[Federal Register Volume 69, Number 170 (Thursday, September 2, 2004)]
[Notices]
[Pages 53747-53749]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-2015]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50263; File No. SR-Amex-2004-60]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the American Stock Exchange LLC Regarding Listed Company Board of 
Director Independence Standards

August 25, 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 2, 2004, the American Stock Exchange LLC (the ``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by Amex. On August 23, 2004, 
the Amex submitted Amendment No. 1 to the proposed rule change.\3\ Amex 
has filed the proposed rule change as a ``non-controversial'' rule 
change under Rule 19b-4(f)(6) under the Act,\4\ which renders the 
proposal 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\ See letter from Claudia Crowley, Vice President and Deputy 
Chief Regulatory Officer, Amex, to Nancy Sanow, Assistant Director, 
Division of Market Regulation (``Division''), Commission, dated 
August 20, 2004 (``Amendment No. 1''). Amendment No. 1 made 
technical and clarifying corrections to the original submission and 
replaced the original filing in its entirety. The changes made by 
Amendment No. 1 are incorporated in this notice.
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Amex proposes to revise Section 121 of the Amex Company Guide 
(``Company Guide'') to specify that payments received by a director of 
a listed issuer from the issuer in connection with a banking or 
brokerage transaction entered into in the ordinary course of business 
on non-preferential terms will not be included in the types of payments 
that (if the applicable threshold is reached) would preclude the 
director's independence. The Amex also proposes to adopt new Commentary 
.06 to Section 121 of the Company Guide, to specify that such payments 
must be disclosed to the listed company's board of directors.
    The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in brackets.\5\
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    \5\ The asterisk at the end of paragraph (b) of Amex Rule 121A 
as set forth below is part of the current text and relates to a note 
in the rule regarding look-back periods.
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* * * * *

Sec. 121. Independent Directors and Audit Committee

A. No change.

    (a) No change.
    (b) a director who accepts or has an immediate family member who 
accepts any payments from the company or any parent or subsidiary of 
the company in excess of $60,000 during the current or any of the 
past three fiscal years, other than the following:
    (1) compensation for board service,
    (2) payments arising solely from investments in the company's 
securities,
    (3) compensation paid to an immediate family member who is a 
non-executive employee of the company or of a parent or subsidiary 
of the company,
    (4) compensation received for former service as an interim 
Chairman or CEO,
    (5) benefits under a tax-qualified retirement plan,
    (6) non-discretionary compensation, [or]
    (7) loans permitted under Section 13(k) of the Exchange Act,

[[Page 53748]]

    (8) loans from a financial institution provided that the loans 
(i) were made in the ordinary course of business, (ii) were made on 
substantially the same terms, including interest rates and 
collateral, as those prevailing at the time for comparable 
transactions with the general public, (iii) did not involve more 
than a normal degree of risk or other unfavorable factors, and (iv) 
were not otherwise subject to the specific disclosure requirements 
of SEC Regulation S-K, Item 404, or
    (9) payments from a financial institution in connection with the 
deposit of funds or the financial institution acting in an agency 
capacity, provided such payments were (i) made in the ordinary 
course of business, (ii) made on substantially the same terms as 
those prevailing at the time for comparable transactions with the 
general public, and (iii) not otherwise subject to the disclosure 
requirements of SEC Regulation S-K, Item 404.*
    (c)-(g) No change.

B. No change.

Commentary

    .01-.05 No change.
    .06 In order to affirmatively determine that an independent 
director does not have a material relationship with the listed 
company that would interfere with the exercise of independent 
judgment, as specified in paragraph A, the board of directors of 
each listed company must obtain from each such director full 
disclosure of all relationships which could be material in this 
regard, including but not limited to any payments specified in 
paragraphs A(b)(8) and (9).
* * * * *

