[Federal Register Volume 69, Number 162 (Monday, August 23, 2004)]
[Notices]
[Pages 51870-51872]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-19244]



[[Page 51870]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50201; File No. SR-CHX-2004-21]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by the Chicago Stock Exchange, 
Inc. Relating to Transfer of CHX Memberships

August 16, 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 August 5, 2004, the Chicago Stock Exchange, Inc. (``CHX'' 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 the Exchange. The CHX 
filed the proposed rule change pursuant to Section 19(b)(3)(A)(i) of 
the Act,\3\ and Rule 19b-4(f)(1) thereunder,\4\ as constituting a 
stated policy, practice or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule, which renders the 
proposed rule change effective upon filing with the Commission. 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.
    \3\ 15 U.S.C. 78s(b)(3)(A)(i).
    \4\ 17 CFR 240.19b-4(f)(1).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange is proposing to add Interpretation and Policy .03 to 
CHX Article I, Rule 10, ``Transfers of Memberships,'' which would 
effectively prohibit the transfer of CHX memberships until uniform 
disclosure regarding a proposed demutualization transaction that has 
been approved by the Exchange's Board of Governors is disseminated to 
owners of CHX seats. The text of the proposed rule change appears 
below. Proposed new language is italicized.
* * * * *

ARTICLE I Membership

Transfers of Memberships

    RULE 10. A membership is a privilege which cannot be transferred 
until the transferee shall have been elected a member or member 
organization. All bids for, and offerings of, memberships shall be 
submitted to and will be processed by the Exchange in accordance with 
procedures that shall from time to time be established by the Executive 
Committee. All contracts for the sale of memberships shall be approved 
by the Exchange. A sale or transfer of a membership without Exchange 
approval shall confer no rights on the purchaser or transferee to 
become a member, to exercise any rights of membership or otherwise to 
deal on or with the Exchange on a basis other than that of a non-
member. Transference pursuant to Article IA, whereby the transferor 
retains the right to reacquire the membership, must be in accordance 
with the requirements of the Exchange and the terms of all such 
arrangements must be approved by the Exchange. A sale or transfer of a 
membership, including transfers pursuant to Article IA, shall not be 
approved by the Exchange if the transferee (or the Lessor in the case 
of transfers pursuant to Article IA), together with any person who 
directly or indirectly controls or is controlled by, or is under common 
control with, the transferee or Lessor, as the case may be, owns or has 
the voting power of 10% or more of the outstanding memberships of the 
Exchange, unless this requirement is waived by the Board for good cause 
shown.
* * * Interpretations and Policies
    .01 The Executive Committee has adopted the following procedure for 
processing transfers of memberships:
    All bids for, and offerings of, memberships will be submitted to, 
and processed by, the Exchange's Membership Department. No private 
negotiations and/or sales of memberships will be allowed without the 
written approval of the Exchange, and any sale contracts resulting from 
such private negotiations may be nullified by the Exchange.
    Applicants for membership will not be permitted to enter a bid for 
a membership until the staff has determined from the application 
submitted that no statutory bar to membership exists or, in the case of 
Approved Lessors, that they have complied with all prerequisites to 
becoming an Approved Lessor as set forth in the Rules.
    Any contract for the sale of a membership, which contract has been 
made by the Exchange on behalf of the buyer and seller, will remain in 
force for the ten business days next following the date on which the 
contract was executed. Such contract will be extended beyond the 
original termination date only if both parties agree in writing to such 
an extension and to a new termination date.
    .02 Transfers, pursuant to Article IA, whereby the transferor 
retains the right to reacquire the membership, will not be processed by 
the Exchange's Membership Department unless the transferor is current 
in all filings and payments of dues, fees and charges relating to that 
membership, including filing fees and charges required by the 
Securities and Exchange Commission and the Securities Investor 
Protection Corporation.
    .03 Suspension of Membership Market. Effective August 5, 2004, the 
Exchange will not approve the transfer of a membership by any member or 
approved lessor. This prohibition shall remain in effect until the 
earlier of (a) the date of issuance (to CHX members and approved 
lessors) of disclosure documents relating to a proposed demutualization 
transaction or (b) the Exchange's determination that it will not seek 
approval of a demutualization transaction.
* * * * *

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

    In its filing with the Commission, the CHX included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received regarding the proposal. The text of 
these statements may be examined at the places specified in Item IV 
below. The CHX 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
    On August 5, 2004, the Exchange's Board of Governors voted 
unanimously to present a demutualization plan to the Exchange's members 
for approval.\5\ A

[[Page 51871]]

