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DOCUMENT ID: [Release No. 34-48861; File No. SR-PCX-2003-35]

NOTICE: NOTICES

ACTION: Self-regulatory organizations; proposed rule changes:

SUBJECT CATEGORY: Self-Regulatory Organizations; Order Granting Partial Approval of a Proposed Rule Change and Notice of Filing and Order Granting Accelerated Approval of Amendment No. 2 Thereto by the Pacific Exchange, Inc., To Amend Its Corporate Governance and Disclosure Policies

DOCUMENT SUMMARY: December 1, 2003.

I. Introduction

On July 14, 2003, the Pacific Exchange, Inc. (``PCX'' or ``Exchange''), through its wholly owned subsidiary, PCX Equities, Inc. (``PCXE''), filed with the Securities and Exchange Commission (``Commission''), pursuant to section 19(b)(1) of the Securities [[Page 68441]]
Exchange Act of 1934 (``Act''),\1\ and Rule 19b4 thereunder,\2\ a proposed rule change to amend its Corporate Governance and Disclosure Policies. The proposed rule change, among other things, would require each issuer listed on the PCX to establish an independent audit committee and to comply with the standards for audit committees mandated by section 10A(m) of the Act \3\ and Rule 10A3 thereunder.\4\ The proposed rule change also includes provisions relating to board independence and independent committees, codes of conduct, and other corporate governance issues. On October 14, 2003, the Exchange filed Amendment No. 1 to the proposal.\5\ On October 31, 2003, the proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register.\6\ The Commission received no comments on the proposal. On November 18, 2003, the Exchange filed Amendment No. 2 to the proposal.\7\
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ 15 U.S.C. 78j1(m).
\4\ 17 CFR 240.10A3.
\5\ See letter from Steven B. Matlin, Senior Counsel, PCX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated October 8, 2003 (``Amendment No. 1''). In Amendment No. 1, the Exchange made changes to proposed rule text in PCX Rule 5.3(k)(5)(B)(ii)(a).
\6\ See Securities Exchange Act Release No. 48700 (October 24, 2003), 68 FR 62146 (October 31, 2003).
\7\ See letter from Steven B. Matlin, Senior Counsel, PCX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated November 17, 2003 (``Amendment No. 2''). In Amendment No. 2, the Exchange proposed an additional section of rule text, PCX Rule 5.3(k)(5)(A)(v), to expand, with respect to investment companies, the scope of the requirement that audit committees establish procedures for the confidential, anonymous submission of concerns regarding questionable accounting or auditing matters.

Rule 10A3 requires each national securities exchange and national securities association to have rules that comply with its requirements approved by the Commission no later than December 1, 2003.\8\ This Order approves the proposed rule change in part as further discussed below, so that the PCX can comply with this deadline. This Order also provides notice of Amendment No. 2 and approves Amendment No. 2 on an accelerated basis. The Commission notes that the PCX is considering revisions to the portions of the proposed rule change that pertain to corporate governance listing standards other than the revisions to comply with Rule 10A3, particularly in light of rule changes by the New York Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. that were recently approved by the Commission.\9\ This Order does not relate to those other proposed provisions.
\8\ 17 CFR 240.10A3.
\9\ See Securities Exchange Act Release Nos. 48745 (November 4, 2003), 68 FR 64154 (November 12, 2003) (approval of, among other proposals, File Nos. SRNYSE200233 and SRNASD2002141) (``NYSE/ NASD Corporate Governance Release''). Telephone conference call between Steven Matlin, Senior Counsel, PCX and Nancy Sanow, Assistant Director, Division of Market Regulation, Commission, and other Commission staff, on November 17, 2003.

