Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto to Increase the Size of the Audit Committee, 71360-71362 [E5-6561]

Download as PDF 71360 Federal Register / Vol. 70, No. 227 / Monday, November 28, 2005 / Notices compete with these markets. Accordingly, the Commission finds good cause, consistent with sections 6(b)(5) and 19(b) of the Act, to approve the proposed rule change, as amended, prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. V. Conclusion It is therefore ordered, pursuant to section 19(b)(2) of the Act,15 that the proposed rule change (SR–PCX–2005– 88), as amended, is approved on an accelerated basis. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.16 Jonathan G. Katz, Secretary. [FR Doc. E5–6556 Filed 11–25–05; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–52777; File No. SR–Phlx– 2004–37] Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto to Increase the Size of the Audit Committee November 16, 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 May 20, 2004, the Philadelphia Stock Exchange, Inc. (‘‘Phlx’’ 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 the Exchange. On October 20, 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. 15 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 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 add a definition of ‘‘independent director’’ and to make certain technical changes, and also revised the purpose section to reflect these changes and to enhance the description of the proposal generally. 16 17 VerDate Aug<31>2005 15:28 Nov 25, 2005 Jkt 208001 I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Phlx By-Laws, Article X, Sections 10– 9(a)–(b) to: (i) Allow the Board of Governors the ability to increase the size of the Audit Committee beyond its current three persons to a maximum of five persons, and (ii) to require the members of the Audit Committee to be independent directors. Additionally, the proposed amendment to the Phlx ByLaws incorporates enhanced Audit Committee responsibilities. The text of the proposed rule change, as amended, is below. Proposed deletions are bracketed; proposed insertions are in italics. * * * * * PHLX BY-LAWS Article 10, Sec. 10–9, Audit Committee SEC. 10–9. (a) The Audit Committee shall consist of at least three (3) members, the exact number to be determined from time to time by the Board of Governors. [who] All members shall [all] be [public] [independent non-industry Governors who have no material business relationship with the Exchange. A majority of the members, but not less than three (3) members shall be public Governors] independent directors who have no material relationship with the Exchange. [Audit Committee members shall not serve in a management capacity with the Exchange or any affiliate thereof and must be free of any other relationships that, by decision of the Board of Governors, would interfere with the exercise of independent judgment.] The term ‘‘independent director’’ will be defined as a director who has no material relationship with the Exchange or any affiliate of the Exchange, any Member of the Exchange or any affiliate of such Member, or any issuer of securities that are listed or traded on the Exchange or a facility of the Exchange. The term ‘‘material relationship’’ will be defined as a relationship, whether compensatory or otherwise, that reasonably could affect the independent judgment or decisionmaking of the director. (b) The Audit Committee shall have responsibility for dealings with the Exchange’s [independent public accountants including] external auditors, which includes: (i) [making recommendations to the Board of Governors as to] sole responsibility for the appointment, retention and [dismissal of such public accountants] replacement of such auditors; (ii) direct oversight over such auditors; (iii) review, PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 at least annually, of the qualification and performance of such auditors; [reviewing the scope of their services and fees; (iii) reviewing the audit plan;] (iv) direct authority to resolve disagreements between management and such auditors regarding financial reporting [reviewing internal controls]; (v) responsibility to ensure the rotation of the lead and concurrent auditors every five years and certain other auditors every seven years, with time out periods; (vi) evaluation of the independence of external auditors, including ensuring that, other than deferred tax and compliance services, external auditors do not engage in certain non-audit services, as identified in the Audit Committee Charter, when they conduct audits for the Exchange, and approval of non-audit services where appropriate; (vii) [reviewing] review of the ‘‘management letter’’ and reply thereto; and (viii) [having] the ability to meet with [the public accountants] external auditors without Exchange officers or employees. The Audit Committee shall have responsibility for the Exchange’s Internal Audit Department, which shall report to the Audit Committee. Such responsibility will include review of policies and procedures for and significant reports produced by the Internal Audit Department. The Audit Committee shall review any legal matters that may materially impact the Exchange’s financial statements and all examination, inspection or other reports made by any regulatory agency with regulatory oversight for the Exchange and the Exchange’s responses thereto. The Audit Committee