Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Certificate of Incorporation and Bylaws of Archipelago Holdings, Inc., 2095-2100 [06-316]
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Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Notices
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 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–NYSE–2005–77 and should
be submitted on or before February 2,
2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.55
Nancy M. Morris,
Secretary.
[FR Doc. 06–299 Filed 1–11–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53077; File No. SR–PCX–
2005–134]
Self-Regulatory Organizations; Pacific
Exchange, Inc.; Notice of Filing of
Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Certificate of Incorporation and
Bylaws of Archipelago Holdings, Inc.
January 9, 2006.
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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 December
5, 2005, the Pacific Exchange, Inc.
(‘‘PCX’’ 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 December
15, 2005, the Exchange amended its
proposal.3 The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as amended, from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
PCX proposes: (i) To allow NYSE
Group, Inc., a Delaware corporation
55 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 Amendment No. 1 replaced PCX’s original filing
in its entirety.
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(‘‘NYSE Group’’), and its related persons
to wholly own and vote all of the
outstanding capital stock of Archipelago
Holdings, Inc., a Delaware corporation
and the parent company of the
Exchange (‘‘Archipelago’’), upon the
consummation of the proposed business
combination of Archipelago and New
York Stock Exchange, Inc., a New York
Type A not-for-profit corporation (the
‘‘NYSE’’), subject to certain exceptions
described herein; (ii) certain new rules
of PCX and PCX Equities, Inc. (‘‘PCXE’’)
prohibiting certain relationships
between NYSE Group on the one hand
and OTP Holders, OTP Firms, and ETP
Holders (in each case as defined below)
on the other hand; and (iii) to amend the
rules of PCX and PCXE to impose
certain restrictions on certain rights of
OTP Holders and ETP Holders with
respect to the nomination and election
of the directors of PCX and PCXE.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
PCX included statements concerning the
purpose of, and basis for, the proposed
rule change 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.4 PCX 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
a. The Archipelago NYSE Mergers.
The Exchange is submitting the
proposed rule change in connection
with the proposed mergers (‘‘Mergers’’)
of the NYSE and Archipelago.
Following the Mergers, the businesses of
the NYSE and Archipelago will be held
under a single, publicly traded holding
company named NYSE Group. The
Mergers will occur pursuant to the
terms of the Agreement and Plan of
Merger, dated as of April 20, 2005, as
amended and restated as of July 20,
2005, as further amended as of October
20, 2005, and as of November 2, 2005
(as so amended and restated, the
‘‘Merger Agreement’’), by and among the
4 Exhibit 5.A (Resolutions Adopted at the October
20, 2005 Regular Meeting of the Board of Directors
of Archipelago Holdings, Inc.), Exhibit 5.B
(Proposed PCX Rules), and Exhibit 5.C (Proposed
PCXE Rules) of the proposed rule change are also
available on the Commission’s Web site (https://
www.sec.gov/rules/sro.shtml).
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2095
NYSE, Archipelago, NYSE Group, NYSE
Merger Corporation Sub, Inc., a
Delaware corporation and a wholly
owned subsidiary of the NYSE, NYSE
Merger Sub LLC, a New York limited
liability company and a wholly owned
subsidiary of NYSE Group, and
Archipelago Merger Sub, Inc., a
Delaware corporation and a wholly
owned subsidiary of NYSE Group.5 In
the Mergers, NYSE members will
receive cash and/or shares of NYSE
Group common stock, and Archipelago
stockholders will receive solely shares
of NYSE Group common stock.6
Archipelago acquired PCX Holdings,
Inc. (‘‘PCXH’’) on September 26, 2005,
and is currently the ultimate parent
company of PCXH and all of its
subsidiaries, including PCX and PCXE.
b. Ownership Limitation in the
Archipelago Certificate of Incorporation.
The Archipelago Certificate of
Incorporation was approved by the
Commission on August 9, 2004 in
connection with the initial public
offering of Archipelago.7 In order to
ensure that the ownership of
Archipelago by the public will not
unduly interfere with, or restrict the
ability of, the Commission or PCX to
effectively carry out its regulatory
oversight responsibilities under the Act
and generally to enable the Archipelago
Exchange, L.L.C. (‘‘ArcaEx’’) to operate
in a manner that complies with the
federal securities laws, including
furthering the objectives of section
6(b)(5) of the Act,8 the Archipelago
Certificate of Incorporation imposes
certain ownership and voting
limitations with respect to the stock of
Archipelago.
Specifically, the Archipelago
Certificate of Incorporation provides
that no person,9 either alone or together
with its related persons,10 may own
5 For a description of the Merger Agreement and
the transactions contemplated thereby, see
Amendment No. 3 to the Registration Statement on
Form S–4, Registration No. 333–126780, filed with
the Commission on November 3, 2005 (‘‘S–4
Registration Statement’’), at 125–147.
6 Id.
7 See Securities Exchange Act Release No. 50170,
69 FR 50419 (August 16, 2004).
8 15 U.S.C. 78f(b)(5).
9 The Archipelago Certificate of Incorporation
defines ‘‘Person’’ to mean a natural person,
company, government, or political subdivision,
agency, or instrumentality of a government.
Archipelago Certificate of Incorporation, Article
Fourth H(2).
10 The Archipelago Certificate of Incorporation
defines ‘‘Related Persons’’ to mean with respect to
any person (a) any other person(s) whose beneficial
ownership of shares of stock of Archipelago with
the power to vote on any matter would be
aggregated with such first person’s beneficial
ownership of such stock or deemed to be
beneficially owned by such first person pursuant to
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beneficially shares of Archipelago stock
representing in the aggregate more than
40% of the then outstanding votes
entitled to be cast on any matter (the
‘‘Ownership Limitation’’).11 The
Ownership Limitation will apply unless
and until (1) a person, either alone or
with its related persons, delivers to the
board of directors of Archipelago a
notice in writing regarding its intention
to acquire shares of Archipelago stock
that would cause such person, either
alone or with its related persons, to own
beneficially shares of stock of
Archipelago in excess of the Ownership
Limitation, at least 45 days (or such
shorter period as the board of directors
of Archipelago expressly consents to)
prior to the intended acquisition, and
(2) such person, either alone or with its
related persons, receives prior approval
by the board of directors of Archipelago
and the Commission to exceed the
Ownership Limitation.12 Specifically,
(1) the board of directors of Archipelago
must adopt a resolution approving such
person and its related persons to exceed
the Ownership Limitation, (2) the
resolution must be filed with the
Commission under section 19(b) of the
Rules 13d–3 and 13d–5 under the Act; (b) in the
case of a person that is a natural person, for so long
as ArcaEx remains a facility (as defined in section
3(a)(2) of the Act) of PCX and PCXE and the
Amended and Restated Facility Services Agreement
among Archipelago, PCX, and PCXE, dated as of
March 22, 2002 (‘‘Facility Services Agreement’’), is
in full force and effect, any broker or dealer that is
an ETP Holder (as defined in the PCXE rules of
PCX, as such rules may be in effect from time to
time) with which such natural person is associated;
(c) in the case of a person that is an ETP Holder,
for so long as ArcaEx remains a facility of PCX and
PCXE and the Facility Services Agreement is in full
force and effect, any broker or dealer with which
such ETP Holder is associated; (d) any other
person(s) with which such person has any
agreement, arrangement, or understanding (whether
or not in writing) to act together for the purpose of
acquiring, voting, holding, or disposing of shares of
the stock of Archipelago; and (e) in the case of a
person that is a natural person, any relative or
spouse of such person, or any relative of such
spouse, who has the same home as such person or
who is a director or officer of Archipelago or any
of its parents or subsidiaries. Archipelago
Certificate of Incorporation, Article Fourth H(3). As
defined in the PCXE rules, the term ‘‘ETP Holder’’
refers to any sole proprietorship, partnership,
corporation, limited liability company, or other
organization in good standing that has been issued
an Equity Trading Permit, a permit issued by the
PCXE for effecting approved securities transactions
on the trading facilities of PCXE. PCXE Rule 1.1 (m)
and (n). See 17 CFR 240.13d–3 and 240.13d–5. See
also 15 U.S.C. 78c(a)(2).
11 In considering whether a person owns shares
of stock of Archipelago in violation of the
applicable ownership limitations, Archipelago must
consider any filings made with the Commission
under section 13(d) and section 13(g) of the Act by
such person and its related persons and must
aggregate all shares owned or voted by such person
and its related persons to determine such person’s
beneficial ownership. See 15 U.S.C. 78m(d) and (g).
12 Archipelago Certificate of Incorporation,
Article Fourth D(1)(a).
