[Federal Register Volume 69, Number 237 (Friday, December 10, 2004)]
[Notices]
[Pages 71857-71860]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E4-3598]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-50796; File No. SR-NSX-2004-12]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Stock Exchange To Eliminate the ``CBOE Exerciser 
Member'' Membership Class, To Eliminate the Exchange's Special 
Nominating Committee, and To Remove Certain Special Limitations on 
Changes to Certain By-Laws and Rules

December 6, 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 October 21, 2004, National Stock Exchange (``NSX'' 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 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

    NSX is proposing to amend its By-Laws and Rules in order to 
eliminate the right of the Chicago Board Options Exchange, Incorporated 
(``CBOE'') members to become NSX members without purchasing membership 
certificates, to eliminate NSX's Special Nominating Committee, and to 
remove certain special limitations on changes to certain By-Laws and 
Rules. The text of the proposed rule change is below. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *
CODE OF REGULATIONS (BY-LAWS) OF NATIONAL STOCK EXCHANGE
ARTICLE I. Definitions
    Section 1. When used in this Code of Regulations (By-Laws), unless 
the context otherwise requires--
* * * * *
    (k) The term ``Proprietary Member'' means a person who was a 
``Regular Member'' prior to the effective date of these By-Laws or a 
person who, pursuant to the provisions of Article II of these By-Laws, 
has applied for, and been admitted to, membership as a proprietary 
member subsequent to the effective date of these By-Laws. [References 
contained in these By-Laws to Proprietary Members shall be deemed to 
refer to both Proprietary Members with certificates and Proprietary 
Members without certificates unless expressly provided otherwise.]
* * * * *
    [(m) The term ``Protected Provisions'' shall mean the provisions 
contained in Articles I, II, V, VI, VII, VIII, IX, X, XII, and XIII of 
these By-Laws and Rules 11.9 and 11.10 of the Exchange Rules as in 
effect on the effective date of this provision of these By-Laws.]
    ([n]m) No change.
    ([o]n) No change.
* * * * *
ARTICLE II. Exchange Membership
Section 1. Classes of Exchange Members
    The membership of the Exchange shall be comprised of [three]two 
classes of members:
    (i) Proprietary Members[ with certificates].
    (ii) [Proprietary Members without certificates.
    (iii)] Access Participant Members (``Access Participants'').
* * * * *
Section 5. Restrictions on Admittance to or Continuance in Membership 
and Association
* * * * *
5.2. Certain Restrictions Applicable to Proprietary Members Only
    (a) No applicant for proprietary membership[, except an applicant 
who is a CBOE member,] who fails to purchase and own a certificate of 
proprietary membership after the Exchange has approved such person's 
application shall become a Proprietary Member of the Exchange. A CBOE 
member [shall be eligible to become]who became a Proprietary Member 
without certificate prior to the effective date of this provision of 
these By-Laws (``CBOE Exerciser Member'') shall have ninety days from 
such effective date to purchase a certificate of proprietary 
membership[of the Exchange without having to purchase and own a 
certificate of proprietary membership, provided such CBOE member meets 
all other requirements for eligibility set forth in these By-Laws]. 
During such ninety day period, a CBOE Exerciser Member who has not yet 
purchased a certificate of proprietary membership shall have the rights 
and obligations of a Proprietary Member without certificate as such 
rights and obligations were in effect prior to the effective date of 
this provision of these By-Laws. At the conclusion of the ninety

[[Page 71858]]

