elements. The Reed Letter also 
pointed out that the fact that the Exchange hosts the trading 
environment for members but does not directly participate in 
members' results helps create a distance between business issues and 
management. Another design element noted in the Reed Letter is that 
the success of the Exchange requires a tough but fair regulatory 
regime that is publicly visible. The Reed Letter noted the existence 
of ``tight'' SEC oversight as the final design element. The Second 
Reed Letter, infra Section IV, is also contained in the public file 
for the proposed rule change.
    \47\ See Saul Letter, ICI Letter, First CII Letter, and SIA 
Letter.
    \48\ See Saul Letter, Peake Letter, CalPERS Letter, CALSTRS 
Letter, ICI Letter, First CII Letter, PIABA Letter, SIA Letter, 
State Treasurers' Letter, Knotter Letter, and Ohio Retirement 
Systems Letter.
    \49\ See CalPERS Letter, CALSTRS Letter, and ICI Letter.
---------------------------------------------------------------------------

A. The Board of Directors

    A number of commenters criticized the proposed composition of the 
Board of Directors for failing to include investor representatives on 
the Board.\50\ Two commenters referred to investors as being the 
``ultimate constituency'' of the Exchange and consequently there should 
be several investor representatives on the Board.\51\ Another commenter 
advocated that the Board should have ``significant representation'' 
from the public institutional investor community, and yet another 
commenter stated that approximately one-third of Board seats should be 
reserved for investor representatives.\52\ In contrast, one commenter 
criticized the proposed Board composition for excluding industry 
representatives from serving as directors.\53\ This commenter argued 
that industry professionals bring valuable experience and insight to 
the Board in addressing regulatory and other issues, particularly in 
hectic times.
---------------------------------------------------------------------------

    \50\ See CalPERS Letter, CALSTRS Letter, ICI Letter, PIABA 
Letter, State Treasurers' Letter, and Ohio Retirement Systems 
Letter.
    \51\ See ICI Letter and State Treasurers' Letter.
    \52\ See CALSTRS Letter and CalPERS Letter, respectively.
    \53\ See Saul Letter.
---------------------------------------------------------------------------

    Four commenters questioned the independence of the directors.\54\ 
In particular, these commenters suggested that director independence is 
compromised by the fact that directors are elected by the Exchange 
members or by their ties to corporate America. One commenter proposed 
having the Commission and the North American Securities Administrators 
Association each annually appoint individuals having a background in 
securities regulation to one seat on the Board in order to ensure some 
independent and qualified representation.\55\
    Several commenters questioned the ability of the reconstituted 
Board to operate effectively.\56\ One of these commenters raised 
concerns regarding the directors' availability (noting in particular 
one candidate who serves on eight Boards for listed companies in 
addition to other long term commitments, and two other candidates who 
live in the United Kingdom). This commenter expressed doubts that the 
Board would be able to handle the responsibilities of regular Board 
meetings, meetings with the Board of Executives, and overseeing and 
serving on the various key standing committees.\57\ Another commenter 
questioned the ability of a small body of public directors, meeting 
only four times a year, to function without help from securities 
professionals.\58\ One commenter also expressed concern about the 
proposed directors' lack of securities industry experience, as well as 
their ties to corporate America and/or the financial services 
industry.\59\
---------------------------------------------------------------------------

    \54\ See Anderson Letter, CALSTRS Letter, PIABA Letter, Knotter 
Letter and Second CII Letter.
    \55\ See PIABA Letter.
    \56\ See Saul Letter, Peake Letter, and PIABA Letter.
    \57\ See Peake Letter.
    \58\ See Saul Letter.
    \59\ See PIABA Letter.
---------------------------------------------------------------------------

B. Board of Executives

    Several commenters disputed the efficacy of having the proposed 
Board of Executives. One commenter argued that the creation of a Board 
of Executives is an inadequate substitute for direct industry 
participation in exchange governance.\60\ Two commenters characterized 
the existence of the Board of Executives, in addition to the Board of 
Directors, as an unnecessarily complex structure, having no advantages 
over the traditional Board structure with independent key committees, 
and as setting a poor example for listed companies.\61\ One of the 
commenters also expressed a concern that the dual Board structure would 
obfuscate rather than enhance accountability.\62\
    Another commenter criticized the composition of the Board of 
Executives for not having adequate ``buy-side'' representation, arguing 
that the Board of Executives as proposed would be composed primarily of 
``sell-side'' representation.\63\ This commenter advocated increasing 
the number of members representing individual and institutional 
investors.
---------------------------------------------------------------------------

    \60\ See Saul Letter.
    \61\ See CalPERS Letter and CALSTRS Letter.
    \62\ See CALSTRS Letter.
    \63\ See ICI Letter.
---------------------------------------------------------------------------

C. Regulatory Function

    A majority of commenters called for greater independence of the 
regulatory function from the business operation of the NYSE.\64\ Most 
of these commenters advocated a complete separation of the regulatory 
function from the Exchange.\65\ Several commenters

[[Page 74684]]

suggested that the Commission consider alternative regulatory models, 
including merging the Exchange's regulatory function with that of the 
NASDR, adopting a ``hybrid SRO,'' or having the Commission take a more 
direct regulatory role.\66\
---------------------------------------------------------------------------