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Act,13 and (3) such proposed rule
change must be approved by the
Commission and become effective
thereunder.14
Subject to its fiduciary obligations
under the Delaware General Corporation
Law, as amended (‘‘DGCL’’), before
adopting any such resolution, the board
of directors of Archipelago must first
determine that: (1) such acquisition of
beneficial ownership by such person,
either alone or with its related persons,
would not impair any of Archipelago’s,
PCX’s, or PCXE’s ability to discharge its
responsibilities under the Act and the
rules and regulations thereunder and is
otherwise in the best interests of
Archipelago and its stockholders; (2)
such acquisition of beneficial ownership
by such person, either alone or with its
related persons, would not impair the
Commission’s ability to enforce the Act;
and (3) such person and its related
persons are not subject to any statutory
disqualification 15 (as defined in section
3(a)(39) of the Act).16 In making such
determinations, the board of directors of
Archipelago may impose any conditions
and restrictions on such person and its
related persons owning any shares of
stock of Archipelago entitled to vote on
any matter as the board of directors of
Archipelago in its sole discretion deems
necessary, appropriate, or desirable in
furtherance of the objectives of the Act
and the governance of Archipelago.17
In addition, the Archipelago
Certificate of Incorporation provides
that for so long as ArcaEx remains a
facility (as defined in section 3(a)(2) of
the Act) 18 of PCX and PCXE and the
Facility Services Agreement, which
currently governs the regulatory
relationship of PCX and PCXE to
ArcaEx, remains in full force and effect,
no ETP Holder, either alone or with its
related persons, shall be permitted at
any time to own beneficially shares of
Archipelago stock representing in the
aggregate more than 20% of the then
outstanding votes entitled to be cast on
any matter.19 Furthermore, unlike the
Ownership Limitation described earlier,
the Archipelago Certificate of
Incorporation does not give the board of
directors of Archipelago the authority to
waive the 20% ownership limitation
13 15
U.S.C. 78s(b).
Certificate of Incorporation,
Article Fourth D(1)(a).
15 Archipelago Certificate of Incorporation,
Article Fourth D(1)(b).
16 15 U.S.C. 78c(a)(39).
17 Archipelago Certificate of Incorporation,
Article Fourth D(1)(b).
18 15 U.S.C. 78c(a)(2).
19 Archipelago Certificate of Incorporation,
Article Fourth D(2).
14 Archipelago
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with respect to ETP Holders and their
related persons.
c. Voting Limitation in the
Archipelago Certificate of Incorporation.
The Archipelago Certificate of
Incorporation also provides that no
person, either alone or with its related
persons, shall be entitled to (1) vote or
cause the voting of shares of
Archipelago stock to the extent such
shares represent in the aggregate more
than 20% of the then outstanding votes
entitled to be cast on any matter (the
‘‘Voting Limitation’’) or (2) enter into
any agreement, plan, or arrangement not
to vote shares, the effect of which
agreement, plan, or arrangement would
be to enable any person, either alone or
with its related persons, to vote, possess
the right to vote, or cause the voting of
shares that would represent in the
aggregate more than 20% of the then
outstanding votes entitled to be cast on
any matter (‘‘Nonvoting Agreement
Prohibition’’).20 The Voting Limitation
and the Nonvoting Agreement
Prohibition shall apply unless and until
(1) a person, either alone or with its
related persons, delivers to the board of
directors of Archipelago a notice in
writing regarding such person’s
intention to vote, possess the right to
vote, or cause the voting of shares of
Archipelago stock that would cause
such person, either alone or with its
related persons, to violate the Voting
Limitation or the Nonvoting Agreement
Prohibition, at least 45 days (or such
shorter period as the board of directors
of Archipelago expressly consents to)
prior to the intended vote and (2) such
person, either alone or with its related
persons, receives prior approval from
the board of directors of Archipelago
and the Commission to exceed the
Voting Limitation or enter into an
agreement, plan, or arrangement not
otherwise allowed pursuant to the
Nonvoting Agreement Prohibition.21
Specifically, (1) the board of directors of
Archipelago must adopt a resolution
approving such person and its related
persons to exceed the Voting Limitation
or to enter into an agreement, plan, or
arrangement not otherwise allowed
pursuant to the Nonvoting Agreement
Prohibition, (2) the resolution must be
filed with the Commission under
section 19(b) of the Act,22 and (3) such
proposed rule change must be approved
by the Commission and become
effective thereunder.23
20 Archipelago Certificate of Incorporation,
Article Fourth C(1).
21 Archipelago Certificate of Incorporation,
Article Fourth C(2).
22 15 U.S.C. 78s(b).
23 Archipelago Certificate of Incorporation,
Article Fourth C(2).
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Subject to its fiduciary obligations
under DGCL, before adopting any such
resolution, the board of directors of
Archipelago must first determine that:
(1) The exercise of such voting rights or
the entering into of such agreement,
plan, or arrangement, as applicable, by
such person, either alone or with its
related persons, would not impair
Archipelago’s, PCX’s or PCXE’s ability
to discharge its responsibilities under
the Act and the rules and regulations
thereunder and is otherwise in the best
interests of Archipelago and its
stockholders; (2) the exercise of such
voting rights or the entering into of such
agreement, plan, or arrangement would
not impair the Commission’s ability to
enforce the Act; (3) such person and its
related persons are not subject to any
statutory disqualification (as defined in
section 3(a)(39) of the Act); 24 and (4) in
the case of a resolution to approve the
exercise of voting rights in excess of the
Voting Limitation, for so long as ArcaEx
remains a facility (as defined in section
3(a)(2) of the Act) 25 of PCX and PCXE
and the Facility Services Agreement is
in full force and effect, neither such
person nor its related persons are ETP
Holders.26 In making such
determinations, the board of directors of
Archipelago may impose any conditions
and restrictions on such person and its
related persons owning any shares of
Archipelago stock entitled to vote on
any matter as the board of directors of
Archipelago in its sole discretion deems
necessary, appropriate, or desirable in
furtherance of the objectives of the Act
and the governance of Archipelago.27
d. Additional Matters Relating to OTP
Holders and OTP Firms of PCX. In
connection with the closing of the
acquisition by Archipelago of PCXH on
September 26, 2005,28 Archipelago
amended and restated its bylaws (as
amended and restated, the ‘‘Archipelago
Bylaws’’) to provide that the board of
directors of Archipelago will not adopt
any resolution waiving the Voting
Limitation, the Nonvoting Agreement
Prohibition, and the Ownership
Limitation with respect to any OTP
Holder or OTP Firm of PCX (as defined
in PCX rules, as such rules may be in
effect from time to time) 29 or its related
24 15
U.S.C. 78c(a)(39).
U.S.C. 78c(a)(2).
26 Archipelago Certificate of Incorporation,
Article Fourth C(3).
27 Id.
28 See Securities Exchange Act Release No. 52497
(September 22, 2005), 70 FR 56949 (September 29,
2005).
29 PCX rules define an ‘‘OTP Holder’’ to mean any
natural person, in good standing, who has been
issued an Options Trading Permit (‘‘OTP’’) by the
Exchange for effecting approved securities
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25 15
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persons.30 These new provisions of the
Archipelago Bylaws may not be
amended, modified, or repealed unless
such amendment, modification, or
repeal is filed with and approved by the
Commission or approved by
Archipelago stockholders voting not less
than 80% of the then outstanding votes
entitled to be cast in favor of any such
amendment, modification, or repeal.31
e. Resolutions of the Board of
Directors of Archipelago. In order to
allow NYSE Group to wholly own and
vote all of Archipelago stock upon
consummation of the Mergers, on
October 19, 2005, NYSE Group
delivered a written notice to the board
of directors of Archipelago, pursuant to
the procedures set forth in the
Archipelago Certificate of Incorporation,
requesting approval of its ownership
and voting of Archipelago stock in
excess of the Ownership Limitation and
the Voting Limitation. Among other
things, in the notice, NYSE Group
represented to the board of directors of
Archipelago that neither it, nor any of
its related persons, are (1) ETP Holders,
OTP Holders, or OTP Firms or (2)
subject to any statutory disqualification
transactions on the Exchange’s trading facilities or
has been named as a Nominee. PCX Rule 1.1(q). The
term ‘‘Nominee’’ means an individual who is
authorized by an ‘‘OTP Firm’’ (a sole
proprietorship, partnership, corporation, limited
liability company, or other organization in good
standing who holds an OTP or upon whom an
individual OTP Holder has conferred trading
privileges on the Exchange’s trading facilities) to
conduct business on the Exchange’s trading
facilities and to represent such OTP Firm in all
matters relating to the Exchange. PCX Rule 1.1(n).
In connection with Archipelago’s acquisition of
PCXH, PCX also implemented certain new rules
which provide, in part, that for as long as
Archipelago controls, directly or indirectly, PCX, no
OTP Holder or OTP Firm, either alone or together
with its ‘‘related persons’’ (as such term is defined
in PCX rules), shall: (i) own beneficially shares of
Archipelago stock representing in the aggregate
more than 20% of the then outstanding votes
entitled to be cast on any matter; (ii) have the right
to vote, vote, or cause the voting of shares of
Archipelago stock to the extent such shares
represent in the aggregate more than 20% of the
then outstanding votes entitled to be cast on any
matter; or (iii) enter into any agreement, plan, or
arrangement not to vote shares of Archipelago
stock, the effect of which would enable any person,
either alone or together with its related persons, to
vote, possess the right to vote, or cause the voting
of shares what would represent in the aggregate
more than 20% of the then outstanding votes
entitled to be cast on any matter. PCX Rules 3.4(a)
and (b).
30 Archipelago Bylaws, section 6.8(d). For
purposes of section 6.8(d), the term ‘‘Related
Person’’ has the meaning set forth in the
Archipelago Certificate of Incorporation and also
includes (1) in the case of a person that is a natural
person, any broker or dealer that is an OTP Holder
or an OTP Firm with which such natural person is
associated and (2) in the case of a person that is an
OTP Holder or an OTP Firm, any broker or dealer
with which such OTP Holder or OTP Firm is
associated.