shall review, at least annually, compliance with the Exchange’s Code of Conduct with the assistance of the General Counsel’s office. The Audit Committee shall have the authority to conduct special reviews of any alleged improper conduct with respect to Exchange related activity, operations, finance or regulation. The Audit Committee shall establish procedures for the receipt, retention, and treatment of complaints received by the Exchange regarding accounting, internal accounting controls, or other auditing matters and confidential anonymous submissions by Exchange employees regarding questionable accounting practices. The Audit Committee may select and engage its own [counsel, consultants, accountants or other experts] advisor(s) to assist [in such reviews] it in carrying out its duties. The Audit Committee shall determine the appropriate amount of funding to be E:\FR\FM\28NON1.SGM 28NON1 Federal Register / Vol. 70, No. 227 / Monday, November 28, 2005 / Notices provided by the Exchange for the purpose of paying: (i) Compensation to external auditors retained by the Audit Committee to prepare or issue an audit report; (ii) compensation to adviser(s) employed by the Audit Committee that it determines are necessary to carry out its duties; and (iii) ordinary administrative expenses of the Audit Committee that are necessary or appropriate to carry out its duties in respect of external auditors. The Audit Committee shall have the authority to compel to appear and/or provide documents or other information, by members, member organizations, associated persons of member organizations, members of the Board of Governors, committee members, Exchange officers or Exchange employees. (c) The Audit Committee shall meet at least once every calendar quarter. * * * * * II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of, and basis for, the proposed rule change, as amended, and discussed any comments it received on the proposal. The text of these statements may be examined at the places specified in Item IV below. The Exchange 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 The purpose of the proposed rule change, as amended, is to strengthen the composition and charter of the Exchange’s Audit Committee by increasing the pool of candidates eligible to serve, which may bring additional expertise to the Committee, as well as codifying more of the Audit Committee’s responsibilities. The Exchange believes that expanding the size of its Audit Committee to permit (but not mandate) additional Committee members should be beneficial, because additional persons should bring new and different expertise and experience to Committee workings. The Exchange further believes that by setting higher standards with the independence requirement, it will promote independent decision-making by the Audit Committee. The term VerDate Aug<31>2005 15:28 Nov 25, 2005 Jkt 208001 ‘‘independent director’’ would be defined as a director who has no material relationship with the Exchange or any affiliate of the Exchange, any member of the Exchange or any affiliate of such member, or any issuer of securities that are listed or traded on the Exchange or a facility of the Exchange.4 The term ‘‘material relationship’’ would be defined as a relationship, whether compensatory or otherwise, that reasonably could affect the independent judgment or decision-making of the director.5 The proposal would require the Exchange’s Board of Governors’ to determine whether each Audit Committee member is independent upon that director’s nomination and thereafter no less frequently than annually and as often as necessary in light of the director’s circumstances.6 The proposal would also give the Exchange’s Board of Governors the opportunity from time to time to adjust the number of members of the Exchange’s Audit Committee. The Exchange believes that the codification of the Committee’s responsibilities with greater specificity is also appropriate. The proposal incorporates into the Phlx By-Laws enhanced Audit Committee responsibilities that are primarily adopted from the Sarbanes-Oxley Act of 2002.7 The Exchange also proposes to remove the phrase ‘‘independent public accountants’’ from Section 10–9(b) of Article X of the Phlx By-Laws and replace it with the phrase ‘‘external auditors’’ to broaden the scope of the audit committee’s oversight. 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act 8 in general, and furthers the objectives of Section 6(b)(5) of the Act 9 4 In submitting this proposal, the Exchange has cited to the Commission’s proposed rules for ‘‘independent directors’’ of self-regulatory organizations and certain other aspects of the Commission’s self-regulatory organization governance proposal. See Securities Exchange Act Release No. 50699 (November 18, 2004), 69 FR 71126 (December 8, 2004) (proposing Commission rules relating to the governance of self-regulatory organizations, among other things) (‘‘SRO Governance Proposal’’), Proposed Rules 6a–5(c)(2) and 15Aa–3(c)(2). 5 See SRO Governance Proposal, Proposed Rules 6a–5(b)(13) and 15Aa–3(b)(14) (proposed definition of ‘‘material relationship’’). 6 See SRO Governance Proposal, Proposed Rules 6a–5(c)(2) and 15Aa–3(c)(2) (proposed schedule of independence determinations by Board). 7 While the Sarbanes-Oxley Act of 2002 does not by its terms apply to the Exchange, the Exchange has embraced applicable concepts on a voluntary compliance basis. 8 15 U.S.C. 78f(b). 