[Federal Register Volume 69, Number 112 (Thursday, June 10, 2004)]
[Notices]
[Pages 32647-32651]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-13172]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-49810; File No. SR-PCX-2003-35]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change and Notice of Filing and Order Granting Accelerated Approval to 
Amendment Nos. 3 and 4 to the Proposed Rule Change by the Pacific 
Exchange, Inc. Relating to Corporate Governance of Listed Issuers

June 4, 2004.

I. Introduction

    On July 14, 2003, the Pacific Exchange, Inc. (``PCX'' or 
``Exchange''), through its wholly owned subsidiary, PCX Equities, Inc. 
(``PCXE''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend its Corporate Governance and Disclosure 
Policies. On October 14, 2003, the Exchange filed Amendment No. 1 to 
the proposal.\3\ On October 31, 2003, the proposed rule change, as 
modified by Amendment No. 1, was published for comment in the Federal 
Register.\4\ On November 18, 2003, the Exchange filed Amendment No. 2 
to the proposal.\5\ On December 1, 2003, the Commission partially 
approved the proposal as modified by Amendment No. 1, granted 
accelerated approval to Amendment No. 2, and solicited comments from 
interested persons on Amendment No. 2.\6\ Specifically, the Commission 
approved the portions of the proposed rule change that implemented the 
requirements of Rule 10A-3 under the Act relating to audit committees 
of listed issuers.\7\ The Commission received no comments on the 
proposal and Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See letter from Steven B. Matlin, Senior Counsel, PCX, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated October 8, 2003 (``Amendment No. 1'').
    \4\ See Securities Exchange Act Release No. 48700 (October 24, 
2003), 68 FR 62146 (October 31, 2003) (``Notice'').
    \5\ See letter from Steven B. Matlin, Senior Counsel, PCX, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated November 17, 2003 (``Amendment No. 2'').
    \6\ Securities Exchange Act Release No. 48861 (December 1, 
2003), 68 FR 68440 (December 8, 2003) (``Partial Approval Order'').
    \7\ 17 CFR 240.10A-3.
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    On May 4, 2004, the Exchange filed Amendment No. 3 to the proposed 
rule change.\8\ In Amendment No. 3, PCX proposed additional 
enhancements to the proposal and revisions to a number of its 
provisions that were not approved in the Partial Approval Order.\9\ The 
substantive changes to the proposal made by Amendment No. 3 are 
summarized in Section II below. On June 3, 2004, the Exchange filed 
Amendment No. 4 to the proposed rule change, making additional, minor 
clarifications.\10\ On June 4, 2004, the Exchange filed Amendment No. 5 
to the proposed rule change.\11\ This Order approves the proposed rule 
change in its entirety, as amended; grants accelerated approval to 
Amendment Nos. 3 and 4; and solicits comments from interested persons 
on Amendment Nos. 3 and 4.
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    \8\ See letter from Steven B. Matlin, Senior Counsel, PCX, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated May 3, 2004 (``Amendment No. 3'').
    \9\ The proposed revisions include some modifications to the 
text as approved in the Partial Approval Order.
    \10\ See letter from Steven B. Matlin, Senior Counsel, PCX, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated June 2, 2004 (``Amendment No. 4''). The revisions 
made in Amendment No. 4 are discussed infra, at notes 17 and 29.
    \11\ See letter from Steven B. Matlin, Senior Counsel, PCX, to 
Nancy J. Sanow, Assistant Director, Division of Market Regulation, 
Commission, dated June 4, 2004 (``Amendment No. 5''). Amendment No. 
5 was a technical amendment and is not subject to notice and 
comment.
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II. Description of the Proposal