CHX member vote on the demutualization plan will be scheduled for 
October 2004. If the Exchange's members vote in favor of 
demutualization, the Exchange anticipates that it will then formally 
seek the Commission's approval of the Exchange's demutualization plan, 
including related changes to the Exchange's constitution, bylaws and 
rules.
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    \5\ As with other similar demutualization transaction approved 
previously by the Commission, the Exchange's proposed 
demutualization transactions contemplate a change in the Exchange's 
organizational structure. In this demutualization transaction, the 
CHX will change from a not-for-profit, non-stock corporation owned 
by its members to become a wholly-owned subsidiary of a holding 
company, CHX Holdings, Inc., which is to be organized as a for-
profit, stock corporation owned by its stockholders. Members of the 
CHX at the time of the demutualization transaction will receive 
shares of common stock of the new holding company in exchange for 
their CHX memberships, and thus will become the stockholders of the 
new holding company. Members who are qualified to trade on the 
Exchange will receive trading permits that give them continued 
access to the Exchange's trading facilities.
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    The Exchange plans to distribute to its members, sufficiently in 
advance of the October demutualization vote, a comprehensive 
information memorandum and other materials (collectively, the 
``Disclosure Documents'') that will apprise Exchange members of their 
respective rights and obligations before and after demutualization. The 
Exchange currently is preparing the Disclosure Documents but will not 
be in a position to circulate these materials to CHX members until 
early to mid-September.
    The Exchange believes that, in the interim, certain CHX members may 
have (or may be perceived to have) access to varying levels of 
information (with varying degrees of accuracy) regarding the proposed 
demutualization transaction. Accordingly, to preclude any inequity that 
could arise as a result of potentially disparate access to accurate 
information, the Exchange believes that it is appropriate to suspend 
its membership market (also referred to as the CHX ``seat'' market) 
immediately. The Exchange believes that suspension of the seat market 
will help ensure that members are not purchasing or selling memberships 
prior to demutualization on the basis of information that may not be 
available to all members or on the basis of inaccurate information that 
a member has received through informal communications channels.
    The proposed new Interpretation and Policy .03 relating to CHX 
Article I, Rule 10 would effectively prohibit transfer of memberships 
by CHX members, effective immediately. This prohibition would remain in 
effect until the Disclosure Documents are disseminated to CHX seat 
owners. If for some reason the Exchange declines to proceed with the 
demutualization initiative prior to dissemination of the Disclosure 
Documents, the prohibition would terminate immediately.
2. Statutory Basis
    The CHX believes the proposed rule change is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange and, in particular, 
with the requirements of Section 6(b).\6\ In particular, the CHX 
believes the proposal is consistent with Section 6(b)(5) of the Act \7\ 
in that it is designed to promote just and equitable principles of 
trade, to remove impediments and 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement of Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any inappropriate burden on competition.

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change constitutes a stated 
policy, practice or interpretation with respect to the meaning, 
administration, or enforcement of an existing rule,\8\ it has become 
effective pursuant to Section 19(b)(3)(A)(i) of the Act \9\ andRule 
19b-4(f)(1) thereunder.\10\ At any time within 60 days of the filing of 
the proposed rule change, the Commission may summarily abrogate such 
rule change if it appears to the Commission that such action is 
necessary or appropriate in the public interest, for the protection of 
investors, or otherwise in furtherance of the purposes of the Act.
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    \8\ Pursuant to CHX Article I, Rule 10, all bids for and offers 
of memberships must be submitted to, and processed by, the Exchange 
in accordance with procedures established by the Executive 
Committee. The Exchange must approve all contracts for the sale of 
memberships. The Executive Committee, pursuant to direction from the 
Board of Governors, has adopted a policy of not approving any 
contracts for the sale of memberships during the brief, temporary 
period between the approval by the Board of the demutualization 
transaction and the issuance of the Disclosure Documents. This 
temporary halt in the processing of membership transfers is intended 
to ensure that the membership transfer process is fair and is based 
on equivalent disclosure of information about the demutualization 
transaction. Accordingly, the policy constitutes a stated policy as 
to the administration and enforcement of the membership transfer 
procedures set forth in CHX Article I, Rule 10.
    \9\ 15 U.S.C. 78s(b)(3)(A)(i).
    \10\ 17 CFR 240.19b-4(f)(1).
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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. 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-CHX 2004-21 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-CHX-2004-21. 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 
Exchange. 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-CHX-
2004-21 and should be submitted on or before September 13, 2004.


[[Page 51872]]


    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\11\
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    \11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 04-19244 Filed 8-20-04; 8:45 am]
BILLING CODE 8010-01-P