day period, any CBOE Exerciser Member who does not then own a 
certificate of proprietary membership shall cease to be a Proprietary 
Member of the Exchange, and may not again become a Proprietary Member 
of the Exchange without first complying with all of the procedures and 
requirements for proprietary membership set forth in these By-Laws and 
the Exchange Rules.
* * * * *
Section 9. Transfer, Cancellation or Sale of Membership
9.1. Transfer and Cancellation
    Access Participants [and Proprietary Members without certificates 
]may not transfer or sell or encumber their memberships or any interest 
therein. [The Exchange membership of a Proprietary member without a 
certificate automatically shall be cancelled when he ceases to be a 
CBOE member.]
9.2. Proprietary Membership Lien
    Every certificate of proprietary membership shall be subject to a 
lien, prior to any others, to secure, first, payment in full of all 
indebtedness of the member to the Exchange, and second, payment in full 
of all indebtedness of the member to any member of the Exchange to the 
extent allowed by the Board. [As a substitute for such a lien, 
Proprietary Members without certificates shall meet such requirements 
as the Board may establish.]
* * * * *
ARTICLE V. Exchange Organization and Administration
Section 1. Board of Directors
1.1. General
    The management and administration of the affairs of the Exchange 
shall be vested in a Board of Directors, which shall be composed of 
thirteen voting Directors as follows: (a) The Exchange President; (b) 
two Proprietary Members[ with certificates], or executive officers of 
Proprietary Member organizations[ with certificates], who are 
Designated Dealers in the National Securities Trading System 
(``Designated Dealer Directors''); (c) one Proprietary Member[ with 
certificate] or an executive officer of a Proprietary Member 
organization[ with certificate], who conducts a nonmember public 
customer business on the Exchange (``At-Large Director''); (d) the 
Chairman of CBOE (``CBOE Director''); (e) the President of CBOE (``CBOE 
Director''); (f) four CBOE members or executive officers of CBOE member 
organizations (``CBOE Directors''); and (g) three representatives of 
issuers and investors who shall not be associated with any member of 
the Exchange or with any registered broker or dealer or with another 
self-regulatory organization, other than as a public trustee or 
director (``Public Directors''). Excepting affiliations with national 
securities exchanges, no two or more Directors may be partners, 
officers of directors of the same person or be affiliated with the same 
person.
* * * * *
2.2. Candidate Selection
    (a) The three candidates for election to the Board either as 
Designated Dealer Directors or as At-Large Director shall be selected 
by the Nominating Committee. The Committee shall select at least one 
candidate for the position to be voted upon. An additional candidate or 
candidates may be nominated by a petition signed by ten percent or more 
of the Proprietary Members[ with certificates] and delivered to the 
Secretary of the Exchange, provided that such candidate or candidates 
conforms to the requirements for the open position(s). There shall be 
an annual election on the second Monday of January of each year (if 
such day is a legal holiday, then on the next business day), at which 
only Proprietary Members[ with certificates] can vote.
* * * * *
    (c) The three Public Directors shall be selected by means of the 
following process. The Exchange's Chairman shall submit a name or names 
of a candidate(s) to [a Special]the Nominating Committee[ composed of 
the two Designated Dealer Directors, the At-Large Director and three of 
the six CBOE Directors]. The [Special ]Nominating Committee shall 
approve the candidate(s) to be submitted to the Board for approval or 
disapproval at the first Board meeting following the annual membership 
meeting.
* * * * *
ARTICLE VI. Committees
Section 1. Establishment of Committees
1.1. Committees
    There shall be a Membership Committee, a Business Conduct 
Committee, a Securities Committee, an Appeals Committee, a Nominating 
Committee, [a Special Nominating Committee ]and such other committees 
as may be established from time to time by the Board. Committees shall 
have such authority as is vested in them by the By-Laws or Rules or as 
is delegated to them by the Board. All Committees [except the Special 
Nominating Committee] are subject to the control and supervision of the 
Board.
[ARTICLE XII. Special Limitations on Changes to Certain By-Laws and 
Rules
    (a) For two years following the effective date of this provision of 
these By-Laws, no change may become effective to the Protected 
Provisions without the unanimous consent of the two Designated Dealer 
Directors and the one At-Large Director, provided, however, that in the 
event the SEC approves side-by-side trading of listed securities and 
options on listed securities, the Board may adopt changes in Rule 11.9 
that are reasonably required to participate effectively in such trading 
without the consent of the two Designated Dealer Directors and the one 
At-Large Director.
    (b) After two years but before ten years following the effective 
date of this provision of these By-Laws, no change may be made to 
Section 1 of Article V or to Article XII without the affirmative vote 
of two-thirds of the total number of both the Proprietary Members with 
certificates and the Proprietary Members without certificates, voting 
separately as classes.
    (c) After ten years from the effective date of this provision of 
these By-Laws, no change may be made to Section 1 of Article V or to 
Article XII without the affirmative vote of two-thirds of all 
Proprietary Members; such a change(s) may be voted on without the Board 
approval required under Article IX.]
ARTICLE XII[I]. Off-Exchange Transactions
* * * * *
RULES OF NATIONAL STOCK EXCHANGE
* * * * *
CHAPTER XI
Trading Rules
* * * * *
Rule 11.10 National Securities Trading System Fees
    A. No change.
    B. Membership Fees.