    \64\ See Peake Letter, CalPERS Letter, Merrill Letter, CALSTRS 
Letter, First CII Letter, SIA Letter, State Treasurers' Letter, 
Second CII Letter, Ohio Retirement Systems Letter, and Sonoma 
Letter.
    \65\ See Peake Letter, CalPERS Letter, Merrill Letter, First CII 
Letter, SIA Letter, Second CII Letter, Ohio Retirement Systems 
Letter, and Sonoma Letter.
    \66\ See Peake Letter, Second CII Letter, SIA Letter, and Sonoma 
Letter.
---------------------------------------------------------------------------

    Several commenters questioned the effectiveness of the regulatory 
oversight of a Board whose members are directly elected by the persons 
they are regulating.\67\ One commenter proposed that a nomination model 
similar to that in place for the Public Company Accounting Oversight 
Board be adopted for nominating the directors charged with overseeing 
the regulatory arm of the Exchange, with the SEC having sole 
responsibility of appointing the directors of the oversight bodies.\68\
---------------------------------------------------------------------------

    \67\ See Anderson Letter, CALSTRS Letter, PIABA Letter, and 
Knotter Letter.
    \68\ See Second CII Letter.
---------------------------------------------------------------------------

    In contrast, another commenter argued that member participation in 
regulation was necessary, and that a Board of Directors consisting 
solely of public directors would find itself ``severely handicapped'' 
in dealing with regulatory issues, despite the presence of an advisory 
Board of Executives.\69\ This commenter also expressed concern that the 
proposal represents a major change in regulation and that it was 
proposed without a full discussion of the consequences. This commenter 
argued that one of the possible consequences of excluding member 
representatives from the Board is that Exchange members might turn away 
from the Exchange and the auction system, resulting in internalized 
order flow and a fragmented market. This commenter also stated that 
member participation makes regulation more ``palatable'' and generates 
awareness of regulatory issues.
---------------------------------------------------------------------------

    \69\ See Saul Letter.
---------------------------------------------------------------------------

D. Committee Structure

    One commenter expressed concern that, with respect to the Market 
Structure Committee, a mixed committee of members of the Board of 
Directors and the Board of Executives, the proposal did not explicitly 
require a majority of directors to be members of this committee.\70\ 
This commenter criticized this omission, stating that the most crucial 
part of the regulatory structure is market structure, particularly in 
light of recent controversies. This commenter also criticized the fact 
that the Nominating & Governance Committee is composed solely of 
existing directors, and has no outside members, and argued that this 
creates a self-perpetuating Board.
---------------------------------------------------------------------------

    \70\ See Peake Letter.
---------------------------------------------------------------------------

E. Chairman and CEO

    Two commenters expressed concern that allowing the CEO and Chairman 
to be the same person would result in a concentration of too much 
power, particularly in light of the fact that, under this proposal, the 
Chairman also would act as the sole liaison between the Board of 
Directors and the Board of Executives.\71\ Another commenter also urged 
separation of the Chairman and CEO functions to enhance the 
independence of the Board of Directors.\72\
---------------------------------------------------------------------------

    \71\ See CalPERS Letter and CALSTRS Letter.
    \72\ See Ohio Retirement Systems Letter.
---------------------------------------------------------------------------

F. Transparency

    Several commenters proposed that the Exchange take additional steps 
to improve its transparency,\73\ advocating that the Exchange should 
set the ``gold standard'' for disclosure.\74\ One commenter stated that 
the Exchange should be under the same disclosure requirements as listed 
companies.\75\ In addition, this commenter asserted that the Exchange 
should disclose all ties between Board members, that the Exchange 
should be banned from making any charitable or political contributions, 
and that the Exchange should post all documents relating to Board and 
committee reports and compensation disclosures on its Web site.\76\ 
Another commenter proposed that all key Exchange committees be required 
to publish annual reports on how they functioned and executed their 
duties.\77\
---------------------------------------------------------------------------

    \73\ See CALSTRS, First CII Letter, State Treasurers' Letter, 
and Second CII Letter.
    \74\ See CALSTRS and Second CII Letter.
    \75\ See First CII Letter.
    \76\ See also Second CII Letter.
    \77\ See CALSTRS Letter.
---------------------------------------------------------------------------

    In addition, a few commenters urged that final details on the 
compensation package of the Exchange's former Chairman be made 
public.\78\
---------------------------------------------------------------------------

    \78\ See CALSTRS Letter and State Treasurers' Letter.
---------------------------------------------------------------------------

IV. NYSE's Response to the Comment Letters

    The Exchange, through its Interim Chairman and CEO, submitted a 
letter dated December 11, 2003, which responds to issues raised by the 
commenters.\79\ The Exchange noted that the proposed rule change was 
``intended to solve an immediate board-level governance problem faced 
by the Exchange'' and was ``not intended to address all structural 
issues that the Exchange, and indeed our industry, now face.''
---------------------------------------------------------------------------

    \79\ See Second Reed Letter.
---------------------------------------------------------------------------

