[Federal Register Volume 69, Number 217 (Wednesday, November 10, 2004)]
[Notices]
[Pages 65235-65236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3126]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50628; File No. SR-CHX-2004-35]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change and Amendment No. 1 Thereto by 
the Chicago Stock Exchange, Inc. Relating To Transfer of CHX 
Memberships

November 3, 2004.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on October 26, 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. On 
October 28, 2004, the Exchange filed Amendment No. 1 to the proposed 
rule change.\3\ The CHX filed the proposed rule change, as amended, 
pursuant to Section 19(b)(3)(A)(i) of the Act,\4\ and Rule 19b-4(f)(1) 
thereunder,\5\ 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, as amended, effective upon filing with the Commission. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change, as amended, 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 Kathleen M. Boege, Associate General 
Counsel, CHX, to Nancy J. Sanow, Assistant Director, Commission, 
dated October 27, 2004 (``Amendment No. 1''). In Amendment No. 1, 
CHX revised the text of the proposed rule to indicate that the rule 
is effective as of October 26, 2004.
    \4\ 15 U.S.C. 78s(b)(3)(A)(i).
    \5\ 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 proposed rule change, which would add Interpretation and Policy 
.04 to CHX Article I, Rule 10, ``Transfers of Memberships,'' would 
effectively prohibit the transfer of CHX memberships to certain newly 
approved lessors. The text of the proposed rule change appears below. 
Proposed new language is italicized.
* * * * *
ARTICLE I
Membership
Transfers of Memberships
    Rule 10. No change.
    Interpretations and Policies:
    .01-.03 No change.
    .04 No approval of new approved lessors. Effective October 26, 
2004, the Exchange will not approve the transfer of a membership to a 
person or firm who seeks to become an approved lessor, but who is not 
already the owner of a CHX membership, unless that person or firm 
qualifies as an accredited investor. This policy will end if and when 
the Exchange determines that it will not seek approval of the 
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.\6\ The proposed transaction involves the private offering 
of securities using the safe harbor provided by Rule 506 of Regulation 
D under the Securities Act of 1933.\7\ Under Rule 506, an offering of 
securities is not a public offering if there are no more than, or if 
the issuer reasonably believes that there are no more than, 35 
``purchasers'' of

[[Page 65236]]

securities.\8\ The calculation of the number of purchasers under Rule 
506 excludes any person who qualifies as an ``accredited investor. 
''\9\ The Exchange has received confirmation from members sufficient to 
allow the Exchange to believe that it will not be offering securities 
to more than the appropriate number of persons who are not accredited 
investors and therefore believes that its proposed transaction will 
qualify as a private offering under Rule 506. A CHX member vote on the 
demutualization plan is currently scheduled for mid-November of 2004.
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    \6\ As with other similar demutualization transactions 
previously approved by the Commission, the Exchange's proposed 
demutualization transaction contemplates a change in the Exchange's 
organizational structure. In this proposed demutualization 
transaction, the CHX will change from a not-for-profit, non-stock 
corporation owned by its members to 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. The members 
of CHX at the time of the proposed 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.
    \7\ 17 CFR 230.506.
    \8\ Id.
    \9\ 17 CFR 230.501(e).
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    Under the Exchange's existing rules, a person or firm can purchase 
a membership on the Exchange for the sole purpose of providing a 
financing mechanism for another person or entity that desires to become 
an Exchange member.\10\ These persons, called ``approved lessors,'' are 
not considered to be members of the Exchange for purposes of the 
Exchange's rules or under the federal securities laws.
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    \10\ See CHX Article IA, Rule 1(a).
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    To ensure that the Exchange's offering of securities can continue 
to qualify as a private, not a public, offering, the Exchange is 
proposing to prohibit any new approved lessor from purchasing a CHX 
membership unless that person or firm qualifies as an accredited 
investor. The Exchange believes that this proposal is appropriate 
because it permits the Exchange's proposed demutualization transaction 
to continue as a private offering under Rule 506, as approved by the 
Exchange's Board. Moreover, because the Exchange's proposed 
demutualization transaction includes rule changes that would end the 
approved lessor program completely by barring its members from 
transferring the right to trade on the Exchange, the Exchange believes 
that there is no real business reason for a person who is not currently 
an approved lessor to become an approved lessor for only a few weeks. 
Thus, the Exchange represents that the proposed limitation will impose 
at most a negligible restriction while preserving the ability of the 
Exchange to effectuate the demutualization quickly through a Regulation 
D private offering.
    This prohibition would remain in effect until the effective date of 
the demutualization transaction (if it is approved by the Exchange's 
members and by the Commission). If, for some reason, the Exchange's 
members reject the demutualization proposal, the prohibition would 
terminate immediately.
2. Statutory Basis
    The CHX believes the proposal 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) of the Act.\11\ In particular, the CHX 
believes the proposal is consistent with Section 6(b)(5) of the Act 
\12\ 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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    \11\ 15 U.S.C. 78(f)(b).
    \12\ 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, as amended, constitutes 
a stated policy, practice or interpretation with respect to the 
meaning, administration, or enforcement of an existing rule, it has 
become effective pursuant to Section 19(b)(3)(A) of the Act \13\ and 
Rule 19b-4(f)(1) thereunder.\14\ At any time within 60 days of the 
filing of the proposed rule change, amended, 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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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 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, 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 Number SR-CHX-2004-35 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-CHX-2004-35. 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 offices 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-
2004-35 and should be submitted on or before December 1, 2004.
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    \15\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\15\
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E4-3126 Filed 11-9-04; 8:45 am]
BILLING CODE 8010-01-P