On June 30, 2004, the American Stock Exchange LLC (“Amex” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934,
Ownership interests in the American Stock Exchange LLC currently consist of a Class A Participation Interest held by The Amex Membership Corporation (“MC”) and a Class B Participation Interest held by New NASD Holdings, Inc. (“NAHO”), a wholly owned subsidiary of the National Association of Securities Dealers, Inc. (“NASD”). Pursuant to a proposed transaction between the parties (“Transaction”), MC will become the sole owner of the Exchange through the acquisition of 100% of the Class B Participation Interest in the Exchange from NAHO. To implement the terms of the Transaction and institute new governance structures for the Exchange and MC, the Exchange has filed amendments to its Constitution, the Second Restated Certificate of Incorporation of MC (“MC Certificate of Incorporation”), the Restated By-Laws of MC (“MC Bylaws”), and the Amended & Restated Exchange Limited Liability Company Agreement (“LLC Agreement”). Each of these documents will become effective upon the closing of the Transaction.
Through MC Acquisition Sub, a corporate subsidiary, MC will acquire 100% of the Class B Participation Interest in the Exchange from NAHO.
At the closing of the Transaction, NASD and the Exchange will restructure an existing $50 million loan owed by the Exchange to NASD. Under the terms of the arrangement, among other things, the Exchange will have the ability to satisfy all obligations under this loan in full for $25 million plus accrued interest if it is repaid within the first year following the closing of the Transaction. At the closing of the Transaction, NASD and the Exchange will enter into a Revolving Credit Facility, pursuant to which the Exchange will have the ability to borrow from NASD up to a maximum, at any one time, of $25 million.
Subject to the terms of the Transaction, the agreements relating to the 1998 transaction whereby NASD acquired the Class B Participation Interest in the Exchange (the “1998 Transaction”), including the 1998 Transaction Agreement and the 1998 Technology Transfer Agreement, will be terminated and the 1998 Limited Liability Company Agreement of the Exchange will be amended.
NAHO will pay in full the remaining commitment under the 1998 Seat Fund Program to the owners of regular and options principal memberships of the Exchange, which is an aggregate of approximately $17.144 million (including accrued interest) as of January 31, 2004. Such amount will be distributed
The existing rights and obligations of the members regarding trading through the Exchange will not be affected by the Transaction. Trading rights will continue to be owned by MC and represent the right to trade through the facilities of the Exchange. In connection with the termination of the 1998 Transaction Agreement, the regular and options principal members will no longer have the special rights to approve material market changes to the Exchange's equity and options businesses that were put in place at the time NASD took control of the Exchange. However, under the proposed changes, no amendment to the Exchange Constitution that would result in a material change in the market structure or operations of the Exchange shall be made without first obtaining the consent from the Board of Directors of MC. In addition, as discussed below, Amex regular and options principal members will have the ability to elect the members of the Exchange Board of Governors and the MC Board of Directors.
The LLC Agreement will, among other things, establish the rights and obligations of MC and MC Acquisition Sub as equity owners of Amex and vest the Exchange Board with its management powers. The LLC Agreement also provides for the indemnification of any person involved in an action, suit or proceeding related to such person's affiliation with the Exchange if such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of Amex and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The new governance structure for the Exchange will provide for a Board of Governors selected by the Exchange's regular and options principal members, who also will have the opportunity to vote on a “pass-through” basis on certain significant matters involving the Exchange, including the sale, issuance, transfer or other disposition of any equity security of the Exchange, or the issuance of any new trading rights by the Exchange. The new governance provisions also will provide that the Exchange Board of Governors will be largely independent and will have board committees composed primarily of Independent Governors, as defined below, with substantial authority over compensation, audit, regulatory and corporate governance matters, as well as the nomination of Governors to serve on the Exchange Board of Governors.
The size of the Exchange's Board of Governors will be reduced from eighteen to fifteen Governors. Nine of the Governors will be “Independent Governors” and six of the Governors will be “Industry Governors.” An Independent Governor will be any person that is: (1) Not an officer or employee of, and has no material business relationship with, the Exchange and the holders of the Class
Of the six Industry Governors of the Exchange, (1) two will be persons who spend a substantial portion of their time on the floor of the Exchange (the “Floor Governors”); (2) one will be the owner of a regular or options principal membership (the “Membership Governor”); (3) one will be affiliated with a regular or associate member organization that engages in a business having substantial direct contact with public securities customers (the “Upstairs Governor”); (4) one will be a director, officer, employee or representative of an issuer of securities that are listed on the Exchange (the “Listed Company Governor”); and (5) one will be the Exchange's Chief Executive Officer (the “Management Governor”).