31 Archipelago Bylaws, section 6.8(g).
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2097
(as defined in section 3(a)(39) of the
Act).32
At a meeting duly convened on
October 20, 2005, the board of directors
of Archipelago adopted a resolution
approving NYSE Group’s request that it
be permitted, either alone or with its
related persons, to exceed the
Ownership Limitation and the Voting
Limitation. In adopting such resolution,
the board of directors of Archipelago
determined that: (1) The acquisition of
beneficial ownership of 100% of the
outstanding shares of Archipelago
common stock and the exercise of
voting rights with respect to 100% of
the outstanding shares of Archipelago
common stock by NYSE Group, either
alone or with its related persons, would
not impair any of Archipelago’s, PCX’s,
or PCXE’s ability to discharge its
responsibilities under the Act and the
rules and regulations thereunder and are
otherwise in the best interests of
Archipelago and its stockholders; (2)
such acquisition of beneficial ownership
and exercise of voting rights of
Archipelago common stock by NYSE
Group, either alone or with its related
persons, would not impair the
Commission’s ability to enforce the Act;
(3) neither NYSE Group nor any of its
related persons is subject to any
statutory disqualification (as defined in
section 3(a)(39) of the Act); 33 and (4)
neither NYSE Group nor any of its
related persons is an ETP Holder, OTP
Holder, or OTP Firm. The board of
directors of Archipelago also approved
the submission of this proposed rule
change to the Commission.
f. Request for Approval. The Exchange
hereby requests the Commission to
allow NYSE Group to wholly own and
vote all of the outstanding common
stock of Archipelago, either alone or
with its related persons, except for any
related person of NYSE Group that is an
ETP Holder, OTP Holder, or OTP Firm,
upon the consummation of the Mergers.
g. Certain Relationships Between
NYSE Group and OTP Holders, OTP
Firms, and ETP Holders. Upon
consummation of the Mergers, NYSE
Group will become the parent company
of the successors to the NYSE and
Archipelago.34 In order to protect the
integrity and independence of the
regulatory responsibilities of PCX and
PCXE after the consummation of the
Mergers, PCX and PCXE have proposed
certain new rules designed to minimize
any potential conflicts of interest that
32 15
U.S.C. 78c(a)(39).
U.S.C. 78c(a)(39).
34 For a description of the structure of NYSE
Group after the consummation of the Mergers, see
S–4 Registration Statement, at 252.
33 15
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may result from ownership
relationships or affiliations between
OTP Holders, OTP Firms, and ETP
Holders on the one hand and NYSE
Group and its subsidiaries, including
PCX and PCXE on the other hand.
Specifically, the proposed PCX Rule
3.10 and proposed PCXE Rule 3.10
provide that, unless approved by the
Commission, (a) no OTP Holder, OTP
Firm, or ETP Holder shall be affiliated
(as such term is defined in Rule 12b–2
under the Act) 35 with NYSE Group or
any of its affiliated entities,36 and (b)
neither NYSE Group nor any of its
affiliates (as such term is defined in
Rule 12b–2 under the Act) 37 shall hold,
directly or indirectly, an ownership
interest in any OTP Firm or ETP
Holder.38 The proposed PCX and PCXE
rules further provide that any person
who fails to meet the requirements
described in the preceding sentence
shall not be eligible to become an OTP
Holder, OTP Firm, or ETP Holder, as the
case may be.39 In addition, in the event
of any failure by any OTP Holder, OTP
Firm, or ETP Holder to comply with the
applicable provisions of the proposed
PCX Rule 3.10 and proposed PCXE Rule
3.10, PCX or PCXE shall suspend all
trading rights and privileges of such
OTP Holder, OTP Firm, or ETP Holder,
as the case may be, in accordance with
the proposed PCX and PCXE rules,
subject to the procedures provided
therein.40
35 Pursuant to Rule 12b–2 under the Act, an
‘‘affiliate’’ of a specified person is a person that
directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is
under common control with, the person specified.
17 CFR 240.12b–2.
36 Proposed PCX Rule 3.10(a) and proposed PCXE
Rule 3.10(a).
37 Pursuant to Rule 12b–2 under the Act, a person
‘‘affiliated’’ with a specified person is a person that
directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is
under common control with, the person specified.
17 CFR 240.12b–2.
38 Proposed PCX Rule 3.10(b) and proposed PCXE
Rule 3.10(b).
39 Proposed PCX Rule 3.10(c) and proposed PCXE
Rule 3.10(c).
40 The proposed PCX and PCXE rules provide that
in the event of any such failure to comply with the
proposed PCX Rule 3.10 and proposed PCXE Rule
3.10, respectively, PCX or PCXE shall: (1) Provide
notice to the applicable OTP Holder, OTP Firm, or
ETP Holder, as the case may be, within five
business days of learning of the failure to comply;
(2) allow the applicable OTP Holder, OTP Firm, or
ETP Holder fifteen calendar days to cure any such
failure to comply; (3) in the event that the
applicable OTP Holder, OTP Firm, or ETP Holder
does not cure such failure to comply within such
fifteen calendar day cure period, schedule a hearing
to occur within thirty calendar days following the
expiration of such fifteen calendar day cure period;
and (4) render its decision as to the suspension of
all trading rights and privileges of the applicable
OTP Holder, OTP Firm, or ETP Holder no later than
ten calendar days following the date of such
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PCX and PCXE believe that by
prohibiting these relationships, the
proposed new rules will ensure that
PCX and PCXE can fairly and
objectively exercise their regulatory
oversight responsibilities with respect to
OTP Holders, OTP Firms, and ETP
Holders.
h. Rights of OTP Holders and ETP
Holders With Respect to the Nomination
and Election of Their Representatives to
the PCX Board and PCXE Board. The
Bylaws of PCX and PCXE contain
certain composition requirements with
respect to the respective boards of
directors of PCX and PCXE. Specifically,
the Bylaws of PCX provide that at least
20% of the directors of PCX shall
consist of individuals nominated by
trading permit holders, with at least one
director nominated by the ETP Holders
and at least one director nominated by
the OTP Holders.41 The Bylaws of PCXE
provide that at least 20% of the
directors (but no fewer than two
directors) of PCXE shall be nominees of
the ETP/Equity ASAP Nominating
Committee, as provided under PCXE
Rule 3.42 The procedures for the
nomination, appointment, and election
of the directors of PCX and PCXE are
governed by PCX and PCXE rules.43 In
order to ensure that the director
nomination and election processes of
each of PCX and PCXE would not be
subject to any undue influence from the
concentration of rights in any one OTP
Holder 44 or ETP Holder, either alone or
together with certain affiliates, each of
PCX and PCXE has proposed
amendments to its rules that will
impose certain restrictions on the ability
of OTP Holders and ETP Holders to
participate in the director nomination
and election processes of PCX and
PCXE, respectively.
Specifically, with respect to the
nomination and election of the OTP
Holder members of the nominating
committee of PCX (‘‘PCX Nominating
Committee’’), the PCX rules currently
provide that: (i) The PCX Nominating
Committee shall have seven members
consisting of six OTP Holders and one
person from the public; (ii) in addition
to candidates nominated by the PCX
Nominating Committee to fill positions
on the PCX Nominating Committee for
the next annual term, the PCX
Nominating Committee must nominate
hearing. Proposed PCX Rule 13.2(a)(2)(F) and
proposed PCXE Rule 11.2(a)(2)(v).
41 PCX Bylaws, section 3.02(a).
42 PCXE Bylaws, section 3.02(a).
43 PCX Rule 3.2(b)(2) and PCXE Rule 3.2(b)(2).
44 Even though OTP Firms also hold options
trading permits, they do not have any voting rights
with respect to the nomination and election of the
OTP Holder representative on the PCX Board.
PO 00000
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Fmt 4703
Sfmt 4703
any candidate for the OTP Holders’
positions on the PCX Nominating
Committee endorsed by the written
petition of the lesser of 35 OTP Holders
or 10% of OTP Holders in good standing
on or before the 45th day preceding the
expiration of the existing term; (iii) in
the event that there are more than six
nominees to fill the OTP Holders’
positions on the PCX Nominating
Committee as a result of petition by OTP
Holders, the PCX Nominating
Committee must submit the nominees to
OTP Holders for election.45
The proposed PCX Rule 3.2(b)(2)(B)(i)
provides that with respect to the
nomination process described in clause
(ii) above, no OTP Holder, either alone
or together with (x) other OTP Holders
associated with (as such term is defined
in section 3(a)(18) of the Act) 46 the
same OTP Firm that such OTP Holder
is associated with and (y) OTP Holders
associated with OTP Firms that are
affiliated (as such term is defined in
Rule 12b–2 under the Act) 47 with the
OTP Firm that such OTP Holder is
associated with, may account for more
than 50% of the signatories to the
petition endorsing a particular petition
nominee for an OTP Holders’ position
on the PCX Nominating Committee. In
addition, the proposed PCX Rule
3.2(b)(2)(B)(iii) provides that with
respect to the election process described
in clause (iii) above, no OTP Holder,
either alone or together with (x) other
OTP Holders associated with the same
OTP Firm that such OTP Holder is
associated with and (y) OTP Holders
associated with OTP Firms that are
affiliated with the OTP Firm that such
OTP Holder is associated with, may
account for more than 20% of the votes
cast for a particular nominee for an OTP
Holders’ position on the PCX
Nominating Committee.
With respect to the nomination and
election of the OTP Holder
representative on the PCX Board, the
PCX rules currently provide that (i) in
addition to the candidate nominated by
the PCX Nominating Committee for the
OTP Holders’ position on the PCX
Board, the PCX Nominating Committee
must nominate any eligible candidate
45 PCX
Rules 3.2(b)(2)(A) and (B).
to section 3(a)(18) of the Act, the term
‘‘associated person of a broker or dealer’’ means any
partner, officer, director, or branch manager of such
broker or dealer (or any person occupying a similar
status or performing similar functions), any person
directly or indirectly controlling, controlled by, or
under common control with such broker or dealer,
or any employee of such broker or dealer, except
that such term does not include any person
associated with a broker or dealer whose functions
are solely clerical or ministerial. 15 U.S.C.