    The Exchange took issue with the view of several commenters that 
the Board should include one or more individuals to represent the 
interest of the public investor. The Exchange stated that ``the single 
most important feature of the proposed rule change is that, with the 
exception of the CEO, the [Board] is completely independent.'' In that 
regard, the Exchange noted that ``[a]s the Exchange's fiduciaries, our 
directors will not have the agenda of a customer, an owner or user, and 
will not represent any single constituent group.'' Therefore, the 
Exchange concluded that ``it would be inappropriate to seek to 
specifically include [Board] members that are representative of the 
buy-side or of any particular constituent group.''
    The Exchange acknowledged that individual investors are the 
Exchange's ``ultimate constituency.'' However, the Exchange stated that 
``individual investors trading on the Exchange through broker-dealers 
in small volumes have interests that conflict with other individual 
investors who participate in the market through public or private funds 
trading in larger volumes.'' Thus, the Exchange stated that the ``hard-
won lesson is that the only way to sort out these issues without bias 
or conflicts is through an independent board whose primary goal is to 
`do the right thing' for the individual investor as such.''
    Finally, in response to commenters who believed that there should 
be an individual investor representative on the Board of Executives, 
the Exchange noted that it intends to amend its Constitution to provide 
for an individual investor representative on the Board of Executives.
    In response to comments regarding regulation and the merits of 
separating the regulatory and market functions of the Exchange, the 
NYSE reiterated its position as set forth in the proposed rule change 
that the filing ``does not ask the Commission to approve either the 
continuation of self-regulation in the United States or at the 
Exchange.'' The Exchange noted that ``[i]f the Commission decides that 
broker-dealers should continue to regulate themselves through national 
securities exchanges, [the] Exchange's new governance architecture 
provides the best model for resolving and managing conflicts of 
interest inherent in self-regulation while maintaining the marketplace 
proximity requisite for optimizing regulatory intervention in delicate 
market mechanisms.'' The Exchange added that it expects to implement 
its model

[[Page 74685]]

through an independent Board and through a division of regulatory and 
marketplace functions within the Exchange, including by having a Chief 
Regulatory Officer reporting directly to the Board of Directors.
    In conclusion, the Exchange noted that its proposal seeks to 
address a ``very immediate board-level governance problem'' and urged 
that ``the Commission approve the proposed rule change as soon as 
possible so that the Exchange can continue to function effectively as a 
marketplace while revitalizing its regulatory function and addressing 
other important issues from a much improved governance platform.''

V. Discussion

    The Commission has considered the Exchange's proposed rule change 
and finds that, in the context in which they were submitted, the 
proposed amendments to the NYSE Constitution are consistent with the 
Act and the rules and regulations promulgated thereunder that are 
applicable to a national securities exchange and, in particular, with 
the requirements of section 6(b) of the Act.\80\ Specifically, the 
Commission finds that, in this context, the amended and restated 
Constitution is consistent with section 6(b)(1) of the Act \81\ which 
requires that the exchange be ``so organized and [have] the capacity to 
carry out the purposes of [the Act]'' and to ``enforce compliance by 
its members and persons associated with its members with the provisions 
of [the Act].'' The Commission also finds that, in this context, the 
amended and restated Constitution is consistent with section 6(b)(3) of 
the Act,\82\ which requires that the rules of a national securities 
exchange assure the fair representation of its members in the selection 
of its directors and administration of its affairs, and provide that 
one or more directors shall be representative of issuers and investors 
and not be associated with a member of the exchange, broker, or dealer. 
In addition, the Commission finds that, in this context, the amended 
and restated Constitution is consistent with section 6(b)(5) of the Act 
\83\ in that it is designed, among other things, to facilitate 
transactions in securities; to prevent fraudulent and manipulative acts 
and practices; to promote just and equitable principles of trade; to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system; and in general, to protect 
investors and the public interest, and does not permit unfair 
discrimination among issuers. Further, the Commission finds that, in 
this context, the amended and restated Constitution is consistent with 
section 6(b)(7) of the Act,\84\ which, among other things, requires 
that the rules of a national securities exchange provide a fair 
procedure for the disciplining of members and persons associated with 
members.
---------------------------------------------------------------------------

    \80\ In approving the proposed rule change, the Commission has 
considered its impact on efficiency, competition, and capital 
formation. 15 U.S.C.78c (f).
    \81\ 15 U.S.C. 78f(b)(1).
    \82\ 15 U.S.C. 78f(b)(3).
    \83\ 15 U.S.C. 78f(b)(5).
    \84\ 15 U.S.C. 78f(b)(7).
---------------------------------------------------------------------------

    Recent events at the Exchange have called into question whether its 
Board of Directors and key Board committees have been sufficiently 
independent from NYSE management to assure that these governing bodies 
exercise their judgment in an objective and autonomous manner. The 
Exchange quickly confronted its governance issues by appointing an 
Interim Chairman, without any ties to the Exchange, and by proposing 
amendments to its Constitution that would significantly alter its 
governance structure. Moreover, the Exchange has proposed changes to 
its Constitution that are designed to assure the independence of its 
regulatory unit from NYSE management and from the entities that it 
regulates. At the same time, the NYSE has created a mechanism of 
nomination to the Board of Directors designed to fulfill the ``fair 
representation'' requirements applicable to national securities 
exchanges, as set forth in section 6(b)(3) of the Act.\85\
    The Commission discusses below significant aspects of the 
amendments to the NYSE Constitution.
---------------------------------------------------------------------------

