Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Regarding Amendments to the Exchange's Bylaws and Other Governance Changes, 58023-58024 [E6-16113]

Download as PDF Federal Register / Vol. 71, No. 190 / Monday, October 2, 2006 / Notices be submitted on or before October 23, 2006. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.20 Nancy M. Morris, Secretary. [FR Doc. E6–16165 Filed 9–29–06; 8:45 am] BILLING CODE 8010–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–54494; File No. SR–CHX– 2006–23] Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Order Approving Proposed Rule Change and Amendment No. 1 Thereto Regarding Amendments to the Exchange’s Bylaws and Other Governance Changes September 25, 2006. I. Introduction On June 22, 2006, the Chicago Stock Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to amend its bylaws and rules to make several governance changes. The CHX filed Amendment No. 1 to the proposed rule change on July 20, 2006. The proposed rule change, as amended, was published for comment in the Federal Register on August 3, 2006.3 The Commission received no comments regarding the proposal. This order approves the proposed rule change, as amended. II. Description of the Proposal CHX proposes changes to its bylaws to reflect the terms of an agreement with four firms (‘‘Investor Firms’’) 4 to invest in CHX Holdings, Inc., (‘‘CHX Holdings’’).5 CHX proposes to amend its 20 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 Securities Exchange Act Release No. 54226 (July 27, 2006), 71 FR 44064 (‘‘Notice’’). 4 Each investment represents a minority equity stake in CHX Holdings consisting of shares of CHX Holdings Series A Preferred Stock. 5 See Securities Exchange Act Release No. 51149 (Feb. 8, 2005), 70 FR 7531 (Feb. 14, 2005) (order approving Exchange’s demutualization). As part of the demutualization, former CHX members received common stock in CHX Holdings and received CHX trading permits entitling them to maintain their access to the Exchange. In addition, other persons who satisfy the applicable requirements were granted the ability to obtain trading permits, regardless of whether they are shareholders in CHX Holdings. Persons who hold trading permits are rmajette on PROD1PC67 with NOTICES1 1 15 VerDate Aug<31>2005 15:07 Sep 29, 2006 Jkt 211001 bylaws and rules to (1) require the Exchange’s Board of Directors (‘‘Board’’) to identify one position in each Board class as the ‘‘Subject to Petition (STP) Participant Director,’’ with candidates for that position to be subject to a petition process involving the Exchange’s participants; (2) change the composition of the Exchange’s Nominating & Governance Committee to include two public directors and two STP Participant Directors; and (3) modify the Exchange’s rules to confirm that each participant firm would need only one trading permit to conduct business on the Exchange. Governance Changes The CHX bylaws provide that the CHX Board currently consist of the Exchange’s chief executive officer, seven public directors, and five participant directors.6 The Board members are divided into three classes, with each class serving a three-year term. Under the terms of the agreements reached with the Investor Firms, the membership of the Board is to be reduced by one director, so that after the closing of the transactions, the Board would consist of the Exchange’s chief executive officer, six public directors, and five participant directors. The agreements with the Investor Firms also require the Exchange to use its best efforts to place a representative of each of the Investor Firms on the CHX Board, filling four of the five participant director positions. The remaining participant director would not be affiliated with any of the Investor Firms. STP Participant Directors Under the Exchange’s existing bylaws, the Nominating & Governance Committee (‘‘Committee’’) identifies candidates to fill the Board positions that are up for election each year.7 In identifying candidates for public now referred to as Exchange ‘‘participants.’’ For purposes of the Act, participants are considered to be members of the Exchange. See Rule 1.l of Article I of the CHX Rules. See also infra note 6. 