67 FR 125 pgs. 43693-43694 - Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Pacific Exchange, Inc. To Limit the Number of Exchange Memberships That Any Person, Associated Person, or Group of Associated Persons May Own
Type: NOTICEVolume: 67Number: 125Pages: 43693 - 43694
Docket number: [Release No. 34-46098; File No. SR-PCX-2002-11]
FR document: [FR Doc. 02-16347 Filed 6-27-02; 8:45 am]
Agency: Securities and Exchange Commission
Official PDF Version: PDF Version
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-46098; File No. SR-PCX-2002-11]
Self-Regulatory Organizations; Order Approving Proposed Rule Change by the Pacific Exchange, Inc. To Limit the Number of Exchange Memberships That Any Person, Associated Person, or Group of Associated Persons May Own
June 20, 2002.
I. Introduction
On February 6, 2002, the Pacific Exchange, Inc. ("PCX" or "Exchange") submitted to the Securities and Exchange Commission ("Commission"), pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 ("Act")1and Rule 19b-4 thereunder,2a proposed rule change to limit the number of exchange memberships that any person, associated person, or group of associated persons may own. The proposed rule change was published for comment in the Federal Register on April 30, 2002.3The Commission received three comments on the proposed rule change.4In addition, the PCX submitted one letter in response to comments.5This order approves the proposed rule change.
Footnotes:
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b-4.
3 Securities Exchange Act Release No. 45793 (April 22, 2002), 67 FR 21315 (April 30, 2002).
4 Letters from Paul Liang, Managing Member, PBL Partners, LLC, to Jonathan G. Katz, Secretary, Commission, dated March 8, 2002 ("Liang Letter"); David J. Stern, Esquire, to Jonathan G. Katz, Secretary, Commission, dated March 20, 2002 ("Stern Letter"); and Craig Kinda, Seat Owner, to Jonathan G. Katz, Secretary, Commission, dated March 22, 2002 ("Kinda Letter").
5 Letter from Michael T. Lempres, Executive Vice President, General Counsel, and Corporate Secretary, PCX, to Ms. Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated May 31, 2002 ("PCX Letter").
II. Description of Proposal
The rule change adopts PCX Rule 1.21(d), which will limit to 15% the number of Exchange memberships that any person, associated person, or group of associated persons may directly or indirectly beneficially own, or control the voting rights of. In addition, the rule change permits exceptions to the 15% limit if they are expressly authorized by the Exchange's Board of Governors ("Board") through a two-thirds majority of those Governors voting at a meeting at which a quorum is present, provided that such authorization must be approved by not less than a majority of all Governors. In its filing, the Exchange represented that it currently has 552 authorized PCX memberships and that the seat ownership limit under the rule change would be 82.
III. Summary of Comments and Response to Comments
As noted above, the Commission received three comment letters regarding the proposed rule change. All of the commenters opposed the rule change. In addition, the PCX submitted a letter in response to comments.
All of the commenters asserted that the proposed rule change would entrench the PCX's current management, which the commenters maintain is responsible for a drop in the value of PCX memberships. In addition, two commenters asserted that the PCX has not fulfilled a promise to stabilize seat prices after the sale of its equity floor to Archipelago.6Two commenters expressed concerns over the PCX's continuation of the collection of payment for order flow and the reinstatement of a monthly assessment of $750.00 on empty seats.7One commenter also expressed concern about being forced to sell seats at a loss in order to comply with the proposed rule change.8
Footnotes:
6 Liang Letter and Stern Letter.
7 Liang Letter and Stern Letter.
8 Stern Letter.
In response, the PCX pointed out that all of the comments were submitted on behalf of persons who own Exchange seats as an investment and do not trade securities on the exchange. With respect to the comments regarding payment for order flow, the monthly assessment, and stabilizing seat prices after the Archipelago transaction, the PCX stated that such concerns are not relevant to whether the proposed rule change should be approved.
Two commenters asserted that the exception provision was vague because it gives the Board discretion to grant exceptions to the 15% limit without specifying conditions for those exceptions.9In response, the PCX asserted that the Board has a legal obligation to fairly and legitimately exercise its authority considering the best interest of the Exchange. The PCX also asserted that the Board would not be permitted to arbitrarily enforce or waive any Exchange rule for the sole benefit or detriment of one group or individual.
Footnotes:
9 Liang Letter, Stern Letter.
One commenter maintained that the proposed rule change would impose a change that would fundamentally affect the rights of owners without the same 75% majority vote required to change PCX Constitution. In response, the PCX asserted that the proposed rule change amends PCX Rules and not the PCX Constitution.10The PCX cited Article XVII, Section 1 of the PCX Constitution, which states that "The Board of Governors may from time to time amend the Rules of this Exchange by affirmative vote of not less than a majority of the Governors voting at a meeting at which a quorum is present."
Footnotes:
10 PCX Letter.
The PCX represented that the proposal should assure that the Exchange's memberships do not become unduly concentrated and subject to domination by a particular member or member organization's own interest. In addition, the PCX stated that the proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest.
IV. Discussion
After careful consideration of the proposal, all the comments, and the response to comments, the Commission has determined to approve the proposed rule change. The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.11In particular, the Commission believes that the proposed rule change is consistent with section 6(b)(5) of the Act,12which provides, among other things, that the Exchange's rules be designed to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. In addition, the Commission believes that the proposed rule change is consistent with the requirement of section 6(b)(3) of the Act13that the Exchange's rules assure a fair representation of its members in the selection of its directors and administration of its affairs.
Footnotes:
11 In approving the proposal, the Commission has considered its impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
12 15 U.S.C. 78f(b)(5).
13 15 U.S.C. 78f(b)(3).
The Commission agrees with the PCX that the rule change should prevent PCX's memberships from becoming overly concentrated in any one person or group of persons. As a result, the rule change should prevent a person or group of persons from exercising undue control over the affairs of the Exchange.
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the Act,14that the proposed rule change (SR-PCX-2002-11) be, and hereby is, approved.
Footnotes:
14 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation, pursuant to delegated authority.15
Footnotes:
15 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-16347 Filed 6-27-02; 8:45 am]
BILLING CODE 8010-01-P