78c(a)(18).
47 17 CFR 240.12b–2.
46 Pursuant
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endorsed by the written petition of the
lesser of 35 OTP Holders or 10% of OTP
Holders in good standing on or before
the tenth business day after the PCX
Nominating Committee publishes its
nominee for the PCX Board,48 and (ii) if
there are two or more nominees for the
PCX Holder’s position on the PCX Board
as a result of petition by OTP Holders,
the PCX Nominating Committee must
submit the contested nomination(s) to
OTP Holders for election.49
The proposed PCX Rule
3.2(b)(2)(C)(ii) provides that with
respect to the nomination process
described in clause (i) above, no OTP
Holder, either alone or together with (x)
other OTP Holders associated with the
same OTP Firm that such OTP Holder
is associated with and (y) OTP Holders
associated with OTP Firms that are
affiliated with the OTP Firm that such
OTP Holder is associated with, may
account for more than 50% of the
signatories to the petition endorsing a
particular petition nominee for the OTP
Holders’ position on the PCX Board. In
addition, the proposed PCX Rule
3.2(b)(2)(C)(iii) provides that with
respect to the election process described
in clause (iii) above, no OTP Holder,
either alone or together with (x) other
OTP Holders associated with the same
OTP Firm that such OTP Holder is
associated with and (y) OTP Holders
associated with OTP Firms that are
affiliated with the OTP Firm that such
OTP Holder is associated with, may
account for more than 20% of the votes
cast for a particular nominee for the
OTP Holders’ position on the PCX
Board.
Similarly, with respect to the
nomination and election of the ETP
Holder members of the nominating
committee of PCXE (‘‘PCXE Nominating
Committee’’), the PCXE rules currently
provide that (i) the PCXE Nominating
Committee shall have seven members
consisting of six ETP Holders and one
person from the public, (ii) in addition
to candidates nominated by the PCXE
Nominating Committee to fill positions
on the PCXE Nominating Committee for
the next annual term, the PCXE
Nominating Committee must nominate
any candidate for the ETP Holders’
positions on the PCXE Nominating
Committee endorsed by the written
petition of at least 10% of ETP Holders
in good standing on or before the 45th
day preceding the expiration of the
existing term, (iii) in the event that there
are more than six nominees to fill the
ETP Holders’ positions on the PCXE
Nominating Committee as a result of
petition by ETP Holders, the PCXE
Nominating Committee must submit the
nominees to ETP Holders for election.50
The proposed PCXE Rule
3.2(b)(2)(B)(i) would provide that with
respect to nomination process described
in clause (ii) above, no ETP Holder,
either alone or together with other ETP
Holders who are deemed its affiliates (as
such term is defined in Rule 12b–2
under the Act),51 may account for more
than 50% of the signatories to the
petition endorsing a particular petition
nominee for an ETP Holders’ position
on the PCXE Nominating Committee. In
addition, the proposed PCXE Rule
3.2(b)(2)(B)(iii) would provide that with
respect to election process described in
clause (iii) above, no ETP Holder, either
alone or together with other ETP
Holders who are deemed its affiliates,
may account for more than 20% of the
votes cast for a particular nominee for
an ETP Holders’ position on the PCXE
Nominating Committee.
With respect to the nomination and
election of the ETP Holder
representatives on the PCX Board and
Board of Directors of PCXE (‘‘PCXE
Board’’), the PCXE rules currently
provide that (i) in addition to the
candidates nominated by the PCXE
Nominating Committee for the ETP
Holders’ positions on the PCX Board
and PCXE Board, the PCXE Nominating
Committee must nominate any eligible
candidate endorsed by the written
petition of at least 10% of ETP Holders
in good standing to the PCX Board or
PCXE Board, as the case may be, within
the time period set forth in the PCXE
rules,52 and (ii) if there are three or more
nominees for the ETP Holders’ positions
on the PCXE Board or two or more
nominees for the ETP Holder’s position
on the PCX Board, the PCXE
Nominating Committee shall submit the
contested nomination(s) to the ETP
Holders for election.53
The proposed PCXE Rule
3.2(b)(2)(C)(i) provides that with respect
to nomination process described in
clause (i) above, no ETP Holder, either
alone or together with other ETP
Holders who are deemed its affiliates,
may account for more than 50% of the
signatories to a petition endorsing a
particular petition nominee for an ETP
Holders’ position on the PCX Board or
PCXE Board. In addition, the proposed
PCXE Rule 3.2(b)(2)(C)(ii) provides that
with respect to the election process
described in clause (ii) above, no ETP
Holder, either alone or together with
other ETP Holders who are deemed its
affiliates, may account for more than
20% of the votes cast for a particular
nominee for an ETP Holders’ position
on the PCX Board or PCXE Board.
PCX believes that the proposed
limitations relating to the director
nomination and election process would
serve to protect the integrity of PCX’s,
PCXE’s, and the Commission’s
regulatory oversight responsibilities and
would allow PCX and PCXE to protect
their respective board of directors from
any undue influences of a group of
related OTP Holders or ETP Holders.
Aside from the trading rights that such
permit holders are entitled to and these
rights described in this section, the
respective permit holders have no other
voting, nomination, petition, or other
rights under the organizational
documents and rules of PCX and PCXE,
as applicable.
2. Basis
The Exchange believes that this filing,
as amended, is consistent with section
6(b) 54 of the Act, in general, and
furthers the objectives of section
6(b)(5),55 in particular, because the rules
summarized herein would create a
governance and regulatory structure
with respect to the operation of the
equities and options business of PCX
that is designed to help prevent
fraudulent and manipulative acts and
practices; to promote just and equitable
principals of trade; to foster cooperation
and coordination with persons engaged
in regulating, clearing, settling,
processing information with respect to,
and facilitating transactions in
securities; and to remove impediments
to and perfect the mechanism of a free
and open market and a national market
system, and, in general, to protect
investors and the public interest. The
Exchange also believes that this filing,
as amended, furthers the objectives of
section 6(b)(1) of the Act 56 in that it
enables the Exchange to be so organized
so as to have the capacity to be able to
carry out the purposes of the Act and to
comply, and (subject to any rule or
order of the Commission pursuant to
sections 17(d) or 19(g)(2) of the Act) 57
to enforce compliance by its exchange
members and persons associated with
its exchange members, with the
provisions of the Act, the rules and
regulations thereunder, and the rules of
the Exchange.
49 PCX
Rule 3.2(b)(2)(C)(ii).
Rule 3.2(b)(2)(C)(iii).
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50 PCXE
54 15
51 17
48 PCX
Rules 3.2(b)(2)(A) and (B).
CFR 240.12b–2.
52 PCXE Rule 3.2(b)(2)(C)(i).
53 PCXE Rule 3.2(b)(2)(C)(ii).
55 15
PO 00000
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Fmt 4703
Sfmt 4703
2099
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
56 15 U.S.C. 78f(b)(1).
57 15 U.S.C. 78q(d) and 78s(g)(2).
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Federal Register / Vol. 71, No. 8 / Thursday, January 12, 2006 / Notices
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
Written comments on the proposed
rule change were neither solicited nor
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 self-regulatory
organization consents, the Commission
will:
(A) by order approve such 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.
erjones on PROD1PC68 with NOTICES
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–PCX–2005–134 on the
subject line.
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 PCX. 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–PCX–2005–134 and should
be submitted on or before February 2,
2006.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.58
Nancy M. Morris,
Secretary.
[FR Doc. 06–316 Filed 1–11–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53052; File No. SR–PCX–
2004–46]
Self-Regulatory Organizations; Order
Approving Proposed Rule Change, and
Amendment No. 1 Thereto, by the
Pacific Exchange, Inc. Relating to
Modifying the Market Imbalance
Calculation for the Opening and Market
Order Auctions on the Archipelago
Exchange
January 5, 2006.
On May 14, 2004, the Pacific
Exchange, Inc. (‘‘PCX’’ or ‘‘Exchange’’),
Paper Comments
through its wholly-owned subsidiary
• Send paper comments in triplicate
PCX Equities, Inc. (‘‘PCXE’’) submitted
to Nancy M. Morris, Secretary,
to the Securities and Exchange
Securities and Exchange Commission,
Commission (‘‘Commission’’), pursuant
Station Place, 100 F Street, NE.,
to Section 19(b)(1) of the Securities
Washington, DC 20549–9303.
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
All submissions should refer to File
19b–4 thereunder,2 a proposed rule
Number SR–PCX–2005–134. This file
change to modify the practices that the
number should be included on the
Exchange employs with respect to the
subject line if e-mail is used. To help the calculation of the Market Imbalance
Commission process and review your
during the Market Order Auction 3 and
comments more efficiently, please use
only one method. The Commission will
58 17 CFR 200.30–3(a)(12).
post all comments on the Commission’s
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
Internet Web site (https://www.sec.gov/
3 See PCXE Rule 7.35(c).
rules/sro.shtml). Copies of the
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15:02 Jan 11, 2006
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Frm 00088
Fmt 4703
Sfmt 4703
Closing Auction 4 conducted on the
Archipelago Exchange (‘‘ArcaEx’’), the
equity trading facility of the Exchange.