6 See Article II, Section 2(c) of the Exchange’s bylaws. A ‘‘public director’’ is a director who (i) is not a participant in the Exchange, or an officer, managing member, partner or employee of an entity that is a participant, (ii) is not an employee of the Exchange or any of its affiliates, (iii) is not a broker or dealer or an officer or employee of a broker or dealer, or (iv) does not have any other material business relationship with CHX Holdings or the Exchange (or with any of their affiliates) or with any broker or dealer. See Article II, Section 2(b) of the Exchange’s bylaws. A ‘‘Participant Director’’ is a director who is a participant or an officer, managing member, or partner of an entity that is a participant. Id. An individual or entity is a participant in the Exchange if that individual or entity holds a trading permit issued by the Exchange. Id. 7 See Article II, Section 3(b) of the Exchange’s bylaws. PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 58023 director positions, the Committee typically meets to discuss candidates and provides its slate of nominees to the Exchange’s sole stockholder, CHX Holdings, for election. The process for identifying candidates for participant director positions, however, is more detailed and includes both a requirement that the Committee hold two open meetings with Exchange participants and a petition process that allows participants to add names to the Committee’s initial slate.8 Under this process, no later than 60 days prior to the date announced for the Exchange’s annual shareholder meeting, the Committee’s initial nominees for participant director positions are reported to the Exchange’s Secretary, who then must promptly announce the nominees to the Exchange’s participants.9 Participants may identify other candidates for one or more of these positions by delivering to the Exchange’s Secretary, at least 35 days prior to the date announced for the annual meeting of shareholders, a written petition, signed by at least ten participants, identifying additional candidates.10 If one or more valid petitions are submitted, the Exchange conducts an election to confirm the participants’ selections of nominees for the participant director positions.11 Each participant has one vote with respect to each participant director position that is to be filled. The individuals having the largest number of votes are the final nominees, and the Nominating & Governance Committee must nominate these persons to fill the available positions.12 This process is designed to provide Exchange participants with fair representation in the selection of Exchange directors.13 The Exchange proposes to amend its bylaws to require the Board to set aside one position in each Board class for an STP Participant Director, with the candidates for each of those positions to be subject to the petition process. The Exchange acknowledges that the proposal would reduce the number of participant directors whose elections are subject to this petition process, but maintains that it would still ensure that at least 20% of the Exchange’s directors (on a Board of fifteen or fewer people) 8 See Article II, Section 3(d) of the Exchange’s bylaws. 9 See id. 10 See id. 11 See id. 12 See Article II, Section 3(b) and (e) of the Exchange’s bylaws. 13 See 15 U.S.C. 78f(b)(3) (requiring that the rules of an exchange assure a fair representation of its members in the selection of its directors and administration of its affairs). E:\FR\FM\02OCN1.SGM 02OCN1 58024 Federal Register / Vol. 71, No. 190 / Monday, October 2, 2006 / Notices are selected in this manner.14 In addition, by requiring that the Board identify one position in each of the three Board classes to be subject to the petition process, the proposal would allow participants an opportunity to select at least one participant director each year. Composition of the Nominating & Governance Committee The Exchange’s Nominating & Governance Committee currently is composed of six Board members—three participant directors and three public directors.15 The Exchange proposes to reduce its size so that it consists of two public directors and two STP Participant Directors.16 Under the proposal, at least one participant director who is not affiliated with any of the four Investor Firms will serve on the Committee by requiring that one of the STP Participant Directors on the Committee not be a representative of any of the Investor Firms. Trading Permits Under the Exchange’s existing rules, each participant firm or each person who is registered as a co-specialist, floor broker, or market maker for a participant firm must hold a valid trading permit.17 The Exchange proposes to change this requirement so that each participant firm must hold a valid trading permit, but individuals who serve as cospecialists, floor brokers, and market makers for a firm are no longer subject to the requirement.18 Persons who serve in these capacities would continue to be required to register with the Exchange. rmajette on PROD1PC67 with NOTICES1 III. Discussion After careful review, the Commission finds that the proposed rule change, as amended, is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.19 The Commission finds that the proposed 14 See Securities Exchange Act Release No. 50699 (Nov. 18, 2004), 69 FR 71126 (Dec. 8, 2004) (‘‘SRO Governance Release’’). In note 148 of the SRO Governance Release, the Commission states, among other things, that it has taken the position that the fair representation requirement could be satisfied if an exchange’s rules provide that members constitute at least 20% of the individuals serving on an exchange’s nominating committee. 