    \85\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

A. Board of Directors

    The amended Constitution provides for a smaller board, composed of 
independent directors (other than the CEO). Board members (excluding 
the CEO) must be independent from the management of the Exchange, from 
the members of the Exchange, and from the issuers listed on the 
Exchange. In addition, the Exchange must make an affirmative 
determination of a director's independence. The NYSE also commits to 
adopting specific standards requiring that the independence 
determination be comparable to the standards required of listed 
issuers. Generally, the Board will supervise the regulatory function; 
monitor the Exchange's performance; approve the Exchange's strategy; 
hire, fire and determine the compensation of senior management; create 
a succession plan; and ensure appropriate behavior by Exchange 
employees, officers and directors.
    The Commission believes that the proposal to completely replace the 
previously large, mixed-composition NYSE Board with a smaller board 
composed of independent directors (other than the CEO) should increase 
the likelihood that the directors will be free of any relationship that 
might impair, or appear to impair, the directors' ability to make 
judgments in the best interest of the Exchange and investors. The 
changes to the Constitution explicitly prohibit a director from being a 
member or lessor member, an officer or employee of the Exchange (except 
for the CEO), a person employed by or affiliated with a member 
organization or with a broker-dealer that has substantial direct 
contact with securities customers, or an executive officer of a listed 
issuer. Not only must the Board make an affirmative determination that 
the director (other than the CEO) has no material relationship with the 
Exchange, it also must assess the director's eligibility according to 
specific standards relating to independence that are comparable to the 
standards the NYSE now requires of its listed companies.\86\ Indeed, 
the Commission notes that the NYSE proposal goes one step further than 
the new requirements for NYSE listed companies because the NYSE will 
have a board composed of independent directors (except for the CEO), 
whereas NYSE listed companies must have only a majority of independent 
directors on their boards.\87\ Several commenters raised doubts about 
the independence of the NYSE directors because of the ties that 
directors may have to corporate American and/or the financial industry. 
Also, a few commenters advocated a greater role by the Commission in 
appointing NYSE directors in order to further assure the directors' 
independence. The Commission believes that this ``independence'' 
standard for the NYSE Board should benefit the Exchange by assuring 
that key decisions are made by persons free from material relationships

[[Page 74686]]

with--and thus from potentially improper influence by--the Exchange or 
the entities it regulates.
---------------------------------------------------------------------------

    \86\ See NYSE Constitution Article IV, Section 2, which states 
that the Exchange ``shall adopt specific standards relating to such 
determination, comparable to the standards required of issuers 
listed on the Exchange, by effecting a rule change within the 
meaning of section 19(b)(1) of the Act.'' 15 U.S.C. 78s(b)(1). See 
also NYSE/Nasdaq Corporate Governance Listing Standards Approval 
Order. The Commission expects the NYSE to file shortly after 
issuance of this Order a proposed rule change pursuant to section 
19(b) of the Act that contains independence standards for NYSE 
directors comparable to those recently adopted for its listed 
issuers.
    \87\ The Commission notes that the NYSE's CEO would be the only 
director that would not meet the definition of ``independence.''
---------------------------------------------------------------------------

    Several commenters expressed concerns about the composition of the 
Board, including the lack of investor or industry representation, and 
issues regarding the ability of the directors to operate effectively, 
given each director's time constraints and the relatively small number 
of times the Board is required to meet. The Commission believes that, 
at this point, the NYSE has taken steps designed to assure that the 
concerns of investors are adequately represented on the NYSE Board. The 
NYSE has proposed that its new board be independent of specific 
constituencies, most notably broker-dealer members of the Exchange. In 
this manner, the NYSE intends the Board to be able to consider the 
needs of the entire exchange community, including large and small 
investors, issuers, and securities firms. The Commission notes that the 
Nominating & Governance Committee will establish procedures to solicit 
the input of investors regarding Board candidates, and that the 
committee is explicitly required to nominate a director that represents 
investors, as discussed in more detail below.
    In addition, some commenters expressed concern that permitting the 
Chairman and CEO to be the same person would result in too great a 
concentration of power, and some commenters advocated a formal 
separation of the two positions. The Commission notes that the NYSE has 
established constraints on the ability of a combined Chairman-CEO to 
influence decisions that should be made by persons independent of 
Exchange management. For example, the NYSE's proposal prohibits the CEO 
from participating in executive sessions of the Board so that, if there 
is a combined Chairman-CEO, a ``lead director'' must be designated to 
preside over executive sessions.\88\ In the Commission's view, these 
structural changes are designed to help assure the independence of the 
Board from undue management pressures and, in the context of the 
amendments to the Constitution before the Commission, should be 
approved.
---------------------------------------------------------------------------

    \88\ The Commission notes that, under an amendment to the 
Constitution recently approved by the reconstituted NYSE Board, the 
CEO would be recused from deliberations of the Board, whether it is 
acting as the Board or as a committee of the whole with respect to 
the activities of the four Standing Committees. See Additional 
Amendments Letter, supra note .
---------------------------------------------------------------------------