The Chairman of the Exchange Board of Governors may be the Management Governor or any Independent Governor. If the Management Governor is designated as the Chairman of the Exchange Board of Governors, the Board will also designate an Independent Governor as the “Lead Governor” to preside over executive sessions of the Exchange Board of Governors (
All Governors elected at the annual meeting for the election of Governors will serve two-year terms and will hold office until their successors are elected. No Governor (other than the Management Governor) who has served four consecutive terms as a Governor will be eligible for election as a Governor except after an interval of two years;
All nominees for election as Governor (as well as for members of the Amex Adjudicatory Council (“Council Members”),
The members may propose nominees for Governors, Council Members, and Trustees to the Amex Nominating and Corporate Governance Committee for consideration by written submission filed with the Secretary of the Exchange for delivery to the Amex Nominating and Corporate Governance Committee not less than 12 weeks prior to the date of the annual meeting of the members. In the event that any question is raised as to whether any candidate meets the criteria for the appropriate classification, such matter shall be determined by the Amex Nominating and Corporate Governance Committee, subject to the right of appeal to the full Board of Governors.
The Amex Nominating and Corporate Governance Committee will then report to MC at least eight weeks prior to the date of the annual meeting of the members, the names of candidates nominated by it as Governors, Council Members, and Trustees. The report of the Amex Nominating and Corporate Governance Committee will be promptly disseminated or made available to the MC members by posting or other appropriate means and will be promptly forwarded to the Secretary of MC for mailing to the members in accordance with the MC Bylaws.
Members may also nominate candidates for Governors, Council Members, and Trustees by written petition filed with the Amex Nominating and Corporate Governance Committee within three weeks after the dissemination of the report of the Amex Nominating and Corporate Governance Committee.
Such nominees will be voted on by the regular and options principal members, and will be elected by a plurality of votes cast by these members.
The Exchange contemplates a six-month transition period that will facilitate a phase-in of the new governance structure of the Exchange. Accordingly, immediately following the closing of the Transaction, the Board of Governors of the Exchange will form the initial Amex Nominating and Corporate Governance Committee, which will select nominees for Governor for the first election during the six-month transition period. By the end of the six-month transition period, the regular and options principal members of the Exchange will have elected a new Board of Governors from and among these nominees or any other candidates nominated by the members through petition. At the first election of the Exchange Board of Governors during the six-month transition period, eight of the fifteen Governors will be elected to an initial two-year term and the remaining seven Governors will be elected to an initial one-year term.
The Constitution will require that each Governor, in exercising his or her powers and performing his or her duties, comply with the federal securities laws and the rules and regulations thereunder, cooperate with the Commission pursuant to its regulatory authority, and take into consideration the self-regulatory function of the Exchange, and the obligations of the Exchange (and his or her obligations) under the Act and the rules thereunder, including, without limitation, Section 6(b)
The Exchange Constitution will explicitly provide for a number of Standing Committees of the Exchange composed primarily or entirely of Independent Governors. Specifically, the Exchange Constitution will provide for: (i) A Nominating and Corporate Governance Committee; (ii) an Executive Committee; (iii) an Audit Committee; (iv) a Regulatory Oversight Committee; and (v) a Compensation Committee.
The Amex Nominating and Corporate Governance Committee will be appointed by the Exchange Board of Governors and will consist of three Governors, two of whom shall be Independent Governors and one of whom shall be the Membership Governor, as established by resolution adopted by a majority of the Board of Governors then in office.
The Amex Nominating and Corporate Governance Committee will, among other things: (i) Establish criteria and procedures for the nomination of Governors, Council Members, and Trustees; (ii) review the qualifications of and, when necessary and appropriate, interview candidates who may be proposed for nomination as, Governors, Council Members, and Trustees; (iii) submit to MC, in its capacity as the Class A Interestholder, a slate of nominees for the election of Governors, Council Members, and Trustees; (iv) monitor and consider the Exchange's corporate governance practices; (v) consider and make recommendations concerning the composition, organization, and functions of the Exchange Board of Governors; (vi) review periodically the performance of the Exchange Board of Governors; (vii) review periodically the Exchange Constitution; (viii) make periodic reports to the entire Exchange Board of Governors on such matters within its powers and responsibilities as the Exchange Board of Governors may specify; and (ix) perform such other duties in connection with the selection or election of the Governors, Council Members, and Trustees or other corporate governance matters as the Exchange Board of Governors may request.