15 See Article II, Section 3(a) of the Exchange’s bylaws. 16 See proposed amendment to Article II, Section 3(a) of the Exchange’s bylaws. 17 See Article II, Rule 2(a). 18 See Article VI, Rule 2(b)(7) (replacing the concept of a firm’s ‘‘nominee’’ with a specific reference to persons serving as co-specialists, market makers or floor brokers). 19 In approving this proposal, the Commission has considered its impact on efficiency, competition and capital formation. 15 U.S.C. 78c(f). VerDate Aug<31>2005 15:07 Sep 29, 2006 Jkt 211001 rule change is consistent with Section 6(b)(5) of the Act,20 which requires that the rules of an exchange be designed, among other things, to prevent fraudulent and manipulative acts and practices; to promote just and equitable principles of trade; 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 Commission also finds that the proposed rule change is consistent with Section 6(b)(3) of the Act,21 which requires that the rules of a national securities exchange assure the fair representation of its members in the selection of its directors and administration of its affairs, and provide that one or more directors shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer. The proposed rule change contemplates that three of the twelve members, or at least 20%, of the Exchange’s Board, will be STP Participant Directors, one in each of the Board’s three classes.22 In addition, the Commission believes that the petition process for nominating STP Participant Directors affords Exchange participants a fair role in the selection of the Exchange’s participant directors. Further, the Commission notes that because one class of the Board stands for election each year, and each Board class has one STP Participant Director, participants will be able to select an STP Participant Director each year. In addition, the filling of any STP Participant Director vacancies will be subject to the petition process. Accordingly, the Commission believes that the designation of three of the Exchange’s twelve directors as STP Participant Directors, as well as the manner in which such directors will be nominated and elected, satisfies the fair representation requirement in Section 6(b)(3) of the Act.23 The Exchange also proposes to reduce the size of the Nominating & Governance Committee from six to four members. The Commission notes that two of the four members, or 50%, of the Committee will be public directors, thus preserving the current percentage of public directors on the Committee. The Commission also notes that one of the two participant directors on the Committee is not a representative of any of the Investor Firms to preserve fair representation on the Committee. The 20 15 U.S.C. 78f(b)(5). U.S.C. 78f(b)(3). 22 See SRO Governance Release, supra note 14. 23 15 U.S.C. 78f(b)(3). 21 15 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 Commission finds that the composition of the Committee is consistent with Section 6(b)(3) of the Act.24 The Exchange also proposes to change its rules so that only participants firms, and not individuals, must hold a trading permit in order to be able to trade on the Exchange.25 The Exchange has stated that the reason for the proposed change is to reduce the number of trading permits to be more consistent with other exchanges that operate automated markets. The Commission has approved similar proposed rules for other markets,26 and believes that the Exchange’s proposal is similarly consistent with the Act. Section 6(b)(3) of the Act also requires that one or more directors of an exchange shall be representative of issuers and investors and not be associated with a member of the exchange, broker, or dealer.27 The proposed changes to the Exchange’s Board provide that six of the twelve Exchange directors will be ‘‘public directors.’’ 28 The Commission notes that public directors still must comprise 50% of the Exchange’s Board under the proposal. Accordingly, the Commission finds the proposed rule change consistent with the Act. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,29 that the proposed rule change (SR–CHX–2006– 23), as amended, is approved. For the Commission, by the Division of Market Regulation, pursuant to delegated authority.30 Nancy M. Morris, Secretary. [FR Doc. E6–16113 Filed 9–29–06; 8:45 am] BILLING CODE 8010–01–P 24 Id. 25 See supra Part II (‘‘One Trading Permit per Participant’’). 26 See, e.g., NYSE Arca Rule 1(n) (defining ‘‘ETP Holder’’); NSX Rule 1.5E(1) (defining the term ‘‘ETP’’); NSX Rule 1.5P(1) (defining ‘‘person associated with an ETP Holder’’). 27 15 U.S.C. 78f(b)(3). 28 See supra note 6. Presently, the Exchange’s Board is comprised of thirteen directors, seven of whom are public directors. 29 15 U.S.C. 78s(b)(2). 30 17 CFR 200.30–3(a)(12). E:\FR\FM\02OCN1.SGM 02OCN1