On May 24, 2004, the PCX submitted
Amendment No. 1 to the proposed rule
change.5 The Federal Register
published the proposed rule change, as
amended, for comment on June 3,
2004.6 The Commission received no
comments on the proposed rule change,
as amended.
The Exchange proposes to modify
PCXE Rule 1.1(q) for the purpose of
modifying the ArcaEx calculation of the
Market Imbalance. Currently, the
‘‘Market Imbalance’’ is defined as the
imbalance of any remaining Market
Orders 7 that are not matched for
execution during the Market Order
Auction 8 and the imbalance of any
remaining Market-on-Close (‘‘MOC’’)
Orders that are not matched for
execution during the Closing Auction.9
As such, all eligible Market Orders,
MOC Orders,10 Limit Orders,11 and
Limit-on-Close (‘‘LOC’’) Orders 12 that
are eligible for execution in the
applicable auction against Market
Orders or MOC Orders are taken into
consideration when calculating the
Market Imbalance for the Market Order
Auction and Closing Auction. The
Exchange proposes to modify the
Market Imbalance calculation for both
the Market Order Auction and the
Closing Auction so that it will only take
into consideration Market Orders (for
the Market Order Auction) and MOC
Orders (for the Closing Auction) in
determining the Market Imbalance.
After careful consideration, the
Commission finds that the proposed
rule change, as amended, is consistent
with the requirements of the Act and the
rules and regulations thereunder that
are applicable to a national securities
exchange.13 In particular, the
Commission believes that the proposed
rule change is consistent with Section
6(b) of the Act,14 in general, and furthers
the objectives of Section 6(b)(5),15 in
particular, because it is designed to
promote just and equitable principles of
4 See
PCXE Rule 7.35(e).
No. 1 replaced and superseded the
original filing in its entirety.
6 Securities Exchange Act Release No. 49773 (May
26, 2004), 69 FR 31440.
7 PCXE Rule 7.31(a).
8 PCXE Rule 7.35(c).
9 PCXE Rule 7.35(e).
10 PCXE Rule 7.31(dd).
11 PCXE Rule 7.31(b).
12 PCXE Rule 7.31(ee).
13 In approving this rule, the Commission notes
that it has considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
14 15 U.S.C. 78f(b).
15 15 U.S.C. 78f(b)(5).
5 Amendment
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]]>Agencies
[Federal Register Volume 71, Number 8 (Thursday, January 12, 2006)]
[Notices]
[Pages 2095-2100]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-316]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53077; File No. SR-PCX-2005-134]
Self-Regulatory Organizations; Pacific Exchange, Inc.; Notice of
Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to
the Certificate of Incorporation and Bylaws of Archipelago Holdings,
Inc.
January 9, 2006.
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 December 5, 2005, the Pacific Exchange, Inc. (``PCX'' 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
December 15, 2005, the Exchange amended its proposal.\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\ Amendment No. 1 replaced PCX's original filing in its
entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
PCX proposes: (i) To allow NYSE Group, Inc., a Delaware corporation
(``NYSE Group''), and its related persons to wholly own and vote all of
the outstanding capital stock of Archipelago Holdings, Inc., a Delaware
corporation and the parent company of the Exchange (``Archipelago''),
upon the consummation of the proposed business combination of
Archipelago and New York Stock Exchange, Inc., a New York Type A not-
for-profit corporation (the ``NYSE''), subject to certain exceptions
described herein; (ii) certain new rules of PCX and PCX Equities, Inc.
(``PCXE'') prohibiting certain relationships between NYSE Group on the
one hand and OTP Holders, OTP Firms, and ETP Holders (in each case as
defined below) on the other hand; and (iii) to amend the rules of PCX
and PCXE to impose certain restrictions on certain rights of OTP
Holders and ETP Holders with respect to the nomination and election of
the directors of PCX and PCXE.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, PCX included statements
concerning the purpose of, and basis for, the proposed rule change 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.\4\ PCX has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.
---------------------------------------------------------------------------
\4\ Exhibit 5.A (Resolutions Adopted at the October 20, 2005
Regular Meeting of the Board of Directors of Archipelago Holdings,
Inc.), Exhibit 5.B (Proposed PCX Rules), and Exhibit 5.C (Proposed
PCXE Rules) of the proposed rule change are also available on the
Commission's Web site (https://www.sec.gov/rules/sro.shtml).
---------------------------------------------------------------------------
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
a. The Archipelago NYSE Mergers. The Exchange is submitting the
proposed rule change in connection with the proposed mergers
(``Mergers'') of the NYSE and Archipelago. Following the Mergers, the
businesses of the NYSE and Archipelago will be held under a single,
publicly traded holding company named NYSE Group. The Mergers will
occur pursuant to the terms of the Agreement and Plan of Merger, dated
as of April 20, 2005, as amended and restated as of July 20, 2005, as
further amended as of October 20, 2005, and as of November 2, 2005 (as
so amended and restated, the ``Merger Agreement''), by and among the
NYSE, Archipelago, NYSE Group, NYSE Merger Corporation Sub, Inc., a
Delaware corporation and a wholly owned subsidiary of the NYSE, NYSE
Merger Sub LLC, a New York limited liability company and a wholly owned
subsidiary of NYSE Group, and Archipelago Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of NYSE Group.\5\ In the
Mergers, NYSE members will receive cash and/or shares of NYSE Group
common stock, and Archipelago stockholders will receive solely shares
of NYSE Group common stock.\6\ Archipelago acquired PCX Holdings, Inc.
(``PCXH'') on September 26, 2005, and is currently the ultimate parent
company of PCXH and all of its subsidiaries, including PCX and PCXE.
---------------------------------------------------------------------------
\5\ For a description of the Merger Agreement and the
transactions contemplated thereby, see Amendment No. 3 to the
Registration Statement on Form S-4, Registration No. 333-126780,
filed with the Commission on November 3, 2005 (``S-4 Registration
Statement''), at 125-147.
\6\ Id.
---------------------------------------------------------------------------
b. Ownership Limitation in the Archipelago Certificate of
Incorporation. The Archipelago Certificate of Incorporation was
approved by the Commission on August 9, 2004 in connection with the
initial public offering of Archipelago.\7\ In order to ensure that the
ownership of Archipelago by the public will not unduly interfere with,
or restrict the ability of, the Commission or PCX to effectively carry
out its regulatory oversight responsibilities under the Act and
generally to enable the Archipelago Exchange, L.L.C. (``ArcaEx'') to
operate in a manner that complies with the federal securities laws,
including furthering the objectives of section 6(b)(5) of the Act,\8\
the Archipelago Certificate of Incorporation imposes certain ownership
and voting limitations with respect to the stock of Archipelago.
---------------------------------------------------------------------------
\7\ See Securities Exchange Act Release No. 50170, 69 FR 50419
(August 16, 2004).
\8\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
Specifically, the Archipelago Certificate of Incorporation provides
that no person,\9\ either alone or together with its related
persons,\10\ may own
[[Page 2096]]
beneficially shares of Archipelago stock representing in the aggregate
more than 40% of the then outstanding votes entitled to be cast on any
matter (the ``Ownership Limitation'').\11\ The Ownership Limitation
will apply unless and until (1) a person, either alone or with its
related persons, delivers to the board of directors of Archipelago a
notice in writing regarding its intention to acquire shares of
Archipelago stock that would cause such person, either alone or with
its related persons, to own beneficially shares of stock of Archipelago
in excess of the Ownership Limitation, at least 45 days (or such
shorter period as the board of directors of Archipelago expressly
consents to) prior to the intended acquisition, and (2) such person,
either alone or with its related persons, receives prior approval by
the board of directors of Archipelago and the Commission to exceed the
Ownership Limitation.\12\ Specifically, (1) the board of directors of
Archipelago must adopt a resolution approving such person and its
related persons to exceed the Ownership Limitation, (2) the resolution
must be filed with the Commission under section 19(b) of the Act,\13\
and (3) such proposed rule change must be approved by the Commission
and become effective thereunder.\14\
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\9\ The Archipelago Certificate of Incorporation defines
``Person'' to mean a natural person, company, government, or
political subdivision, agency, or instrumentality of a government.
Archipelago Certificate of Incorporation, Article Fourth H(2).
\10\ The Archipelago Certificate of Incorporation defines
``Related Persons'' to mean with respect to any person (a) any other
person(s) whose beneficial ownership of shares of stock of
Archipelago with the power to vote on any matter would be aggregated
with such first person's beneficial ownership of such stock or
deemed to be beneficially owned by such first person pursuant to
Rules 13d-3 and 13d-5 under the Act; (b) in the case of a person
that is a natural person, for so long as ArcaEx remains a facility
(as defined in section 3(a)(2) of the Act) of PCX and PCXE and the
Amended and Restated Facility Services Agreement among Archipelago,
PCX, and PCXE, dated as of March 22, 2002 (``Facility Services
Agreement''), is in full force and effect, any broker or dealer that
is an ETP Holder (as defined in the PCXE rules of PCX, as such rules
may be in effect from time to time) with which such natural person
is associated; (c) in the case of a person that is an ETP Holder,
for so long as ArcaEx remains a facility of PCX and PCXE and the
Facility Services Agreement is in full force and effect, any broker
or dealer with which such ETP Holder is associated; (d) any other
person(s) with which such person has any agreement, arrangement, or
understanding (whether or not in writing) to act together for the
purpose of acquiring, voting, holding, or disposing of shares of the
stock of Archipelago; and (e) in the case of a person that is a
natural person, any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person or who
is a director or officer of Archipelago or any of its parents or
subsidiaries. Archipelago Certificate of Incorporation, Article
Fourth H(3). As defined in the PCXE rules, the term ``ETP Holder''
refers to any sole proprietorship, partnership, corporation, limited
liability company, or other organization in good standing that has
been issued an Equity Trading Permit, a permit issued by the PCXE
for effecting approved securities transactions on the trading
facilities of PCXE. PCXE Rule 1.1 (m) and (n). See 17 CFR 240.13d-3
and 240.13d-5. See also 15 U.S.C. 78c(a)(2).