 
                              Item                                 Fee
 
Yearly Membership Dues (Quarterly Charge $625).................   $2,500
New Member Application Fee.....................................   $1,000
Transfers......................................................     $350
  Responsible Party Change
  Firm Registration/Name Change
[CBOE Exercise Application.....................................    $350]
 

    C. No change.
* * * * *

[[Page 71859]]

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 Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it had received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
item IV below. The Exchange 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 November 14, 1986, the Cincinnati Stock Exchange (``CSE''), now 
known as NSX, and CBOE entered into an agreement of affiliation 
pursuant to which CBOE currently holds 162 certificates of proprietary 
membership of NSX, and CBOE and its members have certain rights 
associated with NSX.\3\ Among those rights, the Exchange By-Laws had 
been amended to provide that CBOE members are eligible to become 
Proprietary Members of NSX without having to purchase and own a 
certificate of proprietary membership, provided that each such CBOE 
member meets all other eligibility requirements for NSX membership. 
This class of NSX membership is known in NSX's By-Laws as ``Proprietary 
Members without certificates'' and these NSX members are commonly 
referred to as ``CBOE Exerciser Members.''
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    \3\ See Securities Exchange Act Release No. 24090 (February 12, 
1987), 52 FR 5225 (February 19, 1987) (SR-CSE-86-6) (order approving 
proposed rule change by CSE relating to an affiliation with CBOE).
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    NSX and CBOE have recently taken steps to terminate or amend 
certain aspects of their affiliation and, in connection therewith, CBOE 
has agreed to transfer certain of its certificates to NSX and to 
relinquish certain rights associated with NSX, in exchange for certain 
cash payments and other undertakings by NSX, subject to the terms and 
conditions set forth in a termination of rights agreement that NSX and 
CBOE entered on September 27, 2004. One of the conditions to the 
initial closing of the termination of rights agreement calls for 
amendments to the NSX By-Laws to eliminate the right of CBOE members to 
become NSX members without purchasing membership certificates, and thus 
the elimination of the CBOE Exerciser Member membership class.
    In eliminating this class of membership and related references to 
Proprietary Members without certificates, the Exchange is proposing a 
transition period whereby any CBOE Exerciser Members existing on the 
effective date of the approval of this proposed rule change (the 
``Effective Date'') will have ninety days from the Effective Date to 
purchase a certificate of proprietary membership. During the ninety day 
period, a CBOE Exerciser Member who has not purchased a certificate 
shall have the rights and obligations of a Proprietary Member without 
certificate as those rights and obligations existed prior to the 
Effective Date. At the conclusion of the ninety day period, any CBOE 
Exerciser Member who does not own a NSX certificate shall automatically 
cease to qualify for membership on the Exchange and may not again 
become a member of the Exchange without first complying with all the 
procedures and requirements set forth in the NSX By-Laws and Rules. 
Related to the elimination of the CBOE Exerciser Members, NSX is 
proposing to eliminate the ``CBOE Exercise Application'' fee contained 
in Rule 11.10(B).
    In addition and also in connection with the termination of rights 
agreement, NSX is proposing to eliminate provisions in Article XII of 
the Exchange By-Laws pertaining to special voting limitations on 
changes to certain By-Laws and Rules. NSX is also proposing to amend 
its By-Laws to eliminate the NSX's Special Nominating Committee, which 
is composed of two Designated Dealer Directors, the At-Large Director 
and three of the six CBOE Directors and which has the responsibility to 
approve candidates for Public Director positions to be submitted to the 
Board for approval, and to re-assign that responsibility to the NSX's 
Nominating Committee, which selects candidates for Designated Dealer 
and At-Large Director positions to be submitted to the membership for 
approval. These special voting limitations and Special Nominating 
Committee provisions had been incorporated into the Exchange By-Laws as 
part of the initial affiliation agreement with CBOE and are no longer 
necessary. The initial closing of the termination of rights agreement 
is also conditioned on the adoption of these By-Law amendments.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
section 6(b) of the Act \4\ in general, and furthers the objectives of 
section 6(b)(5) \5\ in particular, in that it is designed 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, generally, to protect investors and the public interest. 
In addition, the Exchange believes that the proposed rule change 
furthers the objectives of section 6(b)(1),\6\ in that it helps to 
assure that the Exchange is so organized and has the capacity to be 
able to carry out the purposes of the Act and to comply, and to enforce 
compliance by its members, with the Act.
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    \4\ 15 U.S.C. 78f(b).
    \5\ 15 U.S.C. 78f(b)(5).
    \6\ 15 U.S.C. 78f(b)(1).
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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 
impose any inappropriate burden on competition.

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 NSX 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. 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

[[Page 71860]]

Number SR-NSX-2004-12 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-NSX-2004-12. 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 NSX. 
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 publicly 
available. All submissions should refer to File Number SR-NSX-2004-12 
and should be submitted on or before December 27, 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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Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E4-3598 Filed 12-9-04; 8:45 am]
BILLING CODE 8010-01-P