Agencies

[Federal Register Volume 71, Number 190 (Monday, October 2, 2006)]
[Notices]
[Pages 58023-58024]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-16113]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-54494; File No. SR-CHX-2006-23]


Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; 
Order Approving Proposed Rule Change and Amendment No. 1 Thereto 
Regarding Amendments to the Exchange's Bylaws and Other Governance 
Changes

September 25, 2006.

I. Introduction

    On June 22, 2006, the Chicago Stock Exchange, Inc. (``CHX'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to amend its bylaws and rules to make several 
governance changes. The CHX filed Amendment No. 1 to the proposed rule 
change on July 20, 2006. The proposed rule change, as amended, was 
published for comment in the Federal Register on August 3, 2006.\3\ The 
Commission received no comments regarding the proposal. This order 
approves the proposed rule change, as amended.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 54226 (July 27, 2006), 
71 FR 44064 (``Notice'').
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II. Description of the Proposal

    CHX proposes changes to its bylaws to reflect the terms of an 
agreement with four firms (``Investor Firms'') \4\ to invest in CHX 
Holdings, Inc., (``CHX Holdings'').\5\ CHX proposes to amend its bylaws 
and rules to (1) require the Exchange's Board of Directors (``Board'') 
to identify one position in each Board class as the ``Subject to 
Petition (STP) Participant Director,'' with candidates for that 
position to be subject to a petition process involving the Exchange's 
participants; (2) change the composition of the Exchange's Nominating & 
Governance Committee to include two public directors and two STP 
Participant Directors; and (3) modify the Exchange's rules to confirm 
that each participant firm would need only one trading permit to 
conduct business on the Exchange.
---------------------------------------------------------------------------

    \4\ Each investment represents a minority equity stake in CHX 
Holdings consisting of shares of CHX Holdings Series A Preferred 
Stock.
    \5\ See Securities Exchange Act Release No. 51149 (Feb. 8, 
2005), 70 FR 7531 (Feb. 14, 2005) (order approving Exchange's 
demutualization). As part of the demutualization, former CHX members 
received common stock in CHX Holdings and received CHX trading 
permits entitling them to maintain their access to the Exchange. In 
addition, other persons who satisfy the applicable requirements were 
granted the ability to obtain trading permits, regardless of whether 
they are shareholders in CHX Holdings. Persons who hold trading 
permits are now referred to as Exchange ``participants.'' For 
purposes of the Act, participants are considered to be members of 
the Exchange. See Rule 1.l of Article I of the CHX Rules. See also 
infra note 6.
---------------------------------------------------------------------------

Governance Changes

    The CHX bylaws provide that the CHX Board currently consist of the 
Exchange's chief executive officer, seven public directors, and five 
participant directors.\6\ The Board members are divided into three 
classes, with each class serving a three-year term. Under the terms of 
the agreements reached with the Investor Firms, the membership of the 
Board is to be reduced by one director, so that after the closing of 
the transactions, the Board would consist of the Exchange's chief 
executive officer, six public directors, and five participant 
directors. The agreements with the Investor Firms also require the 
Exchange to use its best efforts to place a representative of each of 
the Investor Firms on the CHX Board, filling four of the five 
participant director positions. The remaining participant director 
would not be affiliated with any of the Investor Firms.
---------------------------------------------------------------------------

    \6\ See Article II, Section 2(c) of the Exchange's bylaws. A 
``public director'' is a director who (i) is not a participant in 
the Exchange, or an officer, managing member, partner or employee of 
an entity that is a participant, (ii) is not an employee of the 
Exchange or any of its affiliates, (iii) is not a broker or dealer 
or an officer or employee of a broker or dealer, or (iv) does not 
have any other material business relationship with CHX Holdings or 
the Exchange (or with any of their affiliates) or with any broker or 
dealer. See Article II, Section 2(b) of the Exchange's bylaws. A 
``Participant Director'' is a director who is a participant or an 
officer, managing member, or partner of an entity that is a 
participant. Id. An individual or entity is a participant in the 
Exchange if that individual or entity holds a trading permit issued 
by the Exchange. Id.
---------------------------------------------------------------------------

STP Participant Directors

    Under the Exchange's existing bylaws, the Nominating & Governance 
Committee (``Committee'') identifies candidates to fill the Board 
positions that are up for election each year.\7\ In identifying 
candidates for public director positions, the Committee typically meets 
to discuss candidates and provides its slate of nominees to the 
Exchange's sole stockholder, CHX Holdings, for election.
---------------------------------------------------------------------------