\11\ In considering whether a person owns shares of stock of
Archipelago in violation of the applicable ownership limitations,
Archipelago must consider any filings made with the Commission under
section 13(d) and section 13(g) of the Act by such person and its
related persons and must aggregate all shares owned or voted by such
person and its related persons to determine such person's beneficial
ownership. See 15 U.S.C. 78m(d) and (g).
\12\ Archipelago Certificate of Incorporation, Article Fourth
D(1)(a).
\13\ 15 U.S.C. 78s(b).
\14\ Archipelago Certificate of Incorporation, Article Fourth
D(1)(a).
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Subject to its fiduciary obligations under the Delaware General
Corporation Law, as amended (``DGCL''), before adopting any such
resolution, the board of directors of Archipelago must first determine
that: (1) such acquisition of beneficial ownership by such person,
either alone or with its related persons, would not impair any of
Archipelago's, PCX's, or PCXE's ability to discharge its
responsibilities under the Act and the rules and regulations thereunder
and is otherwise in the best interests of Archipelago and its
stockholders; (2) such acquisition of beneficial ownership by such
person, either alone or with its related persons, would not impair the
Commission's ability to enforce the Act; and (3) such person and its
related persons are not subject to any statutory disqualification \15\
(as defined in section 3(a)(39) of the Act).\16\ In making such
determinations, the board of directors of Archipelago may impose any
conditions and restrictions on such person and its related persons
owning any shares of stock of Archipelago entitled to vote on any
matter as the board of directors of Archipelago in its sole discretion
deems necessary, appropriate, or desirable in furtherance of the
objectives of the Act and the governance of Archipelago.\17\
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\15\ Archipelago Certificate of Incorporation, Article Fourth
D(1)(b).
\16\ 15 U.S.C. 78c(a)(39).
\17\ Archipelago Certificate of Incorporation, Article Fourth
D(1)(b).
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In addition, the Archipelago Certificate of Incorporation provides
that for so long as ArcaEx remains a facility (as defined in section
3(a)(2) of the Act) \18\ of PCX and PCXE and the Facility Services
Agreement, which currently governs the regulatory relationship of PCX
and PCXE to ArcaEx, remains in full force and effect, no ETP Holder,
either alone or with its related persons, shall be permitted at any
time to own beneficially shares of Archipelago stock representing in
the aggregate more than 20% of the then outstanding votes entitled to
be cast on any matter.\19\ Furthermore, unlike the Ownership Limitation
described earlier, the Archipelago Certificate of Incorporation does
not give the board of directors of Archipelago the authority to waive
the 20% ownership limitation with respect to ETP Holders and their
related persons.
---------------------------------------------------------------------------
\18\ 15 U.S.C. 78c(a)(2).
\19\ Archipelago Certificate of Incorporation, Article Fourth
D(2).
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c. Voting Limitation in the Archipelago Certificate of
Incorporation. The Archipelago Certificate of Incorporation also
provides that no person, either alone or with its related persons,
shall be entitled to (1) vote or cause the voting of shares of
Archipelago stock to the extent such shares represent in the aggregate
more than 20% of the then outstanding votes entitled to be cast on any
matter (the ``Voting Limitation'') or (2) enter into any agreement,
plan, or arrangement not to vote shares, the effect of which agreement,
plan, or arrangement would be to enable any person, either alone or
with its related persons, to vote, possess the right to vote, or cause
the voting of shares that would represent in the aggregate more than
20% of the then outstanding votes entitled to be cast on any matter
(``Nonvoting Agreement Prohibition'').\20\ The Voting Limitation and
the Nonvoting Agreement Prohibition shall apply unless and until (1) a
person, either alone or with its related persons, delivers to the board
of directors of Archipelago a notice in writing regarding such person's
intention to vote, possess the right to vote, or cause the voting of
shares of Archipelago stock that would cause such person, either alone
or with its related persons, to violate the Voting Limitation or the
Nonvoting Agreement Prohibition, at least 45 days (or such shorter
period as the board of directors of Archipelago expressly consents to)
prior to the intended vote and (2) such person, either alone or with
its related persons, receives prior approval from the board of
directors of Archipelago and the Commission to exceed the Voting
Limitation or enter into an agreement, plan, or arrangement not
otherwise allowed pursuant to the Nonvoting Agreement Prohibition.\21\
Specifically, (1) the board of directors of Archipelago must adopt a
resolution approving such person and its related persons to exceed the
Voting Limitation or to enter into an agreement, plan, or arrangement
not otherwise allowed pursuant to the Nonvoting Agreement Prohibition,
(2) the resolution must be filed with the Commission under section
19(b) of the Act,\22\ and (3) such proposed rule change must be
approved by the Commission and become effective thereunder.\23\
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\20\ Archipelago Certificate of Incorporation, Article Fourth
C(1).
\21\ Archipelago Certificate of Incorporation, Article Fourth
C(2).
\22\ 15 U.S.C. 78s(b).
\23\ Archipelago Certificate of Incorporation, Article Fourth
C(2).
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[[Page 2097]]
Subject to its fiduciary obligations under DGCL, before adopting
any such resolution, the board of directors of Archipelago must first
determine that: (1) The exercise of such voting rights or the entering
into of such agreement, plan, or arrangement, as applicable, by such
person, either alone or with its related persons, would not impair
Archipelago's, PCX's or PCXE's ability to discharge its
responsibilities under the Act and the rules and regulations thereunder
and is otherwise in the best interests of Archipelago and its
stockholders; (2) the exercise of such voting rights or the entering
into of such agreement, plan, or arrangement would not impair the
Commission's ability to enforce the Act; (3) such person and its
related persons are not subject to any statutory disqualification (as
defined in section 3(a)(39) of the Act); \24\ and (4) in the case of a
resolution to approve the exercise of voting rights in excess of the
Voting Limitation, for so long as ArcaEx remains a facility (as defined
in section 3(a)(2) of the Act) \25\ of PCX and PCXE and the Facility
Services Agreement is in full force and effect, neither such person nor
its related persons are ETP Holders.\26\ In making such determinations,
the board of directors of Archipelago may impose any conditions and
restrictions on such person and its related persons owning any shares
of Archipelago stock entitled to vote on any matter as the board of
directors of Archipelago in its sole discretion deems necessary,
appropriate, or desirable in furtherance of the objectives of the Act
and the governance of Archipelago.\27\
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\24\ 15 U.S.C. 78c(a)(39).
\25\ 15 U.S.C. 78c(a)(2).
\26\ Archipelago Certificate of Incorporation, Article Fourth
C(3).
\27\ Id.
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d. Additional Matters Relating to OTP Holders and OTP Firms of PCX.
In connection with the closing of the acquisition by Archipelago of
PCXH on September 26, 2005,\28\ Archipelago amended and restated its
bylaws (as amended and restated, the ``Archipelago Bylaws'') to provide
that the board of directors of Archipelago will not adopt any
resolution waiving the Voting Limitation, the Nonvoting Agreement
Prohibition, and the Ownership Limitation with respect to any OTP
Holder or OTP Firm of PCX (as defined in PCX rules, as such rules may
be in effect from time to time) \29\ or its related persons.\30\ These
new provisions of the Archipelago Bylaws may not be amended, modified,
or repealed unless such amendment, modification, or repeal is filed
with and approved by the Commission or approved by Archipelago
stockholders voting not less than 80% of the then outstanding votes
entitled to be cast in favor of any such amendment, modification, or
repeal.\31\
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\28\ See Securities Exchange Act Release No. 52497 (September
22, 2005), 70 FR 56949 (September 29, 2005).
\29\ PCX rules define an ``OTP Holder'' to mean any natural
person, in good standing, who has been issued an Options Trading
Permit (``OTP'') by the Exchange for effecting approved securities
transactions on the Exchange's trading facilities or has been named
as a Nominee. PCX Rule 1.1(q). The term ``Nominee'' means an
individual who is authorized by an ``OTP Firm'' (a sole
proprietorship, partnership, corporation, limited liability company,
or other organization in good standing who holds an OTP or upon whom
an individual OTP Holder has conferred trading privileges on the
Exchange's trading facilities) to conduct business on the Exchange's
trading facilities and to represent such OTP Firm in all matters
relating to the Exchange. PCX Rule 1.1(n). In connection with
Archipelago's acquisition of PCXH, PCX also implemented certain new
rules which provide, in part, that for as long as Archipelago
controls, directly or indirectly, PCX, no OTP Holder or OTP Firm,
either alone or together with its ``related persons'' (as such term
is defined in PCX rules), shall: (i) own beneficially shares of
Archipelago stock representing in the aggregate more than 20% of the
then outstanding votes entitled to be cast on any matter; (ii) have
the right to vote, vote, or cause the voting of shares of
Archipelago stock to the extent such shares represent in the
aggregate more than 20% of the then outstanding votes entitled to be
cast on any matter; or (iii) enter into any agreement, plan, or
arrangement not to vote shares of Archipelago stock, the effect of
which would enable any person, either alone or together with its
related persons, to vote, possess the right to vote, or cause the
voting of shares what would represent in the aggregate more than 20%
of the then outstanding votes entitled to be cast on any matter. PCX
Rules 3.4(a) and (b).