    In addition to the provisions of the proposed rule change 
implementing the requirements of Rule 10A-3 under the Act, which were 
approved in the Partial Approval Order, PCX proposes further amendments 
to its rules, set forth in PCXE Rule 5.3, relating to the governance of 
issuers that list securities on the Exchange. The proposed rule change 
further includes related changes to PCXE Rule 5.4, regarding suspension 
of securities from trading privileges, and PCXE Rule 5.5, regarding 
maintenance requirements and delisting procedures.\12\ The new 
corporate governance standards would apply to all listed companies, 
including Tier I and Tier II companies,\13\ with certain exceptions for 
registered management investment companies, preferred and debt 
listings, passive business organizations (such as royalty trusts),

[[Page 32648]]

and derivative or special purpose securities.\14\ Subject to these 
exceptions, the proposed rule change would incorporate the following 
requirements in addition to those approved in the Partial Approval 
Order:
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    \12\ The changes to PCXE Rule 5.5, which were approved in the 
Partial Approval Order, referenced PCXE Rule 5.3 in its entirety and 
Rule 5.3(k)(5) in particular. Approval of the remaining proposed 
changes to PCXE Rule 5.3 that are the subject of this Order will 
thus affect the application of Rule 5.5.
    \13\ See Amendment No. 3, which eliminated the distinction 
between Tier I and Tier II companies with respect to the enhanced 
corporate governance standards that are the subject of this Order.
    \14\ See Amendment No. 3. Registered management investment 
companies would be required to comply with the new requirements 
described below relating to audit committees and certification and 
notification procedures, among others, but would be excepted from 
other provisions, such as those requiring a majority of independent 
directors, nominating/corporate governance and compensation 
committees, and corporate guidelines and codes of conduct.
    Business development companies, which are a type of closed-end 
management investment company defined in Section 2(a)(48) of the 
Investment Company Act of 1940 that are not registered under that 
act, would be required to comply with all of the requirements of 
Rule 5.3 applicable to domestic issuers. Preferred and debt 
listings, passive business organizations (such as royalty trusts), 
derivative or special purpose securities would only be required to 
comply with the new requirements to the extent required by Rule 10A-
3 under the Act.
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Majority of Independent Directors

    The proposed amendments generally would require each domestic 
issuer to have a majority of independent directors on its board of 
directors, except that a domestic issuer of which more than 50% of the 
voting power is held by an individual, a group or another company 
(``controlled company''), a limited partnership and a company in 
bankruptcy would not be subject to this requirement.\15\ However, all 
such controlled companies, limited partnerships, and companies in 
bankruptcy would be required to maintain at least a minimum three-
person audit committee and otherwise comply with the audit committee 
requirements set forth separately in the rules as described below.
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    \15\ See Amendment No. 3, which added the exception for limited 
partnerships and companies in bankruptcy. See also supra note 14.
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Definition of ``Independent Director''