B. Board of Executives

    The NYSE proposes to create a Board of Executives composed of from 
20 to 25 individuals who are drawn from clearly defined segments of the 
NYSE constituencies, including representatives from the retail broker-
dealer, specialist, floor broker, lessor member, institutional 
investor, and listed company communities. The Board of Executives' main 
role is to advise the CEO in his or her management of the Exchange's 
operations. The Industry Members of the Board of Executives, 
representing member organizations, specialist organizations and floor 
representatives, are to recommend candidates constituting 20% of the 
members to be elected, but no fewer than two directors.
    A number of commenters questioned the efficacy of the Board of 
Executives and the composition of the Board of Executives, and several 
stated that a dual board structure is unnecessarily complex and offers 
few advantages.
    The Commission believes that the NYSE's creation of a Board of 
Executives, composed of individuals from the various Exchange 
constituencies, is reasonable in the context of an independent Board of 
Directors. The Board of Executives provides a useful mechanism designed 
to assure that various Exchange stakeholders continue to have a voice 
in the decisions of the Exchange; yet the Board of Directors, the body 
charged with governance of the Exchange and regulation of its members, 
is independent. The Commission notes that the concept of self-
regulation is based on the principle that regulation is most effective 
when it is done as close as possible to the regulated activity. That 
principle becomes strained, however, if those in charge of regulation 
are dependent or aligned with those engaged in the regulated activity. 
The NYSE has taken steps to address this concern by providing for a 
self-regulatory function reporting to an independent Board. The 
Commission believes that the Board of Executives is designed to strike 
an appropriate balance by allowing representatives of those groups that 
have a day-to-day stake in the affairs of the Exchange to continue to 
have a voice, but not the leading role, in the Exchange's governance.

C. Fair Representation

    Section 6(b)(3) of the Act \89\ imposes specific obligations on the 
NYSE as a registered national securities exchange to ensure that 
members are fairly represented in the selection of its directors and 
the administration of its affairs. The Commission believes that, in 
this context, the NYSE's proposal is consistent with this mandate.
---------------------------------------------------------------------------

    \89\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    Under the amended Constitution, NYSE members would continue to 
elect the Board of Directors, other than the Chairman and the CEO. The 
ability to cast a vote for Board candidates ensures that members are 
involved in the selection of the NYSE directors, in compliance with 
section 6(b)(3).\90\ Additionally, the amended Constitution would 
provide that the Industry Members of the Board of Executives, who 
represent different segments of the NYSE membership, including member 
organizations, specialist organizations, and floor representatives, 
have the right to designate 20% of the nominees elected by members to 
the Board (and in no event fewer than two directors).\91\ Accordingly, 
NYSE members not only elect all of the members of the Exchange Board, 
(excluding the Chairman and CEO), but they also have the ability to 
nominate no less than 20% of them. These nominations must satisfy the 
independence standards for the Board. In addition, the amended NYSE 
Constitution maintains a petition process that permits members to put 
forward nominees for elected positions, so long as the nominee or 
nominees receive a sufficient number of endorsements.\92\
---------------------------------------------------------------------------

    \90\ 15 U.S.C. 78b(b)(3).
    \91\ The Commission notes that the amended Constitution also 
would explicitly require the Industry Members to propose persons 
who, in their opinion, would allow the Exchange to meet the fair 
representation requirements set forth under section 6(b)(3).
    \92\ NYSE Constitution, Article III, Section 1(c).
---------------------------------------------------------------------------

    Furthermore, Industry Members are assured a role in the 
administration of the Exchange through their participation on the Board 
of Executives, which is empowered to advise the CEO in the management 
of the Exchange's operations. As members of the Board of Executives, 
Industry Members also will have the opportunity to participate on Joint 
Committees, including the Regulation, Enforcement & Listing Standards 
Committee, which is required to have at least one Industry Member. The 
amended NYSE Constitution also requires the Chairman to call a special 
meeting of the members upon written request of no less than one hundred 
members.\93\
---------------------------------------------------------------------------

    \93\ NYSE Constitution, Article III, Section 4.
---------------------------------------------------------------------------

    Finally, section 6(b)(3) of the Act requires the NYSE to have rules 
that ensure that one or more directors represent issuers and investors, 
and not be associated with a member of the exchange, broker, or dealer. 
The Commission believes that the NYSE proposal explicitly fulfills this 
mandate

[[Page 74687]]

by specifying that the directors elected by Exchange members shall 
include directors who will enable the Exchange to comply with the 
requirements of section 6(b)(3) of the Act \94\ and also by requiring 
that the Nominating Committee recommend to the Board one candidate that 
represents issuers and one candidate that represents investors.\95\
---------------------------------------------------------------------------

    \94\ NYSE Constitution, Article IV, Section 2.
    \95\ NYSE Constitution, Article IV, Section 12(a)(1). In this 
regard, the Commission notes that, in the Second Reed Letter, the 
Exchange disagreed with the suggestion of some commenters that the 
Board should include specific directors who represent ``public 
investors,'' the ``buy-side'' or ``any other particular constituent 
group.'' For the sake of clarity, the Commission would like to point 
out that, while the Act does not require the Board to include any 
directors who represent a discrete group within the universe of 
investors, in order to give effect to section 6(b)(3) of the Act, at 
least one director should represent the interests of investors 
generally, including when those interests may differ from the 
interests of Exchange members and broker-dealers. A proper reading 
of the proposed Constitution requires this result.
---------------------------------------------------------------------------

