[Federal Register Volume 70, Number 123 (Tuesday, June 28, 2005)]
[Notices]
[Pages 37139-37142]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-3349]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-51900; File No. SR-Amex-2005-003]


Self-Regulatory Organizations; American Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change, and Amendment No. 1 Thereto, 
To Expand the Types of Trusts Permitted to Directly Own Amex 
Memberships

 June 22, 2005.
    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 January 7, 2005, the American Stock Exchange LLC (``Amex'' 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 Amex. On June 7, 2005, 
the Exchange filed Amendment No. 1 to the proposed rule change.\3\ 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\ In Amendment No. 1, the Exchange revised the proposed rule 
text to clarify that an Exchange member owner who does not conduct 
broker-dealer activities on the floor of the Exchange is not 
required to be registered with the Commission as a broker-dealer. 
Member owners can be individuals, partnerships, corporations, 
custodial accounts or grantor trusts. Amendment No. 1 replaced and 
superseded the original filing in its entirety.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Amex Rule 356 to expand the types of 
trusts permitted to directly own Amex memberships.
    Below is the amended text of the proposed rule change. Proposed new 
language is in italics; proposed deletions are in [brackets].
* * * * *

D. Office Rules

Section 4. Employees and Admission of Members and Member Organizations

Rule 356. Member Organizations

Requirements

    For information regarding admission of an organization as a member 
organization, refer to Article IV, Section 2 of the Exchange 
Constitution and Exchange Rules 300-312 and contact Membership Services 
where a checklist of applicable requirements is available.

Partnership

    A firm applying to become a member organization must submit 
executed copies of the partnership agreement and all amendments 
thereto; if applicable, an executed copy of the certificate of limited 
partnership, as certified by the County Clerk or a copy of the 
certificate of authority for limited partnerships organized outside New 
York State; and all documents and information otherwise required by the 
Exchange. See Exchange Rules 300 and 302 for provisions to be included 
in the partnership agreement.
    All general partners of such firm must become members or allied 
members of the Exchange. Any limited partners of such firm who control 
the firm must become approved persons of the Exchange.

Corporation

    A corporation seeking to become a member organization must submit 
an executed copy of the charter or certificate of incorporation and all 
amendments thereto, certified by the Secretary of State; an executed 
copy of the by-laws and all amendments thereto certified by the 
Secretary of the corporation or other executive officer; forms of stock 
certificates; certified list of officers, directors and stockholders 
pursuant to Exchange Rule 310; and all documents and information 
otherwise required by the Exchange. See Exchange Rule 312 for 
provisions to be included in the certificate of incorporation and 
legend on the stock certificates.
    In addition, the Board of Directors of such corporation must 
designate its ``principal executive officers'' who shall be members or 
allied members and shall exercise senior principal executive 
responsibility over the various areas of the business of such 
corporation in such areas as the rules of the Exchange may prescribe, 
including: operations, compliance with rules and regulations of 
regulatory bodies, finance and credit sales, underwriting, research and 
administration. Any shareholder of such corporation who controls the 
corporation must become an approved person of the Exchange.

