[Federal Register Volume 69, Number 57 (Wednesday, March 24, 2004)]
[Notices]
[Pages 13922-13924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6596]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49434; File No. SR-BSE-2004-10]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by the Boston Stock Exchange, Inc. Relating to the Amendment of 
its Constitution to Permit the Separation of the Chairman and Chief 
Executive Officer Positions

March 17, 2004.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 2, 2004 the Boston Stock Exchange, Inc. (``BSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by BSE. The Commission is 
publishing this notice to solicit comments on the proposed rule change 
from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange seeks to amend its Constitution to permit the 
separation of the Chairman and Chief Executive Officer roles. The 
proposed rule change is attached as Exhibit A hereto.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, BSE included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. BSE has prepared summaries, set forth in Sections A, B, 
and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The BSE proposes to amend its Constitution to permit the separation 
of the Chairman and Chief Executive Officer functions. The separation 
would not be mandatory, but would be an option to be utilized by the 
Exchange's Board of Governors (the ``Board'') as deemed necessary and/
or prudent to enhance the governance of the Exchange. The separation 
would also allow for the disconnection and independence of the 
Exchange's regulatory function from the exchange's marketplace 
function.
    The BSE is not proposing this constitutional change due to any 
internal issues arising from its current governance structure. Rather, 
the Exchange is seeking to be proactive in concert with changes 
occurring in the control mechanisms of other market centers, 
particularly the New York Stock Exchange (``NYSE''). For that reason, 
the BSE is seeking effectiveness of the changes proposed by its next 
Board meeting in April 2004. However, the BSE, as a regional exchange, 
does not propose all of the changes recently enacted by the NYSE, 
primarily due to the fact that the BSE's size alone would make such a 
governance structure unwieldy and unworkable. The changes the Exchange 
proposes, though, do seek to achieve the same overall result of the 
separation of the Exchange's regulatory and marketplace functions, as 
warranted.
    Moreover, in order to maintain flexibility in its primary governing 
document, the Exchange is purposefully not constitutionally mandating 
the separation of the Chairman and Chief Executive Officer roles, but 
is providing for their separation in the event that the Board 
determines such a separation to be practical, in light of current 
internal or external events. Presently, the Chairman has determined, 
and the Board has concurred, that it is desirous of more flexibility 
within the Exchange's Constitution so that it will be able to separate 
the Chairman and Chief Executive Officer roles.
    As envisioned, the separation of the Chairman and Chief Executive 
Officer of the Exchange would provide for the independence of the BSE's 
regulatory function from any potentially inappropriate linkage with the 
marketplace function. Yet, the regulatory function would retain 
sufficient proximity to the marketplace to assure the market 
sensitivity that is fundamental to effective regulation. If the 
Chairman and Chief Executive Officer of the Exchange are not the same 
person, then the present intention is that the Chairman, as an 
executive officer of the Exchange, would (1) preside over all meetings 
of the Board; (2) be responsible to the Board for the management of the 
BSE's regulatory affairs; (3) be responsible for the oversight of all 
exchange facilities,\3\ subsidiaries, or other legal entities to which 
the Exchange is a party; and, (4) act as Board liaison to the 
Exchange's Chief Executive Officer and management. The Chief Executive 
Officer, according to present intention, would (1) be responsible for 
the management and administration of the affairs of the Exchange's 
marketplace functions; (2) not participate in executive sessions of the 
Board; and, (3) be subject to the authority of the Board.
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    \3\ Under the Act, ``the term `facility' when used with respect 
to an exchange includes its premises, tangible or intangible 
property whether on the premises or not, any right to the use of 
such premises or property or any service thereof for the purpose of 
effecting or reporting a transaction to an exchange (including, 
among other things, any system of communication to or from the 
exchange, by ticker or otherwise, maintained by or with the consent 
of the exchange), and any right of the exchange to the use of any 
property or service.'' See 15 U.S.C. 78c(a)(2).
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    The Exchange believes that the proposed governance architecture 
provides the best model for the BSE. It will permit the BSE, as a 
relatively small exchange, to resolve and manage conflicts of interest 
inherent in self-regulation while maintaining the marketplace proximity 
requisite for optimizing regulatory intervention in market mechanisms. 
Moreover, it will allow the Exchange to remain flexible in regard to 
its governance structure if and when future events may require a 
response.
2. Statutory Basis
    The statutory basis for the proposed rule change is the requirement 
under section 6(b)(1) of the Act \4\ that an exchange be organized and 
have the capacity to be able to carry out the purposes of the Act, the 
requirement under section 6(b)(3) of the Act \5\ that the rules of an 
exchange assure a fair representation of its members in the selection 
of its directors and administration of its affairs, and the requirement 
under section 6(b)(5) of the Act \6\ to have rules that are designed to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in

[[Page 13923]]

regulating securities transactions, to remove impediments to perfect 
the mechanism of a free and open market and a national market system 
and, in general, to protect investors and the public interest.
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    \4\ 15 U.S.C. 78f(b)(1).
    \5\ 15 U.S.C. 78f(b)(3).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
result in any burden on competition that is not necessary or 
appropriate in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 35 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Persons making written submissions 
should file six copies thereof with the Secretary, Securities and 
Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 
Comments may also be submitted electronically at the following e-mail 
address: [email protected]. All comment letters should refer to 
File No. SR-BSE-2004-10. This file number should be included on the 
subject line if e-mail is used. To help the Commission process and 
review your comments more efficiently, comments should be sent in 
hardcopy or by e-mail but not by both methods. Copies of the 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for inspection and copying in the Commission's 
Public Reference Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the BSE.
    All submissions should refer to file number SR-BSE-2004-10 and 
should be submitted by April 14, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\7\
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    \7\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.

