Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by New York Stock Exchange, Inc. to Amend Rule 321 to Clarify the Term ``Control'' and Amend Rules 113, 122 and 321 to Delete the Word ``Affiliate'' and Insert the Word ``Subsidiary''

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34301; File No. SR-NYSE-94-09]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by New York Stock Exchange, Inc. to Amend Rule 321 to Clarify

the Term ``Control'' and Amend Rules 113, 122 and 321 to Delete the

Word ``Affiliate'' and Insert the Word ``Subsidiary''

July, 1, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on March

15, 1994, the New York Stock Exchange, Inc. (``NYSE'' or ``Exchange'')

filed with the Securities and Exchange Commission (``Commission'') the

proposed rule change as described in Items I, II and III below, which

Items have been prepared by the self-regulatory organization. The

Commission is publishing this notice to solicit comments on the

proposed rule change from interested persons.

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

of the Proposed Rule Change

The proposed rule change is intended to clarify the term

``control'' for purposes of Rule 321 and to delete the word

``affiliate'' and insert the word ``subsidiary'' in Rules 113, 122 and

321 in order to minimize confusion and avoid potential problems which

could arise as a result of differing definitions of the term

``affiliate.''

II. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization

included statements concerning the purpose of and basis for the

proposed rule change and discussed any comments it received on the

proposed rule change. The text of these statements may be examined at

the places specified in Item IV below. The self-regulatory organization

has prepared summaries, set forth in Sections A, B, and C below, of the

most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule Change

1. Purpose

The Commission recently approved amendments to Exchange Rule 321

(``Formation or Acquisition of Affiliates'') as part of a rule package

designed to allow members and member organizations greater flexibility

in structuring their affiliates while maintaining appropriate

regulatory safeguards.\1\

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\1\See Securities Exchange Act Release No. 32823 (August 31,

1993), 58 FR 47164 (September 7, 1993).

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Rule 321 requires a member or member organization to obtain

Exchange approval for the formation or acquisition of an affiliate and

to comply with certain reporting and other requirements. Rule 321.10

defines ``affiliate'' as an entity engaged in a securities or kindred

business that is controlled by the member or member organization within

the meaning of Exchange Rule 2, except for paragraph (iii) of Rule 2.

As such, control would currently be presumed if a member or member

organization owns 25% or more of the voting securities of an entity or

is entitled to receive 25% or more of the net profits. Control would

currently not be presumed for purposes of Rule 321.10, if an associate

person is a director, general partner or principal executive officer of

another entity.\2\

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\2\See supra note 5 for text of proposed rule change to NYSE

Rule 321.10.

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The Exchange does not feel it is appropriate to continue to exclude

situations where a member or member organization is a general partner

of other entities from being subject to the rule. Since general partner

status represents control it should therefore be included in the

presumption of ``control'' for purposes of Rule 321. It is proposed

that Rule 321.10 be amended to exclude only Directors and Principal

Executive Officers from the presumption of control and not General

Partners.

Further, Rule 321 is, in effect, applicable only to subsidiaries

and not other types of affiliates.\3\ Some confusion as to which

entities are subject to the rule has arisen because of the word

``affiliate's'' general and often broad usage.

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\3\The term ``affiliate'' is defined in NYSE Rule 321 as ``an

entity engaged in a securities, or kindred business that is

controlled by a member or member organization * * *.''

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The Securities Act of 1933 and the Securities Exchange Act of 1934

and the rules thereunder define affiliate as follows: ``an `affiliate'

or person `affiliated' with, a specified person, is a person that

directly, or indirectly through one or more intermediaries, controls or

is controlled by, or is under common control with, the person

specified.''\4\ As such, under the statutory definitions, an affiliate

can be a parent company, subsidiary or ``sister'' company, while

current Rule 321 is only applicable to subsidiaries. Similarly, the

term ``affiliate'' is used to include other than subsidiaries in the

legal and accounting fields.

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\4\See, e.g., Regulation D under the Securities Act of 1933, 17

CFR 230.501 (1993); and Regulation 12B under the Securities Exchange

Act of 1934, 17 CFR 240.12b-2 (1993).

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In order to minimize confusion and avoid potential problems which

could arise as a result of differing definitions of the term

``affiliate,'' it is proposed that Rule 321 as well as Rules 113 and

122 (that refer to an affiliate within the meaning of Rule 321) be

amended to delete the word ``affiliate'' and insert the word

``subsidiary.''\5\

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\5\The text of the proposed rule change to NYSE Rule 321.10 is

as follows, with language to be deleted in brackets and language to

be added in italics:

.10 Definition of subsidiary [affiliate].--For purposes of this

rule, the term ``subsidiary'' [``affiliate''] means an entity

engaged in a securities or kindred business that is controlled by a

member or member organization within the meaning of Rule 2 of the

Constitution and Rules. [except that it shall not include paragraph

(iii) of said Rule 2.] However, control shall not be presumed, for

purposes of this rule, merely because a member is a director or

principal executive officer of another person.

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2. Statutory Basis

The proposed rule change is consistent with the requirements of the

Act and the rules and regulations thereunder applicable to the Exchange

in that the amendments are designed, in accordance with Section 6(b)(1)

of the Act, to enhance the Exchange's capacity to carry out the

purposes of the Act and to compel and 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.

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

The Exchange believes that the proposed rule change will impose no

burden on competition that is not necessary or appropriate in

furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed

Rule Change Received From Members, Participants or Others

The Exchange has not solicited, and does not intend to solicit,

comments regarding the proposed rule change. The Exchange has not

received any unsolicited written comments from members, member

organizations or other interested parties.

III. Date of Effectiveness of the Proposed Rule Change and Timing for

Commission Action

Within 35 days of the publication of this notice in the Federal

Register or within such other period (i) as the Commission may

designate up to 90 days of such date if it finds such longer period to

be appropriate and publishes its reasons for so finding or (ii) as to

which the self-regulatory organization consents, the Commission will:

(A) By order approve the proposed rule change, or

(B) Institute proceedings to determine whether the proposed rule

change should be disapproved.

IV. Solicitation of Comments

Interested persons are invited to submit written data, views and

arguments concerning the foregoing. Persons making written submissions

should file six copies thereof with the Secretary, Securities and

Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

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 at the

Commission's Public Reference Section, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such filing will also be available for

inspection and copying at the principal office of the NYSE. All

submissions should refer to File No. SR-NYSE-94-09 and should be

submitted by July 29, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 94-16572 Filed 7-7-94; 8:45 am]

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