D. Independence of the Regulatory Function

    The Act requires registered exchanges to be so organized that they 
act as self-regulatory organizations in overseeing their markets and 
the conduct of their affairs. The Commission believes that any proposed 
revisions to the Exchange's governance must assure that the NYSE's 
regulatory function is strong, vigorous, and sufficiently independent 
and insulated from improper influence from management or any regulated 
entity. In the Commission's view, the proposed amendments to the NYSE's 
governance and management architecture are designed to advance this 
goal.
    The NYSE has proposed to create a Chief Regulatory Officer who 
reports directly to the Board's Regulatory Oversight & Regulatory 
Budget Committee. As noted above, this Committee determines the 
Exchange's regulatory plan, programs, budget and staffing proposals 
and, significantly, is composed of independent directors (other than 
the CEO), i.e., persons certifiably independent of management or any 
regulated entity. Inappropriate influence by management that might 
compromise regulatory integrity also is checked by the fact that the 
Regulatory Oversight & Regulatory Budget Committee recommends 
compensation and personnel actions involving senior regulatory 
personnel to the Board's Compensation Committee--another independent 
Board committee--rather than to the CEO or any other representative of 
management. In addition, the Chief Regulatory Officer has no formal 
reporting relationship with the CEO, except for limited administrative 
purposes.
    Some commenters expressed concern regarding the regulatory function 
of the NYSE and supported a complete structural separation of the 
Exchange's regulatory and market functions. As noted above, the 
exchange self-regulatory structure set forth in the Act is based on the 
principle that regulation is best informed and most able to reflect 
ethical standards when that regulation takes place close to the 
activity to be regulated. Nonetheless, there must be sufficient 
independence in the regulatory process to prevail against undue 
interference or influence from the persons or entities being regulated. 
This independence could be achieved in a variety of ways, including 
separating entirely the regulatory and market functions of an SRO 
through, for example, the creation of separate subsidiaries, one of 
which contains the market function and the other the regulatory 
function.\96\
---------------------------------------------------------------------------

    \96\ For example, NASD, Inc. has one subsidiary, The Nasdaq 
Stock Market, Inc., to carry out NASD's market function and another 
subsidiary, NASD Regulation, to carry out the NASD's regulatory 
function.
---------------------------------------------------------------------------

    The Commission believes that the proposed amendments to the NYSE's 
governance structure, and in particular the creation of a Chief 
Regulatory Officer reporting directly to an independent Regulatory 
Oversight & Regulatory Budget Committee, add a significant degree of 
independence that should insulate regulatory activity from economic 
pressures and potential conflicts of interest. The Commission believes 
that, in this context, the NYSE's proposal is consistent with the 
statutory requirements. As the Commission continues to review issues 
relating to self-regulation, it may determine that further separation 
of the self-regulatory process from market operations would better 
assure the integrity of the securities markets and the protection of 
investors.

E. Committees

    The proposed amendments to the NYSE Constitution codify the 
composition and operations of several key committees that have been 
delegated responsibility over critical Exchange operations. The 
Commission notes that information about the functions of nearly all 
NYSE committees was previously not widely available; indeed, only the 
Nominating Committee had been explicitly mentioned in the NYSE 
Constitution. The proposed amendments increase the transparency of 
several key committees and, as a result, their accountability, to the 
benefit of the Exchange and the investing public.
    The Commission believes that the duties, responsibilities, and 
guidelines assigned to each Standing Committee should help foster 
strong and independent committees. For example, the Nominating & 
Governance Committee is subject to an explicit mandate to propose 
candidates for the Board who are committed to serving the interests of 
the public and strengthening the Exchange as a public securities 
market, and that meet the fair representation requirements of the Act. 
That Committee also has the obligation to conduct the Board's annual 
governance review, and establish an appropriate process for Board and 
Board of Executive self-assessments. In the Commission's view, an 
annual governance review and self-assessments are promising means of 
assuring that the NYSE remains vigilant and active in its pursuit of 
improved governance processes.
    Similarly, the Commission believes that the new responsibilities of 
the Human Resources & Compensation Committee are appropriate. This 
Committee, and not management, must now set forth explicit corporate 
goals and objectives related to the compensation of the CEO, and 
evaluate the CEO's performance in light of these goals. These changes 
comport with the newly-adopted standards for NYSE listed issuers, which 
require that compensation matters be considered by a committee of the 
board composed exclusively of independent directors.\97\ The new 
provision is in marked contrast to the way the NYSE Human Resources & 
Compensation Committee previously appeared to operate. In addition, the 
Commission believes that the requirement that the Committee report 
annually to members and the public on the compensation of the five most 
highly compensated officers of the Exchange, as well as on director 
compensation, should increase the transparency of this Committee's 
actions.
---------------------------------------------------------------------------

    \97\ See NYSE/Nasdaq Corporate Governance Listing Standards 
Approval Order, supra note 86.
---------------------------------------------------------------------------