EXHIBIT A

    The text of the proposed rule change appears below. Proposed new 
language is in italics. Proposed deletions are in [brackets].

Boston Stock Exchange, Inc.

Constitution

Article I

no change

Article II

Secs. 1-2--no change
Sec. 3.

General Powers

    The Board of Governors shall be vested with all powers necessary 
for the government of the Exchange, the regulation of business, the 
administration of the regulatory functions of the Exchange and the 
business conduct of its members, allied members, member firms and 
member corporations and the promotion of the welfare, objects and 
purposes of the Exchange. In the exercise of its powers it may adopt 
such rules, issue such orders and directions, and make such 
decisions, as it may deem appropriate.
Sec. 4-no change.
Sec. 5.

Procedural Powers

    The Board of Governors shall determine the manner and form by 
which its proceedings shall be conducted. It shall designate 
committees and vote on whether to approve the appointments by the 
Chairman of members thereof, except with respect to the Nominating 
Committee, and it shall have original and supervisory jurisdiction 
over all matters referred to any such committees except the 
Nominating Committee. It shall appoint a Chairman for such term as 
the Board may fix and shall delegate, in addition to the powers 
expressly granted to him by this Constitution, such of its powers as 
it shall from time to time determine in order that the Chairman may 
[act as the Chief Executive Officer of the Exchange] carry out his 
duties as specified by the Board to, among other things, effectively 
oversee the regulatory affairs of the Exchange. It shall make rules 
with respect to the matters within its authority and may prescribe 
penalties for the violation of such rules, of any orders, directions 
or decisions of the Board, or of any provision of this Constitution 
where no penalty is otherwise specified.
Secs. 6-12 `` no change

Article III

Sec. 1.

Chairman--[Vice Chairman] Chief Executive Officer

    The Chairman of the Board of Governors [shall] may be the Chief 
Executive Officer of the Exchange, responsible to the Board for the 
management of its business affairs. The Chairman shall be appointed 
by the Board of Governors to serve at its pleasure and for such 
compensation as it may from time to time fix. The Board may, in its 
discretion, appoint a separate Chief Executive Officer of the 
Exchange. If the Board appoints a separate Chief Executive Officer, 
the Chairman shall also be an executive officer of the Exchange. The 
Chairman and Chief Executive Officer, whether the same or separate 
persons, shall have such duties and authority as shall be delegated 
to them by the Board from time to time, as the Board determines. If 
the Chairman is not the Chief Executive Officer, he shall act as 
liaison officer between the Board and the Chief Executive Officer. 
[The Chairman shall not engage in any other business during his 
incumbency except with the approval of the Board. The Chairman 
shall, with the Vice Chairman, subject to the approval of the Board, 
appoint the members of and fill vacancies in all committees of the 
Exchange, except the Nominating Committee. The Chairman shall be a 
member, ex officio, of all committees of the Exchange except the 
Nominating Committee and the Audit Committee. On any appeal to the 
Board of Governors or any committee from a decision of the Chairman, 
the Chairman shall not participate in the appeal proceedings except 
as required by the Board or any such committee.]
    The Chairman shall be the presiding officer of the Board of 
Governors, and shall preside at meetings of the Exchange. The 
Chairman [shall have such other duties or authority as may be 
delegated to him by the Board of Governors and] shall have the power 
to appoint, dismiss, and fix the compensation of all officers 
(except the Chief Executive Officer and Vice Chairman) and employees 
of the Exchange.
    The Chairman shall not engage in any other business during his 
incumbency except with the approval of the Board. The Chairman 
shall, with the Vice Chairman, subject to the approval of the Board, 
appoint the members of and fill vacancies in all committees of the 
Exchange, except the Nominating Committee. The Chairman shall be a 
member, ex officio, of all committees of the Exchange except the 
Nominating Committee and the Audit Committee. On any appeal to the 
Board of Governors or any committee from a decision of the Chairman, 
the Chairman shall not participate in the appeal proceedings except 
as required by the Board or any such committee.
    The Chairman of the Board after taking office shall not be a 
member of the Exchange

[[Page 13924]]

or a partner, officer, voting stockholder, or person associated with 
a member organization of the Exchange, or a broker or dealer, and if 
the Chairman holds such a position prior to the appointment, the 
Chairman shall terminate such position under conditions approved by 
the Board of Governors.

[FR Doc. 04-6596 Filed 3-23-04; 8:45 am]
BILLING CODE 8010-01-P