The Executive Committee will be appointed by the Exchange Board of Governors, upon the recommendation of the Amex Nominating and Corporate Governance Committee, and will consist of three to five Governors, at least a majority of whom will be Independent Governors and at least one of whom shall be an Industry Governor. The Executive Committee will have reasonable access during normal working hours to all information (including all books and records) respecting the Exchange and its assets. The Executive Committee, to the extent permitted by law, will have and may exercise, when the Exchange Board of Governors is not in session, all powers of the Exchange Board of Governors regarding the supervision of the management of the business and affairs of the Exchange.
The Audit Committee will be appointed by the Exchange Board of Governors, upon the recommendation of the Amex Nominating and Corporate Governance Committee, and will consist of three to five Independent Governors. The Audit Committee will: (i) Have the authority to consider the qualification of the Exchange's independent public accountants, make recommendations to the Exchange Board of Governors as to their selection and retention, and review and resolve disputes between such independent public accountants and management relating to the preparation of the annual financial statements; (ii) confer with the Exchange's independent public accountants to determine the scope of the audit that such accountants will perform; (iii) receive reports from the independent public accountants and transmit such reports to the Exchange Board of Governors, and after the close of the fiscal year, transmit to the Exchange Board of Governors the financial statements certified by such accountants; (iv) inquire into, examine and make comments on the accounting procedures of the Exchange and the reports of the independent public accountants; (v) consider and make recommendations to the Exchange Board of Governors upon matters
The internal auditors of the Exchange will report directly to the Audit Committee, and to the extent that such internal auditors are officers or employees of the Exchange, also to the Chief Executive Officer (or the Chief Executive Officer's Designee).
The Regulatory Oversight Committee will be appointed by the Exchange Board of Governors, upon the recommendation of the Amex Nominating and Corporate Governance Committee, and will consist of three to five Independent Governors and one Industry Governor. The Independent Governors serving as members of the Regulatory Oversight Committee will be the only voting members of the committee. The Industry Governor serving as a member of the Regulatory Oversight Committee will be a non-voting member.
The Regulatory Oversight Committee will: (i) Have authority to determine the Exchange's regulatory scheme, programs, budget and staffing proposals annually; (ii) appoint and direct the Chief Regulatory Officer; (iii) advise the Compensation Committee with respect to and approve the compensation (or any change thereto) of the Chief Regulatory Officer; (iv) be responsible for assessing regulatory performance on a regular basis; (v) have the authority to recommend the adoption of rules to the Exchange Board of Governors concerning such matters as may be specified in the Regulatory Oversight Committee's charter; and (vi) make periodic reports to the entire Exchange Board of Governors on such matters within its powers and responsibilities as the Exchange Board of Governors may specify.
Upon consummation of the Transaction, the Chief Regulatory Officer will report directly to the Regulatory Oversight Committee.
The Compensation Committee will be appointed by the Exchange Board of Governors, upon the recommendation of the Amex Nominating and Corporate Governance Committee, and will consist of three to five Independent Governors. The Compensation Committee will have and may exercise all of the authority of the Exchange Board of Governors in administering the Exchange's management compensation plans, and will be responsible for, among other things: (i) Reviewing and approving performance goals relevant to the compensation of the Chief Executive Officer and evaluating the Chief Executive Officer's performance in achieving such goals, and recommending the compensation of the Chief Executive Officer to the Exchange Board of Governors; (ii) recommending to the Exchange Board of Governors the compensation of executive officers of the Exchange; (iii) causing to be publicly disclosed on an annual basis the compensation (and methodology behind such compensation) of the Governors and the five most highly compensated officers of the Exchange; and (iv) making periodic reports to the entire Exchange Board of Governors on such matters within its powers and responsibilities as the Exchange Board of Governors may specify.
In addition to the Standing Committees, the Exchange Board of Governors by the affirmative vote of a majority of the entire Exchange Board of Governors may delegate such of its powers as it may from time to time determine, subject to the provisions of the Constitution and applicable law, to such committee or committees as the Exchange Board of Governors may from time to time authorize; provided, however, no such delegation may be made of any power described in the Exchange Constitution provisions concerning the responsibilities of the Amex Nominating and Corporate Governance Committee, the Executive Committee, the Audit Committee, the Regulatory Oversight Committee, and the Compensation Committee.
Under the Exchange Constitution, the Exchange Board of Governors will create and consult with the Seat Owners Advisory Committee (“SOAC”), consisting of representatives of various constituencies of the Exchange as SOAC shall deem appropriate.