    Under the proposal, no director would qualify as independent unless 
the board of directors of the listed company affirmatively determines 
that the director has no material relationship with the company, either 
directly or as a partner, shareholder, or officer of an organization 
that has a relationship with the company. Companies would be required 
to disclose these determinations. The basis for a board determination 
that a relationship is not material would be required to be disclosed 
in the company's annual proxy statement (or, if the issuer does not 
file a proxy, in its Form 10-K, 20-F or N-CSR).\16\
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    \16\ See Notice for a more complete description of the 
disclosure requirements. See also Amendment No. 3, which, in several 
places in the proposed rules, added alternative forms on which a 
listed company would be required to make the requisite disclosures 
if the company does not file a proxy.
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    In addition, the proposed rule change would specifically identify 
six categories of persons who could not be considered independent. 
Persons who would not qualify as independent directors would include: 
(i) A director who is a present or former employee of the listed 
company whose employment ended within the past three years;\17\ (ii) a 
director who is, or in the past three years has been, affiliated with 
or employed by a (present or former) auditor of the company (or of an 
affiliate); (iii) a director who is, or in the past three years \18\ 
has been, part of an interlocking directorate in which an executive 
officer of the listed company serves on the compensation committee of 
another company that concurrently employs the director; (iv) a director 
with an immediate family member in any of the foregoing categories, 
with immediate family member defined to include a person's spouse, 
parents, children, siblings, mothers-in-law and fathers-in-law, sons 
and daughters-in-law, brothers and sisters-in-law,\19\ and anyone other 
than employees who shares such person's home; (v) a director who is, or 
in the past three years has been, an executive officer or an employee--
or whose immediate family member is or has been an executive officer--
of a company that makes payments to, or receives payments from, the 
listed company for property or services in an amount which, in any 
single fiscal year, exceeds the greater of $200,000 or 5% of such other 
company's consolidated gross revenues;\20\ (vi) a director who 
receives, or whose immediate family member receives, more than $100,000 
per year in direct compensation from the listed company, other than 
director and committee fees and pension or other forms of deferred 
compensation for prior service (provided such compensation is not 
contingent in any way on continued service).\21\ Such director would 
not be independent until three years after he or she ceases to receive 
more than $100,000 in such compensation. In the case of an investment 
company, in lieu of the above criteria, the proposal would provide that 
a director is not independent if the director is an ``interested 
person'' of the company as defined in section 2(a)(19) of the 
Investment Company Act of 1940, other than in his or her capacity as a 
member of the board of directors or any board committee.\22\ Under the 
proposal, PCX would phase in the three-year ``look-back'' provisions 
described above by applying only a one-year look-back period for the 
first year after adoption of the new standards.\23\
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    \17\ See Amendment No. 3, which changed the proposed look-back 
period from five years to three years. Amendment No. 4 clarified 
that current employees are not independent.
    \18\ See Amendment No. 3, which changed the proposed look-back 
period from five years to three years.
    \19\ See Amendment No. 3, which added brothers-in-law and 
sisters-in-law to the proposed definition of ``immediate family 
member'' for the purposes of determining independence.
    \20\ See Amendment No. 3, which added this proposed provision 
with a qualified exemption for charitable organizations.
    \21\ See Amendment No. 3, which added this proposed provision.
    \22\ See Amendment No. 3, which added this provision.
    \23\ See Amendment No. 3.
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Executive Sessions of Non-Management Directors

    The proposal would also require non-management directors of each 
listed company to meet at regularly scheduled executive sessions 
without management. A listed company also would be required to disclose 
a method for interested parties to communicate directly with the 
presiding director of such sessions or with the non-management 
directors as a group.\24\ Nominating/Corporate Governance and 
Compensation CommitteesThe proposal would further require generally 
that each listed company have a Nominating Committee/Corporate 
Governance Committee and a Compensation Committee. Each such committee 
would be required to be composed entirely of independent directors.\25\ 
However, the proposal would provide that if the committee is made up of 
three or more individuals, then one member of the committee would not 
be required to be an independent director when certain conditions 
apply.\26\ Specifically, the director who is not independent could not 
be a current officer or employee or immediate family member of an 
officer or employee and could be appointed to the Nominating/Corporate 
Governance Committee or Compensation Committee if the board, under 
exceptional and limited circumstances, determines that such 
individual's membership on the committee is required by the best

[[Page 32649]]

interests of the company and its shareholders, and the board discloses, 
in the proxy statement for the next annual meeting subsequent to such 
determination (or, if the issuer does not file a proxy, in its Form 10-
K or 20-F), the nature of the relationship and the reasons for the 
determination. The member appointed under this exception could not 
serve for longer than two years. Controlled companies, limited 
partnerships, and companies in bankruptcy would not be subject to the 
nominating and compensation committee requirements.\27\
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    \24\ See Notice for a more complete description of these 
requirements. See also Amendment No. 3, which added a proposed 
provision stating that if the non-management directors include 
directors who are not independent, then the company should at least 
once a year schedule an executive session including only independent 
directors.
    \25\ See Notice for further nominating and compensation 
committee requirements. See also supra note 14.
    \26\ See Amendment No. 3, which added these conditions.
    \27\ See Amendment No. 3, which added the exception for limited 
partnerships and companies in bankruptcy.
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Audit Committee and Internal Audit Function