    The Commission believes that the responsibilities assigned to the 
NYSE's Audit Committee also are appropriate, particularly with respect 
to the Audit Committee's direct responsibility for assuring that the 
NYSE retain a suitable independent auditor. The Commission notes that 
the NYSE has committed that the Audit Committee's charter would contain 
additional duties and responsibilities comparable to those

[[Page 74688]]

required of issuers listed on the Exchange.\98\ Thus, the NYSE's own 
Audit Committee will be held to the same degree of independence and 
appropriate conduct that the NYSE requires of its listed companies.
---------------------------------------------------------------------------

    \98\ NYSE Constitution, Article IV, Section 12(a)(3).
---------------------------------------------------------------------------

    The Commission also believes that the responsibilities assigned to 
the Regulatory Oversight & Regulatory Budget Committee should support 
and enhance the independence of the NYSE's regulatory regime. As noted 
above, this Committee is responsible for overseeing the Exchange's 
regulatory program. It is the Commission's view that this Committee 
should play a particularly important role in making certain that the 
Exchange possesses a strong and independent regulatory program.
    Finally, the Commission also believes that the composition and 
operation of the Regulation, Enforcement & Listing Standards Committee 
which, among other things, is charged with hearing appeals of 
disciplinary determinations, complies with the Act's requirement to 
provide for a fair procedure for the disciplining of member and persons 
associated with members. This Joint Committee will be composed of both 
directors (other than the CEO) and members of the Board of Executives, 
including at least one Industry Member; moreover, a majority of the 
members voting on a matter subject to a vote of this Committee must be 
directors. Committee action on appeals of disciplinary determinations 
will require that a majority of members voting on the action must be 
independent directors, but the Committee must include at least one 
Industry Member, which means that there will be representation and 
input by at least one NYSE member.\99\
---------------------------------------------------------------------------

    \99\ The Commission further notes that members of the Board of 
Executives have been added to the list of persons or entities that 
can call for a review by the Board of a determination by an Exchange 
hearing panel regarding a disciplinary proceeding. NYSE 
Constitution, Article IX, Section 6.
---------------------------------------------------------------------------

    One commenter expressed concern about the composition of certain 
NYSE committees, while another commenter called for greater disclosure 
of information by key committees. In addition, several commenters 
advocated that the NYSE increase the transparency of its own 
operations. The Commission believes that the amendments regarding NYSE 
Committees should improve the governance of the NYSE and the 
transparency of its processes. The amended Constitution explicitly 
outlines the responsibilities and duties of several key committees. 
This increased disclosure of the decision-making processes and the 
bases for Committee actions should benefit the Exchange, its 
constituencies, and investors. The Commission recognizes that for the 
most part SROs in the past were not required to adhere to high 
standards of transparency. The Commission plans to continue to work 
with the NYSE and other SROs to improve their level of transparency.

F. Amendments to the Constitution

    The Commission believes that the ability of directors to amend 
certain specified provisions of the Constitution without member 
approval should help streamline the Exchange's governance processes. 
Through this revision, the Board should be able to respond quickly and 
decisively if a revision to the specified provisions of the 
Constitution is considered appropriate and the majority of directors 
votes in favor of such change. The Commission believes that this kind 
of flexibility for directors is an appropriate tool to address 
potential governance weaknesses.

VI. Conclusion

    In light of the serious governance issues recently confronted by 
the Exchange and the need for immediate reform measures, the NYSE's 
proposal is designed to address concerns about the independence of the 
Board of Directors and to assure the independence of the NYSE's 
regulatory function from the market function. The Commission believes 
that the proposed changes to the NYSE Constitution strengthen and 
improve the Exchange's governance structure. Among other things, under 
the amended Constitution, the independent Board will be responsible for 
monitoring the Exchange's governance processes, assessing whether 
further changes are warranted, and recommending appropriate action.
    The Commission believes that the revised NYSE governance structure 
is one, but not the only, model for SRO governance consistent with the 
Act that would provide independence between the business side of the 
Exchange and its regulatory operations. Other self-regulatory 
structures or allocations of regulatory duties among SROs may offer 
advantages and disadvantages in terms of expertise, effectiveness, 
responsiveness, costs and, ultimately, investor protection. In 
considering the NYSE proposal, some commenters have advocated the 
complete separation of market and SRO functions. In the Commission's 
view, the complete structural separation of the NYSE's--or any other 
SRO's--regulatory function cannot be accomplished by an individual SRO, 
but would require Commission or Congressional action on a market-wide 
basis.
    The Commission is considering a regulatory initiative to assess 
possible steps to strengthen the framework for the governance of SROs. 
In addition, the Commission will continue to consider ways to improve 
the transparency of the governance procedures of all SROs. In this 
context, some of the transparency topics the Commission may examine 
include increasing the disclosure of information relating to 
compensation of SRO directors, officers and employees; regulatory 
performance (e.g., number of enforcement actions); types and amounts of 
fines levied; financial information and financial results; and the 
operation of key committees.
    Finally, the Commission believes that the NYSE Board should 
continue to monitor and evaluate the Exchange's governance structure 
and processes on an ongoing basis, and propose further changes as 
appropriate, including whether the positions of Chairman and CEO should 
be separated permanently.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, File No. SR-NYSE-2003-34, is consistent with the Act and 
rules and regulations thereunder, applicable to a national securities 
exchange, and in particular with sections 6(b)(1), 6(b)(3), 6(b)(5) and 
6(b)(7) of the Act.\100\
---------------------------------------------------------------------------

    \100\ 15 U.S.C. 78f(b)(1), (b)(3), (b)(5), and (b)(7).
---------------------------------------------------------------------------

    It is therefore ordered, pursuant to section 19(b)(2) of the Act 
that the proposed rule change, File No. SR-NYSE-2003-34, be, and hereby 
is, approved.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.