The officers of the Exchange shall include a Chief Executive Officer, Treasurer, Secretary, and Chief Regulatory Officer, and such other officers as the Chief Executive Officer, subject to the approval of the Exchange Board of Governors, may appoint.
The Chief Executive Officer will be selected by a majority of the Governors then in office. During his incumbency, the Chief Executive Officer shall have no affiliation with any member organization, or any other business interest proscribed by the Code of Conduct of the Exchange. The Chief Executive Officer shall be responsible to the Board of Governors of the Exchange for the management and administration of the affairs of the Exchange,
All salaried officers and employees of the Exchange shall be under the
In the case of the absence or inability to act of the Chief Executive Officer, such other person as the Board of Governors may designate shall assume all the functions and discharge all the duties of the Chief Executive Officer. In the absence of such designation by the Board of Governors, the most senior ranking officer available shall assume all such functions and discharge all such duties of the Chief Executive Officer. In case a vacancy shall occur in the office of Chief Executive Officer, the Board of Governors, by the affirmative vote of a majority of the Governors then in office, shall fill such vacancy.
The Chief Regulatory Officer will be responsible for the management and administration of the regulatory functions of the Exchange and will be appointed by the Regulatory Oversight Committee.
Subject to approval by the affirmative vote of a majority of the entire Board of Governors, the Chief Executive Officer may appoint such other officers of the Exchange, including, but not limited to, a President, Executive Vice President, Senior Vice President, and Vice President, as he may from time to time determine are required for the efficient management and operation of the Exchange, and subject to approval of a majority of the Board of Governors he shall appoint the Treasurer and the Secretary. The Chief Executive Officer shall fix the duties, responsibilities, terms and conditions of employment of officers and employees of the Exchange, other than those appointments or terms and conditions of employment that are within the power and responsibility of the Compensation Committee, the Regulatory Oversight Committee or the Audit Committee.
The
The Exchange Constitution will also provide that certain of its provisions may not be amended without the consent of the Board of Directors of MC. The provisions requiring consent from the board of MC to amend are:
• Article II, Section 1 (Classification of the Exchange Board of Governors);
• Article II, Section 6 (Standing Committees);
• Article III (Nomination and Election Procedures);
• Article XIII, Sections 1 and 3 (Procedure, Adoption of Amendments Requiring the Consent of MC); and
• Any amendment to the Constitution that would result in a material change in the market structure or operations of the Exchange.
Other than the provisions above, the provisions of the Exchange Constitution may be amended or repealed, and new provisions may be adopted, only if approved by a majority of Governors then in office in accordance with the procedure as specified in Article XIII of the Exchange Constitution.
The Amex Adjudicatory Council has the authority to act for the Board of Governors with respect to any appeal or review of a disciplinary hearing, a statutory disqualification proceeding, or a membership proceeding; any review of a written stipulation of facts and consent to penalty; the exercise of any exemptive authority; and such other proceedings or actions authorized by the rules of the Exchange.
In the event that a Council Member is precluded from participating in the Council's consideration of a particular matter due to a conflict of interest, the Board of Governors shall appoint a Governor within the same classification for the position to serve as a substitute for such Council Member with respect to the particular matter. In the event that a Governor fitting the relevant classification is not available to serve as a substitute, the Board of Governors may appoint a person who would be qualified to serve as a Governor within such classification (Industry Governor or Independent Governor). If a position on the Amex Adjudicatory Council becomes vacant, whether because of
The Amex Board would continue to be permitted to amend provisions of the Exchange Constitution by the affirmative vote of a majority of the entire Board, although, as noted above, the consent of MC's Board of Directors is needed to amend certain specified provisions of the Exchange Constitution.
Any amendment to or repeal of any provision of the LLC Agreement shall not be effective until the same is filed with or filed with and approved by the Commission, under Section 19 of the Act
Any sale, issuance, transfer or other disposition in any single transaction or series of transactions of (A) any limited liability company interests or other equity security of the Exchange or any securities convertible into or exchangeable for, or options rights or warrants to acquire, any such equity securities or (B) any notes or debt securities containing equity features (including, without limitation, any notes or debt securities convertible into or exchangeable for any equity securities or containing profit participation features) shall: (i) Be made only in compliance with Sections 7(a) and 7(b) of the MC Certificate of Incorporation;
In addition, any sale, issuance, transfer or other disposition in any single transaction or series of transactions of (A) any equity securities of MC or MC Acquisition Sub, or any securities convertible into or exchangeable for, or options rights or warrants to acquire, any such equity securities, or (B) any notes or debt securities containing equity features (including, without limitation, any notes or debt securities convertible into or exchangeable for any equity securities or containing profit participation features) shall be subject to prior approval by the Commission pursuant to the rule filing procedure under Section 19 of the Act
As detailed above, after the closing of the Transaction, MC will own 100% of the equity interests in the Exchange, and MC will continue to be a membership organization of which the members are the regular and options principal members of Amex. The MC Board of Directors will be elected by the members of MC and will consist of five persons who do not necessarily serve on the Exchange Board of Governors.