\30\ Archipelago Bylaws, section 6.8(d). For purposes of section
6.8(d), the term ``Related Person'' has the meaning set forth in the
Archipelago Certificate of Incorporation and also includes (1) in
the case of a person that is a natural person, any broker or dealer
that is an OTP Holder or an OTP Firm with which such natural person
is associated and (2) in the case of a person that is an OTP Holder
or an OTP Firm, any broker or dealer with which such OTP Holder or
OTP Firm is associated.
\31\ Archipelago Bylaws, section 6.8(g).
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e. Resolutions of the Board of Directors of Archipelago. In order
to allow NYSE Group to wholly own and vote all of Archipelago stock
upon consummation of the Mergers, on October 19, 2005, NYSE Group
delivered a written notice to the board of directors of Archipelago,
pursuant to the procedures set forth in the Archipelago Certificate of
Incorporation, requesting approval of its ownership and voting of
Archipelago stock in excess of the Ownership Limitation and the Voting
Limitation. Among other things, in the notice, NYSE Group represented
to the board of directors of Archipelago that neither it, nor any of
its related persons, are (1) ETP Holders, OTP Holders, or OTP Firms or
(2) subject to any statutory disqualification (as defined in section
3(a)(39) of the Act).\32\
---------------------------------------------------------------------------
\32\ 15 U.S.C. 78c(a)(39).
---------------------------------------------------------------------------
At a meeting duly convened on October 20, 2005, the board of
directors of Archipelago adopted a resolution approving NYSE Group's
request that it be permitted, either alone or with its related persons,
to exceed the Ownership Limitation and the Voting Limitation. In
adopting such resolution, the board of directors of Archipelago
determined that: (1) The acquisition of beneficial ownership of 100% of
the outstanding shares of Archipelago common stock and the exercise of
voting rights with respect to 100% of the outstanding shares of
Archipelago common stock by NYSE Group, either alone or with its
related persons, would not impair any of Archipelago's, PCX's, or
PCXE's ability to discharge its responsibilities under the Act and the
rules and regulations thereunder and are otherwise in the best
interests of Archipelago and its stockholders; (2) such acquisition of
beneficial ownership and exercise of voting rights of Archipelago
common stock by NYSE Group, either alone or with its related persons,
would not impair the Commission's ability to enforce the Act; (3)
neither NYSE Group nor any of its related persons is subject to any
statutory disqualification (as defined in section 3(a)(39) of the Act);
\33\ and (4) neither NYSE Group nor any of its related persons is an
ETP Holder, OTP Holder, or OTP Firm. The board of directors of
Archipelago also approved the submission of this proposed rule change
to the Commission.
---------------------------------------------------------------------------
\33\ 15 U.S.C. 78c(a)(39).
---------------------------------------------------------------------------
f. Request for Approval. The Exchange hereby requests the
Commission to allow NYSE Group to wholly own and vote all of the
outstanding common stock of Archipelago, either alone or with its
related persons, except for any related person of NYSE Group that is an
ETP Holder, OTP Holder, or OTP Firm, upon the consummation of the
Mergers.
g. Certain Relationships Between NYSE Group and OTP Holders, OTP
Firms, and ETP Holders. Upon consummation of the Mergers, NYSE Group
will become the parent company of the successors to the NYSE and
Archipelago.\34\ In order to protect the integrity and independence of
the regulatory responsibilities of PCX and PCXE after the consummation
of the Mergers, PCX and PCXE have proposed certain new rules designed
to minimize any potential conflicts of interest that
[[Page 2098]]
may result from ownership relationships or affiliations between OTP
Holders, OTP Firms, and ETP Holders on the one hand and NYSE Group and
its subsidiaries, including PCX and PCXE on the other hand.
---------------------------------------------------------------------------
\34\ For a description of the structure of NYSE Group after the
consummation of the Mergers, see S-4 Registration Statement, at 252.
---------------------------------------------------------------------------
Specifically, the proposed PCX Rule 3.10 and proposed PCXE Rule
3.10 provide that, unless approved by the Commission, (a) no OTP
Holder, OTP Firm, or ETP Holder shall be affiliated (as such term is
defined in Rule 12b-2 under the Act) \35\ with NYSE Group or any of its
affiliated entities,\36\ and (b) neither NYSE Group nor any of its
affiliates (as such term is defined in Rule 12b-2 under the Act) \37\
shall hold, directly or indirectly, an ownership interest in any OTP
Firm or ETP Holder.\38\ The proposed PCX and PCXE rules further provide
that any person who fails to meet the requirements described in the
preceding sentence shall not be eligible to become an OTP Holder, OTP
Firm, or ETP Holder, as the case may be.\39\ In addition, in the event
of any failure by any OTP Holder, OTP Firm, or ETP Holder to comply
with the applicable provisions of the proposed PCX Rule 3.10 and
proposed PCXE Rule 3.10, PCX or PCXE shall suspend all trading rights
and privileges of such OTP Holder, OTP Firm, or ETP Holder, as the case
may be, in accordance with the proposed PCX and PCXE rules, subject to
the procedures provided therein.\40\
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\35\ Pursuant to Rule 12b-2 under the Act, an ``affiliate'' of a
specified person is a person that directly, or indirectly through
one or more intermediaries, controls, is controlled by, or is under
common control with, the person specified. 17 CFR 240.12b-2.
\36\ Proposed PCX Rule 3.10(a) and proposed PCXE Rule 3.10(a).
\37\ Pursuant to Rule 12b-2 under the Act, a person
``affiliated'' with a specified person is a person that directly, or
indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the person
specified. 17 CFR 240.12b-2.
\38\ Proposed PCX Rule 3.10(b) and proposed PCXE Rule 3.10(b).
\39\ Proposed PCX Rule 3.10(c) and proposed PCXE Rule 3.10(c).
\40\ The proposed PCX and PCXE rules provide that in the event
of any such failure to comply with the proposed PCX Rule 3.10 and
proposed PCXE Rule 3.10, respectively, PCX or PCXE shall: (1)
Provide notice to the applicable OTP Holder, OTP Firm, or ETP
Holder, as the case may be, within five business days of learning of
the failure to comply; (2) allow the applicable OTP Holder, OTP
Firm, or ETP Holder fifteen calendar days to cure any such failure
to comply; (3) in the event that the applicable OTP Holder, OTP
Firm, or ETP Holder does not cure such failure to comply within such
fifteen calendar day cure period, schedule a hearing to occur within
thirty calendar days following the expiration of such fifteen
calendar day cure period; and (4) render its decision as to the
suspension of all trading rights and privileges of the applicable
OTP Holder, OTP Firm, or ETP Holder no later than ten calendar days
following the date of such hearing. Proposed PCX Rule 13.2(a)(2)(F)
and proposed PCXE Rule 11.2(a)(2)(v).
---------------------------------------------------------------------------
PCX and PCXE believe that by prohibiting these relationships, the
proposed new rules will ensure that PCX and PCXE can fairly and
objectively exercise their regulatory oversight responsibilities with
respect to OTP Holders, OTP Firms, and ETP Holders.
h. Rights of OTP Holders and ETP Holders With Respect to the
Nomination and Election of Their Representatives to the PCX Board and
PCXE Board. The Bylaws of PCX and PCXE contain certain composition
requirements with respect to the respective boards of directors of PCX
and PCXE. Specifically, the Bylaws of PCX provide that at least 20% of
the directors of PCX shall consist of individuals nominated by trading
permit holders, with at least one director nominated by the ETP Holders
and at least one director nominated by the OTP Holders.\41\ The Bylaws
of PCXE provide that at least 20% of the directors (but no fewer than
two directors) of PCXE shall be nominees of the ETP/Equity ASAP
Nominating Committee, as provided under PCXE Rule 3.\42\ The procedures
for the nomination, appointment, and election of the directors of PCX
and PCXE are governed by PCX and PCXE rules.\43\ In order to ensure
that the director nomination and election processes of each of PCX and
PCXE would not be subject to any undue influence from the concentration
of rights in any one OTP Holder \44\ or ETP Holder, either alone or
together with certain affiliates, each of PCX and PCXE has proposed
amendments to its rules that will impose certain restrictions on the
ability of OTP Holders and ETP Holders to participate in the director
nomination and election processes of PCX and PCXE, respectively.
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\41\ PCX Bylaws, section 3.02(a).
\42\ PCXE Bylaws, section 3.02(a).
\43\ PCX Rule 3.2(b)(2) and PCXE Rule 3.2(b)(2).
\44\ Even though OTP Firms also hold options trading permits,
they do not have any voting rights with respect to the nomination
and election of the OTP Holder representative on the PCX Board.
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Specifically, with respect to the nomination and election of the
OTP Holder members of the nominating committee of PCX (``PCX Nominating
Committee''), the PCX rules currently provide that: (i) The PCX
Nominating Committee shall have seven members consisting of six OTP
Holders and one person from the public; (ii) in addition to candidates
nominated by the PCX Nominating Committee to fill positions on the PCX
Nominating Committee for the next annual term, the PCX Nominating
Committee must nominate any candidate for the OTP Holders' positions on
the PCX Nominating Committee endorsed by the written petition of the
lesser of 35 OTP Holders or 10% of OTP Holders in good standing on or
before the 45th day preceding the expiration of the existing term;
(iii) in the event that there are more than six nominees to fill the
OTP Holders' positions on the PCX Nominating Committee as a result of
petition by OTP Holders, the PCX Nominating Committee must submit the
nominees to OTP Holders for election.\45\
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\45\ PCX Rules 3.2(b)(2)(A) and (B).