    The proposed amendments would expand existing PCX requirements 
relating to audit committee composition and would include new 
requirements relating to that committee's role and authority.\28\ The 
Partial Approval Order approved portions of the proposed rule change 
that require each listed issuer to establish and maintain an audit 
committee that complies with the requirements of Rule 10A-3 under the 
Act and is composed entirely of independent directors as defined in 
current PCXE rules and who meet the criteria of Rule 10A-3. The 
proposal would further require that the audit committee consist of at 
least three members, each of whom meets the enhanced definition of 
independent director described above.\29\ Each member of the audit 
committee would be required to be financially literate, or become 
financially literate within a reasonable period of time after his or 
her appointment to the audit committee, and at least one member of the 
audit committee would be required to have accounting or related 
financial management expertise. In addition, the audit committee would 
be required to have a written charter that addresses the committee's 
purpose, duties and responsibilities, and an annual performance review 
of the audit committee.\30\
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    \28\ See proposed PCXE Rule 5.3(k)(5).
    \29\ See supra notes--and accompanying text. See also Amendment 
No. 4, which clarified that upon the effective date of this 
provision, each listed company would be required to have at least 
three independent directors.
    \30\ See Notice for a more complete description.
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    Moreover, as part of the initial listing process, and with respect 
to any subsequent changes to the composition of the audit committee, 
and otherwise approximately once each year, each company would be 
required to provide the Exchange written confirmation regarding any 
determination that the company's board of directors had made regarding 
the independence of directors; the financial literacy of the audit 
committee member; the determination that at least one of the audit 
committee members has accounting or related financial management 
expertise; and the annual review and reassessment of the adequacy of 
the audit committee charter.\31\
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    \31\ See Amendment No. 3, which clarified that such written 
confirmations would be a requirement.
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    As set forth in the audit committee provisions approved in the 
Partial Approval Order, audit committees for investment companies 
additionally are required to establish procedures for the confidential, 
anonymous submission of concerns regarding questionable accounting or 
auditing matters by employees of the investment adviser, administrator, 
principal underwriter, or any other provider of accounting related 
services for the investment company, as well as employees of the 
investment company. The PCX further proposes that this responsibility 
must be addressed in the audit committee's charter.\32\
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    \32\ This proposed requirement was added in Amendment No. 3.
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    In addition, the proposal generally would require each listed 
company to have an internal audit function.\33\
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    \33\ See Notice for a more complete description.
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Corporate Governance Guidelines and Code of Conduct

    The proposal generally would require each listed company to adopt 
corporate governance guidelines, and disclose on its Web site these 
guidelines and the charters of the company's most important committees 
(including at least the audit, compensation and nominating committees). 
The proposal generally would further require each listed company to 
adopt and disclose a code of business conduct and ethics for directors, 
officers, and employees, and promptly disclose any waivers of the code 
for directors or executive officers.\34\
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    \34\ See Notice for a more complete description of the corporate 
governance guidelines and code of conduct requirements. See also 
supra note regarding entities excepted from these requirements.
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CEO Certification and Disclosure

    The proposal would require the Chief Executive Officer (``CEO'') of 
each listed company to certify to the Exchange each year that he or she 
is not aware of any violation by the company of the Exchange's 
corporate governance listing standards. The certification filed with 
the Exchange, as well as the CEO and Chief Financial Officer 
certifications required to be filed with the Commission regarding the 
quality of the company's public disclosure, would be required to be 
disclosed in the listed company's annual report to shareholders. Each 
listed company's CEO would be required to promptly notify the PCXE 
after any executive officer of the listed company becomes aware of any 
material noncompliance with any applicable provision of PCXE Rule 5.3 
covering Corporate Governance and Disclosure Policies.\35\
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    \35\ This notification requirement, which would apply to the 
entire Rule 5.3, was proposed in Amendment No. 3. The notification 
provision relating specifically to audit committee requirements, 
required by Rule 10A-3 under the Act, was approved in the Partial 
Approval Order.
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Listed Foreign Private Issuers

    Listed foreign private issuers would be required to comply with the 
provisions of Rule 5.3(k)(5) relating to audit committees. Such issuers 
would be required to disclose any significant ways in which their 
corporate governance practices differ from those followed by domestic 
companies under the Exchange's other listing standards.