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 Amex 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. The Amex 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 Company Guide requires that the board of directors of most 
listed companies be comprised of a majority of independent directors. 
Section 121 of the Company Guide generally defines an independent 
director as ``a person other than an officer or employee of the company 
or any parent or subsidiary'' and requires that the board of directors 
of each listed company affirmatively determine that an independent 
director has no material relationship with the company that would 
interfere with the exercise of independent judgment. In addition, 
Section 121 specifies certain relationships that will preclude a 
finding of independence, including a director who accepts (or whose 
immediate family member \6\ accepts) any payment from the company (or 
any parent or subsidiary of the company \7\) in excess of $60,000 
during the current or any of the past three fiscal years.\8\ 
Compensation for board service, payments arising solely from 
investments in the company's securities, compensation paid to an 
immediate family member who is a non-executive officer employee of the 
company (or any parent or subsidiary of the company \9\), compensation 
received for former service as an interim Chairman or Chief Executive 
Officer, benefits under a tax-qualified retirement plan, non-
discretionary compensation, or loans permitted under Section 13(k) of 
the Securities Exchange Act are not included in the $60,000.\10\
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    \6\ An ``immediate family member'' includes the director's 
spouse, parents, children, siblings, mother-in-law, father-in-law, 
brother-in-law, sister-in-law, son-in-law, daughter-in-law or anyone 
who resides in the director's home (other than domestic employees). 
See Commentary .01 to Section 121 of the Amex Company Guide.
    \7\ Amex states that the reference to a ``parent or subsidiary'' 
is intended to cover entities the issuer controls and consolidates 
with the issuer's financial statements as filed with the Commission 
(but not if the issuer reflects such entity solely as an investment 
in its financial statements). See Commentary .02 to Section 121 of 
the Amex Company Guide.
    \8\ Amex states that the three year look-back period commences 
on the date the relationship ceases. For example, a director 
employed by the company is not independent until three years after 
such employment terminates.
    \9\ See note 6.
    \10\ See Section 121A(b) of the Amex Company Guide.
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    The Amex believes that certain standard, non-preferential 
transactions by financial institutions that technically involve 
``payments'' by the financial institution to a director (or an 
immediate family member of the director) as a customer of the financial 
institution do not impair a director's ability to exercise independent 
judgment absent preferential terms, and accordingly should not preclude 
a finding of independence. Consequently, the Amex is proposing to amend 
Section 121 of the Company Guide to specify that payments received by a 
director of a listed issuer from the issuer in connection with a 
banking or brokerage transaction entered into in the ordinary course of 
business on non-preferential terms will not be included in the types of 
payments that (if the applicable threshold is reached) would preclude 
the director's independence. Such payments would include, for example, 
principal and interest payments on deposits, receipt of a loan check, 
and agency payments in connection with securities transactions.
    The Exchange believes that exclusion of payments arising out of 
such transactions is consistent with the general intent of the Amex 
independence requirements, which are designed to prohibit relationships 
that would interfere with the exercise of independent judgment by an 
independent director. The fact that a director maintains a savings 
account or takes out a loan from a bank issuer, where the account is 
maintained or the loan was made in the ordinary course of business and 
on non-preferential terms (i.e., on the same terms available to other 
persons), should not impair the director's independence because the 
director would have been able to obtain the loan or set up the account 
on those terms regardless of his or her relationship with the company.
    In addition, the Amex is proposing to adopt new Commentary .06 to 
Section 121 of the Company Guide to clarify that, in order to determine 
that an independent director does not have a material relationship with 
the listed company that would interfere with the exercise of 
independent judgment, as required by Section 121A of the Company Guide, 
the board of directors of each listed company must obtain from each 
such director full disclosure of all relationships which could be 
material in this regard, and that such disclosure must include, but is 
not limited to, any payments in connection with banking or brokerage 
transactions entered into in the ordinary course of business on non-
preferential terms.
2. Statutory Basis
    The Exchange believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act \11\ in general and furthers 
the objectives of Section 6(b)(5) of the Act,\12\ in particular, in 
that it is designed to perfect the mechanisms of a free and open market 
and the national market system, protect investors and the public 
interest, and promote just and equitable principles of trade.
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    \11\ 15 U.S.C. 78f(b).
    \12\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Amex does not believe that the proposed rule change, as 
amended, will

[[Page 53749]]

impose 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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The proposed rule change has been designated by the Amex as a 
``non-controversial'' rule change pursuant to Section 19(b)(3)(A) of 
the Act \13\ and subparagraph (f)(6) of Rule 19b-4 thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6).
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    The foregoing proposed rule change, as amended: (1) Does not 
significantly affect the protection of investors or the public 
interest, (2) does not impose any significant burden on competition, 
and (3) by its terms does not become operative for 30 days after the 
date of this filing, or such shorter time as the Commission may 
designate, if consistent with the protection of investors and the 
public interest. Furthermore, the Amex gave the Commission written 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least five 
business days prior to the date of filing of the proposed rule change. 
Consequently, the proposed rule change, as amended, has become 
effective pursuant to Section 19(b)(3)(A) of the Act \15\ and Rule 19b-
4(f)(6) thereunder.\16\
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    \15\ 15 U.S.C. 78s(b)(3)(A).
    \16\ 17 CFR 240.19b-4(f)(6).
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    Pursuant to Rule 19b-4(f)(6)(iii),\17\ a proposed ``non-
controversial'' rule change does not become operative for 30 days after 
the date of filing, or such shorter time as the Commission may 
designate if consistent with the protection of investors and the public 
interest. The Amex has requested that the Commission waive the 30-day 
operative delay to permit the Exchange to implement the proposal 
immediately. The Amex submits that immediate effectiveness is 
appropriate in that a substantially similar rule change was recently 
adopted by the Nasdaq Stock Market and became effective upon 
filing,\18\ and the proposed rule change raises no new regulatory 
issues and is concerned solely with a matter that is not likely to 
engender adverse comments or require the degree of review attendant 
with more controversial filings.
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    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ See Securities Exchange Act Release No. 49903 (June 22, 
2004), 69 FR 38941 (June 29, 2004).
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    The Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission believes that the proposed rule change regarding 
ordinary-course, non-preferential payments is a reasonable 
clarification of the rules regarding director independence and that 
acceleration of the operative date should ease implementation of the 
new rule and help assure consistent application of corporate governance 
standards among listing markets. The Commission further believes that 
the additional proposed commentary to Amex's Independent Director rule, 
requiring boards of directors to obtain full disclosure from 
independent directors of all relationships with the company that could 
be material, including the types of payments described above, clarifies 
the obligation of boards in meeting their responsibilities and thereby 
enhances the rule's protections. For these reasons, the Commission 
designates the proposed rule change, as amended, to be operative 
immediately.\19\
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    \19\ For the purposes only of waiving the operative date of this 
proposal, the Commission has considered the proposed rule's impact 
on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    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.\20\
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    \20\ For purposes of calculating the 60-day abrogation period, 
the Commission considers the period to commence on August 23, 2004, 
the date that the Amex filed Amendment No. 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, as amended, 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 No. SR-Amex-2004-60 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 No. SR-
Amex-2004-60. 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 Amex. 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 No. SR-Amex-2004-60 and should be submitted on or before September 
23, 2004.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
 [FR Doc. E4-2015 Filed 9-1-04; 8:45 am]
BILLING CODE 8010-01-P