II. Description of Approved Changes

The Commission is approving in this Order the following provisions of the proposed rule change, which implement the requirements of Rule 10A3:
(1) The third proposed additional sentence to PCX Rule 5.3, ``Corporate Governance and Disclosure Policies,'' which, as approved states: ``Issuers of any security that is listed pursuant to the Rules of the Corporation must comply with the provisions of Rule 5.3(k)(5).'';
(2) Proposed PCX Rule 5.3(k)(5)(A) in its entirety, as well as the heading, ``Audit Committee,'' for proposed PCX Rule 5.3(k)(5); (3) The heading and second sentence of proposed PCX Rule 5.3(n), ``Listed Foreign Private Issuers.'' The rule, as approved, states: ``Listed foreign private issuers must comply with the provisions of Rule 5.3(k)(5)'';
(4) The proposed change to existing PCX Rule 5.5(a), ``Maintenance Requirements and Delisting Procedures,'' which would add language to conform the rule to Rule 10A3; and
(5) All the proposed changes to existing PCX Rule 5.5(m), ``Delisting Procedures,'' which consist of adding a crossreference to Rule 5.3 and referring to violations of Rule 5.3(k)(5), in which case the corporation shall initiate delisting procedures.

In addition, the Commission is approving Amendment No. 2 to the proposed rule change on an accelerated basis. In Amendment No. 2, the PCX proposes to expand, with respect to investment companies, the scope of its proposed provision regarding complaint procedures. Rule 10A3 requires audit committees to establish procedures for ``the confidential, anonymous submission by employees of the listed issuer of concerns regarding questionable accounting or auditing matters.'' \10\ The amended PCX proposal would require that audit committees of investment companies also establish procedures for the confidential, anonymous submission of such concerns by employees of the investment adviser, administrator, principal underwriter, or any other provider of accounting related services for the investment company, as well as employees of the investment company.
\10\ 17 CFR 240.10A3(b)(3)(ii).

III. Discussion

After careful review, the Commission finds that the provisions of the proposed rule change specified above that implement the requirements of Rule 10A3 are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\11\
\11\ In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

Specifically, the Commission finds that these changes are consistent with section 6(b)(5) of the Act,\12\ which requires, among other things, that the PCX's rules be designed to prevent fraudulent and manipulative acts and practices, and, in general, to protect investors and the public interest. Moreover, the Commission believes that the Exchange's proposal to add the new requirements concerning audit committees is appropriate and consonant with section 10A(m) of the Act and Rule 10A3 thereunder relating to audit committee standards for listed issuers.

\12\ 15 U.S.C. 78f(b)(5).

Furthermore, the Commission finds good cause, consistent with section 19(b)(2) of the Act,\13\ to approve Amendment No. 2 to the proposed rule change prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. This expansion of complaint procedures of audit committees at investment companies proposed in Amendment No. 2 responds to a recommendation by the Commission that selfregulatory organizations take into account, in adopting their rules, the fact that most services are rendered to an investment company by employees of third parties, such as the investment adviser, rather than by employees of the investment company.\14\ The Commission believes that it is appropriate to accelerate approval of this amendment because it conforms to similar provisions approved by the Commission for other self
[[Page 68442]]
regulatory organizations \15\ and raises no new issues.
\13\ 15 U.S.C. 78s(b)(2).
\14\ See Securities Act Release No. 8220, Securities Exchange Act Release No. 47654, and Investment Company Act Release No. 26001 (April 9, 2003), 68 FR 18788 (April 16, 2003) (release adopting Rule 10A3).
\15\ See NYSE/NASD Corporate Governance Release, supra n. 9. IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 2, including whether Amendment No. 2 is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 205490609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filings will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SRPCX200335 and should be submitted by December 29, 2003.

V. Conclusion

It is therefore ordered, pursuant to section 19(b)(2) of the Act,\16\ that the portions of the proposed rule change (File No. SR PCX200335) set forth above relating to compliance with Rule 10A3 under the Act be, and hereby are, approved, and that Amendment No. 2 relating to complaint procedures of audit committees of investment companies be granted accelerated approval.

\16\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\17\
\17\ 17 CFR 200.303(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 0330353 Filed 12503; 8:45 am]
BILLING CODE 801001P

SUMMARY: Pacific Exchange, Inc.,

DOCUMENT BODY 2: December 1, 2003.