The MC Board of Directors will consist of five directors elected by the members of MC in accordance with the MC Bylaws. The MC Board of Directors will be elected for one-year terms and will hold office until their successors are elected. No director of MC who has served eight consecutive elected terms as a director will be eligible for election as a director of MC except after an interval of two years;
Under the MC Bylaws, all nominees for election as directors
The members of MC may propose nominees for directors of MC for consideration by the MC Nominating Committee by written submission filed with the Secretary of MC for delivery to the MC Nominating Committee not less than 12 weeks prior to the annual meeting of the members of MC. The eligibility of any candidate proposed in any such submission will be determined by the MC Nominating Committee in its sole discretion and without the right of appeal.
The MC Nominating Committee then will report to MC at least eight weeks prior to the date of the annual meeting of the members the names of candidates nominated by it as directors. Such report will be promptly disseminated or made available to members of MC by posting or other appropriate means and will be promptly forwarded to the
The members of MC also may nominate candidates for directors of MC by written petition filed with the Secretary of MC for delivery to the MC Nominating Committee within three weeks after the dissemination of the report of the MC Nominating Committee. The eligibility of any candidate nominated in any such petition will be determined by the MC Nominating Committee. A statement of the candidates nominated by petition will be promptly disseminated or made available to members of MC by posting or other appropriate means and will be promptly forwarded to the Secretary of MC for mailing to the members within three days after the dissemination in accordance with the MC Bylaws.
Under the MC Bylaws, the MC Nominating Committee will be appointed by the MC Board of Directors and will consist of two or three directors.
The MC Nominating Committee will: (i) Establish criteria and procedures for the nomination of MC directors; (ii) search for qualified nominees for submission to the members of MC for election; (iii) review the qualifications of and, when necessary and appropriate, interview candidates who may be proposed, or who are nominated by petition, as MC directors; (iv) submit to the members of MC a slate of nominees for the election of MC directors; (v) perform any and all other duties in connection with the selection, election, or termination of the MC directors as the MC Board of Directors may request; and (vi) make periodic reports to the entire Board of Directors on such matters within the Committee's powers and responsibilities as the Board of Directors may specify.
All books and records of the Exchange shall be kept in the United States.
Also, all confidential information of Amex pertaining to the self-regulatory function of Amex, including books, minutes and records of Amex reflecting such confidential information (including but not limited to regulatory investigations, examinations, disciplinary matters, and to the extent designated by Amex as confidential, trading data and practices) which shall come into the possession of MC, the officers, directors, employees or agents of MC, shall be retained in confidence by MC and the officers, directors, employees and agents of MC and shall not be used for any non-regulatory purposes.
MC shall keep at the office of MC or such other locations within the United States as may from time to time be designated by its Board of Directors correct and complete books and records of account and minutes of the proceedings of its members, Board of Directors and committees, if any, and a list of the names, addresses, and classes of membership of the members.
For so long as MC shall control, directly or indirectly, the Exchange, MC shall, and its officers, directors and employees by virtue of their acceptance of such position shall be deemed to, irrevocably submit to the exclusive jurisdiction of the United States federal courts, the Commission, and the Exchange, for the purposes of any suit, action or proceeding pursuant to the United States federal securities laws, and the rules or regulations thereunder, arising out of, or relating to the activities of the Exchange, and MC shall, and by virtue of their acceptance of any such position, the officers, directors and employees of MC shall be deemed to, waive and agree not to assert by way of motion, as a defense or otherwise in any such suit, action or proceeding, any claims that it or they are not personally subject to the jurisdiction of the Commission as to such matters, that the suit, action or proceeding is an inconvenient forum or that the venue of the suit, action or proceeding is improper, or that the subject matter
With respect to conduct by the officers and directors of MC that relates to the activities of the Exchange, such officers and directors shall be deemed to be the officers and directors of the Exchange solely for the purposes of the removal and censure authority of the Commission pursuant to Section 19(h)(4) of the Act.