Exhibit A--List of Comments Letters as of December 12, 2003 NYSE 
Amended and Restated Constitution and Corporate Governance Proposal 
(NYSE-2003-34)

    1. Letter from Ralph S. Saul to Jonathan G. Katz, Secretary, 
Commission, dated November 12, 2003 (``Saul Letter'').
    2. Letter from Junius W. Peake, Monfort Distinguished Professor 
of Finance, Kenneth W. Monfort College of Business, University of 
North Colorado, to Jonathan G. Katz, Secretary, Commission, dated 
November 22, 2003 (``Peake Letter'').
    3. Letter from Sean Harrigan, President, Board of 
Administration, California Employees' Retirement System 
(``CalPERS''), to William H. Donaldson, Chairman, Commission, dated 
November 6, 2003 (``CalPERS Letter'').
    4. Letter from Gary Andersen to Commission, dated November 6, 
2003 (``Andersen Letter'').
    5. Letter from Robert G. Merrill to William H. Donaldson, 
Chairman, Commission, dated November 7, 2003 (``Merrill Letter'').

[[Page 74689]]

    6. Letter from Jack Ehnes, CEO, California State Teachers'' 
Retirement System (``CALSTRS''), to Jonathan G. Katz, Secretary, 
Commission, dated November 20, 2003 (``CALSTRS Letter'').
    7. Letter from John Reed, Interim Chairman and CEO, NYSE, to 
William H. Donaldson, Chairman, Commission, dated November 25, 2003 
(``Reed Letter'').
    8. Letter from Amy B.R. Lancellotta, Senior Counsel, Investment 
Company Institute, to Jonathan G. Katz, Secretary, Commission, dated 
December 2, 2003 (``ICI Letter'').
    9. Letter from Sarah A.B. Teslik, Executive Director, Council of 
Institutional Investors, to William H. Donaldson, Chairman, 
Commission, dated November 3, 2003 (``First CII Letter'').
    10. Letter from Charles W. Austin, President, Public Investors 
Arbitration Bar Association, to Jonathan G. Katz, Secretary, 
Commission, dated December 2, 2003 (``PIABA Letter'').
    11. Letter from Marc E. Lackritz, President, Securities Industry 
Association, to Jonathan G. Katz, Secretary, Commission, dated 
December 5, 2003 (``SIA Letter'').
    12. Letter from Alan Hevesi, Comptroller, State of New York; 
Phil Angelides, Treasurer, State of California; Richard H. Moore, 
Treasurer, State of North Carolina; Sean Harrigan, President, 
CalPERS; Jack Ehnes, CEO, CALSTRS; Dale McCormick, Treasurer, State 
of Maine; Randall Edwards, Treasurer, State of Oregon; Michael 
Fitzgerald, Treasurer, State of Iowa; Jonathan Miller, Treasurer, 
State of Kentucky; Denise Nappier, Treasurer, State of Connecticut; 
and Brian K. Krolicki, Treasurer, State of Nevada; to Chairman 
Donaldson, Commission, dated November 20, 2003 (``State Treasurers'' 
Letter'').
    13. Letter from James D. Knotter to William H. Donaldson, 
Chairman, Commission, dated November 10, 2003 (``Knotter Letter'').
    14. Letter from Hans R. Reinisch to William H. Donaldson, 
Chairman, Commission, dated November 11, 2003 (``Reinisch Letter'').
    15. Letter from Sarah A.B. Teslik, Executive Director, Council 
of Institutional Investors, to Jonathan G. Katz, Secretary, 
Commission, dated November 24, 2003 (``Second CII Letter'').
    16. Letter from John S. Reed, Interim Chairman & CEO, NYSE, to 
Jonathan G. Katz, Secretary, Commission, dated December 11, 2003 
(``Second Reed Letter'').
    17. Letter from J.P. Allen, Chair, Highway Patrol Retirement 
System; Robert M. Beck, Chair, Ohio Police and Fire Pension Fund; 
Charlie Adkins, Chair, Public Employees Retirement System of Ohio; 
Eugene E. Norris, Chair, State Teachers Retirement System of Ohio; 
and Barbara J. Miller, Chair, School Employees Retirement System of 
Ohio, to William H. Donaldson, Chairman, Commission, dated November 
24, 2003 (``Ohio Retirement Systems Letter'').
    18. Letter from John B. Licata, CEO, Sonoma Securities 
Corporation, to William H. Donaldson, Chairman, Commission, dated 
November 22, 2003 (``Sonoma Letter'').

[FR Doc. 03-31641 Filed 12-23-03; 8:45 am]
BILLING CODE 8010-01-P