Public Reprimand

    The proposed rule change would amend PCXE Rule 5.4 to provide that 
the Exchange may issue a public reprimand letter to any listed company 
that violates an Exchange listing standard and that PCXE will remove 
any security from listed or unlisted trading privileges if the listed 
company violates any provisions of PCXE Rule 5.3(k)(5) relating to 
audit committees.
    The proposal also includes changes, approved in the Partial 
Approval Order, that amend PCXE Rule 5.5, regarding the Exchange's 
listing maintenance and delisting procedures, to refer to the corporate 
governance standards of Rule 5.3. These changes provide, in particular, 
that the Exchange will initiate a delisting of a company's securities 
for a violation of the audit committee requirements of Rule 5.3(k)(5), 
and that all classes of a security will be delisted for such violation.

Deadline for Compliance

    The provisions of the proposed rule change that were approved in 
the Partial Approval Order, implementing the audit committee 
requirements of Rule 10A-3 under the Act, require compliance by listed 
issuers, other than foreign private issuers and small business issuers, 
by the earlier of (1) their first annual shareholders meeting after 
January 15,

[[Page 32650]]

2004, or (2) October 31, 2004. Foreign private issuers and small 
business issuers must be in compliance with these provisions by July 
31, 2005.
    With respect to the applicable sections of Rule 5.3 that are the 
subject of this Order, the proposal would require listed issuers, other 
than foreign private issuers and small business issuers, to be in 
compliance by the earlier of (1) their first annual shareholders 
meeting after July 31, 2004, or (2) December 31, 2004.\36\ If a company 
with a classified board is required (other than by virtue of a 
requirement under Rule 5.3(k)(5)) to change a director who would not 
normally stand for election in such annual meeting, the company could 
continue such director in office until the second annual meeting after 
such date, but in no event later than December 31, 2005.\37\ Foreign 
private issuers and small business issuers would be required to be in 
compliance with all applicable sections of Rule 5.3 by July 31, 2005.
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    \36\ The revised timetable for compliance was proposed in 
Amendment No. 3.
    \37\ This provision, as well as the provision described below 
relating to companies listing in conjunction with an initial public 
offering, emerging from bankruptcy, ceasing to be a controlled 
company, or transferring from another market, were added by 
Amendment No. 3.
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    Under the proposed amendments, companies listing in conjunction 
with their initial public offering would be permitted to phase in their 
independent nomination and compensation committees generally on the 
same schedule as is permitted pursuant to Rule 10A-3 under the Exchange 
Act for audit committees, that is, one independent member at the time 
of listing, a majority of independent members within 90 days of 
listing, and fully independent committees within one year. It should be 
noted, however, that investment companies are not afforded these 
exemptions under Rule 10A-3. Such companies would be required to meet 
the majority of independent board requirement within 12 months of 
listing. For purposes of Rule 5.3 other than Rule 5.3(k)(5), regarding 
audit committees, and Rule 5.3(m), regarding CEO certification and 
notification, a company would be considered to be listing in 
conjunction with an initial public offering if, immediately prior to 
listing, it does not have a class of common stock registered under the 
Exchange Act. PCX would also permit companies that are emerging from 
bankruptcy or have ceased to be controlled companies within the meaning 
of Rule 5.3 to phase in independent nomination and compensation 
committees and majority independent boards on the same schedule as 
companies listing in conjunction with an initial public offering. 
However, for purposes of Rule 5.3(k)(5) and Rule 5.3(m), a company 
would be considered to be listing in conjunction with an initial public 
offering only if it meets the conditions of Rule 10A-3(b)(1)(iv)(A) 
under the Act, namely, that the company was not, immediately prior to 
the effective date of a registration statement, required to file 
reports with the Commission pursuant to Section 13(a) or 15(d) of the 
Act.
    Companies listing upon transfer from another market would have 12 
months from the date of transfer in which to comply with any 
requirement to the extent the market on which they were listed did not 
have the same requirement. To the extent the other market has a 
substantially similar requirement but also had a transition period from 
the effective date of that market's rule, which period had not yet 
expired, the company would have the same transition period as would 
have been available to it on the other market. This transition period 
for companies transferring from another market would not apply to the 
requirements of Rule 5.3(k)(5) unless a transition period is available 
pursuant to Rule 10A-3 under the Act.
    Proposed PCXE Rule 5.3(k)(5)(E) (``Ongoing Compliance''), added in 
Amendment No. 3, would set forth the standards regarding audit 
committee requirements that are applicable to certain listed companies 
in the interim period before the proposed rule change takes effect.

