Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by Chicago Stock Exchange, Inc., Relating to Corporate Governance Issues

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-34379; File No. SR-CHX-94-15]

Self-Regulatory Organizations; Notice of Filing of Proposed Rule

Change by Chicago Stock Exchange, Inc., Relating to Corporate

Governance Issues

July 14, 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 June 23,

1994, the Chicago Stock Exchange, Inc. (``CHX'' or ``Exchange'') filed

with the Securities and Exchange Commission (``Commission'' or ``SEC'')

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

which Items have been prepared by the self-regulatory organization. On

June 30, 1994, the Exchange submitted to the Commission Amendment No. 1

to the proposed rule change in order to narrow the scope of the

original filing.\1\ The Commission is publishing this notice to solicit

comments on the proposed rule change from interested persons.

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\1\See letter from David T. Rusoff, Attorney, Foley & Lardner,

to Sandra Sciole, Special Counsel, Division of Market Regulation,

SEC, dated June 29, 1994 (``Amendment No. 1''). The portions of this

filing that were withdrawn in Amendment No. 1 have been resubmitted

to the Commission as File No. SR-CHX-94-17.

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

of the Proposed Rule Change

The CHX proposes to submit the following rule proposal to amend

Article III, Sec. 2 and Article IV, Secs. 4, 5 and 7 of the Exchange's

Constitution relating to corporate governance issues. The text of the

proposed rule change is available at the Commission.

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 purpose of the proposed change is to amend the Exchange's

Constitution relating to corporate governance issues. Specifically, the

changes concern (i) the creation of a new category of Governor and the

addition of one additional non-member Governor and (ii) providing more

flexibility by permitting re-categorizations of Governors.

The primary purpose of these proposed amendments, along with

corresponding and conforming amendments to the By-Laws of the Midwest

Clearing Corporation (``MCC'') and the Midwest Securities Trust Company

(``MSTC''),\2\ is to achieve a governance structure pursuant to which

the Exchange and two of its wholly owned subsidiaries, MCC and MSTC,

will be able to operate more as a single, coherently run business. Once

all the proposed changes are adopted, approved and implemented, the

Board of Governors of the Exchange, the Board of Directors of the MCC

and the Board of Directors of MSTC would all consist of the same 31

individuals. This would be achieved by, among other things, having the

Nominating Committees of MCC and MSTC be the same as the Exchange's

Nominating Committee. At the same time, in order to insure fair and

meaningful representation of Participants in the governance process of

MCC and MSTC, the size of the Board would be increased by four slots to

accommodate a new category of Governor that would provide the Board

with more expertise on issues affecting MCC and MSTC, as more fully

described below.

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\2\See File Nos. SR-MCC-94-07 and SR-MSTC-94-09 respectively.

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New Category of Governor/Increased Board Size

The proposed amendment would create a new category of Governor, a

Participant Governor. In order to be qualified to be a Participant

Governor, a person must be a general partner or officer of a

Participant in the MCC or MSTC and must have securities clearance and/

or settlement expertise, background or responsibilities. The proposal

would call for the addition of four Participant Governors, one each in

Class I and Class II and two in Class III. The Exchange does not

contemplate that the vacancies in the Participant Governor category

would be filled by floor members of the Exchange.\3\ The proposed

amendment also would add an additional non-member Governor slot,

increasing the slots available for non-member Governors from eight to

nine. This slot has been added to Class II. This change would maintain

the existing balance between the non-member, or ``public,'' Governors

and the industry Governors on the Board. In order to accomplish these

changes, the amendment would increase the size of the Board of

Governors to 31 from its present size of 26. Pursuant to existing

Exchange rules, the vacancies created by this amendment (one vacancy in

Class I, two vacancies in Class II and two vacancies in Class III)

could be filled by the Board, on an interim basis, until the April 1995

annual election. The slots created are as follows:

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\3\The CHX has stated that, in order to ensure that floor

members are not over-represented on the Board, management of the

Exchange will use its best efforts to ensure that the newly created

Participant Governor positions will not initially or thereafter be

filled by floor members of the Exchange. The CHX also has agreed to

notify the Commission if a floor member is elected to fill a

Participant Governor position, and to revisit this issue if its best

efforts do not succeed. See letter from David T. Rusoff, Attorney,

Foley & Lardner, to Sharon Lawson, Assistant Director, Division of

Market Regulation, SEC, dated July 8, 1994.

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Participant governors Non-member governors

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Class I\4\............. One slot created....... N/A.

Class II............... One slot created....... One slot created.

Class III.............. Two slots created...... N/A.

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\4\Class I expires in April 1995; Class II in April 1996; and Class III

in April 1997.

Re-Categorization of Governors

In order to provide increased flexibility in the composition of the

new, expanded Board, the proposed amendment also would permit a

Participant Governor to be re-categorized (within his or her class) as

a Member Governor and permit a Member Governor to be re-categorized as

a Participant Governor, if the Governor to be re-categorized otherwise

meets the qualifications of his or her new position.

2. Statutory Basis

The proposed rule change is consistent with Section 6(b)(5) of the

Act in that it is designed to promote just and equitable principles of

trade, to remove impediments 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.

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

The Exchange does not believe that the proposed rule change will

impose any burden on competition.

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

Rule Change Received from Members, Participants or Others

The proposed rule change has been approved by the Exchange's

membership.

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, NW., Washington, DC 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 CHX. All

submissions should refer to File No. SR-CHX-94-15 and should be

submitted by August 9, 1994.

For the Commission, by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-17657 Filed 7-19-94; 8:45 am]

BILLING CODE 8010-01-M