I. Introduction

On July 14, 2003, the Pacific Exchange, Inc. (``PCX'' or ``Exchange''), through its wholly owned subsidiary, PCX Equities, Inc. (``PCXE''), filed with the Securities and Exchange Commission (``Commission''), pursuant to section 19(b)(1) of the Securities [[Page 68441]]
Exchange Act of 1934 (``Act''),\1\ and Rule 19b4 thereunder,\2\ a proposed rule change to amend its Corporate Governance and Disclosure Policies. The proposed rule change, among other things, would require each issuer listed on the PCX to establish an independent audit committee and to comply with the standards for audit committees mandated by section 10A(m) of the Act \3\ and Rule 10A3 thereunder.\4\ The proposed rule change also includes provisions relating to board independence and independent committees, codes of conduct, and other corporate governance issues. On October 14, 2003, the Exchange filed Amendment No. 1 to the proposal.\5\ On October 31, 2003, the proposed rule change, as modified by Amendment No. 1, was published for comment in the Federal Register.\6\ The Commission received no comments on the proposal. On November 18, 2003, the Exchange filed Amendment No. 2 to the proposal.\7\
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b4.
\3\ 15 U.S.C. 78j1(m).
\4\ 17 CFR 240.10A3.
\5\ See letter from Steven B. Matlin, Senior Counsel, PCX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated October 8, 2003 (``Amendment No. 1''). In Amendment No. 1, the Exchange made changes to proposed rule text in PCX Rule 5.3(k)(5)(B)(ii)(a).
\6\ See Securities Exchange Act Release No. 48700 (October 24, 2003), 68 FR 62146 (October 31, 2003).
\7\ See letter from Steven B. Matlin, Senior Counsel, PCX, to Nancy J. Sanow, Assistant Director, Division of Market Regulation, Commission, dated November 17, 2003 (``Amendment No. 2''). In Amendment No. 2, the Exchange proposed an additional section of rule text, PCX Rule 5.3(k)(5)(A)(v), to expand, with respect to investment companies, the scope of the requirement that audit committees establish procedures for the confidential, anonymous submission of concerns regarding questionable accounting or auditing matters.

Rule 10A3 requires each national securities exchange and national securities association to have rules that comply with its requirements approved by the Commission no later than December 1, 2003.\8\ This Order approves the proposed rule change in part as further discussed below, so that the PCX can comply with this deadline. This Order also provides notice of Amendment No. 2 and approves Amendment No. 2 on an accelerated basis. The Commission notes that the PCX is considering revisions to the portions of the proposed rule change that pertain to corporate governance listing standards other than the revisions to comply with Rule 10A3, particularly in light of rule changes by the New York Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. that were recently approved by the Commission.\9\ This Order does not relate to those other proposed provisions.
\8\ 17 CFR 240.10A3.
\9\ See Securities Exchange Act Release Nos. 48745 (November 4, 2003), 68 FR 64154 (November 12, 2003) (approval of, among other proposals, File Nos. SRNYSE200233 and SRNASD2002141) (``NYSE/ NASD Corporate Governance Release''). Telephone conference call between Steven Matlin, Senior Counsel, PCX and Nancy Sanow, Assistant Director, Division of Market Regulation, Commission, and other Commission staff, on November 17, 2003.

II. Description of Approved Changes

The Commission is approving in this Order the following provisions of the proposed rule change, which implement the requirements of Rule 10A3:
(1) The third proposed additional sentence to PCX Rule 5.3, ``Corporate Governance and Disclosure Policies,'' which, as approved states: ``Issuers of any security that is listed pursuant to the Rules of the Corporation must comply with the provisions of Rule 5.3(k)(5).'';
(2) Proposed PCX Rule 5.3(k)(5)(A) in its entirety, as well as the heading, ``Audit Committee,'' for proposed PCX Rule 5.3(k)(5); (3) The heading and second sentence of proposed PCX Rule 5.3(n), ``Listed Foreign Private Issuers.'' The rule, as approved, states: ``Listed foreign private issuers must comply with the provisions of Rule 5.3(k)(5)'';
(4) The proposed change to existing PCX Rule 5.5(a), ``Maintenance Requirements and Delisting Procedures,'' which would add language to conform the rule to Rule 10A3; and
(5) All the proposed changes to existing PCX Rule 5.5(m), ``Delisting Procedures,'' which consist of adding a crossreference to Rule 5.3 and referring to violations of Rule 5.3(k)(5), in which case the corporation shall initiate delisting procedures.