Summary of Revisions Made by Amendment No. 3

    The discussion above reflects amendments to the proposed rule 
change made by Amendment No. 3, the most significant of which are 
summarized below.\38\ Amendment No. 3 revised the proposal to:
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    \38\ Amendment No. 4 made only clarifying changes. See supra 
note 10.
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     Eliminate the distinction between Tier I and Tier II 
companies for the purposes of corporate governance.\39\
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    \39\ See supra note 13.
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     Provide that registered management investment companies, 
preferred and debt listings, passive business organizations, and 
derivative or special purpose securities are required to comply with 
some, but not all of the new corporate governance provisions.\40\
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    \40\ See supra note 14.
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     Provide that limited partnerships and companies in 
bankruptcy do not need to have a majority of independent directors on 
their board or have nominating/corporate governance and compensation 
committees composed of independent directors.\41\
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    \41\ See supra notes 15 and 27.
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     Allow an issuer that does not file a proxy to disclose any 
required information in its Form 10-K, 20-F or N-CSR.\42\
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    \42\ See supra note 16.
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     Reduce the look-back periods in the proposed tests of 
director independence from five years to three years.\43\
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    \43\ See supra notes 17 and 18.
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     Expand the definition of immediate family member to 
include brothers and sisters-in-laws.\44\
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    \44\ See supra note 19.
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     Provide that a director who is, or in the past three years 
has been, an executive officer or an employee, or whose immediate 
family member is or has been an executive officer, of a company that 
makes payments to, or receives payments from, the listed company for 
property or services in an amount which, in any single fiscal year, 
exceeds the greater of $200,000 or 5% of such other company's 
consolidated gross revenues, is not independent.\45\
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    \45\ See supra note 20.
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     Provide that a director who receives, or whose immediate 
family member receives, more than $100,000 per year in direct 
compensation from the listed company, other than director and committee 
fees and pension or other forms of deferred compensation for prior 
service (provided such compensation is not contingent in any way on 
continued service) is not considered independent until three years 
after he or she ceases to receive more than $100,000 per year in such 
compensation.\46\
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    \46\ See supra note 21.
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     Phase in the three-year look-back provisions by applying 
only a one-year look back for the first year after adoption of the new 
standards.\47\
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    \47\ See supra note 23.
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     Provide that, in the case of an investment company, in 
lieu of the criteria for independence set forth in proposed PCXE Rule 
5.3(k)(i)(A)-(F), a director who is an ``interested person'' of the 
company as defined in section 2(a)(19) of the Investment Company Act of 
1940, other than in his or her capacity as a member of the board of 
directors or any board committee, shall not be considered 
independent.\48\
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    \48\ See supra note 22.
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     State that if the non-management directors of a listed 
company include