    \7\ See Article II, Section 3(b) of the Exchange's bylaws.
---------------------------------------------------------------------------

    The process for identifying candidates for participant director 
positions, however, is more detailed and includes both a requirement 
that the Committee hold two open meetings with Exchange participants 
and a petition process that allows participants to add names to the 
Committee's initial slate.\8\ Under this process, no later than 60 days 
prior to the date announced for the Exchange's annual shareholder 
meeting, the Committee's initial nominees for participant director 
positions are reported to the Exchange's Secretary, who then must 
promptly announce the nominees to the Exchange's participants.\9\ 
Participants may identify other candidates for one or more of these 
positions by delivering to the Exchange's Secretary, at least 35 days 
prior to the date announced for the annual meeting of shareholders, a 
written petition, signed by at least ten participants, identifying 
additional candidates.\10\ If one or more valid petitions are 
submitted, the Exchange conducts an election to confirm the 
participants' selections of nominees for the participant director 
positions.\11\
---------------------------------------------------------------------------

    \8\ See Article II, Section 3(d) of the Exchange's bylaws.
    \9\ See id.
    \10\ See id.
    \11\ See id.
---------------------------------------------------------------------------

    Each participant has one vote with respect to each participant 
director position that is to be filled. The individuals having the 
largest number of votes are the final nominees, and the Nominating & 
Governance Committee must nominate these persons to fill the available 
positions.\12\ This process is designed to provide Exchange 
participants with fair representation in the selection of Exchange 
directors.\13\
---------------------------------------------------------------------------

    \12\ See Article II, Section 3(b) and (e) of the Exchange's 
bylaws.
    \13\ See 15 U.S.C. 78f(b)(3) (requiring that the rules of an 
exchange assure a fair representation of its members in the 
selection of its directors and administration of its affairs).
---------------------------------------------------------------------------

    The Exchange proposes to amend its bylaws to require the Board to 
set aside one position in each Board class for an STP Participant 
Director, with the candidates for each of those positions to be subject 
to the petition process. The Exchange acknowledges that the proposal 
would reduce the number of participant directors whose elections are 
subject to this petition process, but maintains that it would still 
ensure that at least 20% of the Exchange's directors (on a Board of 
fifteen or fewer people)

[[Page 58024]]

are selected in this manner.\14\ In addition, by requiring that the 
Board identify one position in each of the three Board classes to be 
subject to the petition process, the proposal would allow participants 
an opportunity to select at least one participant director each year.
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 50699 (Nov. 18, 
2004), 69 FR 71126 (Dec. 8, 2004) (``SRO Governance Release''). In 
note 148 of the SRO Governance Release, the Commission states, among 
other things, that it has taken the position that the fair 
representation requirement could be satisfied if an exchange's rules 
provide that members constitute at least 20% of the individuals 
serving on an exchange's nominating committee.
---------------------------------------------------------------------------

Composition of the Nominating & Governance Committee

    The Exchange's Nominating & Governance Committee currently is 
composed of six Board members--three participant directors and three 
public directors.\15\ The Exchange proposes to reduce its size so that 
it consists of two public directors and two STP Participant 
Directors.\16\ Under the proposal, at least one participant director 
who is not affiliated with any of the four Investor Firms will serve on 
the Committee by requiring that one of the STP Participant Directors on 
the Committee not be a representative of any of the Investor Firms.
---------------------------------------------------------------------------

    \15\ See Article II, Section 3(a) of the Exchange's bylaws.
    \16\ See proposed amendment to Article II, Section 3(a) of the 
Exchange's bylaws.
---------------------------------------------------------------------------

Trading Permits

    Under the Exchange's existing rules, each participant firm or each 
person who is registered as a co-specialist, floor broker, or market 
maker for a participant firm must hold a valid trading permit.\17\ The 
Exchange proposes to change this requirement so that each participant 
firm must hold a valid trading permit, but individuals who serve as co-
specialists, floor brokers, and market makers for a firm are no longer 
subject to the requirement.\18\ Persons who serve in these capacities 
would continue to be required to register with the Exchange.
---------------------------------------------------------------------------

    \17\ See Article II, Rule 2(a).
    \18\ See Article VI, Rule 2(b)(7) (replacing the concept of a 
firm's ``nominee'' with a specific reference to persons serving as 
co-specialists, market makers or floor brokers).
---------------------------------------------------------------------------