Trusts

Custodial Accounts

    A pension plan seeking to become a member organization must 
establish that its sponsor is either an active member, or where the 
sponsor is a member organization, that at least fifty percent of the 
pension plan's participants are active members or the Floor employees 
of the sponsor. The pension plan must designate its trustee to 
represent it with respect to its membership, must ensure that its 
trustee is an allied member or approved person, as the case may be, and 
must ensure that every party required by the Exchange to be an approved 
person of the pension plan has qualified as such.
    A pension plan seeking to become a member organization must agree 
that:
    (i) the pension plan and related trust take the membership subject 
to the Constitution and Rules of the Exchange; (ii) the interests in 
the membership that inure to the participants of the pension plan and 
their beneficiaries shall be subject to the Constitution and Rules of 
the Exchange, and subject to any agreements made by the trustee in 
connection with the membership, including, without limitation, any 
agreements made in connection with qualification of a member 
organization with respect to the membership or any special transfer 
agreement made in connection with a lease of the membership; (iii) the 
membership cannot be encumbered and the trustee cannot pledge the 
membership, nor create or permit to be created thereon any lien, charge 
or other encumbrance; (iv) all controversies arising in connection with 
the membership, including controversies with the lessee or nominee 
thereof, shall be subject to arbitration pursuant to the Constitution 
and Rules of the Exchange; (v) the trustee shall have all necessary 
powers to act in connection with the membership; (vi) the Exchange 
shall have no liability to the participants in the pension plan and 
their beneficiaries in the event the purchase, operation or disposition 
of the Exchange membership results in loss to the pension plan and 
related trust (The plan sponsor and trustee each shall indemnify and 
hold the Exchange harmless from all claims, losses, expenses (including 
all attorney's fees) and taxes arising out of the purchase, operation 
and disposition of the Exchange membership); (vii) the plan sponsor and 
trustee have been advised by their legal counsel as to the

[[Page 37140]]

requirements of the Employee Retirement Income Security Act of 1974, as 
amended (``ERISA'') and the Internal Revenue Code of 1986, as amended 
(the ``Code'') with respect to the trust's purchase, operation and 
disposition of an Exchange membership and any income earned by the 
trust from the membership; (viii) the plan sponsor is either: (a) an 
active member of the Exchange, or (b) if the plan sponsor is a member 
organization, at least fifty percent of the pension plan's participants 
are active members of the Exchange or Floor employees of the plan 
sponsor; (ix) the plan sponsor has designated the plan trustee to 
represent the trust in all dealings with the Exchange with respect to 
the membership; (x) the trustee and every party required by the 
Exchange to become an allied member or approved person of the Exchange 
will qualify as such; (xi) the decision to invest assets of the trust 
in an Exchange membership was made by fiduciaries of the pension plan 
independent of the Exchange and its officers and employees and such 
fiduciaries have not relied on any advice or recommendation of the 
Exchange or any of its officers and employees, and with regard to 
ERISA, tax and other legal considerations related to the membership, 
the plan sponsor and the trustee have relied exclusively on the advice 
of their own professional advisors; (xii) the trust has the financial 
ability to bear the economic risk of an investment in an Exchange 
membership, has adequate means for providing for current benefit needs 
and has no need for liquidity with respect to the sale or other 
transfer of the membership; (xiii) the plan sponsor and the trustee are 
aware that an investment in an Exchange membership involves substantial 
risks and they have determined that a membership is a suitable 
investment for the trust and that the trust could bear a loss that 
would exceed its investment in the membership; and (xiv) the trust 
associated with the pension plan is exempt from federal income taxes 
under either Section 501(a) or 408(e) of the Internal Revenue Code of 
1986, as amended.
    In addition, the trustee must submit to the Exchange a legal 
opinion in form and substance and from counsel satisfactory to the 
Exchange as to the following: (a) That the pension plan and related 
trust were validly created and have not been terminated; and that any 
amendments have been validly adopted; (b) that the trust is authorized 
to own an Exchange membership; (c) that the trustee has authority on 
behalf of the trust to enter into the agreement described in clauses 
(i) through (xiv) in the preceding paragraph, and that the 
representations and agreements by the trustee referred to in such 
agreement have been duly adopted and are binding on and enforceable 
against the sponsoring employer, the trust and the participants in the 
pension plan; (d) that the trustee is authorized to either (i) appoint 
a nominee to engage in business on the Exchange in the name of the 
trust and be responsible for all transactions and obligations of the 
nominee, or (ii) lease the membership to the party to whom the 
membership will be leased; and (e) that the pension plan is described 
in either Section 401(a) or 408 of the Internal Revenue Code and the 
trust is tax exempt under either Section 501(a) or Section 408(e).

