[Federal Register Volume 70, Number 59 (Tuesday, March 29, 2005)]
[Notices]
[Pages 15968-15969]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-1384]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51419; File No. SR-Phlx-2005-11]


Self-Regulatory Organizations; Order Approving Proposed Rule 
Change by the Philadelphia Stock Exchange, Inc. and Notice of Filing 
and Order Granting Accelerated Approval to Amendment No. 1 Relating to 
an Amendment to Its By-Laws To Replace an On-Floor Equity Governor 
Position With an On-Floor Philadelphia Board of Trade Governor Position

March 23, 2005.

I. Introduction

    On January 31, 2005, the Philadelphia Stock Exchange, Inc. 
(``Phlx'' or the ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``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 By-laws to replace 
an On-Floor Equity Governor position on the Exchange's Board of 
Governors with an On-Floor Philadelphia Board of Trade, Inc. (``PBOT'') 
Governor position. On March 17, 2005, the Exchange filed Amendment No. 
1 to the proposed rule change.\3\ The proposed rule change was 
published in the Federal Register on February 9, 2005.\4\ No comment 
letters were received on the proposal. This order approves the proposed 
rule change, as amended, and grants accelerated approval to Amendment 
No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange revised the statutory basis 
section of the proposed rule change.
    \4\ See Securities Exchange Act Release No. 51127 (February 2, 
2005), 70 FR 6918.
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II. Description of the Proposal

    Under the proposal, Article IV, Section 4-1 of the Phlx's By-laws 
would be amended to change the composition of the Phlx's Board of 
Governors. Currently, two of the On-Floor Governors must be industry 
Governors who are members primarily engaged in business on the 
Exchange's Equity Floor or general partners, executive officers (vice 
president and above) or members associated with member organizations 
primarily engaged in business on the Exchange's Equity Floor. The 
Exchange proposes to replace one of these On-Floor Equity Governor 
positions with an On-Floor PBOT Governor position. Any On-Floor PBOT 
Governor must be a member of PBOT, which is a subsidiary of the 
Exchange.
    In addition, Article III, Sections 3-6 of the Phlx's By-laws would 
be amended to provide that recommendations for the PBOT Governor 
candidate would be submitted to the Exchange's Nominating and Elections 
Committee by the PBOT Board of Governors.
    The Exchange believes that the revised Board of Governors 
composition, with a PBOT representative Governor, more accurately 
represents the strategic ownership and on-going business interests of 
the Exchange, while still affording appropriate proportional 
representation of On-Floor Governors--with three On-Floor Equity 
Options Governors, one On-Floor Equity Governor and one On-Floor PBOT 
Governor.

[[Page 15969]]

III. Discussion and Commission Findings

    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 \5\ and, in particular, the requirements of section 
6 of the Act.\6\ Specifically, the Commission finds that the proposal 
to convert an On-Floor Equity Governor position into an On-Floor PBOT 
Governor position is consistent with section 6(b)(3) of the Act,\7\ 
which, among other things, requires that an exchange assure a fair 
representation of members in the selection of its directors and 
administration of its affairs.\8\
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    \5\ The Commission has considered the proposed rule change's 
impact on efficiency, competition, and capital formation. 15 U.S.C. 
78c(f).
    \6\ 15 U.S.C. 78f.
    \7\ 15 U.S.C. 78f(b)(3).
    \8\ To the extent that the proposed rule change runs counter to 
the Commission's recent governance and transparency proposals, 
Securities Exchange Act Release No. 50699 (November 18, 2004), 69 
CFR 71125 (December 8, 2004), the Phlx represents that upon adoption 
of final rulemaking the Phlx will conform its By-laws accordingly. 
Telephone conversation among Scott Donnini, Vice President, Phlx, 
Nancy Sanow, Assistant Director, Division of Market Regulation 
(``Division''), Commission, Gordon Fuller, Counsel to the Assistant 
Director, Division, Commission and Geraldine Idrizi, Attorney, 
Division, Commission, on January 26, 2005.
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    The Phlx's Board of Governors is currently composed of the Chairman 
of the Board of Governors and 21 other Governors. Five Governors (i.e., 
the On-Floor Governors) are required to be representatives of the 
Exchange's trading floor--three from the options trading floor and two 
from the equities trading floor. Although the proposal would convert 
one On-Floor Equity Governor position into an On-Floor PBOT Governor 
position, there still would be three On-Floor Equity Options Governors 
and one On-Floor Equity Governor on the Phlx's Board of Governors. In 
addition, the proposal would not alter the right of Phlx members, 
through their member organization representatives, to vote on the 
nominees for the On-Floor Governor positions, including the On-Floor 
PBOT Governor.\9\ Moreover, the proposal would not interfere with Phlx 
members' right to submit independent nominations for the On-Floor 
Governor positions, including the On-Floor PBOT Governor. Although 
recommendations for the PBOT Governor position would be submitted to 
the Phlx's Nominating and Elections Committee by the PBOT Board of 
Governors, Phlx members, through their member organization 
representatives, can independently nominate by written petition 
candidates for On-Floor Governor positions, which would include the 
PBOT Governor position.\10\ Therefore, in the Commission's view, the 
proposal is consistent with the Act's requirement that the Exchange 
assure the fair representation of its members in the selection of the 
Exchange's directors.
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    \9\ As a result of the Exchange's recent demutualization, Phlx 
members, through their member organization's designated 
representative, vote on the nominees for the On-Floor Governor 
positions and the nominees that are selected by members must be 
elected by the holder of Phlx's Series A preferred stock. See Phlx 
By-laws, Article III, Section 3-2.
    \10\ See Phlx By-laws, Article III, Section 3-7.
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    The Commission finds good cause for approving Amendment No. 1 to 
the proposed rule change prior to the thirtieth day after the date of 
the publication of notice thereof in the Federal Register. The 
Commission notes that the amendment simply corrected a reference to a 
section of the Act that was contained in the original filing. The 
Commission therefore believes that it is appropriate to accelerate 
approval of the amendment so that the proposed rule change may be 
implemented on a timely basis.

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-Phlx-2005-11 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-Phlx-2005-11. 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, as 
amended, that are filed with the Commission, and all written 
communications relating to the proposed rule change, as amended, 
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 Room. Copies of such filing also will be available for 
inspection and copying at the principal office of the Phlx. 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-Phlx-2005-11 and should be 
submitted on or before April 19, 2005.

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, 
and, in particular, with section 6(b)(3) of the Act.\11\
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    \11\ 15 U.S.C. 78f(b)(3).
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    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\12\ that the proposed rule change (SR-Phlx-2005-11), as amended, 
is approved, and Amendment No. 1 is approved on an accelerated basis.
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    \12\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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J. Lynn Taylor,
Assistant Secretary.
[FR Doc. E5-1384 Filed 3-28-05; 8:45 am]
BILLING CODE 8010-01-P