For so long as MC shall control, directly or indirectly, the Exchange, MC shall, and the officers, directors and employees of MC by virtue of their acceptance of such position shall be deemed to, agree to cooperate with the Commission and the Exchange, in respect of the Commission's oversight responsibilities regarding the Exchange and the self-regulatory functions and responsibilities of the Exchange.
For so long as MC shall control, directly or indirectly, the Exchange, each officer, director and employee of MC shall give due regard to the preservation of the independence of the self-regulatory function of the Exchange and to the Exchange's obligations under the Act, and the rules thereunder, including, without limitation, Section 6(b) of the Act,
MC shall take reasonable steps to ensure that its officers, directors, and employees comply with Sections 12 (Books and Records), 13 (Officers and Directors), 14 (Consent to Jurisdiction), 15 (Cooperation with the Commission) and 16 (Confidential Information) of the MC Certificate of Incorporation, and Sections 6.02 (Books and Records), 7.05 (Officers and Directors), 7.06 (Consent to Jurisdiction), 7.07 (Cooperation with the Commission) and 7.08 (Confidential Information) of the MC Bylaws, which shall include obtaining a written agreement from such individuals, as a condition to their initial or continued employment or service as a director, that they will comply with or consent to, as the case may be, such provisions.
Under the MC Certificate of Incorporation and the MC Bylaws, for so long as MC controls, directly or indirectly, the Exchange, before any change or addition to the MC Certificate of Incorporation or MC Bylaws shall be effective, the same shall be submitted to the Exchange Board of Governors, and if the Board shall determine that the same constitutes a “rule of an exchange” as such term is defined in the Act and the rules promulgated thereunder,
The LLC Agreement will provide that no distribution to MC and MC Acquisition Sub, as participants of the Exchange, shall include revenues received by the Exchange from regulatory fines, fees or penalties.
In connection with the Transaction, both the Exchange and MC will adopt resolutions providing for greater transparency of their respective operations. Prior to each annual meeting at which Governors or directors, as the case may be, are elected, the Exchange and MC will distribute a proxy statement disclosing certain matters regarding each of their respective board's activities for the preceding year, pertinent information about the independence of Governors and directors and compensation data for the Governors and five most highly compensated officers of the Exchange.
In Amendment No. 6, Amex included certain Undertakings that are applicable to Amex. These Undertakings commit Amex to (1) not terminate Amex's current regulatory services agreement with NASD unless Amex has entered into an alternative arrangement for the provision of regulatory services that has been approved by the Commission, and to use its best efforts to comply with Amex's obligations under the current regulatory services agreement, (2) confer periodically with Commission staff regarding the status of Amex's regulatory program, and (3) submit certain financial information to the Commission.
Interested persons are invited to submit written data, views, and arguments concerning Amendment Nos. 4 and 6, including whether these submissions are consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send paper comments in triplicate to Jonathan G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 20549–0609.
All submissions should refer to File Number SR–Amex–2004–50. 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 (
The Commission has considered the Exchange's proposed rule change, as amended, and finds that, in the context in which it was submitted, the proposal is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange.
The Commission discusses below significant aspects of the proposed rule change.
As outlined below, the Commission generally believes that Amex's proposed changes should serve to strengthen and improve the Exchange's governance structure and are consistent with the Act. The Commission notes, however, that it is in the process of reviewing a range of governance issues relating to self-regulatory organizations (“SROs”), including possible steps to strengthen the framework for the governance of SROs and ways to improve the transparency of the governance procedures of all SROs and has proposed rules in furtherance of these goals.
The Exchange Constitution provides that within six months after the closing of the Transaction, the Exchange will transition to a fifteen member board consisting of nine Independent Governors and six Industry Governors.
The amended Constitution will prohibit an Independent Governor from: (i) Having a material business relationship with the Exchange, seat holders, or MC; (ii) being a director of a seat holder or AMC; or (iii) being employed, affiliated, or associated with members or lessors of memberships, and issuers listed on the Exchange.
The Commission believes that these requirements, including the majority “independence” standard for the Board and the requirement that a Lead Governor be appointed if the Chairman and Chief Executive Officer are the same person, should benefit the Exchange by assuring that persons responsible for key decisions of the Exchange are free from material relationships with—and thus from the potential for improper influence by—the Exchange or the entities that the Exchange regulates.
Further, the Commission notes that the amended Constitution expressly requires that each Governor will, in exercising his or her powers and performing his or her duties, take into consideration the self-regulatory function of the Exchange, and the obligations of the Exchange (and his or
Section 6(b)(3) of the Act imposes specific obligations on the Amex as a registered national securities exchange to ensure that its members are fairly represented in the selection of its Governors and the administration of its affairs, and provide that one or more Governors shall be representative of issuers and investors and not be associated with a member of the Exchange, broker or dealer.