Grantor Trusts

    (a) A trust may acquire one or more memberships, either by a 
transfer from an owner of a membership or a direct purchase.
    (b) Prior to a trust becoming a member organization, the grantor 
(as defined below) and/or the trustee or trustees (hereinafter the 
``trustee'') on behalf of the trust, as the case may be, must agree 
that:
    (i) The membership owner transferring a membership in trust or the 
grantor of the trust purchasing a membership (in either case, the 
``grantor''), must during the grantor's lifetime or existence be a 
beneficiary of the trust.
    (ii) The trustee, grantor and every party required by the Exchange 
to become an allied member or approved person of the Exchange will 
qualify as such.
    (iii) The trust takes the membership subject to the Constitution 
and Rules of the Exchange, and the grantor and trustee shall remain 
subject to the Constitution and Rules of the Exchange.
    (iv) The interests in the membership that inure to the grantor and 
the beneficiaries of the trust shall be subject to the Constitution and 
Rules of the Exchange, and subject to any agreements made by the 
trustee in connection with the membership, including, without 
limitation, any agreements made in connection with qualification of a 
member organization with respect to the membership or an special 
transfer agreement made in connection with a lease of the membership.
    (v) The Exchange shall have no liability to the trustees of the 
trust or the beneficiaries of the trust in the event the purchase, 
operation or disposition of the Exchange membership results in loss to 
the trust. The grantor, individually, and the trustees, on behalf of 
the trust, shall indemnify and hold harmless the Exchange for all 
claims, losses, expenses (including all attorney's fees) and taxes 
arising out of the purchase, operation and disposition of the 
membership.
    (vi) The grantor and trustee have been advised by legal counsel 
with respect to the trust's purchase, operation and disposition of an 
Exchange membership and any income earned or loss incurred by the trust 
from the membership.
    (vii) The decision to invest assets of the trust in an Exchange 
membership and/or to continue to hold an Exchange membership was made 
by the trustees of the trust independent of the Exchange and its 
officers and employees and such trustees have not relied on any advice 
or recommendation of the Exchange or any of its officers and employees. 
With respect to tax and other legal considerations related to the 
investment in the membership, the grantor and the trustees have relied 
exclusively on the advice of their own professional advisors.
    (viii) A membership held in trust may be transferred during the 
lifetime or existence of the grantor or at the grantor's death or 
ceasing to exist in accordance with the provisions of Article IV, 
Section 4 of the Constitution and the Rules of the Exchange. 
Additionally, an Authorization to Sell may be granted with respect to a 
membership held in trust, in which case the provisions of Article IV, 
Section 4 of the Constitution and the Rules of the Exchange shall be 
applicable.
    (ix) A membership held in trust may be transferred to the grantor, 
subject to the Constitution and Rules of the Exchange.
    (x) Distributions in accordance with paragraphs (viii) and (ix) of 
this Rule shall be subject to the Constitution and Rules of the 
Exchange, and subject to any agreements made by the trustees in 
connection with the membership, including, without limitation, any 
agreements made in connection with qualification of a member 
organization with respect to the membership or any special transfer 
agreement made in connection with a lease of the membership.
    (xi) The membership shall not be encumbered and the trustees shall 
not pledge the membership, nor create or permit to be created thereon 
any lien, charge or other encumbrance.
    (xii) All controversies arising in connection with the membership, 
including controversies with the lessee or nominee thereof, shall be 
subject to

[[Page 37141]]

