[Federal Register: December 2, 1998 (Volume 63, Number 231)] [Notices] [Page 66617-66618] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr02de98-110] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-40705; File No. SR-EMCC-98-08] Self-Regulatory Organizations; Emerging Markets Clearing Corporation Order Approving a Proposed Rule Change Relating to the Offering of Shares of Common Stock November 24, 1998. On August 17, 1998, Emerging Markets Clearing Corporation (``EMCC'') filed with the Securities and Exchange Commission (``Commission'') a proposed rule change (File No. SR-EMCC-98-08) pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of the proposal was published in the Federal Register on September 21, 1998.\2\ No comment letters were received. For the reasons discussed below, the Commission is approving the proposed rule change. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ Securities Exchange Act Release No. 40433 (September 11, 1998), 63 FR 50271. --------------------------------------------------------------------------- I. Description Pursuant to the rule change EMCC has reclassified 2,000 shares of previously authorized EMCC common stock as Class A common stock (``Class A stock'') and has created a second class of common stock. In addition, the rule change amends EMCC's shareholder agreement to reflect the changes to the common stock. On March 2, 1998, the Commission authorized EMCC to issue 2,000 shares of common stock (``original stock'').\3\ On July 31, 1998, EMCC filed an amendment to its certificate of incorporation to reclassify the original stock as Class A stock and to authorized the issuance of non-voting Class B stock. The creation and offering of the Class B stock is intended to permit EMCC to raise additional capital which EMCC will use in part to fund the development of EMCC projects. --------------------------------------------------------------------------- \3\ Securities Exchange Act Release No. 39694 (March 2, 1998), 63 FR 10251 [File No. SR-EMCC-98-01]. --------------------------------------------------------------------------- Under the rule change, EMCC will offer the shares of Class B stock to the same entities that were offered the opportunity to purchase the original stock.\4\ The purchase price of the Class B stock is $1,000 per share with a minimum purchase requirement of $25,000. EMCC is offering the Class B shares to prospective buyers through an offering letter.\5\ --------------------------------------------------------------------------- \4\ The original stock was offered to the entities that contributed to the development fund for the organization and initial operation of EMCC. \5\ Each prospective purchaser of the original stock was provided with a copy of EMCC's Form CA-1 (excluding the confidential documents). EMCC will provide the prospective purchasers of the Class B stock with updates to the Form CA-1 as appropriate. --------------------------------------------------------------------------- The Class B stock is non-voting and is subject to repurchase upon the determination of EMCC's Board. However, EMCC has no obligation to repurchase Class B shares owned by a member that terminates its EMCC membership prior to the repurchase of all Class B shares. All purchasers of Class A and Class B stock will be required to enter into an amended version of EMCC's shareholders agreement. No dividends will be paid on either the Class A or Class B stock and shareholders may sell or transfer their shares only in compliance with EMCC's amended shareholder agreement. EMCC's amended shareholder agreement replaces the shareholder agreement written for the original offering.\6\ The changes to the shareholder agreement reflect (i) the creation and offering of the Class B stock, (ii) the conditions under which EMCC may repurchase the Class B stock, and (iii) the fact that EMTA has not yet been issued any shares of EMCC stock. In addition, the amended shareholder agreement permits EMCC to issue EMTA 300 Class A shares prior to, concurrent with, or after the closing of [[Page 66618]] the issuance of Class A stock to all other persons. A further modification reflects that the issuance of the original stock did not occur prior to the previously established deadline of June 30, 1998, and provides that the issuance and sale of Class A stock must be completed by December 31, 1998. Each purchaser of Class A or Class B shares will be obligated to enter into the amended shareholder agreement. --------------------------------------------------------------------------- \6\ The signatories of the amended shareholder agreement are the National Securities Clearing Corporation (``NSCC''), the International Securities Markets Association (``ISMA''), and the Emerging Markets Traders Association (``EMTA''). --------------------------------------------------------------------------- After the Class A stock has been issued, EMCC will amend its articles of incorporation to permit the following actions to be taken upon a two-thirds vote of the shareholders instead of the current requirement of unanimity: (i) any amendment or change to EMCC's certificate of incorporation; (ii) any adoption, amendment or repeal by the shareholders of by-laws of the corporation; (iii) any repurchase of any securities issued by the corporation; and (iv) any issuance of any securities by the corporation. II. Discussion Section 17A(b)(3)(A) of the Act \7\ requires that a clearing agency be so organized and have the capacity to facilitate the prompt and accurate clearance and settlement of securities transactions. The Commission believes that the rule change is consistent with EMCC's obligations under Section 17A(b)(3)(A) because the additional capital raised by the issuance of the stock should enable EMCC to increase the efficiency of its clearance and settlement of securities transactions. In addition, the amendments to EMCC's articles of incorporation make more efficient EMCC's ability to take corporate actions that may be necessary to facilitate the clearance and settlement of securities transactions. --------------------------------------------------------------------------- \7\ 15 U.S.C. 78q-1(b)(3)(A). --------------------------------------------------------------------------- III. Conclusion On the basis of the foregoing, the Commission finds that the proposed rule change is consistent with the requirements of the Act and in particular with Section 17A of the Act \8\ and the rules and regulations thereunder. --------------------------------------------------------------------------- \8\ 15 U.S.C. 78q-1. --------------------------------------------------------------------------- It is therefore ordered, pursuant to Section 19(b)(2) of the Act, that the proposed rule change (File No. SR-EMCC-98-08) be and hereby is approved. For the Commission by the Division of Market Regulation, pursuant to delegated authority.\9\ --------------------------------------------------------------------------- \9\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Margaret H. McFarland, Deputy Secretary. [FR Doc. 98-32041 Filed 12-1-98; 8:45 am] BILLING CODE 8010-01-M