In addition, the Commission is approving Amendment No. 2 to the proposed rule change on an accelerated basis. In Amendment No. 2, the PCX proposes to expand, with respect to investment companies, the scope of its proposed provision regarding complaint procedures. Rule 10A3 requires audit committees to establish procedures for ``the confidential, anonymous submission by employees of the listed issuer of concerns regarding questionable accounting or auditing matters.'' \10\ The amended PCX proposal would require that audit committees of investment companies also establish procedures for the confidential, anonymous submission of such concerns by employees of the investment adviser, administrator, principal underwriter, or any other provider of accounting related services for the investment company, as well as employees of the investment company.
\10\ 17 CFR 240.10A3(b)(3)(ii).

III. Discussion

After careful review, the Commission finds that the provisions of the proposed rule change specified above that implement the requirements of Rule 10A3 are consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.\11\
\11\ In approving this proposal, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. 15 U.S.C. 78c(f).

Specifically, the Commission finds that these changes are consistent with section 6(b)(5) of the Act,\12\ which requires, among other things, that the PCX's rules be designed to prevent fraudulent and manipulative acts and practices, and, in general, to protect investors and the public interest. Moreover, the Commission believes that the Exchange's proposal to add the new requirements concerning audit committees is appropriate and consonant with section 10A(m) of the Act and Rule 10A3 thereunder relating to audit committee standards for listed issuers.

\12\ 15 U.S.C. 78f(b)(5).

Furthermore, the Commission finds good cause, consistent with section 19(b)(2) of the Act,\13\ to approve Amendment No. 2 to the proposed rule change prior to the thirtieth day after the date of publication of notice of filing thereof in the Federal Register. This expansion of complaint procedures of audit committees at investment companies proposed in Amendment No. 2 responds to a recommendation by the Commission that selfregulatory organizations take into account, in adopting their rules, the fact that most services are rendered to an investment company by employees of third parties, such as the investment adviser, rather than by employees of the investment company.\14\ The Commission believes that it is appropriate to accelerate approval of this amendment because it conforms to similar provisions approved by the Commission for other self
[[Page 68442]]
regulatory organizations \15\ and raises no new issues.
\13\ 15 U.S.C. 78s(b)(2).
\14\ See Securities Act Release No. 8220, Securities Exchange Act Release No. 47654, and Investment Company Act Release No. 26001 (April 9, 2003), 68 FR 18788 (April 16, 2003) (release adopting Rule 10A3).
\15\ See NYSE/NASD Corporate Governance Release, supra n. 9. IV. Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning Amendment No. 2, including whether Amendment No. 2 is consistent with the Act. Persons making written submissions should file six copies thereof with the Secretary, Securities and Exchange Commission, 450 Fifth Street, NW., Washington, DC 205490609. Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for inspection and copying in the Commission's Public Reference Room. Copies of such filings will also be available for inspection and copying at the principal office of the Exchange. All submissions should refer to File No. SRPCX200335 and should be submitted by December 29, 2003.

V. Conclusion

It is therefore ordered, pursuant to section 19(b)(2) of the Act,\16\ that the portions of the proposed rule change (File No. SR PCX200335) set forth above relating to compliance with Rule 10A3 under the Act be, and hereby are, approved, and that Amendment No. 2 relating to complaint procedures of audit committees of investment companies be granted accelerated approval.

\16\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Market Regulation, pursuant to delegated authority.\17\
\17\ 17 CFR 200.303(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 0330353 Filed 12503; 8:45 am]
BILLING CODE 801001P