Under the proposal, one of the three members of the Amex Nominating and Corporate Governance Committee will be the Membership Governor. Amex members will vote for Board Governors and members of the Amex Adjudicatory Council
The Commission thus believes that the Exchange's proposed corporate governance structure is consistent with Section 6(b)(3) of the Act.
The Act requires registered exchanges to be so organized as to have the capacity to be able to carry out the purposes of the Act and to comply, and, subject to any applicable rule or order of the Commission, enforce compliance by its members and persons associated with its members, with the provisions of the Act, the rules and regulations thereunder, and the rules of the Exchange.
The Exchange Constitution provides for a Regulatory Oversight Committee, which will be composed of three to five Independent Governors and a non-voting Industry Governor. The Regulatory Oversight Committee will be responsible for, among other things, determining the Exchange's regulatory plan, assessing regulatory performance on a regular basis, recommending the adoption of rules to the Exchange Board concerning regulatory matters, and making periodic reports to the Exchange Board. The Amex also has proposed to create a Chief Regulatory Officer position. The Chief Regulatory Officer will be appointed by the Regulatory Oversight Committee and will report directly to that Committee.
The Commission believes that these proposed amendments to Amex's governance structure, and in particular the creation of a Chief Regulatory Officer position reporting directly to an independent Regulatory Oversight Committee, add a significant degree of independence that should serve to insulate the Exchange's regulatory activity from economic pressures and potential conflicts of interest. The Commission believes that, in this context, the Exchange's proposal is consistent with the statutory requirements.
In addition, the proposed amendments to the Exchange Constitution provide for several key Board committees—called Standing Committees—that have been delegated responsibility over critical Exchange operations, thus helping to ensure the transparency of those committees to the benefit of the Exchange and the investing public. The Commission notes that information about the functions of key Amex committees was previously not widely available or specified in the Exchange Constitution. The proposed amendments to the Constitution increase transparency with respect to several key committees and, thus, their accountability to the benefit of the Exchange and the investing public.
The Commission believes that the composition, duties, responsibilities, and guidelines assigned to each of these Standing Committees should help foster stronger and more independent governance of the Amex.
The Compensation Committee, which will be composed of three to five Independent Governors, will be responsible for reviewing and approving performance goals relevant to the compensation of the Chief Executive Officer, and for evaluating the Chief Executive Officer's performance in light of these goals, as well as recommending to the Board the compensation of the Chief Executive Officer and other executive officers. In addition, the requirement that the Committee make public annually the compensation of the Governors of the Exchange and the five
The Exchange also will have a fully independent Audit Committee that will have the authority to make recommendations to the Board as to the selection and retention of the Exchange's independent public accountants, and will appoint the internal auditors. The internal auditors will report directly to the Audit Committee and, to the extent they are officers or employees of the Exchange, to the Chief Executive Officer (or the Chief Executive Officer's designee), but cannot be terminated without the advice and consent of the Audit Committee. The Commission believes that the responsibilities assigned to the Amex's Audit Committee are appropriate, particularly with respect to the Audit's Committee's direct responsibility for assuring that the Amex retain suitable public accountants and appointing the Exchange's internal auditors.
Finally, the Commission believes that the commitments by the Exchange and MC to adopt resolutions providing for greater transparency of their respective operations are important steps. Together with the revised governance structure and implementation of key Amex committees, such increased disclosure of the decision-making processes and the basis for Exchange and MC actions should benefit the Exchange, its constituencies, and investors.
Upon the close of the Transaction, Amex will continue to be responsible for discharging its regulatory obligations under the Act, in particular Sections 6(b) and 19(g) of the Act.
In particular, all confidential information of the Exchange pertaining to the self-regulatory function of the Exchange, including all books and records of the Exchange reflecting such confidential information will be retained in confidence by each Governor, the Exchange and its personnel. In addition, such confidential information will not be used by any Governor, the Exchange or its personnel for any non-regulatory purposes, and shall not be made available to any persons (including, without limitation, any members of the Exchange). Such confidential information may only be disclosed: (i) To those personnel of the Exchange and to members of the Board of Governors of the Exchange to the extent necessary or appropriate to properly discharge the self-regulatory responsibilities of the Exchange; (ii) to the extent required by applicable statute, rule or regulation or any court of competent jurisdiction; and (iii) to the extent that such confidential information has become generally available publicly through no fault of the Exchange or its Governors, officers, employees or advisors.