9 15 U.S.C. 78f(b)(5). PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 71361 in particular, in that it is designed to protect investors and the public interest. B. Self-Regulatory Organization’s Statement on Burden on Competition The Exchange does not believe that the proposed rule change, as amended, will impose 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 No written comments were either solicited or received. 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 the proposed rule change, or (B) Institute proceedings to determine whether the proposed rule change 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, 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–Phlx–2004–37 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–Phlx–2004–37. 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 (https://www.sec.gov/ E:\FR\FM\28NON1.SGM 28NON1 71362 Federal Register / Vol. 70, No. 227 / Monday, November 28, 2005 / Notices 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 the filing also will be available for inspection and copying at the principal office of the Exchange. 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–2004–37 and should be submitted on or before December 19, 2005. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.10 Jonathan G. Katz, Secretary. [FR Doc. E5–6561 Filed 11–25–05; 8:45 am] BILLING CODE 8010–01–P SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10254 and # 10255] 409 3rd Street, Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the Administrator’s disaster declaration, applications for disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties: Hart. Contiguous Counties: Kentucky: Barrenn, Edmonson, Grayson, Green, Hardin, Larue, Metcalfe. The Interest Rates are: Homeowners With Credit Available Elsewhere: 5.375. Homeowners Without Credit Available Elsewhere: 2.687. Businesses With Credit Available Elsewhere: 6.557. Business and Small Agricultural Cooperatives Without Credit Available Elsewhere: 4.000. Other (Including Non-Profit Organizations) With Credit Available Elsewhere: 4.750. Businesses and Non-Profit Organizations Without Credit Available Elsewhere: 4.000. The number assigned to this disaster for physical damage is 10254 C and for economic injury is 10255 O. The State which received an EIDL Declaration # is Kentucky. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Kentucky Disaster # KY–00003 U.S. Small Business Administration. ACTION: Notice. Hector V. Barreto, Administrator. [FR Doc. E5–6543 Filed 11–25–05; 8:45 am] BILLING CODE 8025–01–P AGENCY: SUMMARY: This is a notice of an administrative declaration of a disaster for the State of Kentucky dated 11/15/ 2005. Incident: Severe Storms and Tornadoes. Incident Period: 11/06/2005. Effective Date: 11/15/2005. Physical Loan Application Deadline Date: 01/16/2006. EIDL Loan Application Deadline Date: 08/14/2006. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 10 17 CFR 200.30–3(a)(12). VerDate Aug<31>2005 15:28 Nov 25, 2005 Jkt 208001 SMALL BUSINESS ADMINISTRATION [Disaster Declaration # 10256 and # 10257] Massachusetts Disaster # MA–00003 U.S. Small Business Administration. ACTION: Notice. AGENCY: SUMMARY: This is a Notice of the Presidential declaration of a major disaster for the State of Massachusetts (FEMA–1614–DR), dated 11/10/2005. Incident: Severe Storms and Flooding. Incident Period: 10/07/2005 through 10/16/2005. Effective Date: 11/10/2005. Physical Loan Application Deadline Date: 01/09/2006. Economic Injury (EIDL) Loan Application Deadline Date: 08/10/2006. ADDRESSES: Submit completed loan applications to: U.S. Small Business PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 Administration, National Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street, Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the President’s major disaster declaration on 11/10/2005, applications for disaster loans may be filed at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties (Physical Damage and Economic Injury): Berkshire, Bristol, Franklin, Hampden, Hampshire, Middlesex, Norfolk, Plymouth, Worcester. Contiguous Counties (Economic Injury Only): Massachusetts: Barnstable, Essex, Suffolk. Connecticut: Hartford, Litchfield, Tolland, Windham. New Hampshire: Cheshire, Hillsborough. New York: Columbia, Dutchess, Rennselaer. Rhode Island: Bristol, Newport, Providence. Vermont: Bennington, Windham. The Interest Rates are: For Physical Damage: Homeowners With Credit Available Elsewhere: 5.375. Homeowners With Credit Available Elsewhere: 2.687. Businesses With Credit Available Elsewhere: 6.557. Businesses and Non-Profit Organizations Without Credit Available Elsewhere: 4.000. Other (Including Non-Profit Organizations) With Credit Available Elsewhere: 4.750. For Economic Injury: Businesses and Small Agricultural Cooperatives Without Credit Available Elsewhere: 4.000. The number assigned to this disaster for physical damage is 102566 and for economic injury is 102570. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) Herbert L. Mitchell, Associate Administrator for Disaster Assistance. [FR Doc. E5–6544 Filed 11–25–05; 8:45 am] BILLING CODE 8025–01–P E:\FR\FM\28NON1.SGM 28NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 70, Number 227 (Monday, November 28, 2005)]
[Notices]
[Pages 71360-71362]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E5-6561]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-52777; File No. SR-Phlx-2004-37]


Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto 
to Increase the Size of the Audit Committee

November 16, 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 May 20, 2004, the Philadelphia Stock Exchange, Inc. (``Phlx'' 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 the Exchange. On 
October 20, 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.
---------------------------------------------------------------------------

    \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 add a definition of ``independent director'' and to make 
certain technical changes, and also revised the purpose section to 
reflect these changes and to enhance the description of the proposal 
generally.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend the Phlx By-Laws, Article X, 
Sections 10-9(a)-(b) to: (i) Allow the Board of Governors the ability 
to increase the size of the Audit Committee beyond its current three 
persons to a maximum of five persons, and (ii) to require the members 
of the Audit Committee to be independent directors. Additionally, the 
proposed amendment to the Phlx By-Laws incorporates enhanced Audit 
Committee responsibilities. The text of the proposed rule change, as 
amended, is below. Proposed deletions are bracketed; proposed 
insertions are in italics.
* * * * *
PHLX BY-LAWS
Article 10, Sec. 10-9, Audit Committee
    SEC. 10-9.
    (a) The Audit Committee shall consist of at least three (3) 
members, the exact number to be determined from time to time by the 
Board of Governors. [who] All members shall [all] be [public] 
[independent non-industry Governors who have no material business 
relationship with the Exchange. A majority of the members, but not less 
than three (3) members shall be public Governors] independent directors 
who have no material relationship with the Exchange. [Audit Committee 
members shall not serve in a management capacity with the Exchange or 
any affiliate thereof and must be free of any other relationships that, 
by decision of the Board of Governors, would interfere with the 
exercise of independent judgment.] The term ``independent director'' 
will be defined as a director who has no material relationship with the 
Exchange or any affiliate of the Exchange, any Member of the Exchange 
or any affiliate of such Member, or any issuer of securities that are 
listed or traded on the Exchange or a facility of the Exchange. The 
term ``material relationship'' will be defined as a relationship, 
whether compensatory or otherwise, that reasonably could affect the 
independent judgment or decision-making of the director.
    (b) The Audit Committee shall have responsibility for dealings with 
the Exchange's [independent public accountants including] external 
auditors, which includes: (i) [making recommendations to the Board of 
Governors as to] sole responsibility for the appointment, retention and 
[dismissal of such public accountants] replacement of such auditors; 
(ii) direct oversight over such auditors; (iii) review, at least 
annually, of the qualification and performance of such auditors; 
[reviewing the scope of their services and fees; (iii) reviewing the 
audit plan;] (iv) direct authority to resolve disagreements between 
management and such auditors regarding financial reporting [reviewing 
internal controls]; (v) responsibility to ensure the rotation of the 
lead and concurrent auditors every five years and certain other 
auditors every seven years, with time out periods; (vi) evaluation of 
the independence of external auditors, including ensuring that, other 
than deferred tax and compliance services, external auditors do not 
engage in certain non-audit services, as identified in the Audit 
Committee Charter, when they conduct audits for the Exchange, and 
approval of non-audit services where appropriate; (vii) [reviewing] 
review of the ``management letter'' and reply thereto; and (viii) 
[having] the ability to meet with [the public accountants] external 
auditors without Exchange officers or employees.
    The Audit Committee shall have responsibility for the Exchange's 
Internal Audit Department, which shall report to the Audit Committee. 
Such responsibility will include review of policies and procedures for 
and significant reports produced by the Internal Audit Department.
    The Audit Committee shall review any legal matters that may 
materially impact the Exchange's financial statements and all 
examination, inspection or other reports made by any regulatory agency 
with regulatory oversight for the Exchange and the Exchange's responses 
thereto.
    The Audit Committee shall review, at least annually, compliance 
with the Exchange's Code of Conduct with the assistance of the General 
Counsel's office.
    The Audit Committee shall have the authority to conduct special 
reviews of any alleged improper conduct with respect to Exchange 
related activity, operations, finance or regulation.
    The Audit Committee shall establish procedures for the receipt, 
retention, and treatment of complaints received by the Exchange 
regarding accounting, internal accounting controls, or other auditing 
matters and confidential anonymous submissions by Exchange employees 
regarding questionable accounting practices.
    The Audit Committee may select and engage its own [counsel, 
consultants, accountants or other experts] advisor(s) to assist [in 
such reviews] it in carrying out its duties.
    The Audit Committee shall determine the appropriate amount of 
funding to be