III. Discussion

    After careful review, the Commission finds that the proposed rule 
change, as amended, is consistent with the requirements of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\19\ The Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\20\ which 
requires that the rules of an exchange be designed, among other things, 
to prevent fraudulent and manipulative acts and practices; to promote 
just and equitable principles of trade; 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.
---------------------------------------------------------------------------

    \19\ In approving this proposal, the Commission has considered 
its impact on efficiency, competition and capital formation. 15 
U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission also finds that the proposed rule change is 
consistent with Section 6(b)(3) of the Act,\21\ which requires that the 
rules of a national securities exchange assure the fair representation 
of its members in the selection of its directors and administration of 
its affairs, and provide that one or more directors shall be 
representative of issuers and investors and not be associated with a 
member of the exchange, broker, or dealer. The proposed rule change 
contemplates that three of the twelve members, or at least 20%, of the 
Exchange's Board, will be STP Participant Directors, one in each of the 
Board's three classes.\22\ In addition, the Commission believes that 
the petition process for nominating STP Participant Directors affords 
Exchange participants a fair role in the selection of the Exchange's 
participant directors. Further, the Commission notes that because one 
class of the Board stands for election each year, and each Board class 
has one STP Participant Director, participants will be able to select 
an STP Participant Director each year. In addition, the filling of any 
STP Participant Director vacancies will be subject to the petition 
process. Accordingly, the Commission believes that the designation of 
three of the Exchange's twelve directors as STP Participant Directors, 
as well as the manner in which such directors will be nominated and 
elected, satisfies the fair representation requirement in Section 
6(b)(3) of the Act.\23\
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78f(b)(3).
    \22\ See SRO Governance Release, supra note 14.
    \23\ 15 U.S.C. 78f(b)(3).
---------------------------------------------------------------------------

    The Exchange also proposes to reduce the size of the Nominating & 
Governance Committee from six to four members. The Commission notes 
that two of the four members, or 50%, of the Committee will be public 
directors, thus preserving the current percentage of public directors 
on the Committee. The Commission also notes that one of the two 
participant directors on the Committee is not a representative of any 
of the Investor Firms to preserve fair representation on the Committee. 
The Commission finds that the composition of the Committee is 
consistent with Section 6(b)(3) of the Act.\24\
---------------------------------------------------------------------------

    \24\ Id.
---------------------------------------------------------------------------

    The Exchange also proposes to change its rules so that only 
participants firms, and not individuals, must hold a trading permit in 
order to be able to trade on the Exchange.\25\ The Exchange has stated 
that the reason for the proposed change is to reduce the number of 
trading permits to be more consistent with other exchanges that operate 
automated markets. The Commission has approved similar proposed rules 
for other markets,\26\ and believes that the Exchange's proposal is 
similarly consistent with the Act.
---------------------------------------------------------------------------

    \25\ See supra Part II (``One Trading Permit per Participant'').
    \26\ See, e.g., NYSE Arca Rule 1(n) (defining ``ETP Holder''); 
NSX Rule 1.5E(1) (defining the term ``ETP''); NSX Rule 1.5P(1) 
(defining ``person associated with an ETP Holder'').
---------------------------------------------------------------------------

    Section 6(b)(3) of the Act also requires that one or more directors 
of an exchange shall be representative of issuers and investors and not 
be associated with a member of the exchange, broker, or dealer.\27\ The 
proposed changes to the Exchange's Board provide that six of the twelve 
Exchange directors will be ``public directors.'' \28\ The Commission 
notes that public directors still must comprise 50% of the Exchange's 
Board under the proposal. Accordingly, the Commission finds the 
proposed rule change consistent with the Act.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b)(3).
    \28\ See supra note 6. Presently, the Exchange's Board is 
comprised of thirteen directors, seven of whom are public directors.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change (SR-CHX-2006-23), as amended, is 
approved.
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    \29\ 15 U.S.C. 78s(b)(2).
    \30\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\30\
Nancy M. Morris,
Secretary.
[FR Doc. E6-16113 Filed 9-29-06; 8:45 am]
BILLING CODE 8010-01-P