All confidential information of Amex pertaining to the self-regulatory function of Amex, including books, minutes and records of Amex reflecting such confidential information (including but not limited to regulatory investigations, examinations, disciplinary matters, and to the extent designated by Amex as confidential, trading data and practices) which shall come into the possession of MC, the officers, directors, employees or agents of MC, shall be retained in confidence by MC and the officers, directors, employees and agents of MC and shall not be used for any non-regulatory purposes.
Also, for so long as MC shall control, directly or indirectly, the Exchange, each officer, director and employee of MC shall give due regard to the preservation of the independence of the self-regulatory function of the Exchange and to the Exchange's obligations under the Act and the rules thereunder, including, without limitation, Section 6(b) of such Act,
The Commission believes that these provisions, which are designed to help maintain the independence of Amex's self-regulatory function and protect from improper use confidential information pertaining to the self-regulatory function of the Exchange, are consistent with the Act.
The Commission also notes that no distribution made by the Exchange shall include revenues received by the Exchange from regulatory fines, fees or penalties.
Certain provisions of the proposed rule change require that any direct and indirect changes in ownership of the Exchange be subject to prior Commission review. The Commission believes that these restrictions, which are designed to prevent any owner from exercising undue control over the operation of Amex, are consistent with the Act.
In particular, any sale, issuance, transfer or other disposition of any equity security in Amex—including any LLC interest—is subject to prior approval by the Commission pursuant to the rule filing procedure under Section 19 of the Act,
Among other things, these provisions are designed to provide the Commission with the opportunity to determine what, if any, additional measures might be necessary to provide appropriate oversight of a proposed controlling person of Amex.
Certain of the terms of the MC governing documents are designed to help enable the Commission to carry out its oversight responsibilities under the Act. Specifically, the MC Certificate of Incorporation and the MC Bylaws provide that, for so long as MC shall control, directly or indirectly, the Exchange, the books, minutes, and records of MC shall be deemed to be those of Amex for the purposes of Section 17(b) of the Act
Further, for so long as MC shall control, directly or indirectly, the Exchange, MC shall, and the officers, directors and employees of MC by virtue of their acceptance of such position shall be deemed to agree to cooperate with the Commission and the Exchange in respect of said Commission's oversight responsibilities regarding the Exchange and the self-regulatory functions and responsibilities of the Exchange.
The MC Certificate of Incorporation and the MC Bylaws also provide that, for so long as MC shall control, directly or indirectly, the Exchange, MC shall, and its officers, directors and employees by virtue of their acceptance of such position shall be deemed to, irrevocably submit to the exclusive jurisdiction of the United States Federal courts, the Commission, and the Exchange, for the purposes of any suit, action or proceeding pursuant to the United States Federal securities laws, and the rules or regulations thereunder, arising out of, or relating to the activities of the Exchange. In addition, MC shall, and by virtue of their acceptance of any such position, the officers, directors and employees of MC shall be deemed to, waive and agree not to assert by way of motion, as a defense or otherwise in any such suit, action or proceeding, any claims that it or they are not personally subject to the jurisdiction of the Commission as to such matters, that the suit, action or proceeding is an inconvenient forum or that the venue of the suit, action or proceeding is improper, or that the subject matter thereof may not be enforced in or by such courts or agency.
Pursuant to the MC Certificate of Incorporation and MC Bylaws, MC will take reasonable steps to ensure that its officers, directors and employees comply with various provisions of the MC Certificate of Incorporation, including the books and records, jurisdiction, confidential information, and cooperation provisions.
The Commission also notes that, even in the absence of these provisions of the MC Certificate of Incorporation and MC Bylaws, Section 20(a) of the Act
The Commission believes that, taken together, these provisions, which are designed to facilitate the ability of the Commission to exercise appropriate oversight over the Exchange and MC, are consistent with the Act.
Section 19(b) of the Act
Pursuant to Section 19(b)(2) of the Act,
Amendment No. 4 revises the first paragraph of Section 3 of Article II of the Exchange Constitution (Powers and Duties).
Amendment No. 6 revises Section 4(a) and Section 4(d) of Article II of the Exchange Constitution (Powers and Duties) relating to the Chief Regulatory Officer and set out certain undertakings applicable to Amex.
For the foregoing reasons, the Commission finds that the proposed rule change, as amended, is consistent with the Act and rules and regulations thereunder applicable to a national securities exchange.
By the Commission.