[[Page 32651]]

directors who are not independent, then the company should at least 
once a year schedule an executive session including only independent 
directors.\49\
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    \49\ See supra note 24.
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     Allow the Nominating/Corporate Governance Committee and 
the Compensation Committee to have one member who is not independent, 
so long as that person is not a current officer or employee or 
immediate family member of an officer or employee only under specified 
limited circumstances and conditions.\50\
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    \50\ See supra note 26.
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     Require that each listed company's CEO must promptly 
notify the Corporation after any executive officer of the listed 
company becomes aware of any material noncompliance with any applicable 
provision of the corporate governance and disclosure policies of Rule 
5.3.\51\
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    \51\ See supra note 35.
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     Set forth a timetable for listed companies to be in 
compliance with the new rules, and provide phase-in periods for 
companies listing in conjunction with and initial public offering, 
companies emerging from bankruptcy, companies ceasing to be controlled 
companies, and companies transferring from other markets.\52\
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    \52\ See supra notes 36 and 37.
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III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\53\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with Section 6(b)(5) of 
the Act \54\ 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.
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    \53\ 15 U.S.C. 78f(b). In approving this proposal, the 
Commission has considered the proposed rule's impact on efficiency, 
competition and capital formation. 15 U.S.C. 78c(f).
    \54\ 15 U.S.C. 78f(b)(5).
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    In the Commission's view, the proposed rule change, as amended, 
will foster greater transparency, accountability, and objectivity in 
the oversight by, and decision-making processes of, the boards and key 
committees of PCX-listed issuers. The proposal, as amended, also will 
promote compliance with high standards of conduct by the issuers' 
directors and management. The Commission notes that the PCX has amended 
its proposal in a way that largely harmonizes it with rule changes 
recently approved by the Commission for other self-regulatory 
organizations.\55\
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    \55\ See Securities Exchange Act Release No. 48745 (November 4, 
2003), 68 FR 64154 (November 12, 2003) (approving changes to the 
corporate governance listing standards of the Nasdaq Stock Market, 
Inc. and the New York Stock Exchange, Inc.).
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    The PCX has requested that the Commission grant accelerated 
approval to Amendment Nos. 3 and 4 to the proposed rule change. The 
Commission believes that the revisions proposed in Amendment Nos. 3 and 
4 significantly align the corporate governance standards proposed for 
companies listed on the PCX with the standards approved by the 
Commission for companies listed on other SROs.\56\ The Commission 
believes it is appropriate to accelerate approval of Amendment Nos. 3 
and 4 so that the comprehensive set of strengthened corporate 
governance standards for companies listed on the PCX may be implemented 
on generally the same timetable (with some modification of certain 
deadlines) as that for similar standards adopted for issuers listed on 
other SROs. The Commission therefore finds good cause, consistent with 
Section 19(b)(2) of the Act,\57\ to approve Amendment Nos. 3 and 4 to 
the proposed rule change prior to the thirtieth day after the date of 
publication of notice of filing thereof in the Federal Register.
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    \56\ See supra note 55.
    \57\ 15 U.S.C. 78s(b)(2).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 3, including whether the Amendment 
is consistent with the Act. Comments may be submitted by any of the 
following methods:
    Electronic comments:
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to [email protected]. Please include 
File Number SR-PCX-2003-35 on the subject line.
    Paper comments:
     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., 
Washington, DC 20549-0609.
    All submissions should refer to File Number SR-PCX-2003-35. 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, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Section, 450 Fifth 
Street, NW., Washington, DC 20549. Copies of such filing also will be 
available for inspection and copying at the principal office of the 
PCX. All comments received will be posted without change; the 
Commission does not edit personal identifying information from 
submissions. You should submit only information that you wish to make 
available publicly. All submissions should refer to File Number SR-PCX-
2003-35 and should be submitted on or before July 1, 2004.

V. Conclusion

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as amended, is consistent with the Act and the rules and 
regulations thereunder applicable to a national securities exchange.
    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\58\ that the proposed rule change (PCX-2003-35), as amended, be, 
and hereby is, approved, and that Amendment Nos. 3 and 4 to the 
proposed rule change be, and hereby are, approved on an accelerated 
basis.
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    \58\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\59\
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    \59\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-13172 Filed 6-9-04; 8:45 am]
BILLING CODE 8010-01-P