arbitration pursuant to the Constitution and Rules of the Exchange.
    (xiii) The trustees shall have all necessary powers to act in 
connection with the membership.
    (xiv) The trust shall have (a) the financial ability to bear the 
economic risk of an investment in a membership, and (b) no need for 
liquidity with respect to the sale or other transfer of the membership.
    (xv) The grantor and the trustees are aware that an investment in a 
membership involves substantial risks, and they have determined that a 
membership is a suitable investment for the trust and that the trust 
could bear a loss that would exceed its investment in the membership.
    (c) The grantor must submit to the Exchange, in a form and manner 
prescribed by the Exchange, (i) an application to transfer the 
membership into trust or to authorize the trust to purchase the 
membership; (ii) a copy of the trust agreement; (iii) the agreement 
specified in paragraph (b) of this Rule; (iv) a legal opinion that 
meets the requirements of paragraph (d) of this Rule; and (v) such 
other documents or information as the Exchange may require.
    (d) The trustee must submit to the Exchange a legal opinion in form 
and substance and from counsel satisfactory to the Exchange as to the 
following: (a) that the trust was validly created and has not been 
terminated; (b) that the trust is authorized to own an Exchange 
membership; (c) that the trustees have authority on behalf of the trust 
to enter into the agreement described in paragraph (b) of this Rule; 
(d) that the representations and agreements made by the grantor and the 
trustees, referred to in such agreement and as required by this Rule, 
have been duly adopted and are binding and enforceable against the 
trust, trustees, grantor and beneficiaries of the trust; and (e) that 
the trustees are authorized either (1) to appoint a nominee to engage 
in business on the Exchange in the name of the trust and be responsible 
for all transactions and obligations of the nominee, or (2) to lease 
the membership to the party to whom the membership will be leased.
    (e) After the transfer of a membership in trust or the purchase of 
a membership by a trust, as the case may be, has been approved by the 
Exchange, the grantor and trustees must promptly submit to the Exchange 
any amendments to the trust agreement and must promptly notify the 
Exchange in writing of any changes in the information set forth in the 
application to transfer the membership in trust or to authorize the 
trust to purchase the membership, any changes in successor trustee, any 
release of the membership out of the trust, and any termination of the 
trust. In the event that the membership is released from the trust, the 
trust terminates, or the trust agreement is amended so that it no 
longer complies with the requirements of this Rule, the Exchange shall 
deem the membership to have reverted to the grantor to be held directly 
and not in trust.
    All prospective member organizations must also submit a financial 
statement required by the Exchange Examinations Divisions; an executed 
copy of the Uniform Application for Broker Dealer Registration and any 
amendments thereto as filed with the SEC, together with a copy of the 
order of approval, if applicable; an opinion of counsel that the 
organization is duly organized in the state of its incorporation and 
either (1) authorized to engage in the business of buying and selling 
securities as a broker and dealer in the state of New York, if 
applicable, or (2) authorized to buy and sell seats on the American 
Stock Exchange LLC and to lease them out; an opinion of counsel to the 
effect that every person required to become an approved person pursuant 
to Article IV, Section 2(j) and Rule 310(a) has applied for approval by 
the Exchange as such; and a copy of offering circulars or private 
placement memoranda prepared by the organization for the purpose of 
raising capital and an opinion of counsel as required by Rule 312(b), 
if applicable.
    The Exchange shall not approve an organization as a member 
organization unless every party required to be an allied member or 
approved person of the organization has qualified as such. See Article 
I, Section 3(c) and (g) for definitions of ``allied member'' and 
``approved persons.''
    Except for Custodial Accounts, Grantor Trusts and other member 
organizations which own Exchange seats but do not conduct broker-dealer 
activities on the floor of the Exchange, [T]he Exchange shall not 
approve an organization as a member organization unless such 
organization is registered with the SEC as a broker-dealer, and submits 
an executed agreement signed by an individual associated with the 
organization and authorized to act in this regard, that the 
organization is bound by and agrees to abide by the provisions of the 
Constitution of the Exchange as amended from time to time and by all 
rules and regulations, orders, directives and decisions adopted or made 
in accordance therewith.
    An organization shall cease to be a member organization and shall 
dispose of its membership if it becomes subject to any ``statutory 
disqualification'' as defined in Section 3(a)(39) of the Securities 
Exchange Act of 1934.

