[Federal Register: December 8, 2003 (Volume 68, Number 235)]
[Notices]
[Page 68440-68442]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08de03-103]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-48861; File No. SR-PCX-2003-35]
Self-Regulatory Organizations; Order Granting Partial Approval of
a Proposed Rule Change and Notice of Filing and Order Granting
Accelerated Approval of Amendment No. 2 Thereto by the Pacific
Exchange, Inc., To Amend Its Corporate Governance and Disclosure
Policies
December 1, 2003.
I. Introduction
On July 14, 2003, the Pacific Exchange, Inc. (``PCX'' or
``Exchange''), through its wholly owned subsidiary, PCX Equities, Inc.
(``PCXE''), filed with the Securities and Exchange Commission
(``Commission''), pursuant to section 19(b)(1) of the Securities
[[Page 68441]]
Exchange Act of 1934 (``Act''),\1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend its Corporate Governance and Disclosure
Policies. The proposed rule change, among other things, would require
each issuer listed on the PCX to establish an independent audit
committee and to comply with the standards for audit committees
mandated by section 10A(m) of the Act \3\ and Rule 10A-3 thereunder.\4\
The proposed rule change also includes provisions relating to board
independence and independent committees, codes of conduct, and other
corporate governance issues. On October 14, 2003, the Exchange filed
Amendment No. 1 to the proposal.\5\ On October 31, 2003, the proposed
rule change, as modified by Amendment No. 1, was published for comment
in the Federal Register.\6\ The Commission received no comments on the
proposal. On November 18, 2003, the Exchange filed Amendment No. 2 to
the proposal.\7\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 78j-1(m).
\4\ 17 CFR 240.10A-3.
\5\ See letter from Steven B. Matlin, Senior Counsel, PCX, to
Nancy J. Sanow, Assistant Director, Division of Market Regulation,
Commission, dated October 8, 2003 (``Amendment No. 1''). In
Amendment No. 1, the Exchange made changes to proposed rule text in
PCX Rule 5.3(k)(5)(B)(ii)(a).
\6\ See Securities Exchange Act Release No. 48700 (October 24,
2003), 68 FR 62146 (October 31, 2003).
\7\ See letter from Steven B. Matlin, Senior Counsel, PCX, to
Nancy J. Sanow, Assistant Director, Division of Market Regulation,
Commission, dated November 17, 2003 (``Amendment No. 2''). In
Amendment No. 2, the Exchange proposed an additional section of rule
text, PCX Rule 5.3(k)(5)(A)(v), to expand, with respect to
investment companies, the scope of the requirement that audit
committees establish procedures for the confidential, anonymous
submission of concerns regarding questionable accounting or auditing
matters.
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Rule 10A-3 requires each national securities exchange and national
securities association to have rules that comply with its requirements
approved by the Commission no later than December 1, 2003.\8\ This
Order approves the proposed rule change in part as further discussed
below, so that the PCX can comply with this deadline. This Order also
provides notice of Amendment No. 2 and approves Amendment No. 2 on an
accelerated basis. The Commission notes that the PCX is considering
revisions to the portions of the proposed rule change that pertain to
corporate governance listing standards other than the revisions to
comply with Rule 10A-3, particularly in light of rule changes by the
New York Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. that were recently approved by the
Commission.\9\ This Order does not relate to those other proposed
provisions.
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\8\ 17 CFR 240.10A-3.
\9\ See Securities Exchange Act Release Nos. 48745 (November 4,
2003), 68 FR 64154 (November 12, 2003) (approval of, among other
proposals, File Nos. SR-NYSE-2002-33 and SR-NASD-2002-141) (``NYSE/
NASD Corporate Governance Release''). Telephone conference call
between Steven Matlin, Senior Counsel, PCX and Nancy Sanow,
Assistant Director, Division of Market Regulation, Commission, and
other Commission staff, on November 17, 2003.