[[Page 71361]]

provided by the Exchange for the purpose of paying: (i) Compensation to 
external auditors retained by the Audit Committee to prepare or issue 
an audit report; (ii) compensation to adviser(s) employed by the Audit 
Committee that it determines are necessary to carry out its duties; and 
(iii) ordinary administrative expenses of the Audit Committee that are 
necessary or appropriate to carry out its duties in respect of external 
auditors.
    The Audit Committee shall have the authority to compel to appear 
and/or provide documents or other information, by members, member 
organizations, associated persons of member organizations, members of 
the Board of Governors, committee members, Exchange officers or 
Exchange employees.
    (c) The Audit Committee shall meet at least once every calendar 
quarter.
* * * * *

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

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change, as 
amended, and discussed any comments it received on the proposal. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange 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
    The purpose of the proposed rule change, as amended, is to 
strengthen the composition and charter of the Exchange's Audit 
Committee by increasing the pool of candidates eligible to serve, which 
may bring additional expertise to the Committee, as well as codifying 
more of the Audit Committee's responsibilities. The Exchange believes 
that expanding the size of its Audit Committee to permit (but not 
mandate) additional Committee members should be beneficial, because 
additional persons should bring new and different expertise and 
experience to Committee workings. The Exchange further believes that by 
setting higher standards with the independence requirement, it will 
promote independent decision-making by the Audit Committee. The term 
``independent director'' would be defined as a director who has no 
material relationship with the Exchange or any affiliate of the 
Exchange, any member of the Exchange or any affiliate of such member, 
or any issuer of securities that are listed or traded on the Exchange 
or a facility of the Exchange.\4\ The term ``material relationship'' 
would be defined as a relationship, whether compensatory or otherwise, 
that reasonably could affect the independent judgment or decision-
making of the director.\5\
---------------------------------------------------------------------------

    \4\ In submitting this proposal, the Exchange has cited to the 
Commission's proposed rules for ``independent directors'' of self-
regulatory organizations and certain other aspects of the 
Commission's self-regulatory organization governance proposal. See 
Securities Exchange Act Release No. 50699 (November 18, 2004), 69 FR 
71126 (December 8, 2004) (proposing Commission rules relating to the 
governance of self-regulatory organizations, among other things) 
(``SRO Governance Proposal''), Proposed Rules 6a-5(c)(2) and 15Aa-
3(c)(2).
    \5\ See SRO Governance Proposal, Proposed Rules 6a-5(b)(13) and 
15Aa-3(b)(14) (proposed definition of ``material relationship'').
---------------------------------------------------------------------------

    The proposal would require the Exchange's Board of Governors' to 
determine whether each Audit Committee member is independent upon that 
director's nomination and thereafter no less frequently than annually 
and as often as necessary in light of the director's circumstances.\6\ 
The proposal would also give the Exchange's Board of Governors the 
opportunity from time to time to adjust the number of members of the 
Exchange's Audit Committee.
---------------------------------------------------------------------------

    \6\ See SRO Governance Proposal, Proposed Rules 6a-5(c)(2) and 
15Aa-3(c)(2) (proposed schedule of independence determinations by 
Board).
---------------------------------------------------------------------------

    The Exchange believes that the codification of the Committee's 
responsibilities with greater specificity is also appropriate. The 
proposal incorporates into the Phlx By-Laws enhanced Audit Committee 
responsibilities that are primarily adopted from the Sarbanes-Oxley Act 
of 2002.\7\ The Exchange also proposes to remove the phrase 
``independent public accountants'' from Section 10-9(b) of Article X of 
the Phlx By-Laws and replace it with the phrase ``external auditors'' 
to broaden the scope of the audit committee's oversight.
---------------------------------------------------------------------------

    \7\ While the Sarbanes-Oxley Act of 2002 does not by its terms 
apply to the Exchange, the Exchange has embraced applicable concepts 
on a voluntary compliance basis.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \8\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \9\ in particular, in that it is designed to protect 
investors and the public interest.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f(b).
    \9\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change, as 
amended, will impose 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

    No written comments were either solicited or received.

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 the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change 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, 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 (https://
www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2004-37 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-Phlx-2004-37. 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 (https://www.sec.gov/

[[Page 71362]]

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 the 
filing also will be available for inspection and copying at the 
principal office of the Exchange. 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-2004-37 and should be submitted on or before 
December 19, 2005.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\10\
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    \10\ 17 CFR 200.30-3(a)(12).
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Jonathan G. Katz,
Secretary.
 [FR Doc. E5-6561 Filed 11-25-05; 8:45 am]
BILLING CODE 8010-01-P

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