Admissions Procedure

    The steps followed in connection with an organization's application 
for regular or options principal membership are enumerated in the 
beginning of this chapter. There is a minimum posting period of 7 days 
for member organizations or approved person applicants. Notice of 
proposed admission shall be posted on the Bulletin Board in the 
Exchange upon the submission, in proper form, of all required 
documents.
* * * * *

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

    In its filing with the Commission, Amex included statements 
concerning the purpose of, and basis for, the proposed rule change, as 
amended, 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. 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
    Currently, the Exchange permits certain pension trusts (generally 
comprised of trusts or custodial accounts, i.e. Keoghs and IRAs) to 
directly own Exchange memberships for investment purposes and either 
lease the seat or designate a nominee to operate the seat. The pension 
trust sponsor must be an active member of the Exchange or, in the case 
of a member organization, at least fifty percent (50%) of the pension 
trust beneficiaries must be active members or their Floor employees.
    The Exchange is proposing to expand the types of trusts that are 
permitted to own Amex memberships to include grantor trusts. The 
Exchange believes that these trusts can be useful for estate planning 
purposes and can also provide certain tax benefits to the grantor. Such 
trusts would be able to acquire one or more memberships either by a 
transfer from an existing owner of a membership or by a direct 
purchase. The grantor of the trust (i.e., either the member

[[Page 37142]]

transferring a membership to a trust or the grantor of the trust 
purchasing a membership) would be required during the grantor's 
lifetime or existence (in the case of a non-natural person) to be a 
beneficiary of the trust. In the event that the trust terminates or is 
amended such that it no longer qualifies to own an Exchange membership, 
any memberships held by the trust will revert to the grantor.
    As is the case with pension trusts, the trustee and grantor will be 
required on behalf of the trust to execute an agreement with the 
Exchange acknowledging that the trust will own the membership subject 
to the Exchange Constitution and Rules, as well as certain other 
limitations and indemnifications, and will also be required to provide 
a legal opinion confirming that the trust was validly created, is 
authorized to own a membership and that the trustee is vested with all 
necessary authority to either appoint a nominee to operate the seat on 
behalf of the trust and/or lease the seat, as well as to enter into the 
requisite agreement. Additionally, the trustee and grantor will be 
required to become allied members or approved persons of the Exchange, 
as applicable.
    The Exchange believes that permitting broader trust ownership of 
memberships will enable seat owners to take advantage of certain estate 
planning and tax benefits, and will also potentially provide increased 
access to capital. The Chicago Board Options Exchange permits trust 
seat ownership.\4\
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    \4\ A reference in the proposed rule change that the 
Philadelphia Stock Exchange, Inc. permits trust seat ownership has 
not been included in this notice pursuant to a telephone 
conversation between Ivonne Natal, Associate General Counsel, Amex 
and Geraldine Idrizi, Attorney, Division of Market Regulation, 
Commission, on June 20, 2005.
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2. Statutory Basis
    Amex believes that the proposed rule change, as amended, is 
consistent with Section 6(b) of the Act,\5\ in general, and furthers 
the objectives of Section 6(b)(5) of the Act,\6\ in particular, in that 
it is designed to prevent fraudulent and manipulative acts and 
practices, promote just and equitable principles of trade, remove 
impediments to and perfect the mechanisms of a free and open market and 
a national market system, and, in general, protect investors and the 
public interest.
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    \5\ 15 U.S.C. 78f(b).
    \6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

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

    Amex neither solicited nor received written comments with respect 
to the proposed rule change, as amended.

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 the Exchange consents, the Commission will:
    (a) By order approve such proposed rule change, as amended; or
    (b) institute proceedings to determine whether the proposed rule 
change, as amended, 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 Number SR-Amex-2005-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Jonathan G. Katz, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-9303. All submissions should refer to File Number 
SR-Amex-2005-003. 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 Room. Copies of such filing also will be available for 
inspection and copying at the principal office of 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 Number SR-Amex-2005-003 and should be 
submitted on or before July 19, 2005.

    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. E5-3349 Filed 6-27-05; 8:45 am]
BILLING CODE 8010-01-P