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II. Description of Approved Changes
The Commission is approving in this Order the following provisions
of the proposed rule change, which implement the requirements of Rule
10A-3:
(1) The third proposed additional sentence to PCX Rule 5.3,
``Corporate Governance and Disclosure Policies,'' which, as approved
states: ``Issuers of any security that is listed pursuant to the Rules
of the Corporation must comply with the provisions of Rule
5.3(k)(5).'';
(2) Proposed PCX Rule 5.3(k)(5)(A) in its entirety, as well as the
heading, ``Audit Committee,'' for proposed PCX Rule 5.3(k)(5);
(3) The heading and second sentence of proposed PCX Rule 5.3(n),
``Listed Foreign Private Issuers.'' The rule, as approved, states:
``Listed foreign private issuers must comply with the provisions of
Rule 5.3(k)(5)'';
(4) The proposed change to existing PCX Rule 5.5(a), ``Maintenance
Requirements and Delisting Procedures,'' which would add language to
conform the rule to Rule 10A-3; and
(5) All the proposed changes to existing PCX Rule 5.5(m),
``Delisting Procedures,'' which consist of adding a cross-reference to
Rule 5.3 and referring to violations of Rule 5.3(k)(5), in which case
the corporation shall initiate delisting procedures.
In addition, the Commission is approving Amendment No. 2 to the
proposed rule change on an accelerated basis. In Amendment No. 2, the
PCX proposes to expand, with respect to investment companies, the scope
of its proposed provision regarding complaint procedures. Rule 10A-3
requires audit committees to establish procedures for ``the
confidential, anonymous submission by employees of the listed issuer of
concerns regarding questionable accounting or auditing matters.'' \10\
The amended PCX proposal would require that audit committees of
investment companies also establish procedures for the confidential,
anonymous submission of such concerns by employees of the investment
adviser, administrator, principal underwriter, or any other provider of
accounting related services for the investment company, as well as
employees of the investment company.
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\10\ 17 CFR 240.10A-3(b)(3)(ii).
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III. Discussion
After careful review, the Commission finds that the provisions of
the proposed rule change specified above that implement the
requirements of Rule 10A-3 are consistent with the requirements of the
Act and the rules and regulations thereunder applicable to a national
securities exchange.\11\
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\11\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. 15 U.S.C. 78c(f).
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Specifically, the Commission finds that these changes are
consistent with section 6(b)(5) of the Act,\12\ which requires, among
other things, that the PCX's rules be designed to prevent fraudulent
and manipulative acts and practices, and, in general, to protect
investors and the public interest. Moreover, the Commission believes
that the Exchange's proposal to add the new requirements concerning
audit committees is appropriate and consonant with section 10A(m) of
the Act and Rule 10A-3 thereunder relating to audit committee standards
for listed issuers.
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\12\ 15 U.S.C. 78f(b)(5).
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Furthermore, the Commission finds good cause, consistent with
section 19(b)(2) of the Act,\13\ to approve Amendment No. 2 to the
proposed rule change prior to the thirtieth day after the date of
publication of notice of filing thereof in the Federal Register. This
expansion of complaint procedures of audit committees at investment
companies proposed in Amendment No. 2 responds to a recommendation by
the Commission that self-regulatory organizations take into account, in
adopting their rules, the fact that most services are rendered to an
investment company by employees of third parties, such as the
investment adviser, rather than by employees of the investment
company.\14\ The Commission believes that it is appropriate to
accelerate approval of this amendment because it conforms to similar
provisions approved by the Commission for other self-
[[Page 68442]]
regulatory organizations \15\ and raises no new issues.
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\13\ 15 U.S.C. 78s(b)(2).
\14\ See Securities Act Release No. 8220, Securities Exchange
Act Release No. 47654, and Investment Company Act Release No. 26001
(April 9, 2003), 68 FR 18788 (April 16, 2003) (release adopting Rule
10A-3).
\15\ See NYSE/NASD Corporate Governance Release, supra n. 9.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning Amendment No. 2, including whether Amendment No. 2
is consistent with the Act. Persons making written submissions should
file six copies thereof with the Secretary, Securities and Exchange
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. 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 filings will also be available
for inspection and copying at the principal office of the Exchange. All
submissions should refer to File No. SR-PCX-2003-35 and should be
submitted by December 29, 2003.
V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\16\ that the portions of the proposed rule change (File No. SR-
PCX-2003-35) set forth above relating to compliance with Rule 10A-3
under the Act be, and hereby are, approved, and that Amendment No. 2
relating to complaint procedures of audit committees of investment
companies be granted accelerated approval.
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\16\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-30353 Filed 12-5-03; 8:45 am]
BILLING CODE 8010-01-P