---------------------------------------------------------------------------
The proposed PCX Rule 3.2(b)(2)(B)(i) provides that with respect to
the nomination process described in clause (ii) above, no OTP Holder,
either alone or together with (x) other OTP Holders associated with (as
such term is defined in section 3(a)(18) of the Act) \46\ the same OTP
Firm that such OTP Holder is associated with and (y) OTP Holders
associated with OTP Firms that are affiliated (as such term is defined
in Rule 12b-2 under the Act) \47\ with the OTP Firm that such OTP
Holder is associated with, may account for more than 50% of the
signatories to the petition endorsing a particular petition nominee for
an OTP Holders' position on the PCX Nominating Committee. In addition,
the proposed PCX Rule 3.2(b)(2)(B)(iii) provides that with respect to
the election process described in clause (iii) above, no OTP Holder,
either alone or together with (x) other OTP Holders associated with the
same OTP Firm that such OTP Holder is associated with and (y) OTP
Holders associated with OTP Firms that are affiliated with the OTP Firm
that such OTP Holder is associated with, may account for more than 20%
of the votes cast for a particular nominee for an OTP Holders' position
on the PCX Nominating Committee.
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\46\ Pursuant to section 3(a)(18) of the Act, the term
``associated person of a broker or dealer'' means any partner,
officer, director, or branch manager of such broker or dealer (or
any person occupying a similar status or performing similar
functions), any person directly or indirectly controlling,
controlled by, or under common control with such broker or dealer,
or any employee of such broker or dealer, except that such term does
not include any person associated with a broker or dealer whose
functions are solely clerical or ministerial. 15 U.S.C. 78c(a)(18).
\47\ 17 CFR 240.12b-2.
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With respect to the nomination and election of the OTP Holder
representative on the PCX Board, the PCX rules currently provide that
(i) in addition to the candidate nominated by the PCX Nominating
Committee for the OTP Holders' position on the PCX Board, the PCX
Nominating Committee must nominate any eligible candidate
[[Page 2099]]
endorsed by the written petition of the lesser of 35 OTP Holders or 10%
of OTP Holders in good standing on or before the tenth business day
after the PCX Nominating Committee publishes its nominee for the PCX
Board,\48\ and (ii) if there are two or more nominees for the PCX
Holder's position on the PCX Board as a result of petition by OTP
Holders, the PCX Nominating Committee must submit the contested
nomination(s) to OTP Holders for election.\49\
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\48\ PCX Rule 3.2(b)(2)(C)(ii).
\49\ PCX Rule 3.2(b)(2)(C)(iii).
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The proposed PCX Rule 3.2(b)(2)(C)(ii) provides that with respect
to the nomination process described in clause (i) above, no OTP Holder,
either alone or together with (x) other OTP Holders associated with the
same OTP Firm that such OTP Holder is associated with and (y) OTP
Holders associated with OTP Firms that are affiliated with the OTP Firm
that such OTP Holder is associated with, may account for more than 50%
of the signatories to the petition endorsing a particular petition
nominee for the OTP Holders' position on the PCX Board. In addition,
the proposed PCX Rule 3.2(b)(2)(C)(iii) provides that with respect to
the election process described in clause (iii) above, no OTP Holder,
either alone or together with (x) other OTP Holders associated with the
same OTP Firm that such OTP Holder is associated with and (y) OTP
Holders associated with OTP Firms that are affiliated with the OTP Firm
that such OTP Holder is associated with, may account for more than 20%
of the votes cast for a particular nominee for the OTP Holders'
position on the PCX Board.
Similarly, with respect to the nomination and election of the ETP
Holder members of the nominating committee of PCXE (``PCXE Nominating
Committee''), the PCXE rules currently provide that (i) the PCXE
Nominating Committee shall have seven members consisting of six ETP
Holders and one person from the public, (ii) in addition to candidates
nominated by the PCXE Nominating Committee to fill positions on the
PCXE Nominating Committee for the next annual term, the PCXE Nominating
Committee must nominate any candidate for the ETP Holders' positions on
the PCXE Nominating Committee endorsed by the written petition of at
least 10% of ETP Holders in good standing on or before the 45th day
preceding the expiration of the existing term, (iii) in the event that
there are more than six nominees to fill the ETP Holders' positions on
the PCXE Nominating Committee as a result of petition by ETP Holders,
the PCXE Nominating Committee must submit the nominees to ETP Holders
for election.\50\
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\50\ PCXE Rules 3.2(b)(2)(A) and (B).
---------------------------------------------------------------------------
The proposed PCXE Rule 3.2(b)(2)(B)(i) would provide that with
respect to nomination process described in clause (ii) above, no ETP
Holder, either alone or together with other ETP Holders who are deemed
its affiliates (as such term is defined in Rule 12b-2 under the
Act),\51\ may account for more than 50% of the signatories to the
petition endorsing a particular petition nominee for an ETP Holders'
position on the PCXE Nominating Committee. In addition, the proposed
PCXE Rule 3.2(b)(2)(B)(iii) would provide that with respect to election
process described in clause (iii) above, no ETP Holder, either alone or
together with other ETP Holders who are deemed its affiliates, may
account for more than 20% of the votes cast for a particular nominee
for an ETP Holders' position on the PCXE Nominating Committee.
---------------------------------------------------------------------------
\51\ 17 CFR 240.12b-2.
---------------------------------------------------------------------------
With respect to the nomination and election of the ETP Holder
representatives on the PCX Board and Board of Directors of PCXE (``PCXE
Board''), the PCXE rules currently provide that (i) in addition to the
candidates nominated by the PCXE Nominating Committee for the ETP
Holders' positions on the PCX Board and PCXE Board, the PCXE Nominating
Committee must nominate any eligible candidate endorsed by the written
petition of at least 10% of ETP Holders in good standing to the PCX
Board or PCXE Board, as the case may be, within the time period set
forth in the PCXE rules,\52\ and (ii) if there are three or more
nominees for the ETP Holders' positions on the PCXE Board or two or
more nominees for the ETP Holder's position on the PCX Board, the PCXE
Nominating Committee shall submit the contested nomination(s) to the
ETP Holders for election.\53\
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\52\ PCXE Rule 3.2(b)(2)(C)(i).
\53\ PCXE Rule 3.2(b)(2)(C)(ii).
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The proposed PCXE Rule 3.2(b)(2)(C)(i) provides that with respect
to nomination process described in clause (i) above, no ETP Holder,
either alone or together with other ETP Holders who are deemed its
affiliates, may account for more than 50% of the signatories to a
petition endorsing a particular petition nominee for an ETP Holders'
position on the PCX Board or PCXE Board. In addition, the proposed PCXE
Rule 3.2(b)(2)(C)(ii) provides that with respect to the election
process described in clause (ii) above, no ETP Holder, either alone or
together with other ETP Holders who are deemed its affiliates, may
account for more than 20% of the votes cast for a particular nominee
for an ETP Holders' position on the PCX Board or PCXE Board.
PCX believes that the proposed limitations relating to the director
nomination and election process would serve to protect the integrity of
PCX's, PCXE's, and the Commission's regulatory oversight
responsibilities and would allow PCX and PCXE to protect their
respective board of directors from any undue influences of a group of
related OTP Holders or ETP Holders. Aside from the trading rights that
such permit holders are entitled to and these rights described in this
section, the respective permit holders have no other voting,
nomination, petition, or other rights under the organizational
documents and rules of PCX and PCXE, as applicable.
2. Basis
The Exchange believes that this filing, as amended, is consistent
with section 6(b) \54\ of the Act, in general, and furthers the
objectives of section 6(b)(5),\55\ in particular, because the rules
summarized herein would create a governance and regulatory structure
with respect to the operation of the equities and options business of
PCX that is designed to help prevent fraudulent and manipulative acts
and practices; to promote just and equitable principals of trade; to
foster cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities; and to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest. The Exchange also believes that this filing, as amended,
furthers the objectives of section 6(b)(1) of the Act \56\ in that it
enables the Exchange to be so organized so as to have the capacity to
be able to carry out the purposes of the Act and to comply, and
(subject to any rule or order of the Commission pursuant to sections
17(d) or 19(g)(2) of the Act) \57\ to enforce compliance by its
exchange members and persons associated with its exchange members, with
the provisions of the Act, the rules and regulations thereunder, and
the rules of the Exchange.
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\54\ 15 U.S.C. 78f(b).
\55\ 15 U.S.C. 78f(b)(5).
\56\ 15 U.S.C. 78f(b)(1).
\57\ 15 U.S.C. 78q(d) and 78s(g)(2).
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[[Page 2100]]
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
Written comments on the proposed rule change were neither solicited
nor 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 self-regulatory organization consents, the Commission will:
(A) by order approve such 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-PCX-2005-134 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, Station Place, 100 F
Street, NE., Washington, DC 20549-9303.
All submissions should refer to File Number SR-PCX-2005-134. 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/
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 PCX. 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-PCX-2005-134 and should be submitted on or before February 2, 2006.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\58\
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\58\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. 06-316 Filed 1-11-06; 8:45 am]
BILLING CODE 8010-01-P
